Thursday, August 29, 2013

Capital As A Social Relationship

Home Depot Sells Consumer Goods
1.0 Introduction

The lumber in the above picture may look like an immense accumulation of capital goods, where capital goods are a type of commodity. But, I argue, these commodities should properly be thought of as consumer goods.

2.0 A Keynesian Perspective

John Maynard Keynes, in The General Theory of Employment, Interest and Money, was interested in the sources of aggregate demand. Aggregate demand is demand for commodities, and an increase in this demand leads to an increase in waged labor. So, for Keynes, capital goods are goods whose use would be accompanied by labor being paid wages.

Home Depot and Loewes market to the Do-It-Yourselfer. (I assume building contractors buy in bulk, and purchase most of their stuff elsewhere.) The purchaser of products from these commercial enterprises may intend to construct a deck, erect a shed in their backyard, or remodel a kitchen or bathroom. But the work in completing this products will not be paid a wage. That is, as far as aggregate demand in a capitalist economy goes, the lumber pictured acts like a consumer good, not a capital good.

3.0 A Classical Perspective

Classical economists, such as Adam Smith, distinguished between "productive" and "unproductive" labor. Unproductive labor is that labor which is paid for out of revenue, not out of a capital fund. Unproductive labor does not earn a profit, even tendentially:

"There is one sort of labour which adds to the value of the subject upon which it is bestowed: there is another which has no such effect. The former, as it produces a value, may be called productive; the latter, unproductive labour. Thus the labour of a manufacturer adds, generally, to the value of the materials which he works upon, that of his own maintenance, and of his master's profit. The labour of a menial servant, on the contrary, adds to the value of nothing. Though the manufacturer has his wages advanced to him by his master, he, in reality, costs him no expence, the value of those wages being generally restored, together with a profit, in the improved value of the subject upon which his labour is bestowed. But the maintenance of a menial servant never is restored. A man grows rich by employing a multitude of manufacturers: he grows poor by maintaining a multitude of menial servants." -- Adam Smith, Wealth of Nations, Book II, Chapter 2.

I think of a typical example of unproductive labor as the work of a carpenter hired by a 18th or 19th century British aristocrat to build him a chest with wood that the aristocrat's estate provides. I guess such an estate would support all sorts of servants in the surrounding community. But profits would not be earned on their wages, either by these servants or by their employers.

So, even if the purchaser of the lumber products under consideration here hired some helpers or, perhaps, compensated some assistants with food or drink, these products would still not be capital goods.

4.0 A Neoclassical Perspective

A neoclassical might abstract from all these considerations of institutions, particularly for those that constitute capitalism. And the neoclassical economist might classify as capital those goods that last for many periods, providing a flow of services. (I think you can find this perspective in Leon Walras; he certainly distinguishes between a flow of services and the stock of goods.) At the highest level of abstraction, whether the owner of a capital good is a firm or a household is irrelevant. Furthermore, home improvements will increase the price that a house can fetch if you decide to sell it. If you rent it out, you will acquire what Alfred Marshall described as a quasi-rent from these home improvements.

Note, though, that this perspective abstracts from the distinction between goods, that once produced, are given in quantity at a point in time and, say, an annual cycle of (re)production of commodities needed to sustain a capitalist economy. As can be seen on the first page of the first chapter of David Ricardo's Principles of Political Economy and Taxation, classical economic theory focuses on the latter aspect.

Thursday, August 22, 2013

Preliminary Thoughts on Volume Two of the Collected Papers of Robert Paul Wolff

1.0 Introduction

I have been reading From Each According to His Ability: Essays on Karl Marx and Classical Political Economy, by Robert Paul Wolff. This is a collection of essays, including critiques of Wolff's views by John Roemer and David Schweickart with Wolff's responses. I have read at least two1 of these essays before2. Many of these essays build on two books Wolff has written3. This book is available only as an E-book4. Some typographic errors exist here and there. It is basically self-published, with Wolff getting permission from various journals to republish the essays not originally presented on his blog.

These essays concentrate on two main themes. One is a formal presentation of Marxist political economy, developed by Piero Sraffa and others. The other is an interpretation of the curious literary style of Marx's Capital, in which commodities are treated as persons, persons are personifications of abstract classes, and the argument in the first chapter for the labor theory of value5 is difficult to take seriously.

2.0 A Formal Interpretation of Marx

Wolff is impressed with how Sraffians and analytical Marxists have (or should have) transformed our understanding of economics. Before this recent development, Marxists tended to concentrate on philosophical themes of alienation in Marx's early works, historical materialism, and cultural criticism. Marx's economics seemed to be in the trash bin of history:

"There has, in the past two decades, been an enormous world-wide upsurge of serious interest in, and rigorous investigation of, the central theses of the political economy of Karl Marx. Such doctrines as the labour theory of value, which for almost a century were ridiculed as outmoded ideology, as superstition, as metaphysics, are now taken seriously and debated with the aid of the most sophisticated tools of modern formal analysis. What began primarily as an activity of mathematical economists has now become a philosophical endeavor as well, with the result that the rediscovery of Marx is taking on a broader and deeper dimension." -- Robert Paul Wolff, "A Reply to Professor Schweickart"

I think Wolff is too optimistic here. I, of course, agree that a rigorous, formal, reconstruction of classical and Marxian economics is now available to economists. It is my impression, however, that, due to the sociology of the profession, most economists are unaware of the existence of this approach. I expect them to be still echoing seriously outdated mistakes about Marx's economics being ideology, superstition, and metaphysics. At least, I do not expect this formal reconstruction to be available in textbooks widely used by economists up through graduate school.

For his formal analysis, Wolff draws on definitions of labor values in terms of quantity flows between industries, as expressed in Leontief input-output matrices for self-reproducing capitalist economies. Prices of production are similarly calculated from such inter-industry quantity flows and an external specification of the distribution of the surplus. Wolff quotes Adam Smith on how a process akin to gravitation will lead market prices to approach prices of production, but does not otherwise analyze this claim extensively.

Wolff notes that both Ricardo and Marx were aware that prices of production generally deviate from labor values. Wolff discusses Marx's solution to the transformation problem, and what Wolff calls "conservation laws"6. The equality of surplus value with, to a first approximation, profits, seems to be primary with Wolff. He points out that this equality can be obtained by a specification of the appropriate numeraire. So he brings in a second equality between total value produced in a given time and the total output, evaluated at prices of production. Because of a dimensional analysis, Wolff's ends up interpreting Marx as claiming a general equality between the ratio of surplus value to total value and the ratio of profits to the prices of output. And, in consistency with the traditions upon which Wolff draws, he argues that Marx's claim is mistaken, except in special cases7.

Marx, however, assumes the labor theory of value in Volume 1, to explain the origin of profits. As I read Wolff, he does not think Marx's difficulties with solving the transformation problem invalidates the Volume 1 analysis. Marx's innovation in Volume 1 is to introduce the distinction between labor and labor power, where the latter is the labor value embodied in the commodities purchased by (non-saving) workers for consumption. For Wolff, what Morishima has dubbed the Fundamental Theorem of Marxism seems, at first glance, to justify Marx. A surplus is available to be distributed to capitalists as profit and to landlords as rent if and only if labor is exploited. That is, the labor value of output net of the labor value of capital goods consumed in producing that output must exceed the labor-value of labor power for a profit to exist.

For Wolff, the most serious objection to Marx's economics seems to be that this Fundamental Theorem is true for all commodities, not just labor-power. Surplus value exists, for example, if and only if corn is exploited. Wolff thinks he has an answer to this objection. Labor power is different than other commodities in that it is produced outside of capitalist relations, in some sense. Household production, outside of slavery, need not obtain the general rate of profits used in calculating prices of production. Furthermore, workers in selling their labor power must put their wills under the direction of the capitalists8.

3.0 Literary Matters

Wolff's literary analysis of Capital concentrates on the opening chapters. He thinks Marx adopted a style appropriate for his material. When observing a capitalist economy, all trades in the market look like they are made between equals, at least under competitive conditions. For Marx, this is a mystifying illusion resulting from commodity fetishism. Furthermore, Marx treats the labor theory of value with a certain amount of irony. For Marx, according to Wolf, labor values are not a physical embodiment of past labor, but the result of social relationships.

Why does Marx write in a ironic, mystifying style? To see that there is a problem in treating commodities as naturally commensurable and in accounting for the source of profits. If all commodities trade at labor values, how can profits arise? How can workers be said to be exploited, in a descriptive sense? Marx wants the reader to see that the reality thrown up by capitalist economies is topsy-turvy, and that these are questions that need to be asked and answered.

4.0 Conclusion

These essays reflect a perspective developed in the late 1970s and in the 1980s. You can find, on Wolff's blog, some commentators pointing out, for example, the Temporal Single System Interpretation (TSSI) of Andrew Kliman and others. I happen to agree with Wolff's perspective. But the reader should be aware that Wolff has not addressed more recent developments, either in Marxist and Sraffian economic theory, or in literary criticism9.

Wolff, being disappointed in the reception of the second of his books on Marx, never wrote a planned third book to integrate his mathematical formalist perspective on Marx and his ironic reading of Marx. The essays in the fourth section of this volume of his collected papers provide a start to such integration. But I have yet to read this section.

  1. I think some other chapters might have been blog posts. At least, there is some redundancy, either among chapters or between chapters and other things Wolff has written.
  2. "Ricardo's Principles", originally a series of blog posts (for example) in 2011, and Wolff (1982).
  3. Understanding Marx and Moneybags Must Be So Lucky.
  4. Is it available only in a Kindle format?
  5. I refer to Marx's supposed search for a "common element" in commodities, an argument that Wolff says is entirely meretricious.
  6. Elsewhere, I have written about these conditions as "invariants".
  7. When all commodities are produced with the same organic composition of capital or when the output of the economy is in standard proportions.
  8. Wolff's disputes with Roemer and Schweickart are over the precise statement of this claim and its validity.
  9. See Kornbluh (2010) for a recent literary reading of Marx's Capital drawing on postmodern theory. Kornbluh also sees Marx style as attempting to defamiliarize capitalism so as to explain the mystifications produced in a capitalist economy.

Wednesday, August 14, 2013

Economists For The General Reader

What economists would you expect somebody with a general university education to have heard of? My list is quite short:

  • Adam Smith
  • Karl Marx
  • John Maynard Keynes

I expect these authors to function mostly as symbols in the popular consciousness. I might expect Americans above a certain age to have heard of John Kenneth Galbraith and Milton Friedman. Would they have heard of Paul Samuelson? He did have a column in Newsweek for a while. I first became aware of the existence of Joan Robinson by seeing a reference to her as the "British Galbraith". From what I've read, Nicholas Kaldor also had a certain public presence in Britain for a certain generation.

Given the highly technical nature of academic economists these days, it is hard for economists to invite the public into their discussions. I guess a theme of this blog is that most academic economists are not to be trusted. Others, such as Steve Keen, Fred Lee, and Bill Mitchell say fairly much the same. But I am not opposed to thinking of economics as a technical subject. I do not think I have resolved a tension here in my own mind.

Sunday, August 04, 2013


Figure 1: Paul Krugman And Bill O'Reilly Talk To Tim Russert

"My problem was ... to pose the question, 'How is it that at certain moments and in certain orders of knowledge, there are these sudden take-offs, these hastenings of evolution, these transformations which fail to correspond to the calm, continuist image that is normally accredited?' But the important thing here is not that such changes can be rapid and extensive or, rather, it is that this extent and rapidity are only the sign of something else - a modification in the rules of formation of statements which are accepted as scientifically true. Thus, it is not a change of content (refutation of old errors, recovery of old truths), nor is it a change of theoretical form (renewal of a paradigm, modification of systematic ensembles). It is a question of what governs statements, and the way in which they govern each other so as to constitute a set of propositions that are scientifically acceptable and, hence, capable of being verified or falsified by scientific procedures. In short, there is a problem of the regime, the politics of the scientific statement. At this level, it's not so much a matter of knowing what external power imposes itself on science as of what effects of power circulate among scientific statements, what constitutes, as it were, their internal regime of power, and how and why at certain moments that regime undergoes a global modification.

It was these different regimes that I tried to identify in The Order of Things, all the while making it clear that I wasn't trying for the moment to explain them, and that it would be necessary to try to do this in a subsequent work. But what was lacking here was the problem of the 'discursive regime', of the effects of power peculiar to the play of statements. I confused this too much with systematicity, theoretical form, or something like a paradigm. This same central problem of power, which at that time I had not yet properly isolated, emerges in two very different aspects at the point of junction of Madness and Civilization and The Order of Things." -- Michel Foucault, "Truth and Power", reprinted in The Chomsky-Foucault Debate: On Human Nature, The New Press (2006), pp. 144-145.

I do not know that I understand Michel Foucault, and I have not read much that he wrote towards the end of his life. I had thought Foucault's discursive formations were to be grouped with Thomas Kuhn's paradigms and Imre Lakatos's scientific research program. To me, economics is like medicine, psychiatry, and penology. It fits in well with the disciplines that Foucault analyses. Superficially, the epistemic status of these disciplines is more questionable than a hard science. And they have been used to help nation states categorize, partition, and rule their subjects since, say, the eighteenth century. But I want to drop talk of science for now. I look at a concrete example to help me understand what Foucault might mean when he talks about government, power, the political economy of the sign, a discursive regime, and politics. Doubtless, I will miss many, many nuances here.

You can see many commentators and supposed experts in the media, although, for many, I am none too clear in what area they are expert. (I have in mind such people as Rush Limbaugh, Bill O'Reilly, and even Wolf Blitzer and Thomas Friedman.) Many write best-selling books. A book store will classify them, when they come out, in a section labeled "current events". I suppose libraries will put them somewhere in social sciences. People with the sort of media presence I have in mind can be said to benefit from a sort of power for their statements. From an analytical point of view, you might know a drunk at the end of your local bar who is more worth listening to. Yet these commentators react to one another, take each other seriously, and end up having effects on laws that are passed. At least one kind of power circulates among their statements, a power that is not easily available to those taking their own way at your local.

Foucault also writes about power being productive, not solely a matter of prohibitions. How does the above clip illustrate this theme? Those who have power circulating their statements can sometimes dismiss others as living in a "fantasy world". But I think the power we see in right wing commentators in America extends to individuals in communities across the country. You can find many who think they keep informed by watching TV news. And they will have conversations with one another, maybe conversations that you could not participate in without being seen as rude, dismissive, and condescending. Some of these people might even participate in governing your community by participating in, say, the school board, the city council, or state government. Within such groups, you might find an intellectual who has read, for example, Hayek's Road to Serfdom on Glenn Beck's recommendation. So this power I am vaguely pointing at helps form local communities, as well as national discourse.

I consider Krugman to be at a different level of seriousness than the other two people in the above clip. Still these questions arise for him. What power gets his statements listened to and to circulate widely? It would be a mistake to classify his statements solely as part of the academic discipline of economics. For example, his newspaper columns about the Iraq war do not have much to do with economics. And a regime in which he occupies the acceptable left wing of the public face of economics seems quite limiting to me. When Krugman debates Keen through their blogs, it seems clear who is doing the other more of a favor to acknowledge the existence of the other's work, whatever you make think of the outcome of that debate.

I trust that one can see that in merely acknowledging the existence of political power that allows Krugman's statements to circulate, I am not thereby criticizing their content or what Krugman does with this non-personal power. In fact, I think Krugman has quite often acknowledged the power of his platforms and talked about how that influences his topics. As far as I know, he does not read Foucault. (Has not Brad DeLong written a bit on Foucault?) I am not sure what Krugman has said about his willingness to participate in the sort of hurlyburly babble seen in the above clip, other than that he sometimes has a book to promote. I suppose the bit where he leans back and rolls his eyes at the ceiling is comment enough on his particular antagonist there. I think Krugman would even be receptive to claims about the lack of agency of the author. He is rarely as forthright as in the above clip about calling a lie, "a lie". And he knows that his conventions do not allow him to comment on nonsense spouted by his fellow columnists, except very elliptically.

By the way, the video clip above is not directly from a major network. Apparently, it was put on YouTube with annotations added by Jim Gilliam. And, of course, I do not claim the power of those you might see babbling on your television.