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.
Showing posts with label communism 101. Show all posts
Showing posts with label communism 101. Show all posts
Monday, April 06, 2015
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, October 14, 2012
Thoughts on the "planned economy"
I'm going to be debating/speaking with a Libertarian on campus next week; we've tentatively set the date for Oct. 25. I want to get a few of my thoughts on the planned economy down.
We have to be very careful about what precisely we mean by a planned economy. Both planning and economics are complex topics, so a planned economy is not simply a binary. The question is not just whether to have a planned economy, but what parts of an economy should be planned; we have not only the extrema of "nothing" and "everything," but also "these parts but not those parts." Therefore, saying that some part of the economy should or shouldn't be planned doesn't entail that we should plan everything or nothing.
Furthermore, that some communist economies have planned some part of the economy to bad effect means only that there's some evidence that planning that specific part of the economy might be a bad idea. The evidence, though, would not be conclusive; cultural, political, sociological, and historical elements in a society affect economic policy as much as or more than pure scientific economics.
It's also worth noting that economic planning is the status quo. First, most companies, and almost all large corporations, are organized along lines most people naively ascribe to communist governments. A cadre of self-appointing* bureaucrats, the executive management, makes most decisions about how to deploy internal resources within the corporation. This cadre has near-absolute power over not only junior members of the cadre, but all the employees. Employees are not only expected to obey, but expected to obey enthusiastically, and they must not overtly contradict the executive cadre. Yes, employees are at least technically free to leave, but the point here is that the fundamental organizational structure is itself viable.
Second, macroeconomic capital allocation is already made by a very small group of people: those who control not only their own personal capital, some of it very large, but also the executive cadres that control corporately-owned capital. Again, the point is not how the capitalist class (owners + executives) is organized (which is, of course, very different from how any group managing investment in a communist system), but that the status quo already is that a small group of people controls actual investment.
*i.e. the existing bureaucracy appoints its own new members.
Therefore, I see communism as endorsing not total economic planning, but more (and different) planning than a state capitalist would endorse, and probably a lot more (and a lot different) than a Libertarian would endorse.
Specifically, communism entails that the allocation of capital, i.e. investment, is heavily planned by "the government."
It's very important to understand that what we mean by "the government" varies according to what regime we're actually talking about.
Under a republican capitalist paradigm, such as the one we presently have in the US, "the government" comprises whichever faction of the capitalist class has greater popular support. Our current paradigm can thus be called a democratically modulated plutocracy.
Under "Communism of the Parties," the paradigm operative in China and the Soviet Union, "the government" consisted of one or another faction of the national Communist Party, itself a self-appointing oligarchy (that considered itself an aristocracy). I'm told there are some reasonable historical and social reasons why China and the Soviet Union ended up with an oligarchy, notably that the societies at the time of the communist revolutions had very little democratic popular culture. Furthermore both, but especially the Soviet Union, faced immediate, severe threats to their continued existence (e.g. Hitler), and could not afford to leisurely develop a democratic culture.
Even so, I don't much like the "Communism of the Parties" paradigm; I'm pretty much opposed to any oligarchy. And we do have something of a democratic culture in the US, and we don't have any severe existential threat. (Islamic "terrorism" does not in any way threaten the continued existence of the United States.)
"Democratic" socialism, a supposedly worker-friendly state that operates under the institutions and practices of republican capitalism, is problematic. The institutions of a capitalist republic evolved to support, well, capitalism; so long as private ownership of capital gives disproportionate economic power to the capitalists, they have both the motive, opportunity, and means to co-opt socialist trustee representatives. Sebastian Haffner documents an especially appalling instance in Failure of a Revolution, where the leaders of the Social Democratic Party turned against the workers they were supposedly representing to maintain their own prestige and privilege borrowed from both the capitalists and the hereditary aristocracy, unleashing and cooperating with the forces that would lead directly to Hitler and the Nazis.
I advocate something different: democratic communism. "The government" under democratic capitalism is a direct democracy, the people themselves, not their easily co-optable trustee representatives.
There are two obvious difficulties with direct democracy. The first is the scaling problem. It's very difficult to put every political and macroeconomic decision to a vote of more than 300,000,000 people, and even if we could, it would seem hard to ever get an affirmative decision. (Why should I care about building a new microchip factory in Indiana?) The second is the problem of expertise: what does it take, for example, to start a farm? There are a lot of issues there? What's the optimal size for a farm? What sort of equipment does it need? What sort of people? These are questions that only a trained agricultural economist can answer. We can't expect the people as a whole to be experts in anything.
I don't have the answers to these questions. We do have some clues, however. The Paris Commune used delegated representation instead of trustee representation. The representatives were arbitrarily recallable; unlike trustee representatives, individual delegated representatives did not have the power of office. Second, delegated representatives could not gain personal economic power. So perhaps we can use a system of delegated representation to solve part of the scaling problem.
The expertise problem is a little easier to solve because we already know how to separate expertise from interests. My physician, for example, is an expert in how my body works, but her expertise does not give her the power to control my interests. She can tell me that working too much is bad for my health, and do what she can to mitigate the effects of overwork, but she can't make me work less. It is up to me to use her expert knowledge to balance my own interests in good health and long hours.
That's essentially the same relationship that any political government has—or should have—with its bureaucracy. The bureaucrats are the experts in how to actually implement policy, and inform the political government of the objective consequences and limitations of policy choices, but it is up to the political government to actually make policy choices. The political government might choose unwisely, but lack of wisdom seems to be an inescapable part of the human condition. We've tried nearly every form of government imaginable, and every form has made astoundingly unwise decisions. The question is not whether we make mistakes, but what kind of mistakes we make. I'd rather we made the people's mistakes, not some aristocracy's.
We have to be very careful about what precisely we mean by a planned economy. Both planning and economics are complex topics, so a planned economy is not simply a binary. The question is not just whether to have a planned economy, but what parts of an economy should be planned; we have not only the extrema of "nothing" and "everything," but also "these parts but not those parts." Therefore, saying that some part of the economy should or shouldn't be planned doesn't entail that we should plan everything or nothing.
Furthermore, that some communist economies have planned some part of the economy to bad effect means only that there's some evidence that planning that specific part of the economy might be a bad idea. The evidence, though, would not be conclusive; cultural, political, sociological, and historical elements in a society affect economic policy as much as or more than pure scientific economics.
It's also worth noting that economic planning is the status quo. First, most companies, and almost all large corporations, are organized along lines most people naively ascribe to communist governments. A cadre of self-appointing* bureaucrats, the executive management, makes most decisions about how to deploy internal resources within the corporation. This cadre has near-absolute power over not only junior members of the cadre, but all the employees. Employees are not only expected to obey, but expected to obey enthusiastically, and they must not overtly contradict the executive cadre. Yes, employees are at least technically free to leave, but the point here is that the fundamental organizational structure is itself viable.
Second, macroeconomic capital allocation is already made by a very small group of people: those who control not only their own personal capital, some of it very large, but also the executive cadres that control corporately-owned capital. Again, the point is not how the capitalist class (owners + executives) is organized (which is, of course, very different from how any group managing investment in a communist system), but that the status quo already is that a small group of people controls actual investment.
*i.e. the existing bureaucracy appoints its own new members.
Therefore, I see communism as endorsing not total economic planning, but more (and different) planning than a state capitalist would endorse, and probably a lot more (and a lot different) than a Libertarian would endorse.
Specifically, communism entails that the allocation of capital, i.e. investment, is heavily planned by "the government."
It's very important to understand that what we mean by "the government" varies according to what regime we're actually talking about.
Under a republican capitalist paradigm, such as the one we presently have in the US, "the government" comprises whichever faction of the capitalist class has greater popular support. Our current paradigm can thus be called a democratically modulated plutocracy.
Under "Communism of the Parties," the paradigm operative in China and the Soviet Union, "the government" consisted of one or another faction of the national Communist Party, itself a self-appointing oligarchy (that considered itself an aristocracy). I'm told there are some reasonable historical and social reasons why China and the Soviet Union ended up with an oligarchy, notably that the societies at the time of the communist revolutions had very little democratic popular culture. Furthermore both, but especially the Soviet Union, faced immediate, severe threats to their continued existence (e.g. Hitler), and could not afford to leisurely develop a democratic culture.
Even so, I don't much like the "Communism of the Parties" paradigm; I'm pretty much opposed to any oligarchy. And we do have something of a democratic culture in the US, and we don't have any severe existential threat. (Islamic "terrorism" does not in any way threaten the continued existence of the United States.)
"Democratic" socialism, a supposedly worker-friendly state that operates under the institutions and practices of republican capitalism, is problematic. The institutions of a capitalist republic evolved to support, well, capitalism; so long as private ownership of capital gives disproportionate economic power to the capitalists, they have both the motive, opportunity, and means to co-opt socialist trustee representatives. Sebastian Haffner documents an especially appalling instance in Failure of a Revolution, where the leaders of the Social Democratic Party turned against the workers they were supposedly representing to maintain their own prestige and privilege borrowed from both the capitalists and the hereditary aristocracy, unleashing and cooperating with the forces that would lead directly to Hitler and the Nazis.
I advocate something different: democratic communism. "The government" under democratic capitalism is a direct democracy, the people themselves, not their easily co-optable trustee representatives.
There are two obvious difficulties with direct democracy. The first is the scaling problem. It's very difficult to put every political and macroeconomic decision to a vote of more than 300,000,000 people, and even if we could, it would seem hard to ever get an affirmative decision. (Why should I care about building a new microchip factory in Indiana?) The second is the problem of expertise: what does it take, for example, to start a farm? There are a lot of issues there? What's the optimal size for a farm? What sort of equipment does it need? What sort of people? These are questions that only a trained agricultural economist can answer. We can't expect the people as a whole to be experts in anything.
I don't have the answers to these questions. We do have some clues, however. The Paris Commune used delegated representation instead of trustee representation. The representatives were arbitrarily recallable; unlike trustee representatives, individual delegated representatives did not have the power of office. Second, delegated representatives could not gain personal economic power. So perhaps we can use a system of delegated representation to solve part of the scaling problem.
The expertise problem is a little easier to solve because we already know how to separate expertise from interests. My physician, for example, is an expert in how my body works, but her expertise does not give her the power to control my interests. She can tell me that working too much is bad for my health, and do what she can to mitigate the effects of overwork, but she can't make me work less. It is up to me to use her expert knowledge to balance my own interests in good health and long hours.
That's essentially the same relationship that any political government has—or should have—with its bureaucracy. The bureaucrats are the experts in how to actually implement policy, and inform the political government of the objective consequences and limitations of policy choices, but it is up to the political government to actually make policy choices. The political government might choose unwisely, but lack of wisdom seems to be an inescapable part of the human condition. We've tried nearly every form of government imaginable, and every form has made astoundingly unwise decisions. The question is not whether we make mistakes, but what kind of mistakes we make. I'd rather we made the people's mistakes, not some aristocracy's.
Friday, April 23, 2010
The Labor Theory of Value
The Labor Theory of Value (LTV) holds that the price of a commodity is determined by the amount of actual labor required to produce that commodity.
There are a couple of quibbles that can easily be addressed.
The LTV talks explicitly about price, not use-value. A commodity that takes twice as much labor to produce as another is not necessarily twice as useful or inherently valuable the other commodity. The LTV says only that if some item is actually traded for some other item (i.e. presuming the use-value of the items justifies the trade, and therefore makes them commodities), the relative magnitude of the trade will be determined by the amount of labor necessary to produce the items. If it's worth trading hats for shoes, and it takes twice as long to make a pair of shoes as to make a hat, then one pair of shoes will be traded for two hats.
All the quantities in the LTV are not individual but statistical quantities, and they are all relative to the physical means of production actually in use. "The amount of labor necessary to produce a commodity" is a statistical property of how much labor is necessary to produce all the shoes in a particular economy. Hence Marx explicitly qualifies his version of the LTV by talking about the socially necessary labor time.
All labor is not the same, even restricting "labor" to time spent producing commodities of known price and use-value. Labor differs in intensity, desirability, training, education and marginal utility* (i.e. the time spent making the first widget creates more use-value than the time spent creating the last marginally useful widget). Again, Marx explicitly qualifies his version of the LTV by talking about the abstract labor time. If, for example, it were half as desirable to make hats as shoes (perhaps because of the obnoxious fumes), then the abstract labor time necessary to create a hat would be twice the actual labor time, and one hats would trade for one pair of shoes. Similarly, because it takes an additional seven to ten years (and a considerable amount of labor) to train a physician, the abstract labor time of an hour of a physician's actual labor is also magnified.
Also, the Marginal Utility Theory of Value (MUTV) does not contradict the LTV. The MUTV specifies which statistical properties of labor time constitute the price.
These quibbles notwithstanding, the LTV is, of course, not even close to being true, at least not by itself. For example, it's implausible to believe that in 2007 more than ten times more labor* was required to build a house in Sunnyvale, CA than in Youngstown, OH. It's implausible to believe that a Macintosh computer takes twice as much labor to build as a similarly configured Windows computer.
The best way, I think, to view the LTV is as a candidate "ideal" theory in the same sense as Newton's First Law of Motion. Neither bodies on Earth nor celestial bodies ever travel in straight lines at constant velocity. In a similar sense, the LTV can be recast with the proviso: In the absence of external economic forces, the price of a commodity is determined by the amount of socially necessary abstract labor time necessary to produce that commodity.
Of course, simply saying that the LTV is an "ideal" theory does not make it true, any more than calling Newton's First Law of Motion an ideal theory makes it true. There are specific scientific techniques that we can bring to bear on ideal theories to gain confidence in their truth.
It's important to understand that Newton never observed an object traveling in a straight line at constant velocity. The "net force" Newton was most interested in, of course, was gravity. Newton never actually observed one body exerting a net force on another body. The First Law of Motion (inertia) is explicitly contradicted by observation, and its primary modifier (which turns inertia into an complete* theory) was also not observable. (Worse yet, Newton had no clue how one body could actually exert a gravitational force on another.)
We cannot justify inertia on "philosophical" grounds. The elegance and aesthetic appeal of the logical derivation from first principles is irrelevant. The "obvious" or intuitive appeal of those first principles is irrelevant. How can we empirically justify the FLM and the theory of gravity?
If we simply "induce" laws of motion from celestial bodies and bodies on the Earth, we end up with one law of motion for Mercury, one for Venus, one for the Sun, one for the Moon, etc., etc. and yet another for bodies on the surface of the Earth. (Curiously, we have (not counting aerodynamics) only one law of motion for all objects on the Earth's surface.) But if we hypothesize "unobservable" inertia and gravity, we end up with one law of motion which takes two independently observable* parameters: mass and distance. We cannot simplify all the motions of the celestial bodies without assuming inertia and gravity.
(It is a separate philosophical issue whether this sort of substantial simplification is at all epistemically relevant.)
If we consider LTV as an "ideal" partial theory, can we do the same sort of thing? There are a number of scientific tools available to us for testing the LTV.
The first tool is a general correlation. Correlation is not causation, but lack of correlation falsifies hypothetical causation. And there is indeed an apparent general correlation between actual labor time and price: jet airliners require more labor time per unit than houses, which require more labor time than cars, which require than computers, which require more than hamburgers, which require more than jellybeans, and the money prices show the same inequalities.
We can eliminate or control for "external" forces: Houses might vary in price between Sunnyvale and Youngstown without regard to labor time, but the difference in price of two houses in Sunnyvale or two houses in Youngstown will correlate more strongly to the difference in the amount of labor actually required to build the houses. A computer shipped by Amazon.com (i.e. a non-location-dependent commodity) to Sunnyvale will have almost exactly the same price as one shipped to Youngstown. (In a similar sense, inertia is more directly observable for bodies moving in nearly frictionless environments at right angles to the force of gravity.) The difference in price of two Windows computers will be more correlated to the difference in actual labor time, as will the difference in price of two Mac computers.
Better yet, we can independently observe "external" economic forces — geographical location, network effects, monopolies and monopsonies, etc. — and we can observe that two commodities with similar independently observable externalities will have similar "distortions" to the LTV.
Therefore we can conclude that the LTV + externalities has a similar empirical justification to inertia + gravity, and similar confidence is scientifically warranted in both.
There are a couple of quibbles that can easily be addressed.
The LTV talks explicitly about price, not use-value. A commodity that takes twice as much labor to produce as another is not necessarily twice as useful or inherently valuable the other commodity. The LTV says only that if some item is actually traded for some other item (i.e. presuming the use-value of the items justifies the trade, and therefore makes them commodities), the relative magnitude of the trade will be determined by the amount of labor necessary to produce the items. If it's worth trading hats for shoes, and it takes twice as long to make a pair of shoes as to make a hat, then one pair of shoes will be traded for two hats.
All the quantities in the LTV are not individual but statistical quantities, and they are all relative to the physical means of production actually in use. "The amount of labor necessary to produce a commodity" is a statistical property of how much labor is necessary to produce all the shoes in a particular economy. Hence Marx explicitly qualifies his version of the LTV by talking about the socially necessary labor time.
All labor is not the same, even restricting "labor" to time spent producing commodities of known price and use-value. Labor differs in intensity, desirability, training, education and marginal utility* (i.e. the time spent making the first widget creates more use-value than the time spent creating the last marginally useful widget). Again, Marx explicitly qualifies his version of the LTV by talking about the abstract labor time. If, for example, it were half as desirable to make hats as shoes (perhaps because of the obnoxious fumes), then the abstract labor time necessary to create a hat would be twice the actual labor time, and one hats would trade for one pair of shoes. Similarly, because it takes an additional seven to ten years (and a considerable amount of labor) to train a physician, the abstract labor time of an hour of a physician's actual labor is also magnified.
Also, the Marginal Utility Theory of Value (MUTV) does not contradict the LTV. The MUTV specifies which statistical properties of labor time constitute the price.
These quibbles notwithstanding, the LTV is, of course, not even close to being true, at least not by itself. For example, it's implausible to believe that in 2007 more than ten times more labor* was required to build a house in Sunnyvale, CA than in Youngstown, OH. It's implausible to believe that a Macintosh computer takes twice as much labor to build as a similarly configured Windows computer.
The best way, I think, to view the LTV is as a candidate "ideal" theory in the same sense as Newton's First Law of Motion. Neither bodies on Earth nor celestial bodies ever travel in straight lines at constant velocity. In a similar sense, the LTV can be recast with the proviso: In the absence of external economic forces, the price of a commodity is determined by the amount of socially necessary abstract labor time necessary to produce that commodity.
Of course, simply saying that the LTV is an "ideal" theory does not make it true, any more than calling Newton's First Law of Motion an ideal theory makes it true. There are specific scientific techniques that we can bring to bear on ideal theories to gain confidence in their truth.
It's important to understand that Newton never observed an object traveling in a straight line at constant velocity. The "net force" Newton was most interested in, of course, was gravity. Newton never actually observed one body exerting a net force on another body. The First Law of Motion (inertia) is explicitly contradicted by observation, and its primary modifier (which turns inertia into an complete* theory) was also not observable. (Worse yet, Newton had no clue how one body could actually exert a gravitational force on another.)
*At least regarding celestial bodies, which aren't affected by air resistance and aerodynamics, and leaving aside General Relativity for the time being.
We cannot justify inertia on "philosophical" grounds. The elegance and aesthetic appeal of the logical derivation from first principles is irrelevant. The "obvious" or intuitive appeal of those first principles is irrelevant. How can we empirically justify the FLM and the theory of gravity?
If we simply "induce" laws of motion from celestial bodies and bodies on the Earth, we end up with one law of motion for Mercury, one for Venus, one for the Sun, one for the Moon, etc., etc. and yet another for bodies on the surface of the Earth. (Curiously, we have (not counting aerodynamics) only one law of motion for all objects on the Earth's surface.) But if we hypothesize "unobservable" inertia and gravity, we end up with one law of motion which takes two independently observable* parameters: mass and distance. We cannot simplify all the motions of the celestial bodies without assuming inertia and gravity.
*More-or-less observable (and more directly observable than inertia and gravity). Density does not vary that much, and we can get a reasonable estimate of mass and distance from apparent size.
(It is a separate philosophical issue whether this sort of substantial simplification is at all epistemically relevant.)
If we consider LTV as an "ideal" partial theory, can we do the same sort of thing? There are a number of scientific tools available to us for testing the LTV.
The first tool is a general correlation. Correlation is not causation, but lack of correlation falsifies hypothetical causation. And there is indeed an apparent general correlation between actual labor time and price: jet airliners require more labor time per unit than houses, which require more labor time than cars, which require than computers, which require more than hamburgers, which require more than jellybeans, and the money prices show the same inequalities.
We can eliminate or control for "external" forces: Houses might vary in price between Sunnyvale and Youngstown without regard to labor time, but the difference in price of two houses in Sunnyvale or two houses in Youngstown will correlate more strongly to the difference in the amount of labor actually required to build the houses. A computer shipped by Amazon.com (i.e. a non-location-dependent commodity) to Sunnyvale will have almost exactly the same price as one shipped to Youngstown. (In a similar sense, inertia is more directly observable for bodies moving in nearly frictionless environments at right angles to the force of gravity.) The difference in price of two Windows computers will be more correlated to the difference in actual labor time, as will the difference in price of two Mac computers.
Better yet, we can independently observe "external" economic forces — geographical location, network effects, monopolies and monopsonies, etc. — and we can observe that two commodities with similar independently observable externalities will have similar "distortions" to the LTV.
Therefore we can conclude that the LTV + externalities has a similar empirical justification to inertia + gravity, and similar confidence is scientifically warranted in both.
Thursday, March 04, 2010
Economics and value
Roger Ebert is trying to monetize his site. In a comment, I suggested that he's in a position to challenge the dominant social and economic idea that without exception everyone "ought" to be paid according to the value they produce, regardless of their overall economic position.
This idea sounds not just good, but intuitively obvious. It is, however, incorrect; it's very obviousness prevents us from examining the idea critically.
The first problem with this idea is that a free market is not intended to and does not exist to distribute reward commensurate with value produced. A free market distributes costs according to the relationship between scarcity and value (i.e. use-value).
Consider an ordinary automobile. There are lots of components of an automobile that have marginal use value. A car with cheap vinyl upholstery still has real use-value; a car with rich Corinthian leather* has more use-value; the difference is the marginal use-value. But a automobile is only reducible so far; at its core is an irreducibly complex** system: a frame, an engine, fuel, a transmission, wheels, brakes and a control system. All of these elements add the "marginal" use-value between a working car and a hunk of scrap; their contribution is clearly not additive. Furthermore, the labor involved in manufacturing a car — both the irreducibly complex core as well as the components that add marginal value — is irreducibly complex: from the collection and processing of the raw materials, the production of the components, their transportation and assembly, and the administration and coordination of all of these efforts. Again, take out one piece and you do not have any automobile at all. Furthermore, the addition of marginal value (i.e. rich Corinthian leather) to an automobile occurs only when that marginal value exceeds the value of producing another basic automobile.
If a free market were really concerned about distributing reward based on value, we would expect everyone to be paid more-or-less the same, since everyone is always (or so the theory goes) producing whatever is of the most value. But this is clearly not the case. There are enormous differences, six or more orders of magnitude of difference, between income. It is implausible that people intrinsically vary a million-fold by their value-producing ability; we must believe that Bill Gates could by himself produce more than a large city full of African subsistence farmers.
Furthermore, the capitalist system is not a free market; it does not even behave as we logically expect an ideal free market would behave. In a free market, individuals bend their efforts to eliminating or mitigating every scarcity. If oil is in short supply, individuals in a free market look for more oil or in create alternatives. If there aren't enough engineers or administrators, individuals train more engineers and administrators, automate their tasks, or create alternatives to get the job done with talents and abilities more prevalent in society.
But everywhere we look, we see instead of being eliminated, we see scarcities being artificially and intentionally preserved. From the egregious and gratuitous "nickel and diming*" of the working class, the social barriers to entry into the professional-managerial middle class, and the obstacles placed in the way of the middle class accumulating capital**, we see a system that preserves and maintains scarcities for the privilege of those who control them.
Fundamentally, we "should" not reward individual for the value they produce because in an organized, industrial society we cannot measure the value any person — from janitor to CEO — individually produces.
This idea sounds not just good, but intuitively obvious. It is, however, incorrect; it's very obviousness prevents us from examining the idea critically.
The first problem with this idea is that a free market is not intended to and does not exist to distribute reward commensurate with value produced. A free market distributes costs according to the relationship between scarcity and value (i.e. use-value).
Consider an ordinary automobile. There are lots of components of an automobile that have marginal use value. A car with cheap vinyl upholstery still has real use-value; a car with rich Corinthian leather* has more use-value; the difference is the marginal use-value. But a automobile is only reducible so far; at its core is an irreducibly complex** system: a frame, an engine, fuel, a transmission, wheels, brakes and a control system. All of these elements add the "marginal" use-value between a working car and a hunk of scrap; their contribution is clearly not additive. Furthermore, the labor involved in manufacturing a car — both the irreducibly complex core as well as the components that add marginal value — is irreducibly complex: from the collection and processing of the raw materials, the production of the components, their transportation and assembly, and the administration and coordination of all of these efforts. Again, take out one piece and you do not have any automobile at all. Furthermore, the addition of marginal value (i.e. rich Corinthian leather) to an automobile occurs only when that marginal value exceeds the value of producing another basic automobile.
*KHAAAAAAAAAAAAN!
**The argument (such as it is) in evolutionary biology is not whether or not present-day biological systems are irreducibly complex; the argument is whether or not irreducibly complex systems can evolve non-teleologically, which they can.
**The argument (such as it is) in evolutionary biology is not whether or not present-day biological systems are irreducibly complex; the argument is whether or not irreducibly complex systems can evolve non-teleologically, which they can.
If a free market were really concerned about distributing reward based on value, we would expect everyone to be paid more-or-less the same, since everyone is always (or so the theory goes) producing whatever is of the most value. But this is clearly not the case. There are enormous differences, six or more orders of magnitude of difference, between income. It is implausible that people intrinsically vary a million-fold by their value-producing ability; we must believe that Bill Gates could by himself produce more than a large city full of African subsistence farmers.
Furthermore, the capitalist system is not a free market; it does not even behave as we logically expect an ideal free market would behave. In a free market, individuals bend their efforts to eliminating or mitigating every scarcity. If oil is in short supply, individuals in a free market look for more oil or in create alternatives. If there aren't enough engineers or administrators, individuals train more engineers and administrators, automate their tasks, or create alternatives to get the job done with talents and abilities more prevalent in society.
But everywhere we look, we see instead of being eliminated, we see scarcities being artificially and intentionally preserved. From the egregious and gratuitous "nickel and diming*" of the working class, the social barriers to entry into the professional-managerial middle class, and the obstacles placed in the way of the middle class accumulating capital**, we see a system that preserves and maintains scarcities for the privilege of those who control them.
*See Barbara Ehrenreich's book, Nickel and Dimed.
**See Bait and Switch and Fear of Falling, also by Ehrenreich.
**See Bait and Switch and Fear of Falling, also by Ehrenreich.
Fundamentally, we "should" not reward individual for the value they produce because in an organized, industrial society we cannot measure the value any person — from janitor to CEO — individually produces.
Wednesday, February 17, 2010
What is socialization?
The communist project is to socialize the ownership of capital. What precisely do I mean by "socialization"?
Socialization refers to a change in attitude, a new set of ideas that achieves wide distribution in the members of a society. Specifically, socialization is the attitude that some social condition or property is inherent to each individual, as opposed to the attitude that the condition is acquired or earned by some "merit" or positive activity.
The analogy between communism and capitalist democracy is especially important here. It's difficult, I think, for modern Americans to really understand how groundbreaking the American Revolution and US Constitution were. They didn't just set up the capitalist class (more precisely the large land-owners of a more-or-less regressive agrarian slave state) as the new ruling class; what's interesting is how they did so. The founders didn't just set up a new aristocracy; they actually and explicitly socialized political power.
(Of course, they outrageously rigged the system so the large land owners and later the nascent merchant- and industrial-capitalist class would have an overwhelming advantage, but it's interesting that they created a system that had to be rigged, rather than creating a system that just directly privileged these classes.)
Before the American Revolution, political power — physically manifested as the allegiance of the police and the army, also social constructions — was owned by the monarchy and nobility. The king* could act more-or-less arbitrarily and he could employ his coercive powers directly for his own benefit. The only way the people could actually change kings was by armed rebellion and civil war... which of course required military discipline and a candidate replacement king to lead and organize the rebellion.
Of course, there were a lot of compromises, restrictions and dilutions of that power along the way, such as the English Parliament and the Magna Carta; the socialization of political power did not spring ex nihilo from a practical vacuum any more than it did from a philosophical vacuum. Practically speaking, no monarch actually exercised absolute arbitrary power. But all of the compromises centered around the underlying idea of the feudal aristocracy's possession of power by virtue of hereditary, divine and military merit: even when compromised, you had to control the king to control political power.
Practically speaking, the governments of the American Revolution (the state governments and the US Constitution) were the first to be explicitly republican: political power was directly owned more-or-less by the people inherently and not deservedly or by merit. Although at first imperfectly* implemented, the social constructions of political power immediately after the Revolution gave enough impetus to the underlying idea that the trend until the late 20th century was unmistakably towards increased republicanism, and the vesting of political power in more of the population.
(The 18th and early 19th century United States did not face any "existential threats", threats to its very existence as a nation; this relative safety undoubtedly affected the course of the social evolution of capitalist democracy. It's interesting to speculate how the Russian and Chinese revolutions might have evolved had they not faced the severe existential threats of two massive invasions in the case of the Russians, or the threat of immediate famine and widespread starvation, which long preceded both the Russian and Chinese revolutions, especially the Chinese.)
There are a number of elements to the socialization of political power. Some were directly and explicitly constructed by the authors of the Constitution and its amendments, some have evolved over time. Some are honored more in the breach than the observance; that they have to be subverted rather than simply dispensed with, however, testifies to the power of the underlying socialization.
The first element is the vote, the direct and explicit socialization of political power. The vote is non-transferable: it cannot be sold, relinquished or expropriated*,**. The vote is secret, and there is no practical way an individual can face direct social consequences for the content of her vote. Each vote counts the same, regardless of any measure of individual merit. An election, the physical counting of actual votes, is the final arbiter of political power***.
*A person can be disenfranchised, but her vote cannot then be used by another.
**Representatives do vote arbitrarily; their vote cannot be reversed by their constituents. But representatives must always at least give lip service to the idea that they are voting for the benefit of their constituents.
***Even in Bush v. Gore, the Supreme Court installed Bush by certifying a particular electoral result.
Another important social construct, both explicit* and implicit, is the idea that representatives cannot use their vote or delegated powers directly and explicitly for their own immediate, personal benefit; any benefit they derive must** be indirect, primarily in the form of keeping their jobs at the pleasure of their constituents.
Another element is the near-elimination of explicit individual privilege (literally private law) under law. Under feudalism, there were actually one set of laws regulating the commonality and an explicitly different set regulating the aristocracy. Furthermore, the difference accrued to the person, not the office (feudal "offices" were inalienable). Under capitalist democracy, individual conduct is equally regulated, and any privilege that exists (such as the privilege to cast a vote on federal legislation or the power to command the army) accrues to the office, not the person. This legal equalitarianism is of course often superficial: "The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread." But it is important that the law must be at least superficially equalitarian; a law that explicitly forbade only the poor from sleeping under bridges would be an outrage.
There are a lot of lessons we can learn from the socialization of political power. First and foremost: it can be done. We know it is possible to explicitly socialize a social construct that has been privatized for millennia. We know too its possible for socialized political power to operate more-or-less successfully in the real world, avoiding catastrophic failure*. Political power has also been socialized in various different ways in different nations and cultures: we have a lot of examples to draw on. We also know that we don't have to initially get it exactly right; social evolution can, at least under favorable circumstances, modify the imperfections and mistakes of the initial implementation. (Which is not to say the initial implementation doesn't matter at all; As modern China and several economically successful autocracies such as Singapore and Taiwan have shown, capitalism — more-or-less necessitated by economic reality — can exist without the socialization of political power.)
Socialization refers to a change in attitude, a new set of ideas that achieves wide distribution in the members of a society. Specifically, socialization is the attitude that some social condition or property is inherent to each individual, as opposed to the attitude that the condition is acquired or earned by some "merit" or positive activity.
The analogy between communism and capitalist democracy is especially important here. It's difficult, I think, for modern Americans to really understand how groundbreaking the American Revolution and US Constitution were. They didn't just set up the capitalist class (more precisely the large land-owners of a more-or-less regressive agrarian slave state) as the new ruling class; what's interesting is how they did so. The founders didn't just set up a new aristocracy; they actually and explicitly socialized political power.
(Of course, they outrageously rigged the system so the large land owners and later the nascent merchant- and industrial-capitalist class would have an overwhelming advantage, but it's interesting that they created a system that had to be rigged, rather than creating a system that just directly privileged these classes.)
Before the American Revolution, political power — physically manifested as the allegiance of the police and the army, also social constructions — was owned by the monarchy and nobility. The king* could act more-or-less arbitrarily and he could employ his coercive powers directly for his own benefit. The only way the people could actually change kings was by armed rebellion and civil war... which of course required military discipline and a candidate replacement king to lead and organize the rebellion.
*I use the male constructions advisedly. While there were influential and powerful women in the feudal aristocracy at every level, the whole of feudal society was thoroughly patriarchal in every culture, not just the West.
Of course, there were a lot of compromises, restrictions and dilutions of that power along the way, such as the English Parliament and the Magna Carta; the socialization of political power did not spring ex nihilo from a practical vacuum any more than it did from a philosophical vacuum. Practically speaking, no monarch actually exercised absolute arbitrary power. But all of the compromises centered around the underlying idea of the feudal aristocracy's possession of power by virtue of hereditary, divine and military merit: even when compromised, you had to control the king to control political power.
Practically speaking, the governments of the American Revolution (the state governments and the US Constitution) were the first to be explicitly republican: political power was directly owned more-or-less by the people inherently and not deservedly or by merit. Although at first imperfectly* implemented, the social constructions of political power immediately after the Revolution gave enough impetus to the underlying idea that the trend until the late 20th century was unmistakably towards increased republicanism, and the vesting of political power in more of the population.
*If you'll forgive the outrageous understatement of calling the institutionalization of slavery and the restriction of the vote to white male land-owners "imperfections".
(The 18th and early 19th century United States did not face any "existential threats", threats to its very existence as a nation; this relative safety undoubtedly affected the course of the social evolution of capitalist democracy. It's interesting to speculate how the Russian and Chinese revolutions might have evolved had they not faced the severe existential threats of two massive invasions in the case of the Russians, or the threat of immediate famine and widespread starvation, which long preceded both the Russian and Chinese revolutions, especially the Chinese.)
There are a number of elements to the socialization of political power. Some were directly and explicitly constructed by the authors of the Constitution and its amendments, some have evolved over time. Some are honored more in the breach than the observance; that they have to be subverted rather than simply dispensed with, however, testifies to the power of the underlying socialization.
The first element is the vote, the direct and explicit socialization of political power. The vote is non-transferable: it cannot be sold, relinquished or expropriated*,**. The vote is secret, and there is no practical way an individual can face direct social consequences for the content of her vote. Each vote counts the same, regardless of any measure of individual merit. An election, the physical counting of actual votes, is the final arbiter of political power***.
*A person can be disenfranchised, but her vote cannot then be used by another.
**Representatives do vote arbitrarily; their vote cannot be reversed by their constituents. But representatives must always at least give lip service to the idea that they are voting for the benefit of their constituents.
***Even in Bush v. Gore, the Supreme Court installed Bush by certifying a particular electoral result.
Another important social construct, both explicit* and implicit, is the idea that representatives cannot use their vote or delegated powers directly and explicitly for their own immediate, personal benefit; any benefit they derive must** be indirect, primarily in the form of keeping their jobs at the pleasure of their constituents.
*See especially Article II, Section 7: Executive pay and the 27th Amendment, limiting changes to congressional pay.
**Or should; this construction is definitely honored more in the breach than the observance.
**Or should; this construction is definitely honored more in the breach than the observance.
Another element is the near-elimination of explicit individual privilege (literally private law) under law. Under feudalism, there were actually one set of laws regulating the commonality and an explicitly different set regulating the aristocracy. Furthermore, the difference accrued to the person, not the office (feudal "offices" were inalienable). Under capitalist democracy, individual conduct is equally regulated, and any privilege that exists (such as the privilege to cast a vote on federal legislation or the power to command the army) accrues to the office, not the person. This legal equalitarianism is of course often superficial: "The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread." But it is important that the law must be at least superficially equalitarian; a law that explicitly forbade only the poor from sleeping under bridges would be an outrage.
There are a lot of lessons we can learn from the socialization of political power. First and foremost: it can be done. We know it is possible to explicitly socialize a social construct that has been privatized for millennia. We know too its possible for socialized political power to operate more-or-less successfully in the real world, avoiding catastrophic failure*. Political power has also been socialized in various different ways in different nations and cultures: we have a lot of examples to draw on. We also know that we don't have to initially get it exactly right; social evolution can, at least under favorable circumstances, modify the imperfections and mistakes of the initial implementation. (Which is not to say the initial implementation doesn't matter at all; As modern China and several economically successful autocracies such as Singapore and Taiwan have shown, capitalism — more-or-less necessitated by economic reality — can exist without the socialization of political power.)
*If you'll forgive the understatement of not labeling as "catastrophic failures" institutionalized chattel slavery, colonialism, imperialism and the megadeaths of two Imperial Wars just because they did not result in the abandonment of democracy.
Tuesday, February 16, 2010
What is ownership?
The communist project is to socialize the ownership of capital. What precisely do I mean by "ownership"?
Ownership is a social construct establishing a specific kind of social privilege, literally a private law. When you own something, your neighbors will permit you to use that something in a way they will not permit others to use it. I own my care: I can drive it wherever and whenever I please and my neighbors will not object; if the guy down the hall tries to drive it without my permission, my neighbors will essentially band together, find him and punish him. My ownership is this privilege.
We typically do not consider certain social prohibitions on use to substantially compromise or affect ownership. I cannot, for example, use my car to run pedestrians over, nor can I use my car to commit a crime. Nor do certain social compulsions necessarily compromise ownership. Assuming that clean air is worth the overall cost, I may be compelled* to pay for the installation and maintain emissions controls on the car for the mutual benefit of me and my neighbors.
What we believe does affect ownership of something is being compelled to use that something for the private benefit of another. If, for example, as a condition of car ownership I were compelled to give one carless neighbor a ride to work, I would feel that my private ownership was compromised. The concept of mutual benefit is inoperative here, since I myself am not carless. Therefore, the sine qua non of private capital ownership must therefore be that the benefits of capital, i.e. the rent* the owner of capital may collect for its use, accrue only to the private benefit of its owner, however she construes that benefit.
Management, in the sense of making day-to-day decisions about the use of something is different from ownership. How precisely to socialize the management of capital is a completely different issue from the fundamental principle of socializing its ownership. However we choose to manage capital, that management must accrue to the benefit of the people, not to the private owners of capital.
(Indeed it is a communist critique of capitalist democracy that our elected representatives serve for a fixed period of time, which to some extent confuses the issue of whether the people have merely delegated the management of their political power or whether they have actually given their power — even temporarily — to those representatives. It's notable that when the capitalist class delegates their power to executive management, they typically retain the power to arbitrarily dismiss any executive at any time. The only operative political structure that Marx directly approved of was the Paris Commune. Marx identified the construction that the people could arbitrarily recall their delegates at any time as critical to a "truly" democratic political structure.)
Communism goes much farther than solving Prisoners' Dilemma situations regarding mutual benefits that include the individual benefits of the owners of capital. Except in the most rarefied, abstract sense, the transfer of ownership of capital will not be to any sort of benefit of its present owners. They will be expropriated without any meaningful compensation. It is entirely rational for the owners of capital to resist communism by any means necessary and possible, including argument, persuasion, exhortation, propaganda, bullshit, lies, violence, and war. And they have been using all of these means to retain control of their capital, just as the feudal nobility unsuccessfully used all of these means to retain their own privilege during the bourgeois revolutions of the 18th and 19th centuries.
Ownership is a social construct establishing a specific kind of social privilege, literally a private law. When you own something, your neighbors will permit you to use that something in a way they will not permit others to use it. I own my care: I can drive it wherever and whenever I please and my neighbors will not object; if the guy down the hall tries to drive it without my permission, my neighbors will essentially band together, find him and punish him. My ownership is this privilege.
We typically do not consider certain social prohibitions on use to substantially compromise or affect ownership. I cannot, for example, use my car to run pedestrians over, nor can I use my car to commit a crime. Nor do certain social compulsions necessarily compromise ownership. Assuming that clean air is worth the overall cost, I may be compelled* to pay for the installation and maintain emissions controls on the car for the mutual benefit of me and my neighbors.
*This is a typical Prisoner's Dilemma situation: I (and everyone else) am individually better off if everyone else pays for emissions controls and I do not; even if there were no dissenters from apprehension of mutual benefit, the "selfish" benefit from being a "free rider" requires some sort of compulsion.
What we believe does affect ownership of something is being compelled to use that something for the private benefit of another. If, for example, as a condition of car ownership I were compelled to give one carless neighbor a ride to work, I would feel that my private ownership was compromised. The concept of mutual benefit is inoperative here, since I myself am not carless. Therefore, the sine qua non of private capital ownership must therefore be that the benefits of capital, i.e. the rent* the owner of capital may collect for its use, accrue only to the private benefit of its owner, however she construes that benefit.
*Rent is, by definition, the amount over and above the actual cost of creating and maintaining the capital.
Management, in the sense of making day-to-day decisions about the use of something is different from ownership. How precisely to socialize the management of capital is a completely different issue from the fundamental principle of socializing its ownership. However we choose to manage capital, that management must accrue to the benefit of the people, not to the private owners of capital.
(Indeed it is a communist critique of capitalist democracy that our elected representatives serve for a fixed period of time, which to some extent confuses the issue of whether the people have merely delegated the management of their political power or whether they have actually given their power — even temporarily — to those representatives. It's notable that when the capitalist class delegates their power to executive management, they typically retain the power to arbitrarily dismiss any executive at any time. The only operative political structure that Marx directly approved of was the Paris Commune. Marx identified the construction that the people could arbitrarily recall their delegates at any time as critical to a "truly" democratic political structure.)
Communism goes much farther than solving Prisoners' Dilemma situations regarding mutual benefits that include the individual benefits of the owners of capital. Except in the most rarefied, abstract sense, the transfer of ownership of capital will not be to any sort of benefit of its present owners. They will be expropriated without any meaningful compensation. It is entirely rational for the owners of capital to resist communism by any means necessary and possible, including argument, persuasion, exhortation, propaganda, bullshit, lies, violence, and war. And they have been using all of these means to retain control of their capital, just as the feudal nobility unsuccessfully used all of these means to retain their own privilege during the bourgeois revolutions of the 18th and 19th centuries.
Monday, February 15, 2010
Capitalism and coercion
In my post What is communism? I draw an analogy between the privatization and socialization of political power (physically manifested as the direct use of violent coercion) and the privatization and socialization of capital (physically manifested as the additional value afforded by capital).
Commenter Chris objects, saying:
Chris is not talking about capital in the same sense that I'm talking about. I completely disagree that "[t]he private control of capital is just a way to attempt [to] ensure that people get the products of their labor in a form desirable to them." This ascribes not just an effect but an intention to capital, an intention that I cannot see as being either philosophically, presently or historically justified. It is at best an element of capitalist propaganda, "We doing all this for your own good [which you're too inept to do on your own.]"
Chris attempts to undermine the analogy by asserting (more-or-less correctly) that coercion is, well, coercive, but capital isn't coercion. But that's not the substance of my analogy, which rests not on the characteristics of what is being owned, but rather on the socially-constructed mode of ownership, and the pragmatic rather than intrinsic value of changing that mode. (I'm also trying to undermine the argument for the intrinsic value of private ownership; if the privatization of coercion is not intrinsically good, then privatization by itself cannot be intrinsically good.)
Most importantly, Chris's disanalogy fundamentally fails because under present circumstances, ownership of capital does in fact afford its owners substantive coercive power. There are simply too many people on the Earth to afford all them — or even a substantial fraction of them — the reasonable opportunity for even self-sufficient survival. For billions of people, the option is literally use capital to produce or die. As important, the imposition or threat to impose suffering is as or more coercive than the imposition or threat of death. And even when bare survival is possible to an objectively self-sufficient person, that survival comes at the cost of severe and constant suffering. They might not starve, but they will hunger. They may not freeze, but they will shiver. They might not sicken and die, but they will sicken.
The difference between "do what I tell you or I'll kill or hurt you" and "do what I tell you or I'll let you die or suffer" is a quibbling semantic distinction that a person with genuine empathy and fellow-feeling must dismiss as being, if not completely irrelevant or trivial, at least as of only secondary importance. Our empathy compels us not just to refrain from imposing suffering on others, but to actually alleviate others' suffering.
If you do not feel this sort of empathy, if you can look at the suffering of another and say with all honesty and without rationalization that you simply do not care, well, that's how you are. I can't do anything to change your feelings; even if I could, I wouldn't without your consent. But keep in mind that a lot of us human beings do care about the suffering of others, and we care enough to do what we can to alleviate it. If you stand in our way, we will not give your well-being much more consideration than you give to others.
Commenter Chris objects, saying:
[Y]our analogy between power and capital doesn't hold true: people decided power should not be centralized because power is the control of sapient beings; capital is the control of things which work must be done to acquire.Chris of course recognizes I'm drawing an analogy, that I'm not saying that capital and coercion are equivalent, but rather that they are substantively similar. However, he tries to undermine the analogy by establishing a substantive difference. Establishing a difference by itself does not undermine an analogy; to undermine an analogy, you must establish that the specific similarity that supports the analogy is in truth dissimilar.
The private control of capital is just a way to attempt ensure that people get the products of their labor in a form desirable to them. Likening private control of capital to private control of power, the ability to compel a thinking, feeling person to do something they don't want to do, isdisingenuousmistaken.
Chris is not talking about capital in the same sense that I'm talking about. I completely disagree that "[t]he private control of capital is just a way to attempt [to] ensure that people get the products of their labor in a form desirable to them." This ascribes not just an effect but an intention to capital, an intention that I cannot see as being either philosophically, presently or historically justified. It is at best an element of capitalist propaganda, "We doing all this for your own good [which you're too inept to do on your own.]"
Chris attempts to undermine the analogy by asserting (more-or-less correctly) that coercion is, well, coercive, but capital isn't coercion. But that's not the substance of my analogy, which rests not on the characteristics of what is being owned, but rather on the socially-constructed mode of ownership, and the pragmatic rather than intrinsic value of changing that mode. (I'm also trying to undermine the argument for the intrinsic value of private ownership; if the privatization of coercion is not intrinsically good, then privatization by itself cannot be intrinsically good.)
Most importantly, Chris's disanalogy fundamentally fails because under present circumstances, ownership of capital does in fact afford its owners substantive coercive power. There are simply too many people on the Earth to afford all them — or even a substantial fraction of them — the reasonable opportunity for even self-sufficient survival. For billions of people, the option is literally use capital to produce or die. As important, the imposition or threat to impose suffering is as or more coercive than the imposition or threat of death. And even when bare survival is possible to an objectively self-sufficient person, that survival comes at the cost of severe and constant suffering. They might not starve, but they will hunger. They may not freeze, but they will shiver. They might not sicken and die, but they will sicken.
The difference between "do what I tell you or I'll kill or hurt you" and "do what I tell you or I'll let you die or suffer" is a quibbling semantic distinction that a person with genuine empathy and fellow-feeling must dismiss as being, if not completely irrelevant or trivial, at least as of only secondary importance. Our empathy compels us not just to refrain from imposing suffering on others, but to actually alleviate others' suffering.
If you do not feel this sort of empathy, if you can look at the suffering of another and say with all honesty and without rationalization that you simply do not care, well, that's how you are. I can't do anything to change your feelings; even if I could, I wouldn't without your consent. But keep in mind that a lot of us human beings do care about the suffering of others, and we care enough to do what we can to alleviate it. If you stand in our way, we will not give your well-being much more consideration than you give to others.
What is capital?
The communist project is to socialize the ownership of capital. What precisely do I mean by "capital"?
Handwaving over a lot of the complexities, human effort over time creates items of value by transforming physical reality. The transformation can be as simple as finding a piece of fruit on a tree and moving it to one's mouth, or as complicated as turning silicon, copper, gold, etc. into a supercomputer. Labor is human effort over time that actually creates value.
We have found, over history, that we can use labor to produce "stuff" (not just physical stuff, but also services, ideas and technology) that makes subsequent labor more efficient, i.e. we can create more value with less human time and effort. We have to incur the costs (use the labor) to make this stuff before we actually make stuff that has intrinsic value. We can label as capital anything we have to use labor for before we begin producing stuff we just consume (i.e. stuff that has intrinsic value); the stuff we create to make later production more efficient is physical and intellectual capital.
Furthermore, if we accumulate or can generate a sufficient surplus, we can feed a lot of people for a long time so they can create complicated stuff with intrinsic value (such as computers, airplanes, moon rockets, etc.). Since we have to incur the cost (use the labor to feed the people) well before they produce the value, this cost is essentially a capital cost; it is human capital.
(I'm presently ignoring the further criteria having to do with the exchange of stuff. These criteria will become important later.)
Capital makes our labor more efficient. It does so directly by allowing us to produce more value with less labor time. It also does so indirectly by allowing us to take a long time to produce high value stuff; we could produce only lower-value stuff if we couldn't work for a long time before creating something.
The actual labor necessary to produce capital must be paid for. But, generally speaking, capital "pays for itself" very quickly: the increased value afforded by the use of capital exceeds its labor cost by orders of magnitude. Even late in the 18th century, Adam Smith observed a two to three order of magnitude increase in efficiency in the manufacture of pins. [Wealth of Nations, 1776, Chapter 1, section 1.1.3] (The primary proximate cause of this increase of efficiency was division of labor afforded by the accumulation of capital. The division of labor by itself poses interesting questions at all level of political-economic analysis, especially in game theory.)
Once the actual labor involved in creating the capital has been paid for (however we happen to construe "paid for") what do we do with the additional value the capital affords through increased efficiency?
Under capitalism, private individuals own this additional value, and they may consume or invest it as they themselves please, for their own and no others' benefit. In theory, just as the benefits to the subjects were supposed to emerge from the interplay of competing private benefits of the royalty and nobility, the benefits to the workers are supposed to emerge from the interplay of competing private benefits of the owners of capital. The communist argument says that it is a matter of scientific truth established by empirical observation that benefits to the workers do not actually emerge from the interplay of private ownership of capital*, therefore we must directly socialize the ownership of capital.
Of course, I will be elaborating on this argument in considerably greater detail in future posts.
Handwaving over a lot of the complexities, human effort over time creates items of value by transforming physical reality. The transformation can be as simple as finding a piece of fruit on a tree and moving it to one's mouth, or as complicated as turning silicon, copper, gold, etc. into a supercomputer. Labor is human effort over time that actually creates value.
We have found, over history, that we can use labor to produce "stuff" (not just physical stuff, but also services, ideas and technology) that makes subsequent labor more efficient, i.e. we can create more value with less human time and effort. We have to incur the costs (use the labor) to make this stuff before we actually make stuff that has intrinsic value. We can label as capital anything we have to use labor for before we begin producing stuff we just consume (i.e. stuff that has intrinsic value); the stuff we create to make later production more efficient is physical and intellectual capital.
Furthermore, if we accumulate or can generate a sufficient surplus, we can feed a lot of people for a long time so they can create complicated stuff with intrinsic value (such as computers, airplanes, moon rockets, etc.). Since we have to incur the cost (use the labor to feed the people) well before they produce the value, this cost is essentially a capital cost; it is human capital.
(I'm presently ignoring the further criteria having to do with the exchange of stuff. These criteria will become important later.)
Capital makes our labor more efficient. It does so directly by allowing us to produce more value with less labor time. It also does so indirectly by allowing us to take a long time to produce high value stuff; we could produce only lower-value stuff if we couldn't work for a long time before creating something.
The actual labor necessary to produce capital must be paid for. But, generally speaking, capital "pays for itself" very quickly: the increased value afforded by the use of capital exceeds its labor cost by orders of magnitude. Even late in the 18th century, Adam Smith observed a two to three order of magnitude increase in efficiency in the manufacture of pins. [Wealth of Nations, 1776, Chapter 1, section 1.1.3] (The primary proximate cause of this increase of efficiency was division of labor afforded by the accumulation of capital. The division of labor by itself poses interesting questions at all level of political-economic analysis, especially in game theory.)
Once the actual labor involved in creating the capital has been paid for (however we happen to construe "paid for") what do we do with the additional value the capital affords through increased efficiency?
Under capitalism, private individuals own this additional value, and they may consume or invest it as they themselves please, for their own and no others' benefit. In theory, just as the benefits to the subjects were supposed to emerge from the interplay of competing private benefits of the royalty and nobility, the benefits to the workers are supposed to emerge from the interplay of competing private benefits of the owners of capital. The communist argument says that it is a matter of scientific truth established by empirical observation that benefits to the workers do not actually emerge from the interplay of private ownership of capital*, therefore we must directly socialize the ownership of capital.
*Technically, some minimal benefit to workers does emerge from the private ownership of capital, but not nearly enough.
Of course, I will be elaborating on this argument in considerably greater detail in future posts.
Sunday, February 14, 2010
What is communism?
Communism is to capitalism what democracy is to monarchism and feudalism.
The bourgeois revolutions of the 18th an 19th centuries introduced a political paradigm as revolutionary as the economic paradigm of capitalism: the idea that political power (i.e. how we use police and soldiers) ineluctably and immutably belongs to the people. They can delegate that power, but it "cannot" be taken away or expropriated. This principle is directly stated in the preamble to the US Constitution: "We the people... do ordain and establish this Constitution."
Before the bourgeois democratic revolutions, political power was owned by the royalty and nobility. They "earned" it, and it was theirs to use as they pleased, for their own benefit. Any concessions they made to the people were concessions made to the substantial difficulty of keeping and exercising power in the real, objective world. To the extent the good of the people was any kind of goal, the good was supposed to emerge from the interplay of privately owned political power in the conflicts and struggles within the feudal hierarchy.
Essentially, bourgeois democracy socialized the private ownership of political power.
(Of course, nothing really changed except the ideas in people's heads and their distribution; people just changed how they thought about political power. But a human being is nothing but the ideas in his or her head, and our societies are nothing but the distribution of those ideas.)
One of the interesting features of bourgeois democracy is that the ownership of capital is specifically exempted from democratic control. A person may be deprived of his life or liberty on the due process of law, but according the Fifth Amendment to the US Constitution, he may be deprived of his private property for public use only on "just compensation". I'm not a Constitutional scholar, but I'm confident that the Supreme Court has consistently held that absentee ownership of capital does indeed constitute Fifth Amendment private property, and is exempt from socialization, even by due process of law.
The communist* project entails socializing the private ownership of capital, for precisely the same reasons that the bourgeois democrats socialized the ownership of political power. (More precisely, for the reasons the people threw their weight behind the capitalist class in their struggle with feudalism.) This principle and only this principle is the fundamental distinction between communism and capitalism.
Everything else, including the concept of the "planned economy", are particular tactics and strategies to acquire capital from its private owners and to use it once it's been acquired. In much the same sense, a bicameral legislature and a distinct executive are particular tactics and strategies to implement democratic political power.
Communismmakes the same argument takes the same position regarding the private ownership of capital that democracy makes takes regarding the private ownership of political power: It is not false that the King "deserves" or has somehow "earned" his political power (and that someone else does deserve it or has earned it), but rather that political power is not the sort of thing that we want people to deserve or earn in the first place. Our capital is the common property of all humanity, to be used for the common good.
How should we actually socialize capital? How should we actually use and administer socialized capital? There are a lot of different ways to do so, from the extremes of anarcho-syndicalism on one hand, where individuals and small groups have more-or-less complete ownership of the capital they actually use; and on the other hand monolithic state communism where One Big Bureaucracy administers all the capital. I have a lot of specific ideas, but I do know: we're going to start off not just by making mistakes but by being half-assed; if we're smart, wise and lucky, we'll be able to correct our mistakes over time.
If we're not smart, wise and lucky, we'll fail, and someone else will have to try again later. In the late 19th and early 20th centuries, communism was just as new as democracy was in ancient Greece or the Roman republic; and communism is just as new today as democracy was at the founding of the American republic. The ancient Greeks and Romans — for a variety of controversial reasons — failed; the American republic did not. (Whether we succeeded, if one defines "success" as something other than avoiding catastrophic failure, is a matter of no small controversy.) Likewise the Soviet Union and China failed to socialize capital — again for a variety of controversial reasons — and descended back into capitalism.
The failures of ancient Greece and Rome did not prove that democracy was impossible, they proved only that particular strategies and tactics did not work under specific circumstances. When, seventeen centuries later, the structure and organization of feudalism — the private ownership of political power — became inconsistent and contradictory to material economic reality, the time was again ripe to make another try.
Similarly, the failures of the Soviet Union and China prove that specific strategies did not work under specific circumstances. Communism — the socialization of capital — is no more a panacea than democracy, and, like democracy, not all strategies consistent with the principle will be effective. We still have a real world to deal with, which imposes its own constraints independently of our political principles.
I have no intention of stopping here.
I do not want to say that socializing capital is essentially or by definition good, and that any and every society that socializes capital is therefore good -- or at least essentially better than any and every society that privatizes capital. I do not believe this principle any more than I believe that any and every society that socializes political power is essentially better than any and every society that privatizes political power. How we socialize capital is as important as that we do so.
I maintain, rather, that a society that efficiently and effectively socializes capital will, under present and foreseeable circumstances, be better than a society that efficiently and effectively privatizes capital. Furthermore, I maintain that we can independently determine this comparison: we do not have to embed socialization in our criteria to make this comparison.
The bourgeois revolutions of the 18th an 19th centuries introduced a political paradigm as revolutionary as the economic paradigm of capitalism: the idea that political power (i.e. how we use police and soldiers) ineluctably and immutably belongs to the people. They can delegate that power, but it "cannot" be taken away or expropriated. This principle is directly stated in the preamble to the US Constitution: "We the people... do ordain and establish this Constitution."
Before the bourgeois democratic revolutions, political power was owned by the royalty and nobility. They "earned" it, and it was theirs to use as they pleased, for their own benefit. Any concessions they made to the people were concessions made to the substantial difficulty of keeping and exercising power in the real, objective world. To the extent the good of the people was any kind of goal, the good was supposed to emerge from the interplay of privately owned political power in the conflicts and struggles within the feudal hierarchy.
Essentially, bourgeois democracy socialized the private ownership of political power.
(Of course, nothing really changed except the ideas in people's heads and their distribution; people just changed how they thought about political power. But a human being is nothing but the ideas in his or her head, and our societies are nothing but the distribution of those ideas.)
One of the interesting features of bourgeois democracy is that the ownership of capital is specifically exempted from democratic control. A person may be deprived of his life or liberty on the due process of law, but according the Fifth Amendment to the US Constitution, he may be deprived of his private property for public use only on "just compensation". I'm not a Constitutional scholar, but I'm confident that the Supreme Court has consistently held that absentee ownership of capital does indeed constitute Fifth Amendment private property, and is exempt from socialization, even by due process of law.
The communist* project entails socializing the private ownership of capital, for precisely the same reasons that the bourgeois democrats socialized the ownership of political power. (More precisely, for the reasons the people threw their weight behind the capitalist class in their struggle with feudalism.) This principle and only this principle is the fundamental distinction between communism and capitalism.
*One important reason I call myself a communist and not a socialist is that too many people who call themselves socialist are not committed to the fundamental socialization of capital, preferring alternative fundamentals such as improved government regulation of privately owned capital. For all their differences and conflicts, most people who call themselves communists stand firm on the socialization of capital as a fundamental principle.
Everything else, including the concept of the "planned economy", are particular tactics and strategies to acquire capital from its private owners and to use it once it's been acquired. In much the same sense, a bicameral legislature and a distinct executive are particular tactics and strategies to implement democratic political power.
Communism
How should we actually socialize capital? How should we actually use and administer socialized capital? There are a lot of different ways to do so, from the extremes of anarcho-syndicalism on one hand, where individuals and small groups have more-or-less complete ownership of the capital they actually use; and on the other hand monolithic state communism where One Big Bureaucracy administers all the capital. I have a lot of specific ideas, but I do know: we're going to start off not just by making mistakes but by being half-assed; if we're smart, wise and lucky, we'll be able to correct our mistakes over time.
If we're not smart, wise and lucky, we'll fail, and someone else will have to try again later. In the late 19th and early 20th centuries, communism was just as new as democracy was in ancient Greece or the Roman republic; and communism is just as new today as democracy was at the founding of the American republic. The ancient Greeks and Romans — for a variety of controversial reasons — failed; the American republic did not. (Whether we succeeded, if one defines "success" as something other than avoiding catastrophic failure, is a matter of no small controversy.) Likewise the Soviet Union and China failed to socialize capital — again for a variety of controversial reasons — and descended back into capitalism.
The failures of ancient Greece and Rome did not prove that democracy was impossible, they proved only that particular strategies and tactics did not work under specific circumstances. When, seventeen centuries later, the structure and organization of feudalism — the private ownership of political power — became inconsistent and contradictory to material economic reality, the time was again ripe to make another try.
Similarly, the failures of the Soviet Union and China prove that specific strategies did not work under specific circumstances. Communism — the socialization of capital — is no more a panacea than democracy, and, like democracy, not all strategies consistent with the principle will be effective. We still have a real world to deal with, which imposes its own constraints independently of our political principles.
I have no intention of stopping here.
I do not want to say that socializing capital is essentially or by definition good, and that any and every society that socializes capital is therefore good -- or at least essentially better than any and every society that privatizes capital. I do not believe this principle any more than I believe that any and every society that socializes political power is essentially better than any and every society that privatizes political power. How we socialize capital is as important as that we do so.
I maintain, rather, that a society that efficiently and effectively socializes capital will, under present and foreseeable circumstances, be better than a society that efficiently and effectively privatizes capital. Furthermore, I maintain that we can independently determine this comparison: we do not have to embed socialization in our criteria to make this comparison.
Saturday, December 26, 2009
Capitalism and abstract ownership
Abstract or "absentee" ownership, especially abstract ownership of capital, is an externality to markets: it contradicts a fundamental assumption of "free" market economics. Capital ownership as an externality is largely ignored not just by Randian (Chicago/"freshwater") economists, but also Keynesian ("saltwater") economists. Economists assume that if there's an economic case for the allocation of capital to an endeavor, capital will be allocated to that endeavor. Because the capitalist class is internally competitive, and because they are largely rational (either by intelligence or selection), this assumption is often at least partially met; the externality of ownership is often mostly irrelevant. However, under certain circumstances, the externality dominates economic behavior; in all circumstances, the externality biases economic behavior to some degree.
To understand and justify this assertion, let me first define my terms.
Abstract ownership is ownership is ownership (in the common, intuitive sense) without physical possession and use, in contrast to concrete ownership, ownership with physical possession and use. I physically possess my car (it's in my driveway; I alone have the keys), and I am its sole user. I therefore hold concrete ownership of my car. My landlord, however, does not physically possess my apartment — indeed he cannot usefully physically possess it — therefore his ownership is abstract. Additionally, he borrowed money from the bank; until the loan is paid back, the bank still abstractly owns the money even though my landlord "physically" possesses and uses it; this abstract ownership entitles the bank (and its shareholders) to collect interest. Furthermore, I have deposited money in the bank, which the bank has loaned to my landlord; my abstract ownership of that money obligates the bank to pay interest to me.
Capital is labor time expended in the present instrumentally for a benefit in the future. When Acme construction built my apartment building, labor time had to be expended at that time to collect and fabricate the materials and assemble them into a house. All that labor time had to be paid for at the time the house was built: the workers who built the house needed to eat then, not now (when I myself am deriving benefit from the house), and all the people who worked directly or indirectly to feed those workers needed to be paid to sacrifice their immediate consumption then, not now.
Abstract ownership entitles the owner to collect economic rent for the use of the object owned. In a truly free market (or a market that strongly resembled a truly free market) the rent (price) would fall to the cost of creating, maintaining and reproducing the object owned, including the owner's administrative time. In a truly free market, then, abstract ownership should be just another job. But we know empirically that abstract ownership is not just another job: abstract owners of capital consume or control orders of magnitude more labor hours than they contribute. Indeed it is often the case that abstract owners of capital consume orders of magnitude more labor hours than an ordinary worker while doing no work whatsoever. Therefore we must conclude either that the derivation of our microeconomic conclusion that prices always fall to cost is fallacious, or that one of the assumptions of that derivation is not applicable to the real world. The derivation is not fallacious, so there must be an assumption that does not hold.
It doesn't matter what "natural" (not intentionally imposed by human beings) barriers exist to the abstract ownership of capital. Microeconomic theorems prove only that it will take more or less time to overcome those natural barriers and achieve sufficiently wide distribution of abstract ownership of capital to reduce its price to its cost. Even if that time was on the order of a millennium, we should see over just decades a trend towards wider distribution of abstract ownership of capital and a decrease in the rent collected by its owners. However, the observable trend is (on the whole) towards the concentration of capital into fewer hands, and an increase in the rent collected by its owners.
There is a small short-term, local, and individual selection pressure against saving for capital formation and therefore indirect selection for immediate consumption. This selection pressure is large enough that non-human animals — whose evolution is driven by extremely short-term selection pressures — do not engage is large-scale capital formation; their capital formation is limited to very small-scale endeavors such as beavers' dams or birds' nests, or endeavors that have accumulated over tens or hundreds of millions of years (and very narrow specialization), such as beehives, anthills, and termite mounds.
Human beings, however, by virtue of our big brains, can overcome short-term, local and individual selection in favor of longer-term, global and social selection. We can "think our way past" some selection pressures and away from a local "fitness" maximum to a higher global maximum. The vast and (at an evolutionary time-scale) instantaneous social and economic progress we have made as a species is overwhelming evidence that our ability to overcome local selection pressure is not merely present but enormously powerful. Achieving an optimally efficient distribution of capital ownership — defined as a distribution that causes the price of capital to be at its cost — should be not just possible but inevitable.
Point out any natural (non-human) obstacle to the efficient distribution of capital, and I'll show you a strategy to overcome it. I'm not that smart: if I can do it, anyone else can. Anyone who successfully implements an idea should be able to transmit that idea to everyone: the idea, by virtue of its very success, should become ubiquitous. Take, for instance, economy of scale: owning a small amount of capital isn't very beneficial, but owning a large amount of capital is disproportionally beneficial. This natural barrier is easily overcome by creating a social group that pools its individually small savings into a large enough size to be mutually beneficial to the members of the group. Indeed this is precisely the idea behind the mutual fund.
The only explanation for capital ownership to be distributed not just sub-optimally but the complete opposite of an optimally efficient distribution must be the presence of some externality. Moreover, this externality must not be natural (nature has never shown an ability to out-think human beings) but rather artificial, imposed by human beings.
Abstract ownership requires social coercion. I can physically protect my car by myself, by locking it and holding the key, but my landlord cannot physically protect my apartment: the whole point of renting it to me is to let me use it. (Likewise, Avis cannot physically prevent me from stealing a rental car: their whole business consists of giving me the key and physical possession of the car.) My landlord must necessarily depend on the social construction of law and custom that enables him to demand that the sheriff, who has a gun, to coercively evict me from my apartment if I fail to pay the rent.
The primary means that the capitalist class uses the socially constructed basis of enforcement of abstract ownership is indirect: law and custom in a capitalist society strongly protects the capitalists ownership of capital, but does not protect a worker's ownership of his or her actual labor; it protects only his ownership of his labor power. Without access to socially accumulated capital, an individual worker cannot use his own labor to survive, therefore the pressure of immediate necessity forces him to relinquish physical ownership of his actual labor in return for physical ownership of his labor power. Therefore, possession of actual labor must be guaranteed abstractly, or it doesn't exist. But capitalist governments do not guarantee abstract ownership of labor. The differential enforcement of abstract property rights constitutes a coercive externality on the market for capital ownership, making it un-free.
Does differential enforcement constitute coercion? It seems unobjectionable that some form of coercion is justifiable and socially acceptable in a "free" society: few people — even few anarchists or libertarians — would object to the socially constructed coercive prohibition against one person hitting another on the head and taking his stuff. In other words, physical ownership unobjectionably warrants a degree of supporting abstract ownership. But what if our social construction protects only blue-eyed people against forcible theft? If you have blue eyes and anyone (blue- or brown-eyed) hits you on the head and takes your stuff, the police will, with substantial efficacy, track down the perpetrator, recover your stuff, and discourage the perpetrator from repeating his objectionable behavior. If, however, you have brown eyes and someone hits you on the head and takes your stuff, the police will do nothing. These conditions seem obviously objectionable, but the objectionable behavior of the police here is itself not coercive; we are not arguing that they should not be coercive at all (we do want police protection against theft), we're arguing they do not act coercively when coercion is warranted: it's clearly the differential in differential coercion that's objectionable. This counter-argument renders invalid the argument that non-coercive behavior is by definition never objectionable. There might be other good arguments that the government should not protect a worker's ownership of his own actual labor, but it's invalid to argue that it is never objectionable for a government — even a minarchist government — to refuse to act coercively.
The effect of differential enforcements of abstract property rights is that under laissez faire capitalism, the ordinary worker has zero surplus to accumulate. Zero multiplied by many years and/or many bodies is zero: ordinary workers simply cannot become capitalists. The "selection pressure" against accumulation is not just short-term and local, it's long-term and global.
But of course the Keynesian "revolution" of the 1940s-1970s overcame this objection: some of workers' ownership of their surplus labor (the difference between their actual labor and the cost of their labor power) was protected by the government. And indeed millions of workers used this surplus to propel themselves and their children into the professional-managerial middle class and in general caused a much wider distribution of capital, actually lowering its price nearer to its cost.
It took the big capitalists almost thirty years to reverse this distribution. Their primary mechanisms were first to "pick off" the smaller accumulations of capital in cyclical downturns. For example, when housing prices fall, the homeowner loses her entire down payment before the bank loses any of its debt: anyone who is forced by circumstances to sell her house in a cyclical low loses all her capital, while the bank loses none.
The second method was outright theft — enabled again by differential enforcement of abstract ownership — of workers' accumulated capital, accumulated mostly in pension plans.
The third method was the creation of consumer debt. Increased consumption was necessary (and desirable) to drive increased production and increased productive efficiency, but there were two primary methods to do so. First, we could have socially created "front loaded" demand: just give individual workers more money, and make that money deflationary to encourage its use in consumption. But instead the capitalist class loaned the workers the money, cheaply at first, until a person's standard of living depended on massive amounts of debt. Once the standard of living is established, the capitalist class (who owns the debt) can raise interest rates to expropriate upper-working and lower-middle class accumulated capital.
Accumulating debt rather than capital is not economically irrational. It is economically and physically reasonable to expect almost endlessly rising income as we continue to make economic production more physically efficient (more goods for fewer hours). Accumulating debt is not even politically irrational: the government was for thirty years willing and able to prevent the capitalist class from manipulating the finance system to use debt to transfer capital; more than a generation of success is reasonable warrant for continued confidence.
Remember: while accumulating debt (to drive the economy in the short term) the working and middle classes were also accumulating capital (to make capital allocation more efficient in the long run). The working and middle classes were acting rationally, both economically and politically, balancing short-term and long-term benefits. While some people (sadly myself included) acted shortsightedly, on the whole we did not fail to accumulate capital, our capital was stolen from us. And it was stolen from us because the capitalist class regained control of the government; they were successful because we underestimated the determination and will of the capitalist class to regain the vast power they controlled before the Great Depression.
To understand and justify this assertion, let me first define my terms.
Abstract ownership is ownership is ownership (in the common, intuitive sense) without physical possession and use, in contrast to concrete ownership, ownership with physical possession and use. I physically possess my car (it's in my driveway; I alone have the keys), and I am its sole user. I therefore hold concrete ownership of my car. My landlord, however, does not physically possess my apartment — indeed he cannot usefully physically possess it — therefore his ownership is abstract. Additionally, he borrowed money from the bank; until the loan is paid back, the bank still abstractly owns the money even though my landlord "physically" possesses and uses it; this abstract ownership entitles the bank (and its shareholders) to collect interest. Furthermore, I have deposited money in the bank, which the bank has loaned to my landlord; my abstract ownership of that money obligates the bank to pay interest to me.
Capital is labor time expended in the present instrumentally for a benefit in the future. When Acme construction built my apartment building, labor time had to be expended at that time to collect and fabricate the materials and assemble them into a house. All that labor time had to be paid for at the time the house was built: the workers who built the house needed to eat then, not now (when I myself am deriving benefit from the house), and all the people who worked directly or indirectly to feed those workers needed to be paid to sacrifice their immediate consumption then, not now.
Abstract ownership entitles the owner to collect economic rent for the use of the object owned. In a truly free market (or a market that strongly resembled a truly free market) the rent (price) would fall to the cost of creating, maintaining and reproducing the object owned, including the owner's administrative time. In a truly free market, then, abstract ownership should be just another job. But we know empirically that abstract ownership is not just another job: abstract owners of capital consume or control orders of magnitude more labor hours than they contribute. Indeed it is often the case that abstract owners of capital consume orders of magnitude more labor hours than an ordinary worker while doing no work whatsoever. Therefore we must conclude either that the derivation of our microeconomic conclusion that prices always fall to cost is fallacious, or that one of the assumptions of that derivation is not applicable to the real world. The derivation is not fallacious, so there must be an assumption that does not hold.
It doesn't matter what "natural" (not intentionally imposed by human beings) barriers exist to the abstract ownership of capital. Microeconomic theorems prove only that it will take more or less time to overcome those natural barriers and achieve sufficiently wide distribution of abstract ownership of capital to reduce its price to its cost. Even if that time was on the order of a millennium, we should see over just decades a trend towards wider distribution of abstract ownership of capital and a decrease in the rent collected by its owners. However, the observable trend is (on the whole) towards the concentration of capital into fewer hands, and an increase in the rent collected by its owners.
There is a small short-term, local, and individual selection pressure against saving for capital formation and therefore indirect selection for immediate consumption. This selection pressure is large enough that non-human animals — whose evolution is driven by extremely short-term selection pressures — do not engage is large-scale capital formation; their capital formation is limited to very small-scale endeavors such as beavers' dams or birds' nests, or endeavors that have accumulated over tens or hundreds of millions of years (and very narrow specialization), such as beehives, anthills, and termite mounds.
Human beings, however, by virtue of our big brains, can overcome short-term, local and individual selection in favor of longer-term, global and social selection. We can "think our way past" some selection pressures and away from a local "fitness" maximum to a higher global maximum. The vast and (at an evolutionary time-scale) instantaneous social and economic progress we have made as a species is overwhelming evidence that our ability to overcome local selection pressure is not merely present but enormously powerful. Achieving an optimally efficient distribution of capital ownership — defined as a distribution that causes the price of capital to be at its cost — should be not just possible but inevitable.
Point out any natural (non-human) obstacle to the efficient distribution of capital, and I'll show you a strategy to overcome it. I'm not that smart: if I can do it, anyone else can. Anyone who successfully implements an idea should be able to transmit that idea to everyone: the idea, by virtue of its very success, should become ubiquitous. Take, for instance, economy of scale: owning a small amount of capital isn't very beneficial, but owning a large amount of capital is disproportionally beneficial. This natural barrier is easily overcome by creating a social group that pools its individually small savings into a large enough size to be mutually beneficial to the members of the group. Indeed this is precisely the idea behind the mutual fund.
The only explanation for capital ownership to be distributed not just sub-optimally but the complete opposite of an optimally efficient distribution must be the presence of some externality. Moreover, this externality must not be natural (nature has never shown an ability to out-think human beings) but rather artificial, imposed by human beings.
Abstract ownership requires social coercion. I can physically protect my car by myself, by locking it and holding the key, but my landlord cannot physically protect my apartment: the whole point of renting it to me is to let me use it. (Likewise, Avis cannot physically prevent me from stealing a rental car: their whole business consists of giving me the key and physical possession of the car.) My landlord must necessarily depend on the social construction of law and custom that enables him to demand that the sheriff, who has a gun, to coercively evict me from my apartment if I fail to pay the rent.
The primary means that the capitalist class uses the socially constructed basis of enforcement of abstract ownership is indirect: law and custom in a capitalist society strongly protects the capitalists ownership of capital, but does not protect a worker's ownership of his or her actual labor; it protects only his ownership of his labor power. Without access to socially accumulated capital, an individual worker cannot use his own labor to survive, therefore the pressure of immediate necessity forces him to relinquish physical ownership of his actual labor in return for physical ownership of his labor power. Therefore, possession of actual labor must be guaranteed abstractly, or it doesn't exist. But capitalist governments do not guarantee abstract ownership of labor. The differential enforcement of abstract property rights constitutes a coercive externality on the market for capital ownership, making it un-free.
Does differential enforcement constitute coercion? It seems unobjectionable that some form of coercion is justifiable and socially acceptable in a "free" society: few people — even few anarchists or libertarians — would object to the socially constructed coercive prohibition against one person hitting another on the head and taking his stuff. In other words, physical ownership unobjectionably warrants a degree of supporting abstract ownership. But what if our social construction protects only blue-eyed people against forcible theft? If you have blue eyes and anyone (blue- or brown-eyed) hits you on the head and takes your stuff, the police will, with substantial efficacy, track down the perpetrator, recover your stuff, and discourage the perpetrator from repeating his objectionable behavior. If, however, you have brown eyes and someone hits you on the head and takes your stuff, the police will do nothing. These conditions seem obviously objectionable, but the objectionable behavior of the police here is itself not coercive; we are not arguing that they should not be coercive at all (we do want police protection against theft), we're arguing they do not act coercively when coercion is warranted: it's clearly the differential in differential coercion that's objectionable. This counter-argument renders invalid the argument that non-coercive behavior is by definition never objectionable. There might be other good arguments that the government should not protect a worker's ownership of his own actual labor, but it's invalid to argue that it is never objectionable for a government — even a minarchist government — to refuse to act coercively.
The effect of differential enforcements of abstract property rights is that under laissez faire capitalism, the ordinary worker has zero surplus to accumulate. Zero multiplied by many years and/or many bodies is zero: ordinary workers simply cannot become capitalists. The "selection pressure" against accumulation is not just short-term and local, it's long-term and global.
But of course the Keynesian "revolution" of the 1940s-1970s overcame this objection: some of workers' ownership of their surplus labor (the difference between their actual labor and the cost of their labor power) was protected by the government. And indeed millions of workers used this surplus to propel themselves and their children into the professional-managerial middle class and in general caused a much wider distribution of capital, actually lowering its price nearer to its cost.
It took the big capitalists almost thirty years to reverse this distribution. Their primary mechanisms were first to "pick off" the smaller accumulations of capital in cyclical downturns. For example, when housing prices fall, the homeowner loses her entire down payment before the bank loses any of its debt: anyone who is forced by circumstances to sell her house in a cyclical low loses all her capital, while the bank loses none.
The second method was outright theft — enabled again by differential enforcement of abstract ownership — of workers' accumulated capital, accumulated mostly in pension plans.
The third method was the creation of consumer debt. Increased consumption was necessary (and desirable) to drive increased production and increased productive efficiency, but there were two primary methods to do so. First, we could have socially created "front loaded" demand: just give individual workers more money, and make that money deflationary to encourage its use in consumption. But instead the capitalist class loaned the workers the money, cheaply at first, until a person's standard of living depended on massive amounts of debt. Once the standard of living is established, the capitalist class (who owns the debt) can raise interest rates to expropriate upper-working and lower-middle class accumulated capital.
Accumulating debt rather than capital is not economically irrational. It is economically and physically reasonable to expect almost endlessly rising income as we continue to make economic production more physically efficient (more goods for fewer hours). Accumulating debt is not even politically irrational: the government was for thirty years willing and able to prevent the capitalist class from manipulating the finance system to use debt to transfer capital; more than a generation of success is reasonable warrant for continued confidence.
Remember: while accumulating debt (to drive the economy in the short term) the working and middle classes were also accumulating capital (to make capital allocation more efficient in the long run). The working and middle classes were acting rationally, both economically and politically, balancing short-term and long-term benefits. While some people (sadly myself included) acted shortsightedly, on the whole we did not fail to accumulate capital, our capital was stolen from us. And it was stolen from us because the capitalist class regained control of the government; they were successful because we underestimated the determination and will of the capitalist class to regain the vast power they controlled before the Great Depression.
Wednesday, December 02, 2009
Dialectical materialism and evolution
If you understand biological evolution, you understand dialectical materialism.
Dialectical materialism appears to go all the way to the "bare metal" of reality: motion is a synthesis of quanta's dialectically opposed material properties of being "smeared in a wavefunction" and "observed as an eigenstate", but quantum mechanics is weird and obscure. Evolution is much more amenable to philosophical study.
The fundamental dialectic of evolution is the opposition of heritable variation and natural selection. Both of these dialectical elements are material: heritable variation is a physical, material, independently observable change in an organism's genotype, an eminently material substance (composed mostly of DNA). Natural selection is also a material process: physical properties of an organism's physical phenotype determine whether it will run faster or slower, have more or less acute vision and hearing, stronger or weaker teeth, etc. Furthermore, an individual organism's reproductive success is directly a material property: The organism has to physically reproduce to be reproductively successful.
Because heritable variation is uncorrelated with natural selection, these two elements are in true dialectical contradiction*. Heritable variation doesn't "care" whether it makes the organism more or less susceptible to adverse selection; selection doesn't "care" whether some heritable variation might be intrinsically good. (For example, it's intrinsically bad that human beings can't internally synthesize vitamin C — whether or not we can eat it, it would be better if we could synthesize it at need — but because our ancestors' diet was abundant in vitamin C, the loss of the ability wasn't selected against.)
There are also important dialectical relationships in biological evolution at more abstract levels. A fundamental dialectic is between predator and prey. Again, the elements are material: the predator must physically catch and eat the prey, or the prey must physically escape the predator. And the elements are in true dialectical contradiction: the predator wants to eat the prey, the prey does not want to be eaten. Yet another is the parasite-host dialectic, which often results in symbiosis.
An important consequence of evolution is that it's neither predictable nor random. In my most important quibble with canonical communist terminology, I assert that dialectical relationships and historical factors do not determine the synthesis, they constrain it. There are specific features, for example, that would make predators ineffective: lack of speed, poor vision, poor quality weapons (such as teeth and claws); we will never see a predator with a predominance of features that poorly afford predation in its usual environment. We can predict to some extent where evolution won't go, but we cannot predict where evolution will go, even retrospectively. If we took a snapshot of any historical evolutionary epoch, we could not predict with confidence much of how the contemporaneous species would change.
Indeed the parallels between dialectical materialism and biological evolution are so strong that the following bold conjecture suggests itself: all dialectical material relationships are fundamentally evolutionary: they consist of a dialectical relationship between some form of heritable variation uncorrelated with some form natural selection.
Dialectical materialism appears to go all the way to the "bare metal" of reality: motion is a synthesis of quanta's dialectically opposed material properties of being "smeared in a wavefunction" and "observed as an eigenstate", but quantum mechanics is weird and obscure. Evolution is much more amenable to philosophical study.
The fundamental dialectic of evolution is the opposition of heritable variation and natural selection. Both of these dialectical elements are material: heritable variation is a physical, material, independently observable change in an organism's genotype, an eminently material substance (composed mostly of DNA). Natural selection is also a material process: physical properties of an organism's physical phenotype determine whether it will run faster or slower, have more or less acute vision and hearing, stronger or weaker teeth, etc. Furthermore, an individual organism's reproductive success is directly a material property: The organism has to physically reproduce to be reproductively successful.
Because heritable variation is uncorrelated with natural selection, these two elements are in true dialectical contradiction*. Heritable variation doesn't "care" whether it makes the organism more or less susceptible to adverse selection; selection doesn't "care" whether some heritable variation might be intrinsically good. (For example, it's intrinsically bad that human beings can't internally synthesize vitamin C — whether or not we can eat it, it would be better if we could synthesize it at need — but because our ancestors' diet was abundant in vitamin C, the loss of the ability wasn't selected against.)
*A dialectical contradiction is different from a logical contradiction. The use of the term "contradiction" is mostly historical — Marx's dialectic materialism springs from Hegel's dialectical idealism, where logical contradiction powered the synthesis, but also because while "contradiction" might be too strong the alternatives — conflict, opposition, etc. — seem too weak.
It's instructive to consider Mendelian (established at conception) vs. Lamarkian (acquired during life) variation. It happens to be the case that terrestrial organisms exhibit Mendelian variation, but we might have exhibited Lamarkian variation. If so, there would have to be something uncorrelated with natural selection about how an organism acquired traits for there to be a true dialectical contradiction between Lamarkian variation and natural selection. If this contradiction didn't exist, if an organism deterministically and predictably acquired just those traits that improved its survival, we would not see the pattern of complex, emergent behavior in the long-term development of species.There are also important dialectical relationships in biological evolution at more abstract levels. A fundamental dialectic is between predator and prey. Again, the elements are material: the predator must physically catch and eat the prey, or the prey must physically escape the predator. And the elements are in true dialectical contradiction: the predator wants to eat the prey, the prey does not want to be eaten. Yet another is the parasite-host dialectic, which often results in symbiosis.
An important consequence of evolution is that it's neither predictable nor random. In my most important quibble with canonical communist terminology, I assert that dialectical relationships and historical factors do not determine the synthesis, they constrain it. There are specific features, for example, that would make predators ineffective: lack of speed, poor vision, poor quality weapons (such as teeth and claws); we will never see a predator with a predominance of features that poorly afford predation in its usual environment. We can predict to some extent where evolution won't go, but we cannot predict where evolution will go, even retrospectively. If we took a snapshot of any historical evolutionary epoch, we could not predict with confidence much of how the contemporaneous species would change.
Indeed the parallels between dialectical materialism and biological evolution are so strong that the following bold conjecture suggests itself: all dialectical material relationships are fundamentally evolutionary: they consist of a dialectical relationship between some form of heritable variation uncorrelated with some form natural selection.
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