Production and realization of surplus value – Marxists, Keynesians and others

Karl_Marx_001This quote is taken from a footnote to Marx’s Capital Volume II (p. 391 in the Penguin edition). The volume was put together after Marx’s death by his friend and collaborator Engels, drawing on extensive notes. The quote provides inspiration for the analysis of one particular contradiction in the dynamics of capitalism :

“Contradiction in the capitalist mode of production. The workers are important for the market as buyers of commodities. But as sellers of their commodity – labour-power – capitalist society has the tendency to restrict them to their minimum price. Further contradiction: the periods in which capitalist production exerts all its forces regularly show themselves to be periods of over-production; because the limit to the application of the productive powers is not simply the production of value, but also its realization. However, the sale of commodities, the realization of commodity capital, and thus of surplus-value as well, is restricted not by the consumer needs of society in general, but by the consumer needs of a society in which the great majority are always poor and must always remain poor.” (my emphasis)

It is important not to take this quote out of context. In addition, despite significant inequality and poverty, Marx was clearly wrong about the majority always remaining poor under capitalism. However, the contradiction described here between the production of surplus value and its realization upon sale, has given rise to plenty of debate among left economists. Continue reading

“Money from nothing” – newspaper article by Dirk Ehnts — via econoblog101

German daily newspaper Die tageszeitung published my article on money creation last weekend (here). This is the translation from German into English (also available as a pdf): (Translation of!5422477/ by Dirk Ehnts, author) Debate on money creation at the ECB Money is created from nothing The consequences are shocking. The mainstream view of economics is […]

via “Money from nothing” – my newspaper article translated into English — econoblog101

Anwar Shaikh on Keynes and Classical economics (and much else)

A series of interesting short videos featuring Anwar Shaikh of the New School, an economist I greatly admire, where he discusses his influences and aspects of his life’s work.

His magnum opusCapitalism, was published last year, and I have written on parts of it several times on this blog.

For those who don’t want to go through them all, I can recommend as a taster video number nine (of eleven), ‘Keynes and Classical Economics’, where he discusses the links he makes between the ideas of Keynes on aggregate demand, and competition and profitability in the work of Marx and the Classical economists. To reach this, press play, then skip forward between videos using the player controls.

Trickle-down versus trickle-up economics

From the blog of Michael Pettis (the link to the full post is highlighted):

Does cutting taxes on the wealthy lead to greater growth?

“Policies that increase income inequality can in some cases lead to higher savings, higher investment, and greater long-term growth. But, in other cases, such policies either reduce growth and increase unemployment or force up the debt burden. What determines which of these outcomes takes place is whether or not savings are scarce and have constrained investment.”

To give you a better idea of the argument, here is his conclusion. Pettis’ post may debunk the shibboleths of both left and right, while providing scope for reconciliation:

“Trickle-down economics does indeed work, as does its opposite, trickle-up economics, depending on underlying conditions that are not hard to specify. The key is the relationship between desired investment and actual investment. When the former exceeds the latter, policies that increase income inequality will generally cause savings to rise and expenditures to shift from consumption to investment; this leads to higher future growth that will eventually more than compensate ordinary and poor households for the increase in income inequality.

When desired investment is broadly in line with actual investment, however, there is no trickle-down effect. Policies that increase income inequality must permanently lower growth in the long run, although, in the short run, lower growth can be postponed by an increase in the debt burden.

In advanced economies, like those of the United States and Europe, there is no savings constraint on desired investment, so income inequality can only result in higher debt or higher unemployment and slower growth. It is only in developing countries that income inequality may boost growth, although in countries that have pursued the Gerschenkron model of forcing up domestic savings, like China has, actual investment can substantially exceed desired investment. This makes the reduction of income inequality or the channeling of wealth from the state to ordinary and poor households an urgent matter.”

On Balance Sheet Recessions: the economics of Richard Koo

RichardKooRichard Koo is best known for his concept of a Balance Sheet Recession (BSR), which was defined briefly in yesterday’s post. Two of his books are highly recommended: The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession and The Escape from Balance Sheet Recession and the QE Trap.

They are not difficult reading. The basic idea of a BSR is outlined many times throughout, and his arguments are clear. He also employs plenty of empirical evidence mainly in the form of charts.

This post summarizes some of Koo’s main ideas from the two books, although it is by no means exhaustive. Continue reading

Michael Hudson on Balance Sheets

JisforJunkEconThe evolution of balance sheets are key to the economics of Hyman Minsky, who described an economy with a financial system as one of ‘interlocking balance sheets’. Similarly, Richard Koo, originator of the concept of a Balance Sheet Recession, has written much on its implications for government deficits during the crisis of 2008 and, before that, during Japan’s Great Recession, which led to two decades of economic stagnation.

Until recently, balance sheets tended to be ignored by the mainstream majority of economists. The revival of Minsky’s ideas, alongside the ideas of Koo and post-Keynesians such as Steve Keen and Wynne Godley, have perhaps begun to shift the tide. The work of Michael Pettis, another economist influenced by Minsky, also deserves to be more widely influential. Continue reading