I’ve been thinking a lot recently about macroeconomic identities. An accounting identity is an equality that must be true, no matter what the values of its variables are.

Macroeconomics has many such identities. For instance, Y = P + W. Meaning total income (Y) is equal to profits (P) plus wages (W). As this is an accounting identity, this must always be true, and therefore any change in either profits or wages must either be compensated by an inverse change in the other, or be reflected in a change in total income [1].

This identity tells you that when profits grow faster than income growth, that wages must be falling. When profits grow and wages fall, this generally means wealth is concentrating.

What’s import here is that this is true, wealth is concentrating, even when Y falls, so long as P falls less.

Another key identity is Y = I + C. Total income is equal to the sum of investment (I) and consumption (C). This tells us, for instance, that any reduction in the combined sum of investments and consumption invariably means negative economic growth.

This identity is currently making the heads of honest economists worldwide spin, they are often outraged and mystified by the apparent economic voodoo behind neoliberal austerity programs currently being inflicted on economies worldwide, which clearly and invariably will result in economic stagnation.

Now why would the financial elite be pushing for policies that are certain to reduce total income? Doesn’t this mean they would make less money? Isn’t it their goal to make more money? No, not necessarily.

The goal is not wealth, per se, the goal is power, and power depends not so much on the level of wealth, but rather on the structure of wealth, not the total sum of wealth available to capital, but rather the structure of wealth in society, the relative amount of income that returns to private owners compared to the amount that is retained by workers. Not the absolute level of profits, but the relative share of profits in the total income.

The financial elite are not elite by nature of the level of wealth, but by the structure of wealth. The more wealth is concentrated, the more power it’s owners have, even when the total level of wealth is lower. It doesn’t matter whether the capitalist class makes a million, a billion, a trillion, or a duodecillion dollars, only what percentage of the sum of all the money that is made in the economy ends up as their own.

Therefore it’s not economic ignorance or policy voodoo that drives the current austerity policies, but rather the rational self interest of the financial elite: their desire to stay on top of the pyramid. To see this identity we need to break down our understanding of the macroeconomy, not based on total income, but based on the relative incomes as accrued by class, and break income flows down to distinguish those that reproduce private capital, and thus cause further concentration, from those that do no reproduce private capital, and thus lead to capital dissolution. We need to isolate the relative share of profit in the total income, not the absolute level of profit.

To start with, P + W = C + I is a combination of the two identities above, since both equal Y, they must also therefore be equal to each other. So the sum of profits and wages is equal to the sum of consumption and investment.

Renowned economist Mikhal Kalecki isolated profit from this identify by breaking down consumption into consumption by capital and consumption by workers, resulting in P + W = Cp + Cw + I. Reasoning that workers, as a class, spend all the income they make, Kalecki equated W and Cw, resulting in P = Cp + I. Meaning Profit is equal to the sum of capitalist consumption plus investment. This means that wages are essentially meaningless when it comes to profits when wages eventually return to capitalists by way of worker’s consumption.

Yet, the assumption the workers consume everything they earn as a class is based on wages being determined by an efficient labour market. Workers can, as a class, use their social power to work against the workings of the labour market.

In one of his later papers, “Class Struggle and the Distribution of the National Income”, Kalecki reasons that through non-market processes like collective bargaining, workers can negotiate wage increases that do not entirely flow back to Capital in the form of profits. Collective political action, can likewise push to enact laws and lobby for benefits that move aggregate wages above class subsistence levels, and thus enable workers to earn more than they spend, and therefore allow workers to invest, breaking the monopoly on investment enjoyed by capital.

Kalecki wrote in 1960, “According to [my] first theory, the absolute level of profits is determined by capitalist consumption and investment. According to [my] second theory, the relative share of profits in national income is determine by degree of monopoly.”

The degree of monopoly is determined by class struggle, and the relative share of profits in the national income is the result.

Roughly following Kalecki, lets expand both consumption and investment to add a class dimension, lets say P + W = Cw + Cp + Iw + Ip. Now, to isolate relative profits (R) from absolute profits, we could use R = C + Ip. In other words relative profits are equal to all consumption of capitalist goods plus investment derived from capitalist profit. The social capacity of workers to invest (Iw) reflects a part of the national income that is not being consumed, and, more importantly, not flowing through to capitalist profit.

We can now introduce a new equation to express wealth concentration (X) as X = C + Ip – Iw. This wealth concentration equation quantifies Kalecki’s concept of the “Degree of Monopoly.” This equation is macro-economically consistent, since Y = X + Iw.

If we understand that the neoliberal agenda is to maximize X, not Y, we clearly see that X can rise even if Y falls, so long as workers’ capacity to invest, meaning the amount of their income workers can sustainably divert from consumption, falls more.

Thus, the macroeconomy of class struggle boils down to this, any action that decreases X is revolutionary and any action that increases X is reactionary. Just as the concentration equation reveals the logic of neoliberal policy, this also serves to guide the objectives of all who oppose it. Understanding that the goal of neoliberalism is to make X as close to Y as possible, we know that the goal of building a fairer society requires us to increase worker’s capacity to invest as much as possible, thus reducing X as far below Y as possible.

The level of workers’ capacity to invest is not the result of the market, but a social choice born of collective action, such as collective bargaining and political struggle, and only maintained by the further social choice of not simply spending it back into the market. Workers’ ability to invest can only come from a collective will to fight for more wages and benefits, and then intentionally use the extra wages and benefits in ways that do not create capitalist profits.

The further investigation on how to decrease X, what I have described elsewhere as as integrated strategy of counter-politics, venture communism and insurgent finance, will be explored in upcoming articles.

I’ll be at Cafe Buchhandlung this evening at around 9pm, please join us. http://bit.ly/buchhandlung

[1] Total income refers to the sum of all incomes within the economy in question, in the case of a nation, the national income. If the economy in question is anything smaller than the entire global economy, then balance of payments between this and other economies affects these identities, but this will not be covered here.

Can we please stop crying about “Our Tax Payers’ Money?”

Far too often when reading a perhaps otherwise interesting essay, this horrible argument is made. Whatever the governments’ wrong doing e.g: police violence against protesters, or military adventures abroad, along comes the lament of how can they do this with our tax dollars? Whether it’s the activities of corrupt politicians, or some other case of perceived misuse of money by the government, too often included is the tax payers’ lament. This is a really bad argument.

First of all, the argument is very flimsy politically. For instance, would it be OK for the police to beat-up protesters if such activity was not publicly funded? Would it be OK to bomb foreign countries if it did not cost the “tax payer” anything? Probably not. For this reason alone, lamenting that dubious actions by the State that were undertaken “With Our Tax Dollars” is the wrong argument. Instead, it’s much better to argue against such activities by showing that they are wrong, harmful and contrary to the public good, regardless of how such undertakings were financed.

Further, the tax payers’ lament is actually false. The Government does not spend tax payers’ money. The government does not collect taxes because it needs this money to spend. All money, meaning here the national currency of the country, originally comes from the government. If the government did not spend or lend, there would be no such money in the economy. The government creates money.

What’s more is that workers do not really pay taxes in any economic sense.

When labour is sold as a commodity on the market its price is driven by its replacement costs. This is clear to most people when it comes to other commodities. For instance if the government enacted a tax on tomatoes, nobody would be surprised that the price of tomatoes went up. In most countries, the price of commodities like alcohol and tobacco is substantially made up of taxes, yet nobody expects that the sellers of these goods absorb the cost of such taxes in reduced profits, everybody knows they are passed-on in the prices paid.

The same is true for wages. Wages are nothing more than the price of labour on the market, and in a capitalist market economy, they are likewise driven towards their replacement costs. In other words, if your taxes were lowered, then your real wages would likewise fall, either by the labour market driving wages down, or by the availability of extra money in the hands of workers driving prices up. Everything else being equal, the inflation-adjusted wage would remain the same. Therefore, the workers do not really pay taxes in any meaningful sense, rather those taxes are passed-on to the their bosses as part of the price of labour.

Now, going back to the example of the workers taxes being reduced and yet wages remaining stable, in the case that for instance there were legal or structural barriers to wages being accordingly reduced by the labour market. I have noted above that the extra money available would drive up the prices of the things workers pay for. This is the real reason that the government requires taxes. Not to fund it’s own spending, but to control prices.

However this is not just a simple function of the amount of money the government creates, how money is spent is far more relevant than how much the government spends. More money only means higher prices when there is little or no excess capacity in the production of that which is purchased. In other words, only when the amount produced and sold does not or cannot increase in proportion with the increase in the supply of money.

Money spent on consumer goods is likely to drive the prices of those goods up. This is almost always the case with workers’ spending, since workers do not generally finance productive capacity directly, but compete against each other to purchase available goods.

Money spent on investments in production is less likely to drive prices up. Government spending can mobilize underutilized economic capacity, especially unemployed labour, and increase the productivity of labour by way of eduction and other public investments, thus at the same time creating more money, but also more goods to spend money on. Therefore, not increasing prices, but increasing the size of the economy.

There are no fixed limits on how much money the government can create. The governments and its central bank’s ability to lend or spend is limited only by law and policy. Therefore, all lending and spending is undertaken in order to achieve some public aim. Spending and lending is a social choice, a choice of what aims to undertake and what aims not to undertake. We are not limited by any scarcity of tax dollars as to how many protestors we want to beat-up or how many countries we want to bomb, or for that matter, how many students we want educate or how many people we want to provide with medical care, we can only be limited by law and policy, and ultimately, by the productive capacity of our society. In other we are limited only by social choices as to how to employ our productive capacity.

We have a right to say we do not approve of bad choices because we have a right to participate in the social choices made by our society, not because it is “our” tax money. The idea that our right to comment or dissent comes from the fact that we have paid taxes is a fundamentally undemocratic argument. Do people that pay more taxes have more right to say what social choices we make? No! We have a democratic right to dissent and that does not come from the amount of taxes we may have paid.

So please, pretty please, drop the tax payers’ lament. The government doesn’t really spend tax dollars, workers don’t really pay taxes, and most importantly, our right to criticize the government does not derive from how much tax we’ve paid, but from our democratic right to participate in social choices and to hold our government accountable to the public good.

I’ll be at Stammtisch tonight around 9pm as usual, please come! http://bit.ly/buchhandlung

“Jeder nach seinen Fähigkeiten, jedem nach seinen Bedürfnissen!”  With these words Karl Marx perhaps summarized best what Communism is, succinctly expressing the goals of the communist movement. While Communism is an older and much broader movement than the work of Marx and his followers alone, we are all none the less united around the central idea that our shared productive capacity should be directed towards the common wealth and that each person should have the opportunity to maximize their ability and potential, and to contribute accordingly.

This stands in stark contrast of what might be described as “From each according to their privilege, to each according to there usefulness to the privileged,” otherwise known as “Capitalism” Where a privileged elite produce nothing, yet control the distribution of all wealth and direct our shared productive capacity towards their own enrichment, while everybody else produces everything, yet receives only as much as the privileged give them, according to their usefulness to the privileged, and only infrequently any more than their own subsistence or replacement costs.

Given the choice between a society that allows everyone the chance to develop to their full potential and a society where opportunity is determined by class structure and privilege, in other words a choice between Communism and Capitalism, who would chose Capitalism?

Given the choice between a society that directs its productive capacity towards creating real social value and building common wealth and a society that directs its productive capacity towards the enrichment of the few, in other words a choice between Communism and Capitalism, who wouldn’t want to work towards Communism?

Yet, few people today openly identify as Communists, many even believe that using this word somehow works against them, as if the elite who will resist all efforts to reduce their privilege will somehow be caught off-guard and be tricked into a more equal society if we just outsmart them with some clever new terms.

To paraphrase Juliette, What’s in a name? That which we call Communism, by any other name, would be suppressed just the same.

The fact is that any proposal that seeks to create more equality will be automatically called “Communism” by reactionary forces who who have invested considerable wealth and effort trying to sully the term.

A similar discussion has taken place among members of the Pirate Party. As Rick Falkvinge reports from the the discussion in founding the Spanish Partido Pirata “Either we call ourselves the Pirate Party, and get to define what the name stands for, they reasoned, or we’ll be called the Pirate Party anyway, without control of what the name stands for.”

Those who wish to preserve the privilege of the elite will call us Communists no matter what. If we are timid about being called Communists, and try to shy away from the name, all that will do is strengthen the attacks against us, it will make it seem like being a Communist is somehow shameful, something to be denied, something to hide. It will make it seem that we call ourselves something other than Communists only to keep people from knowing the truth about our sinister Communism.

As in the discussion that Falkvinge reports, we thereby relinquish the ability to define what Communism means, and what it means to be a Communist. We also let our accusers off the hook. By pretending not to be Communists, we allow them to never explain what it is they think is wrong with Communism and why it’s a bad thing. By pretending we are not Communists, we allow them to effectively employ a guilt-by-association fallacy to discredit us as Communists without ever needing to make a logical argument against our views.

We should be under no delusion, the same propagandists that have made communism a bad word in many uninformed minds, will do likewise to any new terms that seek to deny privilege and power to the elite. This is clearly evident in how the words “welfare” and even “liberal” have become terms of derision in US politics, for instance. This is also brought to the level of absurdity when right-wing commentators label even the most timid parliamentarian reformists as “Communists.” Such fallacy is displayed at it’s most vulgar with common feminist-baiting trolls likes “feminism is just Communism in drag.” We have all seen plenty of this.

By saying “Yes, I am a Communist.”, we turn the tables. Not only that, we open the door to a far more interesting and rich discussion, a discussion that is made unnecessarily shallow when we hide our Communism behind neologisms. Communists have been producing theory for hundreds of years, a rich stock of insight where many core questions have been investigated, disputed, and a wide variety of tactics, tendencies and views have emerged, including Marxian, anarchist and co-operative tendencies, which each having quite different views on how communism is to be achieved. Views we do well to consider and contrast.

To be Communist simply means that you believe in equality, that you do not believe that a society that allows one class of people to exploit another is the best that we can achieve, and therefore, that you believe that democracy and equality must be respected in all human relations, not only in government, but also in economic and domestic life as well.

Communists believe we are equals politically, equals in the workplace, and equals in the home.

Communism has never been achieved. So we do not yet know what a Communist society would look like in detail. Even the leaders of so-called Communist countries such as the USSR or China have never claimed to have achieved Communism. They have only claimed to be working towards it. And yet, this is perhaps the most common reason cited to avoid the use of Communism, because many of the attempts to realize it have gone wrong, have failed, and have even produced results directly contradictory to the aims of Communism.

Far from being a reason to avoid it, the mistakes and failures of the past are perhaps the strongest reason why we should continue to use the word. We know that attempts to achieve Communism could lead to negative consequences.

When we pretend that the ideas being explored are wholly new, when we employ neologisms and we make-believe that we have escaped from the political realities faced by those before us, when we allow ourselves the hubris to believe that our own theories and models are so new and novel that they do not have the same limits and risks of those of the previous revolutionaries, we invite failure and disaster.

When we use the word Communism, we do so without delusion, we already know it can go wrong. Thus we can learn from, and build upon the mistakes and failures of the past. Any idea can go wrong, any course of action, no matter how noble its ideals, can lead to unintended consequences. Simply using a different term does not protect us.

Instead of clouding the discussion with neologistic delusion, lets acknowledge the history and embrace the future of Communism. To appropriate the reasoning of the founders of the Partido Pirata, let us call ourselves Communists, and define what the name stands for, otherwise we’ll be called Communists anyway, and give up control of what Communism means.

If you believe in working towards a society where everyone is treated as an equal, an equal under the law, an equal in the workplace and an equal in the home. If you believe in working towards a society where the free development of each is the condition of the free development of all. If you believe in working towards a society that applies it’s wealth to empower the many and not only to enrich the few, join me in standing up and saying “Yes, I am a Communist” and lets work out what that means together.

I’ll be Stammtisch tonight as usual at 9pm or so. See you at Cafe Buchhandlung. Aparently, it’s a Fasching party at Cafe Buchhandlung! Wear a costume if you’re up for it.

- http://bit.ly/buchhandlung