David F. Ruccio — Utopia and value theory

Mainstream economists refer to it as price theory, everyone else value theory. But whatever it’s called, it’s at the center of economists’ differing explanations of what happens in (and alongside) markets.

As I see it, price/value theory serves as the framework to explain a wide range of phenomena, from how and for how much commodities are exchanged in markets through the determinants of the distribution of incomes to the outcomes—for the economy and society as a whole—of the allocation of resources and commodities through markets.

And each price/value theory has a utopian dimension. It’s not just an accounting for and an explanation of the conditions and consequences of commodity exchange; it’s also a way of thinking about the fairness and justice of markets. It therefore informs (and is informed by) a utopian horizon within and beyond markets.

Let me explain.…

Excellent short explanation of a key economic idea that functions as a political weapon in the class war.

The differences between neoclassical price theory and Marxian value theory couldn’t be more stark. The differences are even more dramatic when we compare their utopian horizons. Whereas neoclassical price theory leads to a utopian celebration of capitalist markets, Marxian value theory both informs and is informed by a utopian critique of capitalist exploitation—and therefore a movement beyond capitalism.

The question is how surplus value is created. Surplus value becomes profit (owners' share by fact of ownership), which is income that is not earned since it is the difference between proceeds and wages.

In both cases—neoclassical price and Marxian value theory—the story about commodity exchange, and therefore the analysis of the form that wealth takes under capitalism, has a utopian dimension. The two theories have that in common. Where they differ is the form that utopian dimension takes....

Occasional Links & Commentary
Utopia and value theory
David F. Ruccio | Professor of Economics, University of Notre Dame

See also

Michael Roberts Blog
Inequality and exploitation
Michael Roberts

See also

Monthly Review
The Multiple Meanings of Marx’s Value Theory

Riccardo Bellofiore

David F. Ruccio — Inequality and immiseration

"Immiseration" has a nice quality to it and is less emotionally loaded than "exploitation," which is now associated with "Marxism" in the pejorative sense in capitalist countries like the US.

It’s clear that, for decades now, American workers have been falling further and further behind. And there’s simply no justification for this sorry state of affairs—nothing that can rationalize or excuse the growing gap between the majority of people who work for a living and the tiny group at the top.

But that doesn’t stop mainstream economists from trying...

Are mainstream economists capitalist shills or are they just clueless about reality? Or maybe both.

American workers are getting relatively less of what they produce, which means more is available to distribute to those at the top of the distribution of income.

That’s what mainstream economists can’t or won’t understand: that workers may be worse off even as their wages and incomes rise. That problem flies in the face of every attempt to celebrate the existing order by claiming “just deserts.”

There’s nothing just about the relative immiseration and growing inequality faced by American workers. And nothing that can’t be changed by imagining and creating a radically different set of economic institutions.

Economists operate in terms of the institutional status quo and those stepping out of line are marginalized a "heterodox," or "Marxist." The economics department at Notre Dame, where David Ruccio taught for many years, was recently reorganized to diminish if not entirely excluded heterodox teaching. This is also an institutional problem and it is closely connected with the larger institutional issues in which contemporary capitalism is embedded and imposed on workers (labor) and the environment (land).

The economics profession needs to be address these issues to remain credible.

 

Occasional Links & Commentary
Inequality and immiseration
David F. Ruccio | Professor of Economics, University of Notre Dame

David Ruccio — Dual economies and the vanishing middle-class

Both Peter Temin and I are concerned about the vanishing middle-class and the desperate plight of most American workers. We even use similar statistics, such as the growing gap between productivity and workers’ wages and the share of income captured by the top 1 percent.

And, as it turns out, both of us have invoked Arthur Lewis’s “dual economy” model to make sense of that growing gap. However, we present very different interpretations of the Lewis model and how it might help to shed light on what is wrong in the U.S. economy—with, of course, radically different policy implications.

It is ironic that both Temin and I have turned to the Lewis model, which was originally intended to make sense of “dual economies” in the Third World, in which peasant workers trapped by “disguised unemployment” and receiving a “subsistence” wage (equal to the average product of labor) in the “backward,” noncapitalist rural/agricultural sector could be induced via a higher “industrial” wage rate (equal to the marginal product of labor) to move to the “modern,” capitalist urban/manufacturing sector, which would absorb them as long as capital accumulation increased the demand for labor.

That’s clearly not what we’re talking about today, certainly not in the United States and other advanced economies where agriculture employs a tiny fraction of the work force—and where much of agriculture, like the manufacturing and service sectors, is organized along capitalist lines. But Lewis, like Adam Smith before him, did worry about the parasitical role of the landlord class and the way it might serve, via increasing rents, to drag down the rest of the economy—much as today we refer to finance and the above-normal profits captured by oligopolies....

So, our returning to Lewis may not be so far-fetched. But there the similarity ends. 

Occasional Links & Commentary
Dual economies and the vanishing middle-class
David F. Ruccio | Professor of Economics, University of Notre Dame

Robert Paul Wolff — One Last Word on Exploitation

The Philosopher's Stone
One Last Word on Exploitation
Robert Paul Wolff | Professor Emeritus, University of Massachusetts Amherst

Robert Paul Wolff — The Connection Between Expropriation and Exploitations, Part Two

… “Clearly,” I said to myself, “workers in a capitalist economy are getting the short end of the stick, but Marx’s explanation, invoking the distinction between labor and labor-power and all the rest, is wrong. So what is the explanation? What is more, how can we capture in our explanation the central feature of capitalism to which Marx devotes so much time in the opening chapters of Capital, namely its mystification of what is going on?”

So I went back to Marx’s text and looked again. And there it was, as plain as day. The workers in a capitalist economy get only a portion of what they produce by their skill and labor, because by a long historical process of expropriation, they have been denied ownership of their own means of production – of their tools, of their machinery, even of their skills – until all they have left is their labor, which if they wish to live they are compelled to sell in the marketplace as though it were a commodity whose natural price is the cost of its reproduction. Why don’t farmers get to eat all the food they grow, after setting aside what is needed for seed? Because they do not own the land and the farm tools. Why don’t factory workers get to wear the clothing they make or to sell it to buy the food they need? Because they do not own the wool or the cotton or the thread or the machinery with which they turn these materials into clothing.

How, I asked, can we capture this situation in a set of formal equations that explains exactly how the workers are getting screwed and simultaneously explains why in a capitalist economy it seems as though the workers are getting a fair return for their labor? Here is what I came up with:

The Philosopher's Stone
The Connection Between Expropriation and Exploitations, Part Two
Robert Paul Wolff | Professor Emeritus, University of Massachusetts Amherst

Robert Paul Wolff — The Connection Between Expropriation and Exploitation, Part One

In this lengthy essay, I will explain the relationship between the claim that capitalism arises through the expropriation of workers, and the claim, specific to Marx’s economic theory, that capitalism rests on the exploitation of the working class. The term “exploitation” in Marx’s writings has a specific technical meaning which I shall explain in good time, but we should start by recalling that “to exploit” has two distinct and yet related uses in common speech. To exploit something means to use it for some purpose. “In his architectural designs, Frank Lloyd Wright exploited the particular physical and scenic characteristics of the site on which a building was to be constructed.” To exploit someone means to take advantage of that person for one’s own purposes. “Trump exploits contractors whom he hires on his construction projects by using the expense of legal proceedings to get out of paying the bills he has run up with them.” The first usage has no obvious normative implications. No one save a Mother Earth enthusiast would blame Wright for exploiting nature in his designs. The second usage at least prima facie does have normative implications. Marx deliberately plays on this ambiguity in Capital.

The Philosopher's Stone
The Connection Between Expropriation and Exploitation, Part One
Robert Paul Wolff | Professor Emeritus, University of Massachusetts Amherst

David F. Ruccio — Wage labor and capital—revisited

Deconstructing capital share and labor share.

Occasional Links & Commentary
Wage labor and capital—revisited
David F. Ruccio | Professor of Economics, University of Notre Dame

John T. Harvey — The Real Argument For Raising The Minimum Wage

There continues to be a great deal of debate over the economic impact of the federal minimum wage. Does it serve as a drag because it raises firms’ costs or do businesses experience higher sales as a result of the rise in their customers’ income? Obviously, if you consider only one side of that equation or the other–as most amateur analysts do–you reach a biased conclusion. The real question is, what is the net impact after all the relevant relationships are considered?

Fortunately, this has already been addressed in myriad professional, peer-reviewed studies using both mathematical modeling and statistical evidence. And there appears to be something of a consensus: changes in the minimum wage have little to no impact on employment (see for example: Why Does the Minimum Wage Have No Discernible Effect on Employment?). Apparently, the change in cost is largely offset by the change in demand and other factors. A little boring, perhaps, but it’s always a cause for celebration in my discipline when we get anything close to an agreement!

But if that is true, then what is the point of raising or lowering it?….

Forbes — Pragmatic Economics
The Real Argument For Raising The Minimum Wage
John T. Harvey

CJ Polychroniou — Actually Existing Capitalism: Wrecking Societies for the Benefit of Big Capital and the Super-Rich

The evidence suggests that capitalism has become wholly predatory and has given up all pretense of being "socially responsible."

Truthout | Op-Ed
Actually Existing Capitalism: Wrecking Societies for the Benefit of Big Capital and the Super-Rich
CJ Polychroniou

Richard Wolff — Nothing’s changed: Both political parties aim to protect and reinforce the capitalist system

The economic aim of both major US political parties is, in the end, the same: to protect and reinforce the capitalist system.

The Republican party does so chiefly by means of a systematic, unremitting demonization of the government. They blame it for whatever ails the capitalist economy. If unemployment grows, they point to government policies and actions, and attack particular politicians for what they did or did not do to stimulate the economy, directing criticism away from the employers who actually deprive workers of their jobs.

Republican solutions for capitalism’s ills always involve reducing the government’s demands on private capitalists – lower their taxes, deregulate their activities, and privatize government production of goods and services. Their program for the future is always: free the private capitalist system from government intervention, and you will get “prosperity” and growth.

The Democrats protect and reproduce the system by assigning to the government the task of minimizing the problems that beset capitalism. So, for example, they want the business cycles that are an inherent affliction of capitalism to be foreseen, planned for, minimized and overcome by government intervention. This is the underlying purpose of Keynesian economics and the monetary and fiscal policies it generates.

Beyond cycles, capitalism’s more long-term problems, such as tendencies to produce greatinequalities of income and accumulated wealth, lead Democrats to propose very modest government redistribution programs. Minimum wages, progressive tax structures, food, housing and other subsidies, and freely-distributed public services exemplify Democrats’ Bandaids meant to protect capitalism from its own potentially self-destructive tendencies...

The Raw Story
Nothing’s changed: Both political parties aim to protect and reinforce the capitalist system
Richard Wolff, The Guardian

When capital is institutionally favored over other key factors, labor and the environment, then a power structure and a privileged class results whose objective is not efficiency of capital but rather expansion of class privilege evinced as power and wealth. This results in social, political and economic distortion and systemic dysfunction at the expense of the other factors, labor and the environment.

Joshua Sperber — Krugman’s Austerity Blinders

Yet what is critical here is Krugman and other liberals’ understanding of precisely what “work” in fact means. 

Liberals are of course correct that European austerity, as well as the US version, has not generated an immediate economic expansion. But to get a clearer idea of the actual purpose of austerity, it is far more useful to listen not to liberal economists but to the politicians who actually decide to implement it. Greek European Commissioner Maria Damanaki recently noted, “‘The strategy of the European Commission over the past year and a half or two has been to reduce the labour costs in all European countries in order to improve the competitiveness of European companies over the rivals from Eastern Europe and Asia.’”

Similarly, in her recent keynote speech at the World Economic Forum, Angela Merkel was admirably frank in asserting that high unemployment is, according to the Guardian, the “price Europe had to pay to become more competitive.” Merkel’s statement that austerity is intended to “ensure the prosperity of our people” is an oxymoron only to those liberal economists who do not see capitalism as a class-based system. For, Krugman’s contention that recessions are merely “technical malfunctions” ignores what both politicians and capitalists have long asserted: recessions are “correctives” that reduce the cost of the one commodity that is more adjustable and often more expensive than any other: labor. 

Austerity, via slashing social spending and expanding a surplus labor pool that is ever more desperate, achieves its aim via making labor cheap enough so that it can again be profitably exploited by capitalists. That is, our recession will come to an end, and the standard of living will be ever-lower, once business can again make a profit off of an ample number of workers, which of course is wage labor’s raison d’etre in capitalism in the first place. While the consequences of further impoverishing millions of people in order to more effectively profit off of them might engender political instability, this is not part of the economic equation. After all, political instability is what police states are for.

Counterpunch
Krugman’s Austerity Blinders
Joshua Sperber

(h/t Kevin Fathi via email

Austerity was never about "fixing the debt" or reducing the deficit. Just another tool for wage suppression and reduction of worker benefits and protections in a race to the bottom with emerging markets and the undeveloped world. This race will occupy the better part of this century unless something intervenes.

Jim O’Reilly — Capital is power: an extremely useful simplification

Jonathan Nitzan and Shimshon Bichler in their work ‘Capital as Power’ bring us directly to the essential point: the fundamental fact of our socio-economic system is power. Capital isn’t a “factor of production”; it’s simply power, nothing more. That capital is power and power is capital is a highly fruitful simplification which must be accepted if we are to understand the nature of our system.

A brief look around shows us that the capital / power identity is self evidently true. In the United States, we know that the bottom 80% of the population owns just 7% of financial wealth and it’s about the same everywhere else. It’s certainly even more unequal than this given the massive hoards held in secret “offshore” accounts. Just 500 corporations control 40% of global sales and every major industry is under oligopolistic control.

David Rothkopf, well connected former managing director of Kissinger Associates, observes in his book ‘Superclass – The Global Power Elite and the World They Are Making’, that “A global elite has emerged over the past several decades that has vastly more power than any other group on the planet” and estimates that this elite numbers just 6,000 individuals. Stefania Vitali, James B. Glattfelder, and Stefano Battiston performed a comprehensive network analysis of direct and indirect corporate control and found that control is concentrated within a “tightly knit” core of financial institutions which they brand a “super-entity”. According to them, just 737 global holders control an incredible 80% of the value of all transnational corporations.

These are stark figures indeed and they make a mockery of such mainstream economic ideas as unfettered free markets....

Capitalism is a system of exploitation and mass prosperity is simply not part of the equation. The great “economic” problems of our world can be directly traced to this fact 

Let’s look at the system from a very high global level, assuming realistically that there are two fundamental classes, owners and workers, that our productive capacity is far above what is being utilized, and production is only undertaken when it’s profitable to owners. We can easily demonstrate that worker consumption can never be stand alone profitable to the owners. This is because the total possible sales proceeds for the owners are limited to the wages paid to the workers. No matter how hard the owners may try, sales for worker consumption products will always exactly equal the wages paid out and there will never be a profit.

Excluding the unsustainable possibility of ever rising worker debt, this is self-evidently true. A company cannot make a profit selling only to its own workers and similarly the consumer industry as a whole cannot make a profit selling only to consumer industry workers.

The unprofitability of worker consumption is a fundamental and greatly under-appreciated reality of the capitalist system. Simple logic tells us that workers will not be employed to produce for their own good. They won’t because it can’t ever be profitable.

The rest gets into the Kalecki profit equation: Profit = Capitalist consumption + Investment and its implications.

Jim concludes:

What I’ve said will be obvious to most of my readers and for that I apologize. But it’s not obvious to the many center-left “liberals” out there nor the well intentioned “centrists”, so I think it’s worthwhile to keep trying to simplify things. And the most fruitful simplification I think we can make is that capital is nothing but power. 

Comments on Global Political Economy
Capital is power: an extremely useful simplification
Jim O’Reilly

See also Chris Dillow, Mario Balotelli & primitive accumulation, at Stumbling and Mumbling.

So, is the inequality between worker and capitalist unjust? You can certainly tell just-so stories in which it isn't. But Marxists take a historical perspective. Marx devoted a large part of Capital vol I to describing "primitive accumulation", the process whereby capital came into the world as a result of theft, slavery and conquest: "capital comes dripping from head to foot, from every pore, with blood and dirt." This is, of course, no mere history: how did Russian oligarchs get rich?

An overlooked difference between Marxists and their opponents is that Marxists think this matters.

See also P2P Foundation, Book of the Day: Why Small-Scale Alternatives Won’t Change The World: review by Michel Bauwens, quoting the author, Greg Sharzer:

Our world is structured by how wealth gets produced. As I argue in my book No Local: Why Small-Scale Alternatives Won’t Change The World, capitalism is a system of making wealth socially and keeping it privately. Most of us, the ‘99%’, have to work; a very small number of people, the capitalists, get to own.

The latter face two major problems: they have to expand their production and lower their costs or risk competitors swallowing them up. This constant drive to expand creates unnecessary production and crisis. When the profit rate falls, capitalists have to do everything in their power to restore it. That can mean a recession and austerity, or even a war – anything to eliminate excess capacity and ‘surplus’ workers.

How we respond to this austerity – resistance or adapation – depends on how we understand capitalism. Localism sees it as uneven and fragile; the dispossessed can operate at the margins to create a fulfilling life for themselves. The alternative, a democratic, revolutionary socialism, agrees that capitalism is unstable and open to change, but not at the margins: rather, capitalism creates its own grave-diggers at its very centre. The working class, who have nothing to sell but their work, create everything and can therefore run everything. Capitalism can be organized against and overcome.

In the abstract, we can choose both. By going back to the land, we can create communities of resistance that provide the material and moral strength to resist neoliberalism. However, by not confronting capitalism, this localist form of citizenship fails on every level: ethical, practical and political.

Social democracy is in the air.

Matias Vernengo — What makes capitalism capitalism?

Are you sure you know? Take the test.

Naked Keynesianism

What makes capitalism capitalism?

Matias Vernengo

Yves Smith cosspost at AlterNet — NYT Mag's Adam Davidson Praises Economic Exploitation

In his latest 1% apologia, Davidson hails the capitalist lottery system for workers. Yves Smith explains the idiocy of this idea

Read it at AlterNet
NYT Mag's Adam Davidson Praises Economic Exploitation
by Yves Smith

Good to see AlterNet picking up on MMT and MMT allies like Yves lately. Word is getting out.