On achieving a public purpose.

Below is something I wrote in 2018 for my own reference as I grappled to apply modern monetary theory into my broader thinking and apply it as a lens rather than think of it within an abstract theoretical framework. I hope this might help those that are trying to to the same.


A public purpose is what a society deems desirable for it’s citizens to have access to. A public purpose creates a society that we deem desirable to live in. Citizens negotiate their desires through their agent, The Government and their political representatives. It is up to all of us to determine a ‘collective will’ on what we wish our society to achieve.

Our limits are us and what we are able to produce. It is obscene that in a society that can produce more food than we can consume, people go hungry, in a society that can build more housing than we accommodate, people go homeless, in a society that has overcrowding classrooms, teachers are placed in precarious insecure work conditions.

Stuart Chase in his book ‘A New Deal’ posed the question

What is the economic system for?’ Is it primarily to be manipulated for some individuals profit, power or amusement? …..It is to provide a means, without excessive waste and loss, whereby those who live under it may eat. It has a function, and the function is to provide food, shelter, clothing and comforts in as dependable and adequate quantities as natural resources and the state of technical arts permit. 1

Far from critiquing the capitalist system, Elmer Altvater argued that the state must intervene to secure conditions inductive to continuing capitalist accumulation, performing what he called a ‘general maintenance function’ These were:

(i) The provision of general infrastructure; (ii) The capacity to defend militarily a national economic space regulated by the state and to preserve an administrative boundary within which the state is sovereign; (iii) the provision of a legal system that establishes and enforces the right to possession of private property and outlaws practices potentially damaging to the accumulation of capital; (iv) Intervention to ameliorate and/or regulate the class struggle and the inevitable conflict between labour and capital. 2

These ‘general maintenance functions’ were evident during the post war years, often refereed to as the ‘Keynesian- Fordist’ era of economics. The post war era is categorised by Government policy on full employment, Government commitment to a strong social wage and a greater intervention in the economy based on extensive industrial policy with the creation and expansion of a vast array of state owned firms in strategic industries, key infrastructure and natural monopolies. 3

In 1943 Michael Kalecki wrote;

A solid majority of economists is now of the opinion that, even in a capitalist system, full employment may be secured by a government spending programme, provided there is in existence adequate plan to employ all existing labour power, and provided adequate supplies of necessary foreign raw-materials may be obtained in exchange for exports. 4

If The Australian Government and the private sector direct labour resources to mining activities and the burning of fossil fuels, this is the society we will live in. If the Australian Government and the private sector direct labour resources into creating renewable energy, this is the society we will live in.

Similarly, unless we ensure more job vacancies advertised than demanded, we will not have enough work for all those that desire to work. As a society we can not achieve equality, fairness and a public purpose unless that is what we set out to do.

Precarious work conditions exist because we have laws in place that allow such conditions to exist. Students begin their lives with debt because we have placed that burden upon them. Housing is unaffordable because, as a society, we have chosen to have a system that incentivises speculation and does little to regulate how credit is created.


It is often overlooked that a Governments spending is representative of a socio-economic agenda. For as long as a society has the real resources to implement its desired policy objectives, these objectives are achievable.

Let us take the healthcare system as an example. My grandfather needed an operation on his cataracts. He had a choice, he could use the public system, which was free of charge for him, though he would have to wait 6 months, or he could pay $2000 and have the operation done immediately under the private system. This is system where those that have the ability to pay are given preferential treatment over those that do not. 

It is not that, as a society, we don’t have the capacity to perform the operation, the capacity to do so is there. It is that we choose to create a two tier system where those that benefit are those that already have. The capacity is there to perform the surgery. Rather than state we have the available resources to perform the operation and do so, we argue on who should pay the bill and those without the means to pay are forced to wait for no reason other than they can not afford to pay.

It is the publics understanding of our monetary system limits their understanding of what is achievable. I do feel that many on the progressive side of politics have a failure to grasp the power a sovereign government that issues its currency by legislative fiat has.

Too often ‘economic’ debate is framed in terms of the Government needing to ‘raise revenue’, or ‘borrow’. The economy is viewed as a separate entity to the social relations citizens embed themselves in. Karl Polyani summed it up in The Great Transformation (1943)

‘The control of the economic system by the market is is of overwhelming consequence to the whole organisation of society: it means no less than the running of society as an adjunct to the market. Instead of the economy being embedded in social relations, social relations are embedded in the economic system’ 5

We run our society in pursuit of government budget goals with the assumption that unless we tax more than we spend, we will riddle the future generation with debt. It seems few people stop and ask, where does currency come from and how can we use it to benefit all of us?

There have been shifts in the way currencies operate throughout history. We have moved on from a gold standard, where Governments pegged the amount of currency on issue to gold supply, to the ‘Bretton Woods System’, a currency pegged system where Governments defended their currencies in relation to the US dollar, which was exchangeable for gold. This required Governments to have foreign currency in order to be able to purchase their own currency to defend an exchange rate.

The system we have today is known as fiat currency. Fiat currency is by decree. Its value is derived from the tax obligation imposed upon citizens. Under a fiat currency a government doesn’t need gold in order to spend and currencies are left to fluctuate against each other, according to trade movements. All spending is appropriated by the Government. 6

What is money?

In 1943 Abba Lerner wrote;

The modern state can make anything it chooses generally acceptable as money and thus establish its value quite apart from any connection, even with the most formal kind, with gold or with backing of any kind. It is true that a simple declaration that such and such is money will not do, even if backed by the most convincing constitutional evidence of the state’s absolute sovereignty. But if the state is willing to accept the proposed money in the payment of taxes and other obligations to itself the trick is done. Everyone who has obligations to the state will be willing to accept the pieces of paper with which he can settle the obligations, and all the other people will be willing to accept these pieces of paper because they know the taxpayers etc., will accept them in turn. 7

The currency issuer places a tax obligation on the currency user, taxation is what gives a currency value. It is nonsense to assume the currency issuer will become insolvent. It is a monopolist of the currency and will always be able to meet payments denominated in its own currency.

Today Governments spend by crediting private bank accounts with an electronic transaction. This spending creates currency, taxation deletes it. It no longer must watch its gold supply, or defend an exchange rate. Spending is a merely an accounting entry that a Government can use to command real resources and achieve a desired public purpose. 

Unless the currency issuer spends, currency can not exist for the rest of us to save and spend. The Australian Government is the sole monopolist over the Australian dollar, unlike countries in the Eurozone, who gave up their monetary sovereignty, it does not tax or borrow in order to spend. First it must spend so we can earn. It is under this paradigm one has to think in relation to being able to afford a public purpose.

The Government, as a monopolist of its currency, can ALWAYS meet payment obligations in its own currency. Its limits are the skills the labour force posses and the real resources it controls. The Australian Government can not claim something is unaffordable, unless the physical resources to implement it are not there. As it issues the currency it can always meet payment obligations in Australian dollars, including spending on labour.

This is not say spending has no constraints. It does. That constraint is inflationary and that occurs when spending exceeds the productive capacity of the economy.

The terminology surrounding Government fiscal and monetary operations needs to change to more accurately describe their impacts on the non-government sector.

Just as peoples understanding of money needs to change, peoples understanding of employment also needs to change. A job should not be defined in relation to a businesses ability to turn a profit, this is important to a business, but it is not important to a currency issuer. 

Employment to has other benefits, not only income. It is important to an individuals self worth, it aids in defining a sense of character, and your occupation often has social standing within a community. 8

The idea that we must engage in destructive behaviour, such as coal seem gas mining, in pursuit of profit underscores the point we are running society as an adjunct to the economic system rather than embedding social relations within our economic structure.

Keynes remarked
 


‘the form of digging holes in the ground known as gold-mining, which not only adds nothing whatever to the real wealth of the world but involves the disutility of labour, is the most acceptable of all solutions……If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.‘ 9

Keynes was discussing this in relation to spending adding to aggregate demand. He proved unemployment was a result of deficient spending and argued quite correctly a Government needed spending on employment if it wished to create full employment. 

Jobs are a social creation and we need to define them according to what we constitute to be socially desirable and what constitutes societal well-being, rather than a job being in pursuit of profit. That is not to say a person can not work for a private employer. They can for as long as socially desirable minimum conditions are met. A job isn’t always about an ability to turn profit there is often a public purpose.

To help set minimum conditions and stimulate demand there is much literature around the Government acting as an employer of last resort. This is described as federally funded, locally administered, job guarantee programme. 

These jobs are not there to substitute existing government jobs or private employment but are there to contribute to societal well-being. JG workers can contribute to urban renewal projects, environmental schemes (e.g dune stabilisation, river valley erosion, reforestation), they may constitute music, art and sport. Citizens partaking in a government programme can help organise a local street festival, musicians paid as peripatetic performers, artists can aid in the creation of painting murals on public buildings or performing. Previous community activists role can become paid employment, for example running a community garden. 10

An underemployed surfer may choose to partake in the employment programme and choose to undertake study to achieve their bronze medallion and first aid certificate, with the eventual goal of becoming a surf life saver. As part of the programme they may be required to teach children about surf safety. The possibilities are endless and only limited by imagination. 

The programme is their to enhance the communities we live in and avoid the ills unemployment brings. It has the participants working alongside training having them ready for the private market when demand picks up again.

Conclusion
This is just part of some of the notes I kept as I was self studying. Much of it needs tidying and it isn’t anything you can’t find anywhere else. But I might put more up here.

References

  1. Chase, S. 1943., A New Deal, Macmillan pp 21-22
  2. Altvater, E., 1973 ‘Notes on Some Problems of State Interventionism” Kapitaistate, No. 1. pp 97 – 108
  3. Mitchell, W., Fazi, T., 2017, ‘Chapter 10: The Case of Renationalisation’ ’Reclaiming the State, Monetary Sovereignty: A Primer, Pluto Press, Archway Road, London. pp 248
  4. Kalecki, M., 1943, ‘Political Aspects of Full Employment’, Political Quarterly. http://gesd.free.fr/kalecki43.pdf
  5. Polyani, K., 1944, The Great Transformation, Beacon Press; Boston, Massachusetts. pp.60
  6. Mitchell, W., Fazi, T., 2017, ‘Reclaiming the State, Monetary Sovereignty: A Primer, Pluto Press, Archway Road, London. pp 179 – 192
  7. Lerner, A., 1947 “Money as a Creature of the State, The American Economic Review, Vol. 37, No. 2, Papers and Proceedings of the Fifty-ninth Annual Meeting of the American Economic Association. pp. 312-317.
  8. Blustein, D., 2008., The Role of Work in Psychological Health and Well-Being, Boston College.
  9. Keynes, J.M., 1936, The General Theory of Employment, Interest, and Money., Chapter 10 – VI.
  10. CofFEE., 2008., Creating Effective Local Labour Markets: A New Framework for Regional Employment Policy. University of Newcastle, NSW. 

Solving inequality requires getting macro right!

The ACTU last year in April released this report into inequality in Australia. It starts with the statement “Extreme inequality – which is what we are now experiencing in Australia – slows economic growth, creates social havoc and undermines faith in our political institutions.” Which I wholeheartedly agree with. In this post I aim to show why the report is flawed and how that can lead to flawed policy proposals.

The report in its summary recommends policy reform:

  1. Ensuring that real wages rise in line with national productivity improvements through the introduction of a new Living Wage, tackling insecure work, restoring penalty rates for 700,000 low paid workers, raising public sector wages and reform the collective bargaining system so it can deliver rising living standards;
  2. Making sure everyone pays their fair share of tax including corporations and the wealthiest members of our society. This includes reforms to capital gains, negative gearing and family trusts;
  3. Lifting the very poorest Australians out of dire poverty including through an increase in Newstart and an increase in the aged pension for those without adequate superannuation;
  4. Increased expenditure on health and education;
  5. A comprehensive Jobs Plan to reduce underemployment and unemployment; and,
  6. Measures to tackle excessive corporate power. The Banking Royal Commission has shown the extent of corporate excess and law breaking. Australia is also littered by firms with oligopoly power in certain sectors. Stronger competition policy is required to ensure people are not being ripped off by excessive prices.

Point 1 is what used to happen through institutionalised arrangements in Australia. I quoted in this post that the attack to decouple this arrangement began in the mid seventies were The Age newspaper quoted Friedman as saying .”….led the professor to opine that our long cherished arbitration system ‘seems to be highly unfortunate’ in the way it sets wages…”

Productivity is output level per hour worked. So for every hour, if you output $X, you need $X in wages in order to purchase that output. Real wages (wages adjusted for inflation) need to rise in line in productivity increases in order for the wages share of national income (GDP) to increase. Real wages can continue to grow below productivity but it means a growing share of the output we produce with our labour goes to profits. Arrangements that make bargaining difficult, make wage rises harder to negotiate and Government policy to cut spending and therefore public sector wages and employment (surplus) contribute to this.

http://bilbo.economicoutlook.net/blog/?p=2723.

The above graph is what has happened with the real wage and productivity levels since 1980 to 2009. There hasn’t been substantial change over the past decade to 2020 and share of wages is at historic lows.

http://bilbo.economicoutlook.net/blog/?p=43621

When wages fail to grow with rising productivity levels it means we need credit to purchase the output our labour produces and in Australia we have seen record levels of rising household debt. One of the highest in the OECD.

https://www.rba.gov.au/speeches/2019/sp-ag-2019-03-20.html

Pre 1980s capitals dilemma was how do you ensure workers can still purchase what they produce and suppress wages. Thus began a process of breaking institutionalised arrangements around wages growth with productivity, ending full employment policies and allowing a reserve army of labour, deregulating and privatising financial services (e.g the commonwealth and various state banks), and what I think is the key contributing factor, leaving fiscal policy out as a tool and using the analogy that a government is like a household and a surplus obsession and fear mongering around debt and deficit.


One of the analogies used to ensure public spending remains low is the household metaphor, which assumes the currency issuing Governments face the same constraints as a household and a ‘surplus’ is desirable.

Under a fiat currency, that is clearly non-sensical. A currency issuing government promises nothing in return for the currency it issues (not in gold or a foreign currency) and it can spend regardless of past deficits or surpluses. As a monopolist over the currency it can always purchase whatever is for sale in the currency it issues.

When we look at sector balances, assessing the macroeconomy as a relationship between three sectors (Government, private domestic and Foreign sector), accounting wise the total sum has to add to zero. For example if the government spends 100 and taxes 30 we record that as a deficit of -70 though that +70 has to sit somewhere. All deficits go somewhere but the question that should be asked is where and for whom?

Looking at the data for sectoral balances in Australia we get the below picture.

Image from this lecture:

The period of government surpluses in Australia was a result of private sector deficits. The hallmark of ‘good’ fiscal policy isn’t whether a particular fiscal outcome is reached. It is a meaningless irrelevant statistical artefact. It is whether we have our resources, including labour all in use, whether we a meeting our objectives in terms of ecological limits, and we should judge fiscal policy based on how well the bottom of the income spectrum are doing.


Point 3 relates to increasing Newstart and the aged pension for those without adequate superannuation.

Increases to the unemployment benefit need us to assess why unemployment exists in the first place.

Unemployment is a systemic issue that can ALWAYS be resolved by the government of the day. Involuntary unemployment is not an issue that is beyond us to solve. The Government of the day chooses the level of unemployment because it can always purchase whatever is for sale in the currency it issues. We can still have generous unemployment benefits, a welfare system that ensures for those unable to work are provided with living wages, guaranteed housing, and other public provisioning.

Keynes noted in his General Theory of Money, Employment and Interest, that it was aggregate spending levels that determined economic activity, and that inadequate spending levels could lead to high periods of unemployment. 

From a national accounting perspective at the macro level the sources of income are Government Spending (G), Investment (I), Consumption (C) and Exports (X). Are all these sources of expenditure sufficient to full employment?

Modern Monetary Theory will note that as a monopolist of the currency, the federal government can always purchase whatever is for sale in the currency it issues and thus can always employ any idle labour. It is a political choice. The Government of the day chooses the unemployment rate.

Unless we ensure more job vacancies advertised than demanded, we will not have enough work for all those that desire to work. As a society we can not achieve equality, fairness and a public purpose unless that is what we set out to do.

Precarious work conditions exist because we have laws in place that allow such conditions to exist. People don’t have enough to retire on because we have a system that places retirement on the onus of the individual and leave retirement up to the speculations and abstractions of ‘the market’.

It is often overlooked that a Governments spending is representative of a socio-economic agenda. For as long as a society has the real resources to implement its desired policy objectives, these objectives are achievable.

Rather than ‘force’ people to save for retirement, we need to acknowledge the superannuation was set up under the false premise that currency issuing governments need to save. Saving is the act of forgoing current expenditure to spend at a later date. It applies to a user of a currency. A public pension doesn’t have to be a minimal subsistence living. The impacts of the spending whether from a public pension or a private super account are exactly the same. It is a question of whether we have the available real resources to purchase when that spending occurs.

The challenge with providing for an ageing population is not financial, it is rising dependency ratios as a larger percentage of the population exits the workforce and we need to ensure our productivity levels increase to maintain our same standard of material well-being. Current policy that seeks to cut government spending (surplus) and leave youth underemployed or unemployed jeopardises increases in future productivity. That is lost skills, trades and professions we have by leaving youth idle. These will be people we need to provide for elder Australians as they age; In terms of the services they will need to ensure they are cared for in their homes, in terms of services they will need to feel included within the communities they live, the services they will need to maintain their residences, the services they will need in terms of their health, services they will need in the event they are no longer able to stay at home and need greater care. These are the challenges we face with an ageing population not some non-issue finding the ‘money’ nonsense. Obsessions with fiscal balances undermine the very issue we are supposed to be solving. And we are the poorer for it. (In terms of real resources)

A system of subsistence public pensions leaves those that have been out of the workforce at a disadvantage, particularly women, those on low incomes usually in precarious work, and those vested in the system to speculations and the expectations of unearned income.

The early classical economists distinguished between the use of earned and unearned income. From Michael Hudson’s Killing the Host

The guiding principle was that everyone deserves to receive the fruits of their own labor, but not that of others. Classical value and price theory provided the analytic tool to define and measure unearned income as overhead classical economics. It aimed to distinguish the necessary costs of production – value – from the unnecessary (and hence, parasitic) excess of price over and above these costs. This monopoly rent, along with land rent or credit over intrinsic worth came to be called economic rent, the source of rentier income. An efficient economy should minimize economic rent in order to prevent dissipation and exploitation by the rentier classes. For the past eight centuries the political aim of value theory has been to liberate nations from the three legacies of feudal Europe’s military and financial conquests: land rent, monopoly pricing and interest.



Distinguishing the return to labor from that to special privilege (headed by monopolies) became part of the Enlightenment’s reform program to make economies more fair, and also lower-cost and more industrially competitive. But the rent-receiving classes – rentiers – argue that their charges do not add to the cost of living and doing business. Claiming that their gains are invested productively (not to acquire more assets or luxuries or extend more loans), their supporters seek to distract attention from how excessive charges polarize and impoverish economies.

Australia’s superannuation plays into the concept of deriving rentier income, a concept that was thought as immoral and landed power in the hands of a ruling feudalist class during the enlightenment era. A system that was discussed in Moral Philosophy classes during the 19th century. (Moral Philosophy is what encompassed economics).

Today in economics courses concepts of rentier income and earned and unearned income are not discussed or their use in amassing political power for a financial services sector and the bankers and CEOs of major corporations. Why should we be ‘forced’ to guarantee an unending flow of dollars to a sector that is immoral, bloated and seeks to extract the value of our labour in order to engage in speculative activity on share markets, currency exchanges, housing and anything else our society financialises.

This brings me to another criticism within the ACTU report;

The ACTU also supports the right of all Australians to derive income from investments and accumulate wealth. These are fundamental and desirable attributes of a market based economy.”

This fails to define a difference between types of income. Earned and unearned income. You should not, in any moral society, be able to derive an income and amass wealth because of monopoly rents.

Joesph Stiglitz describes economic rents as;

The term ‘rent’ was originally used to describe the returns to land, since the owner of the land receives these payments by virtue of his or his ownership and not because of anything he or she does. The term was then extended to include monopoly profits (or monopoly rents)— the income that one receives simply from control of a monopoly— and in general returns due to similar ownership claims. Thus, rent-seeking means getting an income not as a reward for creating wealth but by grabbing a larger share of the wealth that would have been produced anyway. Indeed, rent-seekers typically destroy wealth, as a by-product of their taking away from others. A monopolist who overcharges for her or his product takes money from those whom she or he is overcharging and at the same time destroys value. To get her or his monopoly price, she or he has to restrict production.

https://evonomics.com/joseph-stiglitz-inequality-unearned-income/

It is obscene that a ACTU report into worker inequality would not make a distinction between these two types of income and outright say we need to tax; rents, capital gains, share dividends at a higher rate than that of wages if we are serious about delivering wealth to the labouring class and reducing our levels of inequality.


The report states other incorrect information such as;

“Globally most respected economic institutions believe the risk of recession has increased and some pundits fear “winter is coming”.……Stimulus measures by the Chinese authorities will exacerbate already excessive debt levels and add to vulnerabilities

How can a stimulus measure exacerbate debt levels? The Chinese Government issues its own currency. A simple understanding of double entry book keeping will show dollar for dollar the Chinese government deficit is equal to the non-government sector surplus which would reduce private sector debt levels, all other things equal.

The idea that somehow the Chinese Government ‘borrows’ its own currency is nonsensical. It offers investors a bond and moves money from a reserve account at the central bank to a securities account at the central bank. The latter pays interest. It is an entirely voluntary choice.  Where do financial institutes obtain Chinese yuan from to buy government debt? 

Any government that issues its own currency can always deal with any financial crisis no matter what the size.

The below statement is in relation to Australia.

“Economic fear is mounting and because of very high debt levels and limited scope for expansive monetary policy governments have limited tools in responding to these challenges.”

The statement above discusses monetary policy (interest rates) The evidence is clear. Monetary policy is an ineffective way to stimulate aggregate demand. It is blunt, you can’t control where the spending goes and you are relying on already indebted households to go further into debt to spend.  

The report ignores fiscal policy (spending and taxation decisions) For a currency issuing government it is a tool that is unlimited. It is constrained by what is available for sale. What limited tools is the report referring to? Monetary policy has a limit, which is zero. Then it is a useless way to try and direct spending where you need it to go.

Conclusion

I’ve run out of time to discuss all the points above but I’ve given an overview of why I think the report is flawed.

An incorrect understanding of macro leads to incorrect policy prescriptions and the non-sensical idea that somehow a currency issuing government is constrained by revenue. It is never nor can it ever be short of the currency it issues. We have a series of analogies and metaphors in place that are there to ensure, despite the real resources exisiting we can’t deploy them for a public purpose.  This includes the government is like a household, mortgaging our future and leaving our children in debt, budget black holes that need to be filled, deficit spending / government spending is inflationary, pulling out a credit card from the bank of China etc…I hope to write a post on each of these analogies and state why they are wrong.

Thinking About A Green New Deal

This post follows on from the post ‘(Not) A Green New Deal being Proposed in Australia’. In that post I outlined the origins of the original New Deal, gave a brief overview of what the original New Deal was and followed on with a summary of what a Green New Deal is in the USA, it’s intellectual underpinnings and how that informs policy options.

I critiqued The Australian Greens proposals of their version of a GND (Which to date don’t seem to exist so I critiqued their policy page) and how their flawed macroeconomic understandings lead to flawed policy proposals. For example The Greens concept for support for coal workers isn’t specific, there is mention of a future work commission and looking into how technological change will impact jobs. Unlike the GND that outright says;

Ensure a just transition for communities where the fossil fuel industry holds significant control over the labor market. This includes not only training and wage replacement programs for fossil fuel workers themselves, but also investment in the businesses and workers that previously served them.” [emphasis added]

Reading further about the GND, it draws parallels that the mobilisation required is on a similar scale to WWII.

“In fact, as the U.S. prepared to enter World War II, our economy lacked the capacity to build the ships, tanks, airplanes and other armaments and munitions that would be needed, or to produce needed inputs like steel, aluminum, rubber, concrete, and other essential materials in adequate quantities. Many were skeptical whether the country could “gear up” fast enough to avoid losing a war that it had neither sought nor prepared for.”

And very forthright answers the how will you pay for it question as follows;

What a nation can do and can build is ultimately limited only by the size, skills, and creative energies of its population; the capacities of its companies, organizations and governments; and its available natural resources.” 

There is nothing in the GND that links any of the expenditure required to taxation. Unlike most political parties that say “If everyone paid their fair share of tax, we’d all get a fair go at living a decent life.”

Modern Monetary Theory will tell you limits to spending at the Federal level, by the currency issuer, is constrained by available real resources (including labour) and ecological constraints. All Federal Government spending is new dollars and taxation removes spending power. It is not a proposal for unlimited spending.

Often when we think about ‘the economy’ we define it as an abstraction to our own reality. An entity that we need to serve in order to prosper. Terms like ‘cost’ are applied to public spending. When your mind is buttressed by the analogy ‘a currency issuing government is like a household’ – you think in terms of taxes needing to ‘pay for’ a particular public service.

I prefer to think about a cost in terms of the real resources required to implement a particular policy. The NBN is a good example. All manner of numbers where thrown around in order to justify a reason to roll out an inferior network, and the justification was the government would save dollars and needed make a commercial return.

The cost in rolling out a broadband network isn’t financial, it is the real resources. We need fibre, labour and IT infrastructure. The NBN isn’t a cost, it is a tremendous benefit. It provides employment in the construction phase and gives Australian households and industries huge opportunities.

The ridiculous notion that a government needs to make a commercial return is based on the notion that profit is a means to measure efficiency. The Federal Government is the only entity that never needs to be concerned with insolvency, savings is the act of forgoing current expenditure to spend at a later date. It applies to a user of a currency.

Last week I was listening to a lawyer speak at some training and he was speaking in relation to assisting people with disabilities and he said something along the lines of ‘it is the idea we give up something to help somebody else less fortunate’ the implication is he was referring to taxation. I thought to myself, ‘well we don’t have to give up anything’. Provided we have medical professionals, a system in place to help people, and the ability to build the equipment needed, everyone else doesn’t have to sacrifice anything. I haven’t lost anything as a result of the NDIS being in place. The issue becomes if we didn’t have sufficient physical resources (including labour) and then needed to make choices about who got assistance.

You can apply that thinking to our education system, the energy sector and our healthcare system. The issues facing private healthcare is a good example. It’s being billed as a ‘crisis’ by private insurers. In the story linked to we see a health insurance representative stating:

“Now, my idea is I should be able to opt out of Medicare, take the pressure off the public system and taxation as a funding mechanism and take care of my own lifetime healthcare costs.

I believe I should have that option and I think inevitably, that Medicare, as an insurance scheme, is retained for the vulnerable and those who would otherwise not be able to take out appropriate levels of cover.

This is a strategy in place to drive more people into the for-profit healthcare industry as customers decline. The industry associates public spending as a cost. Any government committed to public healthcare, would look at the data of declining private health insurance, realise as citizens we’ve made a decision to be covered by a public healthcare system, and use this opportunity to employ the medical professionals made underemployed and unemployed in that sector and boost the resources in the public system.


Orthodox economics is full of language and metaphors that try to convince us that despite having sufficient real resources we can’t deploy them for a public purpose.

Ultimately we do have limited resources and need to make choices, For what purpose do we deploy our labour power, what is the most efficient way to use our real resources to provide the services our society desires? What do we leave for the public sector and what do we allow as an activity in the pursuit of profit? Limits to spending from any source, are inflationary which depends on the nations productive capacity.

The GND proposal for dealing with inflation is;

“Were inflation to return as a threat for the first time in half a century, furthermore, there are time-honored ways of preempting it. These include not only taxes and bond issuances, but also “macroprudential” limits on bank over-lending and financial market speculation.”

Macro-prudential rules are the rules that banks lend under. Like all western countries, Australia has a system that benefits the finance industry and has placed our households amongst the most indebted in the world.

A GND in regards to finance would mean understanding loans create deposits, giving private financial institutions the ability to create credit gives bank an incomparable power over the rest of the economy. Banks should be publicly owned an democratically controlled. The public banking sector should not replicate the profit seeking model of the private sector. The only functions a bank should perform is to facilitate payments and provide loans to credit worthy customers. A strong public banking sector needs to be instated that adheres to the below mentioned rules:

  1. Financial Institutions should only be permitted to lend directly to borrowers. All loans would have to be shown and kept on their balance sheets. This would stop all third-party commission deals which might involve banks acting as “brokers” and on-selling loans or other financial assets for profit. They should not be permitted to speculate as counter-parties with other banks.
  2. Banks should not be allowed to accept any financial asset as collateral to support loans. The collateral should be the estimated value of the income stream on the asset for which the loan is being advanced. This will force banks to appraise the credit risk more fully.
  3. Banks should be prevented from having “off-balance sheet” assets, such as finance company arms which can evade regulation.
  4. Banks should never be allowed to trade in credit default insurance. This is related to whom should price risk.
  5. Banks should be restricted to the facilitation of loans and not engage in any other commercial activity.
  6. Banks should not be allowed to contract in foreign interest rates nor issue foreign-currency denominated loans.There is no public sense achieved in allowing them to do this.
  7. Social, labour and environmental criteria should be introduced to determine how the banking system allocates credit. 

I would go further and advocate “All Australian deposits should be guaranteed and private banks should NEVER be bailed out through public expenditure but instead have assets taken over by the Federal Government and nationalised.” Credit issuance should be seen as a public good.


A Green New Deal in the USA also recognises;

Where the original New Deal kept people of color — particularly Black people — subordinated as a servant class vulnerable to economic exploitation and instability, the Green New Deal will bring the employment, business ownership, and wealth- generating opportunities that these communities need in order finally to have full and unfettered access to our economy and our political processes.

The civil rights movement in the USA fought for Guaranteed Jobs. Martin Luther King’s infamous ‘I have a dream speech’ was at “The March on Washington for Jobs and Freedom

This article about Coretta Scott King outlines why she fought for a system of guaranteed employment.

“Four days after her husband’s murder on April 4, 1968, Scott King returned to Memphis to support the city’s striking sanitation workers. She marched with an estimated 50,000 people before concluding at a rally at the Memphis city hall. Amidst drizzling rain, she reminded her audience of the terrain they had traversed and the journey ahead: “We moved through . . . the period of desegregating public accommodations and on through voting rights, so that we could have political power. And now we are at the point where we must have economic power.”

In 1974 Scott King co-founded the National Committee for Full Employment/Full Employment Action Council (NCFE/FEAC) to fight for legislation that guaranteed jobs for all Americans. Guaranteed jobs for all who wanted them—regardless of race or gender—had long been a goal of Scott King’s and the black freedom movement.

The GND looks at indigenous rights issues;

Where indigenous rights have been previously neglected or pushed aside, the Green New Deal will affirm treaty rights and respect the claims that Native Americans have to tribal lands as sovereign peoples.

This is an opportunity for an Australian framework to recognise the rights of its Indigenous peoples. Which not only includes recognition of their voices but active participation and an ability of self-determination.

“…we believe that Aboriginal people and Torres Straight Islanders will be able to refocus their energies on the everyday requirements for self determination. Importantly this will include participation in the labour market and, for many, forms of employment that occur on Country in ways that strengthen and add contemporary value to Indigenous forms of knowledge.”

Flea, J et al. The Uluru Statement: A First Nation’s perspective of the
implications for social reconstructive race relations in Australia, International Journal of
Critical Indigenous Studies, Vol 12. No. #1, 2019
https://ijcis.qut.edu.au/article/view/532/704

The GND in the USA also recognises;

Where the New Deal often excluded or underpaid women in ways that kept them financially dependent, the Green New Deal will expand economic security and opportunity for women, so that they have the means to support themselves and their families, even into retirement.

This within an Australian context requires to look at enhancing maternity leave provisions, include stay at home parenting with a paid salary, and reviewing our superannuation system. A system that has skewed wealth to a relative few, has not provided for many Australian retirees (We have the highest rates of pensioners living in poverty in the OECD) and set up under the non-sensical notion that a currency issuer needs to save when it can always spend.

It is why we should look at enhancing the aged pension and scrapping our system of superannuation.

It fails to meet the standards of a retirement income system. It is costly and inefficient, unnecessary, and incredibly unfair. The age pension system is by far the most economically efficient retirement income system. Scrap superannuation. Expand the age pension. Boost the economy.

Conclusion

The Green New Deal (or whatever else you choose to call it) is a mammoth undertaking that within the USA is not only about a transition to a zero emission renewable energy sector. It is about a redistributive agenda that brings power to the most marginalised within their society.

I’ll close with a quote from Noam Chomsky in the book Understanding Power.

“Look, part of the whole technique of disempowering people is to make sure that the real agents of change fall out of history, and are never recognized in the culture for what they are. So it’s necessary to distort history and make it look as if Great Men did everything – that’s part of how you teach people they can’t do anything, they’re helpless, they just have to wait for some Great Man to come along and do it for them.” 

Any political and economic transformation is going to require a movement willing to take action to bring in that change. That means political demonstrations, strikes, being able to refute ‘junk economics’

and movements that use a coherent framework to bring about a working class, unified agenda.

(Not) A Green New Deal being proposed in Australia.

A new Greens Party leader in Australia was elected, and the party has run with the theme being used in the USA that we need a Green New Deal (GND). This is the new leaders article in the Guardian on a GND.

As well as an education in what the GND actually is, the economic framework that underpins a GND, the leader could also use some grammar lessons.

“Study hard and do Tafe or university and you get underemployed in an insecure job with low pay.”

The Greens party framework for a GND looks like existing Green policy badged under a new label. There isn’t much substantive change to existing policy, and the economics is still within a neoliberal framework. Which I’ll explain more about below.

I want to first start by explaining what the concept of the original New Deal was, the framework of a GND in the USA and its economic underpinnings and finally how the Greens proposals to date, do not amount to a concept in anyway similar to what is being proposed in the USA.


The original New Deal was introduced by Franklin D. Roosevelt in two stages. The first between 1933-34 which was about financial reform. E.g. the emergency banking act and the 1933 Banking Act. The second New Deal included the National Labor Relations Act – which allowed private sector employees to organise, collectively bargain and take collective action. The Works Progress Administration employed job-seekers to carry out public works. This included musicians, artist, writers and actors. It also employed people to build streets, bridges, dams etc…the initial appropriation in 1935 was equivalent to 6.7 per cent of GDP. (Smith, Jason Scott (2006). Building New Deal Liberalism: The Political Economy of Public Works, 1933–1956. New York: Cambridge University Press) It also included the Social Security Act, US Housing Authority, and the Fair Labor Standards Act. A lot of the WPA employment was temporary and designed to alleviate unemployment not eliminate involuntary unemployment.

The term ‘A New Deal’ was coined by economist Stuart Chase in a book of the same name. He used that book to articulate what he envisioned as ‘Goals for America’ which he summarised as the ‘Guarantee of the five essentials to every citizen – food, housing, clothing, health services, and education …’

He also had a book titled behind the dollars; Where he posed the question ‘Where will the money come from?’ and poses the questions of where Italy, Germany and Japan obtained money after having experienced depressions. You can read about Stuart Chase and a review of that literature here. The idea that ‘money’ was not an issue but the constraint was real resources was gaining recognition during the 1940s. Beardsley Ruml, the Chairman of the NY Federal Reserve in 1946 gave a speech ‘Taxes for Revenue are Obsolete’ In that speech Ruml outlines the purposes of taxation is to “stabilize the purchasing power of the dollar”, to “express public policy in the distribution of wealth and of income” and “in subsidizing or in penalizing various industries and economic groups”


The GND being proposed in the USA is advocated for by grassroots movements such as sunrise, that campaign for electing justice democrats that adhere to a new consensus.

The sunrise website states;

“The Green New Deal is a 10-year plan to mobilize every aspect of American society to 100% clean and renewable energy by 2030, a guaranteed living-wage job for anyone who needs one, and a just transition for both workers and frontline communities.”

Under paying for a GND new consensus says the following;

“The Green New Deal will be funded as all other ambitious American projects – including public works, bank bailouts, wars, and tax cuts –have been: through carefully targeted, Congressionally authorized spending. As the post-2008 consensus among serious economists and financiers affirms, this does not require “new taxes” unless inflation emerges. And since (a) well over $5 trillion in tax cuts and war expenditures in recent years have not triggered inflation, (b) the Fed is still struggling to get inflation consistently up to its 2% target, and (c) the Green New Deal will produce new goods and services to keep pace with and absorb new expenditures, there is no more reason to let fear about financing halt progress here than there was to let it halt wars or tax cuts.”

That style of thinking is straight from the school of thought known as modern monetary theory. ‘Paying for’ a GND is articulated in this paper. This article in the Huffington Post ‘Paying for a Green New Deal’ says;

“The federal government can spend money on public priorities without raising revenue, and it won’t wreck the nation’s economy to do so. That may sound radical, but it’s not. It’s how the U.S. economy has been functioning for nearly half a century. That’s the power of the public purse.”

If you don’t understand the economics, the framing of the programs that are included are based on a neoliberal economic framework that undermine the ambition within the framework.

The economy isn’t a seperate entity to society. The fiscal position of a government is merely an irrelevant statistical artefact. A currency issuer is never financially constrained, it spends by crediting a bank account. What matters is whether we have the real resources (raw materials, labour power, skills) to implement a desired agenda. The below quote is from the text book macroeconomics by modern monetary theorists, Bill Mitchell, Martin Watts, and Randy Wray.

“While we may think it is useful to separate ‘the economy’ from the rest of social life, and to apply ‘economics’ to the study of that area of life, we recognise that the division is necessarily arbitrary. In truth, there is no completely separate sphere of ‘economic life’, meaning that economics is linked to, and incorporates findings from, the other social science disciplines.”

The GND has it’s intellectual underpinnings as a new way of thinking about economics and uses that as a lens to advocate for Medicare for all and the elimination of all medical debt, transition to 100 percent renewable energy and create 20 million jobs, ensure a just transition for fossil fuel workers, invest in conservation, free colleges and the cancelation of all student debt, a series of pro union laws with a goal of doubling union membership in a Sanders presidency first term, housing for all with a huge reinvestment in social housing and a goal to end homelessness and ensure fair housing for all. I’ve taken that information from Bernie Sanders campaign issues.


You see similar thinking during the post WWII era where under a different way of thinking about ‘the economy’ (Keynesianism) the British Labour Party under Attlee in their 1945 ‘Let Us Face the Future’ manifesto listed things such as ‘Jobs for All’, ‘Agriculture and The People’s Food’, ‘Houses and the Building Programme’, ‘Health of the Nation and its Children’ ‘Social Insurance against the Rainy Day’


Now let us look at what The Greens Party in Australia is calling a Green New Deal. They haven’t specified what they mean by a GND so I’ve read the policy pages of their website. Adam Bandt in the article linked to in The Guardian has said;

With a Green New Deal, we can deliver a manufacturing renaissance, turning Australia into a renewable energy superpower exporting our clean energy to the world. At the same time, as Ross Garnaut has proposed, we can process our resources and minerals in Australia and attract new business investment because of our abundance of solar energy.

Whoever said an export led strategy was part of a GND? At the macro level an export is a loss. It is a real good or service a nation does not use because it ships it away. How do we ship the renewable energy overseas? Turning it into Hydrogen requires tremendous amounts of water on one of the driest continents on earth. Isn’t it far more efficient that foreign nations can produce renewable energy without relying on others?

Ultimately the wealth of a nation is its labour force and what it is able to produce. What it can’t produce, it has to import. That’s just simple logic. A currency issuer can always employ labour and afford whatever is technically feasible. A monetarily sovereign country can always afford full employment though that may not necessarily mean the country is materially prosperous.

The Greens policy on Renewable Economy and Climate Change is to:

“Phase out coal, move to 100% renewables and deliver cheap, clean and reliable energy for homes, businesses and industry” an amicable goal. Their policy on electricity is to Create Power Australia, a not-for-profit, public energy retailer for renewables” That is a market based mechanism under the idea that ‘a market’ can deliver resources efficiently’. You read the website in further detail and they say they will Buy back essential electricity infrastructure…That’s why the Greens will establish a Grid Transformation Fund – to restore public ownership to those critical interconnectors between states.”

They’re still stuck within a neoclassical economic framework. The Federal Government issues Australian dollars, it doesn’t need a fund to be able to purchase anything. It can always make a payment denominated in Australian dollars, and purchase anything for sale in that currency. Who said we should have to buy back what the public sector built and sold off cheaply, and allowed corporations to profit off. The Greens website goes onto say “Under our plan, energy bills will be reduced by an estimated $200 a year for an average customer, we’ll increase competition in the existing retail market and end the profit-at-all-costs business model.” I think that’s really lousy goal.

Here is an actual progressive policy. Create a situation where any private infrastructure is financially unviable for a private entity and take it back. We need massive investment in leaving fossil fuels and transitioning to renewables. Build it using public funding and have a policy of delivering a quota of free electricity to every household. Guarantee free electricity, water and broadband to every Australian household. This is entirely possible when you understand the federal government is not a household and can always deploy resources for a public purpose. It is not a question of ‘how do you pay for it?’ rather it is ‘how do you resource it?’

Continuing under the heading of ‘Renewable Economy and Climate Change’ The Greens state they wish to Provide support for coal workers and communities as we phase out coal’. Delving into further detail they go on to say “Under our plan, we will establish a specialised, independent Future of Work Commission. The Commission will examine the impacts of technological innovation and develop long-term strategies for jobs.”

That isn’t anything like a just transition being proposed in the USA that says they want “a guaranteed living-wage job for anyone who needs one, and a just transition for both workers and frontline communities.” A just transition would mean looking at the skill set within fossil fuel industries and the towns that are impacted and using that skill set (electricians, engineers etc…) in industries that aren’t based on fossil fuels. It means guaranteeing work without loss of pay as those workers transition into other industries.

Under World-class health, education and social services and ‘Support Payments‘ we have a policy that says “We will immediately raise Newstart and Youth Allowance by $75 per week”. The current rate of Newstart for a single with no dependants is $489.70 a fortnight or $244.85 per week. A $75 a week increase will have the rate at $319.85. The Henderson Poverty Line for the June quarter 2019 was $429.60 a week for a single person with no dependant children. That leaves an unemployed person $109.75 below the poverty line.

Furthermore unemployment is always a political choice. The Government can always purchase whatever is for sale in Australian dollars, including idle labour. The Government of the day chooses the unemployment rate it wants. When you look at what is being proposed in the USA around a Job Guarantee, and the academic literature around what it is, it is buffer stock mechanism, designed to eliminate involuntary unemployment and act as a price anchor.

A measly raise to the rate of Newstart and a Future Work Commission is admission of defeat that full employment would be nice to have but no longer possible. It takes a limited view of what we consider to be productive employment. Reading broader literature around a Job Guarantee we learn that it aims to redefine what we consider productive work.

“Many other people claimed that there are social services that are not considered ‘productive’ in the sense of profit-generating activities that, nonetheless, needed to be done—things like caring for the young, old and the frail, cleaning and fixing up the neighborhoods, running soup kitchen, and so on.”

Conclusion

Any ‘Green New Deal’ needs an understanding of the differences between a currency issuer and a currency user. It needs to understand that to tackle the climate crisis the currency issuing government needs to take a major role in transitioning away from fossil fuels and building renewables as well as using that transition to create a more equitable society. You won’t get that more equitable society or be able to invest in greater public spending unless you understand that it is never a question of whether a currency issuing government can afford to ‘pay for’ something, it is a question of whether the real resources are available. If they are, federal government spending is unconstrained. If they aren’t, how do you stop the private sector using those real resources in a way that is non-inflationary.

The Right to Work

I’ve finally finished the site design and colour scheme. It took me much longer than expected as it proved more difficult than expected. Alas, I have a final design. Today’s topic is a continuation from my post Full Employment Demise and is a history of ‘The Right to Work’

The right to work movement has its origins in the 14th century. Now a days, within a USA context, it is a term used for anti union laws under the guise of a right to not be a member of a union. They are laws designed to limit organising and collective power.

Work on a a lords land circa 14th century was usually for a subsistence living and the surplus value of your labour (literally your harvest) was the property of the lord. The peasants that occupied the land were not its owners. Agrarian property was controlled by a class of feudal lords. Their were limits on travel for working people, ‘Villeins regardant’ were usually granted plots of lands to farm for a subsistence and these plots along with those on them could be bought and sold. ‘Bordarri’ who were usually tradesmen/artisans were usually granted a cottage to live in exchange for their labour. Conditions of servitude were inherited and you were bound in perpetuity. Under capitalism the exchange value disguises the use value of your labour and the capturing of surplus value by the capitalist class is more opaque.

There was growing demand for wage labour (most likely because of the leaving of taxes demanded a necessity for the sovereigns currency) Waged-labour was more cost effective than feudalist servitude as it absolved the owners of needing to house and feed their workforce. There was less direct need for surveillance and motivation came from the workers needing to obtain income.

As waged-labour became more common there were a series of laws through Britain and the rest of Europe to preserve distress amongst the unemployed. The notion that it ‘built character’, ‘unemployment acted as a motivator and increased the productivity of the working class’, and it limited what the capitalist class saw as ‘excessive wages’ as workers competed for scarce work.

There were laws that under the guise of ‘providing for’ or to ‘assist’ the unemployed acted as a mechanism for forcing the unemployed to take any job at any condition. Elizabethan poor laws, such as the system of Speemhamsland, which was a sliding scale payment tied to the price of grain, designed to mitigate against rural poverty but ended up as a wage subsidy and resulted in increases in the price of grain, leaving the poor no better off.

There were also workhouses during the 19th and 20th century. The unemployed would be required to work in dangerous conditions, usually in a factory, for their below subsistence welfare payment. Conditions were often so pernicious, it resulted in death. It is similar to today’s modern day mutual obligation requirements under our welfare system. Welfare recipients are required to undergo Work for the Dole or Community Development Program (CDEP) for their below subsistence payment. It is mandatory and there have been cases of workers dying as a result of the conditions. The CDEP is often work for a private for profit corporation.

By 1848 during the Second Republic of France and the idea of a ‘right to work’ had gained traction having been popularised over the proceeding decade by Louis Blanc. The abolition of unemployment was a goal of the Parisian workers who had backed the Second Republic. ‘National Workshops’ were established where unemployed Parisian workers could show up and be paid. The scheme was contentious and had divided the cabinet, that resulted in a chaotic scheme. Many within cabinet wanted political reform not necessarily social reform such as the elimination of unemployment and wealth redistribution. The municipal engineers organising the work resented the use of unskilled labour. Often there was no planned work for the idle workers they would be paid one and a half francs a day to do nothing or two francs when work was given. The program started at approximately 14,000 workers and within half a year and expanded to 117,00 workers.

False promises were made to expand the program throughout The Republic however, the ‘right to work’ was withdrawn which led to what is known as ‘The June Day Uprisings’, warfare amongst the national guard and the workers which left thousands of protestors dead.

The ‘right to work’ movement reached the political discourse in Britain in 1889 and became a goal of the Independent Labour Party. Ken Hardie an ILP member in parliament breathed life into the unemployment debate. His maiden speech to parliament called for a policy on employing the unemployed.

“…we ought to have some permanent machinery to deal with the unemployed, the conditions of which should be twofold. In the first place it should be elastic. Labour should be organised in what he might call skeletal battalions, which might be filled in times of distress to their full strength, and which might go down again to skeletons when employment was plentiful. In the second place, the employment should be of a temporary character, and not such as to induce the recipients of it to remain in it in preference to seeking employment elsewhere”

The right to work and having the government act as an ‘employer of last resort’ gained traction across the political spectrum over this period. The choice for policy makers was, admit they had the capacity to employ the unemployed during downturns and they could set up works to to do or they could leave the unemployed to face destitution and misery, risk electoral defeat or a social revolution. The conservatives came with a counter offer found in the works of a conservative member of the House of Lords, William Beveridge in Unemployment: A Problem of Industry.

Beveridge argued in 1909 though unemployment was a result of the capitalist system it was only necessary to eliminate frictional unemployment and provide relief for the unemployed through unemployment insurance. The conservative alternative to Labour’s ‘Right to Work’ was a system of labour exchanges between the public and private sectors and and a contributory unemployment insurance scheme. By 1911, this was the system in place in Britain.

In 1919 E.G Theodore, Queensland Premier with the Australian Labour Party attempted to pass the Unemployed Workers Bill. The goal was to place the full resources of the State and Local Government in the hands of a council dedicated to the elimination of unemployment. The State Government would undertake major works to increase the number of jobs, there were powers that would order private employers that could assist to augment their projects, while local authorities would delay or expedite programs to deal with the seasonal variations in the number of jobs available. The councils role would be to undertake research and commission vocational training. Welfare payments were to be transitional while employment was being organised.

Naturally there were objections from the capitalist class towards this goal. Headlines described this system as a ‘loafers paradise’ by The Courier Mail

“The so-called “Unemployed Workers” Bill and its extraordinary provisions were widely discussed in the city yesterday. Needless to say, the measure was very strongly condemned as a premium upon idleness…”

Mainstream media warned of communist atrocities and the perils of socialism. The bill never passed but we saw a shift in the language used by opponents of full employment. Whereas in Hardie’s 1908 bill we saw opposition to full employment, laying open the capitalist class opposition to a system of full employment by 1919 arguments were around how methods of achieving full employment were flawed.

Much of the ‘economic’ theories being used (Quantity Theory of Money;late 19th early 20th century, Loanable funds theory;circa. 1930s) were funded by industrialist and used as justification on why full employment was ‘unachievable’.


Throughout history there have been different ‘monetary systems’ in place. Today we operate under a ‘fiat’ system. (Literally Latin for by decree). A fiat monetary system is one where a sovereign power issues its own currency and floats it on an exchange rate for trade.

The monetary system in use during post WWII was a gold standard. Governments would specify a particular amount of gold specie in return for the currency that they issue. Thus currency was limited by the supply of gold.

During war periods the gold standard was often suspended. This allowed a government to spend without concern toward the gold supply. During the Napoleonic wars Britain entered a period know as ‘The Restriction’ which suspended the gold standard and they invested in building their navy and colonising half the world. Similarly the gold standard was suspended over WWI and WWII.

During times of war, it is ‘normal’ to have all real resources, including labour in use. There is often a shortage of raw materials and labour power. Hitler used a fiat system to build Germany’s military. Japan avoided a Great Depression because the Japanese Prime Minister, Takahashi Korekiyo, took Japan off the Gold standard in 1931, and introduced a major fiscal stimulus with central bank credit. (Jargon for issuing money without issuing a bond)

The Great Depression was largely a result of insufficient spending, being tied to a gold standard and opposition to full employment by the capitalist class. Full employment policies have enormous political consequences as the threat of unemployment is taken away. It ensures workers have higher bargaining power, politically we have more power to ensure greater provisions of public service, which erodes capitals claims on national income.


The period of WWII in Australia saw full employment in Australia. As I mentioned in this post. Australia experienced a period of a full employment policy were unemployment seldom rose above two per cent. The work of J.M Keynes and his General Theory influenced most western policy towards achieving this goal. Full employment was defined as more jobs advertised than demanded (Beveridge curve) and Keynes ‘pump priming’ was used to ensure aggregate demand (total spending) was sufficient with this goal. Keynes very clearly articulated unemployment was a result of insufficient aggregate demand. (Spending in total)

Pump priming is a mechanism where you stimulate the economy enough to increase the marginal propensity to consume and the additional spending reaches enough to generate full employment.

Conclusion

The right to work was once a goal of workers movements in France, Britain with the Independent Labour Party, and an early goal of the Australian Labour Party. It sat alongside universal suffrage and the eight hour day.

Systems of unemployment insurance were compromises over policy goals of guaranteed employment. Today the workhouses of the 18th century are back in a modern form (WftD, CDEP), the pernicious nature of making unemployment so unattractive so the unemployed take any available job, no matter how atrocious the conditions.

Full employment policies were introduced post WWII though didn’t use a system of guaranteed jobs and provided unemployment insurance while workers waited for work to be created. However, there was a clearly defined goal of ensuring more jobs than work demanded. Today definitions of full employment are pathetically defined.

The next post will look at how a fiat currency can always be used to employ all available labour using a Job Guarantee as a buffer stock mechanism and changing the definition of productive work!