Thursday, October 21, 2021

Marx and MMT – Remarks on Long-Term Policy and Social Implications — Peter Cooper

In recent exchanges on Marx and MMT, one question has concerned the capacity of government spending to encourage private investment and promote employment. Some Marxists appear to regard MMT as incompatible with Marx on this question. My own view is that Marx and MMT are compatible, both in general and on this particular question, and that the contributions of both, when viewed together, hold an important long-term social implication. What follows is a set of remarks outlining my position. Remark 1 is intended to provide context and to identify what I regard as the main social implication following from a joint reading of Marx and MMT. Remark 2 notes the critical significance of Marx’s ‘law’ of the tendential fall in the profit rate when interpreting the long-term implications of MMT from a Marxist perspective. Remarks 3 to 10 concern private investment under capitalist conditions, its likely responsiveness to government spending, but also its crisis prone nature. Remark 11 questions the appropriateness of society pinning its future aspirations on private investment behavior. It is suggested that a transition to socialism is both preferable and, on the basis of MMT, already technically feasible for societies with their own currencies.
The definitive statement to date, between a blog post and an article.

Marx and MMT – Remarks on Long-Term Policy and Social Implications
Peter Cooper


Ahmed Fares said...

Recently, Tom posted an article that really got me thinking about what drives investment. Here is a quote from that article. (Tom's explanation of the debate was so good that I saved the article):

Michael Roberts (as I understand him from a quick reading) claims that Marx hold that the the profit motive is the driver of capitalism and that Marx further held that investment drives profits. Therefore, he disputes the MMT (Keynesian) claim that effective demand drives profits since, in his view, effective demand depends on investment.

After thinking about it for some time, I was thinking along the lines that it was like a stick that could be moved from either end, i.e., either the profit motive or effective demand would suffice. After reading Peter Cooper's article, though, it's clear in my mind now that you need both the profit motive AND effective demand to drive investment. Here is the part that stuck out for me from Peter's article.

In my view, so long as r exceeds rmin, private investment is ‘demand driven’ (in a sense to be explained in the next remark). The rationale for this behavior is a competitive onus on firms to expand production in response to persistently rising demand not only through higher utilization of existing capacity but through investment in new capacity whenever the normal rate of profit is deemed acceptable by competitors. Not to invest when faced with persistently strong demand and r in excess of rmin would be to risk losing market share to rivals who do invest.

This is not to downplay the priority of profit in capitalist investment decisions. Profit is the overriding aim of such investment, and a precondition for it. The supposed demand-led investment behavior is predicated on a normal rate of profit acceptable to capitalists. If the normal rate of profit (averaged over all firms) falls below the minimum level necessary to induce private investment, there will be a collapse in private investment as those firms not able to realize at least rmin cease investment.

To me, this is an example of the "either/or" fallacy. In this case, it's "both/and".

Tom Hickey said...

Think about it. The profit motive is the driver of investment in production (capacity). Where does profit come from. In the closed system that doesn't include G, it must come from investment in production by way of sales of that which is produced, which is dependent on effective demand making notional demand effective though purchasing power. That purchasing power comes from firm spending on consumption and capital goods expressed as wages.

In the day of Marx, wages comprised total compensation, and Marx regarded capital goods as intermediate goods produced by labor and therefore reducible to labor. Surplus value amounted to the labor time that was not paid to labor as a result of commodity production and monetary exchange. So profit came from the extraction of surplus value when labor buys product it created for more than the value of the labor expended on its manufacture. Profit comes therefore from the labor that workers provide free but pay for to purchase commodity production in a monetary production economy where the means of production are not owned by workers but by investors ("capitalists"). Marx attempted to expose the shell game.

There are many more gears in the actual machine, but this is the simple stylized closed system model.

At the same time it must be borne in mind that institutional arrangements were different in Marx's time, so in a way comparing then to now it is comparing apples to oranges.

Of course, G changes the picture, as does an open economy (NX=net exports), which Keynes took into consideration much more than Marx did, which is not surprising since Keynes invented macroeconomics (although Joan Robinson was first to use the term). See John Weeks, Principals of Macroeconomics: 3. Marx on Accumulation and Instability

But Marx would likely argue today that even through conditions have changed markedly, the shell game operates on the same principles as he set forth then, or very similar ones. For example, changes in the structure of capital have enabled owners to extract more surplus value than previously, which is a reason for rising inequality of income (flow) and wealth (stock) and consequently, social dysfunction leading to unrest, threatening capital itself.

Ahmed Fares said...


The return which are referring to as surplus value is a return for a number of things, the major one being for bearing risk. I know this stuff well because analyzing risk has been my life's work. I'm a self-trained securities analyst with the equivalent of two doctorate degrees in this area. (four years of accounting to the level of a chartered accountant, six years of finance to the level of an MBA, and eight years of both microeconomics and macroeconomics. Though on the economics front, I feel I hardly know anything, which is why I continue learning in this area.)

As a previous business owner (hair salon), I learned how much risk a person bears when you sign a lease agreement and commit yourself to at least five years of lease payments, not to mention other business costs, which puts everything you own at risk. This is far above the actual assets you buy when you purchase a business. My wife, who is a hair stylist, gives up 40% of her current earnings to a business owner, most of which are pass-through costs to landlords, utilities, etc., but we feel we're getting a good deal, having seen the risks from both ends, i.e., being a business owner and being a worker.

That's not to say there isn't a lot wrong with the system, and you do have excess profits being extracted in some areas by business owners and excess wages by some workers, but the idea of surplus value itself being some kind of free lunch is completely wrong. When capitalism works correctly, the excess profits are competed away, leaving just enough profits to compensate for risk.

Risk is commensurate with reward. You look at corporation's capital structure to easily see that. Equity is first loss capital and earns the highest return, and the returns fall as you move up the balance sheet. There are some who avoid stocks completely and invest in real estate, which has risks of its own. Others would rather just sit in cash and lose a bit to inflation each year.

As for real estate risks, I recently read this story:

New York Air Force veteran and her young daughter are living out of her car after being unable to evict tenants who refused to pay rent for almost a year under moratorium

A landlord in upstate New York has been forced to live out of her car after the tenants of her three properties refused to pay rent for almost a year - while she is unable to evict them due to the state and federal moratoriums.

Brandie LaCasse, who is owed more than $23,000 in uncollected rent from her three properties, has not received rental assistance funds from the government after at least one of her tenants were approved for rental help, CBS News reported.

LaCasse, an Air Force veteran, has been left effectively homeless without the income to support herself and her daughter. The single mother and her daughter have been living out of her car or staying with friends.

'I've cried many nights, like thinking, 'Where's my money?'' she said.

She added: 'I don't understand how they can give my private property to somebody to live for free. I bought that property. I fixed it up with my blood, sweat and tears.'

'I invested in these properties, never thinking I wouldn't have a place to live. I just want my house. That's it. I just want my house,' LaCasse said.

Tom Hickey said...

To dumb it down, Marx distinguishes production of that which is "socially necessary," i.e., for reproduction of society, from production of discretionary goods, ie. that which is not socially necessary for reproduction. He also aggregates all other economic aspects under activities that are not productive, including interest payments, ROI from profits, rents, etc.

All of these are paid out of the free labor of workers, the "surplus value" they alone create, of that which is socially necessary and all goods and services that are not, i.e., discretionary. That which is necessary for social production is, well, necessary. The rest is not. It is an unnecessary incursion on the leisure of all those providing the surplus value that would otherwise be free (enjoy leisure).

What this amounts to is that capitalism leads to unfreedom since it depends on unpaid labor, which is a definition of slavery. If one doesn't get this, one is either on the side of the bourgeoisie or else has drunk their Kool-Aid. IIRC, George Carlin put it more humorously.

I am not saying that capital doesn't have an internal logic. Neither was Marx. He was saying that it contains internal contradictions that will lead to its replacement by a system that provides greater freedom to all. I have put this in terms the paradoxes of liberalism, social, political and economics, and their historical dialectic, along with that of the conflict of liberalism and traditionalism.

Risk is one of those aspects of the internal logic of capitalism that makes perfect sense in that system. Marx doesn't challenge that. He points out that assumption of risk through investment adds nothing substantial to social reproduction that could not be accomplished by a system other than capitalism, namely socialism, where risk and investment don't play a role and the outcome is more freedom in the sense of leisure time and no time spent in unpaid labor.

Needless to say, the ownership class absolutely detests the labor theory of value and has done everything possible to undermine it, for example, by suborning politicians and the academy.

Ahmed Fares said...

He points out that assumption of risk through investment adds nothing substantial to social reproduction that could not be accomplished by a system other than capitalism, namely socialism, where risk and investment don't play a role and the outcome is more freedom in the sense of leisure time and no time spent in unpaid labor.

It's been tried and found wanting, which is why they ended up in capitalism again. Even in the former Soviet Union's centrally planned economy, you had to have those people that needed to determine the future direction of the economy, so the surplus value went to them instead.

The usual reply by socialists is that it wasn't done right and that if they were in charge, it would work well. Recently, the idea of a command economy has been abandoned by some socialists, who seem to have replaced it with the idea of worker cooperatives. Richard Wolff comes to mind here. We're still waiting on those workers to do that.

As an aside, all new investment bears risk. The question is on whom that risk lands. Perhaps the Chinese model is best, where you have capitalism, but it's guided by the state.

Tom Hickey said...

It's been tried and found wanting, which is why they ended up in capitalism again

Marx noted this. It's historical, he explained.

"The general conclusion at which I arrived and which, once reached, became the guiding principle of my studies can be summarised as follows. 

"In the social production of their existence, men inevitably enter into definite relations, which are independent of their will, namely relations of production appropriate to a given stage in the development of their material forces of production. The totality of these relations of production constitutes the economic structure of society, the real foundation, on which arises a legal and political superstructure and to which correspond definite forms of social consciousness. The mode of production of material life conditions the general process of social, political and intellectual life. It is not the consciousness of men that determines their existence, but their social existence that determines their consciousness. At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production or – this merely expresses the same thing in legal terms – with the property relations within the framework of which they have operated hitherto. From forms of development of the productive forces these relations turn into their fetters. Then begins an era of social revolution. The changes in the economic foundation lead sooner or later to the transformation of the whole immense superstructure. 

"In studying such transformations it is always necessary to distinguish between the material transformation of the economic conditions of production, which can be determined with the precision of natural science, and the legal, political, religious, artistic or philosophic – in short, ideological forms in which men become conscious of this conflict and fight it out. Just as one does not judge an individual by what he thinks about himself, so one cannot judge such a period of transformation by its consciousness, but, on the contrary, this consciousness must be explained from the contradictions of material life, from the conflict existing between the social forces of production and the relations of production. No social order is ever destroyed before all the productive forces for which it is sufficient have been developed, and new superior relations of production never replace older ones before the material conditions for their existence have matured within the framework of the old society. 

"Mankind thus inevitably sets itself only such tasks as it is able to solve, since closer examination will always show that the problem itself arises only when the material conditions for its solution are already present or at least in the course of formation. In broad outline, the Asiatic, ancient,[A] feudal and modern bourgeois modes of production may be designated as epochs marking progress in the economic development of society. The bourgeois mode of production is the last antagonistic form of the social process of production – antagonistic not in the sense of individual antagonism but of an antagonism that emanates from the individuals' social conditions of existence – but the productive forces developing within bourgeois society create also the material conditions for a solution of this antagonism. The prehistory of human society accordingly closes with this social formation."

Preface to A Contribution to the Critique of Political Economy

Tom Hickey said...

While Marx analyzed "capitalism" is detail, he said little about socialism for the simple reason that there was data to analyze in the case of capitalism and its antecedents, but not for socialism. It would grow out of future conditions that will emerge in a complex adaptive social system.

Marx and Engels thought that the process could be speeded up through revolution, but there is no reason to assume that based on Marx's analysis. He thought workers would finally get fed up and revolt, which was really the only practical choice under the political conditions then. Marx was under no illusions about this, however, since the the American Revolution incorporated slavery, the French Revolution led to Napoleon, and the revolutions of 1848 failed. He would say that the time wasn't ripe.

I did a master's thesis on this in the early 70s. The title was "Revolution or Evolution: Toward a Theory of Social Change." I concluded that evolution was more likely and that what was required for it was not so much a change in material conditions, as Marx held. Rather, it depended on a rise in the level of collective consciousness, standing Hegel back upright after Marx stood him on his head. I still think this.

Ahmed Fares said...

If I understand your comment correctly, it's saying that socialism is the end state. Personally, I think that the end state is what MMT advocates for with a JG, a mixture of the best of both public and private. To use Bill Mitchell's terms, we end the scourge of unemployment. But the private portion maintains the vigor that comes with private ownership of property.

A good example of that is Canada's government funded single payer health care. We can provide reasonable health care at around 11% of GDP, far under the US rate at around 18%, but we avoid the problems like with the NHS in Britain. What we have here is managed competition, without the excesses of unfettered capitalism.

Back to the first point, about the tendency of the rate of profit to fall (TRPF).

Geoffrey Hodgson stated that the theory of the TRPF "has been regarded, by most Marxists, as the backbone of revolutionary Marxism. According to this view, its refutation or removal would lead to reformism in theory and practice".[7] Stephen Cullenberg stated that the TRPF "remains one of the most important and highly debated issues of all of economics" because it raises "the fundamental question of whether, as capitalism grows, this very process of growth will undermine its conditions of existence and thereby engender periodic or secular crises."[8]

Marx regarded the TRPF as proof that capitalist production could not be an everlasting form of production since in the end the profit principle itself would suffer a breakdown.

Time will tell. We've had a secular decline in both interest rates and profit rates, but then again we've had that global savings glut (or a dearth of investment) recently with the rise of China and the Asian countries with their high levels of precautionary savings. In that case, we may see a rise in both interest and profit rates again.

As for your second comment:

While Marx analyzed "capitalism" is detail, he said little about socialism for the simple reason that there was data to analyze in the case of capitalism and its antecedents, but not for socialism. It would grow out of future conditions that will emerge in a complex adaptive social system.

Yes, I can see that now. It was pure theory for him. I did notice however that he kept changing his definition of "socially necessary labor time" when challenged on this point, which if I recall directly, was based on the labor theory of value.

So, here's a question about surplus value. Say you have two groups of workers that spend exactly the same amount of time producing purses. The workers get paid $10 for each purse. The purses produced by the first group sell for $20, the purses produced by the second group sell for $20,000. According to Marx, all value is produced by the workers. Does that mean that the second group of workers were exploited for $19,990?

I think the labor theory of value might set a lower limit, but it's the subjective theory of value that rules in the end. I brought that up because...

Labor Theory of Value. The labor theory of value is a major pillar of traditional Marxian economics, which is evident in Marx's masterpiece, Capital (1867). The theory's basic claim is simple: the value of a commodity can be objectively measured by the average number of labor hours required to produce that commodity.

Tom Hickey said...

The final state for Marx is communism: From each according to ability, to each according to need. No state but rather democratic governance. Private property would come to be viewed as a primitive stage of human development with a much less developed level of collective consciousness.

Marx's labor theory of value (he did not use this phrase) is disputed as is much of Marx's writing.

As a professional philosopher that studied history of philosophy, this is true of most thinkers.

Sandwichman (Tom Walker) recently put up a series of posts on socially necessary labor in Marx on Econospeak that I recommend. it is written in very understandable terms. I did not link to it since it is rather specialized for MNE.

Dumbing it down, "socially necessary" essentially means needed for social reproduction, that is, society reproducing itself over time. This is the essential function of an economy as a life-support system for society. "Concrete labor" means specific jobs, while "abstract labor" is the sum of concrete labor that goes into commodity production, and "labor time" is an averaging of labor in producing commodities. Difference in wages per hour is based on "labor power," that is, the knowledge, skill, experience and brawn of the worker that a firm leverages to produce commodities for profit. This is a stylized model, but in my experience it is also how firms approach such issues, too. It is much simpler to look at averages in cost analysis than at a complicated spreadsheet of all inputs that create output in commodity production to get a quick overview.

The subjective theory of value is in terms of money value in exchange (markets) based on marginal utility. Marx held that this is a mystification of value that underlies commodification in a monetary production economy. In a non-monetary production economy, goods exchange for goods, that is, real value for real value. In a monetary production economy goods exchange for money and money for goods. That is, real value is exchanged for money which is subjective value.

This process of mediation though money obscures real value and allows for the shell game that transfers the a portion of the real value created by workers that produce the real goods to non-producers, which is comparable to tenant farmers working land for the landlord so many days a week for the privilege of working the land for themselves a few days a week. The tenant farmers were just moved over to factories in Marx's view. The rent extraction is similar in the two but concealed in the later as surplus value. The mystification through mediation was justified by marginalism subsequent to Marx.

Here is a simple explanation of all this. Mick Brooks, An introduction to Marx's Labour Theory of Value

Tom Hickey said...

MMT posts a labor theory of value in the form of the compensation paid in the MMT JG, which anchors the currency to the amount the government elects to pay for an hour of unskilled labor. Note that this is a real value.

Under a gold standard, gold is the real anchor.

In a floating rate system, the anchor is the price (interest) that the government, acting through the central bank, chooses to pay on required deposits, which is a nominal variable that serves as the benchmark rather than a real value, which is consistent with a subjective theory of value.

Tom Hickey said...

Oops. "MMT posts a labor theory of value" should be MMT posits a labor theory of value

Ahmed Fares said...

A long article but well worth the read. I especially liked the simple examples of say, a horse and oats in explaining Marxist thinking. Having said that, I've seen just as many counterexamples arguing against the logic being used here. Here is one quote from an article arguing against the labor theory of value (bold mine):

Although Marx tried to use the labor theory of value against capitalism by stretching it to its limits, he unintentionally demonstrated the weakness of the theory’s logic and underlying assumptions. Marx was correct when he claimed that classical economists failed to adequately explain capitalist profits. But Marx failed as well. By the late nineteenth century, the economics profession rejected the labor theory of value. Mainstream economists now believe that capitalists do not earn profits by exploiting workers (see profits). Instead, they believe, entrepreneurial capitalists earn profits by forgoing current consumption, by taking risks, and by organizing production.

source: Marxism - By David Prychitko

I've already talked about bearing risk, so I'll focus on "forgoing current consumption".

Take an example of two families that have the same income. One family spends everything they earn, including taking expensive vacations, the other family saves the excess over their living expenses and invests in shares like the article states. Over time, that family that saves and invests will have more investment income such that they can eventually live off of their investments. In other words, by forgoing consumption, they attain financial security.

While it's true that some people don't have extra income to save, there are many that do, but choose not to. They value living for today over financial security in the future. They have a right to make that choice, but not to complain when others make a different choice.

The article did note that most people own shares indirectly but complains that it doesn't compare to the number of shares that the rich own. But again, most people have a choice in consumption versus investment. For some, it means working overtime or working extra jobs to have that investment money.

Tom Hickey said...

I think it is important in economics, sociology, poli sci, etc. to understand Marx's simple model.

He is saying that humans are "born free," like other animals but must also work to provide their necessities, like other animals have to hunt, graze, etc. As a species there is a total amount of real goods that humans have to produce continually in order to maintain reproduce themselves.

Unlike other animals, humans have choice over this and being a social species, they are not lone providers.

There are options that humans have available, limited by the conditions of the time. As a result, human went through the hunter-gatherer stage of development with little technology, then the agricultural stage with greater technology and more productivity, as well as the ability to store goods (grain) to mitigate scarcity, and then the industrial stage, with an explosion of technology that greatly increased productivity.

Each stage involved a superstructure involving more leisure time available owing to increases in productivity, different types of governance regulating cooperative work, and a different cultural superstructure built on the economic infrastructure for social reproduction, leading to increased civilization.

The three economic systems were tribalism, feudalism, and capitalism. In all systems, human freedom was limited both by necessity and organizationally. Feudalism and capitalism were characterized by class structure and concentration of power and wealth by extracting surplus value as economic rent.

Marx posited that there was another option that would lead to the greatest freedom including greater opportunity for leisure. This would be socialism initially, with a dictator ship of the proletariat managing the transition period to the end state of communism, which would be characterized by "from each according to ability and to each according to need" economically and stateless governance based on genuine democracy of the people, by the people and for the people. Socialism would abolish asymmetries of class, power and wealth and eliminate economic rent. This would be the most efficient means of social reproduction that guaranteed human rights.

The details of Marx's long and complicated argument, not helped by his 19c. Germanic philosophical approach, are disputed but the outline of it is pretty clear. One doesn't have understand in depth the details that are disputed to get the point that labor is the basis of capital, paraphrasing Abraham Lincoln.

The "refutation" of the labor theory of value, subscribed to in different forms by classical economists including Marx, is based on marginalism, which has its own problems, as "heterodox" economists have pointed out. Marginalists are as dogmatic about their theory as dyed-in-the wool Marxists are about theirs. I give little credence to conventional economists views about Marx for the same reason I give little credence to their criticism of MMT — they have not done due diligence in understanding either and have asserted their own assumptions as supposedly indisputable first principles of true knowledge.

The debate is not over yet, and few accept Fukuyama's conclusion in The End of History that Western liberalism — capitalism being economic liberalism — is the final state of human development. He has since changed him mind himself.

I have suggested that humanity has gone through the Tribal Age, the Agricultural Age and the Industrial Age, and is not on the cusp of the Digital Age. Each of the previous ages had its associated economic system and dominant form of governance.

I expect the same of the Digital Age and the huge increase in productivity it promises through automatic, robotics, AI, etc. will alter the mode of production to the degree that a new social, political and economic system will emerge based on it. Will it prove Marx was correct? I have no way of knowing but at least the potential is there.

But this is contingent on raising the level of collective consciousness of humanity.

Tom Hickey said...

"I have suggested that humanity has gone through the Tribal Age, the Agricultural Age and the Industrial Age, and is not on the cusp of the Digital Age" should be I have suggested that humanity has gone through the Tribal Age, the Agricultural Age and the Industrial Age, and is now on the cusp of the Digital Age.

Peter Pan said...

You can't get people to agree that capitalism is an exploitative system.
The "debate" fails at the 'muh values' level.

I predict the digital age will be nasty, brutish and short.

Because... nasty values, brutish behavior, and the laws of physics.

Tom Hickey said...

You can't get people to agree that capitalism is an exploitative system.

Marx treated this under commodity fetishism and mystification.

"Raising consciousness" in this sense means education workers about the shell game, which is is similar to institutional religion in this regard. See also "false consciousness."

Marxians would say that workers who support capitalism as a socio-economic system are willing victims since they have been brainwashed by a system run by the ownership class that extracts rent in a way very similar to the way landlords extracted rent under feudalism, only under capitalism it is cleverly disguised. Marx attempted to rip off the mask and many sympathizers continued to develop this endeavor. The reason most don't learn about it is that it has been marginalized and demonized by propaganda against it.

Peter Pan said...

Workers who make good salaries have good reason to support capitalism. Minimum wage earners, not so much.

Exploitation is subjective, easily rationalized, and may even be justified.
Good luck winning that "debate". It's a recipe for accomplishing nothing.

Ahmed Fares said...

re: feudalism

I'm a strong believer that there is no such thing as a free lunch. If you see one, you haven't looked hard enough. I mentioned earlier that there is a reward in capitalism to bearing risk which got me thinking about that free lunch as regards feudalism. A quick search got me this from Wikipedia as regards French feudalism:


The French nobility had specific legal and financial rights and prerogatives. The first official list of these prerogatives was established relatively late, under Louis XI after 1440, and included the right to hunt, to wear a sword and, in principle, to possess a seigneurie (land to which certain feudal rights and dues were attached). Nobles were also granted an exemption from paying the taille, except for non-noble lands they might possess in some regions of France. Furthermore, certain ecclesiastic, civic, and military positions were reserved for nobles. These feudal privileges are often termed droits de féodalité dominante.

Now the risk:


However, the nobles also had responsibilities. Nobles were required to honor, serve, and counsel their king. They were often required to render military service (for example, the impôt du sang or "blood tax").

Then ask yourself how many of the French nobility lost their lives at the battles of Agincourt, Crecy, etc. In times like those, it's good to be a serf.

Ahmed Fares said...

re: entrepreneurship as the fourth factor of production

This is a true story, but I vaguely remember the details.

A Canadian engineer went to his home village in India, where they were constantly suffering famines from droughts. India gets a lot of rain in the monsoon season, so he hired the locals to build a very large round cistern from rocks in the area that when crushed were much stronger than cement. The village is now prosperous as the land is always green. He did this out of charity, asking nothing in return, and the cistern is owned by the village.

Now let's add a twist to the story. Assume that instead he was an entrepreneur who decided to keep the cistern for himself and charge the village a portion of their crop output for using the water.

Now at this point a Marxist shows up and tells the villagers that they're being exploited, and that if they seized the cistern, they could keep all the output for themselves. So the villagers do exactly that, and they get to keep the surplus value. But it also kills any future innovation.

So no, labor does not provide all value. As the above example shows, you need ideas also. Ideas are very powerful. In this case, it was the difference between life and death.

Tom Hickey said...

entrepreneurship as the fourth factor of production

NOT. It's either an aspect of capital or labor, depending on whether it is hired or owner provided.

The example of the Canadian engineer is irrelevant since this is not an example of capitalism but rather philanthropy.

Marx dealt with the under the organic composition of capital regarding technology. Technology increases productivity making fewer workers required. With the proliferation of technology, unemployment increases. Workers are still on the short end unless productivity gains are shared, which they generally are not, since innovation is adopted to increase profit rate and ROI and not to be shared with workers are make more leisure available. The only way "leisure" increases is through the unemployment that is generated, increasing the labor pool and moderating wages.

Tom Hickey said...

The nobles were on horseback as cavalry and the serfs they armed and provided for infantry were on foot. This was one of the obligations of a feudal lord as a vassal of the monarch.

It's also part of empire. It's much like the US requires its vassal states to provide and equip armies that make up NATO.

Tom Hickey said...

I posted this a few days ago but it is worth inserting here.


Ahmed Fares said...

Technology increases productivity making fewer workers required. With the proliferation of technology, unemployment increases. Workers are still on the short end unless productivity gains are shared, which they generally are not, since innovation is adopted to increase profit rate and ROI and not to be shared with workers are make more leisure available.

Competition drives price to cost. The easiest place to see that is in agriculture. Every new technology in agriculture releases labor and lowers the cost of food, which gives workers a rise in the real wage.

The benefits of technology always flow through to consumers. Meanwhile, the farmers struggle.

Ahmed Fares said...

How consumers benefited from productivity increases in agriculture:

150 years of wheat price data adjusted for inflation

Tom Hickey said...

The benefits of technology always flow through to consumers. Meanwhile, the farmers struggle.

In Iowa (where I live) agribusiness wiped out the family farm and all the associated families and hired hands, the support people in the towns, and related firms found themselves unemployed. Many had to move to cities to seek work, which was their worst nightmare. I saw grown men cry.

Consumers benefited — maybe. Owners of the agribusinesses certainly did and with growing monopolies resulting from concentration in the industry there is no longer the level of competition that previously existed. So it is difficult to determine whether consumers benefitted.

Peter Pan said...

Perverse incentives are a feature of every socioeconomic system.

Ahmed Fares said...

Farming is hard. I remember watching a PBS special called "The Farmer's Wife".

Described by the Chicago Tribune as "one of the extraordinary television events of the decade," the premiere broadcast of "The Farmer's Wife," a David Sutherland film, in September 1998 was seen by 18 million PBS viewers. More than four times as many people watched "The Farmer's Wife" as read Time magazine each week (4,000,000). The viewer response was 99% positive and cut across class, race, gender, and was as much urban as rural.

In 1973, "An American Family" became one of the most watched and discussed documentaries in television history. Now, a quarter century later, PBS presents another unforgettable family portrait, marked by the same intimacy and access to private life that made the Louds of Santa Barbara a household name. But this is a portrait of a very different kind of American family and of a very different America.

David Sutherland takes us deep inside the world of Juanita and Darrel Buschkoetter, a young Nebraska farm couple, to tell a compelling love story. Gleaned from more than 200 hours of film shot on location over three years, "The Farmer's Wife" follows Juanita and Darrel as they face seemingly insurmountable economic hardship, only to confront an even greater challenge -- saving their marriage.

The audience is privy to a disarmingly intimate, emotionally engrossing portrait of a passionate yet troubled relationship. In scene after scene, Juanita and Darrel fight a punishing series of battles -- with the soil, with the weather, with their creditors, with the government, and with each other. Their story unfolds before our eyes, as it is happening. What emerges is an epic story of faith, perserverance, and triumph, and an indelible portrait of a real American family's struggle to hold on to their dreams and to each other.

PART ONE of THE FARMER'S WIFE introduces us to the Buschkoetters in the spring of 1995 at a low point in their story. Juanita and Darrel are people on the edge, facing disaster and the loss of everything they hold dear to them-their farm, their possessions, their self-respect, their marriage. The survival of their farm hangs on the tenuous thread of an approval of a government loan, and Darrel's lifelong hope of taking over his father's nearby farm seems increasingly remote.

source with a couple of clips: The Farmer’s Wife

Tom Hickey said...

I met a "small" farmer in IA whose parents had a farm and did want him to go into farming. He disagreed and went to ag school and got a degree. He told me that farming is now totally different. All tech. Big machines (expensive) and all digitized. You just sit in the cockpit and listen to music. A lot time is also spent "in the office" looking at the commodity markets, since farming depends on futures. Totally different than he expected with lots of a leisure and very little actual physical work. But now you have to be a "knowledge person."

Tom Hickey said...

BTW, Marx as not a revolutionary anarchist like Lenin. He wrote against this, actually, based on the failed or co-opted revolution he was familiar with.

He thought they failed because the time was not ripe for a change in the relations of production since the mode of production had not shifted sufficiently.

He though this would be a gradual process and the conditions for change would occur owing to the contradictions in capitalism he observed. Only then could a revolution succeed in establishing a new socio-economic system based on genuine socialism that would last.

In this view, this has already been happening with the rise of unionism, universal suffrage, and other aspects of social democracy. There is a reason that the ownership class views social democracy as creeping socialism. In Marx's view it is.

Peter Pan said...

The Great Reset is a return to feudalism, but right-wingers only know how to scream about socialism.

Peter Pan said...

Farming of the future will only sell locally.
Technology that requires global supply chains will go the way of the dodo.

Peter Pan said...

Risk is commensurate with reward.

Yes, tell that to those who lost everything in their ill-fated business ventures.

Owners aren't rewarded for taking risk - they are legally entitled to it. Ownership, employment contracts, etc. are legal constructs. They are the functional bread and butter of capitalism. Talk about rewards, or who is deserving of what, is ideology.

As a side note, what would happen to the entrepreneurial class if debtor prisons were brought back?

Ahmed Fares said...

As a side note, what would happen to the entrepreneurial class if debtor prisons were brought back?

People wouldn't take risk and the economy would stagnate. One of the greatest inventions in the world is the joint stock limited-liability company.

The crucial innovation in modern economic history, as the authors emphasize, was not a technology but a legal concept: that of limited liability, the idea that the owners of a company risk no more than the sum they have invested. This far-reaching idea was controversial from the start.

Adam Smith, for instance, was skeptical. He regarded limited liability as an unwarranted legal privilege and a kind of subsidy. Without it, he believed, the joint-stock company would not survive in competition with owner-managed firms, which were bound to be better run. A few decades on, Robert Lowe, architect of Britain's Joint Stock Companies Act of 1856, argued the opposite: "If people are willing to contract on terms of relieving the party embarking his capital from loss beyond a certain amount, there is nothing in natural justice to prevent it." In other words, nobody was going to force people to work for limited-liability companies, or sell goods or services to them, or extend credit to them. If limited liability made the risk of transacting with such firms too great, they would fail of their own accord; and if not, what's the problem?

On a point of logic, Smith was probably right: Limited liability is a generous protection. True, as Lowe argued, the terms of contracts can be adjusted to take account of the risks facing the various parties — but contracts are not the only way of incurring liabilities. Firms, like people, may harm nonconsenting third parties. Why should owners' liabilities be capped in such a case? There is no reason in "natural justice" why they should. Smith might even have been right that owner-managed companies are better run, other things equal, than the professionally managed companies with dispersed ownership that would flourish under limited liability. The answer to this, and to the subsidy argument, is that other things are by no means equal.

Even if limited liability is a kind of subsidy, as Smith insisted, he would have struggled to deny, had he lived another 200 years, that it proved to be a staggeringly fruitful one. Neither he nor Lowe nor any of the other parties in the early debates about company law can ever have guessed what force of innovation and capital accumulation would surge from that seemingly modest institutional departure. The main thing, this history shows, is that owner-managed companies are at a disadvantage in raising cheap long-term capital. The limited-liability company is an unrivaled mechanism for doing just that — for accumulating capital and then efficiently investing it. That ability trumps everything. This process, the world has learned, is the engine of economic growth.

source: A Short History of a Fabulous Invention: The Company

Ahmed Fares said...

Risk is commensurate with reward.

Breathing is a risk.

You can't avoid risk. You can invest in real estate or the stock market and earn a higher return with its attendant risk. Or you can move up the capital structure to be safer by buying bonds and earn a lower return. Or you can sit in cash and bleed 2% a year to inflation.

If you play it "safe" and choose sitting in cash, you will lose 20% of your savings in 10 years, and 40% in 20 years. In that case, a new risk arises which is longevity risk, i.e., the risk that you might run out of money before you die.

Peter Pan said...

I'm not partial to the idea of investment, where the investor does nothing but contribute cash. That form of investment is lazy.

So entrepreneurial-ism depends on forgiveness for those who actually try to do something with other people's money. I'm amenable to that.

Richard Wolff's WSDE could be registered as an LLC. Any reason to treat those endeavours differently?

Ahmed Fares said...

From a comment on the primary and the secondary markets in securities.

Primary market is dependent on secondary market. Secondary market provides the necessary liquidity for the issued securities. The prospective investors of secondary market applies in primary market based on its experiences in secondary market. By providing safety, regulation in secondary market, stock market attracts investors in primary market. The health and subscription in primary market depends upon how secondary market is performing. If secondary market is not doing good, then generally you will not see issues doing good in primary market either. In fact investors does not differentiate between primary and secondary market.

As for Richard Wolff, he wants the government to cannibalize existing businesses to bring forth worker co-ops. Apparently, without entrepreneurs, the factors of production don't organize themselves, which is why he needs the government to do it.

Ahmed Fares said...

More on Richard Wolff,

Richard Wolff is a likeable fellow and he means well. In this video, at around the six-minute mark, he explains worker exploitation by saying that the employer will always sell the output of your labor for more than what you are paid.

The problem with this analysis is that if fails to account for the fact that some less-greedy capitalist will hire another worker from the reserve army of the unemployed and sell their output for a lower price, which is a rise in the real wage of all workers.

In the case where there are no unemployed workers, capitalists will poach workers away from other capitalists by offering higher wages, and the real wage rises that way.

Either way, the excess profits are competed away.

This is basic Econ 101 stuff which Richard Wolff seems to ignore here.

Abby Martin with Richard Wolff -Debunking Jordan Peterson's "Cultural Marxism" -May 2019

Peter Pan said...

Wolff is merely stating that owners are middlemen between workers and the fruits of their labour. Having to hire a manager brings forth the same type of overhead.

At the level of the firm, Wolff is correct. Profit = Revenue - Expense

The question is whether the owner or manager is necessary to the success of a business. If they aren't necessary, then they are unproductive rentiers.

Lazy investors are also rentiers. Government could replace that function with an investment bank. Doling out money to entrepreneurs is in the public interest.

In a meritocracy, idle savings wouldn't earn a penny.

Peter Pan said...

As for Richard Wolff, he wants the government to cannibalize existing businesses to bring forth worker co-ops. Apparently, without entrepreneurs, the factors of production don't organize themselves, which is why he needs the government to do it.

If the employees were interested in running an existing business as their own, it could be done. An interim step would be to transform the business into a profit share. If it survives as a profit share, then a transition to a WSDE could proceed. Or not.