Posts Tagged ‘commodities’


Special mention



Special mention



Special mention

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It’s that time of the year again, when thoughts turn to the impossibility of the gift.

Usually (as in the ghost of Christmases past, e.g., here, here, and here), attention is given over to neoclassical economists, who bemoan the inefficiencies caused by the normal pattern of gift-giving and recommend instead that money be offered, so that recipients can buy their own presents.

This year, things are a bit different. Psychologists are the ones who are called on to identify the impossibility of the gift. In their view (e.g., the research by Jeff Galak, Julian Givi, and Elanor F. Williams and Yan Zhang and Nicholas Epley), as it turns out, much the same problem arises: givers can’t possibly know what the recipients want. 

But, psychologists add, the reverse it also true: recipients often don’t know the motivations of the givers. “It’s the thought that counts” only counts when recipients are somehow prompted to consider a giver’s act of generosity.

If gift receivers consider a gift giver’s thoughts only when triggered to do so, then gift givers are likely to have difficulty correctly anticipating the impact of their own thoughts and intentions. Gift givers, after all, have a very different perspective on the exchange than do gift receivers. Gift givers do not experience the automatic evaluation that comes from receiving a gift and thus would not be triggered to use their thoughts to predict a receiver’s feelings and evaluations in the same way as gift receivers. Thoughts may indeed count for gift receivers, but not necessarily in ways that givers will predict. The capacity to anticipate a receiver’s feelings and evaluations is a critical aspect of gift exchanges because maximizing the receiver’s happiness and satisfaction is arguably the most common objective in gift exchanges. . . Any gap between a gift giver’s predictions and a receiver’s actual evaluations will undermine the primary goal of gift exchanges.

In both cases, when they don’t know what recipients want and try to have their own good intentions recognized, givers are prone to make mistakes in choosing the appropriate gift.

The researchers therefore step in to try to help them, by suggesting gift givers make better decisions: either “choose gifts based on how valuable they will be to the recipient throughout his or her ownership of the gift, rather than how good a gift will seem when the recipient opens it” or “give priority to choosing gifts that receivers actually like rather than gifts that reveal thoughtfulness.”

What none of the teams of psychologists considers (just like the neoclassical economists before them) is that when the gift is something that is offered out of generosity, without an interest or concern in reciprocity, then as soon as the gift is identified as a gift, with the meaning of a gift, then it is cancelled as a gift. The gift, which creates a debt of a return—of an indeterminate reciprocity, concerning when and how—is thereby annulled. And that’s true even with the best of intentions or choices on the part of gift-givers.

But, I hasten to add, that is also the case with monetary exchange, since it is also replete with diverse and conflicting motivations, desires, and concerns on both sides of the transaction. As with gift exchange, those on one side (e.g., buyers) have a very different perspective on the exchange from those on the other side (e.g., sellers).

Consider the example of purchasing a car (which I recently did). The buyer has no idea what goes into the intentions and behavior of the seller: are they attempting to inform the seller of the qualities of the various vehicles being considered, looking to push unnecessary options or extended warranties, worried about meeting their monthly quota, or subject to pressure from the dealership to boost profits? For their part, the seller doesn’t know anything about their opposite number: from the financial situation of the buyer to what they’re looking for in a vehicle, not to mention the condition of any trade-in, the possibility of repeat business, and so on.

And, of course, both buyer and seller are constituted, and transformed in an unpredictable manner, during the course of the long, complex relationship that develops before, during, and after the purchase. It’s a relationship that, at various times during the transaction, both invokes and undermines notions of mutual beneficence, trust, concern, calculation, and much else.

Errors are made, then, in monetary exchange no less than in gift exchange. The goals on both sides of the transaction are only partly fulfilled even when the exchange is completed. Sellers can walk away with another vehicle sold but they don’t know, under all the conflicting pressures, if they did the “right thing” (for the buyer, themselves, their employer, and so on). And buyers, after they drive away, will be affected by all the qualities and features (both positive and negative) they were only dimly aware of when they bought the vehicle, not to mention the comments and questions from family members and friends, which influence how they look at and appreciate their new vehicle. And then of course there’s the depleted bank account or the loan, which determines what the transaction means in terms of their own and others’ wealth and property, the effects on their financial well-being, and what exactly was traded when the vehicle was purchased.

And so we muddle on—exchanging gifts, engaging in monetary transactions, or, as is often the case this time of year, combining the two (purchasing commodities with money to give as gifts)—even when we know the gift and commodity exchange, at least as modeled by mainstream economists and psychologists, are in fact impossible.


I’m always pleased when Marx’s critique of political economy and the theory of value are topics of discussion, especially since students are rarely exposed to those ideas in their usual mainstream economics courses. Their professors generally don’t know about any theory of value other than the neoclassical economics they learned and preach—and, as a consequence, students aren’t taught that there is a fundamental critique of the neoclassical theory of value that stems from Marx’s work.

The result is, in fact, quite embarrassing. When I ask students to compare Marx’s theory of profits with the neoclassical theory of profits, they have no idea what I’m talking about. The way they learn economics from my neoclassical colleagues, profits are competed away. “So,” I ask them, “what you have is a theory of capitalism according to which there are no profits”? Then, of course, I have to start all over, teach them the neoclassical theory of profits (as the normal return to capital, rK, where r is the profit rate and K the amount of capital) and only then explain to them the Marxian critique of neoclassical profits (based on s, the amount of surplus-value that arises through exploitation). I am forced to make up for mainstream economists’ poor understanding and explanation of their own theory.

So, good, we now have a new discussion of Marx’s approach—first in the form of Branko Milanovic’s “primer” and then in Fred Moseley’s response to Milanovic. Both are well worth reading in their entirety—and I agree with many of the ideas they put forward.

But I do have a few major disagreements with their treatments. Milanovic, for example, insists that Marx develops his theory through three kinds of production: non-capitalism, “petty commodity production,” and capitalism. I read Marx differently. My view is that Marx starts with the commodity and then proceeds to develop, step by step (across volumes 1, 2, and 3 of Capital), the conditions of existence of capitalist commodity production, which is the goal of the analysis. These are not different historical stages or kinds of production but, rather, different levels of abstraction. So, conceptually, Marx starts from one proposition (that the value and exchange-value of commodities are equal to the amount of socially necessary abstract labor-time embodied in their production), then proceeds to another (where the value and exchange-value of commodities are equal to the value of capital, both variable and constant, and surplus-value embodied in the commodity during the course of production), and finally to a third level (where value and exchange-value can’t be equal, since the price of production, p, now includes an average rate of return on capital).

My other two concerns pertain to both authors. Milanovic and Moseley assert that Marx’s focus was mainly at the macro level, “the determination of the total profit (or surplus-value) produced in the capitalist economy as a whole.” I didn’t understand that idea back in 2013 and I remain unconvinced today. As I see it, Marx focused on both the micro and macro level and in fact worked to make his theory consistent at the two levels. Starting with the value of individual commodities (as I explained above), Marx concluded that, at the aggregate level, two identities needed to hold: the total value of commodities equaled the sum of their prices, and total surplus-value equalled total profits. That’s both a micro theory and a macro theory, a theory of value, price, and profit at both levels.*

The second, and perhaps most important, idea missing from Milanovic’s and Moseley’s interpretations of Marx’s approach is critique. Both authors proceed as if Marx developed his own theory of labor value, instead of seeing it as a critique of the classicals’ theory of value (which, we must remember, is the sub-title of Capital, “A Critique of Political Economy”). In my view, Marx begins where the classicals leave off (with an “immense accumulation of commodities,” Adam Smith’s wealth of nations) and then shows how the production of wealth in a capitalist society involves the performance, appropriation, and distribution of surplus labor.

That’s Marx’s class critique of political economy, which pertains as much to the mainstream economics of our time as to his.


*I don’t have the space here to explain how, for any individual commodity, the amount of value embodied during the course of its production won’t generally be equal to the amount of value for which the commodity exchanges. It is conceptually important that individual commodities have both numbers—value and exchange-value—attached to them, especially when they are not quantitatively equal at the micro level. It speaks to the fact that surplus-value is both appropriated (by capitalists from workers, through exploitation) and redistributed (among capitalists, within and across industries).


Right now, lots of people—especially young people—don’t believe in capitalism. And so Harvard economist Sendhil Mullainathan takes it upon himself to make the counter-argument, that capitalism is actually good: because the “free market” fights poverty.

But it doesn’t. And it can’t.

What Mullainathan describes, when food banks bid on donations (pasta vs. fresh vegetables, for example), is not really a market. As I explained back in 2011, in discussing the work on market design by Alvin Roth and others,

what Roth and others are designing—for schools, kidneys, and so on—are not markets but something else. The nonmarket mechanisms they propose are useful precisely when markets fail or don’t exist, which is often.

In the case of food donations, what’s going on is different food banks (using a virtual currency) register their needs for different kinds of donations.

Food banks sought some items, like diapers, that “sold” at relatively high prices. Some food banks focused on bidding on these items, which had the effect of lowering the prices of staples, like produce. The neediest food banks were able to obtain these staples at bargain prices.

But that’s not a market. It’s just a way of iteratively registering (via a pseudo price mechanism) different availabilities and needs of donated food across the country.

Even if Mullainathan and others want to call it a market, it’s certainly not an argument in favor of capitalism or the market system. As classically defined (by, among others, Karl Polanyi), a market system is a form of social economy in which land, labor, and money have become commodified, and in which the rest of society is subject to the dictates of markets.



It’s precisely such a market system that is responsible for creating mass poverty and hunger, in the United States and around the world. When people are forced to have the freedom to sell their ability to work and receive (if they are successful) low wages (and, when they are not successful, no wages at all), and when in turn they are forced to have the freedom to purchase food as a commodity, many of them (more than 15 percent of the U.S. population in 2014) become food insecure.* Food-insecure households are then forced to rely on federal programs (like the Supplemental Nutrition Assistance Program) and, when such programs come up short, on private food banks.

So, large numbers of people find themselves in the situation where—because of poverty and food insecurity created by the market system—they need to turn to food banks in order to survive. And no story about using a “market” to allocate donations among food banks can overturn that particular economic truth.


*In addition, when people don’t have access to the housing commodity (including the land on which the housing is built), or when they don’t have direct access to the land commodity (especially in countries where small-scale agriculture is still the norm), then they end up living in poverty and finding themselves in a situation of food insecurity. Similarly, the existence of money as a commodity—in the form of mortgage credit, financial derivatives, and the like—has enriched a tiny group at the top and pushed many more people into poverty.


Special mention

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