I am Sure This is a Coincidence

In an post title Karl Marx, Real Business Cycle Theorist, Matthew Yglesias proves that history repeats its self.

Kudos to Benjamin Kunkel for trying to present an accessible Marxist account of the current financial crisis. I was struck reading the piece, though, by how similar the Kunkel/Harvery/Marx account of the crisis is to linguistically and ideologically quite different accounts from the right.

Essentially the Marxist and the real business cycle theorist are united in the view that these things happen and mass unemployment and prolonged periods of immiseration are just what happens in a market economy. The RBC stops there while the Marxist looks forward to the construction of an entirely new system along entirely new lines. The range of views associated with John Maynard Keynes and his followers or Milton Friedman and his followers says, essentially, no. A transient period of somewhat elevated unemployment could reflect a change in tastes—people decide they want fewer apples and more pears and various elements of the economic system need time to reshape themselves to fit the new conditions. But a prolonged period of widespread mass unemployment paired with a collapse in overall spending reflects something else. People haven’t decided they want fewer apples and more pears, they’ve decided they want fewer goods and services and more safe liquid financial instruments. What has to happen in response is that governments need to create more safe liquid financial instruments—more dollars, more euros, more Swiss; British sovereign debt—until people decide they’ve had enough and want to increase their demand for goods and services.

Bradford Delong on made the same incorrect witticism back in '08 Leaving aside the striking similarities, lets examine the facts of the matter.  What is RCB? Here is a explanation. As John Quiggen makes clear on the RCB and the current crises

[t]he failure of RBC is brought into sharp relief by the current global crisis. Not even the most ardent RBC supporter has been game to suggest that the crisis is caused by technological shocks or changes in tastes, and the suggestion that it was all the fault of a minor piece of anti-redlining law (the Community Reinvestment Act) has been abandoned as the speculative excesses and outright corruption of the central institutions of Wall Street has come to light.

Kunkel explicating Harvey on the crises:

as The Limits to Capital implies without quite stating, the special allure and danger of an elaborate credit system lie in its relationship to class society. If more capital has been accumulated than can be realised as a profit through exchange, owing perhaps to ‘the poverty and restricted consumption of the masses’ that Marx at one point declared ‘the ultimate reason for all real crises’, this condition can be temporarily concealed, and its consequences postponed, by the confection of fictitious values in excess of any real values on the verge of production. In this way, growth and profitability in the financial system can substitute for the impaired growth and profitability of the class-ridden system of actual production. By adding over-financialisation, as it were, to his model of overaccumulation, Harvey means to show how an initial contradiction between production and realisation later ‘becomes, via the agency of the credit system, an outright antagonism’ between the financial system of fictitious values and its monetary base, founded on commodity values. This antagonism then ‘forms the rock on which accumulation ultimately founders’. In social terms, this will take the form of a contest between creditors and debtors over who is to suffer more devaluation.

The real originality of The Limits to Capital, however, is to add a new geographical dimension to crisis formation. Harvey goes about this via a theory of rent. One effect of the approach is to suggest why property speculation – with its value ultimately tied up in potential rental income – should be such a familiar capitalist perversion (in the psychoanalytic sense of overinvestment in one kind of object). Another is to convert an apparent embarrassment for Marxian theory into a show of strength. The would-be embarrassment lies in the evident difficulty of reconciling a labour theory of value with the price of unimproved land, given that land is obviously not a product of human labour. Harvey’s bold and ingenious solution is to propose that, under capitalism, ground rent – or the proportion of property value attributable to mere location, rather than to anything built or cultivated on the land – becomes a ‘pure financial asset’. Ground rent, in other words, is a form of fictitious capital, or value created in anticipation of future commodity production: ‘Like all such forms of fictitious capital, what is traded is a claim on future revenues, which means a claim on future profits from the use of the land or, more directly, a claim on future labour.’

 Does that sound linguistically similar to RBC theorists? And a bit further along, does this?

The real test of Harvey’s 1982 theory of crisis is how well it serves in the face of the thing itself. The Enigma of Capital can be read as an effort to meet the challenge. Naturally, its success or failure depends on whether it can offer a more comprehensive and persuasive account than rival theories. On the score of comprehensiveness there can be little doubt that Harvey’s work and that of other Marxists goes beyond the alternatives. ‘The idea that the crisis had systemic origins is scarcely mooted in the mainstream media,’ Harvey writes, and that might be extended to include even the trenchant work of the neo-Keynesians. The crisis, after all, is that of a capitalist system, and no account of it, however searching, can be truly systematic if it neglects to consider property relations: that is, the preponderant ownership of capital by one class, and of little or nothing but its labour power by another.

Relatedly does Keynes demand increased monetary supply like Freidman? Or does Keynes demand increased government borrowing of excess capital in order to become the an engine for job creation in those periods when the capitalists cannot or will not invest? Yglesias has not a clue as to what he is talking about.