What do capitalists do?

Robert Venturi, Fire Station No. 4

I often invoke Columbus, Indiana in my lectures.

One reason is to suggest to my students that they might shed their prejudices about Indiana and explore some of what the state has to offer—instead of staying on campus and complaining there’s nothing to do except attend football games.

The other reason is to encourage them to question what it is that capitalists actually do. When I ask them, the usual response—consistent with the neoclassical theory that has been presented to them as the only economic theory worth considering—is: “capitalists maximize profits.” (That’s equivalent to the neoclassical rule concerning consumers, that they “maximize utility.”)*

Well, no: capitalists do lots of different things. They do make profits (at least sometimes, but over what timeframe are they supposedly maximizing those profits?). But they don’t follow any single rule. They also seek to grow their enterprises and destroy the competition and maintain good public relations and buy government officials and reward their CEOs and squeeze workers and lower costs and build factories that collapse and. . .well, you get the idea. In other words, they appropriate and distribute surplus-value in all kinds of ways depending on the particular conditions and struggles that take place over the shape and direction of their enterprises.

And Cummins Engine Company is a good example, since it has distributed a good chunk of the surplus it’s managed to appropriate over the years to subsidize the design of gems by a litany of important American architects: I. M. Pei, Harry Weese, Robert A. M. Stern, Richard Meier, Kevin Roche, Robert Venturi, Cesar Pelli and others. In Columbus, Indiana of all places!

My point to the students is not that Cummins is an example of a “good capitalist” as against other “bad capitalists.” No, the idea is that capitalists—whether in the United States or Bangladesh—do lots of different things, and presuming they follow a simple rule means missing out on the complex, contradictory dynamics of capitalist enterprises and therefore of capitalism itself.

 

*It’s also equivalent to what one hears from many so-called radical economists, that “capitalists accumulate capital.” Again, no. Accumulating capital (that is, purchasing new elements of constant and variable capital) is only one of the many possible forms in which capitalists distribute the surplus-value they appropriate from their workers. Sometimes they accumulate capital, and other times they don’t. The presumption that they always seek to accumulate capital is the heroic story proffered by classical economists (so that, in their view, capitalist growth would take place), much as neoclassical economists today presume that capitalists maximize profits (so that, in their view, an efficient allocation of resources will result). Marxists presume neither that capitalists maximize profits nor that they always and everywhere accumulate capital.

Cartoon of the day

Special mention

Connecting the dots—or not

Paul Krugman continues to have a hard time connecting the dots—for example, between inequality and macroeconomics. For him, there’s the macroeconomic dot and then there’s the inequality dot, and the two are separate: the former is “economics,” while the latter is “politics.” That’s what you get in the IS-LM world of which Krugman is so enamored.

Joseph Stiglitz, on the contrary, is in fact busy connecting the dots. He understands quite well that the existing macroeconomic models are fundamentally flawed, at least in part because they exclude the problems created by growing inequality.

Distribution matters as well – distribution among individuals, between households and firms, among households, and among firms. Traditionally, macroeconomics focused on certain aggregates, such as the average ratio of leverage to GDP. But that and other average numbers often don’t give a picture of the vulnerability of the economy.

In the case of the financial crisis, such numbers didn’t give us warning signs. Yet it was the fact that a large number of people at the bottom couldn’t make their debt payments that should have tipped us off that something was wrong.

And Stiglitz understands that another economic crisis may soon break out, this one connected to soaring student debt, which in turn is caused by the same trends of inequality that preceded the financial crisis of 2007-08.

Student debt also is a drag on the slow recovery that began in 2009. By dampening consumption, it hinders economic growth. It is also holding back recovery in real estate, the sector where the Great Recession started. . .

Those with huge debts are likely to be cautious before undertaking the additional burdens of a family. But even when they do, they will find it more difficult to get a mortgage. And if they do, it will be smaller, and the real estate recovery will consequently be weaker. . .

It’s a vicious cycle: lack of demand for housing contributes to a lack of jobs, which contributes to weak household formation, which contributes to a lack of demand for housing.

As bad as things are, they may get worse. With budgetary pressures mounting — along with demands for cutbacks in “discretionary domestic programs” (read: K-12 education subsidies, Pell Grants for poor kids to attend college, research money) — students and families are left to fend for themselves. College costs will continue to rise far faster than incomes. As has been repeatedly observed, all of the economic gains since the Great Recession have gone to the top 1 percent. . .

We now have a pay-to-play, winner-take-all game where the wealthiest are assured a spot, and the rest are compelled to take a gamble on huge debts, with no guarantee of a payoff.

There is simply no macroeconomic analysis worth its salt that doesn’t help us begin to make sense of the relationship between inequality and capitalist economic crises.

And unless and until economists begin to connect the dots, they’ll be caught unawares—once again—by the onset of the crisis and they’ll have little to offer—once again—about how to deal with it once it happens.

Map of the day

This is the action map for the 11 June Carnival Against Capitalism, which gives the names and addresses of 100 locations in the West End of London “connected to blatant murder, oppression and exploitation.”

There is also an online map, which features more details and even more addresses. It can be found by selecting “Mapping Capitalist London” in the sector menu at  mappingthecorporations.org/.

How’s that Marx-is-mostly-wrong stuff workin’ out for ya?

Yesterday, Brad DeLong confidently posted the text of his 2009 talk on where he thinks Marx went wrong. But, four years hence, even Matt Yglesias—who confidently claims his own identity as “not a Marxist”—has to admit DeLong’s claims look a lot weaker.

In particular, DeLong says that Marx the political activist was too pessimistic about the idea that the ruling class would agree to make economic growth pareto optimal within the context of a market economy:

[T]hat even though the ruling class could appease the working class by using the state to redistribute and share the fruits of economic growth it would never do so. They would be trapped by their own ideological legitimations–they really do believe that it is in some sense “unjust” for a factor of production to earn more than its marginal product. Hence social democracy would inevitably collapse before an ideologically-based right-wing assault, income inequality would rise, and the system would collapse or be overthrown. The Wall Street Journal editorial page works day and night 365 days a year to make Marx’s prediction come true. But I think this, too, is wrong.

To me that unquestionably looked wrong as of 2009. But in the interim, those Wall Street Journal editorial page tendencies have grown much stronger. You see a rising tide of Rand-inflected moralism about market outcomes and a reduced emphasis on Friedman-style pragmatism. You also see a sharply reduced emphasis on belief in any kind of macroeconomic stabilization policy, in favor of a “let them eat cake slash move to North Dakota” moralism about unemployment. Last but by no means least, it really has become the conventional wisdom among American elites that the appropriate policy response to fiscal imbalance in a time of high and rising income inequality is to restore balance by reducing the scope and generosity of social insurance programs.

In the end, I guess you just can’t trust those capitalists to prove Marx wrong.

Cartoon of the day

Special mention

Inequality and the current crises

Mainstream economists (like Brad DeLong) can’t seem to find any connections between growing inequality and the current crises. But it’s not a problem for Federal Reserve Board Governor Sarah Bloom Raskin.

Yes, this is the same Raskin who recently decided to look beyond capitalism for a solution to the current crises. In an extension of those remarks, she set out to examine how “economic marginalization and financial vulnerability, associated with stagnant wages and rising inequality, contributed to the run-up to the financial crisis and how such marginalization and vulnerability could be relevant in the current recovery.”

Here’s her argument in a nutshell:

at the start of this recession, an unusually large number of low- and middle-income households were vulnerable to exactly the types of shocks that sparked the financial crisis. These households, which had endured 30 years of very sluggish real-wage growth, held an unusually large share of their wealth in housing, much of it financed with debt. As a result, over time, their exposure to house prices had increased dramatically. Thus, as in past recessions, suffering in the Great Recession–though widespread–was most painful and most perilous for low- and middle-income households, which were also more likely to be affected by job loss and had little wealth to fall back on.

Moreover, I am persuaded that because of how hard these lower- and middle-income households were hit, the recession was worse and the recovery has been weaker. The recovery has also been hampered by a continuation of longer-term trends that have reduced employment prospects for those at the lower end of the income distribution and produced weak wage growth.

This is a remarkable thesis, better than 99 percent of what we have heard from mainstream economists throughout this sorry spectacle (although Raskin does stumble a bit in repeating the mainstream penchant to invoke “technological change that favors those with a college education and globalization” as the causes of inequality).

And Raskin is well aware of how novel her thesis is, at least in mainstream circles:

To be clear, my approach of starting with inequality and differences across households is not a feature of most analyses of the macroeconomy, and the channels I have emphasized generally do not play key roles in most macro models. The typical macroeconomic analysis focuses on the general equilibrium behavior of “representative” households and firms, thereby abstracting from the consequences of inequality and other heterogeneity across households and instead focusing on the aggregate measures of spending determinants, including current income, wealth, interest rates, credit supply, and confidence or pessimism. In certain circumstances, this abstraction might be a reasonable simplification. For example, if the changes in the distribution of income or wealth, and the implications of those changes for the overall economy, are regular features of business cycles, then even an aggregate model without an explicit focus on distributional issues would capture those historical regularities.

However, the narrative I have emphasized places economic inequality and the differential experiences of American families, particularly the highly adverse experiences of those least well positioned to absorb their “realized shocks,” closer to the front and center of the macroeconomic adjustment process. The effects of increasing income and wealth disparities–specifically, the stagnating wages and sharp increase in household debt in the years leading up to the crisis, combined with the rapid decline in house prices and contraction in credit that followed–may have resulted in dynamics that differ from historical experience and which are therefore not well captured by aggregate models. How these factors have interacted and the implications for the aggregate economy are subject to debate, but I have laid out some possible channels through which there could be effects and that I believe represent some particularly fruitful areas for continued research.

I’m certainly not going to hold my breath—and I doubt Raskin is, either—until mainstream economists decide to actually pursue these lines of research.

Capitalism and history

I can’t say I was aware I was participating in an intellectual fad, the history of capitalism, when I decided to teach Seth Rockman’s Scraping By: Wage Labor, Slavery, and Survival in Early Baltimore this semester.

I chose Rockman’s book for my Commodities: The Making of Market Society course because I needed a good study of the commodification of labor, as an alternative to Bruce Laurie’s classic Artisans into Workers: Labor in Nineteenth-Century America. There’s always the danger of assigning books we haven’t yet read (alongside the excitement, of course, of exploring new material). However, I’ve been pleasantly surprised by Rockman’s attempt to tell “the story of the chronically impoverished, often unfree, and generally unequal Americans whose work made the United States arguably the most wealthy, free, and egalitarian society in the Western world” (3). I’m curious to see how the students react over the next couple of weeks.

Apparently, Rockman has changed the name of his course from Capitalism, Slavery and the Economy of Early America to simply Capitalism, which next fall will become Brown’s introductory American history survey.

It shouldn’t really surprise us this area has taken off after the crash of 2007-08.

“Earlier, a lot of these topics would’ve been greeted with a yawn,” said Stephen Mihm, an associate professor of history at the University of Georgia and the author of “A Nation of Counterfeiters: Capitalists, Con Men and the Making of the United States.” “But then the crisis hit, and people started asking, ‘Oh my God, what has Wall Street been doing for the last 100 years?’ ”

What’s interesting about Rockman’s and Mihm’s research and teaching and the growth of this entire area of inquiry, not to mention Harvard’s new Program on the Study of U.S. Capitalism, is the fact that they’re located within history and not economics. As I’ve explained before, the mainstream wing of the discipline of economics has mostly eliminated any consideration of economic history (and, with it, of the history of economic thought), and thus has created an intellectual vacuum concerning the history of capitalist development, classes, and institutions. So, historians have stepped in to fill the gap, thereby demonstrating there’s nothing natural or inevitable about the emergence of capitalism.

Markets and financial institutions “were created by people making particular choices at particular historical moments,” said Julia Ott, an assistant professor in the history of capitalism at the New School (the first person, several scholars said, to be hired under such a title).

The real question, of course, is, will this new work contribute to the project of making capitalism history?

Cartoon of the day

Special mention

 

On the antisemitism question

In all honesty, I don’t know if Karl Marx was an antisemite. And I don’t know if the charge of antisemitism is in Jonathan Sperber’s new book or is just an old shibboleth that reviewer Jonathan Freedland decides to focus on at the end of his essay. But it’s certainly long past time that we put to bed the idea that “On the Jewish Question” provides evidence of Marx’s “straightforwardly anti-Semitic” views.

Read the actual text (in either English or German). And then consult some of the scholarly literature (including the biography by Franz Mehring, Karl Marx: The Story of His Life, which remains after all these years one of the best, precisely because Mehring combines insights into Marx’s character with a sophisticated reading of Marx’s writings).

What you will find is not an essay that is antisemitic, whether straightforwardly or otherwise, but a critique of Bruno Bauer (and, implicitly, of Hegel) and an early argument in favor of “general human emancipation” as against merely “political emancipation”—an application of Ludwig Feurerbach’s notion of alienation, articulated long before Marx “discovers” communism and materialism.

In the first part, Marx criticizes Bauer for focusing on one aspect of emancipation (“Who is to emancipate? Who is to be emancipated?”) and forgetting about the other (“What kind of emancipation is in question? What conditions follow from the very nature of the emancipation that is demanded?”) and explains that political emancipation from religion (in the transition from the Christian state such as in Germany to the political state in its “completely developed form,” such as in North America) leaves religion in existence as a purely private matter, within civil society, based on the “rights of man.”

None of the so-called rights of man, therefore, go beyond egoistic man, beyond man as a member of civil society – that is, an individual withdrawn into himself, into the confines of his private interests and private caprice, and separated from the community. In the rights of man, he is far from being conceived as a species-being; on the contrary, species-life itself, society, appears as a framework external to the individuals, as a restriction of their original independence. The sole bond holding them together is natural necessity, need and private interest, the preservation of their property and their egoistic selves. . .

Hence, man was not freed from religion, he received religious freedom. He was not freed from property, he received freedom to own property. He was not freed from the egoism of business, he received freedom to engage in business.

In the second part, Marx proceeds to contest Bauer’s reduction of Jewish emancipation to a purely religious question and to transform it into a fully social question.

Let us consider the actual, worldly Jew – not the Sabbath Jew, as Bauer does, but the everyday Jew.

Let us not look for the secret of the Jew in his religion, but let us look for the secret of his religion in the real Jew.

What is the secular basis of Judaism? Practical need, self-interest. What is the worldly religion of the Jew? Huckstering. What is his worldly God? Money.

Very well then! Emancipation from huckstering and money, consequently from practical, real Judaism, would be the self-emancipation of our time.

Far from providing evidence of Marx’s antisemitism, “On the Jewish Question” is precisely an argument in favor of social emancipation, for moving beyond a society in which “alienated man and alienated nature” have been converted “into alienable, vendible objects subjected to the slavery of egoistic need and to trading”—in other words, beyond capitalism.