In a recent article in The Intercept, Jon Schwarz [ht: db] arrives at a perfectly reasonable conclusion—but, unfortunately, he makes a real hash of the data concerning changes in wealth ownership in the United States.
Schwarz starts with the fact that the total amount of wealth owned by the bottom 50 percent of the U.S. population has doubled since the first quarter of 2020 (in other words, during the pandemic). He then takes issue with the idea that economic growth needs to be slowed (for example, by the Fed’s raising of interest-rates) in order to help the poorest who presumably have been most hurt by inflation. And his conclusion?
According to the actual numbers, these are good times for many, many Americans in the poorer 50 percent. That doesn’t mean that millions aren’t struggling, but the financial prospects for most were even worse in the past in a lower-inflation world, a situation that did not excite the warm concern of the corporate media. What we should concentrate on now is keeping the streak going, not bludgeoning the workforce into submission.
I agree, at least in part: what policymakers are attempting to do (in a move supported by mainstream economists, large corporations, and the top 1 percent) is to bludgeon workers into submission. And there’s no reason to do so, especially when other policies—such as regulating prices, raising taxes on the rich, and imposing windfall profits taxes on large corporations—exist.
As for the rest of Schwarz’s argument, there are serious problems.
Let’s start with the idea that, in his view, these are good times for many Americans in the poorest 50 percent. This is based entirely on recent data concerning the net worth of those at the bottom has risen.
As is evident in the chart above, Schwarz’s claim about the rising wealth of the bottom 50 percent (the blue line) is in fact correct. It has been going up in absolute terms for more than a decade (since 2011), and it has gone up particularly quickly in the past two years.
Here’s the problem: the rising net worth of the bottom 50 percent is almost entirely due to the increase in housing prices (which therefore raises the net worth of those who own houses). But that doesn’t say anything about how well-off they are. They don’t get any extra income from those higher-priced homes. They therefore can’t purchase more or better commodities. And they can’t sell their homes to buy other ones because the other ones will also have increased in price.
So, that part of Schwarz’s argument doesn’t hold water. An increase in net worth based on higher housing prices doesn’t improve the well-being of those in the bottom 50 percent.
There’s nothing to rest his case on in terms of the absolute amount of wealth. What about in relative terms?
As it turns out, the increase in the net worth of the bottom 50 percent (again, the blue line in the chart immediately above) does lead to an increase in its share of total net worth—but only by 1 percent point, from 1.8 percent to 2.8 percent. It’s still below the share it had two decades ago. It only looks like an improvement because the share had fallen so low (to 0.3 percent, in 2011).
And compared to the top 1 percent (the red line in the chart)? The gulf between their respective shares has actually risen in the past two years. As of the first quarter of 2022, the share of total worth of the top 1 percent was 31.9 percent compared to the tiny (2.8-percent) share of the bottom 50 percent.
So, the bottom 50 percent is no better off in terms of net worth either in absolute or relative terms. In fact, against what Schwarz argues, the last several years have in fact been an economic disaster for the bottom half of U.S. households. Whatever improvement they’ve seen in terms of net worth is a chimeric dream.
I want to make one final point about the issue of net worth, which is often treated synonymously with wealth (including by Schwarz). As I argued above, whatever tiny bit of wealth those at the bottom have is almost entirely in the form of their houses. They don’t own any real wealth—call it financial or business wealth—of the sort that would allow them to have any role in making decisions about their economy.*
The top 1 percent do in fact have such a role, because they are able to convert their share of the surplus into real wealth, which allows them both to get more distributions of the surplus (through, for example, their ownership of equity shares in businesses) and to make the decisions (through their positions within those businesses, the financing of political campaigns, and the like) that do determine the trajectory of the economy and economic policy-making.
I’m entirely on Schwarz’s side in terms of opposing the current bludgeoning of workers on behalf of the 1 percent. But the better argument, it seems to me, is not to say that things should continue as before because the poorest households in the United States were better off, but to show that American workers have increasingly been beaten down, in both absolute and relative terms, precisely because of the pandemic and the profoundly unequal terms of the economic recovery.
Enough is enough. We have to adopt alternative economic policies in the short term, policies that don’t transfer all the costs of inflation-fighting onto the backs of workers. And then imagine and create a radically different form of economic organization moving forward.
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*As I showed back in 2018, the top 1 percent owned almost two thirds of the financial or business wealth, while the bottom 90 percent (not just the poorest 50 percent) had only six percent.
This was supposed to be the great reset. As the U.S. economy recovered from the Pandemic Depression, millions of jobs were being created, unemployment was falling, and the balance of power between workers and capitalists would shift toward wage-earners and against their employers.
That, at least, was the promise (or, for capitalists, the fear).
But greedflation has delivered exactly the opposite: workers’ real wages are barely rising while corporate profits are soaring. There’s been no reset at all. That’s exactly what was happening before the coronavirus pandemic hit, and that trend has only continued during the recovery. It should come as no surprise then that the already grotesque levels of inequality in the United States continue to worsen.
And who are the beneficiaries? According to a recent study by the Institute for Policy Studies, it’s the Chief Executive Officers of American corporations who have managed to capture a large share of the resulting surplus.
Especially the CEOs of the largest low-wage employers in the United States. While median worker pay increased by 17 percent last year, CEO compensation rose by 31 percent. The result was that the ratio of CEO to average worker pay rose by 11 percent, to 670 to 1!*
American workers are struggling with rising prices, having risked their lives and livelihoods throughout the pandemic. Now, they’re forced to watch as their corporate employers, who have benefited from federal contracts and used their profits to buyback stocks, reward their CEOs with lucrative contracts and massive bonuses—far exceeding the small amount some workers have been able to claw back.
Who’s at the top? Amazon leads the list. Its new CEO, Andy Jassy, raked in $212.7 million last year, which amounts to 6,474 times the pay of Amazon’s median 2021 worker. Then there’s Estee Lauder’s CEO, Fabrizio Fred, who managed to secure a 258-percent pay increase in 2021—leading to compensation that amounted to 1,965 times that of the average worker. Third on the list was the CEO of Penn National Gaming, Jay Snowden, whose $65.9 million payout was 1,942 times that of the gambler’s typical worker’s wage.
So, how did they manage to capture so much surplus and distribute it to their CEOs? Like the other firms in the study, they all took the low road, paying their employees a pittance (in the low $30,000s for the median worker). And they’ve mostly succeeded in opposing and undermining union-organizing efforts.** But Amazon is the only one of the three to secure large federal contracts (over $10 billion between 1 October 2019 and 1 May 2022), like other low-wage corporations (such as Maximus, at $12.3 billion and TE Connectivity, at $3.3 billion), which means the taxes paid by ordinary Americans and being used to support such an inequitable corporate order.***
The report also highlights the extent of stock buybacks—which serve to inflate the value of a company’s shares and thus the value of executives’ stock-based compensation—among firms where median worker pay did not keep pace with inflation in 2021. Thus, for example, Lowe’s, the home-improvement chain, spent more than $13 billion in purchasing its own stock while median worker compensation fell by 7.6 percent to $22,697. Similarly, both Target and Best Buy increased workers’ pay by less than the rate of inflation but still spent millions of dollars in stock buybacks ($7.2 billion and $3.5 billion, respectively). In each case, a windfall to stock owners—including the CEOs—came at the expense of raises for the employees. For example, if the funds Lowe’s used to buyback its own stock had been divided among the company’s 325,000 employees, each worker would have received a $40,000 bonus.
Clearly, this economic order needs a fundamental reset.
And most Americans agree. According to a recent survey by Just Capital (pdf), more than eight in 10 respondents (83%) agree that the growing gap between CEO compensation and worker pay is a problem in the United States today. Moreover, according to the authors,
The message from the public is clear: responsibility lies with corporate leaders – including chief executives – to address income inequality in America today. Closing the gap requires action at the highest and lowest rungs of the corporate ladder.
The IPS suggests a range of options for doing something about the problem, including giving corporations with narrow pay ratios preferential treatment in government contracting, an excessive CEO pay tax, and a ban on stock buybacks (in addition to a wide variety of CEO pay reforms). If enacted, all such changes would serve to nudge such corporations out of the low road of poor worker pay and high CEO compensation and reduce the now-obscene level of inequality in the U.S. economy.
But giving employees a say in how those corporations are managed and operated would do even more to change the balance of power, within those firms and the entire economy, between workers and capitalists. The workers would then be able to participate in deciding how much surplus there would be and how it would be utilized—not only for their benefit but for the society as a whole.**** Employees would then become or participate in choosing the corporate leaders, including chief executives, who could actually go a long way toward solving the problem of inequality in America today.
That, in my view, is a reset of the U.S. economy worth imagining and enacting.
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*Forty-nine of the 300 firms analyzed by the Economic Policy Institute had ratios above 1000-1. And, in 106 companies in their sample, median worker did not keep pace with the 4.7 percent average U.S. inflation rate in 2021.
**Amazon has spent millions of dollars in fighting union campaigns and, to date, have lost only one battle, in a Staten Island warehouse. (That’s in the United States. Some Amazon warehouses in Europe are unionized, with strikes being most frequent in Germany, Italy, Poland, France and Spain.) None of Estee Lauder’s U.S. workers have union representation, and less than 20 percent of Penn’s employees are unionized.
***Of the 300 companies in the IPS study, 119 — 40 percent — received federal contracts, totaling $37.2 billion. Their average CEO-worker pay ratio was 571-to-1 in 2021.
****Even Thomas Piketty now defends the idea of workplace democracy or co-determination, since workers “sometimes, they are more serious and committed long-run investors than many of the short-term financial investors that we see. And so getting them to be involved in defining the long-run investment strategy of the company can be good.”
There’s been a lot of talk about oligarchs these past couple of months. Russian oligarchs, that is—the billionaires who have accumulated vast amounts of wealth, including large stakes in Russian industries, mines, and banks, as well as superyachts, private jets, investment accounts, and real estate in the West. We’ve even learned their names: Vladimir Potanin, Leonid Mikhelson, Alexey Mordashov, and so on.*
They’re a pretty easy target, given Russia’s savage war on Ukraine. But what about the other oligarchs out there, why aren’t we talking about them? They also capture and keep massive amounts of the surplus produced by workers around the globe, and then accumulate even larger amounts of wealth, which they can live off of and utilize as they see fit. Why aren’t they on our radar?
Oh, they do pop up periodically. When Telsa founder Elon Musk engages in a hostile takeover of Twitter or workers manage to organize a union in one of Jeff Bezos’s Amazon warehouses or Michael Bloomberg decides to run for president. But there’s really no sustained attention paid to them or how they have managed to become billionaires. Which is why ProPublica’s recent investigation into the finances of the wealthiest Americans is so important.
The report is the latest in a series ProPublica started in June 2021 that examines the tax records of the top 0.001-percent wealthiest Americans—400 individuals all of whom earn more than $110 million a year.** In this installment, they show that U.S. oligarchs contrive to pay taxes at a lower rate than other Americans, even very wealthy ones just below them on the economic pyramid, for two reasons: first, because much of their income is derived from investments, like stocks, which is taxed at a lower rate; and second, they are able to use large charitable donations to obtain huge deductions. Most American workers don’t own much in the way of stocks, and their gifts to charity do little to lower their taxable incomes.
So, who are these oligarchs? Some of them (10 of the top 15) are tech billionaires, whose incomes generally came from selling stock—including the usual suspects like Bill Gates, Jan Koum, and Larry Ellison. About one fifth of the top 400 earners are managers of hedge funds—with names perhaps less familiar for those of us outside financial circles, people like Ken Griffin, Jeffrey Yass, and David Siegel—whose income comes from trading stocks, options and other financial instruments that flows directly to them. Executives and founders of private-equity firms also stand out: people like Stephen Schwarzman, Stephen Feinberg, and George Roberts, who generally make their money by buying companies and reselling them for a profit. And then there are the heirs of large fortunes, including the eleven heirs of Walmart founders Sam and Bud Walton and four of Amway founder Richard DeVos; these inheritors of great wealth generally receive their income from dividends or other forms of investment income.
All of them, in one way or another, have figured out how to capture portions of the surplus produced by workers in the United States and around the world. They’re not necessarily capitalists (in the sense of directly appropriating the surplus through a process of exploitation)—although some of them clearly are, such as Jeff Bezos (who sits on and is the Executive Chairman of the board of directors of Amazon)—but they do occupy positions that allow them to capture distributions of the surplus produced and appropriated by others. And they did quite well in sharing in the capitalist booty: each of the top eleven averaged over $1 billion in income annually from 2013 to 2018!
Not only do these oligarchs manage to capture distributions of the surplus. As ProPublica explains, they also get to keep a higher portion than many other wealthy people. Thus, for example, the top 400 paid an average tax rate of 22 percent, while those who “only” took home $2-5 million were taxed at a higher rate, 29 percent. In other words, those in the top 400 (and their armies of accountants and financial advisers) have managed to find the “sweet spot” of high incomes and low taxes.
How do they manage to do that? One reason is because much of their income is derived from business investments, not wages or salaries, and in the United States income from financial assets (including, starting in 2003, most stock dividends) is generally taxed at a lower rate.*** Thus, the top 400 saved an average of $1.9 billion in taxes each year—due solely to the lower rate on dividends. The second reason is because U.S. oligarchs often take huge charitable deductions that reduce their income subject to tax. A particularly generous provision of the U.S. tax code allows them to deduct the full value of any stock they donate at its current price—without ever having to sell it and pay capital gains tax. According to ProPublica,
Those two factors—the amount of income taxed at the advantageous rate and the ability to muster large deductions—are the main drivers of lower tax rates for those with the highest incomes.
Now, of course, that 22-percent tax rate is still much higher than the 5-percent effective income tax rate on people who earn $40-50 thousand per year. Except. Workers actually pay more in taxes for Social Security and Medicare than income taxes. The oligarchs, meanwhile, tend to pay proportionally little of these types of taxes because wages are a tiny portion of their total incomes. Factor those payments in and the rates are almost equal: a 21-percent total tax rate for a single worker earning $45 thousand and 23 percent for those in the top 400 (by income).****
The U.S. tax system is often referred to as progressive, meaning the tax rate rises the further you go up the income ladder. As it turns out, it is anything but. The few at the top who occupy positions that allow them to receive distributions of the surplus end up paying taxes at just about the same rate as all those people at the bottom who actually work for a living.
And the result of U.S. oligarchs’ ability to capture and keep their share of the surplus? Well, the gap between them and workers at the bottom of the economic pyramid continues to grow.
As is clear from this chart, the shares of pre-tax national income captured by those in the top .001 (the red line in the chart) and bottom 50 percent (the blue line) have been steadily moving in opposite directions since 1980. And the linear trend lines show that their respective shares continue to diverge. By 2021, the oligarchs’ share had soared to 1.7 percent, while the share of all the workers in the bottom 50 percent had fallen to 13.6 percent.
And the American oligarchs’ response to criticisms of this obscene inequality? Well, at least one of them—Musk, during a fawning interview with Chris Anderson, the head of Ted—offers a simple response: “At this point, it’s water off a duck’s back.”*****
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*The fifth-richest man in Russia, Alisher Usmanov, owns Dilbar, the largest motor yacht in the world by gross tonnage. The boat is 512-feet long and reportedly cost $800 million, employing 84 full-time crew members.
**Just to put things in perspective, a typical American worker making $40,000 a year (a dot smaller than a pixel in the chart at the top of the post) would have to work for 2,750 years to make what the lowest-earning person in this group made in just one.
***Since 2013, the long-term capital gains tax rate has been 20 percent, just under half the top rate on ordinary income (37 percent in 2018).
****The tax rate for the 25 richest oligarchs (by wealth) is even lower: just 16 percent.
*****Musk’s income tax bill in 2018 was exactly zero. He responded to ProPublica’s request for comment with a lone punctuation mark—“?’’—and did not answer any detailed follow-up questions.
In the world according to Paul Krugman, “most Americans” have gotten considerably richer over the past two years (even if “the gains have been especially big at the top”), “lower-income Americans [have] seen relatively large income gains,” and “the simple story that the pandemic has been great for the wealthy and bad for the working class doesn’t hold up.”
Really?
To support his argument, Krugman trots out a series of charts from Realtime Inequality, which is in fact an eye-opening set of statistics on wealth and income inequality in the United States. But not in the way Krugman uses them. The two biggest problems in Krugman’s treatment are (a) he excludes the bottom 50 percent (so that “most Americans” refers only to the middle 40 percent) and (b) he focuses on growth rates and not levels or shares of income and wealth (so that, once again, we have that pesky problem of large percentage increases on a low base yields small increases).
That’s how you lie with inequality statistics.
What happens if you look at other statistics? Let’s start with wealth.
Here, I’ve depicted the shares of wealth for various deciles of the U.S. population: top 0.01 percent, top 0.1 percent, top 1 percent, middle 40 percent, and bottom 50 percent. Lo and behold, we can see that, starting in 1979, the shares of wealth held by those at the very top have soared, the share of the middle 40 percent has fallen, and the share of the bottom 50 percent hasn’t budged.
What about for the most recent period (which is what Krugman focuses on), from the end of 2019 to the end of 2021. Same thing: the shares of wealth of the top 1 percent (and subsets of that group) have continued to rise, the share of the middle 40 percent has fallen, and the share of the bottom 50 percent has actually risen.
Wow! The share of wealth owned by the bottom 50 percent (which consists mostly of housing they may own) has gone up. By how much? From a minuscule amount to another minuscule amount—from 0.3 percent to 0.8 percent. Or, in absolute terms, from an average wealth of $2.9 thousand to $7.9 thousand—a difference of $5 thousand. You might even say such an increase means a lot to the 125 million people in the bottom 50 percent of the U.S. population but it’s certainly no more than a drop in the bucket in terms of closing the gap with the wealth of those at the top (for example, the $19 million of wealth owned by those in the top 1 percent).
What about income? Same problem.
The growth rate of post-tax income for those in the bottom 50 percent was, in fact, much higher than for those in the middle 40 percent and top 1 percent—8.5 percent compared to 3.8 percent and 4.1 percent, respectively.
And that proves what? Not much. Those in the bottom 50 percent gained $2.8 thousand (mostly from transfer payments), which is similar to the gain for those in the middle 40 percent ($3.2 thousand). And those in the top 1 percent? Well, they managed to capture an extra $48 thousand during the period from late 2019 to late 2021.
So, sure, wages for those at the bottom are growing at a faster rate than those at the top. But they’re still barely staying ahead of inflation. And they’re not such as to even put a dent in the gap that separates them from the incomes captured by those at the top. The share of post-tax income taken home by all those workers in the bottom 50 percent only increased from 20.1 percent to 20.9 percent, while the share of income captured by the 2.5 million people in the top 1 percent is still 14.4 percent.
All of which means what? That the gap between workers at the bottom (including those in the middle) and the small group at the top continues to be enormous—in terms of both wealth and income. And no policy of keeping existing interest-rates or increasing them will help close that obscene gap.
It’s time we stop lying with inequality statistics and focus on the real culprit: all the ways contemporary capitalism, both before and during the pandemic, has managed to funnel most of the surplus to those at the top of the economic pyramid, leaving barely enough wealth and income to get by for everyone else.
It’s a “simple story,” with clear political implications. Maybe that’s the reason the Krugmans of the world don’t want to tell it. . .
The pandemic is once again spiraling out of control. Right-wing commentators and political leaders are doing everything they can to stop any kind of effective public-health response and to divert attention from the severity of the pandemic. And liberals? The best they can come up with is “follow the science.”
Jay S. Kaufman, a professor of epidemiology at McGill University, is having none of it. He rejects that simple—and too simplistic—mantra because it “misses the fact that the same social pathology that exacerbates the pandemic also debilitates our scientific response to it.
The problem is, Kaufman pulls his punches and limits the reach of both arguments. He notes that the pandemic itself is “socially patterned” but then he refers only to excess deaths across countries (such as Peru, Bolivia, South Africa and Brazil), which in his view are tied to political turmoil and weak social institutions. What he forgets about or overlooks is the fact that the severity of infections and deaths with countries is closely related to economic inequality and poorly functioning public institutions. In other words, the people who have suffered most from the pandemic are those who are forced to have the freedom to work at jobs and live in communities where they are more likely to be infected by COVID-19 and where adequate medical care is unavailable, either because it is not provided or is financially unattainable.
As for the second argument, that “science itself is a social process,” he’s right to note that “epidemiologists exist like everyone else inside the social forces that shape the pandemic.” But he’s really only referring to the step from “evidence to policy,” to the “politicization of proven interventions” (for example, under the Trump administration), not the process of gathering and analyzing the evidence itself. Thus, he never questions the science itself. Kaufman seems to be uninterested in or incapable of posing questions about what scientists decided were the basic issues to be investigated in terms of the emergence and transmission of the novel coronavirus, especially the ways the pandemic has both revealed and compounded pre-existing inequalities in wealth, income, and race.
The alternative was, in fact, staring him in the face. Kaufman begins his essay by invoking Rudolf Virchow, the Prussian pathologist who, in the winter of 1848, was sent to investigate a typhus epidemic raging in Upper Silesia, in what is now mostly Poland. As Kaufman explains,
After three weeks of meticulous observation of the stricken populace — during which he carefully counted typhus cases and deaths by age, sex, occupation and social class — he returned with a 190-page report that ultimately blamed poverty and social exclusion for the epidemic and deemed it an unnecessary crisis. “I am convinced that if you changed these conditions, the epidemic would not recur,” he wrote.
Today, Virchow is known as the “father of modern pathology” and as the founder of social medicine. He developed the theory of cellular pathology, which laid the conceptual foundation for modern medicine. But he also had a specific notion of medicine, which is today mostly ignored. In his own words:
Medicine is a social science, and politics is nothing else but medicine on a large scale. Medicine, as a social science, as the science of human beings, has the obligation to point out problems and to attempt their theoretical solution: the politician, the practical anthropologist, must find the means for their actual solution. . .Science for its own sake usually means nothing more than science for the sake of the people who happen to be pursuing it. Knowledge which is unable to support action is not genuine—and how unsure is activity without understanding. . .If medicine is to fulfill her great task, then she must enter the political and social life. . .The physicians are the natural attorneys of the poor, and the social problems should largely be solved by them.
Not only did Virchow conclude, based on his research, that poor sanitation, the absence of basic hygiene, lack of education, and near starvation were the root problems of the epidemic in Upper Silesia. According to David M. Reese, “a few weeks after his Silesian expedition, Virchow manned the barricades beside fellow democrats, armed with a rusty sword and an antiquated rifle.” Following on his participation in the revolution of 1848, Virchow continued to be active in politics: he was soon elected representative to a newly formed Prussian diet, “delivering fiery speeches against the royal family”; in the late 1850s, he was elected Berlin City Councillor, an office in which he served for 42 years (“his achievements ranging from improving the city’s sewer and water supply systems to reforming the arrangement of public hospitals” so that all citizens would have access to basic medical care); and he was a founding member of the German Progress Party, the main left-wing party before the rise of the Social Democrats.
The fact is, more than 170 years ago, Virchow established a practice of both scientific social medicine and politically committed scientist that gives lie to the notion of just “follow the science.” The question, then as now, is: which science?
In the midst of a sick society characterized by sick institutions, we need to critically examine both the economic and social institutions that have generated the profoundly unequal effects of the present pandemic as well as the specific ways scientific methods and protocols have been conditioned by those same institutions.
In this post, I continue the draft of sections of my forthcoming book, “Marxian Economics: An Introduction.” This, like the previous four posts (here, here, here, and here), is written to serve as the basis for chapter 1, Marxian Economics Today. The text of this post should pretty much finish up the draft of the first chapter.
Is Marxian Economics Still Relevant?
It’s an obvious question for those of us living now, in the twenty-first century. Is Marxian economics still relevant?
After all, Marx wrote Capital in the middle of the nineteenth century, when both capitalism and mainstream economics were quite different from what they are today.
Back in the mid-1800s, capitalism was a relatively new way of organizing economic and social life; having emerged first in Great Britain, it still encompassed a small part of the world. As Marx looked around him, he saw both the tremendous progress and the horrendous conditions of the Industrial Revolution. The introduction of steam power, gigantic factories, growing cities, and increased production. And thus great wealth, at least on the part of the small group of successful merchants and industrial capitalists at the top of the economic pyramid. But also squalor, malnutrition, low wages, and long working hours for factory workers—men, women, and children.
Radically new ideas both prepared the ground for, and emerged as a result of, the emergence and spread of capitalism. New freedoms, such as the possibility of buying and selling people’s ability to work, and the consequent abolition of slavery, the ownership of human chattel. New forms of political representation, like democracy, which entailed the abolition (or at least the curtailing) of monarchies. And new sciences, including evolutionary biology, first elaborated in Charles Darwin’s On the Origin of Species (or, more completely, On the Origin of Species by Means of Natural Selection, or the Preservation of Favoured Races in the Struggle for Life).
The world today is, of course, quite different. We take for granted many of the ideas that were once considered radically new. While other ideas, which were barely even imagined at the time, are today considered novel: demands for a guaranteed income, the extension of democracy beyond politics to workplaces, and synthetic biology.
As for capitalism, in some parts of the world, it would be immediately recognizable by nineteenth-century observers. Giant steel mills, workers denied the right to form labor unions, polluted living environments, minds and bodies damaged by demanding and dangerous jobs. Elsewhere, capitalism has changed in many ways, both large and small. Cutting-edge technologies in the twenty-first century include robotics, extended reality, and artificial intelligence. Production of many goods and services is dispersed around the world instead of being concentrated in single factories. And a much larger share of production and of the world’s population—although certainly not all—has become part of capitalism.
And yet. . .The gap between a small group at the top and everyone else is increasing. Workers still labor much longer, even utilizing much more productive technologies, than many had predicted. Squalor, hunger, and poverty are still the condition of many in the world today—to which we need to add the dangers created by the looming climate crisis.
Throughout this book, we will therefore have to ask, is the kind of critique of capitalism that Marx pioneered more than 150 years ago relevant, at least in broad outlines, to contemporary economies? And, following on that, in what ways have Marxian economists changed and extended their theory to account for the many changes the world has undergone since the mid-1800s?
Much the same question holds for the Marxian critique of mainstream economics. In what ways might Marx’s original critique of classical political economy be relevant to contemporary mainstream—neoclassical and Keynesian—economics?
As will see in the next chapter, Smith and the other classical political economists made five major claims about capitalism, which Marx in his own writings then criticized. They are, in no particular order, the following:
Capitalism produces more wealth, and thus higher levels of economic development.
Capitalism is characterized by stable growth.
Everybody gets what they deserve within capitalism.
Capitalists are heroes.
Capitalism represents the end of history.
We’ve already touched on the first three in previous sections of this chapter, and we will return to them in some detail in the remainder of the book. For example, capitalism produces more wealth but, Marx argues, it only does so on the basis of class exploitation. Capitalism is inherently unstable because of the private appropriation and distribution of the surplus. And, even if commodities are bought and sold at their values, capitalism is based on a fundamental class injustice, whereby the producers of the surplus are excluded from participating in decisions about that surplus.
What about the other two claims? Capitalists are celebrated but only if they accumulate more capital and thus create the conditions for more wealth and more employment. If they don’t, and that is often the case, then there’s nothing heroic about their activities. As for capitalism representing the end of history—the problem is, it still rests on class exploitation, not unlike feudalism, slavery, and other societies in which workers produce, but do not participate in appropriating, the surplus. That still leaves the possibility of creating an economy without that class injustice.
Those, in short, are Marx’s main criticisms of classical political economy.
Contemporary mainstream economists, as is turns out, make all five of those claims. They don’t do so in exactly the same manner as the classicals but they make them nonetheless.
Capitalism produces more wealth, and thus higher levels of economic development—and it’s now measured in terms of Gross Domestic Product and GDP per capita.
Capitalism is characterized by stable growth—and the possibility of crises is not even included in contemporary mainstream models.
Everybody gets what they deserve within capitalism—especially when, in the modern view, all “factors of production” receive their marginal contributions to production.
Capitalists are heroes—to which modern mainstream economists add that everyone is a capitalist, since they have to decide how to rationally utilize their human capital.
Capitalism is fundamentally different from previous ways of organizing economic and social life, such as feudalism and slavery—although in one crucial dimension it’s exactly the same: capitalists are just like feudal lords and slaveowners in appropriating the surplus produced by others.
So, while the language and methods of mainstream economics have changed since Marx’s time, many of Marx’s criticisms do seem to carry over to contemporary mainstream economics.
We will see, in the remainder of the book, just exactly how that works.
This Book
The other eight chapters of this book are designed to flesh out and explore in much more detail the issues raised in previous sections of this chapter.
Chapter 2, Marxian Economics Versus Mainstream Economics
The aim of this chapter is to explain how the Marxian critique of political economy has, from the very beginning, been a two-fold critique: a critique of mainstream economic theory and of capitalism, the economic system celebrated by mainstream economists. We will discuss the key differences between Marxian and mainstream approaches to economic analysis, both then and now.
Chapter 3, Toward a Critique of Political Economy
I do not presume that readers will have any background in Marxian economic and social theory. In this chapter, we discover where Marx’s critique of political economy came from—in British political economy, French socialism, and German philosophy—and how his ideas changed and developed in some of the key texts of the “early” Marxian tradition prior to writing Capital.
Chapter 4, Commodities and Money
In this chapter, I will present the material contained in the first three chapters of volume 1 of Capital, perhaps the most difficult and misinterpreted section of that book. Marx begins with the commodity, proceeds to discuss such topics as use-value, exchange-value, and value, presents the problem of “commodity fetishism,” and then introduces money.
Chapter 5, Surplus-Value and Exploitation
The goal of this chapter is to explain how Marx, starting with the presumption of equal exchange, ends up showing how capitalism is based on surplus-value and class exploitation.
Chapter 6, Distributions of Surplus-Value
According to Marx, once surplus-value is extracted from workers, it is then distributed to others for various uses: the “accumulation of capital,” the salaries of corporate executives, the financial sector, and so on. Herein are the origins of the theory of economic growth and the treatment of the role of instability and crises within capitalist economies, as well as the Marxian understanding of the distribution of income.
Chapter 7, Applications of Marxian Economics
How have Marxist concepts been applied to major trends, debates, and events in recent decades? In this chapter, we examine the ways Marxist thinkers, especially younger scholars and activists, have opened up and applied Marxian economics to the theory of the firm, imperialism and globalization, development in the Global South, the role of finance, systemic racism, gendered hierarchies, and the relationship between capitalist and noncapitalist economies in contemporary societies.
Chapter 8, Debates in and around Marxian Economics
Marxian economic theory has, of course, been discussed and debated from the very beginning—by both Marxian and mainstream economists. In this chapter, I present some of the key criticisms of Marxian economics by mainstream economists, focusing in particular on their rejection of the labor theory of value. I also explain some of the key debates among different schools of thought within the Marxian tradition and present their contributions to contemporary Marxian economics.
Chapter 9, Transitions to and from Capitalism
Much to the surprise of many students, Marx (and his frequent collaborator Engels) never presented a blueprint of socialism or communism, either in Capital or anywhere else. However, Marxian economics is based on a clear understanding that capitalism has both a historical beginning and a possible end. In this concluding chapter, I discuss how Marx and later generations of Marxian economists have analyzed both the transition to capitalism (e.g., from feudalism in Western Europe) and the transition to noncapitalism (in the contemporary world).
Before We Dive In
As I wrote above, this book is not written with a presumption that readers have any kind of background in Marxian economic and social theory. Much the same holds for mainstream economic theory. Perhaps some readers will have learned some Marx or mainstream economics in the course of their studies but, if not, everything they need to understand Marxian economics is presented in this book.
Here are some other issues I’d like readers to keep in mind as you work your way through this book.
As is often the case in theoretical debates, the same words often have different meanings. So, for example, the way Marx defines and uses such concepts as markets, value, labor, capital are quite different from what they mean in mainstream economics. To help you make sense of those differences, I have included a brief glossary of terms at the beginning of the book. You should feel free to turn back to it on a regular basis as you work your way through the remaining chapters. In Part 2 of the book (Chapters 4, 5, and 6), all concepts will be carefully defined, while using as little technical jargon as possible. I have also added a couple of technical appendices for readers who want to follow up on the discussion in the main text.
Since we’re dealing with economics, some technical language and illustrations are indispensable. I have kept them to a minimum but readers should be prepared for some statistical charts, a few equations, and a bit of algebra. I’ll pass on the best piece of advice I received as a student: when something doesn’t make sense immediately, be prepared to work it out with paper and pencil.
The context for Marx’s critique of political economy, written in the middle of the nineteenth century, is unfamiliar to many of us in the twenty-first century. How many of us today have read Hegel, after all? The necessary background will be covered later, in Chapters 2 and 3.
While Marx’s name has long been linked with socialism and communism, readers won’t find any kind of blueprint or detailed plan for either idea in Marx’s writings. Nor does any general—valid for all times and places—economic policy or political program follow from his work. That’s a topic we will return to in Chapter 9.
This book is prepared as a stand-alone introduction to Marxian economics. No other texts are necessary to understand the material in this book. However, I have added references (to specific works and chapters) in the event readers want to use this book as a companion text, as they read Capital and other writings by Marx.
Finally, while the book is aimed at students in economics (both undergraduate and post-graduate), it will also be relevant for and accessible to students in other disciplines—such as sociology, geography, history, and cultural studies. My fervent hope is it will also be useful to interested individuals who are not currently college and university students, because a clear and concise introduction to Marxian economics is relevant to their work and lives.
Year 3 of the Trump presidency was absolutely terrific—indeed, record-breaking—for Americans.
At least that’s how things look in terms of the headline numbers from the Census Bureau: median household income was up (by 6.8 percent, a record) over 2018 and the official poverty rate decreased (by 1.3 percentage points, to 10.5 percent, the lowest rate observed since estimates were initially published for 1959).*
And then there’s Kevin Hassett, former chair of Trump’s White House Council of Economic Advisers (who returned to the White House to lead its pandemic-response team, downplaying the danger of coronavirus and pushing the administration to re-open the economy amid lockdowns and social distancing) who seized on the report to make another of his wild claims:
If you’re a social justice warrior and you’re looking at the data, you would have to say that the Trump years, through the beginning of the pandemic, were the sort-of best years for advances in social justice since World War II.
The problem is that other data in the same report show nothing of the sort.
The distribution of income in the United States was just as grotesquely unequal in 2019 as it was in 2018 (and in every year both before and now during the Trump presidency). The highest quintile of American households captured 51.9 percent of income in the United States (it was 52 percent in 2018), the fourth quintile 22.7 percent (compared to 22.6 percent the previous year), and so on down the line. The lowest quintile got 3.1 percent, exactly the same as in 2018.
So no, no “social justice warrior” would be able to say the Trump years were the “best years for advances in social justice since World War II.”
In fact, quite the opposite. The economic policies of the Trump administration are both the product of and serving to reinforce the fundamental inequalities that have characterized the United States for decades now.
They’re also the reason why the novel coronavirus pandemic has hit the United States so savagely and unevenly. As I argued back in May, and Nick Hanauer and David M. Rolf recently concurred in Time,
Like many of the virus’s hardest hit victims, the United States went into the COVID-19 pandemic wracked by preexisting conditions. A fraying public health infrastructure, inadequate medical supplies, an employer-based health insurance system perversely unsuited to the moment—these and other afflictions are surely contributing to the death toll. But in addressing the causes and consequences of this pandemic—and its cruelly uneven impact—the elephant in the room is extreme income inequality.
The basis of their claim about inequality in the United States is a new working paper by Carter C. Price and Kathryn Edwards [ht: mfa] of the RAND Corporation, “Trends in Income From 1975 to 2018.”
While their general claim is pretty familiar (the pattern of capitalist growth in the United States during the two or three decades after World War II lowered the degree of inequality but, beginning in the mid-1970s, the trend was reversed and inequality rose during every decade), their analysis of the new pattern of capitalist growth reveals just how obscene it has been.
Consider the following conclusions from their study:
On average, extreme inequality is costing the median income full-time worker about $42,000 a year. Half of all full-time workers now earn less than half what they would have had incomes across the distribution continued to keep pace with economic growth.
The median male worker needed 30 weeks of income in 1985 to pay for housing, healthcare, transportation, and education for his family. By 2018, that “Cost of Thriving Index” had increased to 53 weeks (more weeks than in an actual year).
Two-income families are now working twice the hours to maintain a shrinking share of the pie, while struggling to pay housing, healthcare, education, childcare, and transportation costs that have grown at two to three times the rate of inflation.
Basically, according to Price and Edwards’s calculations, the income growth for most groups of Americans—thus, the bottom 25 percent, the median, the bottom 90 percent, and so on—was less than the rate of growth of real per capita Gross Domestic Product. Only the incomes of those in the top 5 percent grew at a faster rate. Thus, for example, the aggregate income for the population below the 90th percentile after 1975 would have been 67 percent higher in 2018 had income growth followed the pattern of the first two post-War decades.
The cumulative result over the past 45 years is that the members of the bottom 90 percent lost almost $50 trillion ($47 trillion or $48.6, depending on the price deflator used), which was seized by those at the top, especially the richest 1 percent of Americans.**
That pattern of unequal growth, which was inherited by the Trump administration, has simply not changed in the last three and a half years, no matter what Trump, Haslett, or the other “hacks and grifters” in the White House say.
Moreover, the monstrous inequalities that existed at the end of 2019 have shaped in profound ways both the effects of the spread of the coronavirus across the country and the early stages of the recovery from the Pandemic Depression. American economic economic and political elites have demanded and been able to implement policies that have only served to reinforce the unequalizing pattern of economic growth, which left most Americans vulnerable to the pandemic and to the resulting economic downturn.
The unequal pattern of capitalist growth in the United States documented in the new RAND report is exactly the opposite of what social justice warriors have been fighting for. Everyone, except the tiny group at the top, have been the ultimate losers.
———
*But there is a caveat on the median household income figures: the bureau’s main household survey for the report on Income and Poverty in the United States: 2019 was conducted in March and April of this year, as the pandemic was surging. That lowered the response rate, especially among low-income Americans. Still, the bureau estimates that median income in 2019 was about 4.1 percent higher than in 2018.
**The missing piece in the story told by Price and Edwards has to do with the mechanism of the massive transfer from the bottom 90 percent to those at the top. I have tried to fill in that missing piece, most recently in 2019 (e.g., here and here).
In this post, I continue the draft of sections of my forthcoming book, “Marxian Economics: An Introduction.” This, like the previous post, is for chapter 1, Marxian Economics Today.
A Tale of Two Capitalisms
Marxian economists recognize, just like mainstream economists, that capitalism has radically transformed the world in recent decades, continuing and in some cases accelerating long-term trends. For example, the world has seen spectacular growth in the amount and kinds of goods and services available to consumers. Everything, it seems, can be purchased either in retail shops, big-box stores, or online. And, every year, more of those goods and services are being produced and sold in markets.
That means the wealth of nations has expanded. Thus, technically, Gross Domestic Product per capita has risen since 1970 in countries as diverse as the United States (where it has more than doubled), Japan (more than tripled), China (almost ten times), and Botswana (where it has increased by a factor of more than 22).
International trade has also soared during the same period. Goods and services that are produced in once-remote corners of the world find their way to customers in other regions. Both physical commodities— such as smart phones, automobiles, and fruits and vegetables—and services—like banking, insurance, and communications—are being traded on an increasing basis between residents and non-residents of national economies. To put some numbers on it, merchandise trade grew from $318.2 billion dollars in 1970 to $19.48 trillion in 2018. And exports of services have become a larger and larger share of total exports—for the world as a whole (now 23.5 percent, up from 15 percent) and especially for certain countries (such as the United Kingdom, where services account for about 45 percent of all exports, and the Bahamas, where almost all exports are services).
The world’s cities are the hubs of all that commerce and transportation. It should come as no surprise that the urbanization of the global population has also expanded rapidly in recent decades, from about one third to now over half. In 2018, 1.7 billion people—23 per cent of the world’s population— lived in a city with at least 1 million inhabitants. And while only a small minority currently reside in cities with more than 10 million inhabitants, by 2030 a projected 752 million people will live in so-called megacities, many of them located in the Global South.
We’re all aware that, during recent decades, many new technologies have been invented—in producing goods and services as all well as in consuming them. Think of robotics, artificial intelligence, and digital media. And, with them, new industries and giant firms have emerged and taken off. Consider the so-called Big Four technology companies: Amazon, Google, Apple, and Facebook. They were only founded in the last few decades but, as they’ve continued to grow, they’ve become intertwined with the lives of millions of companies and billions of people around the world.
The owners of those tech companies are, to no one’s amazement, all billionaires. When the first Forbes World Billionaires List was published in 1987, it included only 140 billionaires. Today, they number 2825 and their combined wealth is about $9.4 trillion. That works out to be about $3,300,000,000 per billionaire. Their wealth certainly represents one of the great success stories of capitalism in recent decades.
Finally, capitalism has grown in more countries and expanded into more parts of more countries’ economies over the course of the past 40 years. Both large countries and small (from Russia, India, and China to El Salvador, Algeria, and Vietnam) are more capitalist than ever before. As we look around the world, we can see that the economies of rural areas have been increasingly transformed by and connected to capitalist ways of producing and exchanging goods and services. Global value chains have incorporated and fundamentally altered the lives of millions and millions of workers around the world. Meanwhile, areas of the economy that had been formerly outside of capitalism—for example, goods and services provided by households and government—can now be bought and sold on markets and are the source of profits for a growing number of companies.
But, unlike mainstream economists, Marxists recognize that capitalism’s extraordinary successes in recent decades have also come with tremendous economic and social costs.
All that new wealth of nations? Well, it’s been produced by workers that receive in wages and salaries only a portion of the total value they’ve created. The rest, the surplus, has gone to those at the top of the economic pyramid. So, the distribution of income has become increasingly unequal over time—both within countries and for the world economy as a whole.
According to the the latest World Inequality Report, income inequality has increased in nearly all countries, especially in the United States, China, India, and Russia. In other countries (for example, in the Middle East, sub-Saharan Africa, and Brazil), income inequality has remained relatively stable but at extremely high levels.
At a global level, inequality has also worsened. Thus, for example, the top 1 percent richest individuals in the world captured more than twice as much of the growth in income as the bottom 50 percent since 1980. Basically, the share of income going to the bottom half has mostly stagnated (at around 9 percent), while the share captured by the top 1 percent has risen dramatically (from around 16 percent to more than 20 percent).
And it’s no accident. Inequality has increased because the surplus labor performed by workers, in both rich and poor countries, has not been kept by them but has gone to a small group at the top of the national and world economies.
So, we really are talking about a tale of two capitalisms: one that is celebrated by mainstream economists (but only benefits those in the top 1 percent) and another that is recognized by Marxian economists (who emphasize the idea that the growing wealth of nations and increasing inequality are characteristics of the same economic system).
But that’s not the end of the story. All that capitalist growth has been anything but steady. The two most severe economic downturns since the Great Depression of the 1930s have happened in the new millennium: the Second Great Depression (after the crash of 2007-08) and the Pandemic Depression (with the outbreak and spread of the novel coronavirus). In both cases, hundreds of millions of workers around the world were laid off or had their pay cut. Many of them were already struggling to get by, with stagnant wages and precarious jobs, even before economic conditions took a turn for the worse.
And then those same workers had to look up and see one part of the economy recovering—for example, the profits of their employers and shares in the stock market that fueled the wealth of the billionaires—while the one in which they earned their livelihoods barely budged.
Meanwhile, those stunning global cities and urban centers, the likes of which the world has never seen, also include vast slums and informal settlements—parking lots for the working poor. According to the United Nations, over 1 billion people now live in dense neighborhoods with unreliable and often shared access to basic services like water, sanitation and electricity. Many don’t have bank accounts, basic employment contracts, or insurance. Their incomes and workplaces are not on any government agency’s radar.
They’re not so much left behind but, just like their counterparts in the poor neighborhoods of rich countries, incorporated into capitalism on a profoundly unequal basis. They’re forced to compete with one another for substandard housing and low-paying jobs while suffering from much higher rates of crime and environmental pollution than those who live in the wealthy urban neighborhoods. In countries like the United States and the United Kingdom, a disproportionate number are ethnic and racial minorities and recent immigrants.
The working poor in both urban and rural areas are also the ones most affected by the climate crisis. A product of capitalism’s growth, not only in recent decades, but since its inception, global warming has created a world that is crossing temperature barriers which, within a decade, threaten ecosystem collapse, ocean acidification, mass desertification, and coastal areas being flooded into inhabitability.
Meanwhile, the democratic principles and institutions that people have often relied on to make their voices heard are being challenged by political elites and movements that are fueled by and taking advantage of the resentments created by decades of capitalist growth. The irony, of course, is many of these political parties were elected through democratic means and call for more, not less, unbridled capitalism as the way forward.
Clearly, the other side of the coin of capitalism’s tremendous successes have been spectacular failures.
So, it should come as no surprise that there’s more interest these days in both criticisms of and alternatives to capitalism. And Marxian economics is one of the key sources for both: for ways of analyzing capitalism that point to these and other failures not as accidents, but as intrinsic to the way capitalism operates as a system; and for ideas about how to imagine and create other institutions, fundamentally different ways of organizing economic and social life.
Young people, especially, have become interested in the tradition of Marxian economics. They’re trying to pay for their schooling, find decent jobs, and start rewarding careers but they’re increasingly dissatisfied with the effects of the economic system they’re inheriting. Mainstream economics seems to offer less and less to them, especially since it has mostly celebrated and offered policies to strengthen that same economic system. Or, within more liberal parts of mainstream economics, offer only minor changes to keep the system going.
Marxian economics offers a real alternative—in terms of criticizing capitalism and the possibility of creating an economic system that actually delivers longstanding promises of fairness and justice.
occasional links & commentary 