[was: Re: [PEN-L:6718] Re: Re: Re: Re: Re: Re: Implications of Surplus Tax
Cut?]
Doug says:
>>Speaking of which, Ernest Mandel wrote somewhere - maybe in the
>>Dictionary of Marxist thought? - that "shrewd bourgeois" he was, JMK
>>liked a little inflation so it could disguise real wage cuts from the
>>workers. Where did Keynes say that?
Responds Brad:
>It's one of these Vinerian-Hayekian interpretations of Keynes: that his
>desire was to fool the workersinto accepting jobs through inflation. You
>see, they don't really want those jobs that push the unemployment rate
>down to 4%--they're just tricked into accepting them because they suffer
>from money illusion.
As I understand it, money wages are sticky in most of THE GENERAL THEORY
because they are set relative to each other instead of being the result of
wage bargains over real wages (vis-a-vis the disutility of labor). (Jamie
Galbraith and Sandy Darity's MACROECONOMICS textbook, pp. 25-27 presents
this argument, which they quote Keynes as seeing as the less fundamental
critique of the classical model. The references to the GT are pages 8 and
following.) Because they are defined and bargained over relative to each
other, money wages tend to be sticky (and not for "money illusion" reasons).
If the economy is operating on the assumed aggregate marginal productivity
curve (under the first classical postulate, which Keynes didn't reject in
the GT) and real wages are "too high" compared to an equilibrium that's
presumed to exist, then sticky money wages imply that the only way to get
real wages down and thus employment up is to have prices rise. But this
isn't really inflation, however, unless the price rises are sustained. Even
so, inflation can be a good thing in a Depression (as my friend Paul has
realized).
Darity & Galbraith point to Keynes' more fundamental argument, that nominal
wage cuts won't lead to real wage cuts, because money wage cuts lead to
price cuts. (Kalecki showed this in a model with no diminishing returns
because capacity is less than fully utilized and constant mark-up pricing:
prices move in step with money wages if labor productivity is constant, so
that real wages don't fall.) So Keynes was saying that even if money wages
were flexible downward, it wouldn't do any good in terms of promoting
employment.
In his later writings, Keynes followed Kalecki to reject the idea of
diminishing marginal returns to a variable factor (and thus the first
classical postulate) when the economy is below full resource uses. (He did
this because of Tarshis and Dunlop's evidence that suggested that real
wages didn't fall as employment rose.)
Even in GT, he has a chapter (ch. 19) about how wage cuts can be a bad
thing, because they hurt aggregate demand.
All of this may seem academic, but it isn't really. The classical view that
Keynes was fighting has been resurrected as part of neoliberalism: if we
could just make wages totally flexible, so that workers are bought and sold
like hog bellies on the Chicago exchange, then we'd never see unemployed
workers (except, of course, those implied by optimal inventory theory).
(The corollary of this is that if increased flexibility doesn't work, we
need to have more, so let's smash some more unions.) Keynes suggested that
(1) workers' labor-time is a completely different type of commodity than
cars or hog-bellies, hinting that workers were social creatures embedded in
social relations; and (2) that the income effects of wage payments can be
as important as any incentive effects. Instead of leading toward
neoliberalism, it leads toward social democracy, though of a particularly
elitist and Fabian sort.
Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~jdevine
