Three weeks ago I noted Paul Krugman’s article “The 1 Percent’s Solution” and commented:

I’ll just mention out that back in Feb. 2009, I was pointing out that Michał Kalecki was saying this back in his 1943 essay “Political Aspects of Full Employment.” Here’s the seventy years ahead of Paul Krugman version of the argument above:

Among the opposers of this doctrine there were (and still are) prominent so-called ‘economic experts’ closely connected with banking and industry.  This suggests that there is a political background in the opposition to the full employment doctrine, even though the arguments advanced are economic.  That is not to say that people who advance them do not believe in their economics, poor though this is.  But obstinate ignorance is usually a manifestation of underlying political motives.

And that’s really one of the things I’m trying to do on this blog, point out to liberals trying to understand how the world works that explanations involving class struggle work better than ignoring class issues. I find Kalecki useful for this sort of thing, as he managed to come up with many of the basic insights that Keynes did (and did it shortly before Keynes, in fact), starting from a Marxist perspective. I think Krugman’s slowly coming around.

Yesterday, Paul Krugman posted “The Smith/Klein/Kalecki Theory of Austerity,” which doesn’t actually say “Yeah, Jeremy, you were right all along” but I think we can all agree that it’s what he means:

Two and a half years ago Mike Konczal reminded us of a classic 1943 (!) essay by Michal Kalecki, who suggested that business interests hate Keynesian economics because they fear that it might work — and in so doing mean that politicians would no longer have to abase themselves before businessmen in the name of preserving confidence. This is pretty close to the argument that we must have austerity, because stimulus might remove the incentive for structural reform that, you guessed it, gives businesses the confidence they need before deigning to produce recovery.

The great Doug Henwood of Left Business Observer is also pointing out that he was saying the same thing back in 2004. Or, as Alex Pareene notes at Salon:

Meanwhile, it’s been fun, over the last decade or two, to watch Paul Krugman be radicalized by his opponents. This is a longtime globalization advocate who was hired, by the Times, presumably to write a column based mainly on economics, along the lines of his old Slate columns where he’d explain Japan with ticket scalping analogies and so on. Instead they got this angry fulminating liberal truth-crusader.

And this wonderful new Krugman even occasionally sounds very slightly like Doug Henwood.

And that’s about right. It’s interesting watching how Krugman seems to be playing a completely different game than any of the other mainstream media pundits. And they hate him for it.

In any event, I just figured I ought to let my readers know that they’re getting quality political/economic commentary here, ahead of the best the mainstream media has to offer, and with more random pictures of hot guys tossed in as well.

One of the basic features of my life is that pretty much my entire income manages to find a way to get spent without much trying on my part. Let’s just say that this has gotten old. It would be a welcome change for all of my expenses to find a way to get funding without much effort.

On that note, here’s a passage from A Theory of Full Employment by Yehojachim S. Brenner and Nancy Brenner-Golomb, summarizing the essay “A Theory of Profits” by my favorite economist, Michał Kalecki. This is Kalecki’s variation on Keynes’s “widow’s cruse”:

It was Kalecki who saw this. In his equation national income is determined by the propensity to save out of the capitalists’ income and by the distribution of the national income between the wages and profits and the volume of investment. In what is an almost Marxist conception, he distinguished between capitalists (savers and consumers) and workers (consumers) and showed how profits and consumption are related to each other. Unfortunately his dictum: “workers spend what they earn and capitalists earn what they spend,” though appropriate, caused a good deal of misunderstanding and diverted attention from his important argument. Had he formulated the distinction in terms of “income from work and income from profit,” rather than in the sociological terms “workers” and “capitalists” the picture would have been much clearer. It would at least have silenced the critics who pointed to the fact that many workers earn both an income from work and from their savings.

Well, I like the original phrasing (which I think may have been first put in those words by Nicholas Kaldor 14 years after Kalecki’s paper explaining the concept). It might make economists a bit skeptical, but it puts thing nicely in class struggle terms. And I think that’s actually the important thing here. For me, at least.

Kalecki divided the system into an income side and an expenditure side. As no one can have an income without it being someone else’s expenditure, the totals of both must be equal. He designated profits as the sum of capitalists’ incomes and wages the sum of workers’ incomes. On the expenditures side he added up investment with capitalists’ and workers’ consumption, and assuming that workers spend all their earnings on consumption, made workers’ expenditure equal to wages. In this way capitalists’ expenditure on consumption and investment is equal to profits.

OK, to break this down:

• Total Income = Total Expenditures
• Total Income = Workers’ Wages + Capitalists’ Profits
• Total Expenditures = Investment + Workers’ Consumption + Capitalists’ Consumption
• since workers spend all their income: Workers’ Wages = Workers’ Consumption
• subtracting out those two equal terms: Capitalists’ Profits = Capitalists’ Consumption + Investment

This leads to the conclusion that capitalists’ share in national income rises by the amount they invest, while the multiplier is increasing aggregate output. But even if they consume part of their profit rather than invest it, their income will not diminish. Capitalists’ income is maintained without regard to how they spend it, which means that the volume of investment at any given level of technology determines the division of labour between the production of consumer goods and investment, and that the level of technology and the volume of of production capacity determine the output of of the various types of goods.It follows that for growth with full employment there is a determinate volume of consumer goods to meet the flow of wages, and a determinate volume of capital goods produced in line with capitalists’ profit expectations.

And here we start to get out past my ability to figure this out. I think this part is describing the Kaleckian model diagrammed here, which is largely Marx’s reproduction scheme in a different form. When I get that part figured out, I’ll try to get a post written about it.

Of course you do, you’re on Tumblr. Mike Konczal has you covered, in a guest post over at Business Insider.

Justin Fox and Jay Lorsch have a new article in the Harvard Business Review, “What Good Are Shareholders?” arguing against the common idea that companies ought to be run for the purpose of maximizing shareholder value. Their criticisms and proposed solutions are couched in fairly mainstream language:

If only corporations really did put shareholders first, the reasoning goes, capitalism would function much better.

This argument has great appeal, but it is hard to square with the facts. Our current muddle, remember, comes after many years during which shareholders gained power yet were repeatedly frustrated with the results. It’s at least possible, then, that the problem lies with shareholders themselves. Perhaps they aren’t really suited to being corporate bosses. Perhaps expecting them to govern and discipline corporations is doomed to disappointment. Or perhaps there are ways in which shareholders can be effective and helpful—but we risk overlooking them if we concentrate on the need for shareholder primacy.

Personally, I preferred the argument when it was in its explicitly radical and Marxist-influenced form (and back when it could have saved us a lot of trouble) as Chapter 6 of Wall Street: How It Works and for Whom by Doug Henwood.

Henwood sums up his version of this argument as:

• shareholders provide little or no money to the companies whose stock they own, and rarely have
• in fact, since the early 1980s, the flow of cash has mostly gone in the reverse direction, from companies to shareholders
• stock prices are often noisy and even systematically wrong, so therefore provide no good evidence on how well managers are running firms
• shareholders’ interests are very narrowly selfish, usually at odds with workers, communities, and the broader society
• so, basically, who needs them?

And he makes clear how the stock market’s primary function is actually one maintaining class power, which I doubt anyone could get printed in Harvard Business Review.

On that subject, JW Mason mentions that chapter 6 of Wall Street has some competition as the “best statement of the idea that financialization is fundamentally a political project by asset owners to claim a greater share of the surplus from nonfinancial firms” in the form of Jim Crotty’s article “Owner-Manager Conflict and Financial Theories of Investment Instability” (pdf), which I haven’t read yet. But if you guys all promise to go read Henwood’s book (available free online), I’ll get to to Crotty and tell you what it’s about.