Posts Tagged ‘Marx’

seq-7

The appointment in England of Noreena Hertz as ITV’s economics editor has raised the issue of whether or not a Marxist (which she has been accused of but denies she is) can do an effective and fair job in reporting the news.

I certainly don’t see why not. Nor does Chris Dillow:

First, some of us Marxists – unlike many of our opponents – are not spittle-flecked fanatics. Instead, our Marxism arises from a cool-headed scepticism about whether capitalism really can maximally advance living standards and real freedom for all. Such scepticism is a virtue in any proper journalist. And it’s surely a vast improvement on the churnalism and unthinking deference to the rich and powerful that passes for most of journalism today.

Secondly, we Marxists know that we are in a minority, so we know which of our opinions aren’t mainstream. This makes us much more aware of potential biases in our own thinking, and so able to slough them off when necessary. By contrast, “mainstream” reporters might be more prone to groupthink and so pass off their own opinions as impartial fact.

I’ve made much the same argument in teaching economics. In both cases, Marxists are forced into the position of knowing both the mainstream stuff and the Marxian critique, which those firmly ensconced within mainstream thought simply aren’t equipped to handle. It isn’t impartiality but it is a kind of openness to alternative perspectives.

And then, of course, there’s the example of Marx himself, who served as a journalist—both to earn a living and to disseminate his analysis of the world—for much of his life, most famously for Horace Greeley’s New York Daily Tribune.

This is from an interview with Jim Ledbetter, who edited Dispatches for the New York Tribune: Selected Journalism of Karl Marx:

Q: Can you talk a little about Marx’s approach to journalism?

A: The dispatches that Marx published don’t greatly resemble most of what gets published as journalism today, and in many respects they don’t greatly resemble what was published as Anglo-American journalism in the 19th century, either.

That is to say: they contain essentially nothing that would today be called”reporting”: no first-hand accounts of events, large or small; no interviews with sources, official or otherwise. They are critical essays constructed, as so much of Marx’s work was, out of the research materials available to him in the British Library.

This isn’t to say that Marx’s dispatches were not timely. Indeed, he was quite fastidious about making his pieces as up-to-date as possible, including last-minute tidbits he got from personal correspondence or that day’s newspaper (which seems quaintly ironic today, given that the articles traveled by steamship to New York , and thus would typically be published some 10-15 days after they were written).

But the basic Marx approach to his New York Tribune column was to take an event that was in the news — an election, an uprising, the second Opium War, the outbreak of the American Civil War — and sift through it until he could boil it down to some fundamental questions of politics or economics. And then on those questions he would make his judgment. In this sense, Marx’s journalism does resemble some of the writing that is published today in journals of opinion, and it’s not hard to see a direct line between Marx’s journalistic writing and the kind of tendentious writing on public affairs that characterized much political journalism (especially in Europe) in the twentieth century.

A good example is Marx’s 14 October 1861 article on the British cotton trade, in which he analyses the specific effects of the rise in prices of raw cotton on British textile factories and the more general role of the British empire in the rise of capitalist industry in England:

The consumption of Indian cotton is rapidly growing, and with a further rise in prices, the Indian supply will come forward at increasing ratios; but still it remains impossible to change, at a few months’ notice, all the conditions of production and turn the current of commerce. England pays now, in fact, the penalty for her protracted misrule of that vast Indian empire. The two main obstacles she has now to grapple with in her attempts at supplanting American cotton by Indian cotton, is the want of means of communication and transport throughout India, and the miserable state of the Indian peasant, disabling him from improving favorable circumstances. Both these difficulties the English have themselves to thank for. English modern industry, in general, relied upon two pivots equally monstrous. The one was the potato as the only means of feeding Ireland and a great part of the English working class. This pivot was swept away by the potato disease and the subsequent Irish catastrophe. A larger basis for the reproduction and maintenance of the toiling millions had then to be adopted. The second pivot of English industry was the slave-grown cotton of the United States. The present American crisis forces them to enlarge their field of supply and emancipate cotton from slave-breeding and slave-consuming oligarchies. As long as the English cotton manufactures depended on slave-grown cotton, it could be truthfully asserted that they rested on a twofold slavery, the indirect slavery of the white man in England and the direct slavery of the black men on the other side of the Atlantic.

Now, that’s the kind of honest, serious, and critical economic journalism one would be hard to find these days on either side of the Atlantic.

Joseph Stiglitz usefully explains that there’s more than one theory of the distribution of income. One theory, he writes, focuses on competitive markets (according to which “factors of production” receive their marginal contributions to production, the “just deserts” of capitalism); the other, on power (“including the ability to exercise monopoly control or, in labor markets, to assert authority over workers”).

In the West in the post-World War II era, the liberal school of thought has dominated. Yet, as inequality has widened and concerns about it have grown, the competitive school, viewing individual returns in terms of marginal product, has become increasingly unable to explain how the economy works. So, today, the second school of thought is ascendant.

I think Stiglitz is right: with the obscene levels of inequality we’ve seen emerge over the course of the past four decades, the notion of “just deserts” is being called into question, thereby creating space for other theories of the distribution of income to be recognized.

The only major problem with Stiglitz’s account is he leaves out a third possibility, an approach that combines a focus on markets with power, that is, a class analysis of the distribution of income (which the late Stephen Resnick begins to explain in the lecture above).

According to this class or Marxian theory of the distribution of income, markets are absolutely central to capitalism—on both the input side (e.g., when workers sell their labor power to capitalists) and the output side (when capitalists sell the finished goods to realize their value and capture profits). But so is power: workers are forced to have the freedom to sell their labor to capitalists because it has no use-value for them; and capitalists, who have access to the money to purchase the labor power, do so because they can productively consume it in order to appropriate the surplus-value the workers create.

That’s the first stage of the analysis, when markets and power combine to generate the surplus-value capitalists are able to realize in the form of profits. And that’s under the assumption that markets are competitive, that is, there is no monopoly power. It is literally a different reading of commodity values and profits, and therefore a critique of the idea that capitalist factors of production “get what they deserve.” They don’t, because of the existence of class exploitation.

But what if markets aren’t competitive? What if, for example, there is some kind of monopoly power? Well, it depends on what industry or sector we’re referring to. Let’s take one of the industries mentioned by Stiglitz: health insurance. In the case where employers are purchasing health insurance for their employees (the dominant model in the United States, at least for those with health insurance), those employers are forced to transfer some of the surplus-value they appropriate from their own employees to the insurance oligopolies. As a result, the rate of profit for the insurance companies rises (as their monopoly power increases) and the rate of profit for other employers falls (unless, of course, they can cut some other distribution of their surplus-value).*

The analysis could go on.** My only point is to point out there’s a third possibility in the debate over the distribution of income—a theory that combines markets and power and is focused on the role of class in making sense of the grotesque levels of inequality we’re seeing in the United States today.

And, of course, that third approach has policy implications very different from the others—not to force workers to increase their productivity in order to receive higher wages through the labor market or to hope that decreasing market concentration will make the distribution of income more equal, but instead to attack the problem at its source. That would mean changing both markets and power with the goal of eliminating class exploitation.

 

*This is one of the reasons capitalist employers might support “affordable” healthcare, to raise their rates of profit.

**The analysis of wage or consumer goods would be a bit different. But I don’t have the space to develop that here.

mark-tansey-recourse-2011

Mark Tansey, Recourse (2011)

One of the great advantages of economics graduate programs outside the mainstream (like the University of Massachusetts Amherst, where I did my Ph.D.) is we were encouraged to read, listen to, and explore ideas outside the mainstream—especially the liberal mainstream.

The liberal mainstream at the time, not unlike today, consisted of neoclassical microeconomics (with market imperfections) and a version of Keynesian macroeconomics (which was, in the usual IS-LM models, best characterized as hydraulic or bastard Keynesianism). Essentially, what liberal economists offered was a theory of a “mixed economy” that could be made to work—both premised on and promising “just deserts” and stable growth—with an appropriate mix of private property, markets, and government intervention.

For many of us, liberal mainstream economics was a dead end—uninspired and uninspiring both theoretically and politically. Theoretically, it marginalized history (both economic history and the history of economic thought) and ignored the exciting methodological debates taking place in other disciplines (from discussions of paradigms and scientific revolutions through criticisms of essentialism and determinism to fallibilist mathematics and posthumanism). And politically, it ignored many of the features of real capitalism (such as poverty, inequality, and class exploitation) and rejected any and all alternatives to capitalism (in a liberal version of Margaret Thatcher’s “there is no alternative”).

Then as now, what liberal economists offer was, as Gerald Friedman has recently pointed out, a “political economy of despair.”

The reaction to my paper — the casual and precipitous conclusion that it must be wrong because it projects a sharply higher rate of GDP growth — comes from the assumption that the economy is already at full employment and capacity output. It is assumed that were output significantly below full employment, then prices would fall to equilibrate the two. This is the political counsel of despair. It is based on classical economic theory and the underlying acceptance of Say’s Law of Markets (named for the great Classical economist Jean-Baptiste Say), which says that total supply of goods and services and the total demand for goods and services will always be equal. The shoe market creates the right amount of demand for shoes — it works out so neatly that the true measure of the supply of shoes, of potential output, can be taken by measuring actual output. This concept is used as a justification for laissez-faire economics, and the view that the market mechanism finds a harmonious equilibrium. . .

There is, of course, a politics as well as a psychology to this economic theory. If nothing much can be done, if things are as good as they can be, it is irresponsible even to suggest to the general public that we try to do something about our economic ills. The role of economists and other policy elites (Paul Krugman is fond of the term “wonks”) is to explain to the general public why they should be reconciled with stagnant incomes, and to rebuke those, like myself, who say otherwise before we raise false hopes that can only be disappointed.

Fortunately, back in graduate school and continuing after we received our degrees, we were encouraged to look beyond liberal economics—both outside the discipline of economics (in philosophy, history, anthropology, and so on) and within the discipline (to strains or traditions of thought that developed criticisms of and alternatives to liberal mainstream economics).

Marx was, of course, central to our theoretical explorations. But so were other thinkers, such as Axel Leijonhufvud (whose work I’ve discussed before). He—along with others, such as Robert Clower and Hyman Minsky—challenged the orthodox interpretation of Keynes, especially the commitment to equilibrium. Leijonhufvud was particularly interested in what happens within a commodity-producing economy when exchanges take place outside of equilibrium.

The orthodox Keynesianism of the time did have a theoretical explanation for recessions and depressions. Proponents saw the economy as a self-regulating machine in which individual decisions typically lead to a situation of full employment and healthy growth. The primary reason for periods of recession and depression was because wages did not fall quickly enough. If wages could fall rapidly and extensively enough, then the economy would absorb the unemployed. Orthodox Keynesians also took Keynes’ approach to monetary economics to be similar to the classical economists.

Leijonhufvud got something entirely different from reading the General Theory. The more he looked at his footnotes, originally written in puzzlement at the disparity between what he took to be the Keynesian message and the orthodox Keynesianism of his time, the confident he felt. The implications were amazing. Had the whole discipline catastrophically misunderstood Keynes’ deeply revolutionary ideas? Was the dominant economics paradigm deeply flawed and a fatally wrong turn in macroeconomic thinking? And if this was the case, what was Keynes actually proposing?

Leijonhufvud’s “Keynesian Economics and the Economics of Keynes” exploded onto the academic stage the following year; no mean feat for an economics book that did not contain a single equation. The book took no prisoners and aimed squarely at the prevailing metaphor about the self-regulating economy and the economics of the orthodoxy. He forcefully argued that the free movement of wages and prices can sometimes be destabilizing and could move the economy away from full employment.

That helped understand the Great Depression. At that period, wages [were] highly flexible and all that seemed to occur as they fell was further devastating unemployment. Being true to Keynes’ own insights, he argued, would require an overhaul of macroeconomic theory to place the problems of coordination and information front and center. Rather than simply assuming that price and wage adjustments would cause the economy to restore an appropriate level of output and employment, he suggested a careful analysis of the actual adjustment process in different economies and how the economy might evolve given these processes. As such, he was proposing a biological or cybernetic approach to economics that saw the economy more as an organism groping forward through time, without a clear destination, rather than a machine that only occasionally needed greasing.

That “path not taken” might also have helped us understand the Second Great Depression and the uneven—and spectacularly unequalizing—recovery that liberal mainstream economists have supervised and celebrated in recent years.

Meanwhile, the rest of us continue to look elsewhere, beyond the liberal political economy of despair, for economic and political ideas that create the possibility of a better future.

 

market concentration

Mainstream economists (such as Larry Summers and Paul Krugman) are clutching at straws to try to explain capitalism’s poor performance, especially the specter of low investment and slow growth—otherwise known as “secular stagnation.” The latest straw is monopoly power.

Even the Council of Economic Advisers (pdf) is focusing attention on the monopoly straw—although, like others within mainstream economics, they’re not at all clear why it’s happening.

there is evidence of 1) increasing concentration across a number of industries, 2) increasing rents, in the form of higher returns on invested capital, across a number of firms, and 3) decreasing business and labor dynamism. However, the links among these factors are not clear. On the one hand, it could be that a decrease in firm entry is leading to higher levels of concentration, which leads to higher rents. On the other hand, it could be that higher levels of concentration are providing advantages to incumbents which are then used to raise entry barriers, leading to lower entry. Or it might be that some other factor is driving these trends. For example, innovation by a handful of firms in winner-take-all markets could give them a dominant market position in a very profitable market that could be difficult to challenge, discouraging entry. Even though it is not clear whether or how these three factors are linked, these trends are nevertheless troubling because they suggest that competition may be decreasing and could require attention by policymakers and regulators.

While some on the liberal wing of mainstream economics have recently discovered increased concentration within the U.S. economy, they fail to credit the longstanding tradition outside of mainstream economics (e.g., within the Marxian critique of political economy) of analyzing the concentration and centralization of capital and the rise of “monopoly capital.”

Liberal mainstream economists simply have no theory of the contradictory dynamics of capitalism (one that can explain, for example, its recurring boom-and-bust cycles), much less a theory of the firm (other than hanging on to the fantasy of the social benefits of competition). That’s why they don’t have a theory of the causes and consequences of the rise of monopoly capital—nor, for that matter, do they indicate any knowledge of the criticisms of and alternatives to the theory of monopoly capital.

I’m thinking in particular of the work of Bruce Norton who, in a variety of articles, has identified some of the key problems in the theory of monopoly capitalism, especially the presumption that “capitalists always strive to increase their accumulation to the maximum extent possible.”* Norton draws particular attention to the wide variety of distributions of the surplus-value corporate boards of directors appropriate from their workers—not just in the form of dividends, but also “profit taxes, salaries of corporate supervisory managers, lawyers, financial and personnel officers, etc., [which are] equally central to the basic workings of the US economy and particularly aggregate demand.”

Each supports processes shaping in particular ways the social formation, the accumulation process, and the continued appropriation of surplus value, and each is a class process, a distribution of surplus labour. We need accumulation theory which takes pains (1) to identify all these various flows of surplus in a particular social formation and (2) to theorise their variegated inter relationships with other aspects of social life (including the continued extraction of surplus value).

That’s precisely what is missing from mainstream economics, including its liberal wing: a theory of the contradictory class dynamics of capitalist firms and of capitalism as a whole.

 

*See, e.g., his “Epochs and Essences: A Review of Marxist Long-Wave and Stagnation Theories,” published in 1988 in the Cambridge Journal of Economics, and “The Theory of Monopoly Capitalism and Classical Economics,” published in 1995 in History of Political Economy.

I haven’t seen “Boom Bust Boom,” the recently released Monty Pythonesque documentary about capitalism’s periodic crises and the failures of mainstream economics.

However, I have read Andrew O’Heir’s [ht: ja] piece in which he argues the film “finds itself a little behind reality.”

It’s a curious development, and an index of how fast public perception and imagination have shifted. To most regular people in most parts of the world, the thesis that unfettered capitalism is unstable, empowers predatory behavior and worsens inequality is not merely uncontroversial but empirically obvious. We appear to be entering an era of political history when socialist or social-democratic reforms are once again in play. . .

it took more than 20 years after the Clinton-Blair rebranding of the electoral left (as, in effect, the squishier, friendlier right) for large swaths of the public to realize how thoroughly they’d been conned. Now Hillary and payday-lender BFF Debbie Wasserman Schultz and the rest of the compromised Democratic Party apparatus find themselves in a tough spot. . .

Of course Clinton is now walking back her decades-long support for heartless neoliberal policies of austerity, privatization and free trade. At least in the Democratic campaign, she has slid right past the friendly, center-left Keynesianism of “Boom Bust Boom” to position herself as the decaf Bernie, with more hardheaded practicality but only 20 percent less passion. I understand why she thinks that’s the right strategy; I don’t know whether she expects anyone to believe it.

O’Heir also notes the curious omissions in Terry Jones and Theo Kocken’s whimsical documentary:

I honestly can’t tell you why John Maynard Keynes, the father of interventionist macroeconomics and the intellectual avatar of the entire tradition embodied in “Boom Bust Boom,” is never mentioned by name. Have the right-wing attacks on Keynesianism since the Reagan-Thatcher years really rendered him untouchable? I do understand, more or less, why Karl Marx is not mentioned — although it’s time to get over that, for God’s sake.

Shepherd-Fairey-Obey-Mural

There’s no doubt, after the crash of 2007-08, students—including those in middle schools—could use more economics education.

Unfortunately, they’re not getting it. They’re just being exposed to propaganda.

“What is the basic economic problem all societies face?” April Higgins asks her sixth-grade class.

Ava Watson, raises her hand: “Scarcity.”

The teacher asks for a definition and the class responds, in unison: “People have unlimited wants but limited resources.”

Not bad for a bunch of sixth-graders.

What April Higgins is engaged in is not economics education. It’s just neoclassical economics.

You see, there is no single “economic problem.” It all depends on which theory we’re looking at. According to neoclassical economists, all societies in all places and times have faced the same problem: scarcity. And, of course, private property and markets are their proposed solution.

But that’s not the economic problem as defined by Keynesians (how to analyze and use the visible hand of government to get out of less-than-full-employment equilibria) or Marxists (how is the surplus produced, appropriated, and distributed and how can exploitation be eliminated) or many other schools of thought.

The fact is, middle-school economics education (like high-school, undergraduate, and graduate economics education) is dominated by one school of thought, one approach among many, that is presented as “economics.” In the singular.

And that’s because it’s run by the Council for Economic Education and stipulated, in some instances, by government decree:

The Texas education code states that economics must be taught with an emphasis on the free market system and its benefits.

Economics education, at any level, means exposing students to and having them grapple with the assumptions and consequences of different economic theories and systems. Focusing only on one approach and system—neoclassical economic theory and capitalism—is just propaganda.

2014-10-19-incomeinequality

John Lennon (on the B side of “Imagine”) thought that life was hard, “really hard.” I can understand that.

But is modeling inequality really all that hard?

Paul Krugman seems to think so, at least when it comes to the size or personal distribution of income. That’s his excuse for why mainstream economists were late to the inequality party: they just didn’t know how to model it.

And, according to Krugman, not even Marx can be of much help.

Well, let’s see. It’s true, Marx focused on the factor distribution of income—wages, profits, and rent, to laborers, capitalists, and landowners—because his critique was directed at classical political economy. And the classical political economists—especially Smith and Ricardo—did, in fact, focus their attention on factor shares.

That was Marx’s goal in the chapter on the Trinity Formula: to show that what the classicals thought were separate sources of income to the three factors of production all stemmed from value created by labor. Thus, for example, laborers received in the form of wages part of the value they created (“that portion of his labour appears which we call necessary labour”); the rest, the surplus-value, was divided among capitalists (“as dividends proportionate to the share of the social capital each holds”) and landed property (which “is confined to transferring a portion of the produced surplus-value from the pockets of capital to its own”).

It is really just a short step to show that, in recent decades (from the mid-1970s onward), both that more surplus-value has been pumped out of the direct producers and that investment bankers, CEOs, and other members of the 1 percent have been able to capture a large share of that mass of surplus-value. That’s how we can connect changing factor (wage and profit) shares to the increasingly unequal individual distribution of income (including the rising percentage of income going to the top 1, .01, and .001 percents).

See, that wasn’t so hard. . .