Thursday, October 19, 2017

Michael Hudson: Socialism, Land and Banking: 2017 Compared to 1917

Socialism a century ago seemed to be the wave of the future. There were various schools of socialism, but the common ideal was to guarantee support for basic needs, and for state ownership to free society from landlords, predatory banking and monopolies. In the West these hopes are now much further away than they seemed in 1917. Land and natural resources, basic infrastructure monopolies, health care and pensions have been increasingly privatized and financialized.
Instead of Germany and other advanced industrial nations leading the way as expected, Russia’s October 1917 Revolution made the greatest leap. But the failures of Stalinism became an argument against Marxism – guilt-by-association with Soviet bureaucracy. European parties calling themselves socialist or “labour” since the 1980s have supported neoliberal policies that are the opposite of socialist policy. Russia itself has chosen neoliberalism.
Few socialist parties or theorists have dealt with the rise of the Finance, Insurance and Real Estate (FIRE) sector that now accounts for most increase in wealth. Instead of evolving into socialism, Western capitalism is being overcome by predatory finance and rent extraction imposing debt deflation and austerity on industry as well as on labor.
Failure of Western economies to recover from the 2008 crisis is leading to a revival of Marxist advocacy. The alternative to socialist reform is stagnation and a relapse into neofeudal financial and monopoly privileges....
Neoliberalism is not working. Socialist resurgence, or something else?

Useful background and history lesson.

Michael Hudson at some of his best.

Naked Capitalism
Socialism, Land and Banking: 2017 Compared to 1917
Michael Hudson | President of The Institute for the Study of Long-Term Economic Trends (ISLET), and Distinguished Research Professor of Economics at the University of Missouri, Kansas City
Crossposted at Vineyard of the Saker and SouthFront

3 comments:

GLH said...

MH is the best economist I know of.

Kaivey said...

I do love that guy. He could have stayed in banking and made a fortune but he chose academia and socialism instead. What I like about Micheal Hudson is his unwavering passion for socialism and the fact that he's no hard nut, so he's a great figurehead for the cause. He's not anti capitalist, in fact, the middle-classes and their businesses would do better under socialism.

AXEC / E.K-H said...

Economists understand neither Capitalism nor Socialism
Comment on Michael Hudson on ‘Socialism, Land and Banking: 2017 Compared to 1917’

Michael Hudson tells economic history from early Western capitalism to Russian Socialism to modern China. This account suffers from the fact that he does not know what profit is. In his ignorance, he is not alone. The profit theory is false since Adam Smith. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concept profit wrong.

Smith treated profit as the income of the factor capital. This was the original blunder.#1 It was followed by Ricardo’s theory of rent#2, and Marx’s theory of profit#3, and Keynes’s messed-up macro.#4 As the Palgrave Dictionary summarizes: “A satisfactory theory of profits is still elusive.” (Desai, 2008)

Because Michael Hudson does not understand profit he does not understand how the monetary economy works. Fact is that profit for the economy as a whole does not at all depend on who owns the means of production. In other words, the Profit Law holds always and everywhere: in capitalist America, in former communist Russia, and in the mixed economy of China. Michael Hudson’s historical account remains on the surface of political economics. Political economics has produced nothing of scientific value in the past 200+ years.

For the proof, macro profit is here determined for the most elementary case. The pure production-consumption economy is defined with this set of macroeconomic axioms: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm. (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.

Under the conditions of market clearing X=O and budget balancing C=Yw the price is given by P=C/X=W/R (1), i.e. the market clearing price is equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand.#5

From (1) follows that the real wage is equal to productivity, i.e. W/P=R (2). The wage income receivers get the whole product.

Monetary profit for the economy as a whole is defined as Qm≡C−Yw and monetary saving as Sm≡Yw−C. It always holds Qm+Sm=0, in other words, the business sector’s surplus = profit (deficit = loss) equals the household sector’s deficit = dissaving (surplus = saving). This is the most elementary form of the Profit Law. Under the condition of budget balancing, total monetary profit is zero.

Overall profit depends alone on deficit spending, that is, the change of private or public debt. It does NOT depend on labor time, or productivity, or monopoly power, or greedy landlords, or rent-seeking bankers. These factors are only relevant for the distribution of overall profit among the firms. Traditional profit theory is a Fallacy of Composition, that is, an illegitmate generalization of what can be observed on the microeconomic level. Economists are failed/fake scientists and Michael Hudson is no exception.

Egmont Kakarot-Handtke

#1 The Profit Theory is False Since Adam Smith.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2511741

#2 When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1932119

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

#4 How Keynes got macro wrong and Allais got it right
http://axecorg.blogspot.de/2016/09/how-keynes-got-macro-wrong-and-allais.html

#5 For the graphical representation see Wikimedia
https://commons.wikimedia.org/wiki/File:AXEC31.png