Anyway, this is interesting - gender pay gap by age group. Oh for my emasculated generation: pic.twitter.com/v3Qk2sPHki
— Daniel Knowles (@dlknowles) October 9, 2013
Wednesday, 9 October 2013
Communist economics.
Unlearning Economics has a primer on Marxist economics.
Marxist straw men are attacked. The section on imperialism is trivial. I agree with the straw view of Historical Materialism and Determinism: even if the world is far too complex for us to be able to calculate the causes, where else do attitudes come from?
Alexis de Tocqueville on the fractal nature of classes - drill down as far as you want, there are always competing subgroups. So what? It does not really change the grand sweep of Marxist theory. (And spotty teenage socialists have expended quite enough pixels/human-hours appreciating "intersectionality".)
(I assume that many students and scholars of the last century have already said what I will say in this post.
[of course, this is the Cambridge Capital Controversey, and I believe I am arguing in favour of CamUK being both right and irrelevant, presumably the viewpoint of CamMass ]
For instance. FWIW I disagree with Samuelson; technology is human capital is a type of capital, as Tyler Cowen here verges, item ten. Otherwise he is probably saying the same thing. And most of Marx's economics was ripped of Ricardo and Saint-Simon. 'In social science there is nothing new under the sun' was the theme of Samuelson's AEA lecture, from which Delong excerpted.)
Back to Unlearning Economics. The biggest feature of Marxist economics is the Labour Theory of Value. 'Value' is the labour time that has been 'embodied' in goods. Here is UE's definition of Marx's Labour Theory of Value:
(If the capitalist operating the capital was not its original creator, they must have bought it at the price of its Labour Value. Of course there may be coercion/market failure in this respect. Exactly perfect markets do not exist in the real world. And it will be the 'aristocracy of labour' who are the workers building capital, rather than getting crushed by it. Incidentally Marx's model presented here is the same as in the modern right-wing argument against capital gains tax: the capital was once produced by workers who paid income tax; it shouldn't be taxed twice.)
I suppose we're back to Tocqueville: there is OVERLAP between the people who are capitalists and the people who are workers. (Not that this invalidates Marx's model.)
Let's stick with translating of Marxist economic terms into their equivalents in Introductory Economics. ('Periodic crisis' = 'business cycle'.)
The capacity of an economy (the supply side) is (broadly) the level of capital in the economy. (Or level per worker.) (I say broadly because this is only correct if you lump in 'human capital'. But you should anyway.)
A demand side recession is when the level of goods that are demanded is less that what an economy has the capacity to produce. If the capitalists cannot make a surplus, it is because there is so much capital in the economy that they have all had to cut prices to the Labour Value of their capital. No surplus on top. (Since the labour value of the capital rightly belongs to the capitalist.)
Since there is no surplus on top, noone is willing to buy more capital.
I can point you to many an article explaining that the present recession/stagnation is happening because we have reached this point, and because none of the capitalists are willing to accept a lower level of capital. In economics, the interest rate is the price of money in the future in terms of money in the present. It is also the price of capital (the Labour Value of capital is what it will produce in the future). Any commentary that references a negative interest rate, or the zero lower bound on the nominal interest rate is essentially making this Marxist point about the business cycle.
(The present crisis is simultaneously a supply-side crisis - the capital we possess has less labour value than we thought it had. Depending on the sector and the type of capital we either have too much or too little of it. And throw in some naked vested interests. E.g. cartels of capitalists who want to keep their prices and surpluses high, with everyone else wanting to join the cartel - as I said before, the Marxist critique is when there are no surpluses left.)
But there is a final and bigger point.
Marx's Labour Value is the value of a whole society. I would translate Labour Value itself as Deadweight Loss.
Deadweight loss is waste. Pollution for example is deadweight loss. It is an externality, a parable factory dumping chemicals into a lake and thus harming a fisherman. But there are other types of waste. Surplus extraction is wasteful: if Apple cut its profit margin more people would be able to afford iphones and be happier. It is a deadweight loss to shut a road down in rush hour. People could use it to save time. It is also a deadweight loss to license too many taxis - they would take up too much road space and cause traffic jams in the same way.
The goal of economics is efficiency. It is to reduce the deadweight loss in the whole economy.
The ultimate goal is Communism - for all material desires to be satisfied without labour needing to exert itself.
The field of economics praises anything that destroys the Labour Value of the economy. Every unit of labour value is one unit of leisure that a worker should be enjoying, rather than undergoing alienation on a production line.
By far the best defense of capitalism is Marx and Engels, 1848, The Communist Manifesto. We should applaud a capitalist who reduces the Labour Value of the economy, eventually they will eliminate the Labour Value altogether.
Marx's model relies on perfect markets - there will have to be a state to break up cartels of capitalists, capitalists not working towards achieving communism. It may be that deadweight loss can be best avoided if the state intervenes, to turn workers into worker-capitalists by funding their education. Eric Hobsbawm once agreed that Stalin's crimes were permissable, had they achieved the Communists' endgoal. In fact the closer we get to destroying the Labour Value of the economy, the less strain it will place to provide sustenance for workers replaced by more efficient capital.[1]
The question is will capitalists reach Communism faster if we give them more surplus. Or should we rein them in, delaying Communism if the capitalists are doing their job, or not if they're the cause of deadweight loss.
[1] Why does the left defend domestic social spending on compassionate grounds, when it would be more effective in Africa or India? Several billion people earn less than the UK's Jobseekers' Allowance.
Next Week: How actual Marxist theory applies to sex and gender!
Marxist straw men are attacked. The section on imperialism is trivial. I agree with the straw view of Historical Materialism and Determinism: even if the world is far too complex for us to be able to calculate the causes, where else do attitudes come from?
Alexis de Tocqueville on the fractal nature of classes - drill down as far as you want, there are always competing subgroups. So what? It does not really change the grand sweep of Marxist theory. (And spotty teenage socialists have expended quite enough pixels/human-hours appreciating "intersectionality".)
(I assume that many students and scholars of the last century have already said what I will say in this post.
[of course, this is the Cambridge Capital Controversey, and I believe I am arguing in favour of CamUK being both right and irrelevant, presumably the viewpoint of CamMass ]
For instance. FWIW I disagree with Samuelson; technology is human capital is a type of capital, as Tyler Cowen here verges, item ten. Otherwise he is probably saying the same thing. And most of Marx's economics was ripped of Ricardo and Saint-Simon. 'In social science there is nothing new under the sun' was the theme of Samuelson's AEA lecture, from which Delong excerpted.)
Back to Unlearning Economics. The biggest feature of Marxist economics is the Labour Theory of Value. 'Value' is the labour time that has been 'embodied' in goods. Here is UE's definition of Marx's Labour Theory of Value:
To the extent that 'capital' (machines, raw materials etc) contribute toward this value, it is only in the necessary labour time required to produce that capital. Hence, only labour can 'add' value, and therefore surplus is produced by workers, while capitalists are parasitic, receiving profit only because they pay their workers less than the workers produce...
[LTV is] a theory of the total value in capitalist economies: where the surplus came from (exploitation) and how the changes in the production of this surplus would manifest themselves (periodic crises). Marx made this much clear in a response to critic, who charged that his theory of value was erroneous because prices are also a function of demand ... Hence, the theory can only predict the total value produced in a capitalist economy, while individual prices can vary based on monopoly, demand or whatever else.There is a crucial translation necessary. In the first paragraph, UE conflates the creation of capital with ordinary work by labour. It is. But in most economics discourse we assume the 'capitalist' is the worker who originally built the capital. The 'capitalist' is not collecting surplus, when they pay workers less than what 'workers' produced. The 'capitalist' is collecting the Labour Value of their work building the capital.
(If the capitalist operating the capital was not its original creator, they must have bought it at the price of its Labour Value. Of course there may be coercion/market failure in this respect. Exactly perfect markets do not exist in the real world. And it will be the 'aristocracy of labour' who are the workers building capital, rather than getting crushed by it. Incidentally Marx's model presented here is the same as in the modern right-wing argument against capital gains tax: the capital was once produced by workers who paid income tax; it shouldn't be taxed twice.)
I suppose we're back to Tocqueville: there is OVERLAP between the people who are capitalists and the people who are workers. (Not that this invalidates Marx's model.)
[T]here is a clear criterion for testing Marx's theory: the declining rate of profit. If there is observed a short term tendency of the rate of profit to fall - due to capitalists substituting capital for labour, hence reducing their surplus per unit of cost - manifesting itself in periodic crises, this is consistent with Marx's theory.Surplus can just be a factory-owner forcing a worker to take wages less that the labour value of what they produced. The surplus can be the "workers'" capital that capitalists have expropriated. The surplus in the latter case is less. Capital is employed by the capitalist because the market is working - the capital can produce more than a worker can, for a lower price, and the capitalist can cut the prices of what they sell and capture more market share.
Let's stick with translating of Marxist economic terms into their equivalents in Introductory Economics. ('Periodic crisis' = 'business cycle'.)
The capacity of an economy (the supply side) is (broadly) the level of capital in the economy. (Or level per worker.) (I say broadly because this is only correct if you lump in 'human capital'. But you should anyway.)
A demand side recession is when the level of goods that are demanded is less that what an economy has the capacity to produce. If the capitalists cannot make a surplus, it is because there is so much capital in the economy that they have all had to cut prices to the Labour Value of their capital. No surplus on top. (Since the labour value of the capital rightly belongs to the capitalist.)
Since there is no surplus on top, noone is willing to buy more capital.
I can point you to many an article explaining that the present recession/stagnation is happening because we have reached this point, and because none of the capitalists are willing to accept a lower level of capital. In economics, the interest rate is the price of money in the future in terms of money in the present. It is also the price of capital (the Labour Value of capital is what it will produce in the future). Any commentary that references a negative interest rate, or the zero lower bound on the nominal interest rate is essentially making this Marxist point about the business cycle.
(The present crisis is simultaneously a supply-side crisis - the capital we possess has less labour value than we thought it had. Depending on the sector and the type of capital we either have too much or too little of it. And throw in some naked vested interests. E.g. cartels of capitalists who want to keep their prices and surpluses high, with everyone else wanting to join the cartel - as I said before, the Marxist critique is when there are no surpluses left.)
But there is a final and bigger point.
Marx's Labour Value is the value of a whole society. I would translate Labour Value itself as Deadweight Loss.
Deadweight loss is waste. Pollution for example is deadweight loss. It is an externality, a parable factory dumping chemicals into a lake and thus harming a fisherman. But there are other types of waste. Surplus extraction is wasteful: if Apple cut its profit margin more people would be able to afford iphones and be happier. It is a deadweight loss to shut a road down in rush hour. People could use it to save time. It is also a deadweight loss to license too many taxis - they would take up too much road space and cause traffic jams in the same way.
The goal of economics is efficiency. It is to reduce the deadweight loss in the whole economy.
The ultimate goal is Communism - for all material desires to be satisfied without labour needing to exert itself.
The field of economics praises anything that destroys the Labour Value of the economy. Every unit of labour value is one unit of leisure that a worker should be enjoying, rather than undergoing alienation on a production line.
By far the best defense of capitalism is Marx and Engels, 1848, The Communist Manifesto. We should applaud a capitalist who reduces the Labour Value of the economy, eventually they will eliminate the Labour Value altogether.
Marx's model relies on perfect markets - there will have to be a state to break up cartels of capitalists, capitalists not working towards achieving communism. It may be that deadweight loss can be best avoided if the state intervenes, to turn workers into worker-capitalists by funding their education. Eric Hobsbawm once agreed that Stalin's crimes were permissable, had they achieved the Communists' endgoal. In fact the closer we get to destroying the Labour Value of the economy, the less strain it will place to provide sustenance for workers replaced by more efficient capital.[1]
The question is will capitalists reach Communism faster if we give them more surplus. Or should we rein them in, delaying Communism if the capitalists are doing their job, or not if they're the cause of deadweight loss.
[1] Why does the left defend domestic social spending on compassionate grounds, when it would be more effective in Africa or India? Several billion people earn less than the UK's Jobseekers' Allowance.
Next Week: How actual Marxist theory applies to sex and gender!
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