Date: Sat, 28 Jun 1997 13:30:44 -0500
From: Doug Henwood <dhenwood-AT-panix.com>
Subject: Re: M-I: Getting Malloy right


rakesh bhandari wrote:

>Oops, I confused Malloy's argument with the chapter I had just read out of
>Bill Wolman and Anne Colamosca's The Judas Economy at the book store. Sorry
>about that--Malloy is indeed offering several criticisms of just that view
>that the central bank has been responsible for tight monetary policy at the
>behest of finance capital.
>
>Her argument is that Clinton has preferred to fiscal stimulation the
>monetary mechanisms of short-term falls in the interest rates (which have
>at times lead to speculative excesses, which is what forced the fed to
>tighten credit) and the allowance of the devaluation of the dollar--hardly
>in the interest of finance capital Malloy underlines.

Sure it is. Falling interest rates means a rise in the price of bonds by
definition, and are usually a stimulus to stock and other asset prices as
well. I have a page on my web site - an excerpt from Wall Street actually -
(http://www.panix.com/~dhenwood/Int_spec.html) that explores why this is

Fiscal tightness serves another purpose which I'll get to in a minute, one
that Wall Street also finds pleasing.

> She then analyzes the  anti-inflationary consequences of fiscal austerity
>in terms of the efficiencies it would enforce. Her argument then can be
>read as being based on the idea that tighter fiscal policy, not restrictive
>monetary policy as I initially misread her, now serves the function
>deflations used to--that is, abet the centralization of capital by
>bankrupting weaker capitals which had required rising prices to stay
>afloat.

That happened long ago, in the Volcker days, and primarily through monetary
means. Inflations of the sort we saw in the 1970s cannot happen without
monetary indulgence - the validation by the central bank of private credit
demand.

Fiscal tightness takes specific forms - usually attacks on the social wage,
the welfare state, etc. - anything that could put a floor under wages and
temper the sting of the social rule of money.

>But my pscyho-sociological argument about the attractiveness of the belief
>in the panacea of looser monetary policy is shown by Malloy to already be
>based on the myth that monetary policy has been generally tight both as a
>general principle and in the interest of a supposedly autonomized finance
>capital.

People on all sides of this are too fundamentalist. Loose money won't
fundamentally change the nature of capitalism, but all other things being
equal, the working class is better off with a looser monetary policy than a
tight one. High real interest rates have contributed importantly to the
upward redistribution of income, which the financial markets celebrate
almost every day.

Doug




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