I'm both a Marxist and a professional economist, and I very much like MMT. I think there are good Marxist arguments to be made against it, but in Marxism vs Modern Monetary Theory (MMT), Adam Booth does not offer one. Instead, Booth just repeats every American Enterprise Institute canard against MMT. It's no surprise that neoliberals and reactionaries just offer lies and bullshit to "critique" Modern Monetary Theory, but I expect a lot more — more perspicacious analysis and especially more basic intellectual honesty — from people who call themselves Marxists. Sadly, this expectation is honored yet again in the breach than the observance.
Headline MMT scholars (Kelton, Tcherneva, Wray, Mosler, Mitchell, etc.) are capitalists, not Marxists; of course they're not going to take a completely Marxist line. But Marxism, at least to me, is not about the "correct" ideological line; it's about a ruthless critique of everything existing. And MMT scholars are at least ruthlessly critiquing a central element of 21st century capitalist ideology, the private ownership of the financial system; they argue that we should socialize not just the losses but the gains from this central element. Does the MMT critique go far enough? Of course not. Does it go in the direction a good Marxist would think it should go? I say it does.
Booth uncritically reproduces the neoliberal critique of MMT, which relies almost entirely on outright lies about what MMT scholars actually say. The theme of this critique is that if we do not subject the production of money to market discipline, which requires private ownership of the production of money, then the economy will crash and burn. To reproduce and approve of the neoliberal critique first relies on outright falsehood. All truth is in favor of communism, or so I've been told; even if a lie seems convenient to the Marxist agenda, we should not use it. But the neoliberal critique is not even convenient to the Marxist agenda: if socializing the production of money is a Bad Idea, then why whould more socialization be a Better Idea?
Marx wrote on economics in the middle of the 19th century, when the gold standard was close to absolute canon in capitalist economics. It took repeated financial crises and the near-complete collapse of the Western international economy, but capitalists were finally forced by circumstances to abandon the gold standard partially with Bretton Woods and completely when Nixon ended convertibility in 1971. The core features of capitalism — exploitation, alienation, the falling rate of profit — are still there, but important technical details of how these features work today is almost, but not completely, unlike how they worked in the 1860s, when Marx was writing Capital. Marx understands the gold standard, but it is too much to expect even a person of his genius to anticipate how money would work a century after his death.
One of the persistent tropes of modern Marxist scholars is that because the gold standard was central to capitalism in Marx's era, it therefore must be an ineluctable essence of capitalism. Because we still do have a capitalist international economy, therefore there must be a gold standard lurking under there somewhere. I completely disagree with this trope. Money has a radically different character in 2019 than it did in 1867.
MMT theorists, I think, understand how money actually works today. And if we want to understand capitalism, we have to understand how money actually works, which means, I think, that honest, sincere, and curious Marxists should study MMT, and incorporate it, somehow, into the theoretical basis of action today. Make an honest critique of its truth and applicability. Argue that no matter how we slice and dice it, using money, be it commodity money, or fiat money, whether or not we pretend is a creature entirely of the market, to motivate economic behavior is not and never will be enough to deliver justice and prosperity.
But please, don't use lies intended to undermine the principle of socialism.
Showing posts with label Marxism. Show all posts
Showing posts with label Marxism. Show all posts
Wednesday, September 11, 2019
Tuesday, June 26, 2018
Sunday, July 16, 2017
A Marxian class structure of 21st century capitalism
When we analyze something as complicated as human society, we have to make some simplifying assumptions. The Marxian notion of class is one such simplifying assumption.
Marx asserted that every individual's specific, concrete position in the social relations of production has a profound effect on their ideology, i.e. their moral and political thought, and that these positions are broadly generalizable, i.e. individuals' positions in the relations of production are typically not sui generis, and there is more variation between positions than within positions.* The question is not is this simplifying assumption true or false (it is both broadly true and broadly false), but whether it is true enough in ways that we can use to make meaningful explanations and predictions of social behavior.
*Observe that the opposite is true of the supposed objective and physiological characteristics associated with race: there is more variation within a race than between races, leading to the conclusion that these objective characteristics are not relevant in the construction of race, and that race is, primarily, a social construction.
The relations of production and the associated class structure are more complicated today than they were in Marx's time, but we can make some broad generalizations.
We can split up the economic roles in modern society into five broad categories, with some subcategories:
An empirical question, which I have not yet seen well-explored, much less answered, is to what degree and in what directions do ideological opinions actually match these economic classes? (Since I'm going to become a university instructor, perhaps I'll have an opportunity to look myself.) Still, intuition and common sense suggest (but do not, of course, "prove" or even provide evidence for) that class does affect ideology, that we can find at least demonstrable correlations between class and ideology, and perhaps even devise an identification strategy that would reveal a causal relationship.
The first objection is, of course, is that individuals do not neatly sort themselves into classes. What are we to make, for example, of a physician (labor aristocracy) who owns a rental property (rentier) and employs others in a medical laboratory (small capitalist)? But it is not part of the Marxian class theory that there are bright lines between each of the classes. Most people have a primary or dominant class role, even if they do have a toe in another class. More importantly, we should see people participating in multiple classes where the classes are already economically close. By virtue of his position in the labor aristocracy, our physician above already has access to a small portion surplus labor, which he holds in common with rentiers and small capitalists. We see very few ordinary workers who are at the same time industrial or finance capitalists.
A more salient objection is that there are other non-class factors, notably sex and gender, sexual orientation, race, and religion, that substantially affect ideology. I think the proper Marxian response is not rebuttal but concession. Yes, these things matter a lot, and while they interact considerably with class, they cannot be ignored or blithely subsumed into a class analysis. As a Marxist, I say that race matters, sex and gender matters, all the other categories matter, and in addition to class liberation, not just as a Marxist but as someone concerned with human liberation, I support racial, sexual, etc. equality. (However, if someone limits their feminism and anti-racism to endorsing only the proportional representation of women and people of color in the capitalist system, my support would be at best tepid.)
This blog is mostly about me thinking out loud: I need to see what I write to know what I think. Noting these objections, I'm going to explore the relation between class and ideology in subsequent posts.
Marx asserted that every individual's specific, concrete position in the social relations of production has a profound effect on their ideology, i.e. their moral and political thought, and that these positions are broadly generalizable, i.e. individuals' positions in the relations of production are typically not sui generis, and there is more variation between positions than within positions.* The question is not is this simplifying assumption true or false (it is both broadly true and broadly false), but whether it is true enough in ways that we can use to make meaningful explanations and predictions of social behavior.
*Observe that the opposite is true of the supposed objective and physiological characteristics associated with race: there is more variation within a race than between races, leading to the conclusion that these objective characteristics are not relevant in the construction of race, and that race is, primarily, a social construction.
The relations of production and the associated class structure are more complicated today than they were in Marx's time, but we can make some broad generalizations.
We can split up the economic roles in modern society into five broad categories, with some subcategories:
- The Capitalist Class, who directly own and control the processes of production
- Industrial Capitalists, who directly own and control the physical means of production
- Finance Capitalists, who directly own and control access to money
- Small Capitalists, the petty bourgeois, who directly own and control small productive businesses and employ others
- Rentiers, who live on pure capitalist income streams, but neither perform nor hire significant productive labor.
- The Professional-Managerial Class, who use education and specific professional expertise to reproduce the system of social relations, usually for a salary
- The Working Class, who actually perform the acts of production
- The Labor Aristocracy, who are employed by capitalists, and by virtue of monopolies, command a portion of surplus value. i.e. they are consistently paid significantly more than their labor power
- Ordinary Workers, who do not have monopoly protection, and who are directly employed by capitalists; market forces may temporarily increase or depress their wages above or below the political cost of labor power
- Freelance Workers, who do not employ others but are not directly employed by capitalists.
- The Reserve Army of the Unemployed, who want but do not have a position as an actual worker
- The Lumpenproletariat, who either do not want or cannot meaningfully aspire to a position as an actual worker (excepting children, the severely disabled, and the elderly) and must live on the charity of the state or on criminal activity
- Other classes, e.g. soldiers, police, scientists, (adult) students
An empirical question, which I have not yet seen well-explored, much less answered, is to what degree and in what directions do ideological opinions actually match these economic classes? (Since I'm going to become a university instructor, perhaps I'll have an opportunity to look myself.) Still, intuition and common sense suggest (but do not, of course, "prove" or even provide evidence for) that class does affect ideology, that we can find at least demonstrable correlations between class and ideology, and perhaps even devise an identification strategy that would reveal a causal relationship.
The first objection is, of course, is that individuals do not neatly sort themselves into classes. What are we to make, for example, of a physician (labor aristocracy) who owns a rental property (rentier) and employs others in a medical laboratory (small capitalist)? But it is not part of the Marxian class theory that there are bright lines between each of the classes. Most people have a primary or dominant class role, even if they do have a toe in another class. More importantly, we should see people participating in multiple classes where the classes are already economically close. By virtue of his position in the labor aristocracy, our physician above already has access to a small portion surplus labor, which he holds in common with rentiers and small capitalists. We see very few ordinary workers who are at the same time industrial or finance capitalists.
A more salient objection is that there are other non-class factors, notably sex and gender, sexual orientation, race, and religion, that substantially affect ideology. I think the proper Marxian response is not rebuttal but concession. Yes, these things matter a lot, and while they interact considerably with class, they cannot be ignored or blithely subsumed into a class analysis. As a Marxist, I say that race matters, sex and gender matters, all the other categories matter, and in addition to class liberation, not just as a Marxist but as someone concerned with human liberation, I support racial, sexual, etc. equality. (However, if someone limits their feminism and anti-racism to endorsing only the proportional representation of women and people of color in the capitalist system, my support would be at best tepid.)
This blog is mostly about me thinking out loud: I need to see what I write to know what I think. Noting these objections, I'm going to explore the relation between class and ideology in subsequent posts.
Production and reproduction
As an analogy, let us say that driving a car constitutes production. The point of driving is to move minds, bodies, and stuff from one point to another. In the Marxian sense, reproduction comprises those activities that are not themselves necessarily actually driving, but are performed to make driving possible in the future. The most obvious reproductive activities are the manufacture of new cars and the training of new drivers. Building an car is not driving — nothing is moved from point A to point B — but without new cars to replace those that fall apart (and additional new cars to make more driving possible) the system of driving would eventually grind to a halt. As importantly, how companies manufacture cars — and how we train drivers — not only makes driving possible, but strongly affects how we drive.
There are other institutions that contribute not so obviously to the reproduction of driving. We must extract oil, refine it into gasoline, and distribute the gasoline to cars. We must build and maintain roads, road marking and signage, create and distribute maps. We must pass laws about how people should drive, and pay police, judges, sheriffs, and jailers to enforce those laws. The Marxian notion of reproduction extends to these activities.
Note that this distinction can occur at different levels simultaneously. For example, a person driving a gasoline tanker to a gas station is actually driving, i.e. producing at the "ontological" level, as well as making more driving possible, i.e. reproducing at the "teleological" level.
The analogy to capitalism is direct: the drivers are the capitalists, the cars are the workers, and everybody else is involved in reproduction.
The Marxian analysis of capitalism divides capitalist social system into three parts: production, control, and reproduction. Production comprises the use of labor to create goods and services for exchange. Control comprises the decisions of what and how much to produce. Reproduction comprises all the institutions that do not actually create goods and services, necessary to ensure that capitalist production continues running in the future.
Like the driving analogy above, the creation, nurture, and education of new human beings to replace those who die and to increase the population constitutes the "obvious" level of reproduction. The less obvious reproductive activities consist of the maintenance and enforcement of property rights, management of money by the government (including the central bank), and accounting.
The least obvious activity that I would classify as reproductive of capitalism is middle management. Immediate supervisors (e.g. shop forepersons) are directly productive, because they directly coordinate their workers' productive activities. Upper management control what and how much is produced, so they are capitalists or directly serving capitalists. But what of middle managers?
Middle management is often caricatured as pointy-haired boss or Ricky Gervais's and Steve Carell's characters from their respective versions of The Office. Middle managers appear ridiculous because they are divorced from the actual process of production, and thus to workers, their behavior appears at best arbitrary and at worst absurd or grotesque. But middle managers serve an important role: they hold large organizations together as coherent organizations. They are thus agents not of production, because they do not produce, nor of control, because they largely transmit control from upper management, but of reproduction: they make the capitalist system of production possible.
(Note that other relations of production can naturally be divided into control, production, and reproduction. For example, feudal lords control production, the serfs actually produce, and the church reproduce the feudal system.)
There are other institutions that contribute not so obviously to the reproduction of driving. We must extract oil, refine it into gasoline, and distribute the gasoline to cars. We must build and maintain roads, road marking and signage, create and distribute maps. We must pass laws about how people should drive, and pay police, judges, sheriffs, and jailers to enforce those laws. The Marxian notion of reproduction extends to these activities.
Note that this distinction can occur at different levels simultaneously. For example, a person driving a gasoline tanker to a gas station is actually driving, i.e. producing at the "ontological" level, as well as making more driving possible, i.e. reproducing at the "teleological" level.
The analogy to capitalism is direct: the drivers are the capitalists, the cars are the workers, and everybody else is involved in reproduction.
The Marxian analysis of capitalism divides capitalist social system into three parts: production, control, and reproduction. Production comprises the use of labor to create goods and services for exchange. Control comprises the decisions of what and how much to produce. Reproduction comprises all the institutions that do not actually create goods and services, necessary to ensure that capitalist production continues running in the future.
Like the driving analogy above, the creation, nurture, and education of new human beings to replace those who die and to increase the population constitutes the "obvious" level of reproduction. The less obvious reproductive activities consist of the maintenance and enforcement of property rights, management of money by the government (including the central bank), and accounting.
The least obvious activity that I would classify as reproductive of capitalism is middle management. Immediate supervisors (e.g. shop forepersons) are directly productive, because they directly coordinate their workers' productive activities. Upper management control what and how much is produced, so they are capitalists or directly serving capitalists. But what of middle managers?
Middle management is often caricatured as pointy-haired boss or Ricky Gervais's and Steve Carell's characters from their respective versions of The Office. Middle managers appear ridiculous because they are divorced from the actual process of production, and thus to workers, their behavior appears at best arbitrary and at worst absurd or grotesque. But middle managers serve an important role: they hold large organizations together as coherent organizations. They are thus agents not of production, because they do not produce, nor of control, because they largely transmit control from upper management, but of reproduction: they make the capitalist system of production possible.
(Note that other relations of production can naturally be divided into control, production, and reproduction. For example, feudal lords control production, the serfs actually produce, and the church reproduce the feudal system.)
Monday, December 21, 2015
Monday, April 06, 2015
The organic composition of capital
In Capital, Marx introduces the idea of the organic composition of capital. In the LTV, a capitalist can achieve profit only by expropriating surplus labor from the workers who actually work for him. The labor embodied in machines and raw materials is "dead" labor: the surplus value has already been expropriated by the capitalist who sold him the machines or raw materials. A capitalist has to pay for capital, raw materials and directly employed labor up front*; he realizes a profit only after he has created, marketed, delivered, and sold his commodity. From the capitalists perspective, his rate of return $r={l_s}/{l_p+c}$, where $l_p$ is the cost of labor power, $l_s$ is the surplus value of labor (total labor minus cost of labor power), and $c$ is the constant capital, the cost of raw materials and the amortized cost of capital equipment.
*Wages are usually paid for in arrears, but labor is still usually paid for before the product is sold.
This model leads to two problems, one which Marx addresses and the other a puzzle Marx was not able to solve.
The first problem is why a capitalist would invest in capital: the more value a capitalist invests in capital, the lower her overall rate of return ($c$ is in the denominator, so as $c$ goes up, $r$ goes down). Marx answers this problem in two ways. First, as the value of wage goods falls, $l_p\/l_t$ falls, which means that more surplus labor can be extracted from workers, increasing the rate of profit. Second, Marx invokes competition. The value of a commodity is the socially necessary labor time. If a firm can produce a commodity for less that the socially necessary labor time, it can capture a producer surplus in addition to the surplus value of the labor it employs. (Essentially, the firm is exploiting its customers, getting them to give more embodied labor than they receive.) In the short term, a firm can make more money by investing in capital and become more efficient than its competitors; in the long term, absent monopoly, what one capitalist can figure out another can copy, and efficiency just leads to a lower rate of profit overall. Thus capitalism must constantly innovate to keep going in the short term, but this constant innovation leads to the constantly falling rate of profit.
The second problem is more severe. Firms in an economy create many different commodities. Some of these commodities will use more capital relative to labor, some less: they will have different organic compositions of capital. However, capitalists want to equalize profit. To make the typing simpler, I'll use $w$ to represent labor power ($l_p$) and $s$ to represent surplus labor ($l_s$). We'll keep the corn-corn model from my earlier post.
$v={w+s}/{1-a}$
$p=(1+r){w}/{1-(1+r)a}$
If the labor theory of value holds, we would expect that the values and prices of two commodities with different organic compositions of capital would be in the same proportion: $v_1/v_2=p_1/p_2$. However, unlike the previous model, adding an extra degree of freedom by separating labor into cost of labor power and surplus labor doesn't help us. We see that, holding the quantity of labor and the rate of profit constant, and letting the proportion of constant capital ($a$) vary,
$v_1/v_2=p_1/p_2→{{w+s}/{1-a_1}}/{{w+s}/{1-a_2}}={(1+r){w}/{1-(1+r)a_1}}/{(1+r){w}/{1-(1+r)a_2}}$
therefore,
${1-a_2}/{1-a_1}={1-(1+r)a_2}/{1-(1+r)a_1}$
which can be true if and only if $r=0$. Labor just divides out, no matter how it's expressed.
There are several ways of interpreting this equation. One way, which is not illegitimate, is that the LTV is just internally contradictory. But there are other ways. The LTV is, like most traditional economic theories, an equilibrium model; it does not talk about how or why an economy might not be in equilibrium, or how it achieves equilibrium. Thus we might conclude that in equilibrium all firms must have the same organic composition of capital; alternatively, we might conclude that in equilibrium the rate of profit is zero.
Another way of looking at this equation is that differences in the organic composition of capital is a source of fundamental instability in a capitalist economy. (A growing economy, protestations of traditional economists notwithstanding, is not in equilibrium.) It does not have an economic solution; instead, it requires an exogenous political solution: to stabilize the economy, capitalists can redistribute profits among themselves to equalize the rate of profit. It's not common, bu capitalists can work together, especially when their main tool, control of capital, cannot be used to gain short-term advantage.
*Wages are usually paid for in arrears, but labor is still usually paid for before the product is sold.
This model leads to two problems, one which Marx addresses and the other a puzzle Marx was not able to solve.
The first problem is why a capitalist would invest in capital: the more value a capitalist invests in capital, the lower her overall rate of return ($c$ is in the denominator, so as $c$ goes up, $r$ goes down). Marx answers this problem in two ways. First, as the value of wage goods falls, $l_p\/l_t$ falls, which means that more surplus labor can be extracted from workers, increasing the rate of profit. Second, Marx invokes competition. The value of a commodity is the socially necessary labor time. If a firm can produce a commodity for less that the socially necessary labor time, it can capture a producer surplus in addition to the surplus value of the labor it employs. (Essentially, the firm is exploiting its customers, getting them to give more embodied labor than they receive.) In the short term, a firm can make more money by investing in capital and become more efficient than its competitors; in the long term, absent monopoly, what one capitalist can figure out another can copy, and efficiency just leads to a lower rate of profit overall. Thus capitalism must constantly innovate to keep going in the short term, but this constant innovation leads to the constantly falling rate of profit.
The second problem is more severe. Firms in an economy create many different commodities. Some of these commodities will use more capital relative to labor, some less: they will have different organic compositions of capital. However, capitalists want to equalize profit. To make the typing simpler, I'll use $w$ to represent labor power ($l_p$) and $s$ to represent surplus labor ($l_s$). We'll keep the corn-corn model from my earlier post.
$v={w+s}/{1-a}$
$p=(1+r){w}/{1-(1+r)a}$
If the labor theory of value holds, we would expect that the values and prices of two commodities with different organic compositions of capital would be in the same proportion: $v_1/v_2=p_1/p_2$. However, unlike the previous model, adding an extra degree of freedom by separating labor into cost of labor power and surplus labor doesn't help us. We see that, holding the quantity of labor and the rate of profit constant, and letting the proportion of constant capital ($a$) vary,
$v_1/v_2=p_1/p_2→{{w+s}/{1-a_1}}/{{w+s}/{1-a_2}}={(1+r){w}/{1-(1+r)a_1}}/{(1+r){w}/{1-(1+r)a_2}}$
therefore,
${1-a_2}/{1-a_1}={1-(1+r)a_2}/{1-(1+r)a_1}$
which can be true if and only if $r=0$. Labor just divides out, no matter how it's expressed.
There are several ways of interpreting this equation. One way, which is not illegitimate, is that the LTV is just internally contradictory. But there are other ways. The LTV is, like most traditional economic theories, an equilibrium model; it does not talk about how or why an economy might not be in equilibrium, or how it achieves equilibrium. Thus we might conclude that in equilibrium all firms must have the same organic composition of capital; alternatively, we might conclude that in equilibrium the rate of profit is zero.
Another way of looking at this equation is that differences in the organic composition of capital is a source of fundamental instability in a capitalist economy. (A growing economy, protestations of traditional economists notwithstanding, is not in equilibrium.) It does not have an economic solution; instead, it requires an exogenous political solution: to stabilize the economy, capitalists can redistribute profits among themselves to equalize the rate of profit. It's not common, bu capitalists can work together, especially when their main tool, control of capital, cannot be used to gain short-term advantage.
Wednesday, April 01, 2015
Modeling the labor theory of value
In The Demise of Marx’s Labour Theory of Value and the ‘New Interpretation’ [pdf] Ernesto Screpanti uses a simple one-commodity model to show the theoretical incoherence in the Labor Theory of Value (LTV). (I don't think the model Screpanti's own invention; I've seen the model, and variants of it, for many years.) You can look at the article for the details of the model and the definitions.
The model states that value (exchange-value) is equal to the labor used in current production, plus a fraction $0<a<1$ of value from previous production. Price is equal to the cost of labor plus a fraction of the price of previous production, with the latter receiving a return on investment, $0<r<1$.
A little algebra shows that value = price if and only if the rate of return on capital is zero.
There are some problems with this model, and not because it's simplified. First of all, it assumes that value and price are constant over time, i.e. that production is not growing. Otherwise, we would have to say $v_n=l+av_{n-1}$ and $p_n=l+(1-r)ap_{n-1}$, and have to worry about changing values over time. If production is not growing, then it is perhaps legitimate to say that the rate of profit really must be zero. However, this objection doesn't matter, because it is not a model of Marx's LTV. Absolutely central to Marx's theory is that capitalists do not pay workers for all their labor; capitalists only pay the cost of labor power, the amount of Socially Necessary Abstract Labor Time (SNLT) to produce the goods the workers must consume to continue working and reproduce the working class. Thus, a more accurate model is that value represents the total labor, whereas price represents the cost of labor power plus the cost of capital. Furthermore, capitalists want a return on their total investment, which includes both capital used and advance wages. Therefore, a more accurate model would be:
with $l_p$ the cost of labor power (in SNLT) and $l_s$ being the surplus labor. Therefore total labor $l_t=l_p+l_s$, and the rate of exploitation $l_e=l_s/l_t$
Because we're introducing the extra term, we can set value = price and just get a relation between the rate of exploitation and the rate of profit.
$l_e=l_s/{l_p+l_s}=1-{1/{1+r}-a}/{1-a}=r/{(1+r)(1-a)}$
$r=1/{1-(1-a)l_e}-1$
Both of these equations are well-behaved in the relevant ranges ($0<l_e,a<1;r>0$). They also show that holding the exploitation rate constant, as capital requirements increase (as $a$ gets larger), the rate of profit must decrease.
The model states that value (exchange-value) is equal to the labor used in current production, plus a fraction $0<a<1$ of value from previous production. Price is equal to the cost of labor plus a fraction of the price of previous production, with the latter receiving a return on investment, $0<r<1$.
| (1) | $v=l+av$ |
| (2) | $p=l+(1+r)ap$ |
| therefore | |
| (3) | $v=l/{1-a}$ |
| (4) | $p=l/{1-(1+r)a}$ |
A little algebra shows that value = price if and only if the rate of return on capital is zero.
There are some problems with this model, and not because it's simplified. First of all, it assumes that value and price are constant over time, i.e. that production is not growing. Otherwise, we would have to say $v_n=l+av_{n-1}$ and $p_n=l+(1-r)ap_{n-1}$, and have to worry about changing values over time. If production is not growing, then it is perhaps legitimate to say that the rate of profit really must be zero. However, this objection doesn't matter, because it is not a model of Marx's LTV. Absolutely central to Marx's theory is that capitalists do not pay workers for all their labor; capitalists only pay the cost of labor power, the amount of Socially Necessary Abstract Labor Time (SNLT) to produce the goods the workers must consume to continue working and reproduce the working class. Thus, a more accurate model is that value represents the total labor, whereas price represents the cost of labor power plus the cost of capital. Furthermore, capitalists want a return on their total investment, which includes both capital used and advance wages. Therefore, a more accurate model would be:
| (1) | $v=l_p+l_s+av$ |
| (2) | $p=(1+r)(l_p+ap)$ |
| therefore | |
| (3) | $v={l_p+l_s}/{1-a}$ |
| (4) | $p=l_p/{1/{1-r}-a$ |
with $l_p$ the cost of labor power (in SNLT) and $l_s$ being the surplus labor. Therefore total labor $l_t=l_p+l_s$, and the rate of exploitation $l_e=l_s/l_t$
Because we're introducing the extra term, we can set value = price and just get a relation between the rate of exploitation and the rate of profit.
$l_e=l_s/{l_p+l_s}=1-{1/{1+r}-a}/{1-a}=r/{(1+r)(1-a)}$
$r=1/{1-(1-a)l_e}-1$
Both of these equations are well-behaved in the relevant ranges ($0<l_e,a<1;r>0$). They also show that holding the exploitation rate constant, as capital requirements increase (as $a$ gets larger), the rate of profit must decrease.
Tuesday, March 31, 2015
The labor theory of value as philosophy
The Labor Theory of Value is not itself a scientific theory. It is, instead, a "philosophical" or "historical" theory about more-or-less scientific theories of political economy. The LTV does not by itself predict the world; it is, instead, a way of making our economic predictions intelligible and meaningful. It asks the question, what do we mean when we're talking about economics? What is a "price"? What is "money"?
The LTV is not an "unscientific" theory: it does not (like many theologies) make covert scientific predictions that the real world does not bear out. It is, instead, a "metaphysical" theory, but only in Popper's sense; there's nothing transcendental or mystical about the LTV. It's about that most ordinary and material activity: real material human beings doing real material work producing real material goods and services. Indeed, the LTV denies transcendent or immaterial elements in economics.
The LTV starts from the premise that the only thing human beings have that we can trade is our labor. Our labor is (collectively and individually) the only thing that's ours. We must, of course, work upon nature; without a natural world, our labor would have nothing to work on, but nature itself is not ours; only our own labor is truly ours. Even Locke agrees: what fixes a part of nature as someone's property is precisely her labor operating on that part of nature, and she may expropriate a part of nature only so long as there is enough of nature sufficient so that others can expropriate their own part of nature. If nature is freely available, one cannot trade it, just as no one can trade air; all we have left to trade is our own labor.
The only free trade is a trade of equivalent exchange-values: one unit of labor embodied in a commodity for one unit of labor embodied in another commodity. The entire reason that trade actually does occur is because of the division of labor, the use-values of the two commodities are asymmetric: first, my commodity is of more use to you than to me, and your commodity is of more use to me than to you; second, my commodity is of more use to you than your own commodity, and your commodity is of more use to me than my own commodity. The asymmetry of use-values makes trade possible; the equivalence of exchange-values is what makes trade fair.
Marx did not invent this idea. Adam Smith and David Ricardo invented the LTV, and in Capital, Marx credits Benjamin Franklin with the idea that all we can do is trade our own labor. Marx's innovation is the distinction between labor power and actual labor: the ability to work for a period (i.e. a day), and the amount of work that can be actually done in a day. Labor power is (under capitalism) a commodity: it has an exchange-value, the Socially Necessary Abstract Labor Time (SNLT) required to create a working day, and a use-value, the total amount of Abstract Labor Time (LT) actually created. Marx labels the difference between the cost (in SNLT) of labor power and the amount of labor expended as "profit".
There are several objections to the LTV, most of which Marx addresses in Capital.
The first objection is that that if two people (or firms) create a commodity, and the first person expends half as much labor (in total, including labor used to produce raw materials, intermediate goods, amortized capital and administration) than the second, then the second person's commodity is absurdly worth twice as much as the first person's. To overcome this objection, Marx introduces the modifier, "socially necessary." If for example, in the material social and technological context of a society, the demand for coats can be satisfied by people working at most two hours per coat, then the exchange-value of a coat is two hours. If your firm takes four hours to make a coat, well, too bad for you. There are enough coats being produced using two hours of labor per coat that no one is forced by the scarcity of coats to pay you four hours. If, on the other hand, your firm can create a coat in only one hour, well, good for you. Because there are not enough coats that can be produced using only one hour of labor, people are forced to pay two hours of labor for a coat. Your firm will make an "economic profit" of an hour of labor per coat. (The capitalist who can capture such an economic profit is thus exploiting not only his workers, but his customers as well.) Economic profit is different from profit; even a producer who requires two hours of labor per coat, and exchanges them for two hours, will make a profit, because she will pay her own workers only for the cost of their labor power, which will be less than the total amount of labor they actually expend making coats.
The second objection is that actual labor (like use-value, as Marx argues elsewhere in Capital) is radically heterogeneous. The actual tasks performed by one individual laborer making one commodity are qualitatively different from those performed by another laborer making another commodity. Marx admits this, but what is still equivalent is the time a laborer expends, abstracted from the specific tasks he performs. (Of course, the worker still has to actually perform those tasks, and perform them efficiently, but the specific nature of the tasks does not enter into exchange value).
Related to the second objection that even labor abstracted from the heterogeneity of specific tasks is still heterogeneous. People differ in relative skill, talent, the intensity of their labor, etc., again, even abstracted from the specific tasks. Marx himself mostly handwaves this objection away, talking about averages and aggregates. However, this objection does not seem that important. First, Adam Smith argues that there is actually little difference in inherent ability; the difference between a philosopher and a laborer arises because of education and social situation, not inherent ability. Second, what matters is the socially necessary (marginal) labor time. If the "last" person hired to make a commodity were an inefficient slacker who takes twice as much time to produce the commodity as his most efficient co-worker, well, then that sets the socially necessary labor time. If the firm could hire someone more efficient, they would do so; if they could not sell the commodity for the price implied by the slacker's time, they would not hire him. Even if there really are innate differences in ability, we're still interested only in ability at the margin, which is measurable.
A third objection is that firms do not actually account for labor and labor power in the way corresponding to the LTV. Marx argues that this discrepancy is by design. If our accounting were honest, then no one would stand for capitalist exploitation; instead, the exploitation has to be carefully hidden for a capitalist society to work at all. Marx argues that this obfuscation is discernable: he argues that we (absurdly) think we have a social relationship with objects, when in reality producers of different commodities have a social relationship with each other.
There are other, deeper objections to the Labor Theory of Value, which I will (might) discuss in a further post,
The LTV is not an "unscientific" theory: it does not (like many theologies) make covert scientific predictions that the real world does not bear out. It is, instead, a "metaphysical" theory, but only in Popper's sense; there's nothing transcendental or mystical about the LTV. It's about that most ordinary and material activity: real material human beings doing real material work producing real material goods and services. Indeed, the LTV denies transcendent or immaterial elements in economics.
The LTV starts from the premise that the only thing human beings have that we can trade is our labor. Our labor is (collectively and individually) the only thing that's ours. We must, of course, work upon nature; without a natural world, our labor would have nothing to work on, but nature itself is not ours; only our own labor is truly ours. Even Locke agrees: what fixes a part of nature as someone's property is precisely her labor operating on that part of nature, and she may expropriate a part of nature only so long as there is enough of nature sufficient so that others can expropriate their own part of nature. If nature is freely available, one cannot trade it, just as no one can trade air; all we have left to trade is our own labor.
The only free trade is a trade of equivalent exchange-values: one unit of labor embodied in a commodity for one unit of labor embodied in another commodity. The entire reason that trade actually does occur is because of the division of labor, the use-values of the two commodities are asymmetric: first, my commodity is of more use to you than to me, and your commodity is of more use to me than to you; second, my commodity is of more use to you than your own commodity, and your commodity is of more use to me than my own commodity. The asymmetry of use-values makes trade possible; the equivalence of exchange-values is what makes trade fair.
Marx did not invent this idea. Adam Smith and David Ricardo invented the LTV, and in Capital, Marx credits Benjamin Franklin with the idea that all we can do is trade our own labor. Marx's innovation is the distinction between labor power and actual labor: the ability to work for a period (i.e. a day), and the amount of work that can be actually done in a day. Labor power is (under capitalism) a commodity: it has an exchange-value, the Socially Necessary Abstract Labor Time (SNLT) required to create a working day, and a use-value, the total amount of Abstract Labor Time (LT) actually created. Marx labels the difference between the cost (in SNLT) of labor power and the amount of labor expended as "profit".
There are several objections to the LTV, most of which Marx addresses in Capital.
The first objection is that that if two people (or firms) create a commodity, and the first person expends half as much labor (in total, including labor used to produce raw materials, intermediate goods, amortized capital and administration) than the second, then the second person's commodity is absurdly worth twice as much as the first person's. To overcome this objection, Marx introduces the modifier, "socially necessary." If for example, in the material social and technological context of a society, the demand for coats can be satisfied by people working at most two hours per coat, then the exchange-value of a coat is two hours. If your firm takes four hours to make a coat, well, too bad for you. There are enough coats being produced using two hours of labor per coat that no one is forced by the scarcity of coats to pay you four hours. If, on the other hand, your firm can create a coat in only one hour, well, good for you. Because there are not enough coats that can be produced using only one hour of labor, people are forced to pay two hours of labor for a coat. Your firm will make an "economic profit" of an hour of labor per coat. (The capitalist who can capture such an economic profit is thus exploiting not only his workers, but his customers as well.) Economic profit is different from profit; even a producer who requires two hours of labor per coat, and exchanges them for two hours, will make a profit, because she will pay her own workers only for the cost of their labor power, which will be less than the total amount of labor they actually expend making coats.
The second objection is that actual labor (like use-value, as Marx argues elsewhere in Capital) is radically heterogeneous. The actual tasks performed by one individual laborer making one commodity are qualitatively different from those performed by another laborer making another commodity. Marx admits this, but what is still equivalent is the time a laborer expends, abstracted from the specific tasks he performs. (Of course, the worker still has to actually perform those tasks, and perform them efficiently, but the specific nature of the tasks does not enter into exchange value).
Related to the second objection that even labor abstracted from the heterogeneity of specific tasks is still heterogeneous. People differ in relative skill, talent, the intensity of their labor, etc., again, even abstracted from the specific tasks. Marx himself mostly handwaves this objection away, talking about averages and aggregates. However, this objection does not seem that important. First, Adam Smith argues that there is actually little difference in inherent ability; the difference between a philosopher and a laborer arises because of education and social situation, not inherent ability. Second, what matters is the socially necessary (marginal) labor time. If the "last" person hired to make a commodity were an inefficient slacker who takes twice as much time to produce the commodity as his most efficient co-worker, well, then that sets the socially necessary labor time. If the firm could hire someone more efficient, they would do so; if they could not sell the commodity for the price implied by the slacker's time, they would not hire him. Even if there really are innate differences in ability, we're still interested only in ability at the margin, which is measurable.
A third objection is that firms do not actually account for labor and labor power in the way corresponding to the LTV. Marx argues that this discrepancy is by design. If our accounting were honest, then no one would stand for capitalist exploitation; instead, the exploitation has to be carefully hidden for a capitalist society to work at all. Marx argues that this obfuscation is discernable: he argues that we (absurdly) think we have a social relationship with objects, when in reality producers of different commodities have a social relationship with each other.
There are other, deeper objections to the Labor Theory of Value, which I will (might) discuss in a further post,
Sunday, March 29, 2015
Definitions
According to Marx's theory then:
- Socially Necessary Labor Time (SNLT): The total amount of human labor (abstracted from the specific tasks) embedded in a product, that is necessary to create a commodity (including capital creation, raw material/intermediate goods supply, and administration) in a particular social/technological context. Marx uses an average of all producers, but the average is not the correct statistic (otherwise some producers would operate at a loss). Instead, the marginal time is used: the labor time of the last, least efficiently produced instance of the commodity (amortizing capital and administration over all instances produced), which should equal the marginal demand for that last, least satisfying instance actually consumed.
- Exchange Value: The total amount of Socially Necessary Abstract Labor Time (SNLT) embodied in a commodity. The exchange value includes all the SNLT, including the SNLT necessary to create the capital and create the raw materials.
- Labor Power: The ability to work for a full period (e.g. a day).
- Cost of Labor Power: The SNLT required to create another period (day) of Labor Power, i.e. the SNLT required to supply a worker with the necessary food, shelter, clothing, medical care, leisure, etc. to work another period (day) and to reproduce the labor force. Because workers are human, the Cost of Labor Power may be more than bare subsistence.
- Labor Time: The actual amount of time a worker works in a period when he expends his or her labor power. The Labor Time worked will be less than the SNTL used to purchase his or her Labor Power.
- Profit: The difference between the Labor Time and the Cost of Labor Power employed by a firm
Labor and labor power
A question that puzzled Marx's predecessors was, where does profit come from? When a business makes a profit, what precisely are they making? Yes, they can make a money profit, but money does not have intrinsic use-value (by definition: if you actually consume a money-thing, such as salt, it ceases to be money and becomes an ordinary commodity). What does that money represent? If a capitalist pays full value for labor and capital (ignoring land), and exchange value is just the value of the labor and capital, then where does the profit come from? Neither Smith nor Ricardo were happy with their answers to this question.
What Marx does is posit that "labor" is really composed of two things: actual labor, the amount of work that's actually done, and labor power, the amount of work necessary to keep a worker alive, able to work another day, and reproduce the next generation of laborers. So, it might take six hours of labor to grow the food, build the houses, manufacture the clothes, etc. to keep a worker alive, and this cost of labor power will allow the worker to work twelve hours the next day. Thus, the capitalist does not pay full value for labor: he pays only for labor power, which costs "six hours", and receives "twelve hours" of actual labor; his profit is thus "six hours" of labor, i.e. the surplus value of labor. Although the capitalist is obtaining six hours of "free" labor from the worker, this exchange of wages for labor power is, in capitalist terms, a "free" exchange that satisfies the Labor Theory of Value: the worker is exchanging a commodity, his labor power, which costs "six hours" of labor, for wages (representing goods) worth "six hours" of labor.
(Marx makes the point that workers are not mindless objects. A chair cannot object that someone exchanges it for its cost, but workers can and do object, sometimes violently. Therefore, workers can politically demand a price for their labor power, with a lower bound set by bare subsistence, and an upper bound set by their total amount of labor. And different categories of workers can have different political power, so the price of labor power can differ by category or sector.)
This analysis is the point of the Labor Theory of Value. It is not to predict actual market prices on a day to day basis. There are many things that can change market prices in the short term and medium term. If you're interested in price arbitrage, trying to calculate the "true" price (and arbitrage "distorted" prices), the LTV is not a particularly good tool. The LTV is a conceptual tool for understanding what capitalism is all about. Marx notes that Ricardo, Smith, and Benjamin Franklin observed that all human beings have to trade that is our own is labor; the fruits of nature are given to us for "free": we do not have to work to make the sun shine, the rain fall, plants and animals grow. Yes, people can "own" things like land or capital, and while they themselves do nothing directly productive, they can still charge people to work on it. However, what they are obtaining is the surplus labor of the people who are actually productive.
Assume my land can use a certain amount of direct labor (ignoring for the moment labor indirectly embedded in some capital) to produce a certain amount of corn. The cost of labor power, what I must give to the workers, is less than the total amount of corn I can grow. I keep the extra corn. The exchange-value of the corn I have left is precisely the difference between what the labor produces and what the labor costs. (And, in fact, the amount of labor I hire is precisely the amount at which the "last" laborer produces just the cost of labor power.)
I can exchange the extra corn I grow for an equal amount of labor embedded in other goods. If I could trade it for more labor embedded in some other good, then people would stop using labor to make the other good and start growing corn; similarly, if I could trade it only for less labor embedded in other good, then I would stop using labor to grow corn and start making the other good, and trade with other (more foolish or more efficient) producers of corn.
Previous: Marx's project: Introduction and commodities (and Measuring socially necessary abstract labor time
Next: The organic composition of capital
What Marx does is posit that "labor" is really composed of two things: actual labor, the amount of work that's actually done, and labor power, the amount of work necessary to keep a worker alive, able to work another day, and reproduce the next generation of laborers. So, it might take six hours of labor to grow the food, build the houses, manufacture the clothes, etc. to keep a worker alive, and this cost of labor power will allow the worker to work twelve hours the next day. Thus, the capitalist does not pay full value for labor: he pays only for labor power, which costs "six hours", and receives "twelve hours" of actual labor; his profit is thus "six hours" of labor, i.e. the surplus value of labor. Although the capitalist is obtaining six hours of "free" labor from the worker, this exchange of wages for labor power is, in capitalist terms, a "free" exchange that satisfies the Labor Theory of Value: the worker is exchanging a commodity, his labor power, which costs "six hours" of labor, for wages (representing goods) worth "six hours" of labor.
(Marx makes the point that workers are not mindless objects. A chair cannot object that someone exchanges it for its cost, but workers can and do object, sometimes violently. Therefore, workers can politically demand a price for their labor power, with a lower bound set by bare subsistence, and an upper bound set by their total amount of labor. And different categories of workers can have different political power, so the price of labor power can differ by category or sector.)
This analysis is the point of the Labor Theory of Value. It is not to predict actual market prices on a day to day basis. There are many things that can change market prices in the short term and medium term. If you're interested in price arbitrage, trying to calculate the "true" price (and arbitrage "distorted" prices), the LTV is not a particularly good tool. The LTV is a conceptual tool for understanding what capitalism is all about. Marx notes that Ricardo, Smith, and Benjamin Franklin observed that all human beings have to trade that is our own is labor; the fruits of nature are given to us for "free": we do not have to work to make the sun shine, the rain fall, plants and animals grow. Yes, people can "own" things like land or capital, and while they themselves do nothing directly productive, they can still charge people to work on it. However, what they are obtaining is the surplus labor of the people who are actually productive.
Assume my land can use a certain amount of direct labor (ignoring for the moment labor indirectly embedded in some capital) to produce a certain amount of corn. The cost of labor power, what I must give to the workers, is less than the total amount of corn I can grow. I keep the extra corn. The exchange-value of the corn I have left is precisely the difference between what the labor produces and what the labor costs. (And, in fact, the amount of labor I hire is precisely the amount at which the "last" laborer produces just the cost of labor power.)
I can exchange the extra corn I grow for an equal amount of labor embedded in other goods. If I could trade it for more labor embedded in some other good, then people would stop using labor to make the other good and start growing corn; similarly, if I could trade it only for less labor embedded in other good, then I would stop using labor to grow corn and start making the other good, and trade with other (more foolish or more efficient) producers of corn.
Previous: Marx's project: Introduction and commodities (and Measuring socially necessary abstract labor time
Next: The organic composition of capital
Saturday, March 28, 2015
Measuring socially necessary abstract labor time
In his comment (and on his excellent blog, Social Democracy for the 21st Century) LK argues that it's impossible to define, much less measure, socially necessary abstract labor time (SNALT).
First, the "abstract" in SNALT refers to labor abstracted from the specific things that laborers do. Marx argues that because the specific tasks are incommensurable (how do compare sewing a seam to gluing a sole to a shoe?) the specific tasks used to create different commodities cannot be a basis of a consistent exchange value. In this sense, abstract labor time is just the fact that someone has worked for a specific period of time, without regard to the specific tasks that person has performed.
But there are definitely factors other than time that affect productivity. LK asks, "How do you take an average of a heterogeneous factor like labour, when there is so much difference in profession, skill, competence, experience, and skills to be 'averaged'?"
To get average abstract labor time per unit, first count the number of objects produced, count the total number of raw person-hours used to create those products, including the time necessary to create all the capital, all the skill training, and all externalities, and divide by the number of objects. If you want marginal SNALT, find the least efficient producer who is still in business, and do the same thing just for the last unit they produce. Standard economic theory predicts that the marginal cost of the last unit should equal the minimum average total cost and the price. (LK challenges this aspect of standard economic theory, and it might be incorrect, but marginal cost is not exactly a novel economic concept.) Any effects other than time, skill, competence, experience, etc. should all be normally distributed and should cancel out in the aggregate. This is not rocket science.
Of course, the Labor Theory of Value (LTV) is not the only thing affecting actual money prices. You would want to look for shocks (the price of gas just after the beginning of the Iraq war, for example, would probably not reflect SNALT), monopoly and monopolistic competition (SNALT is a valid predictor of prices only under perfect competition), hidden positive and negative externalities, imperfect or asymmetric information, network effects, etc.
Remember, Marx never intends the LTV to be a tool for predicting prices that hedge funds can use to make a lot of money in arbitrage. The LTV is a conceptual tool to explain what it means to say that the capitalist exploits the working class: the capitalist class expropriates labor time without compensation from the working class.
First, the "abstract" in SNALT refers to labor abstracted from the specific things that laborers do. Marx argues that because the specific tasks are incommensurable (how do compare sewing a seam to gluing a sole to a shoe?) the specific tasks used to create different commodities cannot be a basis of a consistent exchange value. In this sense, abstract labor time is just the fact that someone has worked for a specific period of time, without regard to the specific tasks that person has performed.
But there are definitely factors other than time that affect productivity. LK asks, "How do you take an average of a heterogeneous factor like labour, when there is so much difference in profession, skill, competence, experience, and skills to be 'averaged'?"
To get average abstract labor time per unit, first count the number of objects produced, count the total number of raw person-hours used to create those products, including the time necessary to create all the capital, all the skill training, and all externalities, and divide by the number of objects. If you want marginal SNALT, find the least efficient producer who is still in business, and do the same thing just for the last unit they produce. Standard economic theory predicts that the marginal cost of the last unit should equal the minimum average total cost and the price. (LK challenges this aspect of standard economic theory, and it might be incorrect, but marginal cost is not exactly a novel economic concept.) Any effects other than time, skill, competence, experience, etc. should all be normally distributed and should cancel out in the aggregate. This is not rocket science.
Of course, the Labor Theory of Value (LTV) is not the only thing affecting actual money prices. You would want to look for shocks (the price of gas just after the beginning of the Iraq war, for example, would probably not reflect SNALT), monopoly and monopolistic competition (SNALT is a valid predictor of prices only under perfect competition), hidden positive and negative externalities, imperfect or asymmetric information, network effects, etc.
Remember, Marx never intends the LTV to be a tool for predicting prices that hedge funds can use to make a lot of money in arbitrage. The LTV is a conceptual tool to explain what it means to say that the capitalist exploits the working class: the capitalist class expropriates labor time without compensation from the working class.
Friday, March 27, 2015
Marx's project: Introduction and commodities
I think that to understand Marx, it is necessary to understand what his project was. I'm writing quickly, so I'm not going to cite, and this is my personal interpretation of my (rather limited) reading of Marx. As I mention below, all theories are false, but some are useful; I'm describing here why I think Marx's theories about capitalism are useful. I am not a truth relativist; I'm saying only that our theories about the world are always limited and approximate.
Marx starts with two observations: first, by the middle of the 19th century, capitalism had increased the forces of human production by at least a couple of orders of magnitude relative to feudalism; second, most people in industrialized economies were living in abject misery, far worse than under feudalism. Why? Smith (and perhaps Ricardo) were convinced that greater economic activity would lead to increased happiness for everyone, including the working class. By the mid 1800's, almost a century after Smith published The Wealth of Nations in 1776, the condition of the working class had actually declined. Why?
Marx rejected the hypothesis that the rulers of capitalist society are just especially bad people. Indeed, although Marx's seething rage at the suffering of the workers is apparent, in his economic writing, Marx rarely (if ever) employs a moral critique of anyone or anything, even capitalism. (Marx did not exhibit the same reserve in his personal relationships.) Marx was enraged, to be sure, but he knows that the fact that he is enraged is of no value; he wants to understand why he's enraged, and what precisely he's enraged about. Even before writing Capital, Marx was already convinced that not individual "evil" capitalists, but rather the fundamental structure of capitalism was responsible for human misery. Thus, Unlike his predecessors and other economists, Marx was completely uninterested in a descriptive, positivist account of how capitalism works. Instead, Marx's analysis of capitalism was geared towards locating precisely what it is about the structural relations of capitalism that causes the misery of the working class.
Marx was a theoretician, not a scientist, and he was trying to solve a problem, not simply describe the world as it is. It is important to understand that, like every scientific theory, Marx's theory is a model. All models, scientific and economic, cut away, i.e. abstract, important parts of reality. In much the same sense, theories of gravity abstract away things like air resistance. Looking only at gravity will not explain why aircraft fly, but to make an aircraft fly, we still have to understand gravity on its own terms. Because all models abstract away important parts of reality, all models are wrong; some models, however, are useful. Because a theory of gravity, neglecting air resistance, is useful for making aircraft fly, we continue to use it, in addition, of course, to theories of aerodynamics.
So, Marx begins Capital with a theoretical analysis of the commodity. Marx defines a commodity as:
Using this definition, Marx comes to the surprising conclusion: the exchange-value of commodities, i.e. the quantity of a commodity that will be freely exchanged for a quantity of another commodity, depends only on the total quantity of socially necessary abstract labor time (SNLT) used to create the commodity. Marx first argues that for a free exchange to take place, there must be something equivalent in the commodities exchanged. If there were nothing at all equivalent, then exchanges would be arbitrary and highly variable: one person would exchange a coat for ten pairs of shoes, others would exchange ten coats for one pair of shoes, and everywhere in between. But, given competition, even if someone really wanted a coat, and had more shoes than he knew what to do with, if one person with a coat will take two pairs of shoes and another demands ten pairs, he will still buy from the cheaper seller, and vice-versa. There are some price variations, but I don't see a gallon of gas selling for \$0.10 at one station and \$10.00 at another.
Marx rejects the idea that use-value has anything to do with exchange-value. Marx argues that use-values are incommensurable. We cannot quantitatively compare the use-value of keeping one's body dry with the use-value of a good meal. No one, Marx argues, would exchange comparable use-values, i.e. exchange a coat for a coat. Since use-values are incommensurable, they cannot be equal. And this position makes sense, even if we could numerically compare use-value. I need a certain amount of food every day to survive — a hamburger has infinite use-value to me — but I don't sell myself into slavery for a meal. Similarly, my local restaurant has more hamburgers than the owners could possibly eat — they have zero use-value to the owners — but they don't just give them to me for free. Furthermore, my computer is far more useful to me than my car (if you forced me to choose, I would give my car without hesitation), but I paid twenty times more for my car than for my computer. The whole point of trade is that both parties gain more use-value than they give up; there can be nothing directly equivalent about a positive-sum game.
Marx argues that what can be, and is, equal about two commodities is the socially necessary abstract labor time used to create them. If, counting all the labor time, including the labor time necessary to create the physical capital, it takes one hour of labor time to create a pair of shoes and two hours to create a coat, then two pairs of shoes will have the same exchange-value as a coat; in a money economy, then a coat will have double the money price of a pair of shoes. Again, this makes sense: if I someone is selling a coat for three times the price of a pair of shoes, then I will just work and create the coat myself, giving up the time I could use to create only two pairs of shoes. More precisely, if a company can make identical coats for two-thirds the price their competitors charge, they will do so, and sell all the coats they make.
The qualifiers "socially necessary" and "abstract" are important. "Socially necessary" means that inefficient producers relative to the technical and social state of production do not get to charge more for their commodities than efficient producers. "Abstract" means that the details of precisely how some commodity is produced is irrelevant; what matters is only the actual time (and perhaps other factors, such as intensity and agreeableness/disagreeableness of the labor) involved.
Again, I will reiterate: the Labor Theory of (Exchange-)Value is a model. Marx does not argue that if you go out and measure the money price and socially necessary abstract labor time of every product on the market, you will get a nice neat regression line with only random errors. In much the same sense, if you drop a hammer and a feather, the hammer will hit the ground well before the feather. But Marx does say that if there really is free competition, and if labor really can create more of a commodity, then yes, there will be a direct correlation between the prices and socially necessary abstract labor time. Similarly, if there is a substantial discrepancy between prices and socially necessary abstract labor time, then there will be a violation of the assumption of free competition.
Sidebar: Measuring socially necessary abstract labor time
Next: Labor and labor power
Marx starts with two observations: first, by the middle of the 19th century, capitalism had increased the forces of human production by at least a couple of orders of magnitude relative to feudalism; second, most people in industrialized economies were living in abject misery, far worse than under feudalism. Why? Smith (and perhaps Ricardo) were convinced that greater economic activity would lead to increased happiness for everyone, including the working class. By the mid 1800's, almost a century after Smith published The Wealth of Nations in 1776, the condition of the working class had actually declined. Why?
Marx rejected the hypothesis that the rulers of capitalist society are just especially bad people. Indeed, although Marx's seething rage at the suffering of the workers is apparent, in his economic writing, Marx rarely (if ever) employs a moral critique of anyone or anything, even capitalism. (Marx did not exhibit the same reserve in his personal relationships.) Marx was enraged, to be sure, but he knows that the fact that he is enraged is of no value; he wants to understand why he's enraged, and what precisely he's enraged about. Even before writing Capital, Marx was already convinced that not individual "evil" capitalists, but rather the fundamental structure of capitalism was responsible for human misery. Thus, Unlike his predecessors and other economists, Marx was completely uninterested in a descriptive, positivist account of how capitalism works. Instead, Marx's analysis of capitalism was geared towards locating precisely what it is about the structural relations of capitalism that causes the misery of the working class.
Marx was a theoretician, not a scientist, and he was trying to solve a problem, not simply describe the world as it is. It is important to understand that, like every scientific theory, Marx's theory is a model. All models, scientific and economic, cut away, i.e. abstract, important parts of reality. In much the same sense, theories of gravity abstract away things like air resistance. Looking only at gravity will not explain why aircraft fly, but to make an aircraft fly, we still have to understand gravity on its own terms. Because all models abstract away important parts of reality, all models are wrong; some models, however, are useful. Because a theory of gravity, neglecting air resistance, is useful for making aircraft fly, we continue to use it, in addition, of course, to theories of aerodynamics.
So, Marx begins Capital with a theoretical analysis of the commodity. Marx defines a commodity as:
- A physical object that
- by virtue of its physical properties has some use-value (i.e. its consumption satisfies some human want),
- can and must be created using directed, willful human effort (i.e. labor), and
- is created for the purpose of exchanging it for other commodities.
Using this definition, Marx comes to the surprising conclusion: the exchange-value of commodities, i.e. the quantity of a commodity that will be freely exchanged for a quantity of another commodity, depends only on the total quantity of socially necessary abstract labor time (SNLT) used to create the commodity. Marx first argues that for a free exchange to take place, there must be something equivalent in the commodities exchanged. If there were nothing at all equivalent, then exchanges would be arbitrary and highly variable: one person would exchange a coat for ten pairs of shoes, others would exchange ten coats for one pair of shoes, and everywhere in between. But, given competition, even if someone really wanted a coat, and had more shoes than he knew what to do with, if one person with a coat will take two pairs of shoes and another demands ten pairs, he will still buy from the cheaper seller, and vice-versa. There are some price variations, but I don't see a gallon of gas selling for \$0.10 at one station and \$10.00 at another.
Marx rejects the idea that use-value has anything to do with exchange-value. Marx argues that use-values are incommensurable. We cannot quantitatively compare the use-value of keeping one's body dry with the use-value of a good meal. No one, Marx argues, would exchange comparable use-values, i.e. exchange a coat for a coat. Since use-values are incommensurable, they cannot be equal. And this position makes sense, even if we could numerically compare use-value. I need a certain amount of food every day to survive — a hamburger has infinite use-value to me — but I don't sell myself into slavery for a meal. Similarly, my local restaurant has more hamburgers than the owners could possibly eat — they have zero use-value to the owners — but they don't just give them to me for free. Furthermore, my computer is far more useful to me than my car (if you forced me to choose, I would give my car without hesitation), but I paid twenty times more for my car than for my computer. The whole point of trade is that both parties gain more use-value than they give up; there can be nothing directly equivalent about a positive-sum game.
Marx argues that what can be, and is, equal about two commodities is the socially necessary abstract labor time used to create them. If, counting all the labor time, including the labor time necessary to create the physical capital, it takes one hour of labor time to create a pair of shoes and two hours to create a coat, then two pairs of shoes will have the same exchange-value as a coat; in a money economy, then a coat will have double the money price of a pair of shoes. Again, this makes sense: if I someone is selling a coat for three times the price of a pair of shoes, then I will just work and create the coat myself, giving up the time I could use to create only two pairs of shoes. More precisely, if a company can make identical coats for two-thirds the price their competitors charge, they will do so, and sell all the coats they make.
The qualifiers "socially necessary" and "abstract" are important. "Socially necessary" means that inefficient producers relative to the technical and social state of production do not get to charge more for their commodities than efficient producers. "Abstract" means that the details of precisely how some commodity is produced is irrelevant; what matters is only the actual time (and perhaps other factors, such as intensity and agreeableness/disagreeableness of the labor) involved.
Again, I will reiterate: the Labor Theory of (Exchange-)Value is a model. Marx does not argue that if you go out and measure the money price and socially necessary abstract labor time of every product on the market, you will get a nice neat regression line with only random errors. In much the same sense, if you drop a hammer and a feather, the hammer will hit the ground well before the feather. But Marx does say that if there really is free competition, and if labor really can create more of a commodity, then yes, there will be a direct correlation between the prices and socially necessary abstract labor time. Similarly, if there is a substantial discrepancy between prices and socially necessary abstract labor time, then there will be a violation of the assumption of free competition.
Sidebar: Measuring socially necessary abstract labor time
Next: Labor and labor power
Sunday, March 15, 2015
Marx was (mostly) right
Economists! Be more Marxist:
When I say "we", I don't just mean we Marxists. I mean all economists. I suffer no dissonance at all between writing (more or less) conventional economics in my day job and being some kind of Marxist. The important distinction is not between heterodox and orthodox economics, but between good and bad economics - and Marx is often good economics, in the sense of fitting the facts.
Monday, November 10, 2014
Marx on Alienation
In his early writing, Karl Marx
analyzes the concept of alienation. Marx adopts a Hegelian methodology in his
analysis. To both Hegel and Marx, history is a dynamic dialectical process. A
dialectical stage begins with a negation, a contradiction, and then proceeds to
a resolution of the contradiction, i.e. the sublation, transcendence, or, from
Feuerbach, “the negation of the negation” (Marx, “Economic and Philosophic
Manuscripts” 108). The original negation is not erased, but instead transformed
(Tucker, Notes xli). Marx theorizes that alienation, especially the alienation
of the worker (and capitalist) from the social activity of production,
constitutes a negation, one which Marx believes will be sublated or transcended
by the advent of communism. In his analysis, Marx claims, contra Hegel and others, the material basis of alienation, explores
the specific material character of alienation, and locates the potential
sublation of alienation in the sphere of practice.
Marx argues that Hegel’s account
of the dialectical process must be transformed from an idealistic basis to a
materialistic basis. Marx holds that Hegel has the dialectic “standing on its
head [and] must be turned right side up again” (Marx, Afterword 302). Marx
reads Hegel as saying that an actual idea creates the material reality of,
e.g., family and civil society. Instead, Marx argues that Hegel inverts subject
and object: actual material human beings create the ideas of family and civil
society (“Contribution” 17-18). Marx holds that our social relations are not
fundamentally in the human mind but in the material world. Dialectical
contradictions arise when the material economic conditions conflict with the
social institutions apropos to earlier economic conditions (“Marx on the
History” 2). Although Marx follows Feuerbach’s lead in inverting this reading
of Hegel, Marx extends Feuerbach’s materialism. In “Theses on Feuerbach,” of
Marx claims that Feuerbach does not conceive of human activity itself as
material (143). Marx argues instead that human activities, including thought
and social relations, are also material (145). Richard J. Bernstein argues that
Hegel unifies the material and the ideal in Geist
(29-30), so too does Marx unify the physical and the ideal in the material.
After locating the dialectic in
the material, Marx characterizes the specific nature of alienation in the
material social relations of production under capitalism. In “Economic and
Philosophic Manuscripts,” Marx argues that capitalism inverts the relationship
of humanity to labor, from the existence of worker for his or her fulfillment in labor, to the use of labor for the existence of the worker. Because
of this inversion, labor under capitalism becomes institutionally alienated in
four distinct ways. First, the product of labor becomes not merely objectified
– Marx argues that it is humanity’s intrinsic nature, our species being, to
produce objects, to exert our will on the natural world (75-76) – and not only
expropriated, but taken to become actively hostile to the worker, not
fulfilling but diminishing her- or himself, sometimes to the point of loss of
reality, literal starvation, and death (71-72, 74). Second, capitalism
alienates the worker from the labor process itself. Not just the product but
the activity of producing no longer belongs to the worker; the worker becomes
essentially a machine programmed by those who have purchased his or her labor
power (75). Third, because, as mentioned above, it is our species being to be
active, engaged, producers, Marx argues that by alienating workers from their
product and process of production, capitalism thus alienates workers from their
species being (76-77). Finally, capitalism alienates individual people from
each other (77). When producing for a wage, the workers and the consumers of
the workers’ products no longer interact with each other – they no longer
create a social relationship. Marx argues that if labor were not alienated, one
who produces for another would have “the direct
and conscious satisfaction that [his or her] work satisfied a human need” (qtd. in Bernstein 48). By
alienating labor, capitalism transforms production, the most intimate and
personal relationship between human beings and nature, other human beings, and
humanity itself, into an impersonal, bestial activity.
Marx argues that alienation must
be resolved in the material, practical world, not merely the world of ideas.
Marx asserts that “Social life is essentially practical,” not ideal, and that labor’s alienation, the
contradiction between humanity’s actual practice of production under capitalism
and production’s essential human purpose, must be resolved in practice
(“Theses” 145). Marx opposes his views specifically to those of Proudhon: in
“Society and Economy in History,” Marx condemns Proudhon for invoking mystical,
nonsensical phrases to explain history and its development (136). Instead, Marx
asserts that our ideas follow, not
precede, our actual social relations: the “whole inner organization of nations
[and] their international relations” are just “the expression of a particular
division of labor” (139-140). Marx argues that our ideas are not eternal; they
are always tied to material reality: “economic
categories are only abstract
expressions of . . . actual relations” (140). Marx concludes that Proudhon
believes that only the categories, the “isolated thoughts,” need be changed to
revolutionize society (140-141). In his condemnation of Proudhon, Marx implies
that the opposite must be true: to change our ideas, we must change the
physical reality. As Marx describes in “The German Ideology,” we must proceed
from the “first premise of human history,” which is not the existence of
eternal categories or ideas in the mind of God, but “the existence of living
human individuals” and their physical, material nature. According to Tucker,
Marx does not condemn ideas per se, but believes that ideas, theory, can “assist” changes in practice
(Introduction xxxii). But, for Marx, physical existence and physical practice,
what we actually do, remains primary.
It is therefore practice – guided by theory – that must change to sublate the
alienation of labor, to negate the negation constituted by alienation.
The focus on the alienation of
labor makes clear that the conflict between capitalism and communism is not one
of pragmatic efficiency but of the essential nature of humanity. Marx is not
arguing here that communism or socialism is a way to produce more stuff than
capitalism. Instead, Marx proceeds from a radically different view of the
essence of humanity than does capitalism. Capitalism proceeds from the view of
humanity as isolated individuals,
whose relations are necessarily hostile,
e.g. Hobbes’ “war of all against all,” or Rand ’s
fundamental “precondition of civilized society” as the “right to self-defense”
(qtd. in “Civilization”) which can only blunt natural human hostility. Marx
instead proceeds from the view of humanity as still individuals, but as social individuals, whose relations are
ideally communal and mutually beneficial. The isolated
individual is the negation of social humanity; the negation of negation will
happen only when the negation of isolation is sublated into social production.
Works Cited
“Civilization.” The Ayn Rand Lexicon. The Ayn Rand
Institute. 2014. Web. 17 Sep. 2014.
Bernstein, Richard J. “Praxis: Marx and the Hegelian
Background.” Praxis and Action:
Contemporary Philosophies of Human Activity. Philadelphia :
University of Philadelphia
Marx, Karl. Afterword to the
Second German Edition. Capital. Vol.
1. By Marx. Tucker 299-302.
---. “Contribution to the Critique
of Hegel’s Philosophy of Right.”
Tucker 16-25.
---. “Economic and Philosophic
Manuscripts of 1877.” Tucker 66-125.
---. “Marx on the History of His
Opinions.” Tucker 3-5.
---. “Society and Economy in
History.” Tucker 136-142.
---. “Theses on Feuerbach.” Tucker
143-145.
Tucker, Robert C. Ed. The Marx-Engels Reader. 2nd ed. New York : W. W. Norton,
1978. Print.
---. Note on Text and Terminology.
Tucker xxxix-xlii.
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