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.

Chart of the day

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The New York Fed reports that, for the first quarter of 2013, outstanding household debt decreased by $110 billion, or 1.0 percent, driven largely by declines in housing and credit card balances.

However, debt associated with auto loans and student loans continued to increase, by $11 billion and $20 billion, respectively.

Outstanding student loan balances, now the largest component of nonhousing debt, increased to a total of $986 billion as of 31 March 2013. That leaves an average of $24,810 of student debt per borrower in the United States.

Cartoon of the day

Special mention

 

Class struggles

It should come as no surprise that, as reported in the Chronicle of Higher Education [paywall], students on college campuses are struggling over the issue of class.

The situation is particularly difficult for first-generation college students (as I was back in the day), who are cast as subjects of “socioeconomic diversity” within institutions of higher education that are increasingly targeting the sons and daughters of the wealthy in order to increase revenues and move up in the rankings.

The class problem in relation to higher education, of course, is an old one, as Thorstein Veblen discussed in the Theory of the Leisure Class:

Ritualistic survivals and reversions come out in fullest vigor and with the freest air of spontaneity among those seminaries of learning which have to do primarily with the education of the priestly and leisure classes. Accordingly it should appear, and it does pretty plainly appear, on a survey of recent developments in college and university life, that wherever schools founded for the instruction of the lower classes in the immediately useful branches of knowledge grow into institutions of the higher learning, the growth of ritualistic ceremonial and paraphernalia and of elaborate scholastic “functions” goes hand in hand with the transition of the schools in question from the field of homely practicality into the higher, classical sphere. The initial purpose of these schools, and the work with which they have chiefly had to do at the earlier of these two stages of their evolution, has been that of fitting the young of the industrious classes for work. On the higher, classical plane of learning to which they commonly tend, their dominant aim becomes the preparation of the youth of the priestly and the leisure classes—or of an incipient leisure class—for the consumption of goods, material and immaterial, according to a conventionally accepted, reputable scope and method. This happy issue has commonly been the fate of schools founded by “friends of the people” for the aid of struggling young men, and where this transition is made in good form there is commonly, if not invariably, a coincident change to a more ritualistic life in the schools.

And, of course, it’s become much sharper in recent years, with growing inequality in the wider society and soaring debt for those students who are trying to follow the American Dream.

While I’m certainly not against the “dialogues” featured in the Chronicle article, what students in fact need is a clear and rigorous discussion of how class works—in the economy and in the wider society. They need academic courses—in economics and sociology but also in literature and the sciences—that explicitly treat the issue of class, which given students the concepts and methods to understand how class works and how it shapes their lives, before, during, and after their studies.

Otherwise, all we’re doing is participating in the “growth of ritualistic ceremonial and paraphernalia and of elaborate scholastic ‘functions'” and watching students struggle, outside the classroom, with the issue of class.

Cartoon of the day

Special mention

David 0, Goliath 1

The U.S. Supreme Court came down on the side of Monsanto, ruling unanimously that Indiana farmer Vernon Bowman could not use patented genetically modified soybeans to create new seeds without paying the company.

A report by the Center for Food Safety, Seed Giants vs. U.S. Farmers, explains what is at stake in the Supreme Court decision and, more generally, the control of the market by seed giants like Monsanto, DuPont, and Syngenta.

Throughout history and in most regions of the world today, seeds have been part of the“commons”—the common heritage of mankind that was part of the public domain forall to access. Farmers have been breeding, saving and re-planting, and freely exchanging seeds for millennia. As a result, a rich diversity of seed varieties and crops have been developed to adapt to global geographies, environmental conditions, weather patterns, local pests and plant diseases, and also to serve social and economic trends of regions and cultures. Such diversity is vital especially in times of climate chaos associated with global warming; societies require a full arsenal of diversity to adequately respond.

The Supreme Court decision upholding Monsanto’s patent rights makes the task of maintaining seed diversity that much more difficult.

Why austerity kills

From Greece to the United States, the imposition of austerity measures is having deadly consequences.

According to David Stuckler and Sanjay Basu (the authors of The Body Economic: Why Austerity Kills), “people do not inevitably get sick or die because the economy has faltered.” People suffer because, in the name of austerity, budgets are slashed and the kinds of social programs that help them survive economic downturns are cut. That’s the situation in Greece, Spain, Italy, and, increasingly, the United States.

And, to their credit, Stuckler and Bascu name names:

To test our hypothesis that austerity is deadly, we’ve analyzed data from other regions and eras. After the Soviet Union dissolved, in 1991, Russia’s economy collapsed. Poverty soared and life expectancy dropped, particularly among young, working-age men. But this did not occur everywhere in the former Soviet sphere. Russia, Kazakhstan and the Baltic States (Estonia, Latvia and Lithuania) — which adopted economic “shock therapy” programs advocated by economists like Jeffrey D. Sachs and Lawrence H. Summers — experienced the worst rises in suicides, heart attacks and alcohol-related deaths.

Finally, they suggest three principles that need to be followed:

First, do no harm: if austerity were tested like a medication in a clinical trial, it would have been stopped long ago, given its deadly side effects. . .

Second, treat joblessness like the pandemic it is. Unemployment is a leading cause of depression, anxiety, alcoholism and suicidal thinking. . .

Finally, expand investments in public health when times are bad.

Not to heed their warning means that austerity will continue to kill, now and in future generations.

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.

“From the happy workers of Bangladesh, with pleasure”?!

Muhammad Yunus believes we can fix the problems of the garment industry in Bangladesh by establishing a minimum international wage for the industry.

This might be about 50 cents an hour, twice the level typically found in Bangladesh. This minimum wage would be an integral part of reforming the industry, which would help to prevent future tragedies. We have to make international companies understand that while the workers are physically in Bangladesh, they are contributing their labour to the businesses: they are stakeholders. Physical separation should not be grounds to ignore the wellbeing of this labour.

I’m certainly not against raising the minimum wage for Bangladeshi garment workers. But it’s at all clear to me how that would have prevented the death of more than a thousand workers in the Savar building collapse, much less justify Yunus’s claim that “We would put a special tag on each piece of clothing. The tag would say: “From the happy workers of Bangladesh, with pleasure. Workers’ well-being guaranteed.”

What if, in addition to having a higher minimum wage, Bangladeshi garment workers actually had a say in how their factories were organized, how they were built, how they bargained with domestic and foreign contractors, and so on?

Than that special tag—”From the happy workers of Bangladesh, with pleasure”—might actually have some legitimacy.

More economic representations

Economists, it seems, have discovered the fact that economic ideas are produced and disseminated outside the texts of academic economics. In novels, for example.

Diane Coyle offers her list of “classics for economists,” after which we have Noah Smith’s “science fiction for economists” (to which Paul Krugman has added his own favorites) and some crime fiction by Mark Palko.

Good. I’m all in favor of expanding the world of economic representations, which is a project Jack Amariglio and I started more than a decade ago (in chapter seven of Postmodern Moments in Modern Economics, on “Academic and Everyday Economic Knowledges) and that I continued (with Economic Representations: Academic and Everyday and an essay in Cultural Studies, titled “Economic Representations: What’s at Stake?”).

But then let’s get serious about the project. First, by going beyond novels, to look at the many other representations of economic ideas (such as in the list above, from fairytales to photography). And second, by  actually taking such diverse economic representations seriously, by analyzing their role alongside and as distinct from the texts of academic economics. What I argued in the Cultural Studies essay is that one of the consequences of examining the texts of nonacademic, “everyday” economics

is that we can begin to unearth and examine knowledges of existing economic arrangements and imaginaries of alternative economies that are hidden within or behind, that in one way or another exceed, ‘official’ ideas about the economy. By official ideas I not only mean mainstream, ‘neo-liberal’ celebrations of private property and free markets to which so much attention is directed these days; I am also referring to heterodox (including Marxian, radical, and other) conceptions of a monolithic, hegemonic global capitalism. Thus, we may find that everyday economic discourses represent the modern-day equivalent of a Bakhtinian carnival, which includes, on the one hand, stylized parodies of (and even attacks on) all sorts of official academic languages and pronouncements and, on the other hand, conceptual strategies and ways of seeing that pave the way for alternative economic practices and institutions.

And today, in the midst of the Second Great Depression, moving beyond official ideas about the economy, which are often imposed by mainstream academic economists, is more important than ever.