On 5/24/07, Charles Brown <[EMAIL PROTECTED]> wrote:
What is Marx's view of fiscal policy? and in the eyes of Marxism how would
he fix the Macroeconomic policy?
I would say that the classic reference on this question is Paul
Matticks *Marx and Keynes: The Limits of the Mixed Economy* (1969).
Listmember David Yaffe also made important contributions on this
question in the 1970s, following along the lines of Matticks analysis.
Mattick argued that expansionary fiscal policy does not provide a
long-run solution to capitalisms tendency toward crises, because it
does not affect (much) the fundamental cause of crises the falling
rate of profit. If crises are caused by a falling rate of profit, then
this implies that a solution to crises must increase the rate or
profit. Mattick argued, on the basis of Marxs theory, that although
expansionary fiscal policy may lead to a short-run increase of profit,
it does not solve the fundamental problem of a decline in the long-run
rate of profit, which caused the problem in the first place. (By
"long-run", I mean not affected by cyclical variations.)
According to Marxs theory, an increase in the long-run rate of profit
requires some combination of: (1) a reduction in the composition of
capital, which requires the "devaluation of capital" brought on by
widespread bankruptcies of capitalist firms; and (2) an increase in the
rate of surplus-value, which requires a reduction of real wages, or
real wages increasing slower than productivity increases. Expansionary
fiscal policy by itself and directly has little or no effect on these
determinants of the long-run rate of profit, and thus has little or no
effect on the long-run rate of profit itself, and therefore does not
provide a permanent solution to capitalist crises. Indeed, by
preventing bankruptcies from happening, expansionary fiscal policy
postpones and inhibits the necessary adjustments that must be made in
order to restore the rate of profit.
Matticks key contribution was to focus the analysis of the effects of
fiscal policy on the rate of profit. Mainstream macro has been
analyzing the effects of fiscal policy for almost a century, but never
once (so far as I know) has mainstream macro asked the question: what
is the effect of expansionary fiscal policy on the rate of profit?
Indeed, the rate of profit is not even a variable in mainstream macro,
so it has no way to ask this question. (Can you believe that? A theory
of capitalism, which claims to explain capitalisms cycles and trends,
and profit is not even a variable in the theory!) Mattick argued, on
the basis of Marxs theory, that the effect of expansionary fiscal
policy on the rate of profit should be the main question. I think he
was right.
However, I also think that things are somewhat more complicated than
Mattick thought (or at least what he wrote). The following is an
excerpt from a paper I am working on about this subject. Comments,
criticisms, etc. would be appreciated.
Although expansionary fiscal policy does not directly increase the
long-run rate of profit, it may do so indirectly over many years in the
following way: the expansionary fiscal policy would presumably
stabilize the economy and put a "floor" under the economy. The economy
could then remain in such a state of "contained crisis" or stagnation
for many years, perhaps even decades, with slower growth and higher
unemployment. The higher unemployment would put continual downward
pressure on wages. In addition, inflation might also increase, as
another way for firms to restore their rate of profit, especially if
the expansionary fiscal policy is accompanied by expansionary monetary
policy. The net result would be constant or declining real wages, so
that any increase in productivity during these years would increase the
long-run rate of surplus-value, thereby also increase the long-run rate
of profit.
Something like this seems to have happened in the past several decades
in the US economy. Expansionary fiscal policies have prevented a major
depression from happening and have put a "floor" under the economy, but
they have also resulted in a long period of "stagflation". Three
decades of slower growth and higher unemployment have resulted in
little or no increase in real wages over this entire period, while
productivity increases have been continual, first at slow rates through
the mid-1990s, and then at faster rates since then. This combination
has produced a very significant increase in the rate of surplus-value
over this period (it has roughly doubled from approximately 1.5 to
approximately 3.0).
Indeed, the rate of surplus-value has increased so much over these
decades that as of today (2007), the rate of profit seems to have
almost fully recovered from its decline and restored to its early
postwar levels. Therefore, although the expansionary fiscal policy of
this period did not directly increase the long-run rate of profit,
these policies were successful in stabilizing the economy at slower
rates of growth and higher rates of unemployment than normal, which
provided the conditions for a slow increase of the rate of
surplus-value over many years, which eventually restored the long-run
rate of profit.
This almost complete recovery of the long-run rate of profit without
a serious depression and devaluation of capital might seem to
contradict Marxs theory of the falling rate of profit. It is
certainly not what Marx expected, but it can be explained on the basis
of Marxs theory. Even though the decline of the rate of profit was
not caused by a decline in the rate of surplus-value, but instead was
caused by increases in the composition of capital (and increases of
unproductive labor), thirty years of stagnant real wages and increasing
rate of surplus-value have finally been enough to offset these causes
of the prior decline of the rate of profit.
Therefore, thirty years of stagnant real wages appears to be a viable
alternative to bankruptcies and deep depression as a means of restoring
the rate of profit, at least in this case. And to the extent that
expansionary fiscal policy makes such a "stagflation" alternative
possible, these policies are "successful" in avoiding a depression as
the only way to restore the rate of profit. But this alternative takes
a long time (as of ten years ago, the rate of profit was still
approximately 25% below its early postwar peak). Marxs theory
provides an explanation of why the restoration of the rate of profit
has taken so long because the rate of surplus-value had to overcome
these prior increases in the composition of capital and unproductive
labor. At the very least, the decline of the rate of profit and its
slow recovery can be explained much better by Marxs theory than by
mainstream theory, which provides no explanation at all of these
all-important trends.
Comradely,
Fred
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