However, I couldn't resist commenting on one part that directly relates to the title of this blog, where the author discusses the flow of money in the economy:
The bourgeois elite of the present day does not merely enjoy privileged access to scarce material goods, after all; they also enjoy exalted status and social power over the working masses, which should not be discounted as a source of capitalist motivation. Nobody can actually spend a billion dollars on themselves, after all, and yet there are hedge fund managers who make that much in a single year and then come back for more. For such people, money is a source of power over others, a status marker, and a way of keeping score – not really so different from Doctorow’s whuffie, except that it is a form of status that depends on the material deprivation of others. ...But an economy based on artificial scarcity is not only irrational, it is also dysfunctional. If everyone is constantly being forced to pay out money in licensing fees, then they need some way of earning money, and this generates a new problem. The fundamental dilemma of rentism is the problem of effective demand: that is, how to ensure that people are able to earn enough money to be able to pay the licensing fees on which private profit depends."Oh, the trouble! Every year one exploits the masses in the production of gadgets and takes their money only to return next year and find out that they have no money left to buy the gadgets!" - That this problem is not actually one encountered in any capitalist societies even though the wealthy earn huge incomes that they don't spend on consumption, should tell us that something is wrong with Frase's idea of how money flows (and many modern Keynesians make the same mistake in their casual writing). Here is the rub: when the rich get all that money every year, there are three things that can happen.
First, and most common, is putting the money in the bank or investing it. This makes the little green paper vouchers for output owned by the rich available for use by others in the present in exchange for the promise of future output vouchers (interest and principal repayments). No demand problem there.
Second, the rich could put the money under their mattress, where no one can access the little paper rectangles. This will result in a lower money supply in the economy, which will either be countered in the short run by the central bank by printing more money or prices will have to adjust downwards by means of retailers trying to get rid of their stock through discounts, until all of the output can again be sold at its nominal price tag. No aggregate demand problem there either. When the rich at some point in the future decide to take the money out from under the mattress, this whole process reverses, the central bank tightens or prices rise and all is as it was before.
Third, the rich could burn the money (those crazy hedge fund managers are capable of anything!). The result would be the same as in the second method above, without the part where the rich get to use the money in the future.
What is definitely not going to happen is that the money simply goes down the rabbit hole and takes the goods it could have bought with it, thereby somehow leading to "material deprivation" of others. If some money is not used to buy goods, then prices do the work of making sure everything gets sold for the little green pieces of paper that are actually circulating. In the long run, the wealth accumulation by the rich might actually be a boon to the economy as a whole! After all, if the rich are not consuming their share of output, they must be investing it, which raises future output and means that everyone else can consume more now and in the future. If it really were the case that we all "overconsumed" before the financial crisis, we should be grateful to the rich who "underconsume" and "overinvest" for makings sure we nonetheless invest in the future. Of course, that is a big "if" about the true origins of the crisis, but in this post I would prefer not to go down that rabbit hole...
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