I often make the point in talks that the fictional world that mainstream economists promote…
This is Part 7 of my on-going examination of the concept of ‘duty to work’ and how it was associated with the related idea of a ‘right to work’. Today, I go back in history (again) to discuss a literature that influenced the evolution of my own early advocacy of a Job Guarantee. We see how I considered developments in the early C19th which established very clearly the responsibility of the government to act as an ’employer of last resort’ could be integrated with the buffer stock literature (which analysed the use of commodity buffer systems) in C20th to provide a coherent buffer stock full employment capacity in our modern economies. In Part, this establishes where the Job Guarantee idea, that is now central to Modern Monetary Theory (MMT) came from – at least, in terms of my early contribution to that body of work.
The earlier parts in this series are:
1. Tracing the roots of progressive views on the duty to work – Part 1 (August 4, 2020).
2. Tracing the roots of progressive views on the duty to work – Part 2 (August 11, 2020).
3. Tracing the roots of progressive views on the duty to work – Part 3 (August 20, 2020).
4. Tracing the roots of progressive views on the duty to work – Part 4 (September 1, 2020).
5. Tracing the roots of progressive views on the duty to work – Part 5 (September 8, 2020).
6. Tracing the roots of progressive views on the duty to work – Part 6 (September 29, 2020).
The theme today is to report on early concepts of the right to work, which in Modern Monetary Theory (MMT) are expressed, in part, by a commitment to a Job Guarantee.
But, we should not think of the Job Guarantee as the only expression of a government’s responsibility to ensure a right to work.
I often see commentary in the social media from those who are apparently sympathetic to the idea of a Job Guarantee that would lead one to conclude that MMT economists think the buffer stock capacity will solve all unemployment issues.
The way we conceived of the Job Guarantee from day 1 was to be a relatively small, steady-state pool of jobs which would expand in the relatively rare times that inflation became a problem and/or private spending collapsed.
Typically the Job Guarantee pool would be very small and provide work for the most disadvantaged workers in the society.
When confronted with say a major downturn in private spending, while the Job Guarantee pool will expand, the most valuable intervention a government can make is to create career-based, high skilled jobs in the economy rather than passively sit back and allow the Job Guarantee pool to expand.
Warren Mosler constructs the Job Guarantee as a transition job – transiting the work back in the private sector.
I do not give it that emphasis for my own reasons and am happy to see the a worker permanently occupy a Job Guarantee job if that is the best outcome for them.
But the difference in that construction does not alter the fact that we both conceive of the pool of jobs as being very small when economies are operating at higher pressure levels.
The Job Guarantee is not a panacea for all ills.
As an aside, I keep getting E-mails with statements about the Job Guarantee and links to articles about it, which continue to repeat the assertion that the Job Guarantee is derived from the work of Hyman Minsky.
One recent Op Ed even claimed the idea was “first put forward” by Minsky. The author followed that statement claiming that this idea was “now promoted by” yours truly (and Noel Pearson) insinuating that I was promoting the work of Minsky.
The initial statement is factually wrong and demonstrates an ignorance of history or a willingness to revise history to fulfill some agenda.
The second statement – insinuating I am promoting Minsky’s work – is equally in contradiction with reality and the historical record.
I dealt with these matters in these blog posts:
1. The provenance of the Job Guarantee concept in MMT (April 20, 2020).
2. The historical beginning of the MMT team – from the archives (November 27, 2019).
3. Flattening the curve – the Phillips curve that is (April 7, 2020).
The point is this.
At the outset when the MMT work began, the concept of a Job Guarantee was the outcome of input from myself and Warren Mosler to an early E-mail discussion list (PKT) in mid-1990s.
I document those discussions in the blog posts cited above.
The historical record is clear.
Neither of us were influenced in any way by the work of Hyman Minsky. Warren and I came to the same point from quite different angles and those insights were then developed within the body of work we now know as MMT.
It is true that Randy Wray, who was a participant in the discussions on that E-mail discussion list was very influenced by Hyman Minsky (having had him as a doctoral supervisor) and saw similiarities in what Warren and I were inputting to the List with early work that Minsky had published.
And subsequently, it is true, that Randy and those that were influenced by his work built further connections with Minsky and the unfolding body of MMT work.
But that doesn’t allow one to conclude that the concept of the Job Guarantee as it became a central part of MMT was derived from Minsky. It categorically was not!
And an interesting question one might ask in this context is whether one could have extrapolated the body of work we now call MMT from Minsky’s earlier work.
My answer is that there is no possible way that sort of evolution would have occurred.
I considered those sort of issues in this blog post – Hyman Minsky was not a guiding light for MMT
(November 9, 2016).
Just before I came into contact with Warren Mosler on the PKT list, Hyman Minsky was expressing deep concern about deficits and inflation, which I document in that cited blog post.
In 1991, he was advocating what we call ‘sound finance’ the anathema to the ‘functional finance’, which underpins aspects of Modern Monetary Theory (MMT).
He says things such as:
1. “the government must validate our debt with taxes”.
2. In the context of rising government deficits in the 1980s, he claimed that “the quality of the government’s debt in international markets is deteriorating”.
3. “we lack the will to tax ourselves so that the government liabilities are fully validated by receipts”.
His public comments amounted to a rejection of basic MMT propositions.
While early in his career he was supportive of Abba Lerner’s functional finance ideas, by the time his 1986 book came out – Stabilizing an Unstable Economy – (Yale University Press), he was articulating the ‘sound finance’ principles.
This was the first book or article of Minsky’s that I had read in detail and it marked a change in his position after the election of Ronald Reagan.
At this point, he increasingly argued that government debt was at risk of becoming non-credible in the face of non-government bond investors.
His main message became that the fiscal outcome should be in balance or in surplus at full employment, which of course is not the MMT position at all.
His later work build on these non-MMT propositions, which I discuss in detail in the blog post cited.
The point is that by this time, a natural evolution of his ideas would never have yielded the insights that have become integrated in MMT.
Buffer stocks and the Job Guarantee
Further, I included that brief clarification because it actually bears on what I was going to write in this Part 7 of the series.
It is simply untrue to say that the idea of employment guarantees was first proposed by Hyman Minsky. A short research effort would disabuse anyone of that idea.
My evolution that led me to outline a Job Guarantee scheme, first, in 1978 and then later during the early discussions on the PKT List, was influenced by my research into the commodities literature on buffer stock schemes, which were common in pre-Second World War Australia and later.
It was well-understood that these schemes could provide a framework for macroeconomic stability (redress market movements that would lead to price and income instability).
And I was influenced by the work of Benjamin Graham (particularly his 1937 book ‘Storage and Stability: A Modern Ever-normal Granary’) which laid out a price stability plan based on the use of commodity buffer stocks (storage in the ‘Ever-normal Granary’), which he morphed into a derivative scheme he proposed to create a commodity reserve currency, that would reflect some weighted composite from 21 raw material stocks in the Granary.
I am skating through detail here because this is not the primary emphasis today and I could write a lot about Graham (as I did in my PhD thesis).
I had also read John Maynard Keynes’ 1938 paper – The Policy of Government Storage of Foodstuffs and Raw Materials – (published in the Economic Journal, Vol. 48, No. 191, September, pp.449-460) – link is to JSTOR which requires library access.
Keynes was impressed by Graham’s work and saw it as a way of stabilising prices amidst market fluctuations in commodity supply.
He refers to his 1937 book and Graham’s contention that government storage would be relatively low cost (see discussion in J.M. Keynes, ‘Activities 1931-1939: World Crises and Policies in Britain and America’, published in the Volume 21 The Collected Writings of John Maynard Keynes.
In his 1938 Economic Journal article, Keynes observed (p. 450):
… the fluctuations in the prices of the principal raw materials which are produced and marketed in conditions of unrestricted competition, are quite staggering …
An orderly programme of output, either of the raw materials themselves or of their manufactured products, is scarcely possible in such conditions.
He saw this problem as contributing to instabilities in export trade, which was a major issue for Britain at the time, given its export prominence.
He also saw that (pp. 451-52):
… nothing can be more inefficient than the present system by which the price is always too high or too low and there are frequent meaningless fluctuations in the plant and labour force employed.
While he considered that “measures to stabilise the aggregate of effective demand” (p.451) could be of help here, he considered a ‘storage’ approach could supplement.
He considered the government had a responsibility to facilitate this storage solution (a buffer stock manager) given that the competitive firms had no incentive to hold inventories in this way.
H.M. Treasury would fund the “warehouse costs and interest”, which he considered would be a modest expense.
He wanted to extend the scheme to the British Empire nations which provided raw materials – “sugar from the West Indies, jute from India, wool from Australia, vegetable oil products from West Africa, non-ferrous metals, and all the endless variety of Empire products which must be stored somewhere”.
I refer to the influence that Benjamin Graham had on my thinking as a student in this blog post: Modern monetary theory and inflation – Part 1 (July 7, 2010).
The point was that the principle that buffer stock mechanisms funded and administered by government could provide for market stability (volumes and prices) was well established in the commodities literature.
My departure came from an idea I had 1978 when I was studying agricultural economics at the University of Melbourne as part of my fourth-year studies.
It was a time when unemployment was rising sharply in Australia and inflation was high (as a result of the OPEC oil crises). I was trying to work out a way to advocate for continued full employment but address the issues that economists were raising about inflation.
I was also very interested in the Phillips curve literature which I saw as the major battleground for the emerging dominance of the NAIRU approach (using unemployment buffer stocks to discipline inflation) – that sort of research became my Phd research program.
So it came to be that if the government could buy and sell wool at will to correct shortfalls (or surpluses) of wool production relative to demand, which allowed it to stabilise prices and incomes, then why could it not do the same with labour.
And, for me the Job Guarantee idea was formed. Minsky was nowhere to be seen!
But I had also been reading historical literature that first introduced me to the idea of employment guarantees and the government as ’employer of last resort’.
The buffer stock approach allowed me to tie together full employment and price stability.
But that earlier literature reinforced my thinking about the centrality of government in maintaining a ‘right to work’ through employment guarantees.
So far from Hyman Minsky being the “first to propose” employment guarantees, we now head back to the early C19th. We could have gone back earlier but it is the early C19th literature that I first became acquainted with state-run employment guarantees.
The Saint Simonians
As a young student I read a lot of the literature about and by the – Saint Simonians – who were a “French political, religious and social movement of the first half of the 19th century” who followed the lead of “Claude Henri de Rouvroy, comte de Saint-Simon”.
He advocated the transformation of industrialisation so that “true equality” could be achieved by the “union of men engaged in useful work”.
He was one of the thinkers who tried to build a liberation Socialist philosophy after the French Revolution.
His early work – particularly the publications in l’Industrie (1816-18) – which was a collection of pamphlets where he and others would expound their philosophical positions on how humanity might develop from the primitive to sophisticated.
The Saint Simonians advocated socialism but were not aligned with the emerging Marxists.
Claude Henri de Rouvroy proposed that government would cease being a vehicle for class domination, and, instead use science and technology to introduce and maintain a welfare state to benefit all.
As I was working my way through the Marxist literature I was very interested in these alternative visions of socialism as a vehicle to advancing improved well-being for workers.
Louis Blanc – was a historian, a socialist influenced by the Saint Simonians, and for a short period, a French politician.
Karl Marx called him a ‘utopian socialist’
In the leadup to the – 1848 Revolution in France – Louis Blanc was among several writers who saw the 1846 harvest and financial crises as an instigation for progressive reform.
Louis Blanc became prominent in advocating the ‘right to work’ and his writing was interrupted by the February 1848 revolt, upon which he took a position in the provisional government and became Chairman of the Luxemburg Committee.
The February Revolution arose on the back of rising unemployment and poverty. Skilled workers were pushed down to material levels commensurate with the ‘proletariat’.
The so-called “Bourgeois Monarch”, Louis Philippe sat on his heels and acted in the interests of capital (particularly the bankers – the “financial aristocracy”) and largely ignored the growing plight of industrial labour.
Louis Philippe ignored the growing protest movement and because the poor did not enjoy political franchise, a revolt was inevitable.
The Revolution established the “droit du travail” (‘right to work’) as an operative principle binding government initiatives.
This article – Employment and the Revolution of 1848 in France – provides useful historical narrative and facts.
On February 25, 1848, Louis Blanc proposed a motion to the French government:
… to guarantee the existence of the workmen by work …
The provisional government rejected the motion saying it was outside its provisional jurisdiction.
Instead, Louis Blanc was appointed on February 28, 1848 to oversee a new body – Commission du Gouvernement pour les travailleurs (Government Labour Commission)- which operated out of the Palace of Luxembourg.
In a way, we are completing a circle here to – Part 1 – of this series, given that it was Louis Blanc who entered the phrase:
De chacun selon ses facultés, à chacun selon ses besoins
That is, “from each according to his ability, to each according to his needs”.
Louis Blanc believed this could be accomplished through strictly enforced labour regulations (safety etc), nationalisation of key industries, and the creation of a cooperative system of “social workshops”, which would be worker controlled in relation to the trade union movement.
His eventual socialist goal was “the eventual wholesale elimination of private capitalism and the market wage system, and its substitution by a “universal association” geared towards the needs of workers.” (Source).
The Commission set about fulfilling their agenda to create the ‘ateliers nationaux’ (national workshops) for all the existing trades, which would provide guarantee work for the unemployed.
There was considerable disputation however over topics such as whether the low-skilled were receiving favours that were not forthcoming for the higher skilled workers.
In terms of documenting the historical record of the evolution of the ‘right to work’ and employment guarantee ideas, no better person to be consulted is Dr Victor Quirk who wrote a masterly PhD thesis under my supervision on the topic.
He goes back to the 1351.
He wrote a guest blog here which is relevant – Advocating full employment (November 24, 2010).
He also provided some excellent analysis on the fortunes of these national workshops.
Given the necessity to organise the jobs quickly, the workshops struggled to come up to scale.
On March 15, 1848, 14,000 workers were employed in Paris. By June 15, 1848, this number had risen to 117,310.
But there were always more workers desiring jobs than the capacity could create which resulted in conflict.
Victor Quirk writes:
The chaotic nature of the scheme was partially the consequence of the tensions within the cabinet on the question of the elimination of unemployment.
Louis Blanc was largely sidelined in the management of the scheme once the fear of on-going revolts subsided.
In effect, the conservative forces did not support this utopian scheme. Ultimately, the National Assembly exploited the chaos within Louis Blanc’s workshop system to withdraw it.
If you want chapter and verse on this scheme then I urge you to consult Victor’s thesis.
Having failed, Louis Blanc migrated to England in August 1848 and was considered a “a leader of petty-bourgeois émigrés in London” (see Karl Marx and Frederick Engels, Selected Correspondence (Progress Publishers, Moscow, 1975)).
The point here is that his proposal was a coherent early example of the ‘right to work’ and for the government to act as an ’employer of last resort’.
When I read this literature as a student in the late 1970s and early 1980s, I was convinced that the government had to act in this way and that the later literature on the buffer stock mechanisms, provided me an understanding of the architecture and machinery in which this sort of capacity could be exercised to maintain price stability.
I saw the melding of these literatures (the ‘right to work’ socialists and the buffer stock approach) to be a way to overcome the Phillips curve dilemma of having to endure high unemployment to maintain price stability.
And Minsky was nowhere to be seen.
It is false to assert he was the first to introduce the notion of employer of last resort.
The US Second Bill of Rights 1944
In it, he articulated that a key feature of the Bill would be a ‘right to work’ among other rights that are visibly absent from American life today. The ‘right to work’ meant, in those days, that the government was responsible to ensure that everyone who wanted to work had a job (that is, an employment guarantee).
In this neoliberal era, the term has become used in the context of right-wing “right-to-work laws” that attack trade unions an push power towards employers.
Unfortunately, Roosevelt’s bill never made it to the US Congress and he died before the Second World War was terminated. Subsequent efforts to revive it were always blocked by the conservative political forces.
But, clearly, the tradition of employment guarantees went back long before Hyman Minsky was writing about it (though briefly).
In Part 8 I will deal with the issue of coercion.
That is enough for today!
(c) Copyright 2020 William Mitchell. All Rights Reserved.