Thursday, February 14, 2019

Who Is Really A Socialist?

Here are some varieties of "socialism:" command socialism, market socialism, socialist market economy, social democracy, democratic socialism, right wing socialism, utopian socialism, corporate socialism, just plain vanilla socialism.  Here are some people who have claimed to be socialist, some of them selecting one or another of these types, but some just keeping it plain vanilla generic: Kim Jong-Un, Xi Jinping, Stefan Lofven, Nicolas Maduro, Bernie Sanders, Aexandria Ocasio-Cortez (AOC).  Who is really a socialist and can we make any sense of all this?

Among the strictly economic issues involved here, aside from the political ones, there are three that stick out prominently: ownership, allocation, and distribution.  The first may be the most important, or at least the most fundamentally traditionally classical: who owns the means of production? This is bottom line Marx and Engels, and they were unequivocal: socialism is state ownership of the means of production, even though in the "hiigher stage of socialism" generally labeled "pure communism," the statte is supposed to "wither away." Capitalism is private ownership of the means of production, although there are debates over some intermediate collective forms such as worker-owned collectives, something favored by anarchistic and utopian socialism and its offshoots and relatives.

Regarding allocation the issue is command versus market, wiith command in its socialist form coming from the state, although clearly a monopoly capitalist system may involve command coming from the large corporations, with this reaching an extreme form in coeporatism and classical fascism, sometimes called corporate socialism.  Needless to say, it is possible to have state ownership of the means of production, classical socialism, but some degree of markets dominating allocative decisions.

Then we have distribution.  In the Critique of the Gotha Program, Marx said the goal of communism was "from each acording to his ability, to each according to his need."  Emphasizing if not precisely that at least a focus on minimizing poverty and supporting those in need as well as increasing the overall level of income and wealth equality is another element of many forms of socialism.  This focus has been especially strongly emphasized by social democracy and its relatives, although most forms of socialism have at least officially supported this, if not always in practice.

Regarding our list of socialisms, where do they stand on these three, adding in the big political issue of democracy and free rights versus dictatorship, well: command socialism involves as its name suggests both command in terms of allocation combined with state ownership of the means of production, with no clear outcome on distributional view.  Historically permanent command as a system has coincided fully with dictatorship, including when this occurs with capitalism as in fascism, especiallly in its German Nazi form, a nearly pure form of command capitalism. The classic  model of this form was the USSR under Stalin, with its leading current example being the Democratic Peoples' Republic of Korea (DPRK), aka North Korea, which pretty much tells us what kind of socialist Kim Jong-Un is.

Market socialism combines state (or collective) ownership of the means of production with market forces driving allocation decisions.  The old example of this that also had that holdover from utopian socialism of workers' management, was Tito's not-so democratic Yugoslavia, which blew up, although its former provincce of Slovenia eventually was the highest real per capit income of all the former officially socialist nations.  According to Janos Kornai, market socialism, including his home of Hungary, suffered from the problem of the soft budget constraint, although we have seen that in many mostly market capitalist economies with rent seeking powerful corporations.

There is no clear difference between market socislism and the "socialist market economy," but the Peoples' Republic of China (PRC) has gone out of its way to officially label itself this latter term, perhaps due to the collapse of Yugoslavia.  Many, including the late Ronald Coase, claim China is really capitalist, but in fact while there is now much private ownership, state ownership remains very strong, and while there is no longer organized cental planning, command elements remain important, and the ownership situation is very complicated, with many firms having substantial while partial state ownership.  In principle this form could be democtatic, but it is not at all that in Xi's current PRC, which has had a largely successful economic system for the  last four decades, despite high inequality and other problems. In any case, this is the system Xi Jinping is identified with.

Social democracy now is the form that emphasizes distributional equality and support for the poor over the ownership and alllocation elements.  This is now, most dramatically in the Nordic nations, although it has had a weaker version in Germany in the form of the social market economy.  The name "social democracy" comes from the now century and a half old German Social Democratic Party, within which at the end of the 19th century several of these forms debated with each other, although in the end what came out, inspired by the original "revisionist" Eduard Bernstein, was what we now call social democracy, which is indeed politically democratic and supporting an expansive welfare state, while not pushing either  state ownership or command.  Stefan Lofven is the current prime minister of Sweden and also leader of the Social Democratic Party of Sweden.  A welder and union leader, Lofven just managed to get reelected and form another government last month, although his new government is "moving to the center," and while he is certainly a social democrat, he has also described himself as being a "right wing socialist," and Sweden has pulled back somewhat from its strongly social democratic model over the last quarter of a century.

Which brings us to democratic socialism, currently highly faddish in the US given that both Bernie Sanders and AOC have identified themselves as followers of this ideology.  The problem is that of all the others mentioned, this one is the least well defined, and Bernie and AOC themselves seem to disagree.  Thus when pushed Bernie posed Denmark as his model, which is a leading example of social democracy, arguably more so even than Sweden now, although its current prime minister is not a Social Democrat (party) and argues that Denmark is "not socialist" (noting its lack of command state ownership).  But AOC has at times said that democratic socialism is not social democracy, while exactly what it is remaiins not well defined.

One source might be the platform of the Democratic Socialists of America (DSA), which AOC officially belongs to.  This supports a democratic and decentralized form that emphasizes worker control, if not clearly ownership, with this harking to utopian socialism, with an ultimate goal of state or some other form of collective ownership, but not in this document command. AOC herself has now pushed forward the Green New Deal, (GND) which should perhaps be labeled "Green Socialism," yet another form.  I do not wish to get into a discusson in this post of the details of the GND, regarding which there has been some confusion (retracted FAQ versus 14 page Resolution) about which there remain some uncertainties. DSA has at times nodded to the British Labour Party, which after 1945 under Clement Atlee, both nationalized many industries while expanding the social safety net, while avoiding command central planning.  However, the GND seems to avoid nationalizations, while emphasizing a major expansion of rhe social safety net, along with some fairly strong command elements laregely tied to its Green environmental part, arguing that mere market forces will be insufficient to move the US economy off its current fossil fuel base soon enough.

Which brings us to generic socialism and the still not described Nicolas Maduro, President of Venezuela.  He is loudly describing himself a socialist, but what form, if any, is unclear. But his economy is the biggest current economic disaster on the planet, so his ongoing claims of being a socialist are damaging the label, as seen in the eagerness of conservatives to identify socialism with him and denounce people like Bernie and AOC and all the Dem prez candidates signing onto the GND even before they knew what was in it, with this exemplified by Trump ranting loudly on this theme during his SOTU.

Looking closely it seems that indeed Maduro and Chavez before him, who preferred labeling the system "Bolivarianismo" rathet than "socialism," did carry out portions of various of the forms of socialism.  Many firms were narionalized, with currently the number of privately owned firms about half of what there were 20 years ago (when Chavez was elected), although many of those original firms have simply disappeared.  About 20% of farmland was nationalized, mostly large-scale latifundia, supposedly to be turned over to landless peasants.  But much of it has simply come to be uncultivated by anybody. In any case, there remain large portions of the economy privately owned, with still wealthy owners living in gated communities and not suffering.

Perhaps the most damaging of the socialist policies have been scattered efforts at command, not based on any central plan, especially using price control.  In agriculture this has been a complete disaster, especially once hyperinflation hit.  Food production has collapsed, and lack of food has driven 3 million out of the country, with many still behind having lost much weight.  OTOH, the regime is supposedly being green by emphasizing traditonal local crops. But this is not even a joke. Bolivarianismo's main positive was its popular redistribution policy, which increased real incomes in poor areas, especially while Chavez was in power, borrowing from the social democracy model.

The problem here is that all of these things, even many oof them together, have been recently tried in neighboring nations, such as  Bolivia, without simialrly disastrous results. Somehow Venezuela has just completely blown apart, with reportedly 86% of the population now opposed to Maduro and people in the poor neighborhoods of Caracas who were the Chavismo base now out demonstrating in large numbers (and being violently suppressed) after Maduro got reelected in a clearly fraudulent election, with most of his neighbors calling for his removal.

I think two things not related specifically to socialism have played crucial roles here: corruption and hyperinflation.  The most important agent in the Venezuelan economy is the state-owned oil company, which was nationalized long before Chavez came to power.  But he, with Maduro made this worse later, fiirng the competent technocratic managers of that company and replacing them with political cronies, with the outcome being a serious decline in oil production, this in the nation with the world's largest oil reserves.  Which leads to the other problem, massive corruption, with the incompetent cronies at the top of the state-owned oil company the worst.  The other killer item has been the hyperinflation, whose source I do not really know, although Venezuelan tax rates are lower than those in the US.  Certainly part of it is massive budget deficits, and as the MMT people note, they were borrowing from abroad.  I do not fully understand all involved in the hyperinflation, although that is not a standard phenomenon in a full-blown command socialist economy, but the hyperinflation has clearly been the final killer of the economy, collapsing support for Maduro. Apparently about a third of the population still supports "socialism," while many of those people reject Maduro, claiming he has blown what Chavez implemented, which Maduro certainly has.

So, for a summary.  Command socialims a la the DPRK is an awful diasster, famine plus dictatorshiip.  Market socialism/socialist market economy a la China has been good at rapid economic growth and much else, although suffering many ills on the environment and income distribution, not to mention alo being dictatorial.  Social democracy a la Swden and Denmark has done as well as any economic system on the planet and is democractic and free, but has also suffered from various problems.  The "democratic socialsim" of certain American politicians remains poorly defined and is in danger of being tied to the disastrous and vaguer form of "socialism" happening in Venezuela, with the danger for US politics being that conservatives may actually succeed in tying this pooerly defined democratic socialism with the barely socialist disaster in Venezuela.

Personally, I wish that Maduro would stop calling himself a socialist. Then he should also resign and get lost for the good of his people ASAP, although I do not support overdone US efforts by sanctions or possible invasion to bring this about.  Let it be the Venezuelan people who remove him, however.

Barkley Rosser


34 comments:

Peter T said...

The hyper-inflation is linked to collapse in confidence in the ultimate guarantor of debt - the state. It always is.

Anonymous said...

Excellent essay.

2slugbaits said...

Nice. One nitpicking comment. In the standard Leninist version it's not the "state" that withers away, it's the dictatorship of the proletariat that withers away with the arrival of a classless society. The "state" as a coercive agent still exists to enforce the will of workers' councils and various soviets; i.e., the stage that Lenin called "complete democracy."

Anonymous said...

Isn't the story here that "socialism" is a damaged and useless word that we should avoid using and prefer something more precise. A bit like "capital" and "savings" and "efficiency" for that matter. And reading Orwell, I guess it always was.

AXEC / E.K-H said...

Who is really a scientist?
Comment on Barkley Rosser on ‘Who Is Really A Socialist?’

Forget the whole Capitalism/Socialism thing. Neither left-wing nor right-wing economists know how the economy works.

Because economists have to this day NO scientifically valid Profit-, Money-, Distribution- or Employment Theory, economic policy guidance from left-wing to right-wing has NEVER been more than brain dead agenda pushing.

Economics is a failed science. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the foundational concept of the subject matter ― profit ― wrong.

As a result, since Adam Smith/Karl Marx economic policy guidance NEVER had sound scientific foundations.#1 This, of course, holds also for Marxism and its derivatives.

• Marx’s profit theory is provably false.#2
• By consequence, the concepts of exploitation and classes are false.
• Marx lacks the concept of cross-over exploitation.#3, #4
• Because the foundational concepts are false, Marx’s whole analytical superstructure is false.
• Because the theory is defective, Marxian economic policy guidance was bound to fail from the very beginning.
• After-Marxians have not spotted Marx’s foundational blunder to this day.#5

Marxians are scientifically incompetent just like non-Marxians and all together are only employable as clowns and useful idiots in the political Circus Maximus.

Forget the whole Capitalism/Socialism thing. Economists’ contributions to the development of the Good Society were just as helpful as those of Flat-Earthers.#6 All real progress in the last 200+ years has come from real scientists, not from political soapbox blatherers.

Egmont Kakarot-Handtke

#1 Karl Marx, fake scientist
https://axecorg.blogspot.com/2017/08/karl-marx-fake-scientist.html

#2 Profit for Marxists
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2414301

#3 Capitalism, poverty, exploitation, and cross-over exploitation
https://axecorg.blogspot.com/2018/04/capitalism-poverty-exploitation-and.html

#4 If we only had classes
https://axecorg.blogspot.com/2018/10/if-we-only-had-classes.html

#5 Economists simply don’t get it
https://axecorg.blogspot.com/2018/08/economists-simply-dont-get-it.html

#6 Econogenics in action
https://axecorg.blogspot.com/2019/01/econogenics-in-action.html

Anonymous said...

Since Marx thought in terms of thesis-antithesis-synthesis, why not look at specific countries which have been considered relatively socialist and defining socialism in terms of the institutional organization and understanding in a specific country? Let China define what socialism is, since China considers itself socialist or socialist with Chinese characteristics.

D said...
This comment has been removed by the author.
D said...

"Market socialism combines state (or collective) ownership of the means of production with market forces driving allocation decisions". BR

The markets in market socialism, as originally conceived by Lange-Dickinson and Mises are for existing final goods. Stock of consumer goods derive from previous investment decisions by central officials, instead of allocation of funds for capital projects through financial markets. Both sides in the old debate agreed that market socialism lacked financial markets, that public ownership meant paying equal social dividends to citizens, and that this would lead to bureaucratization and arbitrary investment. Does it really matter if managers of state stores can hold clearance sales? Socialism means common ownership, social dividend payment, and centrally planned investment, this is what really matters. John Roemer gets at all of this a bit with his proposal for stock market equalization (though I see this as syndacalist, not socialist). More details of this are found here- https://link.springer.com/journal/41302/44/1/page/1

D

2slugbaits said...

D,
Fair points, but if you have a financial system that is characterized by returns from rent rather than returns from capital's marginal product, then you may not be any better off. Then you get crony capitalism, which socializes risk and privatizes rents. And it's this aspect of socializing certain kinds of risk that makes the best case for socialism for certain kinds of goods and services. Private markets are risk averse, but governments can be risk neutral in a way that private enterprises cannot. That means private markets will not invest in certain kinds of things that would otherwise pass a cost/benefit analysis. This is an important point that Kenneth Arrow and Mordecai Kurz emphasize in their classic Public Investment, the Rate of Return, and Optimal Fiscal Policy. In any event, almost every public investment analysis uses some kind of shadow discount rate that is based on alternative investment in the private sector. So I don't think this investment allocation problem would be too severe unless public investment strongly dominated global private sector investment. And in most market socialism approaches there is still significant room for private investment decisions.

rosserjb@jmu.edu said...

D.,

I am more interested in actually existing examples raather than theoretical discussions. One ssaw or sees variations in the degree of central control of investment in the actual market ssocialist cases. In Yugoslavia, Tito started out using the Stalin command socialist model after he came to power, although he never collectivized agriculture, which always remained privatey owned and operating in more or less free markets. After he split from Stalin politically in 1948 he gradually moved the system to its worker-managed market socialist form, but central control of investment was on of the last items of central control to be let loose of. But by the 1970s it was, although then it devolved to the level of the repbulics. This coincided with the beginning of the acceleratiion of inflation, which reached extreme levels by the end of the 1980s when both the Yugoslav system and the nation itself fell apart.

In China, arguably a quasi-market socialist system, there is a lot of central direction and control of investment, but it is not total, and there is some privately owned banking, although most of it remains state-owned.

D said...

The fact that central control of investment was the "last thing to go" in that example fits with the proposition that control over capital investment is primary. AOC wants these investments funded by the Fed and the Treasury, seems pretty clear who would be in charge if that were the case.

There is also a question concerning rent-seeking: who is really in control? There may be situations where explicit state plans are effectively directed by private interests that have "captured" officials- to socialize costs, privatize returns... Or public officials may keep private "owners" on such a short leash so as to establish effective government control. Legal titles do matter, titles (or equity shares) are transferable in capitalism, the basis for pricing real uses of capital. But legal ownership without control leads straight back to the knowledge problem.

At what point do legal private owners become functionaries? Do owners of businesses in China have more or less independence as compared to ten years ago? How much autonomy did the Bolsheviks allow in the NEP period? Did German business owners have significant influence over capital investment during/after the four year plan?

So rent seeking is important 2slugbaits, and I do know something about this- 18 years ago I took a graduate seminar on rent-seeking, taught by a grouchy guy named Gordon.

rosserjb@jmu.edu said...

If AOC is proposing that capital investment in the US be "funded by the Fed and the Treasury" this is a very bad idea. They have more important thing to do than that. And it is not at all clear "who is in charge" if they are doing so, especially if both of them are doing so. If one wants sate control of investment, then either nationalize existing privately owned banks or set up new ones, with these being directed by some state planning or other body that directs what they should do. This is more or less what goes on in China, although not everything those banks do is ordered or supervised by a higher aurhority. In any case, I certainly hope hope this Fed/Treasury proposal is not something AOC is actively pushing (I have not heard this previously).

In China it appears that Xi is asserting more centralized control over many aspects of the economy, so probably less independence today than 10 years ago "owners of businesses" (reminding that ownership in China is very complicated and murky). In the NEP there was a failry clear separation between small businesses, more or less left alone, and the "commanding heights," which became mostly nationalized and centrally controlled.

I do not know what this German "four year plan" was (or is?) that you mention. Never heard of it and know nothing about it.

AXEC / E.K-H said...

Barkley Rosser

The so-called Russian Revolution was neither Russian nor a Revolution. It was a quite ordinary coup d’état engineered by foreign powers. It is well known that Lenin was sent with some starting capital in a sealed train from Zurich to Sweden/Russia courtesy of the Generalstab. The plan worked fine until the Peace of Brest-Litovsk.#1

All this had NOTHING AT ALL to do with Marx’s economic theory. This theory is proto-scientific garbage. However, it provides a justification for taking over the “commanding heights” of the state. Clearly, Marxism was used by Lenin as a pretext much like religion was used in the old days as a pretext for conquest.

Since Smith/Marx, the whole Capitalism/Socialism debate has NOTHING to do with science, that is, with the materially/formally consistent theory about how the economy works, but with brain dead agenda pushing.

So, your question Who is really a Socialist? has as much economic/scientific content as Who murdered Mr. Khashoggi?

Egmont Kakarot-Handtke

#1 “The Treaty of Brest-Litovsk was a peace treaty signed on March 3, 1918 between the new Bolshevik government of Russia and the Central Powers (German Empire, Austria-Hungary, Bulgaria, and the Ottoman Empire), that ended Russia’s participation in World War I.” (Wikipedia)

Calgacus said...

If AOC is proposing that capital investment in the US be "funded by the Fed and the Treasury" this is a very bad idea.

Very bad idea? No, it is meaningless. It's like proposing wheels should be round and turn. The US government spends through the Fed & the Treasury, how else? Going through "banks" as China does is meaningless BS. We did and do it a little, but mainly the US government spends the sensible and old-fashioned way. By spending. With only the usual Fed/Treasury shell game.

Is it also a radical proposal that the elected US government should be in charge of US government spending? What matters is what the spending is on, and AOC's spending proposals are very sensible. How anyone who is worried about the environment can disagree with them or think that anybody else but the government should be in charge - which is the normal way - is beyond me.

If the spending is at New Deal levels, we likely don't need new taxes or to fight inflation. If it is at WWII levels, we do. Thing is to start trying, which will almost certainly be at the lower levels at first.

2slugbaits said...

Calgacus,
I think you're misunderstanding Barkley's comment. I might be wrong, but I took Barkley's "funded by the Fed and Treasury" comment to mean that the Fed and the Treasury should not be the in the business of deciding which green initiatives should be funded and which shouldn't. In other words, he was saying that the Fed and the Treasury should not be playing the same role as investment bankers in private financial markets, who do decide which projects should and should not be funded. Obviously the mechanics of writing checks would fall on the Treasury, but the Treasury has no expertise in performing cost/benefit analyses of various green initiatives.

Barkley Rosser said...

Actually the statement that D made that I was responding to said that the Fed and Treasury are to be in control of "capital investment," which looks to me like meaning all capital investment, including all that is currently being done by the private sector, not just GND initiatives. This is not about just government spending, which Calgalus, is done by the US Treasury, not the Fed.

As noted, I have not heard such an exaggerated and wild suggestion having been made by AOC. If she had I suspect that we would have all heard about it. I suspect that D either misunderstood something attributed to AOC or just wrote carelessly.

As for Egmont, most economists think it is a big deal whether or not an economy is run as a command socialist system or a market capitalist system. They tend to behave very differently in well known ways. This is a much studied topic, and I happen to be one of the world's leading experts on it, as a matter of fact, co-author of the world's most widely used textbook on the subject of comparative economics. For better or worse, your useless profit theory has nothing to say about this important topic, which is a big deal in the real world, about which you seem to know nothing at all.

AXEC / E.K-H said...

Barkley Rosser

You say: “… most economists think it is a big deal whether or not an economy is run as a command socialist system or a market capitalist system. They tend to behave very differently in well known ways.”

Capitalism and Socialism are (i) political belief systems (ii) economic theories. As political belief systems, they are on the same level with religious belief systems, that is, they are literary fabrications and storytelling or, as Marx called it, ideologies. The subject matter of ideologies are NONENTITIES (God, paradise, classes, world spirit, etcetera) but despite the fact that ideologies have no reality content, they are a big deal for most people.

Ideologies are the subject matter of Psychology, Sociology, Political Science, History etcetera. The well-known problem with History is that it is for the greater part literary fiction.

Economics, on the other hand, is a system science and deals with how the actual economy works. Science materializes itself as true theory, with truth well-defined as material and formal consistency. Theory is different from storytelling. Theory has ninety-nine percent reality content, storytelling one percent.

Capitalism and Socialism are allegedly underpinned by true theory. This, though, is a bad joke. General Equilibrium Theory and Marxianism is proto-scientific garbage. So Capitalism and Socialism are ultimately vacuous belief systems.

The fact of the matter is that the monetary economy can be described by economic laws, the Profit Law for example. It is given as Q=Yd+(X−M)+(G−T)+(I−S) and it holds for the USA, for Russia, and China and it is absolutely independent of the ownership of the firms or from the self-identification as capitalistic or socialistic, or from the agenda pushers that occupy the political commanding heights.

For the past 200+ years, economists were so much occupied with political propaganda and agenda pushing that they had no time for genuine scientific work. This is why Walrasianism, Keynesianism, Marxianism, Austrianism are mutually contradictory, axiomatically false, and materially/formally inconsistent. Economics is a failed science, economists are not scientists but storytellers and useful political idiots.

Egmont Kakarot-Handtke

rosserjb@jmu.edu said...

Egmont,

Please note that I have not been speaking about "Capitalism and Socialism." I have pinned it down to "market capitalism" and "command socialism," which are very different economic systems that have behaved and operated in very different ways. Marker capitalist system involve using market forces for allocative decisionmaking combined with mostly private ownership of the means of production, with the US mostly an example of this, although having a substantial state sector. The former Soviet Union and current North Korea are examples of command socialism, with the state ordering allocation decisions in a contest of state ownership of the means of production. These are very real things, not illusions.

Now there are ideologies that support these different systems, and they also tend to differ in how they are politically organized and run. These ideologies can take on the character of pseudo-theology, just as in another post I quoted Berteand Russell's comparison of Marxism and Christianity. On that I agree with you. But your claim that the idea that there are such different systems is an illusion is just totally false and delusional.

I am not going to respond on this thread further to you, Egmont.

AXEC / E.K-H said...

Cross-posting

Dear idiots, Marx got profit and exploitation wrong
Comment on Peter May on ‘A communist manifesto for money?’

Peter May recaps: “Marx is saying that money ― a monetary production economy ― is the basis for capitalism since capitalists use money to produce goods for sale for more money ― investment is for return, that is, profit. The profit comes from the wage being less than the market price of commodities produced by wage labor. The end-in-view is not to provide a rationale for abolishing money but rather for terminating the extraction of economic rent in the form of ‘surplus value,’ profit accruing from unpaid labor time.”

Marx’s definition of profit is ultimately based on the Labour Theory of Value which does not relate to the economy as a whole.#1 But Marx applied also macroeconomic reasoning: “How can they continually draw 600 p. st. out of circulation, when they continually throw only 500 p. st. into it? From nothing comes nothing. The capitalist class as a whole cannot draw out of circulation what was not previously in it.”

This, indeed, is the crux of Profit Theory. To come to the point, Marx got the answer wrong.#2 Here is the short proof.#3

(i) The objectively given and most elementary systemic configuration of the economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm.

(ii) The elementary production-consumption economy is defined by three macroeconomic axioms: (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

(iii) The focus is here on the nominal/monetary balances. For the time being, real balances are excluded, i.e. X=O.

(iv) The monetary profit of the business sector is defined as Q≡C−Yw,

(v) The monetary saving of the household sector is defined as S≡Yw−C.

(vi) Ergo Q+S=0 or Q=−S.

The balances add up to zero. The counterpart of household sector saving S is business sector loss −Q. The counterpart of household sector dissaving -S is business sector profit Q.

For a start, the household sector’s budget is balanced, i.e. C=Yw. From this follows that macroeconomic profit is zero. The market clearing price is given by P=W/R and from this follows W/P=R, i.e. the real wage is equal to the productivity. The workers get the whole product.

Now, the owner of the single macroeconomics firm can do what he wants, i.e. lengthen the labor time or cut wages, nothing happens to profit and the real wage.#4 In Marx’s impeccable logic: “From nothing comes nothing. The capitalist class cannot draw more out of circulation than they throw into it.” They throw Yw in and get C out and because of C=Yw macroeconomic profit is zero.

The business sector can only get more out of the circulation if the household sector throws more in, that is, if the household sector deficit-spends/dissaves. This is what the most elementary version of the Profit Law says, i.e. Q=−S. The logical minimum condition of deficit spending is a banking system that lends money to the households.

So, profit does NOT come from exploitation but, in the most elementary case, from the growth of the household sector’s debt. And this, in turn, means that Capitalism does not end with a revolution of the exploited workers but as soon as the growth of private and public debt ends.#5

Egmont Kakarot-Handtke

#1 Basics of Value Theory
https://axecorg.blogspot.com/2019/02/basics-of-value-theory.html

#2 Profit for Marxists
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2414301

#3 Profit Theory in less than 5 minutes
https://axecorg.blogspot.com/2017/07/profit-theory-in-less-than-5-minutes.html

#4 Capitalism, poverty, exploitation, and cross-over exploitation
https://axecorg.blogspot.com/2018/04/capitalism-poverty-exploitation-and.html

#5 MMTers make capitalism work
https://axecorg.blogspot.com/2018/07/mmters-make-capitalism-work.html

Calgacus said...

rosserjb@jmu.edu: Actually the statement that D made that I was responding to said that the Fed and Treasury are to be in control of "capital investment," which looks to me like meaning all capital investment, including all that is currently being done by the private sector, not just GND initiatives.

He wasn't being very clear imho, but I don't think this is the most reasonable interpretation. At the very least it did not occur to me he was making such a "wild suggestion".

As noted, I have not heard such an exaggerated and wild suggestion having been made by AOC. If she had I suspect that we would have all heard about it. I suspect that D either misunderstood something attributed to AOC or just wrote carelessly.

To take the other side of the argument against myself :-), however, I do think that most rather misunderestimate the current, actual power of government (especially the USA's) spending and taxation on (in)directly controlling capital investment, it's degree of "in-chargeness" right now. So a GND would have major, but not all-encompassing effect.

rosserjb@jmu.edu said...

Calgacus,

I agree that US govt has lots of indirect influence on capital investment through its fiscal policy and directive. A full GND would substantially increase that, but not to the degree that it looked like D was suggesting.

AXEC / E.K-H said...

Barkley Rosser, Calgacus

For monetary economies like the USA, USEu, Russia, China, the macroeconomic Profit Law reads Q=Yd+(X−M)+(G−T)+(I−S) and it holds independently of whether these countries describe themselves as capitalistic/socialistic/mixed and independently of how the commanding heights of the economy are staffed.

The fact of the matter is that in most countries the deficit-spending of the government has become the major source of macroeconomic profit. This means that so-called free market economies like the USA are on full life-support of the State.

The all-decisive political decision in all monetary economies is between breakdown now or growing public/private debt with breakdown later and NOT between private or public ownership.

The composition of the government’s budget is of secondary importance. The economic minimum condition for the continuation of the political status quo is that the deficit is sufficient to produce an overall profit Q given the other sectoral balances. This is the implicit rationale of full employment policy since Keynes.#1, #2 Implicit because it is obvious that politicians/economists do not really understand how the monetary economy works. In the old days, deficit spending has been justified by the urgency of defense against hostile neighbors/Communism/Terrorism now it is justified by the urgency of the avoidance of human extinction.

For the survival of the so-called free market economy, the allocation of the government’s budget between military or environmental/social spending is a matter of indifference. Politically, though, a Green New Deal sells better than a Space Force or tax reductions for the rich. Thus, the allocation problem boils down to a marketing pitch between the “good” environmental/social guys and the “bad” military/Oligarchy guys.

Independently of the allocation of the government’s budget, it is WeThePeople who is going to pay for it in real terms through either open or stealth taxation. Stealth taxation via the price mechanism is the invisible-hand outcome of deficit-spending/money-creation.

No matter in what garb deficit-spending/money-creation appears it is NEVER for the benefit of WeThePeople as a whole but ― because of the Profit Law Public Deficit = Private Profit ― a free lunch for the Oligarchy. The macroeconomic Laws apply to all monetary economies no matter what stupid/corrupt economists blather about Capitalism/Socialism.

Egmont Kakarot-Handtke

#1 Keynes, Lerner, MMT, Trump and exploding profit
https://axecorg.blogspot.com/2017/12/keynes-lerner-mmt-trump-and-exploding.html

#2 MMTers make Capitalism work
https://axecorg.blogspot.com/2018/07/mmters-make-capitalism-work.html

rosserjb@jmu.edu said...

Egmonst,

Funny how onxw in a while put here a comment that just opens up your theory to be shown to be the pile of silly nonsense it is.

So, during the final years of the Bill Cllinton presidency at the end of the last century, the US government was rnning budget surpluses. But, guess what? Businesses were also enjoying high profits (and the stock market boomed, although it overdid it in the high tech sector). There were lots of profits despite there not being a budget deficit.

I realize that you have your own weird definition of profits so probably will dismiss this. But you should realize that you are not going to convince any remotely intelligent person to accept your theory while doing so. Have fun.

AXEC / E.K-H said...

Barkley Rosser

You say: “… during the final years of the Bill Cllinton presidency at the end of the last century, the US government was rnning budget surpluses. But, guess what? Businesses were also enjoying high profits …”

You cannot even read a simple equation. The macroeconomic Profit Law is given by Q=Yd+(X−M)+(G−T)+(I−S) and it boils down to Public Deficit (G>T) = Private Profit Q if the other factors are taken out of the picture for a moment.#1

From the full-length equation follows that a government budget surplus is perfectly compatible with a high macroeconomic profit depending on the other components of the equation.

A refutation requires the test of the full-length equation. This is obvious to any remotely intelligent economics freshman.

How can you talk about capitalism and socialism without any idea about what profit is and how the monetary economy works?

Egmont Kakarot-Handtke

#1 Wikimedia, Profit Law
https://commons.wikimedia.org/wiki/File:AXEC143.png

Anonymous said...

Regarding Barkley' comment: "Market capitalist system involve using market forces for allocative decisionmaking combined with mostly private ownership of the means of production, with the US mostly an example of this, although having a substantial state sector. The former Soviet Union and current North Korea are examples of command socialism, with the state ordering allocation decisions in a contest of state ownership of the means of production..."

I've been reading Paul Kennedy's book entitled 'The Rise and Fall of the Great Powers' (1987). In which Mr Kennedy states that the two (then) superpowers were spending 80% of the world's investments in armaments and that world arm imports exceeded world trade in grain. (Page 443). World military expenditure, Kennedy writes, also exceeds more than the entire income of the pooer half of the world's population.

It's very clear that neither 'socialist' nor 'capitalist' countries provide any real social control over the means and nature of production, their distribution is lousy. And most people don't wish to own armaments.
Thanks for your interesting article Barkley. However, my understanding is that the Venezeulan government has been denied monetary reimbursement for its oil exports. That and the sanctions imposed would surely leave any government/state struggling.
Brenda Rosser

rosserjb@jmu.edu said...

A.,

The Soviet Union mosr definitely had not only state ownership of the means of production, especially complete under Stalin, but also had state control of the means of production by government, although I guess you do not view this as being "social control," but then I note that is not well defined at all. Has any nation actually exhibited that, whatever it is?

In any case the Soviet state focused on military production out of concern to defend itself against foreign invasion. Certainly it was invaded during WW II, and withou the Soviet victories at Stalingrad and Kursk, it is unvclear Hitler would have been defeated. The tanks at those battles were produced by the Soviet command economy of the 1930s under Stalin.

Furthermore, while few Americans know about it, US troops actually participated in invading Russia to overthrow the Communist government during the Civil War after the Bolshevik coup. It was not just the US, but UK, France, Japan, and even Czechoslovakia. It is easy to sneer at the Soviet paranoia, but it was fra from groundless.

Where it cem to be unuustified was after WW II.. At the point, figures such as Vosnesenzky who argued for a cutback of military production ended up getting purged. When he came to power, Khrushvhev did some redirecting towards civilian production, as well as more generally weaking the command structure of the Soviet economy, but only so far.

On Vwnezuela, the non-payment for oil exports has just started. It has nothing to do with the problems that have been steadily mounting over recent years. The Venezuelan leadrship trashed their own state-owned oil company by replacing its competent technocratic managers with corrupt cronies. Chavez and then Maduo are respoinsible for the collapse of oil production in the nation with more oil reserves than any other. It is really totallly shameful and without any justfying excuse.

Anonymous said...

Barkley, we should all be welcoming the collapse of oil production. It seems clear to me that the people of Venezuela (like the rest of us) became far too dependent for their well-being on oil. The climate change catastrophe makes it clear that this commodity is a global public liability. It's just that Venezueala is feeling its vulnerability long before most other nations. The US should be providing genuine and emergency assistance for an industrial transition to renewable energy and localised production. There is still an enormous untapped wealth source from conservation at this late hour.
Brenda Rosser

Anonymous said...

VENEZUELA'S DEBT (NO BAILOUT): November 2017: "Today, estimates indicate that Venezuela’s public sector debt tops $184.5 billion, including $60 billion in foreign debt, though the Venezuelan Central Bank claims it’s much lower."
https://theconversation.com/nobody-is-going-to-bail-out-venezuela-87428

WESTERN PRIVATE DEBT (A HUGE BAILOUT WITH 'PRINTED' MONEY):
"In the financial crisis of 2007-2008, large amounts of government support were used to protect the financial system, and many of those actions were attacked as bailouts. Over $1 trillion of government support was deployed in this period and "voters were furious."[9] The US Troubled Asset Relief Program authorized up to $700bn of government support of which $426bn was invested in banks,[10] American International Group, automakers, and other assets. TARP recovered funds totalling $441.7 billion from $426.4 billion invested, earning a $15.3 billion profit.[11]

In the United Kingdom, the bank rescue package was even larger, totaling some £500bn. Controversial bailouts occurred in other countries as well, such as Germany (the SoFFin rescue fund), Switzerland (the rescue of UBS),[12] Ireland (the "blanket guarantee" of Irish domestic banks issued in September 2008)[13], and several other countries in Europe."
https://en.wikipedia.org/wiki/Bailout

Anonymous said...

I have to wonder how Americans would respond if a group of the most powerful countries on earth suddenly nominated an opposition politician in the US as America's president. It feels like America has to experience some shock like this to shake it out of its enormous hubris.

rosserjb@jmu.edu said...

A., (Brenda?),

All nations highly dependent on oil exports would like to get off, but it is very hard, and few have succeeded until their oil ran out, which Venezuela is very far from. Mexico is one that has substantially succeeded, with the vast majority of its exports now non-oil.

On the matter of bailouts, note that in the US, UK, and so on, those bailouts were funded by domestic taxpayers, with at least in the US the bailout money later repaid to the government with interest.

In Venezuela there were no bailouts because they were running a massively irresponsible fiscal policy. I love to point out to right wingers that Venezuela has lower tax rates than does the US. As in Kansasa that has led to major fiscal problems with them borrowing heavily from abroad. I am sorry, but I have no sympathy for the Venezuelan government's total mismanagement of all this. Of course they are not able to do what US, UK, and others did, and do keep in mind that not all that long ago they might have been able to, being once upon a time the highest income nation in Latin America. Now they have serious starvation and people leaving in droves.

As for the the election situation, the most recent one in Venezuela was a total fraud, and reportedly over 80% of the population opposed Maduro. This is credible given that there have major demonstrations and riots in the neighborhoods of Caracas that were long the popular base for Chavez and Maduro. He has alienated his own base.

Let us be clear, the push to recognize the opposition leader came not from "a group of the most powerful countries on earth," but in fact from its neighbors, the members of the Lima Group. They were out in front on this before the US got into it. I

t is unfortunate that now Trump and gang see getting more heavily into this as a political plus in swing state Florida that now has a large population of Venezuelan exiles. Pence is in Colombia mucking about. The more the US takes the lead on this, especially threatening military action, the more this gives the awful Maduro some shred of credibility.

AXEC / E.K-H said...

Barkley Rosser

Your simpleminded distinction between Capitalism and Socialism is long outdated. Since the 1960s, the sub-sectors of the economy where the commanding heights are traditionally staffed with criminal/corrupt/unethical actors (weapons, drugs, money laundering, tax evasion, human trafficking, land theft, waste dumping, etcetera) have grown above-average. So, an updated classification of socio-economic systems should at least include Capitalism, Gangsterism, Socialism.

Egmont Kakarot-Handtke

Anonymous said...

Barkley, Thanks for your response. I'll have to investigate further ( regarding the your information about the Venezuelan election of Maduro and the country's fiscal policy).
Brenda R

rosserjb@jmu.edu said...

You are welcome, Brenda.

Egmonst, corruption is an increasingly serious problem in many parts of the world. However it does not strike me as defining a distinctive economic system. The fact is that corruption operates in somewhat different ways in different economic systems. What does not explain these differences is your idiosyncratic profit theory.

AXEC / E.K-H said...

Barkley Rosser

My idiosyncratic macroeconomic profit Law Q=Yd+(X−M)+(G−T)+(I−S) holds for Capitalism, Gangsterism, Socialism just like Newton’s idiosyncratic Law of Gravity. Only the DISTRIBUTION of overall profit Q between the firms that compose the business sector is different in different national economies.

To the extent that firms of the legal economy are ultimately controlled by the mob, which is NOT visible to the naked eye, the superficial distinction between Capitalism and Socialism becomes progressively meaningless.

Lenin’s take-over of power is better characterized as the implementation of mob rule than of socialism. I leave it to your historical erudition to figure out whether something similar has happened to countries that identify themselves as capitalistic or socialistic.

Egmont Kakarot-Handtke