Why Marxian economics?

In this post, I continue the draft of sections of my forthcoming book, “Marxian Economics: An Introduction.” This, like the previous three posts (here, here, and here), is written to serve as the basis for chapter 1, Marxian Economics Today.

Why study Marxian economics?

One of the best reasons for studying Marxian economics is to understand all those criticisms—the criticisms of mainstream economic theory and the criticisms of capitalism.

Students of economics (and, really, all citizens in the world today) need to have an understanding of where those criticisms came from and what implications they have.

Marx certainly took those criticisms seriously. As he carried out his in-depth study of both the mainstream economic theory and of the capitalist system of his day, his work was influenced by the criticisms that had been developed before he even turned his attention to economics. And then, in turn, Marx’s critique of political economy has influenced generations of economists, students, and activists. While certainly not the only critical theory that can be found within the discipline of economics, Marxian economics has served as a touchstone for many of those theories, not to mention public debates about both economics and capitalism around the world.

Understanding both the broad outlines and the specific steps of Marxian economics is therefore crucial to making sense of all those debates.

Consider a contemporary example. On 26 February 2019, Alexandiria Ocasio-Cortez responded to Ivanka Trump’s attack on her idea of a living wage by explaining that “A living wage isn’t a gift, it’s a right. Workers are often paid far less than the value they create.”

While there’s no evidence that Ocasio-Cortez ever studied Marxian economics (or, for that matter, considers herself a Marxist), certainly the idea that within capitalism workers are often paid less than the value they produce resonates with Marxian criticisms of both mainstream economic theory and capitalism.

Mainstream economists, as any student of contemporary mainstream microeconomics is aware, generally presume that workers’ wages are equal to their marginal contributions to production. The same is true of capitalists’ profits and landlords’ rents. Everyone within a market system, mainstream economists argue (after a great deal of theoretical work, involving lots of equations and graphs), gets what they deserve. Therefore, since capitalism delivers “just deserts,” it should be considered fair.

Not so quick, says Ocasio-Cortez, just like Marx decades before her. If workers are paid less than the value they create, then they are “exploited”—that is, they produce a surplus that goes not to them, but to their employers. And while Marxian economists argue a living wage wouldn’t by itself eliminate that exploitation, it would certainly lessen it and improve workers’ standard of living.

Much the same holds for alternatives to capitalism. They often take their name from some version of socialism (and sometimes communism). That’s why Ocasio-Cortez calls herself a “democratic socialist.” It’s also why so many people these days, especially young people, have positive views of socialism—even more so than capitalism. That represents a big break both from mainstream economists and from their parents and grandparents.

Moreover, many ideas and policies that were once labeled (and then quickly dismissed) as “Marxist” or “socialist” are now accepted parts of the contemporary economic and social landscape. Progressive income taxes, a social security system for retirees, public healthcare and health insurance, minimum wages, labor unions for workers in private industry and public services—all were at one time derided, and now they form part of the common sense of how we think about economic and social policy. Much the same kind of change may now be taking place—for example, with the Green New Deal and the links between contemporary capitalism and the history of slavery.

Marxian Economics Today

So, it’s a fascinating time to be studying Marxian economics. It’s a way of learning some of the main criticisms of mainstream economic theory and of capitalism, now as in the past. It also serves to lift the taboos and learn that there are in fact alternatives to how economics is often taught and used to celebrate the status quo and deny the possibility of other ways of organizing economic and social life.

In the most general sense, studying Marxian economics is a path to learn what it means to be an intellectual. Within modernity, intellectuals are necessarily critical thinkers. Whether professors in colleges and universities or people who work in research units of enterprises or government offices, or really anyone who has to think and make decisions on or off the job, as intellectuals, they have to follow ideas wherever they might go. That means not being afraid of the conclusions they reach or of conflict with the powers that be.

That tradition of critical thinking is in fact what animated the work of Marx (along with Engels). He didn’t have a predetermined path. Instead, he worked his way through existing economic theory, carefully and critically engaging the process whereby mainstream economists produced their extreme conclusions. He then started from the same general premises they did—in a sense, offering mainstream economists their strongest possible case—and showed how it was simply impossible for capitalism to fulfill its stated promises.

For example, capitalism holds up “just deserts” as an ideal—everybody gets what they deserve—but it actually means that most people are forced to surrender the surplus they create to their employers, who are allowed to either keep it (and do with it what they want) or distribute it to still others (the tiny group at the top that manages the way those enterprises operate). Capitalism also pledges stable growth and full employment but then, precisely because of that private control over the surplus, regularly delivers boom-and-bust cycles and throws millions out of work.

So, Marx, following his critical procedure, arrived at quite different conclusions—conclusions that were at odds both with those of mainstream economics and of capitalism itself. And then he kept going—with more reading and more thinking and more political activity. He established some initial ideas, threads that were then picked up and extended by other Marxian economists, right on down to the present.

The implication, of course, is Marx didn’t provide a settled theory, to be simplistically or dogmatically applied, but instead a tradition of critical thinking and action.

And, as we will see over the course of this book, the effects of his work have been felt not just in economics, but in many other academic disciplines, from sociology and anthropology through political science and cultural studies to philosophy and biology. In fact, one of the most famous and influential historians of the nineteenth century, whose books are read by thousands of college and university students around the world every year, is the British Marxist Eric Hobsbawm.

Contemporary relevance of Marxian economics

[ht: adm]

I’ve just signed a contract with Polity Press to write a new book, “Marxian Economics: An Introduction.” The idea is to publish it in late 2021 or early 2022.

My goal is to write a textbook that can fulfill two purposes: first, a stand-alone book for courses that are focused on Marxian economics or survey courses that have a section devoted to Marxian economics; second, it will also be useful as a companion text in a course that is based on reading all of or major selections from Karl Marx’s Capital. While the book will be aimed at college and university students (both undergraduate and graduate) in economics, it will also be relevant for and accessible to students and professors in other disciplines—such as sociology, geography, history, and cultural studies—as well as to interested individuals outside the academy.

Here then is the proposed outline of chapters:

Part 1, INTRODUCTION TO MARXIAN ECONOMICS

Chapter 1, Marxian Economics Today

Chapter 2, Marxian Economics Versus Mainstream Economics

Chapter 3, Toward a Critique of Political Economy

PART 2, MARXIAN VALUE THEORY

Chapter 4, Commodities and Money

Chapter 5, Surplus-Value and Exploitation

Chapter 6, Distributions of Surplus-Value

PART 3, EXTENSIONS AND DEBATES

Chapter 7, Applications of Marxian Economics

Chapter 8, Debates in and around Marxian Economics

PART 4, CONCLUSION

Chapter 9, Transitions to and from Capitalism

The content of much of the manuscript is in my lecture notes, since I taught Marxian economic theory for almost four decades. But some of it is not, and will require exploring a few new areas and topics. My plan is to use this blog to compose the new sections, in 1000-1500-word posts—much as I have been doing for my other book, “Utopia and Critique” (see here). I welcome feedback to any and all of the book-related posts that will appear in the coming months.

When the book is done and accepted, I will post the link for interested readers.

And the necessary disclaimer: these are not sections of the final manuscript. Far from it! They are merely first drafts of some of the material that I will edit later on for the book.

OK, let’s get started. . .

Marxian Economics Today

As you open this textbook, you may be wondering, why should I study Marxian economics?

In the United States and in many other countries, Marxian theory, including Marxian economics, is a controversial topic. That’s certainly been true for the past few decades, when the topic was all but taboo. But beginning with the crash of 2007-08—the Great Recession or what some have called the Second Great Depression—the climate has dramatically changed. More and more people, especially young people, have become interested both in Marxian criticisms of mainstream economics and in possible alternatives to capitalism.

Here’s Nouriel Roubini, professor of economics at New York University’s Stern School of Business and the chairperson of Roubini Global Economics, an economic consultancy firm: “So Karl Marx, it seems, was partly right in arguing that globalization, financial intermediation run amok, and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct.”

And then, from the other side of the Atlantic, there’s George Magnus, Senior Economic Adviser to the UBS Investment Bank: “Policy makers struggling to understand the barrage of financial panics, protests and other ills afflicting the world would do well to study the works of a long-dead economist: Karl Marx. The sooner they recognize we’re facing a once-in-a-lifetime crisis of capitalism, the better equipped they will be to manage a way out of it.”

Many of us were surprised, including those of us who have spent decades studying and teaching Marxian economics. I did so at the University of Notre Dame for almost 4 decades.

Living and working in the United States, we’d just been through a 30-year period in which Marx and Marxian ideas had been marginalized, in the discipline of economics and in the wider society. Marx was declared either dangerous or irrelevant (or, often, both).

Capitalism was humming along (with, of course, the usual ups and downs) until. . .the Crash of 2008, when the world economy was brought to the brink of disaster. And Marx, almost in a blink of an eye, was relevant again.

To be honest, it wasn’t that Marxists could take all, or even much of, the credit (or blame). It was actually the spectacular failure of mainstream economics that led to this dramatic change.

Mainstream economists failed to predict the crash.

Even more, they didn’t even consider a crash even a remote possibility. The chance of a crisis starting with the housing and banking sectors didn’t even exist in their theoretical framework.

And, once the crash happened, they didn’t really have much to offer. The policy that went along with their models suggested letting the banks sort out the problems on their own. Until, of course, the panic that set in with the failure of Lehman Brothers, which brought first the American economy and then the world economy to the brink of collapse.

The kinds of problems building up for decades simply didn’t figure prominently in mainstream economic theoretical models and empirical analyses. Problems such as:

• The deregulation of banks and the growth of the financial sector within the U.S. and world economies
• The housing bubble that was supported by bank loans, and then sliced and diced into collateralized debt obligations and other derivatives
• The outsourcing of jobs and the decline of labor unions, which if they paid attention at all were seen as freeing up markets

The result of these and other changes in the U.S. economy created, for the first time in U.S. history, a growing gap between steadily growing productivity and stagnant real wages.

And, of course, an increasingly unequal distribution of income, reminiscent of the period just before the first Great Depression, when the share of income received by the richest 10 percent of Americans approached 50 percent of total income, and that of the bottom half of the population hovered in the low teens.

Mainstream economics—neoclassical and Keynesian economists, both microeconomists and macroeconomists—either ignored these issues or explained them away as a matter of efficient markets and good for growth.

The financial sector needed no oversight or regulation, because of the idea of efficient markets (which meant that all risk was calculated into prices, and all participants had all the relevant information)

And inequality was either good for growth or, if seen as a problem, just the inevitable result of technology and globalization, which could be handled by workers acquiring better skills and more education.

Not to mention the fact that both economic history and the history of economic thought—the history of capitalism and the history of thinking about capitalism—had disappeared as relevant areas of training for mainstream economists. As a result, not only had they never read Marx; they’d never read Adam Smith, John Maynard Keynes, or Hyman Minsky.

Then things changed, especially as the problems cited above never really disappeared, even as stock markets entered another boom period. Marxian criticisms of both capitalism and mainstream economic theory became appropriate topics of discussion and debate again.

Reading Marx

While references to Marxian economics have increased in recent years, there’s no indication commentators have actually read the works of Karl Marx. Perhaps they remember reading the Communist Manifesto at some point in their education but not Marx’s magnum opus Capital. And they certainly haven’t read the scholarly work on Marx.

Perhaps they were afraid to or didn’t know how to, or were just too lazy. But the fact remains the time is ripe for a new reading of Marx’s Capital.

If they did such a reading, what would they find?

They would encounter something quite different from what they—and perhaps you, reading this book—expect. For example, you won’t discover a blueprint for socialism or communism. Nor will you find a set of predictions about how the crises of capitalism would lead to socialism or communism. Or much else that is regularly attributed to Marx and Marxian economics.

What readers would find is a critique of political economy, in two senses: a critique of mainstream economic theory; and a critique of capitalism, the economic system celebrated by mainstream economists. That’s what Marx came up with after spending all those hours reading the classical political economists and the factory reports in the British Museum. And what generations of Marxian economists have been discussing and developing ever since.

Marxian economics is organized around five key ideas: critique, history, society, theories, and class. These are ideas you’ll encounter many times over the course of this book.

Critique: Capital (and the many other economic texts Marx wrote) are less a fully worked-out theory of capitalism than a critique of the ideas—the concepts and models—that are central to mainstream economics. In other words, Marx carefully studied the works of the famous classical economists, such as Adam Smith and David Ricardo. He used them as his starting-point but then ended up in a very different place, challenging much of what is taken as the “common sense” within economics. You may find yourself questioning some of the key ideas within contemporary mainstream economics during the course of reading this book.

History: Much of mainstream economics is based on models that never really change. Marxian economics is different; it is focused on history—both the history of economic systems and the history of economics ideas—that change over time. Thus, for example, within Marxian economics, capitalism has a history: it didn’t always exist; once it came into existence, it has continued to change; and, at least in principle, capitalism can come to an end, replaced by a fundamentally different way of organizing economic and social life.

Society: Marx’s approach was always about an economy within society, both affecting and being affected by everything else—social rules, political power, cultural norms, and much else. Therefore, different societies (and, for that matter, different parts of society) have different ways of managing economic life, now as in the past. So, they have radically different ways of allocating labor, organizing production, exchanging goods and services, and so on.

Theories: Not only are there different economies and societies; there are also different economic theories. Marxian economics is one, mainstream economics is another. (And there are many others you may have read or heard about: radical, Post Keynesian, feminist, postcolonial, green, and the list goes on.) And economic theories are different from economic systems. So, for example, Marxian and mainstream economists have different theories—they tell different stories, they arrive at different conclusions—about the same economic system. So, as you will see over the course of this book, the Marxian theory of capitalism is very different from the mainstream theory of capitalism.

Class: One of the particular interests of Marx and Marxian economists is class, the particular way workers (for example, wage-laborers under capitalism or serfs within feudalism) perform more labor than they receive to sustain their lives. The rest, the extra or surplus labor, is appropriated and controlled by another, much smaller group (for example, the class or capitalists or feudal lords). Marx created a special name for this: class exploitation.

So, according to Marxian economics, different societies have different class structures, which have changed historically. And Marx was critical of both the mainstream economic theories that deny the existence of exploitation as well as the economic systems in which the class of workers who perform the surplus labor are excluded from making decisions about the surplus.

You can therefore see how there would be, from the very beginning, an animated debate between the advocates of mainstream and Marxian economic theories.

Stiglitz vs. Summers

Mark Tansey, “Source of the Loue” (1988)

Two giants of mainstream economics—Joseph Stiglitz and Lawrence Summers—have been engaged in an acrimonious, titanic battle in recent weeks. The question is, what’s it all about? And, even more important, what’s at stake in this debate?

At first glance, the intense, even personal back-and-forth between Stiglitz and Summers seems a bit odd. Both economists are firmly in the liberal wing of mainstream economics and politics—as against, for example, Gene Epstein (an Austrian economist, who accuses Stiglitz of regularly siding with left-wing populists like Hugo Chávez) or John Taylor (a committed supply-sider, who has long been suspicious of “demand-side discretionary stimulus packages”). Both Stiglitz and Summers have pointed out the limitations of monetary policy, especially in the midst of deep economic recessions, and have favored relatively large fiscal-policy interventions, a hallmark of mainstream liberal economic policy.

One might be tempted to see it as merely a clash of outsized egos, which of course is not at all rare among mainstream economists. Their exaggerated sense of self-importance and intellectual arrogance are legion. Neither Stiglitz nor Summers has ever been accused of being a shrinking-violet when it comes to debates in the many academic and policy-related positions they’ve held.* And there’s certainly a degree of personal animus behind the current debate. Apparently, Summers [ht: bn] successfully lobbied in 2000 for Stiglitz’s removal from the World Bank, reportedly as a condition of the reappointment of Jim Wolfensohn as President of the World Bank. And, in 2013, Stiglitz came out strongly in favor of Janet Yellen, over Summers, for head of the Federal Reserve.**

That’s certainly part of the story. And the personal attacks and evident animosity from both sides have attracted a great deal attention of onlookers. But I think much more is at stake.

The current debate began with the critique Stiglitz leveled at the notion of “secular stagnation,” which Summers has championed starting in 2013 as an explanation for the slow recovery of the U.S. economy after the crash of 2007-08. The worry among many mainstream economists has been that, given the severity and duration of the Second Great Depression, capitalism could no longer deliver the goods.*** In particular, Summers invoked the specter of persistently slow growth, which had originally been put forward in the midst of the first Great Depression by Alvin Hansen, created by demography: the decrease in the number of available workers, itself a result of the declines in the rate of population growth and the labor force participation rate. The worry is that, looking forward, there simply won’t be enough workers to sustain the rates of potential economic growth we saw in the years leading up to the most recent crisis of capitalism. In the meantime, Summers, in traditional Keynesian fashion, expressed his support for raising the level of aggregate demand, through public and private spending, even at low real interest rates (which, in his view, were incapable of fulfilling their traditional role of boosting spending).****

Stiglitz for his part has dismissed the idea of secular stagnation, as “an excuse for flawed economic policies” (especially the inadequate stimulus package proposed and enacted by the administration of Barack Obama), and put forward an alternative analysis for capitalism’s slow growth problem: its inability to manage structural transformations of the economy. According to Stiglitz, the shift from manufacturing-led growth to services-led growth characterized the U.S. economy in the years before the most recent crash, analogous to the manner in which the crisis in agriculture “led to a decrease in demand for urban goods and thus to an economy-wide downturn” in the lead-up to the depression of the 1930s. Thus, in his view, World War II brought about a structural transformation in the United States (“as the war effort moved large numbers of people from rural areas to urban centers and retrained them with the skills needed for a manufacturing economy”) but nothing similar was undertaken in the wake of the crash of 2007-08.

The Obama administration made a crucial mistake in 2009 in not pursuing a larger, longer, better-structured, and more flexible fiscal stimulus. Had it done so, the economy’s rebound would have been stronger, and there would have been no talk of secular stagnation.

These are the terms of the theoretical debate, then, between Stiglitz and Summers: a focus on sectoral shifts versus a worry about secular stagnation. The first concerns the way the private forces of American capitalism have been inept in handling structural transformations of the economy, while the second focuses on ways in which “the private economy may not find its way back to full employment following a sharp contraction.”

For my part, both stories have an important role to play in making sense of both economic depressions—the first as well as the second. The problem is, neither Stiglitz nor Summers has presented an analysis of how American capitalism created the conditions for either crash. Stiglitz does not explain how the crisis in agriculture in the 1920s or the move away from manufacturing in recent decades was created by tendencies within existing economic institutions. Similarly, Summers does not conduct an analysis of the changes in U.S. capitalism that, in addition to producing lower growth rates, led to the massive downturn beginning in 2007-08. Their respective approaches are characterized by exogenous event rather than the endogenous changes leading to instability one might look for in a capitalist economy.

Moreover, both Stiglitz and Summers presume that the appropriate stimulus project will fulfill the mainstream macroeconomic utopia characterized by levels of output and a price level that corresponds to full employment and price stability. There is nothing in either of their approaches that recognizes capitalism’s inherent instability or its tendency, even in recovery, of generating one-sided outcomes. For Stiglitz, “the challenge was—and remains—political, not economic: there is nothing that inherently prevents our economy from being run in a way that ensures full employment and shared prosperity.” Similarly, Summers emphasizes the way “fiscal policies and structural measures to support sustained and adequate aggregate demand” can overcome the problems posed by secular stagnation. In other words, both Stiglitz and Summers redirect attention from capitalism’s own tendencies toward instability and uneven recoveries and focus instead on the set of economic policies that in their view are able to create full employment and price stability.

Finally, while Stiglitz and Summers mention en passant the problem of growing inequality, neither takes the problem seriously, at least in terms of analyzing the conditions that led to the crash of 2007-08—or, for that matter, the lopsided nature of the recovery. There’s nothing in the debate (or in their other writings) about how rising inequality across decades, based on stagnant wages and record profits, served to dismantle government regulations on the financial sector (because those who received the profits had both the means and interest to do so) and to propel the tremendous growth (on both the demand and supply sides) of financial activities within the U.S. economy. Nor is there a discussion of how focusing on the recovery of banks, large corporations, and the incomes and wealth of a tiny group at the top was based on a deterioration of the economic and social conditions of everyone else—much less how a larger stimulus package would have produced a substantially different outcome.

The fact is, the debate between Stiglitz and Summers is based on a discussion of terms and a mode of analysis that are firmly inscribed within the liberal wing of mainstream economics. Focusing on the choice between one or the other merely to serves to block, brick by brick, the development of much more germane approaches to analyzing the conditions and consequences of the ways American capitalism has been characterized by fundamental instability and obscene levels of inequality—today as in the past.

 

*Stiglitz is a recipient of the John Bates Clark Medal (1979) and the Nobel Prize in Economics (2001). He served as the Chair of Bill Clinton’s Council of Economic Advisers (1995-1997) and Chief Economist at the World Bank (1997-2000). He is currently a professor of economics at Columbia University (since 2001). Summers is former Vice President of Development Economics and Chief Economist of the World Bank (1991–93), senior U.S. Treasury Department official throughout Clinton’s administration (ultimately Treasury Secretary, 1999–2001), and former director of the National Economic Council for President Obama (2009–2010). He is a former president of Harvard University (2001–2006), where he is currently a professor and director of the Mossavar-Rahmani Center for Business and Government at Harvard’s Kennedy School of Government.

**My choice, for what it’s worth, was Federal Reserve Governor Sarah Raskin.

***As I explained in 2016, contemporary capitalism has a slow-growth problem—”because growth is both a premise and promise of a particularly capitalist way of organizing our economic activities.”

****An archive of Summers’s various blog posts on secular stagnation can be found here.

Utopia and materialist critique

The argument I’ve been making during this series on utopia is that the utopian moment of the Marxian alternative to mainstream economics is critique.*

Let me explain. All modern economic theories have a utopian moment. In the case of mainstream economics, that moment is a full-blown utopianism—the idea that there is, or at least in principle can be, a perfectly functioning economic and social order. Such an order is both envisioned as a model within the theory (often by stipulating the minimum set of theoretical requirements) and advanced as the goal of economic policies (which move the economy to, or at least toward, the utopia). In this sense, utopia—of sovereign individuals, free markets, and private property—is the fundamental premise and promise of mainstream economic theory.

The Marxian approach is otherwise. Certainly Marxian economists (and social thinkers generally) imagine that the world can and should be radically different from what currently exists. They simply wouldn’t engage in their intellectual and political work if that weren’t the case. But, instead of drawing up a blueprint of what such an alternative might look like, Marxists are engaged in 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 is a ruthless criticism of both mainstream economic theory and of the economic and social system celebrated by mainstream economists.

This is an argument I’ve made many times, in different ways, over the course of my various talks (e.g, here), papers (e.g., here and here), and posts on utopia in recent years. Here, I want to take the argument one step further. What distinguishes Marxian theory from both mainstream economics (and, for matter, from other criticisms of mainstream economics) is that it is based on a materialist critique. That is its utopian moment.

As I see it, the method of materialist critique is both dialectical and historical.** It is dialectical to the extent that it involves the interpretation of economic categories—such as value, productivity, profit and much else—precisely as they are grounded in, deployed and disseminated within, the existing intellectual and social order. It takes those concepts as its own. But it doesn’t simply accept the existing interpretations of those categories but, instead, transforms them into their opposites. In other words, the critical acceptance of those categories is simultaneously their condemnation.

Let me offer a concrete example of what I have in mind. Both mainstream economic theory and capitalism operate on the basis of a notion of free and fair exchange. Each transaction is seen to be a voluntary exchange of goods and services between individuals who offer or receive a sum equal to the value of the commodity in question. A materialist critique starts from that category, not because every transaction holds to the rule of free and fair exchange in the real world (there are many exceptions to that rule, such as monopoly power, which even mainstream economists and defenders of capitalism will acknowledge), but because it is the stated premise of both mainstream economic theory and capitalism (it is their shared utopianism, in the sense I discuss above). Even presuming we’re referring to a system in which every exchange is free and fair, it is possible to show that a tiny minority at the top (the members of the boards of directors of corporations) is engaged in a social theft from workers (who perform but do not appropriate their surplus labor), with all the attendant conditions and consequences of a system based on class exploitation. Therefore, a materialist critique, which starts from the prevailing idea of free and fair exchange, arrives at the opposite conclusion—that capitalist exchange forms part of an economic and social system that is anything but free and fair.***

The method of materialist critique also has an important historical dimension. It focuses on the ways both economic ideas and economic systems change over time, often with radical disruptions between them. Thus, for example, the theories used by economists today (and not only, if we allow for everyday economic representations) are radically different from themselves (in the sense that the terrain of economics is defined by multiple, diverse and incommensurable, concepts and methods) and from theories that have existed in the past (beginning with classical political economy and including the theoretical revolutions within mainstream economics as well as their heterodox counterparts). Similarly, capitalism has changed over time—both within its own history (capitalism today is different from what it was in the middle of the nineteenth century) and as it represents a break from other, noncapitalist systems (such as feudalism, slavery, and so on). A materialist critique focuses on such disruptions and divergences over time, thereby creating the possibility of other radical changes, such as an end to capitalism and the emergence of new, noncapitalist ways of organizing economic and social life.

The most famous example in the Marxian tradition is the transition from feudalism to capitalism. Notwithstanding the wide-ranging debate about the causes and consequences of that transition (among such figures as Maurice Dobb, Paul Sweezy, Robert Brenner, and Stephen Resnick and Richard Wolff), the fact is capitalism had a definite beginning as it emerged from the crises of feudalism in Western Europe (and therefore didn’t always exist, as mainstream economists often presume and proclaim), which also makes it possible to imagine an end to capitalism (based, of course, on the accumulation and aggregation of political and social forces that are opposed to capitalism and imagine and seek to create the conditions for noncapitalist economic and social institutions). Much the same is true in economic thought: mainstream economics today (neoclassical microeconomics and Keynesian macroeconomics) represents a radical break from previous mainstream economic theories (such as the classical political economy of Adam Smith and David Ricardo), as well as the various alternatives to mainstream economics that have emerged alongside it from the very beginning (which are often overlooked in “official,” mainstream histories of economic thought). A materialist critique therefore highlights the absence of history—the history of ideas as well as the history of economic systems—within mainstream economics and capitalism itself.

In the way I am defining materialist critique, it does not represent a simple opposition to contemporary thought and society. On the contrary, it is grounded in them, using their categories as starting points with the aim of substantially and radically transforming them.

If materialist critique represents the utopian moment of Marxian theory, it stands opposed to the specialized knowledge of mainstream economics (and, by extension, of the rest of the modern social sciences) as well as to traditional interpretations of Marxian theory. It differs from contemporary mainstream economics in that it seeks to transform—both dialectically and historically—the existing set of categories instead of accepting them as the given parameters of economic and social life. It of course uses those knowledges as raw materials but only for the purpose of turning them into their opposites. And it is distinguished from the precepts and protocols of dialectical and historical materialism in that it is rooted in the categories that pertain to mainstream economics and capitalism, in order to do battle on that terrain, not a set of sui generis categories (often governed by a humanist anthropology or rational discourse) to establish a new and different science comparable to mainstream economics.

And to be clear, materialist critique is not the same thing as economism (with which materialism is often conflated). On the contrary. Materialist critique represents a ruthless criticism of economism not because it gives too much importance to the economy, but because it gives it too narrow a scope. Economism takes the economy as a given, transmitting its effects to individuals and to the rest of the social structure—instead of focusing on the problem of the complex, changing relationship between the economy and individual and social lives.

In the end, the goal of a materialist critique is to denaturalize and thus disrupt the existing common sense—within both economic thought and capitalism—with the aim of radically transforming the existing theoretical and social reality. It doesn’t accomplish this alone, of course. Those who are engaged in a materialist critique as well as their specific objects form a dynamic, dialectical unity with the exploited classes as both an expression of the concrete historical situation and a force to stimulate change. Nor are there any guarantees, from either side of the relationship or in the often-tense unity itself.

Notwithstanding its aleatory nature, the process of materialist critique starts with the categories that dominate economic thought and the economy itself in order to transform them into their opposites, thus creating new intellectual and political possibilities. The new openings created by materialist critique represent the utopian horizon of Marxian theory.

 

*The series, thus far, consists of posts on the Bitcoin bubble, the right to be lazy, populism, the economics of control, utopian socialism, inequality, international trade, healthcare (here and here), the disaster in Puerto Rico, epistemology, value theory, macroeconomics, economic development, markets, technology, work, and mathematics.

**Besides Marx’s own writings, an essay that serves as the catalyst for some of my ideas in this post is Max Horkheimer’s “Traditional and Critical Theory” [ht: db], reprinted in his Critical Theory: Selected Essays, trans. Matthew J. O’Connell and others (New York: Continuum, 2002).

***Moreover, such a system is neither free nor fair for both capitalists and workers. Each is subject to the compulsions and coercions embedded in such a system, albeit in a different way.

How do you like them facts?

Apologists for mainstream economics (such as Noah Smith) like to claim that things are OK because good empirical research is crowding out bad theory.

I have no doubt about the fact that the theory of mainstream economics has been bad. But is the empirical research any better?

Not, as I see it, in the academy, in the departments that are dominated by mainstream economics. But there is interesting empirical work going on elsewhere, including of all places in the International Monetary Fund (as I have noted before, e.g., here and here).

The latest, from Mai Dao, Mitali Das, Zsoka Koczan, and Weicheng Lian, documents two important facts: the decline in labor’s share of income—in both developed and developing economies—and the relationship between the fall in the labor share and the rise in inequality.

I demonstrate both facts for the United States in the chart above: the labor share (the red line, measured on the left) has been falling since 1970, while the share of income captured by those in the top 1 percent (the blue line, measured on the right) has been rising.

Dao et al. make the same argument, both across countries and within countries over time: declining labor shares are associated with rising inequality.

And they’re clearly concerned about these facts, because inequality can fuel social tension and harm economic growth. It can also lead to a backlash against economic integration and outward-looking policies, which the IMF has a clear stake in defending:

the benefits of trade and financial integration to emerging market and developing economies—where they have fostered convergence, raised incomes, expanded access to goods and services, and lifted millions from poverty—are well documented.

But, of course, there are no facts without theories. What is missing from the IMF facts is a theory of how a falling labor share fuels inequality—and, in turn, has created such a reaction against capitalist globalization.

Let me see if I can help them. When the labor share of national income falls—the result of the forces Dao et al. document, such as outsourcing and new labor-saving technologies—the surplus appropriated from those workers rises. Then, when a share of that growing surplus is distributed to those at the top—for example, to those in the top 1 percent, via high salaries and returns on capital ownership—income inequality rises. Moreover, the ability of those at the top to capture the surplus means they are able to shape economic and political decisions that serve to keep workers’ share of national income on its downward slide.

The problem is mainstream economists are not particularly interested in those facts. Or, for that matter, the theory that can make sense of those facts.

Ignoring the experts

Clearly, mainstream economists don’t like it when their advice is ignored. But that’s what seems to have happened with Brexit, Britain’s decision to exit the European Union.

In the lead up to the 23 June referendum, 12 Nobel Laureates and 175 U.K.-based mainstream economists launched their version of Project Fear to warn voters about the economic dangers—recession, inflation, falling investment, lower growth, and higher taxes—from deciding against Remain. But the people ignored the dramatic pleas for economic stability on the part of the “high priests of capitalism” and voted instead to Leave.*

Jean Pisani-Ferry sees the result as one example of a much broader “angry attitude toward the bearers of knowledge and expertise”—but one that is specifically aimed at mainstream economists. Why? The presumed expertise of mainstream economists was compromised because they “failed to warn them about the risk of a financial crisis in 2008,” they’re biased toward “mobility of labor across borders, trade openness, and globalization more generally,” and because they “tend to disregard or minimize” the effects of openness on particular classes or communities.

While Pisani-Ferry gives greater weight to the third explanation, the fact is they’re related. The thread running through all three factors is the issue of distribution. Mainstream economists tend to treat the inequalities that are both the cause and consequence of capitalism as either irrelevant (because everyone gets what they deserve) or as exogenous (created outside and independent of the economy itself). Thus, they ignored the role of inequality both in creating the conditions leading up to the crash of 2007-08 and as a consequence of the way the recovery was crafted and took place; and they tend to model and support economic globalization—in people, trade, finances, and much else—as if everyone benefits, rather than seeing winners and losers. Because mainstream economists relegate issues like power and class to (and, in many cases, beyond) the margins, they literally don’t see for themselves or show to others the unequal distributions that are either presumed by capitalism or that follow from capitalist ways of organizing economic and social life.

Neil Irwin, too, has expressed his concern about the rejection of expert opinion with respect to Brexit (and, he adds, the success of Donald Trump’s campaign). And draws much the same lesson: mainstream economists (and, more generally, the members of the economic elite whose views they tend to celebrate) focus their attention on efficiency and economic growth—with respect to issues ranging from rent control to international trade—and not on the unequal outcomes of those policies. Thus, he asks, “what if those gaps between the economic elite and the general public are created not by differences in expertise but in priorities?”

In the end, the problem identified by Pisani-Ferry and Irwin is not really one of economic expertise. It is, rather, a question of priorities and perspectives. Mainstream economists hold one set of theories, according to which capitalist markets lead to (or, at least can, with the appropriate policies, end up with) efficient, dynamic outcomes from which everyone benefits. But other economists—both other academic economists and everyday economists—use different economic theories, many of which highlight the unequal conditions and consequences of capitalist activities and institutions. In other words, each of these groups has a different expertise, informed by a different way of organizing their knowledge about the economy, including the effects of economic practices and policies.

What we’re seeing, then—with Brexit, but also after the most recent financial crash and the uneven recovery, the success of the campaigns of both Trump and Bernie Sanders, not to mention the battles over austerity and much else across Europe and the rest of the world right now—is a widespread challenge to the self-professed expertise of mainstream economists. It’s also a challenge to the economic and social system glorified by mainstream economists and by the elites that both govern and gain from that system.

Those academic and economic elites are clearly worried their opinions, backed up by their presumed expertise, no longer hold sway in the way they once did. And for good reason.

All they have to do is remember the fate of their predecessors who suggested the downtrodden and everyone else who had been marginalized or otherwise beaten down by the system just eat cake.

 

*As Rafael Behr explains, “People had many motives to vote leave, but the most potent elements were resentment of an elite political class, rage at decades of social alienation in large swaths of the country, and a determination to reverse a tide of mass migration. Those forces overwhelmed expert pleas for economic stability.”

 

Theory of the firm

The problems surrounding the central institution of capitalism—the corporation—are so widespread and enormous they’ve even provoked concern in sympathetic quarters, such as the Harvard Business School.

This past November, Harvard hosted a conference during which participants attempted to grapple with the tensions between Milton Friedman’s theory of the firm—according to which firms can and should only benefit society by focusing on maximizing shareholder value—and the growing political influence of corporations after Citizens United—when it has become increasingly easy for firms to tweak the rules of the game in their favor.

Now, for the rest of us—citizens, nonmainstream economists, and academics in disciplines outside of business and economics—both the history of corporations and the prevailing neoclassical theory of the firm present so many problems it’s hard to believe Friedman’s ideas are still taken seriously. Long before Citizens United, corporations have exercised a great deal of influence both inside (over their workers) and outside (in politics and in the wider society). That’s why the corporation has been a contested institution—legally, economically, politically—since its inception. Similarly, the neoclassical theory of the firm (initially in its “black box” form, then when the owner-manager agency problem was raised) has swept most of the serious problems under the theoretical rug.*

But for the scholars gathered at Harvard, the key issue (as presented in the brief paper coauthored by Harvard Business School faculty members Paul Healy, Rebecca Henderson, David Moss, and Karthik Ramanna [pdf]) was a relatively narrow one:

if firms have the power to generate profits not only by producing socially beneficial goods and services, but also by tilting public policy and the “rules of the game” to their advantage (whether through aggressive lobbying, effective use of the revolving door between political and corporate appointments, or campaign contributions), then the core assumption that firms can maximize social value by maximizing shareholder value may not hold, and framing managerial responsibility as simply a matter of maximizing shareholder value may well be inappropriate.

Having read the paper, it is extraordinary that there’s no real history—no story about the invention of the corporation as a legal “person,” no Louis Brandeis or the Progressive movement, no Knights of Labor or United Mineworkers, no mention of the role of International Telephone & Telegraph in overthrowing Salvador Allende in Chile, no Massey Energy killing 29 miners in the Upper Big Branch mine. It’s as if the problem of corporate power only emerged after the 2010 Citizens United decision.

Still, from the perspective of neoclassical economics, even that problem looms large. According to the reigning paradigm (which guides much policy and is taught to hundreds of thousands of students every year), under conditions of perfect competition, free markets (including firms that maximize shareholder value) lead to Pareto-efficient outcomes. But if corporations (whether single firms or industries) can shape the institutions of the market (or the rules and ethical customs that help to maintain them), then all bets are off: “Maximizing shareholder value by deliberately distorting critical market institutions or regulations for private advantage seems unlikely to lead to the maximization of social value.”

That’s why the participants in the Harvard conference were caught between the real implications of Citizens United (that corporations can increasingly bend the social rules to their private advantage) and their continued adherence to the neoclassical theory of the firm (according to which maximizing shareholder value also maximizes social value).

I suppose it’s no surprise, then, which won out at the Harvard conference:

“I went into the conference with the understanding that one could question the premise of the Neoclassical paradigm in economics through logical arguments—e.g., the inconsistencies between Friedman’s assumptions and Stigler’s theory. I left with a sense that logical arguments on their own are unlikely to carry the day, because the Neoclassical paradigm is so powerfully ingrained into the discipline, into the fabric of modern economics,” says Ramanna.

 

*Including the problem neoclassical economists share with many of their heterodox counterparts, namely, what exactly does it mean that corporations maximize profits or shareholder value? First, how do we define profits or shareholder value, i.e., what is the appropriate metric, over what time horizon should it be defined, and how should it be measured? Second, corporations do many different things, such as exploit workers, give lavish pay to top managers, attempt to eliminate rivals, chart particular short-run and long-term growth path, buy favors and influence legislation, hoard cash, accumulate capital, and so on—why reduce all of what they do to a single dimension?

“Which side are you on?

 

My article, “Contending Economic Theories: Which Side Are You On?” has just been published on Taylor & Francis Online for the journal Rethinking Marxism.

The first 50 interested readers (actually 49, since I downloaded a copy for myself) can download the text of the article here.

Chart of the day

These charts illustrate both the good and the bad of Nate Silver’s new version of the FiveThirtyEight journalism project.

On one hand, they offer us important information about the growing portion of American workers who are attempting to support themselves on $10.10-an-hour jobs (more than half today compared to 39 percent in 1990) and the incomes of the families that have minimum-wage workers (a large majority of minimum-wage workers are in low- to moderate-income families, and a significant minority are just plain poor).

On the other hand, Ben Casselman’s analysis presumes that who is working at the current or higher proposed minimum wage is the only relevant information. In other words, he accepts the idea that the minimum wage is merely one among other anti-poverty tools (which include the oft-cited Earned Income Tax Credit) .

What Casselman seems not to consider or understand is that all workers benefit from a higher minimum wage, because it establishes a higher floor for all wages. That makes it more difficult for employers to follow a low-road strategy of extracting profits from poorly paid workers and of replacing—or threatening to replace—workers who currently earn a wage above the minimum wage with lower-wage workers.

That’s where theory and politics come in. You need a theory of the labor market and the role minimum wages play. And you need an analysis of the politics of the minimum-wage debate, including the attempt to reduce the debate to finding the best anti-poverty tool while making sure those at the bottom continue to be forced to have the freedom to sell their ability to work in order to eek out a living.

Stephen Resnick—author

The last time, I wrote about Stephen Resnick’s approach to teaching. Here, I want to consider his written work.

I’m not going to attempt to cover everything listed on his long curriculum vitae.  What I want to do is pick out and comment on a few pieces that, to my mind, are emblematic of his pioneering contributions to extending and reconceptualizing the Marxian critique of political economy.

Let me start with two quick observations. First, much of what Resnick wrote and published over the years, he did so with his long-time friend and comrade Richard Wolff. What I write then about Resnick’s work, especially from 1979 onward, should be understood as an appreciation of the writings of both Resnick and Wolff.

Second, there is a gap of about four years in his curriculum vitae, from 1975 to 1979, which is absolutely crucial—and admirable. That’s the period during which Resnick stopped publishing, in order to focus on two other projects: the building of the new Department of Economics at the University of Massachusetts in Amherst, and a rethinking of Marxian theory. The first project took up a great deal of time and energy, and Resnick dedicated himself to working with others (not only Wolff but also Sam Bowles, Herb Gintis, Jim Crotty, and Donald Katzner, among others) to create a department where Marxian economics would, after a long hiatus, have a home in the United States.* The second project was born out of a frustration with the received tradition of Marxian economics, and the only way to move beyond it was to sit down with the texts of that tradition, both classic and new, and to initiate a project of rethinking Marxian theory. That involved identifying the distinguishing characteristics of Marxism (what made it different not only from mainstream economics but also from other radical traditions) and then pushing it in new directions (of which more below).

But before I get to that work, I want to go back in time a bit and focus on two articles that, in my view, represent the most interesting dimensions of Resnick’s work before UMass. They are:

“A Model of an Agrarian Economy with Non-Agricultural Activities” (with Stephen Hymer), American Economic Review (September 1969): 493-506

“The State of Development Economics,” American Economic Review, Proceedings (May 1975): 317-22

In the first, Resnick and Stephen Hymer went beyond the usual neoclassical labor-leisure tradeoff model by incorporating, for an agrarian economy, a third possibility: “Z activities.” These were meant to represent a wide variety of nonagricultural nonleisure activities such as processing, manufacturing, construction, transportation, and service activities to satisfy the needs for food, clothing, shelter, entertainment, and ceremony. This allowed them to argue against the neoclassical proposition that the course of capitalist development could simply be reduced to the replacing of leisure by work. Instead, by paying attention to the “complex mosaic of agrarian life,” they could emphasize the effects of the growth of markets and increased exchange between town and country—not only with increased specialization and production (of both food and manufactured goods, at the expense of Z goods) but also the economic and social costs of the disruption of the economic and social structure of rural areas, including the immiseration of important parts of the population. My sense is, even though a certain language is largely absent, and the analytical tools they use are pretty standard neoclassical ones, Resnick and Hymer are drawing on many of the themes of a Marxian analysis of the transition from feudalism to capitalism.

Resnick put those issues up front in his 1975 critique of bourgeois development economics. He notes, at the start, the differences between the “underlying theories of value” informing neoclassical and Marxian approaches to development and identifies, in language that would be familiar to mainstream economists, the problems inherent in their method:

Simply put, the neoclassical approach is misspecified because of the omission of production relations and thus yields biased policy conclusions and unreliable predictions. Further, although this approach has recently appended to its analysis the more obvious social and political issues, they are added as unexamined external givens never seen as the direct outgrowth of the underlying structure of production, i.e., the value relation between labor and labor power. Neoclassical development cannot analyze anything outside of a framework of market or exchange relationships because that is the theory upon which it is based; it is trapped not by inadequate data or lack of “better” models, but rather by its narrow focus on supply and demand and its total neglect of those historic forces that have produced international relations of production and technology based upon an exploitive system of one class over another.

Resnick then proceeds to tell a radically different story, albeit a pretty traditional Marxian story (replete with a falling rate of profit and the exploitation of some countries by others), of the history of capitalism and imperialism in the Third World.

And that was the last time Resnick would be permitted to publish his research in a mainstream economics journal. After that—after his publicly becoming identified as a Marxist—the doors of the mainstream wing of the profession were closed to him.

Once the new department was up and running, and considerable progress had been made in the project of rethinking Marxism (with Wolff and in discussion with some of the doctoral students at UMass), Resnick published the results in three key articles:

“The Theory of Transitional Conjunctures and the Transition From Feudalism to Capitalism in Western Europe” (with Richard Wolff), Review of Radical Political Economics (Fall 1979): 3-22

“Marxist Epistemology” (with Richard Wolff), Social Text (November) 1982: 31-72**

“Classes in Marxian Theory” (with Richard Wolff), Review of Radical Political Economics (Winter 1982), 1-18**

In the theory of “Theory of Transitional Conjunctures,” Resnick and Wolff announced their new understanding of “Marxist social science” and then illustrated their approach with an intervention into the discussion of the transition from feudalism to capitalism in Western Europe. They rely heavily on the work of Louis Althusser to argue that Marx inaugurated a radical break from other social sciences—based on a different epistemology (an alternative to both rationalism and empiricism), a different methodology (based on overdetermination, and thus a rejection of all forms of essentialism, including theoretical humanism and economic determinism), and a specific definition of class (focused on the production, appropriation, and distribution of surplus labor). They then use their rethinking of Marxian theory to identify various ways Marx’s “simple sketch” of the transition from feudalism to capitalism had been interpreted by other Marxists—from Paul Sweezy-Maurice Dobb through Immanuel Wallerstein—and to produce their own interpretation of that transition. Their view is that it is necessary to focus on the contradictions between the feudal class relation (specified in terms of what they refer to as fundamental and subsumed classes) and its social conditions of existence, out of which the conditions of existence of a different class relation—that of capitalism—were produced, which in turn undermined what remained of the feudal class process.

In the Social Text article, Resnick and Wolff explain in more detail what they mean by a specifically Marxist epistemology. They explain how rethinking dialectical materialism in terms of overdetermination rules out the various essentialisms that have characterized the pendulum swings within debates in the Marxist tradition (back and forth between various forms of empiricism and rationalism, and between economic and  humanist determinisms). They then trace the effects of those debates through various key theoreticians, including Marx and Engels, Lenin, Lukács, and Althusser. Their conclusion is that Marxian theory comprises a particular way of “thinking about society, history, and the process of thinking itself: dialectically materialist, anti-essentialist, and with class as its conceptual entry and goal point.”

Then, in “Classes in Marxian Theory,” Resnick and Wolff present the concepts of class they think are central to Marxian theory—concepts that are different both from the traditional Marxist “two-class model” and from more recent efforts to update that model by considering various other classes and class fractions (e.g., peasants, the petty bourgeoisie, and the so-called professional-managerial class). Their solution takes the form of fundamental and subsumed classes, which is their way of bringing together the class analyses Marx carries out in volume 1 of Capital with those elaborated in volumes 2 and 3. In their view, Marxian class analysis is based on a double complexity: first, a difference between the production of surplus labor and its distribution; and second, the idea that individuals often occupy multiple, different class positions, both fundamental and subsumed. One of the results is that the “working class” is reconceptualized as a variable alliance of distinct classes, including both laborers who occupy both fundamental and subsumed class positions. Class struggles are similarly rethought: Resnick and Wolff shift the focus from the subject to the object of such conflicts. Thus, class struggles are redefined as collective efforts to change, either quantitatively or qualitatively, the extraction or distribution of surplus labor.

Five years later, Resnick and Wolff published two extraordinary books:

 Economics: Marxism vs. Neoclassical (Baltimore: The Johns Hopkins University Press, 1987)

 Knowledge and Class: A Marxian Critique of Political Economy (Chicago: University of Chicago Press, 1987)

The first was a product of and a testament to their commitment and skill as teachers. In it, Resnick and Wolff not only compared neoclassical and Marxian economic theories; they set forth a nondeterministic way of comparing the two theories, based on their entry points and logics, and their different consequences for analyzing economic events and institutions.***

The second has to be counted among the most significant books of twentieth-century Marxian theory. Resnick and Wolff accomplish nothing less than a wholesale rethinking of the basic concepts of the Marxian tradition, from the theory of knowledge through its methodological orientation to class analysis. They start with the basic proposition that “Marxian theory has a distinctive concept of what theory is” and then proceed to elaborate that distinctiveness in terms of both contemporary philosophy (through the work of such figures as Thomas Kuhn and Richard Rorty) and the Marxian tradition itself (from Marx and Engels through Althusser to Barry Hindess and Paul Hirst). Next, they discuss how Marxists can “construct a knowledge of an ever-changing overdetermined social totality.” During the remainder of the book, they present their rethinking of the concepts of Marxian class analysis, apply those concepts to some of the major arguments in Marx’s Capital, and produce specifically Marxian theories of capitalist enterprises and the state.

It is impossible to exaggerate the importance for contemporary Marxism of Knowledge and Class. There is simply no major topic in our understanding and use of Marxian theory today that is not affected by the theoretical self-consciousness and thorough-going antiessentialism demonstrated in Resnick and Wolff’s reinterpretation of Marxian theory.

The tremendous impact of Resnick’s written work can be seen in his own later work as well as in the articles and books published by his former students and colleagues and in the pages of the journal Rethinking Marxism. I know that I could not have made my own modest contributions to the rethinking of Marxian theory without the theoretical inspiration and comradely encouragement provided by Resnick over the years.

 

*The story of those early years at UMass has been told by Donald W. Katzner in At the Edge of Camelot: Debating Economics in Turbulent Times (New York: Oxford University Press, 2011). My review of Katzner’s book can be found here.

**These articles were reprinted in New Departures in Marxian Theory, ed. S. A. Resnick and R. D. Wolff (New York: Routledge, 2008).

***A new edition of that book, Contending Economic Theories: Neoclassical, Keynesian, and Marxian, with additional chapters on Keynesian theory and recent developments in neoclassical theory (coauthored with Yahya Madra), has been published by MIT Press.