[OPE-L:5920] Re: Re: the wages of war

From: Gerald_A_Levy (Gerald_A_Levy@email.msn.com)
Date: Sun Sep 16 2001 - 08:17:31 EDT

Re Nicky's [5916]:

I certainly agree that terms like 'war' and 'act of war' (btw, an expression
I didn't use in the post you were responding to) are less clear in meaning
in today's world than in other historical periods (including Marx's).

In the context of this week's events, the government and media in the US
have referred to the attack on the WTC and the Pentagon as 'acts of
war' in order to mould and rally support for a concerted military action
by the US against groups and nations, irrespective of their role or
non-role in these events. I think that this 'dragnet' is going to be very
wide and the US will use this opportunity to make decisive military
interventions against a number of groups and nations internationally
which have been labeled 'terrorist' or 'terrorist states'. Indeed, if you
listen closely to what the White House representatives have been saying,
they say that this will be a 'war against terrorism' which obviously is an
expression that has far greater scope than a 'war against the terrorists
responsible for the attack on the WTC, etc".  I think that this has
especially ominous meaning for Israel and Palestine since the former
will no doubt use the 'war against terrorism' as a further pretext to
assault Palestinians, invade neighboring countries, and launch deadly
air strikes.

My last post, though, didn't address these concrete issues but was
admittedly more abstract and theoretical. What I was trying to get at
was an identification of the major economic causes and consequences
of war -- a depression of wages being only one consequence.

Let me raise a related question: what are the macroeconomic effects of
a depression of wages below the value of labor power during a crisis?
Marx suggested that this was "one of the most important factors in
stemming the tendency for the rate of profit to fall" (_Capital_, Volume 3,
Penguin edition, p. 342).

Let's put that perspective in the context of the famous critique by Keynes
of 'the classics':

1) for Keynes 'the classics' not only embraced classical political economy
but all pre-existing schools of thought including the marginalists (yet, at
the same time he was a marginalist).  The belief that Keynes was critical
of was the belief that there were various 'adjustment mechanisms' that would
restore macroeconomic equilibrium if there was  instability.  One of these
adjustment mechanisms that would help pull an economy out of an economic
slump and restore profitability was a depression of wages. Briefly put, the
argument was that there would be increased competition for jobs during
an economic downturn and that this increased supply of workers would,
ceteris paribus,
drive down wages which would lower firms' costs of production, which would
increase profitability, which would stimulate increased investment, which
then increase aggregate supply  and pull the economy out of the slump. Note
for 'the classics' state intervention was not required to bring about this

2) Keynes rejected the classical adjustment mechanisms and argued that they
rest on the fallacy of Say's Law.  From his perspective, once you reject
Law the following dynamic emerges during an economic crisis: there
tends to
be a depression of wages (for the reasons cited by the 'classics', even
Keynes thought that was also a contrary force causing wages to be 'sticky')
lowers firms' costs of production. Yet, will those decreased wages lead to
increased profitability, investment, supply, and growth? From Keynes'
perspective: not necessarily.  He argued that what was crucial for
understanding levels of investment demand
was the level of aggregate demand (since he viewed investment demand as a
derived demand). Yet, aggregate demand is decreasing during the slump.  The
combination of low aggregate demand and poor expectations of profitability
will lead to less investment.  Moreover, if wages go down, he argued, this
would lower disposable personal income which he anticipated would lead to
decreases in consumption spending which when the multiplier was taken into
account would lead to further decreases in aggregate spending which would
depress aggregate demand and push the economy further into the crisis.
whereas decreased wages promote macroeconomic expansion for 'the classics',
deepen a depression for Keynes.

This debate has much contemporary relevance. E.g. when the Fed lowered
interest rates,  they were implicitly accepting the classical belief that
interest rates would lead to increased levels of investment. This also
Say's Law  (eventhough Fed intervention qua intervention implies a rejection
the classical faith in laissez faire).

As we know, Marx also -- like Keynes -- rejected Say's Law. What does this
mean then in terms of the dynamics of a crisis?  Clearly, Marx believed that
a depression of wages below the value of labor-power was, ceteris paribus,
a stimulus to cyclical economic growth (along with the rest of the
'counteracting factors'). Yet, what of Keynes' argument?  After all, even if
succeed in lowering their costs of production this will not lead to an
increased general
rate of profit _unless_ firms sell more commodities. Yet,  during the slump
they have
unsold inventories of commodities. And a depression of wages will mean that
will have less money with which they can purchase the commodities intended
for working-class consumption.  In other words, if a depression of wages
to decreased commodity sales then that can be expected to depress the rate
profit and heighten the slump.

The upshot of this is that in thinking about decreased wages on the crisis,
one has
to conceive of that as _more than_ just a counter-acting factor to the
tendencial decline in the general rate of profit. It also suggests, I
believe, that we
have to root out Say's Law from every level of our analysis.

In solidarity, Jerry

This archive was generated by hypermail 2b30 : Tue Oct 02 2001 - 00:00:04 EDT