Economists! Be more Marxist

I pointed out yesterday that Marx was right: inequality generates an ideology which defends that inequality. This, though, is just one of many instances in which experimental or empirical evidence has vindicated him.For example:

 - The "economics of life" literature pioneered (pdf) by Gary Becker - as exemplified by Jeremy Greenwood's work on how technical change has changed sexual mores and family life - confirms Marx's claim that "The mode of production of material life conditions the general process of social, political and intellectual life."

 - Some experimental evidence vindicates Marx's claim that hierarchy doesn't simply increase efficiency, but also leads to exploitation.  

 - A lot of public choice work is consistent with Marx's claim that "the executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie".

 - Marx's claim that capitalism is prone to crises looks better than the simpler class of DSGE models which under-rated the chance of crisis.

 - Work on cognitive biases inspired by Daniel Kahneman corroborates Marx's theory of ideology.

 - The degradation of "middle class" jobs fits his claim that "The lower strata of the middle class sink gradually into the proletariat."

 - The evidence that robots have not (yet?) depressed demand (pdf) for labour might be consistent with Marx's view that new machinery doesn't hurt labour but capital, because it causes older technologies to suffer "moral depreciation" as they can no longer compete against the newer, better equipment.

 - Even the much-maligned labour theory of value fits a lot of facts.

In light of this long list, it shouldn't be surprising that Marxian economics helps shed light upon important contemporary issues. His theory of a declining profit rate  - which happens to be true (pdf) - should be part of any theory of secular stagnation. Class struggle, power and exploitation are at least as reasonable ways of thinking about inequality as marginal product theory. Long-term moves in share prices are due in surprisingly large (pdf) part to class struggle.  And Marx's work on technical change should feature in the debate about the impact of robots on work and society. (Hint: capital competes with other capital, not just labour.)

Of course, Marx wasn't right about everything - but nobody is. I'm not at all sure that capitalism has a tendency to ever-increasing monopoly. And his idea that the working class would become an agent of revolutionary change has been wrong. For these reasons, we should, in Yanis Varoufakis's lovely phrase, be "erratic Marxists".

When I say "we", I don't just mean we Marxists. I mean all economists. I suffer no dissonance at all between writing (more or less) conventional economics in my day job and being some kind of Marxist. The important distinction is not between heterodox and orthodox economics, but between
good and bad economics - and Marx is often good economics, in the sense of fitting the facts.

In fact, though, there's another reason why orthodox economists should be (partly) Marxist. It's that a class society militates against rational economic policy, in three ways:  

 - It increases popular support for immigration controls. In a class-divided society poorer workers see migrant workers and think (wrongly, but sincerely): "they're taking my job." In an egalitarian society, they'd be quicker to see that migrants free them to do more productive work.

 - A big reason why we don't have a rational fiscal policy is that it runs against the interests of capital. As Kalecki said, big business would rather that employment depended upon their confidence. And we might add that finance capital would prefer a loose money/tight fiscal policy mix. Reducing capitalists' power might be an essential prerequisite for sensible fiscal policy.

 - Capitalism quickly degenerates into crony capitalism or corporatism because capitalists buy political influence. If you want a properly freeish market economy, you should therefore favour institutional changes which reduce the power of the rich.

So, here's my message to all non-Marxist economists. You should take Marx more seriously. I mean, you're not just shills for the rich are you?

Comments

[Ben]

I'm not really a fan of the idea that we get in immigrants to do jobs we don't want to do.

Why don't we lift our sights higher than abusing those born in the wrong place? Why not aim to automate most boring jobs and for those that require people we pay them a decent wage so the job is not so bad after all.

Otherwise those immigrants stay and become a new underclass - or someone does.

[Steven Clarke]

@Chris

The link to family takes you to a paper on sex, and the link to sex takes you to family.

Perhaps you were making a deep and clever point, or possibly a mistake.

[e]

Poorer workers might see migrant workers and think (wrongly, but sincerely): "they're taking my job." On the other hand they might think/say the phenomenon of migrant workers is propping up the destructive balance of power you talk about.

[Ben]

e - I agree. It's just adding to the pyramid scheme mentality. We need a meritocracy - if people are doing work pay them for it.

Exploiting the underclass seems baked into British mentality. If you are being exploited the solution is not to get yourself a lower caste and exploit them.

[Deviation From The Mean]

"In an egalitarian society, they'd be quicker to see that migrants free them to do more productive work."

I am with Ben here (I think). You ain't got an egalitarian society if you have a class of people doing all the 'unproductive' work, whatever the hell unproductive means in an egalitarian society!

Also, Marx and Engels did make observations about immigration, they said that under capitalism it often took the form of social dumping, with all negative affects it involves. So in a capitalist society, taken in that context, it isn't accurate to say workers are wrong to view immigration negatively. (I am not saying there isn't a great deal of ignorance surrounding immigration btw).

What you should have said is that under a socialist system workers would take a different view of immigration because concretely and qualitatively immigration would be transformed. (Though I am not entirely convinced that would be the case myself!).

[Brett]

Still not sold on the "Labor Theory of Value". The way it's described here and at the link, it sounds like you're just stating the obvious fact that labor expenses are a huge (often dominant) part of most businesses. Just look at the financial sector, hugely profitable and where the "labor costs" (i.e. all those high salaries and formerly bonuses) make up the majority of business expenses.

[WVO House]

You can find "some" empirical evidence to support nearly any theory.

Obviously we don't do science by accepting every theory that has "some" observations that don't contradict it.

You are basically saying that because some haphazard set of observations fit some haphazard collection of pieces of some broader school of thought, we should incorporate that entire school of thought into our science.

And no, most economists are not "shills for the rich", even though I'm sure it's easy to believe that anyone who doesn't align with your preferences must have ulterior, selfish motives and that's the only reason they don't care for your theories.

[An Alien Visitor]

"You are basically saying that because some haphazard set of observations fit some haphazard collection of pieces of some broader school of thought, we should incorporate that entire school of thought into our science."

We will just take from this that you haven't actually read the 3 volumes of capital, where Marx painstakingly, systematically and often quite boringly outlines his theory.

We will further take from this that you think nothing of being an authority on things you clearly know nothing about.

We will finally draw the conclusion that arguing with you would be like arguing with a potato. I.e. pointless.

[Luis Enrique]

Can a Marxist scholar explain something to me about exploitation? I am afraid all I know about this I got from Roemer, and my memory is poor - I just remember him equating profit with exploitation.

Does Marx say that once profits are sufficiently low, they no longer qualify as exploitation but as a fair return on capital? I am thinking of an analogue of "the cost needed to bring that factor into production" as this wiki definition of economic rents puts it: http://en.wikipedia.org/wiki/Economic_rent

And if so, if the rate of profit is supposed to fall over time, does that mean capitalism gets less exploitative until, perhaps, it is no longer exploitative at all?

[Matt Moore]

Labour theory of value is clear nonsense. Smith and Marx both just wrong here.

I can work for years on an invention or artwork but if no one wants it, it's worthless.

The reason it appears to hold is an equilibrium effect, whereby higher valued uses attract more labour.

'Pearls do not fetch a high price because men have dived for them. Rather men die for them because they fetch a high price.'

More generally, someone who wrote as broadly as Marx is bound to be directionally right sometimes. **Right conclusions do not mean right analysis**. Also, 'some evidence' is a weak phrase. In economics there is always some evidence for any position.

[WVO House]

Not sure what made Alien Visitor so fussy, but the point was that this blog's author is using haphazard pieces of evidence to support pieces of Marx's theory and then insists that we take Marx seriously as a whole. Why? That's not how science works. Because like I said, you can find some evidence to support some part of practically any theory.

No one said anything about Marx's theories themselves being haphazard.

[Britonomist]

LTV is wrong at an epistemological, conceptual level, nevermind the economics. "Value" is subjective, it's that simple. There is no empirical or ontological reason any person should necessarily increase the amount at which they value an item just because the amount of labour that went into its production increased.

That's not to say labour doesn't determine a significant chunk of the costs of the good, but that doesn't necessarily provide any justification for LTV at all. If prices are little deviated from marginal costs, that's simply evidence the market is competitive, LTV does not add any additional explanatory power to the analysis that even simple microeconomic theories of the firm + supply & demand provide - so where on earth does LTV have any use in this analysis? It's simply not a useful way to frame the issue, it's only useful as an attempt to attach moral implications to wages - and this is where Marxism goes wrong, trying to create an objective and overly simple theory of ethics and applying it to the firm.

[High Plains Gadfly]

There is another way of reading Marx. One can strip out the German philosophy, the French Revolutionary rhetoric, and the English economics, to get to the core of Marx's message: One day the fundamental problem of economics, scarcity, will be solved; when this happens there is no reason anyone should go without. Understood in this light, Marx becomes much easier to approach.

Much of Marx's writings are a criticism of 19th century capitalism, which by just about any analysis was pretty dreadful. When the Communist Manifesto was written in 1847, slavery was rampant in the United States, factories were cesspits of exploitation and millions were left to starve outside of warehouses filled with grain. Things had not improved all that much twenty years later when he wrote Das Kapital -- but at least slavery was gone. Still, another 40 million were to die in the Victorian Holocaust.

But capitalism was still needed to build the infrastructure needed to free mankind from the Malthusian nightmare.

Finally, after more than 150 years after Marx wrote, we are on the verge of seeing the realization of his vision. Music, books, films and other media can be reproduced at a marginal cost approaching zero. We actually have the capacity to feed everyone -- no one needs to starve. Modern medicine and technology has the ability to improve everyone's well being.

Capitalism, which proved to be the catalyst for these improvements, has become an impediment. Or, in Marxian terms, the modes of production are contradicted by the means of production.

[FreddyLovesKarl]

I'm still a fan of the whole ''socialist revolution'' thing, thanks.

[Luis Enrique]

for me, there are two things to take away from this

1. economists should think more about class interests and distributional issues (this does happen already to some extent)
2. think more about how prevailing modes of production feed back into the above. A great economist on that is Sam Bowles, who calls himself a Marxist https://www.youtube.com/watch?v=bmctlGweFlY

I agree with others than broad consistency with data means very little, even RBC theory can offer that.

not sure what to make of capital competing with capital, that sounds like Schumpeterian growth or vintage capital models, already perfectly mainstream econ

[Nanostring]

"Capitalism quickly degenerates into crony capitalism or corporatism because capitalists buy political influence."

Disagree! Crony capitalism/corporatism is a direct byproduct of ownership dilution in the corporation.

Once it was thought of as a needed advancement to give management more active control, and have shareholders be passive owners, in order to achieve more unitary management structure, while maintaining a broad capital base. Alas, this ended up severing the feedback mechanisms that make the free markets work (that is, if I _own_ a pizza place and make bad pizza I end up being poor. If I _manage_ a pizza place that makes bad pizza, but. I play golf every weekend with the Board of Directors , I still keep my job and get a bonus).

The incestrous network of empty suit execs who sit on each other's boards, fiercely protect their power, and give themselves raises and bonuses is not much different than the party elites in the former communist countries, which failed so miserably economically.

So, no. Give more power and protections to shareholders against parasite executive elites - this would make the markets work better. Marx-inspired experiments where ownership instincts and interests are extinguished to empower bureaucracies - be it Communist party hierarchies or MBA corporate elites - simply do not work.

[Icarus Green]

Gadfly: I made the same point in an old post. Scarcity is the problem that begets the study of economics. Solve it with unlimited energy and automation, and we can all sit back and relax. I worry though about the experiment with the mice that were given their utopia and because there was a lack of evolutionary pressure in the society, they stopped reproducing and the females raised their standards to such a high point post scarcity that there was little in the way the male mice could offer them beyond aesthetics, which they duly indulged as the population was slowly wiped out.

WVO House: Economics is not a science. We can barely use the scientific method (experimentation, replication, controlled studies etc) and the objects of our study are not immutable physical phenomenon. If observations fit the data, the best we can do is look at history to verify, for which we do find evidence of some of Marx's points.

[Luis Enrique]

here is the IMF jumping on the Marxist bandwagon:

http://www.imf.org/external/pubs/ft/fandd/2015/03/jaumotte.htm

[Larry Headlund]

Britomonist: In the first chapter of the first volume of Capital your objection to the LTV is addressed.

For example
If the thing is useless, so is the labour contained in it; the labour does not count as labour, and therefore creates no value.

or
Some people might think that if the value of a commodity is determined by the quantity of labour spent on it, the more idle and unskilful the labourer, the more valuable would his commodity be, because more time would be required in its production. The labour, however, that forms the substance of value, is homogeneous human labour, expenditure of one uniform labour power.

The LTV has its problems but it is not so simple to refute it. Marx was a lot of things. Stupid wasn't one of them.

[Alex Bollinger]

"And no, most economists are not "shills for the rich", even though I'm sure it's easy to believe that anyone who doesn't align with your preferences must have ulterior, selfish motives and that's the only reason they don't care for your theories."

I'm always surprised to see economists dismiss out of hand the idea that some people respond to incentives and that those incentives sometimes include money, as if the idea is so ridiculous that considering it makes one a conspiracy theorist.

Economists are economic agents like everyone else.

[Luis Enrique]

Alex the point is that most economists do not face "shill for the rich" incentives - think about how is editing journals, handing out research grants etc. some economists get paid gigs churning out rich friendly stuff, others get paid gigs churning out left wing stuff, most do neither.

[Luis Enrique]

Larry

"If the thing is useless, so is the labour contained in it; the labour does not count as labour, and therefore creates no value."

so how does the LVT differ from a subjective theory of value if the quantity of labour deemed "contained" in the good is a function of subjective evaluations?

if two chefs work equally hard producing two meals - one horrible and delicious, and so I say the value of the delicious meal is higher, and you say aha! that just shows the value of the labour that produced it was higher, where has that got us?

[Deviation From The Mean]

The above criticims of Marx show that the major problem is actually the total ignorance of those who criticise him, people who clearly have not read a word or got to grips with the concepts and ideas.

It is difficult, multi dimensional stuff that Marx presents. It is also both historical and logical.

All I can say is stop embarrassing yourselves and at least try to begin to understand the thing you are writing off as if you are the font of all knowledge. So go read him and digest seriously.

I think Luis's 2 chefs example takes the biscuit though (Britonomist runs him close). How can someone who claims to be a bit of an expert on orthodox economics come up with an example so staggeringly stupid? That genuinely is a puzzle to me.

[Luis Enrique]

Deviation

I do not claim to understand Marx or LVT. I was asking Larry about his response to Britonomist. It would be nice if you explained what was staggeringly stupid about it. While you're at it, I'd be interested in a response to my question from yesterday, above, about profit rates.

[dilberto]

Capitalism is a cumulative process of economic development which improves the efficiency of an economy in order to increase its output by increasing the economic resources conferred on those who are judged by the market to be more economically productive, the rich, and reducing the resources conferred on those who are judged by the market to be least economically productive, the poor. So economic inequality is intrinsic to capitalist economic growth and development, the reason that inequality does not rise in step with economic development is that capitalist development acts as a subtle form of population selection, the population becomes increasingly gentrified as a result of that process, so poverty in capitalist societies is eliminated by eliminating the poor but at the cost of sacrificing a surviving population for a more economically productive one producing the demographic and cultural trends which are common to all economically developed societies.

The revisionism of contemporary western Marxists stems from their gentrification and their attempt to reconcile their rejection of the economic effects of intensive neo-liberalism and their support for its cultural effects.

[UnlearningEcon]

@britonomist

""Value" is subjective, it's that simple."

It really isn't. Subjectivists and Marxists mean two different things when they say 'value'. For Marxists, 'value' is the phenomenon underlying production and surplus under capitalism. For subjectivists, it means personal preferences. It's incredible that two different uses of the same word has caused so much confusion for so long.

@luis

"Does Marx say that once profits are sufficiently low, they no longer qualify as exploitation but as a fair return on capital? I am thinking of an analogue of "the cost needed to bring that factor into production" as this wiki definition of economic rents puts it: http://en.wikipedia.org/wiki/Economic_rent"

No - exploitation does not depend on the amount of profit the capitalist gets; it simply depends on the labour-capital relationship. Capitalists pay workers wages below the value that they produce, the difference being exploitation.

I suppose you're asking whether a capitalist could feasibly pay a worker more than the value they produced, and hypothetically I guess this could happen. But it couldn't be widespread, as such as business would be sucking up surplus from elsewhere, resulting in no profits -> no capitalism. And even this would still retain the owner's control over what was produced, which is for me the essence of the relationship in qualitative terms.

"And if so, if the rate of profit is supposed to fall over time, does that mean capitalism gets less exploitative until, perhaps, it is no longer exploitative at all?"

Well, the point is that as the RoP falls it generates crises which reset it to a higher level (or prompt some sort of social revolution/disintegration). Capitalism can't continue existing with a low rate of profit for reasons that aren't necessarily marxist (no growth, unemployment etc).

@Matt Moore

"I can work for years on an invention or artwork but if no one wants it, it's worthless."

This is true, and something Marx also believed, but commented:

"What has this to do with my theory of value? To the degree that corn is sold above its value, other commodities...are, to the same degree, sold below their value. The sum of values remains the same."

The point is that the LTV concerns aggregate, economy-wide trends rather than individual prices. There is disagreement among Marxists about this, but IMO @Brett is right to note that the empirical evidence Chris presented is partly tautological. Investigations into the LTV should concern aggregate rather than micro tendencies.

[Luis Enrique]

UE

you are probably right to point to vocabulary problems, because I find this incomprehensible

"exploitation does not depend on the amount of profit the capitalist gets; it simply depends on the labour-capital relationship. Capitalists pay workers wages below the value that they produce, the difference being exploitation."

so in aggregate products are sold generating revenues R the capitalists pay workers wages W and retain profit P. But the exploitation has nothing to do with profit. There is something called value V (distinct from R) and the wage W is less than V, and the gap between V and W is E, the extracted value, exploitation. And V and E are some metaphysical quantities determined by LVT in a fashion that I very obviously do not comprehend and also have not yet had anybody explain to me in plain English.

What does "simply depends on the labour-capital relationship" mean? Does it mean that exploitation exist by definition when workers do not own the capital, no matter how high wages are? So even very well paid workers are exploited? If so, this may be a reason few people take Marxism seriously - most people use the world exploitation to mean something other than "very well paid"

And there is nothing in Marxism that says, when production involves a combination of labour and capital, that value of the output might be shared between the workers and whoever paid for the capital in a fair fashion that does not merit being called exploitation?

[TAS]

I have read in Marx a lot, and I like him. But I wonder. Nobody can agree what the labour theory of value is. The argument goes on, not just between marxists and anti-marxists, but between marxists and marxists too. Both sides ask in exasperation whether they've ever actually read the damn stuff. Marxism becomes theology – just constant and never-ending reinterpretations of what he "really" meant. I think Francis Wheen got it spot on. Capital Volume I is not a work of economics or of science – it's a satirical utopia. It takes the pronouncements of the classical economists as if they were true – adjusting for their own absurdities and inconsistencies – and shows what horrors result. The horror he didn't predict was his own legacy – centuries of people arguing, in mind-numbing detail, over how to determine the value of a yard of linen and a coat.

[An Alien Visitor]

"And there is nothing in Marxism that says, when production involves a combination of labour and capital, that value of the output might be shared between the workers and whoever paid for the capital in a fair fashion that does not merit being called exploitation?"

Erm, there is nothing in Marx that would ever say production didn't involve labour and capital! If that were the case we wouldn't be talking about capitalism!

Reading this lot may help clear up any confusion:

https://www.marxists.org/archive/marx/works/date/index.htm

[Kaleberg]

The problem with value is that it can't be measured. You can measure prices just fine, but, at best, you can only infer value. In this discussion we see another example of why the idea of value is a problematic.