Benefit-Cost Analysis and the Coronavirus — Peter Dorman

A little philosophy (value theory) today.

Personally, I think it would be madness to stick a monetary value on people’s lives and base our policy choices on whether the dollars on one side of the ledger outweigh those on the other. I wrote a book about that a while ago. The considerations that lead us to think primarily in public health terms at a time like this apply just as well to other issues, from food safety to climate change. The economists who crank out monetary values of life and believe all choices should be based on benefit-cost thinking have not yet had the integrity to step forward and make their case. This silence speaks volumes.

Econospeak
Benefit-Cost Analysis and the Coronavirus
Peter Dorman | Professor of Political Economy, The Evergreen State College

See also (dark humor)

On socially influenced preferences — Chris Dillow

So much for rational agency based on autonomous preferences as viable assumption for a realistic economics. The world in which we live is socially constructed, which is hardly surprising since humans are social animals (homo socialis) more than economic animals (homo economicus). Most are crowd-followers behaving endogenously within the social system they inhabit rather than exogenous agents acting independently of the social system.

Stumbling and Mumbling
On socially influenced preferences
Chris Dillow, Investors Chronicle

See also

Statistical Modeling, Causal Inference, and Social Science
The fallacy of the excluded rationality
Andrew Gelman | Professor of Statistics and Political Science and Director of the Applied Statistics Center, Columbia University

ABC News (AU)
Could the science of kindness make the world a better place?

David Sloan Wilson | SUNY Distinguished Professor of Biology and Anthropology at Binghamton University and Arne Næss Chair in Global Justice and the Environment at the University of Oslo

Karl Marx’s Law of Value in the Twilight of Capitalism — Murray Smith

Global capitalism, with humanity in tow, is now facing a triple crisis: a deepening structural contradiction of the capitalist mode of production, one manifested as a multi-dimensional crisis of ‘valorisation’ – that is to say, a crisis in the production of ‘surplus-value’, the very lifeblood of the profit system; an acute crisis in international relations stemming from the fact that the global productive forces are bursting the confines of the nation-state system, whose individual units continue to address their gravest problems in primarily ‘national’ ways; and a growing ‘metabolic rift’ between human civilisation and the ‘natural conditions of production’ – the ecological foundations of human sustainability. Together, these interrelated crises suggest that we have now entered a ‘twilight era’ of capitalism – one in which humanity will either find the means to create a higher and more rational order of social and economic organisation, or in which decaying capitalism will bring about the destruction of human civilisation....

Counterpunch
Karl Marx’s Law of Value in the Twilight of Capitalism
Murray Smith | Professor of Sociology at Brock University, St. Catharines, Canada

Finance, Class, and the Birth of Neoclassical Economics: The Marginalist Revolution Revisited — Yair Kaldor

Value theory in economics.

Economic Sociology and Political Economy

Finance, Class, and the Birth of Neoclassical Economics: The Marginalist Revolution Revisited

Yair Kaldor | PhD candidate in the sociology department at the University of Wisconsin-Madison, and a member of Koah LaOvdim (“Power to the Workers”), an Israeli labor union.

Why do we need a theory of value? — Matias Vernengo

The theory of value and distribution is at the heart of economics. To be clear, when I say that it is at the center, it means that discussions of almost any topic in economics, in one way or another, depend on a certain theoretical position about the theory of value and distribution. However, most economists have no clue about it, about the centrality of value. Not only they don't understand the original and now infamous labor theory of value (LTV), that dominated between Petty and Ricardo (and Adam Smith too, even though that tends to surprise and puzzle most economists),* but also they misunderstand the dominant marginalist paradigm. Some economists actually think that you don't need a theory of value at all, and some don't even understand that they use a conventional (some vulgar form of supply and demand) theory of value. Hence, the reason of this post is to try to help clarify some very basic issues related to the necessity of a theory of value for proper theorizing in economics….

Naked Keynesianism
Why do we need a theory of value?
Matias Vernengo | Associate Professor of Economics, Bucknell University

David Norman Smith — Sharing, not selling: Marx against value

In 1975, when I began to study Capital as a first-year graduate student, I was looking for the errors that my undergraduate economics teachers had told me rendered Capital obsolete. Several of these teachers belonged to the Union of Radical Political Economists and saw themselves as Marxists. But they agreed with their non-Marxist colleagues that Marx’s core value concepts were naively Hegelian. The good news, they said, was that the superstructure of Marx’s theory–class, capital exploitation–was sociologically valid. I had already begun to write about capital and class so I found this perspective congenial.(20) But, since I was also drawn to Capital’s value-logic, I was perplexed. I was still a raw beginner, and I was open to the premise that the critical theory of the future would sail from harbors other than Capital. But a simple question remained unclear to me: Was Capital actually wrong?

To see for myself I annotated Chapter 1 of Capital word for word, day after day, for a year, searching for Marx’s fundamental error. Decades later I still haven’t found it. I’ve now been immersed in Capital and Marx’s ancillary texts for a long time, and I always find them profound and convincing.(21) I find it jarring to set Capital aside to read lesser works. But I’ve also taught Capital for decades, and I know from experience that readers find his terminology confusing. So, in what follows, I attempt to explain Marx’s ABCs in a fresh way. My goal is not to reproduce every nuance of Chapter 1 but to capture Marx’s enduring, essential logic....

Monthly Review

Sharing, not selling: Marx against value
David Norman Smith | Professor of Sociology, University of Kansas
Originally published at Continental Thought & Theory 1 (4), 2017, 653-695

Peter Taaff — Parasitic capitalism exposed [Book Review]

Mariana Mazzucato’s new book is a detailed exposé of the parasitic character of modern capitalism, drawing on Karl Marx’s theory of the source of value creation. But understanding the law of value is only a first step to providing an alternative to a system that cannot overcome its inevitable tendency for periodic crises and which needs to be overthrown, argues Peter Taaffe.

Socialism Today
Parasitic capitalism exposed

Peter Taaff | general secretary of the Socialist Party of England and Wales and member of the International Executive Committee of the Committee for a Workers' International

Economic valuation — Links

The nature of value and the methods of valuation as some of the trickiest areas of economics, social theory and psychology, as well as philosophical logic, ethics and action theory in philosophy as foundational studies.

For example, both Adam Smith and Marx were trained philosophers that specialized in "moral philosophy, which pivots on value theory. Smith adopted a labor theory of value in The Wealth of Nations, which set the tone for classical economics. Ricardo followed suit. Marx did not have a labor theory of value in the same sense but rather criticized the classical LTV, showing how value was expropriated from labor in a monetary production economy through profit conceived of as "surplus value" in Marx's theory of valuation. This encompasses what we now call "financial rent" and "monopoly-monopoly" rent.

Here are a couple of links on such issues in economics, the first regarding land value and the second the economic valuation of human life.

Classical economics was about preventing capture of land rent, which had been the basis of feudalism.

In putting numbers on the value of life, the risk is rent-extraction resulting from factors not considered in the scope and scale of the model — and usually not admitted.

Decisions, Decisions, Decisions
How to Capture Land Values under the Current Rules
Andrew Lainton

Econospeak

The Value of Life and the Metaphor of Choice

Peter Dorman | Professor of Political Economy, The Evergreen State College

Mariana Mazzucato — Capitalism's greatest weakness? It confuses price with value

In my latest book, The Value of Everything, I have argued that such critiques are important but will remain powerless – in their ability to bring about real reform of the economic system – until they become firmly grounded in a discussion about the processes by which economic value is created. It is not enough to argue for less value extraction and more value creation. First, ‘value’, a term that once lay at the heart of economic thinking, must be revived and better understood.

Value has gone from being a category at the core of economic theory, tied to the dynamics of production (the division of labour, changing costs of production), to a subjective category tied to the ‘preferences’ of economic agents. Many ills, such as stagnant real wages, are interpreted in terms of the ‘choices’ that particular agents in the system make, for example unemployment is seen as related to the choice that workers make between working and leisure. And entrepreneurship – the praised motor of capitalism – is seen as a result of such individualized choices rather than of the productive system surrounding entrepreneurs – or, to put it another way, the fruit of a collective effort. At the same time, price has become the indicator of value: as long as a good is bought and sold in the market, it must have value. So rather than a theory of value determining price, it is the theory of price that determines value...

Much more. Good article.

Mariana Mazzucato is becoming an influencer.

World Economic Forum
Capitalism's greatest weakness? It confuses price with value

Mariana Mazzucato | Professor in the Economics of Innovation and Public Value, University College London

Brad DeLong — The extremely intelligent Martin Wolf reviews Maria Mazzucato

I would post a link to Martin Wolf's article but it is behind a paywall at the Financial Times. So this will have to do unless you have access.

Somewhat embarrassingly, Brad DeLong gets Mariana Mazzacuto's name wrong. Oh, well, I make mistakes like that, too, on occasion.

Wolf review poses a very pregnant question, "… she forces us to ask ourselves what adds value to society and how to create an economic and social order that promotes that."

WCEG
The extremely intelligent Martin Wolf reviews Maria Mazzucato.

Brad DeLong
Crossposted at Grasping Reality

Steve Keen — Karl Marx sacrificed logic on the altar of his desire for revolution

Karl Marx, the committed revolutionary, once proved that the revolution need not happen. What did he do next?

Marx was a committed revolutionary, so much so that when reflecting on his life, he said that if he had it all to do over again, he would still be a revolutionary but would not marry, to save his wife from having to suffer the privations of life with him.

There were, of course, many committed revolutionaries in the 19th century. What set Marx apart from them all was that he had proven that revolution not only would happen, but had to happen. It was inevitable.

And then, one day, he proved, using a significant advance in his own economics, that revolution did not have to happen: that the inexorable force he had believed pushed in that direction was the outcome of a flaw in his own theory. When the flaw was corrected, the force was gone, and not only was revolution not inevitable, it might not even be necessary.

How do you think he reacted?

He fudged, of course....

First, it is significant that Steve Keen is writing for RT, given the demonization that it is being subjected to and by implication all that are connected to it in any way. Good on Steve for going out on a limb.

Secondly, Steve illuminates the apparent contradiction between Marx the economic sociologist and Marx the political activist and revolutionary. But I think he get the reason wrong. See #3 below.

The actual contradiction is between Marx as economic sociologist and Marx the revolutionary political activist. As economic sociologist Marx realized that the relations of production (superstructure) are consequent on the mode of production (infrastructure) and change in the relations in production do not occur without the potential of the mode of production being exhausted. As revolutionary political activist, Marx thought that the change could be forced by political action leading to revolution.

While these are not necessarily incompatible, Marx's political activism doesn't follow necessarily from his economic sociology and his economic sociology suggests that it's a matter of time. As a matter of fact the revolutions of 1846 failed in industrial Europe while revolution succeeded in feudal Russia and China, which his theory seemed to rule out.

Thirdly, I don't think that SK gets this right, but I am not a Marx scholar.  He has received pushback from scholars of Marx against this objection. See Matthijs Krul, Steve Keen’s critique of Marx’s Theory of Value: A rejoinder.

Fourthly, Sk doesn't help his case by asserting that Marx's PhD dissertation was on Hegel. The title was The Difference Between the Democritean and Epicurean Philosophy of Nature. It is about ancient Greek atomism and materialism.

RT
Karl Marx sacrificed logic on the altar of his desire for revolution

Steve Keen, | Professor and Head of the School of Economics, History and Politics at Kingston University in London

Nature — How to retool our concept of value – Mariana Mazzucato

Must-read in full. It's short and to the point.

The meaning of "value" is one of the most pertinent questions in economics and political economy. Michael Hudson has been emphasizing this for some time, as have Marxists and Marxian. Consideration of value of other than as price revealed in competitive markets is ruled out in conventional economics by methodological assumptions.

What we value and how we value it is one of the most contested, misunderstood and important ideas in economics. Economist Mariana Mazzucato’s comprehensive The Value of Everything explores how ideas about what value is, where it comes from and how it should be distributed have changed in the past 400 years, and why value matters now more than ever. Mazzucato emphasizes the need to reopen debate to make economies more productive, equitable and sustainable. The 2008 financial crisis was just a taste of looming problems — climate disruption, massive biodiversity and ecosystem-services decline, even the possible collapse of Western civilization — unless we learn to value what really matters.

Early economists focused on the production of value from land (François Quesnay and the ‘physiocrats’), labour (Adam Smith to Karl Marx) and capital. In this view, value determines price (Four decades ago, I described this in terms of embodied energy: see R. Costanza Science 210, 1219–1224; 1980). By contrast, the current mainstream ‘marginalist’ concept bases value on market exchanges: price, as revealed by the interaction of supply and demand in markets, determines value, and the only things that have value are those that fetch a price.

This has major implications for ideas about the distinction between value creation and value extraction, the nature of unearned income (‘rent’) and how value should be distributed....

Nature
How to retool our concept of value — Mariana Mazzucato
Robert Costanza

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

Corey Hoffman — Economic Ignorance or Moral Inclination?

Excellent!!! Cuts to the heart of what's wrong with liberal economics based only on economic liberalism or assuming social and political liberalism to be subordinate to economic liberalism.

Additional bonus:  Corey Hoffman is an MMT proponent that cites Stephanie Kelton in the post.

Mr. Williamson starts off his piece by writing artfully about the subjective theory of value and its relation to the free-price system in market economies concluding that naive progressives like Bernie Sanders must be simply unaware of these concepts. But, economic exchange value is merely one notion of value within the totality of value theory that one might reasonably consider when trying to decide how we ought to live. Indeed, plenty of brilliant men like Locke, Aristotle, Kant, etc. who were not ignorant of the notion of exchange value have argued that there are other considerations that are morally relevant beyond instrumental value.

This sums it up in one simple paragraph.

Moreover, I would not put it in terms of morality only or even chiefly morality. Liberalism is not founded on morality specifically but rather on rights, which are also norms based on values. While the concept of rights is a human construct and rights do not exist in nature, the basis for rights is naturalistic as research in psychology and social science are now strongly suggesting.

There is no hard and fast division between fact and value, positive and normative, as Positivists assume but cannot demonstrate logically or support with evidence. Cognitive science reveals why. Cognitive and affective are entangled in brain functioning.

Rights apply to individuals equally and they are concerned with social, political and economic matters. In addition, the concept of rights is not static but expanding as the level of collective consciousness rises generally and awareness of universality and interdependence rises as a manifestation of it.

Corresponding to rights are responsibilities. Even extreme Libertarians like Murray Rothbard grant that liberty is not license.

As a result, specific rights and corresponding responsibilities can and do conflict with each other resulting in apparent contradictions and dilemmas. This is one of the paradoxes of liberalism.

For example, individual freedom may conflict with social responsibility. There are procedures for sorting this out, chiefly in the justice system.  The courts have decided that the social responsibilities involved in paying taxes and serving as conscript in the military when called up are more weighty than an individual's freedom of choice based on personal preference, for example. Because priorities.

However, rather than argue that conventional economics is flawed at the level of its assumptions, Cory Hoffman's argument is more that morality is superior to economics in its claims. I would argue instead as more naturalistic that conventional economics is flat wrong in assuming homo economicus and rejecting homo socialis.

Homo economicus is not only immoral but also asocial. Homo socialis is both moral and social. Liberalism addressed this through its conception of law and justice, especially rights and responsibilities. Where the moral sense enters is in defining and expanding the social concepts of justice and rights. This is what Bernie Sanders is arguing for in a political environment dominated by neoliberalism.

Overlapping Consensus
Economic Ignorance or Moral Inclination?

Corey Hoffman

Yves Smith — Cash or Copyright or Real Creativity?

Yet another important, counterintuitive finding…at least if you think that people respond only or mainly to economic incentives. Not to give the punchline away, but the success of open source software from a technical standpoint is one supporting datapoint. Can readers think of others? 

By Dan Hunter, Dean, Swinburne Law School at Swinburne University of Technology. Originally published at The Conversation

Naked Capitalism
Cash or Copyright or Real Creativity?
Yves Smith

Yet another important, counterintuitive finding…at least if you think that people respond only or mainly to economic incentives. 

The interests aspect of value as interest is much broader than economic interests. Value is also a broader concept than interest in many ethics and value theories, and psychological and sociological studies of motivation bear this out. Human being are not only more complicated psychologically and socially than self-interest alone can account for, but also more complex and interrelated.

This relates to the rather complex concept of human freedom. There are three key aspects of freedom. The first is freedom from constraint and limitation. The second is freedom to choose and to express oneself. The third is freedom for self- determination and self-actualization. Rights are linked to these three aspects of freedom.

While all are integral aspects of human freedom, freedom for is perhaps most significant for both creativity and also political self-determination.

Most significantly, freedom is fundamental to the spiritual or metaphysical dimension in contrast to the physical and material. Therefore, it is a moral category rather than simply a descriptive one. Freedom is not explained entirely by observations about its manifestation in life. It is a potential that underlies human complexity and is the basis for development and innovation.

Yves asks for example. One in particular comes to mind, since it is paradigmatic. A friend was a "starving artist" until she was discovered by a prominent gallery owner who successfully sold many of her paintings. But after some time, she realized that her creativity was being undermined by the process. 

First, she was required to schmooze with the patrons at shows, which was not her thing. She didn't like selling herself and felt that her work should stand by itself. But that was part of the deal in getting promoted.

Secondly and more importantly, she got tired of painting the same style and want to switch, but the gallery owner balked. Why kill the goose that lays the golden egg, he wondered. Her answer was that she either kill the goose or kill her creativity.

So she is not as well off as she might have been, but she is happier and producing more innovative work, following her muse regardless of where it leads financially.

Most really creative people have known haven't given a rat's ass about money. Some became wealthy in spite of it. Others didn't, but most were happy and self-fulfilled anyway. On the other hand, some give up and either sell out or get a job, while others are bummed that the world doesn't appreciate them sufficiently. But that's often not about the money but lack of recognition.

Of course, this is not say that creativity and finanical interest are either never related or mutually exclusive. Financial interest can inhibit or kill creativity, and absence of financial interest is not a necessary condition for high creativity. Entrepreneurs are often highly creative people as are designers, engineers and advertising people, for example. And most successful firms innovate by introducing new products and expanding line, as well as re-inventing themselves with changing conditions.

Philip Pilkington: The Ideology to End Ideologies – A Response to Corey Robin on Nietzsche, Hayek, Mises, and Marginalism

The political philosopher Corey Robin recently published an interesting essay on what he thinks to be the connection between the late German philosopher Friedrich Nietzsche and the economic theory of marginalism which Robin associates with the Austrian school (but which, of course, is also a mainstay of mainstream neoclassical economics). I should start by saying that I respect Robin’s work a great deal; I respect it to the extent that I did an interview with him for this very site when his last book appeared. However, his latest piece is grossly misguided and reflective of the fact that, when it comes to theoretical economics, academic critics on the left simply do not know their enemy at all.

The reason for this, I think, is because Robin does not quite grasp the essence of either modern neoclassical or Austrian economics or, consequently, how these twin doctrines establish an absurd and abstruse metaphysical system of morals that poisons the minds of everyone from academics to laymen and lawmakers. It would also appear that, lying in the background somewhere, Robin assumes that the only antidote to the scourge of marginalism is the dusty old labour theory of value – as problematic and discredited as it is. This is something of a guess on my part but if I’m correct it is but another indication that the left are fighting battles that have long since been thoroughly and completely lost. In actual fact, the questions and the answers lie elsewhere – and they lie precisely in the work of the very philosopher that Robin equates with degenerate marginalism.

It is Nietzsche’s critique of all theories of value and, by implication, all systems of morality that lay the ground for the most effective critique of the marginalist toxin – a critique that I have laid out in detail on this site before. These may seem like dusty academic issues – the realm of the literary critic than of the practical minded person – but this is not so. Because the left do not know their academic enemy he escapes with impunity and lives on, zombie-like, day after day – in our classrooms and, more importantly, in our everyday moral and political discourse.

Naked Capitalism
Philip Pilkington: The Ideology to End Ideologies – A Response to Corey Robin on Nietzsche, Hayek, Mises, and Marginalism

This is an important debate for framing contemporary economics and policy. It begins with philosophy, or contending ideologies,  and it also has to get the history and economics right. To frame MMT effectively, one needs to know the opposition, see it's advantages and disadvantages, and frame the debate in terms of trade-offs, showing how one position is morally superior, as well as more effective at meeting objectives efficiently.

The take away: "However, the goal is always the same; namely, to trick the student into thinking they are learning something objective when really they are being taught how to organise their minds in a very particular way."

See also some Libertarian and conservative responses to Corey Robin

 Bleeding Heart Libertarian
On Robin’s Tenuous Connection between Nietzsche and Hayek
Kevin Vallier

Reason

Hayek and Nietzsche: Perhaps Not Partners in a Cross-Century Anti-Equality Plot
Brian Doherty

The American Conservative

Corey Robin’s Dubious Nietzsche-Hayek Connection

Jordan Bloom

I would come back to the basic distinction between liberalism and conservatism. Liberalism holds that all persons are equal. Conservatism holds that some are better than others. (Hat tip to George Orwell in Animal Farm.) 

Certainly, Neitzsche takes the conservative position, which was imitated, poorly one could argue, but Ayn Rand, who was a Nietzsche wannabe. See Corey Robin's Garbage and Gravitas.

The question, then, is are neoclassical and Austrian economics inherently conservative in this sense, which is to say, is laissez-faire capitalism based on market fundamentalism inherently conservative in this sense? I think it is difficult to argue that it is not, given that the hero is the successful entrepreneur as modern version of the victorious warrior, the feudal lord, or a Hegelian world historical figure. In contemporary capitalism the entrepreneur shares the stage increasingly with top management as large corporations dominate.

According to conservatism this inequality of person results in meritocracy based on some standard of excellence such as the might of the warrior, the blood of the aristocrat, or the "hard work," discipline, thrift, and morality of the Protestant ethic to which Weber attributed the spirit of capitalism. In turn, this result in unequal distribution of wealth and power that underlies "trickle down."

Robert Vienneau — Amartya Sen And The Second Phase Of The Classical Revival

Philosophy of economics, positive and normative debate, Classical economics, Sraffa, and more. Important for those interested in the history, development, value theory, and philosophy of economics.

Read it at Thoughts on Economics
Amartya Sen And The Second Phase Of The Classical Revival
Robert Vienneau