Wednesday, March 27, 2013

What If? An Alternative History For Karl Marx

Some Works By Marx Not Available Until The 20th Century

1.0 Introduction

Surprisingly, current understanding, among scholars, of the thought of Karl Marx is dependent on major primary texts that were unavailable until well after Marx died in 1883. I have in mind, especially, The Economic and Philosophic Manuscripts of 1844, The German Ideology, and The Grundrisse der Kritik der Politischen Ökonomie. These were originally written in 1844, 1845, and from 1857 to 1858, respectively. But they were left to "the gnawing criticism of the mice" during Marx and Engels' lifetime. They only became available after the 1930s, with subsequent translations to English and other languages.

For this post, I want to focus on the 1844 Manuscripts and the Grundrisse. My claim is that their interpretation reflected 20th century contexts. I wonder what would have been the effect if the Grundrisse had become more widely known before the 1844 Manuscripts. Perhaps then scholars would have been more inclined to read Marx's thought as a continuous development, without hypothesizing a break between the "Young Marx" and a later emphasis on a later analysis emphasizing objectivity. I am intrigued by possible connections between Marx's early ideas on alienation, later ideas on commodity fetishism and vulgar political economy, and Lukas' discussion of reification. (These are all topics where I have no issue acknowledging that my understanding is partial.)

2.0 The 1944 Manuscripts

For me, I was surprised to see that a large part of these manuscripts were taken up by annotated comments on such writers on classical political economy as Adam Smith and David Ricardo. As pointed out by Mandel, Marx rejected the labor theory of value in these manuscripts. Nevertheless, he had lots to say about the labor process, and in particular the estrangement or alienation of labor under capitalism.

I think some of these remarks draw on Aristotle, as well as Hegel. Recall that Marx was a classical scholar. His doctoral thesis was on the Difference Between the Democritean and Epicurean Philosophy of Nature. Marx, like Aristotle, was concerned with how human beings could be at their best, how they could achieve self-actualization, or how they could live in a way consistent with their "species being". But Marx stood Aristotle's attitude to labor on its head. (I think I read this point in something by Hannah Arendt.)

For Marx, humans fully achieve their potential in creation, that is, in production. But, under capitalism, the laborer produces under the capitalist's direction, and his output is alienated from him. He does not own what he produces. His product is sold on a market. The means of production and the objects produced by the workers confront the worker as an active outside force, not something in which he can take pride. Capitalism warps the worker.

2.1 For the Young Marx

Suppose you were writing in the late 1950s or the 1960s. And you found socialism attractive. Then you might want to consider Marx's ideas. In this period, you would have witnessed, among other events, Khrushchev's "secret speech" denouncing the Stalinist cult of personality, the 1956 Soviet invasion of Hungary, and the 1968 suppression of the Prague Spring. Many a socialist in the west would want to reject the Soviet Union and their official philosophy. One could still champion the humanism of the young Marx and leave the Soviet ideologues to a teleology taken from the later Marx. Thus, one would be inclined to read an epistemic break into Marx.

2.2 Against the Young Marx

On the other hand, suppose you were an intellectual associated with an orthodox communist party in a western country, namely France. Arguing for an epistemic break in the development of Marx's thought is still an attractive reading. And so I come to Louis Althusser's structuralist reading of Marx. He agrees the young Marx is a humanist, but finds attractive the mature Marx. And so he champions an anti-humanism. As I understand, this reading emphasizes historical and dialectical materialism. It opposes subjectivism, voluntarism, and a naive empiricism. I do not understand much about Althusser. But I can see the point of view that there is no true human nature to be freed by a better society after the revolution. Rather, human beings are always an element embedded in a larger social structure. One will be constrained in the formation of ones beliefs and in ones actions by some such larger structures. These structures can be altered, maybe drastically, but it is pointless to try to imagine humans without society. For Althusser, Marx founded a science of history, just like Euclid founded a science of geometry and Galileo founded a science of a new physics. Maybe I'll reread Althusser, and try to understand the problematic he claims Marx was addressing in his later work. (He is one author I can see the point of an ad hominem against based on his personal life.)

3.0 The Grundrisse

The Grundrisse throws a spanner into this idea of a break in Marx's thought. It is a working out of ideas, some which were later given expression in Capital. Yet it contains much emphasis on human subjectivity and Hegelian themes of the early Marx. I like Marx's exposition of his method in the introduction. He explains that in discovering a set of concepts to explain a society in history, one will make many abstractions. In presenting these concepts, one will start from these abstractions and present one's theory in an order fairly close to the opposite of the order of discovery. Empirical phenomena will be overdetermined and refract an organic mixture of many abstractions. In the Grundrisse one can also see Marx develop his ideas on historical materialism without worry about Prussian censorship. (A Contribution to the Critique of Political Economy did go through such censorship.) Also, in the introduction, Marx has a polemic against basing economics on myths of Robinson Crusoe.

Antonio Negri produced one study of the Grundrisse that I have stumbled through. (I do not think much of the translation.) Negri is part of an Italian political movement to the left of what was the Italian Communist Party (PCI). During the 1970s, leading lights of western communist parties, such as Enrico Berlinguer, insisted on the autonomy of individual communist parties and their ability to take a line independent of any direction from Moscow. This movement became known as Eurocommunism. Once also saw the Italian Communist Party making a "historic compromise" with more centrist parties, in a maneuver to get into, at least, regional governments.

Negri and the autonomia movement (a kind of anarchism) remained more radical. Negri sees in the Grundrisse a theory of the independent agency of the working class. Unlike in his reading of Capital, labor need not merely react to the initiatives of the capitalists. For Negri, the Grundrisse is more open, with less deterministic accounts of how the contradictions of capitalism will be resolved in specific historical circumstances.

4.0 Conclusion

Confining myself to works translated into English, I have outlined how the reception of certain works by Marx, first made available in the twentieth century, may have been impacted by the order in which they were considered and the political context of certain scholars. So I wonder what would have happened if they became available in another order. Is scholarship on Marx now possible without being bent by one's opinion about no-longer-actually existing socialism? By current political controversies?

Secondary References
  • Louis Althusser (1969). For Marx (trans. by Ben Brewster).
  • Erich Fromm (1961). Marx's Concept of Man [To Read. Does this emphasize the humanism of the young Marx?]
  • Ernest Mandel (1971). The Formation of the Economic Thought of Karl Marx, 1843 to Capital (Trans by Brian Pearce). Monthly Review Press [A study of the development of Marx's ideas by a follower of Trotsky]
  • Antonio Negri (1991). Marx Beyond Marx: Lessons on the Grundrisse, New York: Autonomedia
  • Bertell Ollman (1976). Alienation: Marx's Conception of Man in Society, 2nd edition. Cambridge University Press. [To Read]
  • Paul Walton and Stuart Hall (editors) (197x). Situating Marx: Evaluations and Departures. Human Context Books [Proceedings of a symposium in Britain on the Grundrisse]

Monday, March 25, 2013

On The Loss From Trade

Capital-Labor Ratio for a Country Engaged in International Trade

I have made a new paper available at my SSRN site. Here is the abstract:

Consider models of international trade in which capital goods are produced, not given as an unproduced endowment. A positive interest rate, in such a model, acts as a price distortion. Consequently, the gains of trade, when comparing stationary states with and without trade, can be negative. Previous authors have drawn this result in models with production depicted as a circular process, even though their point does not depend on this modeling choice. The principle contributions of this paper are to provide a demonstration of the possibility of such a loss from trade in a simplified model with "a one-way avenue ... lead[ing] from 'Factors of production' to 'Consumption goods'" and to illustrate the model with a concrete numerical example. The theory of comparative advantage is not sufficient to justify the advocacy of free trade in consumer goods, even under textbook assumptions.

I have not yet decided where to submit this paper.

Friday, March 22, 2013

Aspects of the Keen-Stigler Critique of Perfect Competition

It seems to me that this echoes part of Steve Keen's point in Debunking Economics and, further, Keen's Physica A paper with Russell Standish:

"...the analysis has rested on one or another of several finite general-equilibrium models which share assumptions that together imply market power on the part of all households and firms and which also share the assumption of price taking by all households and firms.

The possible inconsistency of these assumptions has long been overlooked - since the pioneering work of Walras (1874) and continuing through to the modern period dominated by Arrow and Debreu (1954) and McKenzie (1954). Only very recently has it attracted attention; see Kemp (2005) and Kemp and Shimomura (2005). here I note only that the internal consistency in the models relied on can be maintained by adding the additional assumption that each household is incompletely informed (about the economy of which it is a member) or incompletely rational (unable to appreciate the implications of membership for its market power) or both." -- Murray C. Kemp (2010).

I learned from Keen that the textbook presentation of perfect competition assumes a curious mixture of omniscience on the part of firm managers and an inability to learn from systematic errors1. As far as I know, no introductory or intermediate microeconomics textbook clearly states these assumptions.

Kemp is concerned with perfect competition in the theory of international trade, for example, in the theory of the small open economy. Is there literature assuming that each country produces infinitesimal quantities of whatever commodities they produce, analogous to the literature on the assumption that each firm in a market for a specific commodity produces an infinitesimal quantity? I do not see how such an assumption2 can be consistent with the use of U-shaped cost curves in the textbook treatment of perfect competition. In the long-run, we are taught, the firm produces at the minimum point of the U-shape average cost curve. The existence of the downward-sloping portion of these U-shaped curves implies that the level of production in the long-run must be a strictly positive, non-infinitesimal quantity3.

  1. I have recently learned that the literature on limiting behavior in models of mechanism design may be of relevance here. (Al Roth's whining and boundary patrolling is not encouraging.)
  2. It would be some combination of mistaken to intellectually dishonest to cite Aumann (1964) in defense of an argument in which perfect competition is supposedly found as the limit in a model with a finite number of firms, as the number of firms increases without bound. Aumann explicitly argues that perfect competition cannot be derived as such a limit, and the cardinality of a continuum is bigger than the cardinality of the set of natural numbers.
  3. It would be intellectually dishonest to "address" the logical inconsistencies of the theory of perfect competition described in this post by insulting Keen, based on his further arguments about monopoly. Those further arguments in Keen and Standish, for example, seem to assume firms treat variables over which they do not have control as decision variables. I do not find the logical aspects of those further arguments compelling, although I do find of interest their simulations, in which they do not make this error. But this footnote deals with a change of subject from this post.
  • Steve Keen, Russell Standish (2006). Profit Maximization, Industry Structure, and Competition: A Critique of Neoclassical Theory, Physica A: pp. 81-85
  • Murray C. Kemp (2005). Trade Gains" The End of the Road?, Singapore Economic Review, V. 50: pp. 361-368 [To read].
  • Murray C. Kemp (2010). Normative Trade Theory under Gossenian Assumptions, in Economic Theory and Economic Thought: Essays in Honour of Ian Steedman (ed. by J. Vint et al.), Routledge.
  • Murray C. Kemp and K. Shimomura (2005). Price Taking in General Equilibrium, American Journal of Applied Sciences, V. 6: pp. 95-97. [To read]

Monday, March 18, 2013

"Governance" As Used In Current Literature On Management

1.0 Introduction

One might study economics because one wants to explore the ruling ideas of the ruling class in our society. The literature directed to professional management provides another locus for exploring such ideas. I find it intriguing when such literature parallels selected ideas being developed by leftists.

One such idea is that corporations often make political decisions. The allocation of resources, particularly for investment, is a political decision. Some of these investment decisions in the United States are left to centers of private power, that is, businesses. Of course, some investment decisions, particularly in basic research, are made by government. And universities are important here.

I think the use of the "governance" in the literature on management fairly explicitly states a recognition of the political nature of management decisions in large corporations. Some work of the economist Michael Jensen can be seen as concerned with corporate governance. Some literature also discusses subsidiary governance in the corporation. I here provide some examples.

2.0 Governance of Information Technology (IT)

I start with IT governance:

"Effective governance addresses three questions:

  1. What decisions must be made?
  2. Who should make these decisions?
  3. How will we make and monitor these decisions

...For our purposes here, governance is not about creating bureaucracy but determining what decisions must be made, by whom, and how they will be monitored. Providing clarity to the organization about the results of governance decisions and, more importantly, the process of decision making streamlines communications and removes ambiguity...

...It is reasonable to question why 'business needs' appear to be only a subset of the considerations for decisions when surely they should drive all IT decisions? ...Remember that this chapter is about how decisions on business needs will be made alongside other IT decisions. The assumption is that the real, major business decisions are being made in the context of a corporate governance model (which is at a hierarchically higher level in the organization than the IT governance model)." -- Harris et al. (2008): pp. 59-63.

Harris et al. go on to define a number of political structures for IT governance, including monarchies, feudalism, federalism, duopoly, and anarchy.

3.0 information Security Governance

I can cite a number of references (Allen 2005, Allen et al. 2008, Bowen et al. 2006, Westby and Allen 2007) addressing enterprise or information security. Perhaps information security governance should be as a subset of IT governance:

"Information security governance can be defined as the process of establishing and maintaining a framework and supporting management structure and processes to provide assurance that information security strategies are aligned with and support business objectives, are consistent with applicable laws and regulations through adherence to policies and internal controls, and provide assignment of responsibility, all in an effort to manage risk." -- Bowen et al. (2006): p. 2
4.0 Conclusions

Doubtless those concerned with other issues and technology areas of importance in corporate management can find definitions and literature on governance for their areas. Leftists and students of management agree: politics includes corporate decisions.

  • Julia H. Allen. Governing for Enterprise Security, CMU/SEI-2005-TN-023, Software Engineering Institute, Carnegie Mellon University (June 2005).
  • Julia H. Allen, Sean Barnum, Robert J. Ellison, Gary McGraw, and Nancy R. Mead (2008). Software Security Engineering: A Guide for Project Managers, Addison Wesley.
  • Pauline Bowen, Joan Hash, and Mark Wilson. Information Security Handbook: A Guide for Managers, NIST Special Publication 800-100, Computer Security Division, Information Technology Laboratory, National Institute of Standards and Technology (October 2006).
  • Michael D. S. Harris, David Herron, and Stasia Iwanicki (2008). The Business Value of IT: Managing Risks, Optimizing Performance, and Measuring Results, CRC Press.
  • Jody R. Westby and Julia H. Allen. Governing for Enterprise Security (GES) Implementation Guide CMU/SEI-2007-TN-020, Software Engineering Institute, Carnegie Mellon University (August 2007).

Thursday, March 14, 2013

Benedetto Croce As A Precursor To Ludwig Von Mises

Table 1: Comparison of Croce and Mises
Subject:Pure economicsPraxeology
Principle:Economic PrincipleHuman Action
Distinguished from
By conscious choice.
Distinguished from
By formal deduction, not
empirically testable.

1.0 Introduction

I have previously argued that Von Mises was not original in asserting the impossibility of socialist central planning. I have recently stumbled across a book by Benedetto Croce. This is a collection of articles critiquing and reviewing the views of other Italian scholars on Marxism and marginalist economics. I claim that Croce's take on the methodology of marginalist economics is close to an advocacy of praxeology, but without the use of the word. Before elaborating this claim, I will first summarize Croce's interpretation of Marxism, in the light of the then new-fangled marginalist analysis.

2.0 Croce On Marx

Volume 1 of Marx's Capital contains a formal model, as well as many historical analyses. For Croce, this overarching formal model is an abstract description of a pure capitalist economy. All commodities are assumed to be produced with labor hired by capitalists. In the model, there are no old master's (e.g., paintings by Rembrandt) or rare wines of a given vintage. Such commodities are not and cannot be made any more. Likewise, no self-employed artisans exist in the model.

The volume 1 analysis focuses on explaining the origin of the returns to capital. Distinctions among profits, interest, and rent are abstracted from in the category of surplus value. For purposes of explaining the source of surplus value, the assumption is made that all commodities sell at their (labor) value. Labor value are not prices, even prices of production.

Volume 3 of Capital looks at prices. Croce accepts the marginalist explanations of prices. Since prices are to be explained at a more concrete level of abstraction, marginalism is compatible with the Volume 1 analysis, according to Croce.

This compatibility raises a question for Croce. How should the volume 1 analysis now be interpreted, in the light of this acceptance of marginalism as a descriptive theory? Croce claims that the value of labor power - that is, wages in the volume 1 analysis - should be compared with what the returns to the workers would be in a post-capitalist communist society, in which the means of production are collectively owned. For Croce, surplus value is the difference between the latter and the former quantities.

I do not think Croce's interpretation can be textually justified. He was writing, however, at a time when marginalism was the new theory. It was not clear then that this theory could be rejected because of its inability to explain returns to capital. Vilfedo Pareto and Maffeo Pantaleoni were certainly serious economists, and well worth engaging with. Given this historical setting, Croce's interpretation has a certain amount of ingenuity. Kozo Uno also argued that the formal analysis in volume 1 is based on a abstract description of a pure capitalist economy. I find this idea plausible. Furthermore, Marx definitely and quite explicitly works at multiple levels of abstractions.

3.0 Pure Economics and Praxeology

I now select some quotations from Croce, perhaps not the best, to illustrate parallels between Croce's conception of marginalism and ideas later put forth by Von Mises. In this conception, economic theory is to be formally deduced from an axiomatic description of choice. Neither applications nor psychology can test economic theory; it is not capable of being empirical falsified. (For the purposes of this post, I put aside the controversy over socialist calculation. Croce has some comments on Pareto on socialism.)

3.1 The Economic Principle

Croce talks about the economic principle as a foundation for pure economics:

"And what can an economic principle be if not an hypothetical maxim: the man who wishes to secure this or that object of subjective satisfaction must employ these or those means..." -- Benedetto Croce
And again:
"The economic axiom is a very general and purely a formal principle of conduct. It is inconceivable that anyone should act without applying, well or ill, the very principle of every action, i.e., the economic principle." -- Benedetto Croce
3.2 Applications Cannot Provide Empirical Tests of Economic Science

Croce think of pure economics as being capable of being applied, but not of being tested empirically:

"...this social economics, to which [Stammler] aspires, will either be just economic science applied to definite social conditions, in the sense now indicated, or it will be a form of historical knowledge. No third thing exists." -- Benedetto Croce
3.3 Human Action is Conscious Action

Croce talks about human action, that is human activity:

"[value] denot[es] a very simple fact, a summum genus, i.e. the fact of the very activity of man. Activity is value. For us nothing is valuable except what is an effort of imagination, of thought, of will, of our activity in any of its forms... There is nothing in the universe that is valuable, except the value of human activity... Value is observed immediately in ourselves, in our consciousness." -- Benedetto Croce

Like Mises, human action is defined by conscious choice:

"If we speak of conscious choice, we have before us a mental fact, if of unconscious choice, we have before us a natural fact; and the laws of the former are not those of the latter. I welcome [Pareto's] discovery that economic fact is the fact of choice; but I am forced to mean by choice, voluntary choice. Otherwise we should end by talking not only of the choices of a man who is asleep (when he moves from side to side), but of those of animals, and why not? of plants and why not again? of minerals; passing rapidly along the steep slope down which my friend Professor C. Trivero has slipped..." -- Benedetto Croce

As with applications, the empirical science of psychology cannot falsify the foundation of formal deductions from the supposed fact of human activity:

"[Graziadei] fails to see how the purist theory of value dovetails in with the doctrines of Psychophysics and Psychology. I can well believe it! Psychophysics and Psychology are natural sciences and cannot throw light on economic fact which is mental and of value. I may be allowed to point out, that, even three years ago, I gave a warning against the confusion of economics with psychology." -- Benedetto Croce

And again:

"...economics... is the science of man, of a form of the conscious activity of man - the same attitude which it rightly takes up in relation to the empirical natural sciences." -- Benedetto Croce
  • Benedetto Croce (1914). Historical Materialism and the Economics of Karl Marx (Trans. by C. M. Meredith), London: George Allen & Unwin Ltd.
  • Riccardo Faucci and Stefano Perri (1995). "Socialism and Marginalism in Italy, 1880-1910", in Socialism and Marginalism in Economics, 1870-1930 (ed. by Ian Steedman), London: Routledge. [TO READ]
  • Ludwig Von Mises (1966). Human Action: A Treatise on Economics, Revised Third Edition. [I AM NOT GOING TO REREAD]

Monday, March 11, 2013

Marxian Exploitation As Descriptive

1.0 Introduction

Marx explains returns to capital by his theory of surplus value. For Marx, surplus value arises from the exploitation of workers. Capitalists hire labor power, and the use value of labor power is the ability for the workers to labor under the direction of the capitalists. Suppose the produced commodities (which include the means of production) and labor power are both sold at their (labor) value. Surplus value is the difference between the value added by the workers and the value of their labor power.

I think this account of exploitation is intended by Marx to be descriptive. It is not, for Marx, the basis of a normative judgement of capitalism. I have previously documented that many scholars and activists, over more than a century, have shared my view. In this post, I note two more references putting forth a view consistent with mine.

2.0 Allen Wood

Allen Wood (1972) argues that Marx did not condemn capitalism as unfair. Marx considered justice to be assessed from a juridical point of view. According to the theory of historical materialism, this point of view belongs to superstructure, as opposed to the base. Thus, it can be, at most, a partial and one-sided point of view. And Marx cannot accept criticisms of capitalism from this point of view. Wood notes that, in Marx's account of capitalism, workers are described as subservient to capitalists. Once capitalist leads to sufficient economic development, this subservience and other brutal characteristics of capitalism are unnecessary. For Wood, one does not need to develop a philosophically sophisticated theory of justice to condemn capitalism on this basis. So, he thinks, he has offered an internally consistent reading of Marx on justice.

3.0 William Baumol

William Baumol (1983) also argues that Marx did not think capitalism was unfair. In this article, he notes that Marx did not take wages to trend towards a physical subsistence level. Marx argued against the Iron Law of Wages. Baumol objects, in general, to the widespread use of strawpersons among economists. Many economists assigns positions to their predecessors which they rejected, repetitively. In fact, these predecessors often argued the exact opposite of these strawpersons.

  • William J. Baumol (May 1983). Marx and the Iron Law of Wages, American Economic Review. V. 73, N. 2: pp. 303-308.
  • Allen W. Wood (Spring 1972). The Marxian Critique of Justice, Philosophy and Public Affairs. V. 1, N. 3: pp. 244-282.

Friday, March 08, 2013

G. C. Harcourt On The Intellectual Dishonesty Of Mainstream Economists

1.0 A Harcourt Quotation

I think of Geoff Harcourt as being known for, at least:

  • Surveys of the Cambridge Capital Controversies (CCC)
  • Maintaining good relationships with neoclassical economists, while advocating Post Keynesianism.

Given the second, the charge of intellectual dishonesty in the following surprised me:

"With the deaths in the 1980s of Joan Robinson, Piero Sraffa, Nicholas Kaldor and Richard Kahn, the bulk of the profession has started to behave as if they and their work never existed. Aggregate production function models and accompanying marginal productivity results, together with the long-period method, are being applied in the work which reflects the new interest in growth theory of the late 1980s and early 1990s associated, for example, with the contributions of Lucas and Romer. The intellectual dishonesty - or, at best, ignorance - which characterizes these developments is breathtaking in its audacity and arrogance, reflecting the ruthless use of power by mainstream economists in dominant positions in the profession...

...So the simple theory did not provide coherent results and the logically immune theory was not applicable. Here the matter rested: Cambridge (UK) won, but who cares, let us assume that they never existed - a good economist's ploy...

...Thus the current position is an uneasy state of rest, under the foundations of which a time bomb is ticking away, planted by a small, powerless group of economists who are either ageing or dead." -- G. C. Harcourt. Capital Theory Controversies, in The Elgar Companion to Radical Political Economy (ed. by Philip Arestis and Malcolm Sawyer), Edward Elgar (1994).

2.0 Nonsense About Minimum Wages

Since mid February, many economists in the USA have been discussing Obama's proposal that the Federal minimum wage be raised to $9 an hour. I find most of this discussion nonsensical. It would only make sense if an internally consistent theory existed in which higher wages, imposed from outside the labor market, led to less employment. The failure of empirical data to conform to this theory would then be explained by relaxing certain assumptions of the theory, such as perfect competition, or introducing other imperfections, such as information asymmetries and principal agent problems.

But, as should be well known among economists by now, no such theory exists. Peter Cooper has more on this point, in the context of current discussions on minimum wages.

3.0 A Krugman Quotation

If we accept Colin Rogers' take on the CCC, the Wicksellian concept of the natural rate of interest cannot be sustained. Neither can the claim that interest rates are to be explained by the supply and demand for loanable funds. So I do not know what Krugman is writing about towards the end of this paragraph:

"The interest-rate story is fairly simple. As some of us have been trying to explain for four years and more, the financial crisis and the bursting of the housing bubble created a situation in which almost all of the economy's major players are simultaneously trying to pay down debt by spending less than their income. Since my spending is your income and your spending is my income, this means a deeply depressed economy. It also means low interest rates, because another way to look at our situation is, to put it loosely, that right now everyone wants to save and nobody wants to invest. Se we're awash in desired savings with no place to go, and those excess savings are driving down borrowing costs." -- Paul Krugman (8 March 2013). "The Market Speaks", The New York Times: p. A25.

In other contexts, Krugman is willing, I think, to point out that his former boss, Ben Bernanke, sets the interest rate undergirding the whole structure of interest rates.

(I find much of Krugman's columns uninteresting these days. Since I regularly read his blog, I often know his points beforehand. This is not to say that his column is not worthwhile, abstracting from the mistakes in mainstream economics that he seems to feel it necessary to repeat.)

Tuesday, March 05, 2013

The State Is "The Executive Committee Of The Bourgeoisie"

Figure 1: 2012 Qualified Dividends and Capital Gain Tax Worksheet

The tax system in the United States favors income from property, while taxing wages more heavily. Property income includes interest, dividends, and capital gains, for instance. This post provides empirical evidence for this claim by documenting such favoritism in current selected Federal income tax forms.

The Federal system already imposes a heavy burden on wages, even prior to the calculation of income tax. Taxes to fund Social Security and Medicare (also known as Federal Insurance Contributions Act (FICA) taxes) are paid out of wages, up to a cap. But FICA taxes are not taken out of property income.

Americans who pay income taxes must file various forms, of which the 1040 form is a master form, in some sense. (The 1040A and 1040EZ forms apply to people with simpler situations.) The instructions for the 1040 form include various tables and methods for calculating taxes, depending on your situation. Figure 1, above, shows the Qualified Dividends and Capital Gain Tax Worksheet for calculating taxes on income earned last year. As I understand it, qualified dividends are dividends on stock held for more than a year. Capital gains are the (nominal) profits made by selling assets previously acquired. That is, they are the difference between the selling price of an asset and the price for which an asset was bought.

Notice that Lines 16 and 18 call out either a table or a Tax Computation worksheet. Figure 2, below, presents this Tax Computation Worksheet.

Figure 1: 2012 Tax Computation Worksheet

One can step through these worksheets and determine marginal tax rates on various forms of income, given certain assumptions. My notes on Figure 1 point out that the marginal tax rate on qualified dividends and capital gains is typically 15%. You can see in Figure 2 that the marginal tax rate on, for example, wages is progressive. The marginal tax rate increases with income, for various filing statuses. But, as I understand it, nowhere is it as low as 15%. So the structure of the Federal income tax, for taxes being paid this year for income earned last year, rewards those earning income from property and punishes labor.