“Let the dollar circulate, let the dollar circulate.”

by Charles Mudede

Many years ago, I came up with a joke for all heavy boozers trying to lose weight. It goes like this: They prefer a Republican diet. My meaning? When it comes to government spending, the right likes to cut everything—healthcare, food stamps, social security, you name it—except the military budget. A boozer looking to lose a few pounds is similar in the sense that they make big cuts on everything—chips, sugar-addled drinks, sweets, you name it—except liquor.

This kind of bad rationalization presently informs our City Hall’s economic thinking and policies, as exemplified by the recent passage of a police contract that will add an astonishing $96 million to the city’s apparently strapped budget. And so, as Seattle slashes library hours, and plans to downsize public education, it’s expanding like nobody’s business the only armed (to the teeth) service on its budget. This, on a national scale, is called military Keynesianism.

As everyone with some education in what’s called heterodox economics, an economic program that has some contact with reality and takes history seriously, there is no such thing as a budget deficit (check out the current Modern Monetary Theory of Stephanie Kelton). Instead, we have the politics of distribution: who gets a little, and who gets a lot. There is a good reason why economics used to be called political economy. It was more honest about this fact, about the role of class politics in the market. 

The produce of the earth—all that is derived from its surface by the united application of labour, machinery, and capital, is divided among three classes of the community; namely, the proprietor of the land, the owner of the stock or capital necessary for its cultivation, and the labourers by whose industry it is cultivated.

A retired and spectacularly successful stockbroker, David Ricardo, wrote these words in 1817. They opened his book On the Principles of Political Economy, and Taxation, which, at the time, had a reputation that was second only to the first major and comprehensive examination of capitalism, Adam Smith’s The Wealth of Nations. The 1870s, however, saw what’s called the marginalist revolution. This movement’s theories and policy prescriptions, which are with us to this day, dumped any mention of the political and promoted the ethereal science of economics.

History was abandoned and replaced by what Joan Robinson called “logical time.” Mathematics, usually in the form of high school algebra, was applied to all that mattered: supply and demand, the rules of perfect competition, and market equilibrium. The distribution of wealth? Ejected. The history of class conflict? Ejected. This history of discrimination? Ejected. Economics became the abstract space and time that our council used to make sense of what, in a rich city, doesn’t even exist, a budget deficit.

As John Maynard put it at the end of his book The General Theory of Employment, Interest and Money, which was influential during the brief period that broke with marginalist thinking (or what is called economics), from the 1930s to the 1960s: “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.” This is zombie economics. This is the eight council members who voted to throw a bunch of money at our city’s only proto-military organization while it’s set to starve social services that mostly benefit the “less fortunate.”

There is more. The council’s present push to crush wage growth also describes an exceptionally poor understanding of capitalism itself. This ignorance can be explained by its unconscious devotion to another feature of orthodox economics (from the university to the press), microeconomics. Again, this mode of thinking goes all the way back to the marginalist revolution, which ejected the macroeconomics of political economy. Microeconomics focuses on individual market actors or agents, and so falls in what is called the fallacy of composition (confusing the part of a system with the whole of it). The result is a number of paradoxes that are obscure at a micro level but revealed at macro one.

The most relevant paradox, as it regards City Hall, is the paradox of cost. The heterodox economist Marc Lavoie explains it in this way:

[A] decrease in real wages will not raise the profits of firms and will instead lead to a fall in the rate of employment. This was explained by Kalecki in a Polish paper first written in 1939, where he concluded that ‘one of the main features of the capitalist system is the fact that what is to the advantage of a single entrepreneur does not necessarily benefit all entrepreneurs as a class’.

And so it is. I’m a Marxist forced to show capitalists how to do capitalism “mo’ better.” The paradox of cost concludes that what may be good for a firm (such as Sarah Nelson’s beer business) will not be good for the system as a whole (fallacy of composition) because, from a macroeconomic view, “higher real wages generate higher aggregate consumption, higher sales, higher rates of capacity utilization and hence higher investment expenditures, profit rates will be driven up” (Marc Lavoie). This fact is spelled out by the paradox of thrift.

Savers are actually bad for capitalism. And savers or the thrifty are found mostly at the top of the economic order (millionaires and billionaires). This class removes money from the dynamic system and parks it in tax havens, luxury condos, and so on. Workers, of course, can’t afford to save. They must throw their earnings right back into the market. In the right-as-rain words of Billy Paul, the working class “let the dollar circulate, let the dollar circulate.”

The Stranger