Wednesday, May 13, 2009

Political Aspects of Full Employment II, 4.

by Michal Kalecki

We have considered the political reasons for the opposition to the policy of creating employment by government spending. But even if this opposition were overcome--as it may well be under the pressure of the masses-the maintenance of full employment would cause social and political changes which would give a new impetus to the opposition of the business leaders. Indeed, under a regime of permanent full employment, the 'sack' would cease to play its role as a 'disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But 'discipline in the factories' and 'political stability' are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the 'normal' capitalist system.



fivebells said...

"Full employment" was the misguided policy which initially sparked the inflation of the 1970's. See The great inflation and its aftermath for more details.

Brenda Rosser said...

"It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire"And the evidence for this is??

"... and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests.And the 'rentier interests' wouldn't be 'employers' I suppose?

Brenda Rosser said...

Samuelson's 'The Great Inflation and its Aftermath' looks and feels like the latest round of spindoctoring.

"The end of high inflation triggered economic and social changes that are still with us. The stock market and housing booms were both direct outcomes "

That is, a rise in DEBT." American business became more productive–and also much less protective of workers "

‘productive’ in the sense of a greater level of exploitation - immense global deforestation, labour arbitrage (3rd world workers in sweatshops owned by giant transnationals) etc. "and globalization was encouraged "

The strategy to reduce inflation was to continually move to other areas where resources and labour were cheaper or more easily exploitable - 'globalisation'.

Anonymous said...

Full employment leading to inflation? Now who could have predicted that? Oh, it was Joan Robinson, Kalecki's comrade, in 1943:

"The first function of unemployment (which has always existed in open or disguised forms) is that it maintains the authority of master over man. The master has normally been in a position to say: 'If you don't want the job, there are plenty of others who do.' When the man can say: 'If you don't want to employ me, there are plenty of others who will', the situation is radically altered. One effect of such a change might be to remove a number of abuses to which the workers have been compelled to submit in the past . . . [Another is that] the absence of fear of unemployment might go further and have a disruptive effect upon factory discipline . . . [He may] us[e] his newly-found freedom from fear to snatch every advantage that he can . . .

"The change in the workers' bargaining position which would follow from the abolition of unemployment would show itself in another and more subtle way. Unemployment . . . has not only the function of preserving discipline in industry, but also indirectly the function of preserving the value of money . . . there would be a constant upward pressure upon money wage-rates . . . the vicious spiral of wages and prices might become chronic . . . if it moved too fast, it might precipitate a violent inflation."
[Collected Economic Papers, vol. 1, pp. 84-5]

Thus left-wing Keynesians (who later founded the Post-Keynesian school of economics) recognised that capitalists "could recoup themselves for rising costs by raising prices." [p. 85]

Yes, capitalism needs unemployment to keep going. That was Kalecki's argument. The choice was whether we desired full employment and reorganise society accordingly to eliminate class, or we use unemployment to keep workers in the place in the social hierarchy.

Clearly, since the 1970s, the ruling class (unsurprisingly!) picked the second option... Time for us, the working class, to pick the first!

An Anarchist FAQ

Daro said...

This economic scenario is no new paradigm. It already exists in Thailand and was extant even during the go-go years of the "tiger economies". Basically a large, compliant pizza slice section of the employment pie are permanently un- or under-employed and sit waiting in the jungle as a reserve pool ready for whenever the beneficent owners of capital crook their fingers and beckon for the youngest and strongest to come thither and fill up periodic dips in the supply of labour meat. By disenfranchising a large group of poor from the system it denies them the funds and morale to organise effectively against business owners interests and serves as a lesson to the others what will happen to them if they murmur a word of discontent.

Shag from Brookline said...

Brenda, when you reference "Samuelson" a first name would be appreciated. A Google check shows "Robert" (not an economist?) as author, not Paul (a real economist). Let's make it clear that Paul is not a "spinner."

fivebells said...

Brenda, he's not saying those were good outcomes, only that they depended on the end of high inflation. It's a history (quite a good one, it seems), not a polemic.

Brenda Rosser said...

Shag from Brookline,
No worries. Robert Samuelson it is.

Well if you go to Nick Gillespie's interpretation of Robert J Samuelson's book he says:

The Great Inflation tells the story of how smug economists and politicians in the post-war era almost wrecked the U.S. and how President Ronald Reagan and Federal Reserve head Paul Volcker tamed double-digit inflation in the 1980s.”Reagan and Volker did not fix the inflation problem. They transferred it to the natural environment as well as to (maybe as many as) hundreds of millions of people who were displaced from their land or suffered other deprivations. Overexploitation, in short. Third world debt became unpayable under Volker's/US unilateral action to increase global interest rates. The underlying inflationary dynamics remained.

Most importantly, the inflation of the 1970s was definitely not the result of 'full employment'. (When did that exist in the '70s??)

Factors that caused inflation:

- speculation in global currencies and commodities/depreciating currency.

- the Vietnam War and other military misadventures;

- the concentration of vast amounts of wealth in the hands of a few Saudis and Texans who then had the power to systematically disrupt global commodity markets as they never were before. ('Beyond Greed' by Stephen Fay)

- Financialisation.

- Concentration of industries. Large transnationals have the power to set their own prices and covet a greater and greater proportion of common wealth.

- the Wall Street international banking cartel.

- the rise in the price of oil.

- resource shortages/greater costs involved in the recovery of natural capital.

- taxpayer-funded bailouts to the big end of town. Over and over again.

fivebells said...

Well if you go to Nick Gillespie's interpretation...That's just Gillespie seeing what he wants to see in the book, not a fair representation of the book's actual position (for which, see the introduction.)

Most importantly, the inflation of the 1970s was definitely not the result of 'full employment'. (When did that exist in the '70s??)Pursuit of full employment was the doctrine pursued through the 60's and 70's. It worked for a while in the 60's, and become an entrenched political value. When it broke down in the 70's as a result of the inevitable inflationary consequences, this political entrenchment made it an extremely difficult doctrine to reject.

Could you point me at some sources which demonstrate how and to what extent the factors you list have contributed to inflation? It sounds interesting. Samuelson addresses oil prices and the invasion of Vietnam (p 14, which isn't part of the google preview.)

fivebells said...

(BTW, thanks for the pointer to the interview with Gillespie. It's very good.)

TheTrucker said...

The inflation of the 70's started with the Kennedy tax cuts and then escalated with Johnson's dual wars on Vietnam and Poverty. Government spending and tax cutting are what destroy the value of the currency. The real value of oil did not change as much as the value of the American dollar did.

The Shaw of Iran laid it out pretty well.

Anonymous said...

Inflation is often (usually?) driven by class conflict, with businesses seeking to make in circulation (via higher prices) what they are losing in production (via higher wages and lower productivity).

Unemployment did rise in the 1970s, but it exploded in the 1980s. With mass unemployment, workers were tamed and so companies were not under as much pressure to raise prices.

Inflation was broken because workers were broken, in other words.

Class conflict inherent in capitalism and it affects capitalist dynamics. Full employment lessens the power of the boss over the worker, that is why NAIRU was used to keep unemployment high. As long as there is capitalism (wage labour) there will be unemployment and the use of rhetoric about "fighting inflation" to fight workers.

I'm not sure denying that makes much sense, as it breeds false illusions in the possibility of making capitalism nicer for significant periods of time...

An Anarchist FAQ

Brenda Rosser said...

Fivebells said: "Could you point me at some sources which demonstrate how and to what extent the factors you list have contributed to inflation?"

- speculation in global currencies and commodities/depreciating currency."“On August 15, 1971 the United States pulled out of the Bretton Woods system in the so called Nixon shock. The result was a depreciation of the value of the US dollar against many other currencies. Since oil was priced in dollars this meant that oil producers were receiving less "real" income for the same price. In the years after 1971 OPEC was slow to readjust prices to reflect this depreciation. From 1947-1967 the price of oil in USD had risen by less than 2%/year. Until the Nixon shock, the price remained fairly stable versus other currencies and commodities, but suddenly became extremely volatile thereafter. OPEC ministers had not developed the insitutional mechanisms to update prices rapidly enough to keep up with changing market conditions, so their real incomes lagged for several years. The large price increases of 1973-74 largely "caught up" their incomes to Bretton Woods levels in terms of other commodities such as gold.” Hammes, David. and Douglas Wills. “Black Gold: The End of Bretton Woods and the Oil-Price Shocks of the 1970s,” The Independent Review, v. IX, n. 4, Spring 2005. pp. 501-511. As quoted in Wikipedia on 9th July 2007.

- the concentration of vast amounts of wealth in the hands of a few Saudis and Texans who then had the power to systematically disrupt global commodity markets as they never were disrupted before. John Connally introduced Bunker Hunt to Gaith Pharaon as well as Khalid bin Mahfouz in 1978. These men were representatives of members of the Saudi Royal family. Gaith Pharaon part owned a Houston Bank with John Connally.Khalid bin Mahfouz was Bin Laden’s brother in law who channeled millions into Osama bin Laden’s organizations. He also invested in the Carlyle Group.

'Beyond Greed - How the two richest families in the world, the Hunts of Texas and the House of Saud, tried to corner the silver market - how they failed, who stopped them, and why it could happen again' by Stephen Fay. Viking Press 1982. ISBN 0-670-64497-8
The Bush-Saudi Connection
By Michelle Mairesse

- Financialisation.1974 – 2004. The financial sector of the US economy ballooned whilst the manufacturing sector shrunk. Insurance and Real Estate also increased significantly as a percent of GDP. However, the data fails to reflect the full extent of the shift due to the lack of reporting requirements in industry.
Michael Perelman. ‘Financialization’ Econospeak. 24th September 2008. (financialisation1.doc)

- Concentration of industries. Large transnationals have the power to set their own prices and covet a greater and greater proportion of common wealth.Fifty of the world’s one hundred largest economies are multi-national companies and not countries. Mitsubishi is larger than the economy of Saudi Arabia, General Motors larger than that of Greece, Norway or South Africa. The combined revenues of the largest 200 corporations is greater than that of the 182 nations or states that contain 80% of the world’s population.(5)(5) “No Nonsense Guide to Globalisation” p55


- the Wall Street international banking cartel."The U.S. then sought to construct a different kind of system, that rested upon a mix of new international and financial institutional arrangements to counter economic threats from Germany and Japan and to re-center economic power as finance capital operating out of Wall Street. The collusion (now documented) between the Nixon administration and the Saudis to push oil prices sky-high in 1973 did far more damage to the European and Japanese economies than it did to the U.S. (which at that time was little dependent upon Middle Eastern supplies)...."

Weekly Worker 543 Thursday September 9 2004
Lenin and imperialism in the 21st century
What is the significance of Lenin’s critique of imperialism today? Was it marred by moralism? Nick Rogers gives his view

- the rise in the price of oil.Peter Gowan argues in The Global Gamble (Verso, 1999) that Nixon colluded with our Saudi clients to raise oil prices in order to deal a blow to the Europeans and Japanese, more heavily dependent on imported oil.

"There is strong circumstantial evidence that suggests the Nixon administration then colluded with Saudi Arabia and Iran in the so-called Arab Oil Embargo of 1973....By all accounts, Nixon's relationship with Pahlavi was very warm. They had been personal friends since Nixon was Eisenhower's vice president. William Safire, Nixon's former speech-writer, once stated that Pahlavi was Nixon's favorite head of state. Nixon offered to sell Pahlavi's regime any weapon they needed, short of nuclear. That offer was not rescinded during the ostensibly hostile oil embargo in 1973-4, and Iran continued to make outlandish weapons procurements from the US...PERSIAN PERIL

Is the Bush administration about to commit the fatal imperial error in Iran? (Part I)by Stan Goff

- resource shortages/greater costs involved in the recovery of natural capital."US oil output peaked in 1970 and began declining irrevocably thereafter, making the nation increasingly dependent on petroleum imports – currently accounting for three out of five oil barrels consumed domestically – it could no longer wield the oil weapon…” The Rising and Falling Power of Hydrocarbon States
Dilip Hiro. YaleGlobal, 3 July 2007

- taxpayer-funded bailouts to the big end of town. Over and over again. 1980 - 1981: Paul Volker (US Fed Reserve Chairman) asked the banks to loan further money to the developing countries to allow them to meet their debt payments until the IMF could come to the party. When the IMF did it involved the use of huge amounts of taxpayer money to bail out the major banks and impose a form of economic colonization on 3rd world nations.ABC Radio National - Background Briefing: 30 May 1999 - Global Finance: Dismantle or Reform?
Paul Hellyer, Leader of the Canadian Action Party

Brenda Rosser said...

The above is clearly an incomplete answer, fivebells. Time doesn't permit much more than this at present. In the meantime here's an excerpt from Michael Moffit's book 'The World's Money - International Banking from Bretton Woods to the Brink of Insolvency'

Page 136
" In the early 1970s...the growing weakness of the [US] dollar, the emergence of strong currencies like the mark and yen and the increasing sophistication of major banks led to a meteoric rising in [currency] trading volumes. The biggest stimulant to increased trading was the move to floating exchange rates in 1973...On page 146, 147: (about the special role of the US dollar and its global inflationary implications)

"The overriding consideration, however, are the political and economic implications of the world's dependence on the US dollar [the global defactor 'reserve' currency]. A collapse of the dollar could well bring down the whole elaborate system of international trade and payments, in which Europe and Japan have an enormous stake. As Jelle Jijilstra, head of the Bank for International Settelements once put it, "When the pound went, we could to to the dollar. If the dollar went, where could we go? To the moon?" // Yet as Europe and Japan learned in the early 1970s, "intervention" is not a painless procedure. In 1977 the central banks of Western Europe and Japan spent approximately $35 billion to support the dollar in exchange markets. The irony is that supporting the dollar actually increased their dollar holdings. Thus the international role of the dollar gave the United States virtually unlimited access to a bottomless pool of free credit, and Europe and Japan were picking up the tab. Intervention also fuels inflation. In order to purchase dollars, other central banks had to sell their own currencies: marks, yen and Swiss francs. Theis, of course, meant expanding their domestic money supplies by giving banks more money to lend.**

** Some sources have suggested that this is what the Carterites had in mind all along, forcing Europe and Japan to expand money supplies through exchange market intervention in order to speed up economic growth and imports of US products....

Moreover because the value of the dollar is, in Paul Volker's words, "the world's most important price since so many other prices here and abroad depend on it," when the dollar declines, it encourages everyone from the OPEC countries to Toyota to raise prices to maintain the real value of their prices in dollars.

TheTrucker said...

The word "capitalism" has been destroyed. For the latter day neoconomist it is like "family values" or "support the troops". For a classical economist I think "capitalism" would be "rules of order that promote the development of real capital". Such development is "good" like in "the economy is good" because real capital enhances productivity in the real sense; more goods can be created with less labor. The privatization of capital seems to promote its development.

While real capital development is a good thing, how much of this return in the form of productivity will be awarded to a private owner of capital and how much to the proprietor of capital? That is the real province of political economy as the "rules of order".

In classical economics the word "interest" is applied to distribution to/from the ownership of capital so as to distinguish it from distribution to/from the ownership of land. Ownership does not ever produce anything.

The distribution to ownership is a fee paid as a toll or a bribe to ALLOW production. But where land is a gift from nature, capital must be produced. Without this "interest" as an incentive to invest there would supposedly be far less capital development.

Unfortunately, neoclassical economics is not very precise in its wording and in order to make the neoclassical equilibrium and production functions work, natural resources are subsumed into the word "capital". "Profit" is no longer the return to the proprietor of "capital" (as distinct from "interest") but merely an accounting identity that is split into "normal" and "abnormal" to develop the word "rent" as being something other than the return to ownership of land (totally unearned natural condition or resource). The real world becomes a haunted house of smoke and mirrors. All for the sake of maintaining the calculus.

Anonymous said...

It depends what you mean by 'capital', do you mean money as well? Money is created ex-nihilo by bankers through fractional reserve banking, this gives them huge power to capture the labour of the productive classes and to take a slice.

Capital without labour is useless. This is why Capitalists need to harness the power of labour and they do this by using the carrot and stick, and to gain legitimacy for their highly exploitative system by deploying myths and propaganda from the cradle to the grave through State schools and the mass media.

Anonymous said...


Would a textbook statement like this be spin or simply true belief:

‘by means of appropriately reinforcing monetary and fiscal policies, our mixed-enterprise system can avoid the excesses of boom and slump and look forward to healthy progressive growth’.[Paul Samuelson, Economics, New York, 1958]

As 1958 was also a slump year, there's a bit of irony to the date of that edition.


Sure money can be capital but, in that particular form, it can - as I think you know - never create one iota of new value, which is the provence of productive labor. Other hand, accumulation of too much new value as means of production and other product becomes self-destructive and help bring on speculative binges which, when institutionalized, can become somewhat durable.

Oh, money can also be created ex nihilo by non-bank banks, or, as has become a popular term, 'the shadow banking system'.