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But perhaps the most notable policy associated with Modern Monetary theory is the 'jobs guarantee'. This is a restoration of the old post-war policy of seeking 'full employment', taken for granted by both Conservative and Labour governments until the 1970s when it began to give way to the so-called 'Non-inflationary rate of unemployment' - the view that a certain 'natural' level of unemployment has to be preserved, as a matter of government policy, in order to avoid a process of accelerating rate of inflation (the NIRU has now become the slightly more sophisticated NAIRU - Non-accelerating inflation rate of unemployment).

This was an issue that was coming to the fore in the 1960s. The full employment commitment had put the working class, organised in the trades unions, in a strong bargaining position, resulting in wage increases almost on demand regardless of the overall state of the economy, resulting in a potential mismatch between what was available for spending and what was available for buying, a recipe for inflation. I was at the time a member of a small left wing group which, unusually on the left, supported the principle of prices and incomes policy as a means of dealing with this, while recognising that the need to plan incomes policy across the whole economy should involve the organised working class in a much more active role in the overall determination of economic policy. It would thus be an advance in what appeared to be the tendency of British history since the nineteenth century towards the working class becoming the ruling class, a sort of language we could use then but is very rarely, if ever, heard nowadays, even from people who call themselves 'Marxists'. (12)

(12) See elsewhere on this site

The organised working class, however - the unions and most left wing groupings other than ourselves - remained firmly wedded to the principle of 'free collective bargaining', basically each section of the organised working class pushing for whatever it could get. They were thus inclined to accept the view that the demand for wage increases was a product of inflation and not a cause - a view which of course had a lot of credibility in the wake of the shock oil price increase of 1973. However a working class capable of assuming responsibility for the national economy as a whole would have recognised (as the Labour government did) that this external source of inflation necessitated a wages cut.

The result was that the commitment to full employment was abandoned, first under the Labour government of James Callaghan but then more determinedly under Margaret Thatcher, and a political philosophy developed which stressed government's impotence in the face of social problems. Inflation was identified as the principle enemy to be combatted and combatting inflation required the maintenance of previously unimaginable levels of unemployment which of course had the effect of destroying the bargaining power of the unions. The phrase 'free collective bargaining' has therefore long disappeared from current political discourse.

As I understand it, the Non-accelerating rate of unemployment is an abstract calculation of the rate of unemployment that would be necessary to allow the economy to operate at full capacity without resulting in inflation. Inflation, as we have seen, results when there is a mismatch between the total income of workers, capital and government on the one hand, and the real output available for distribution on the other. If the total income is greater than the total output available then we have inflation; if it is less we have deflation.

Classical theory tells us that the market, the mechanism of supply and demand, left to its own devices with no interference from busybody politicians, will naturally tend to settle on this perfect equilibrium. But of course there will be ups and downs - 'crises' - and as Keynes remarked it isn't a lot of use telling the sailors in the middle of a storm that in the long term the sea will eventually be calm again.

In the Neo-Liberal view of things, unemployment, with all its attendant human costs, becomes a measure of the state of the economy. The NAIRU tells us what the natural rate of unemployment would be if the society's level of production and level of spending were in balance, and therefore there was no, or only a controlled amount of, inflation. If the unemployment level goes above that rate it is a sign that the economy is deflating and needs a stimulus. Neo-Liberal ideology is such that that stimulus shouldn't be produced by government spending, it should be produced simply by lowering the interest rate to encourage borrowing. If the unemployment rate goes below the so-called 'natural' rate then the economy is overheating, there is a risk of inflation, and the interest rate should be raised to discourage borrowing.

Under its so-called independence introduced by Gordon Brown, controlling the rate of inflation (not ensuring full employment) is the only responsibility of the Bank of England, and manipulating the interest rate is its only policy tool. (13) The same is true for the European Central Bank. Calculating the natural rate of unemployment becomes a major part of the skill set of a professional economist. This is one of the things that is meant when we hear the word 'technocrat'. When I heard Bill Mitchell talking in London he referred at one point to research that indicates socio-pathological character traits that develop among economics students as they pursue their studies, losing elementary feelings of empathy with other peoples suffering.

(13) This is the essence of what Wren-Lewis ('Labour's fiscal credibility rule in context') calls the 'consensus agreement'. It may be the core of the disagreement between the 'Neo-Keynesians' supportive of the Labour Party's current policy and the supporters of MMT, as well perhaps as the 'Post Keynesians' represented by the site 'Naked Keynesianism'. Wren Lewis says: 'There is, however, an important difference between MMT and mainstream macro [macroeconomics - PB], and that concerns the Consensus Assignment. MMT does not advocate using interest rates to control demand and inflation, stating that fiscal policy should be used instead. In that sense it is a throwback to the 1950s and 1960s, and the Keynesians who used to battle the monetarists.'  In this reading MMT and Post Keynesians are the ones most closely loyal to the legacy of Keynes.