Posts Tagged ‘Marx’

fredgraph

Provoked, first, by liberal celebrations of the recent decline in the poverty rate in the United States—and, then, by conservative attempts to dismiss the issue of inequality, I decided to run some numbers. Just to see.

As it turns out, the corporate profit share (on the right in the chart above) and the poverty rate (on the left) appear to have moved in tandem since the mid-1990s: when the profit share declines, so does the poverty rate, and vice versa.

This is one of those times when I don’t have a theory or an explanation. But I was reminded of that long-forgotten ruthless critic of political economy:

Accumulation of wealth at one pole is, therefore, at the same time accumulation of misery, agony of toil slavery, ignorance, brutality, mental degradation, at the opposite pole, i.e., on the side of the class that produces its own product in the form of capital.

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Here’s the link to Adam Morton’s generous—and, in my view, perceptive—review of my book, Development and Globalization: A Marxian Class Analysis.

The main point I want to articulate is that the book is indispensable reading for class in the twofold sense that this phrase can be read. First, as indispensable reading for class in that key chapters in the book shape my classrooms on political economy across the span of undergraduate and postgraduate teaching and research. Second, as indispensable reading for class in delivering a Marxist social class analysis of planning, development and globalisation at a time when many in and beyond the academy are consciously engaged in expunging class as an aspect of radical political economy.

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On one hand, Dave Elder-Vass is absolutely right: “we should see our economy not simply as a capitalist market system but as a collection of ‘many distinct but interconnected practices’.”*

As I have explained before, that view of the “iceberg economy”—which has been highlighted in the work of J. K. Gibson-Graham—represents a fundamental challenge to neoclassical economists, for whom

the entire economy is visible and consists of capitalist markets—or unwarranted constraints on capitalist markets, which should be eliminated. According to iceberg economists, capitalist markets are only the tip of the iceberg, and there’s a proliferation of noncapitalist economies below the waterline.

But Elder-Vass also uses it against Marxists who, in his view, see “one central mechanism in the economy: the extraction of surplus from wage labour by capitalists” and leave out ethical issues.

The problem is, while Elder-Vass credits J. K. Gibson-Graham, especially their book The End Of Capitalism (As We Knew It), with the idea that unified, totalizing metaphors of the economy (like a “capitalist market system”) can make it difficult to think outside the box and imagine alternatives, he forgets that Gibson-Graham themselves used the categories of the Marxian tradition—including the idea of class defined in terms of surplus labor—to decenter the economy.**

He also overlooks the fact that Gibson-Graham (as well as others who have worked with and alongside them in the larger Rethinking Marxism tradition) have insisted on the ethical dimensions of the Marxian critique of political economy—which includes, but of course is not limited to, a critique of the social theft associated with capitalist and all other forms of exploitation (that is, areas of the economy—whether capitalist, slave, feudal, and so on—in which those who perform surplus labor are excluded from appropriating their surplus labor).

In fact, according to two of Gibson-Graham’s close associates, Jack Amariglio and Yahya Madra, ethics are central to Marx’s critique of capitalism and mainstream economics.*** But Marx’s commitment to communism is not governed by an actual model or a fixed morality. Rather, they argue,

The ethical is embodied in Marx’s enduring faithfulness to sustaining a critical position toward the existing state of affairs, not in his particular and changing dismissals of capitalism or in his obscure, partial formulations of the shape communism might take. The lesson of Marx is that, facing the abyss of an unknown communism, the ethical is the will to risk a different social organization of surplus.

To put it in terms of the iceberg economy, the ethical is the will both to recognize the noncapitalist forms of economy below the waterline and to risk a different social organization in which capitalist exploitation ceases to be the exclusive or even predominant mode of appropriating and distributing the surplus.

Contrary to Elder-Vass, then, seeing the economy “not simply as a capitalist market system” is consistent with the Marxian critique of political economy, including the ethical stance that is informed by and embodied in that critique.

 

*I will try to be careful here because I have not yet had a chance to read Elder-Vass’s book,  Profit and Gift in the Digital Economy. I am relying, instead, on Daniel Little’s review of the book and Elder-Vass’s response.

**Gibson-Graham also borrowed from other traditions, such as feminism, queer theory, and poststructuralism to create their iceberg economy.

***See their entry on “Karl Marx” in the Handbook of Economics and Ethics, ed. J. Peil and I. van Staveren, 325-32 (Edward Elgar, 2009).

rising-tide-lifts-all-boats

A constant refrain among mainstream economists and pundits since the crash of 2007-08 has been that, while the state of mainstream macroeconomics is poor, all is well within microeconomics.

The problems within macroeconomics are, of course, well known: Mainstream macroeconomists didn’t predict the crash. They didn’t even include the possibility of such a crash within their theory or models. And they certainly didn’t know what to do once the crash occurred.

What about microeconomics, the area of mainstream economics that was supposedly untouched by all the failures in the other half of the official discipline? Well, as it turns out, there are major problems there, too—especially given the obscene levels of inequality that both preceded and have resumed since the crash erupted, not to mention the slow economic growth that rising inequality was supposed to solve.

In particular, as I have written many times over the years, the idea that a rising tide lifts all boats—along with its theoretical justification, marginal productivity theory—needs to be questioned and ultimately abandoned.

But you don’t have to take my word for it. Just read the latest essay by Nobel Prize-winning economist Joseph Stiglitz.

Stiglitz first explains that neoclassical economists developed marginal productivity theory as a direct response to Marxist claims that the returns to capital are based on the exploitation of workers.

While exploitation suggests that those at the top get what they get by taking away from those at the bottom, marginal productivity theory suggests that those at the top only get what they add. The advocates of this view have gone further: they have suggested that in a competitive market, exploitation (e.g. as a result of monopoly power or discrimination) simply couldn’t persist, and that additions to capital would cause wages to increase, so workers would be better off thanks to the savings and innovation of those at the top.

More specifically, marginal productivity theory maintains that, due to competition, everyone participating in the production process earns remuneration equal to her or his marginal productivity. This theory associates higher incomes with a greater contribution to society. This can justify, for instance, preferential tax treatment for the rich: by taxing high incomes we would deprive them of the ‘just deserts’ for their contribution to society, and, even more importantly, we would discourage them from expressing their talent. Moreover, the more they contribute— the harder they work and the more they save— the better it is for workers, whose wages will rise as a result.

Then he argues that three striking aspects of the evolution of the United States and most other rich countries in the past thirty-five years—the increase in the wealth-to-income ratio, the stagnation of median wages, and the failure of the return to capital to decline—call into question the neoclassical story about the distribution of income.

Standard neoclassical theories, in which ‘wealth’ is equated with ‘capital’, would suggest that the increase in capital should be associated with a decline in the return to capital and an increase in wages. The failure of unskilled workers’ wages to increase has been attributed by some (especially in the 1990s) to skill-biased technological change, which increased the premium put by the market on skills. Hence, those with skills would see their wages rise, and those without skills would see them fall. But recent years have seen a decline in the wages paid even to skilled workers. Moreover, as my recent research shows, average wages should have increased, even if some wages fell. Something else must be going on.

As Stiglitz sees it, that “something else” is a combination of rent-seeking (especially land rents, intellectual property rents, and monopoly power) and increased exploitation (especially the weakening of workers’ bargaining power, based on weak unions and asymmetric globalization).*

The result is that the rising tide has only lifted a few boats at the top and left everyone else behind.

But Stiglitz is not done. He also explains that not only is growing inequality not necessary for growth; it actually has negative effects: it leads to weak aggregate demand (and, in an attempt to solve that problem, asset bubbles), less equality of opportunity (thus lowering growth in the future), and lower levels of public investment (since the rich believe they don’t need things like public transportation, infrastructure, technology, and education).

It should be noted that the existence of these adverse effects of inequality on growth is itself evidence against an explanation of today’s high level of inequality based on marginal productivity theory. For the basic premise of marginal productivity is that those at the top are simply receiving just deserts for their efforts, and that the rest of society benefits from their activities. If that were so, we should expect to see higher growth associated with higher incomes at the top. In fact, we see just the opposite.

Neoclassical marginal productivity theory was never a plausible explanation of the distribution of income in capitalist societies. And, as Stiglitz explains, it is even more questionable in light of the spectacular growth of inequality in recent decades.

The only conclusion is that we live in strange times—when the illusion of a rising tide that lifts all boats (and, with it, trickledown economics, “just deserts,” and the like) has been shattered, and yet mainstream economists continue to teach (and use as the basis of economic policy) its theoretical underpinnings, marginal productivity theory.

There’s nothing left but to declare that both mainstream macroeconomics and microeconomics—as basic theory and a guide for economic policy—have failed. There’s simply nothing there to be fixed. Both mainstream macroeconomics and microeconomics need to be set aside in favor of very different analyses and explanations of capitalist instability and inequality.

 

*Elsewhere (e.g., herehere, and here), I have raised questions about the rent-seeking argument and showed how it is different from the alternative, surplus-seeking explanation of inequality.

marx-en-wall-street

I know, it sounds like the setup for a bad joke. But, for the authors of a recent Sanford Bernstein research report titled “The Silent Road to Serfdom: Why Passive Investing is Worse Than Marxism,” it’s a very serious matter.

Their argument is pretty straightforward (although the report itself, according to all accounts, is long and meandering): the rise of passive and quasi-passive asset management (e.g, exchange-traded funds that track major equity indexes, like the S&P 500 Index or the Russell 2000 Index, in addition to “smart beta” funds that invest based on historically predictive factors) are threatening to fundamentally undermine the entire system of capitalism.

Why? Because, in their view, the growth in such passive and algorithmic funds has caused markets to become more correlated, as all the funds are based on buying all the same stocks for the same reasons. And a market that is more correlated, they argue, will do a worse job of allocating capital.

The alternative are actively managed funds (with all their high fees and exorbitant profits and salaries), directed by analysts who are constantly thinking about whether companies are over- or underpriced, so that they can follow the price signals and buy the underpriced ones and sell the overpriced ones and keep capital flowing to its best possible uses.

So, the Sanford Bernstein team writes:

A supposedly capitalist economy where the only investment is passive is worse than either a centrally planned economy or an economy with active market led capital management.

Of course, the entire premise of their argument is that the buying and selling of stocks on Wall Street creates an efficient allocation of resources, which as I showed yesterday is a myth. Very few actively-managed mutual funds routinely outperform the market and, given the short time span (days, hours, and even microseconds), most Wall Street trading simply cannot affect the allocation of real resources.

But, to my mind, the rise of ETFs and other forms of passive and quasi-passive management is interesting for a very different reason. At the limit, they point toward the creation of a single, most efficient robot trader, which might actually solve the socialist calculation problem. In this sense, they threaten to displace all the Wall Street traders and analysts, just as the rise of credit and the joint-stock company rendered the capitalist superfluous to capitalist production.

So, perhaps the folks at Sanford Bernstein are right: passively managed stock funds represent Marx’s revenge on capitalism.

ratracepolyp

From the very beginning, one of the central claims on behalf of capitalism has been that it leads to increases in productivity—and, as a result, an increase in the wealth of nations. The idea is that, the more national wealth increases (the more commodities are produced per person hour worked), the higher living standards of ordinary people will be (i.e., real wages will increase).* We find that story in pretty much every text of mainstream economics, from Adam Smith to Deirdre McCloskey.

That’s why Karl Marx spent so much time (hundreds of pages, in fact) discussing productivity (along with machinery, mechanization, technical change, and so forth) in his critique of political economy. So, John Cassidy gets it wrong.

Marx (not to mention other nineteenth-century critics of capitalism) never denied that there was a connection between increases in productivity and a rise in workers’ wages. That would be silly, both theoretically and empirically. All he ever did was deny there’s an automatic or necessary relationship between them—and, perhaps more important, that increases in real wages didn’t mean workers weren’t being increasingly exploited.

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The first point (one even Cassidy, in a way, concedes) is easy to show: for a time (until 1973 or so, in the United States), workers’ real wages increased at roughly the same rate as productivity. Then (from 1973 onward), productivity continued to grow but workers’ wages stagnated.

One key question, for the pre-1973 period, is why productivity and workers’ real wages increased in tandem. Cassidy assumes that wages grew because of the increases in productivity. Nothing could be further from the truth. The explanation for the increases in productivity (having to do with the growth of manufacturing, capitalist competition, the role of U.S. corporations in the world economy, and so on) is separate from the change in wages (based on fast economic growth, unionization, a shortage of labor power, and so on). There’s simply no automatic relationship between increases in productivity and increases in real wages, which has been confirmed by their divergence after 1973.

The second point is, in my view, even more important. It’s possible for workers’ wages to increase (at or even above the rate of growth of productivity) and for capitalist exploitation to also be rising.

Let me explain. In Marxian theory, the rate of exploitation (s/v) is the ratio of surplus-value (s) to the value of labor power (v). The value of labor power is, in turn, equal to the exchange-value per unit use-value (e), or price, of the commodities in the wage bundle (q), or the real wage. So, we have v = e*q and, in terms of rates of change, Δv/v = Δe/e + Δq/q. Mathematically, exploitation can increase (Marx referred to it as relative surplus-value) if the value of labor power is decreasing (Δv/v is negative) even if real wages are going up (Δq/q is positive) as along as the change in the price of wage commodities is negative (Δe/e) and its absolute value is greater than the change in real wages (|Δe/e| > |Δq/q|).

For example, in terms of numbers: if real wages increase by 10 percent (workers are buying more things) but the prices of the items in the wage bundle (food, clothing, shelter) decrease by 20 percent, then the value of labor power (what capitalists have to pay to get access to the commodity labor power) will decrease by 10 percent. Voilà! Higher real wages can be (and, throughout much of the history of U.S. capitalism, have been) accompanied by rising exploitation.

And that’s precisely one of the effects of increasing productivity: it lowers the exchange-value per unit use-value of wage commodities.** Less labor is embodied in each unit of bread, shirts, and housing. The fact that workers are able to purchase more of those commodities (say, at the same rate as productivity is increasing) doesn’t mean exploitation is not also increasing.

That’s even more the case when real wages are stagnant (Δq/q is equal to zero). Then, the decline in the price of wage goods (again,  decreasing by 20 percent) is translated directly into an increase in exploitation (via a 20 percent decrease in v).

But what if rate of growth of domestic productivity begins to decline (as it did after 1973, and even more so in recent years)? Then, the domestic contribution to the decline in the price of wage commodities would fall (say, to 10 percent). But, at the same time, if jobs are offshored and cheaper wage goods are imported from abroad (think Walmart), that also leads to a decline in the price of wage goods (say, by another 10 percent). So, even with declining domestic productivity growth, the combination of domestic production and imported goods can lead to a decline in the price of wage goods (for a total, as before, of 20 percent) that, with constant real wages, decreases the value of labor power (by 20 percent) and increases the rate of exploitation.

So, while Cassidy and many others are worried about a slowdown in productivity growth (linking it to workers’ wages and living standards), workers know that increases in productivity don’t automatically lead to increases in real wages. And even if real wages do rise, it’s still likely they’ll be more exploited than before.

Their employers, not they, will be ones to benefit.

 

*It is merely presumed that the standard of living of those at the top, the capitalists and other members of the 1 percent, would be just fine.

**Another, separate issue is why productivity itself might increase. The Marxian argument is that, during the course of competing over “super-profits,” that is distributions of the surplus-value among and between capitalist enterprises, capitalists will engage in technical change, which in turn leads to increases in productivity and a decline in the value of the commodities they produce. An interesting question, then, is why productivity in the United States and other advanced countries has slowed down. One reason may be a decline in competitive pressures among enterprises that produce goods and services.

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I’ll admit, I’m a real sucker for any argument that takes a common sense, turns it on its head, and finds a radically different potential.

That, of course, is what Karl Marx did with classical political economy.

The idea is that what Marx was doing—and what Marxists after him need to do—is less the application of a particularly Marxian method (whatever it is called) and more the two-fold critique of mainstream economic thought and of capitalism, the economic and social system celebrated by classical political economists.

Let me push that idea a bit further: the starting point of Capital consists in the taken-for-granted assumptions of both classical political economy and of bourgeois society and then to develop a “ruthless criticism of all that exists, ruthless both in the sense of not being afraid of the results it arrives at and in the sense of being just as little afraid of conflict with the powers that be.” It begins by accepting the rules of both mainstream economic thought and of capitalism and then calling them into question. . .

And it’s what all utopian (and dystopian) writers and thinkers do: they take the existing society and show how it can be radically different—leading to a better (or, sometimes, worse) “no-place.”

So, I was immediately drawn to Jason Goldfarb’s [ht: ja] assessment of the radical potential of Pokémon GO.

Yes, that much derided (in the mainstream press and in popular leftist publications alike) free augmented-reality app that has become an enormous, global success since its launch this past July.* It is criticized for the way “‘mindless’ players trespass and break laws, finding dead bodies and trouble” and “as corporatist, detached from social reality, and ultimately a fantasy disguised to obfuscate class and racial tensions.”

And Goldfarb’s argument? In his view, Pokémon GO has radical effects as it is—and even more radical potential as it might be reconfigured. Thus, for example, while some of Pokémon GO’s Pokéstops (locations where players receive items and can place “lures”) are capitalist stores, others are interesting landmarks, including the gazebo where police killed Tamir Rice in 2014.

Since Pokémon Go incentivizes gathering through lures, it creates a hub around this spot and one that inevitably begins to generate talking, thinking, and perhaps even organizing. Those who are uninterested in social justice and come to catch Pokémon find themselves confronted with the hard social reality.

And the development of the game’s content is just at the beginning. So, in psychoanalytic terms, it’s currently an “empty signifier” that, if the Left takes it seriously, “can help mobilize an alternative version with more political Pokéstops and incentivize communitarianism.”

Pokémon Go is no-doubt problematic, but it also burgeons with radical potential. The Left should never smugly dismiss such explosive sites – that’s the job of beautiful soul liberals. Rather the task of an authentic left is to engage in the muckraking work of illuminating and presencing these points of radical potential.

And, who knows, with the proper encouragement, Pokémon GO players and hackers might end up hatching their own noncapitalist utopia.

 

*I’ve never played Pokémon GO but I do know, through reading, that it involves finding, incubating, and hatching “eggs.” Apparently, there are different kinds of eggs out there.