Coming Soon:

The following books by Robert Paul Wolff are available on Amazon.com as e-books: KANT'S THEORY OF MENTAL ACTIVITY, THE AUTONOMY OF REASON, UNDERSTANDING MARX, UNDERSTANDING RAWLS, THE POVERTY OF LIBERALISM, A LIFE IN THE ACADEMY, MONEYBAGS MUST BE SO LUCKY, AN INTRODUCTION TO THE USE OF FORMAL METHODS IN POLITICAL PHILOSOPHY.
Now Available: Volumes I, II, III, and IV of the Collected Published and Unpublished Papers.

NOW AVAILABLE ON YOUTUBE: LECTURES ON KANT'S CRITIQUE OF PURE REASON. To view the lectures, go to YouTube and search for "Robert Paul Wolff Kant." There they will be.

NOW AVAILABLE ON YOUTUBE: LECTURES ON THE THOUGHT OF KARL MARX. To view the lectures, go to YouTube and search for Robert Paul Wolff Marx."





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Friday, April 19, 2019

GOOD FRIDAY


I want to say something about the Mueller report, but I first I need to make at least a brief response to the many interesting comments sparked by my recent posts.

First things first.  I am appalled, chagrined, and embarrassed to admit that I wrongly attributed the invention of Linear Programming to Wassily Leontief instead of to Leonid Kantorovich.  Leontief invented input-output analysis.  Mea culpa, mea culpa, mea maxima culpa.   Or, as they say in the neighborhood I came from, SCHMUCK!

Second, I hope it is obvious by now that regardless of my feelings about Mayor Pete, if the wins the nomination, I will work as hard for him as I did for Clinton, whom I hate.  I can be rightly accused of many things [including ignorance – see above] but not of self-defeating political purity.

Finally, from the comments, including a fascinating screed passed on to me by Professor David Auerbach, it is obvious that I don’t know beans about Accounting.  The example I gave in my essay was what we philosophers call a thought experiment, or as it is now referred to, a trolley car.  However, the knowledgeable critiques of my cardboard example simply confirm my central point, which is that the sort of market based determination of economic decisions which von Mises argued would always be superior to socialist planning are now impossible, and have long been replaced by decision making that has an unavoidable quasi-political structure.  There is much more to be said, but I want to talk about Mueller.

Some commentators on this blog have pooh-poohed the charges of collusion, insisting that there is no evidence of that, even though, to many of us, the evidence has been in plain sight.  Now that the Mueller report is available, even with redactions, I think the facts are clear.

Let me begin with the word “collusion.”  By now we all understand that there is no statute concerning collusion.  There are statutes concerning conspiracy, including, but not limited to, the Racketeer Influenced and Corrupt Organizations, or RICO statute.  Mueller concluded that he did not have admissible evidence sufficient to make a case beyond a reasonable doubt of violations of RICO and other applicable statutes.

Bummer.

However, that does not even address the question whether there was collusion between the Trump campaign and the Russians.  That is not a legal question [there being no statute criminalizing collusion].  That is a question of fact and ordinary English usage.

So, what is collusion?  Or rather, what does the word “collusion” mean in ordinary English?  Well, I asked Google, and this is what it told me:

“Collude:  cooperate in a secret or unlawful way in order to deceive or gain an advantage over others.”  [By the way, nice note:  the word comes from the Latin meaning “to play together.”]

Did Trump and his campaign cooperate in a secret or unlawful way in order to deceive or gain an advantage over others?  Did they ever!  Mueller’s report is replete with countless examples of exactly that.  I won’t go through them all.  You can do that yourselves.  With whom were they cooperating?  With the Russians, with one another, endlessly, clumsily, eagerly, enthusiastically, sometimes successfully and other times not.  Did they collude?  From the detailed evidence of the Mueller report, they seem to have done very little else!

Did it do any good?  Who the hell knows?  It is hard enough to tell whether TV advertising helps a campaign, whether personal appearances help, whether free media help, whether having a deep baritone voice helps.  But did they collude?  Did they give it the good old college try?

You bet!

Wednesday, April 17, 2019

1054, 1517, AND ALL THAT


Something big is happening in the Roman Catholic Church.  I speak as an outsider, a non-believer, but also as an interested observer of the oldest continuous functioning bureaucracy in the Western world.  The Church has undergone two great and apparently permanent schisms [along with many smaller ones]:  The schism of 1054, which separated the Roman Catholic Church, headquartered in Rome, from what became the Eastern Orthodox Church, originally with its headquarters in Constantinople; and The Reformation, which splintered the Church and produced Calvinists, Lutherans, Methodists, Pietists, Baptists, Anglicans, Episcopalians, and even Quakers and Shakers.  It is worth recalling that what we call The Reformation and date to 1517 was actually a three centuries long evolution, the eventual unfolding of which could not have been anticipated by John Calvin, Martin Luther, Jan Hus, Henry VIII, or any of the other significant players in that great drama.

The crisis now engulfing the Catholic Church has, it seems to me, three roots or causes, which are complicatedly intertwined.  The first is of course the deep systemic corruption throughout the Church evidenced by the sexual scandals, which are so widespread and so completely implicate virtually the entire Church hierarchy that no palliative remedies can possibly succeed.  The second, associated with the first, is the ever-greater difficulty of recruiting enough young men to staff the clergy and replace those dying out or retiring.  The third is the attempt to bring the Church into the modern day by such reforms as celebrating the Eucharist in the vernacular, which, while to some degree successful, have triggered a powerful conservative backlash that reaches all the way to the Vatican.

As always, money, tradition, and entrenched interest operate against any fundamental change, but that was, if anything, more true half a millennium ago when the Protestant Reformation erupted, took hold, and split the Christian world. 

I do not have a dog in this hunt, as they say down here in the Southland, so I am simply a fascinated observer.  I rather doubt many of us will live long enough to see this play out to the end.

WHY I WON'T BE VOTING FOR MAYOR PETE


One of the things I have learned in my long, mostly uneventful life is that people are not stupid.  They may be uneducated, they may be ignorant, they may be parochial, and of course they very well may be prejudiced in one or many ways, but they are not stupid.  People can size one another up pretty accurately, even at a considerable distance, about the things that matter to them.

I first was made aware of this elementary fact relatively late in life when, in the seventies, I had a shot at a variety of academic administrative positions.  Despite what I thought of as a pretty impressive resumé, I never got past first base.  The reason finally dawned on me.  The folks evaluating my credentials said publicly that they were looking for a candidate with experience, educational imagination, flair, and a strong vita, but whether they were honest to themselves about it or not, what they wanted to know at base was the answer to one question:  If the students occupy the Administration building, will you be with them or with us?  The question was never asked, of course, but every selection committee could smell at fifty paces that I could not be could not be counted on to say “I’ll be with you,” and that would end the interview.

I thought about this after reading that long take down of Mayor Pete Buttigieg in Current Affairs by Nathan Robinson.  Here is one passage in Buttigieg’s autobiography, quoted by Robinson, that caught my eye:

“In April 2001, a student group called the Progressive Student Labor Movement took over the offices of the university’s president, demanding a living wage for Harvard janitors and food workers. That spring, a daily diversion on the way to class was to see which national figure—Cornel West or Ted Kennedy one day, John Kerry or Robert Reich another—had turned up in the Yard to encourage the protesters.
Striding past the protesters and the politicians addressing them, on my way to a “Pizza and Politics” session with a journalist like Matt Bai or a governor like Howard Dean, I did not guess that the students poised to have the greatest near-term impact were not the social justice warriors at the protests […] but a few mostly apolitical geeks who were quietly at work in Kirkland House [Zuckerberg et al.]”
“… [T]o this day,” Robinson observes, “it hasn’t even entered his mind that he could have joined the PSLM in the fight for a living wage. Activists are an alien species, one he “strides past” to go to “Pizza & Politics” sessions with governors and New York Times journalists. He didn’t consider, and still hasn’t considered, the moral quandary that should come with being a student at an elite school that doesn’t pay its janitors a living wage.”

As it happens, I was in Harvard Yard on April 21, 2001, the day the protest began.  I had been asked by a young Philosophy Assistant Professor Susanna Siegel [now Edgar Pierce Professor of Philosophy] to meet with her class, which had just read In Defense of Anarchism.  When I showed up at the class, Susanna told me that a group of undergraduates were planning to occupy Massachusetts Hall as part of the Living Wage Movement.  I went along to their meeting in the basement of Matthews Hall [where, fifty years earlier, I had lived as a Freshman], and when they grabbed their cellphones, laptops, and water bottles and ran off through the Yard to Massachusetts Hall, I trotted along after them with my briefcase and umbrella [there was a threat of rain.]  We all sat on the floor and sang songs while some Harvard bureaucrats bustled about fussily.  The students stayed for days, as Buttigieg indicates, but I remained only for a few hours, before going back to Susie and UMass.  When I left, I congratulated them, warned them that my experience suggested Harvard would never give in [it did not], and told them they were fighting the good fight.

That Mayor Pete was not with us that day is entirely forgivable.  That it would never have entered his mind to join us is not.

Tuesday, April 16, 2019

SO WHY AREN'T WE HAVING FUN?

Herewith the last portion of the paper I have been serializing, for your amusement.


It would seem, if this argument is correct, that things are proceeding just as Marx anticipated.  As capitalist social relations mature, the elements of socialist planning begin to develop deep within the corporation, which is truly the womb of capitalism.  Why then are the prospects for social and economic justice so bleak?  Why has the term “late capitalism,” once used by socialist theorists to describe what they confidently believed to be the death throes of the established order, now become a wry joke shared, with sighs and the rolling of eyes, by aging radicals like myself?  Why have any signs of a true movement of the masses died out, to be replaced by an identity politics that is fundamentally assimilationist rather than revolutionary in its thrust?  In short, if all is going as predicted, why aren’t we having any fun?

            The answer, I think, is that along with everything that he got right, Marx got three big things wrong, with the result that the liberatory potential he saw in the internal contradictions of capitalism is nowhere in evidence today.  Let me say something about each of these failures of analysis or prediction.

            First, Marx completely failed to anticipate that the capitalist state would develop the ability to manage and, to some extent, to control the increasingly wild booms and busts that threatened to destroy the capitalist order.  He quite presciently foresaw that the ever more rational organization of production within the firm would come into contradiction with the anarchic distribution of the market, resulting in crises of over-production and under-consumption.  The great crash of ’29 was just what the good Doctor of Philosophy ordered, albeit too late to gladden his heart.

            But Marx was convinced that capitalists, confronted with disaster, would be unable to coordinate their actions in order to save their skins.  In an odd way, he was too much in thrall to the classical economic theory he had subjected to such a penetrating critique in Capital.  It took imaginative theoretical and practical defenders of capitalism like Keynes and Roosevelt to see that with far-sighted fiscal and monetary policies, the state could sufficiently dampen the business cycle to enable capitalism to survive.  To put the point differently, Marx, very much in common with the other economists of his day, failed to see how powerful the state had become under capitalism.

            The pulse still quickens in the circles I frequent when the tech stock market bubble bursts or Paul Krugman forecasts a calamitous reversal in housing prices, the way old war horses flare their nostrils and stamp their hooves at the sound of distant trumpets.  But the truth is that our corporate masters will never again allow a serious threat to the foundations of the economic house they have built.

            Our mature capitalist economy is no longer the unplanned, unintended consequence of the playing out of market forces, for all the lip service that its apologists pay to “free enterprise” on festive occasions.  Rational planning is as pervasive at the macro-economic level as it is within the firm.  But that planning – far more sophisticated and nuanced than either Marx or the state planners of the Soviet Union could have anticipated – is securely within the service of private interests, not the public good.

            The second obstacle to the development of a revolutionary working class movement has been the persistence of pre-capitalist passions and attachments that Marx was convinced capitalism’s invasive rationalization of economic life would weaken and ultimately destroy – nationalist loyalties, ethnic identifications, racial antagonisms, and religious faiths.  The secularization of life seemed to be well under way in Marx’s time.  The Catholic Church had lost its grip on public life in France, Germany, and Italy.  The ancient antagonism of the urban and the rural was dissolving, as Marx had indeed predicted.  And the ever-increasing mobility of both labor and capital bid fair to consign nationalist sentiment to public holidays and political speeches.

            The optimistic confidence that class interests would defeat the irrationality of nationalism reached its height in 1914, as socialists world-wide – my grandfather among them – refused to believe that French and German workers would fight one another in the trenches at the behest of their capitalist masters.  With the bloody refutation of that belief, something died in the heart of the socialist movement.  To be sure, the unanticipated success of the Bolsheviks in Russia encouraged some to believe that despite all, the proletarian movement was on the march [though not my grandfather, who sided with Norman Thomas and the Mensheviks].  But the success first of the Soviet Union and then of Mao’s revolution in China, important as they were to the unfolding of the twentieth century, had nothing at all to do with the birth of socialism in the womb of capitalism.

            In the United States, race had already opened a chasm in the worker’s movement that, in a revised form, persists to this day.  When four million Black men and women walked out of slavery, prepared for the free labor market with agricultural, craft, and industrial skills that they had used as slaves to make the South rich, they encountered implacable hostility from white workers, whether immigrant or native-born.  White workers until after the Second World War struck devil’s bargains with their employers, conceding labor peace and low wages in return for whites-only hiring practices.  This fact, perhaps more than any other, doomed the American working class movement to eventual failure.

            At this nightmare moment in recent history, little need be said about the persistence and intensification of ethnic and religious antagonisms throughout the world.  Try as we may, we socialists can no longer cling to the hope that class interests will unite men and women across national, ethnic, racial, and religious divides in a vibrant revolutionary movement to replace capitalism with a humane, just, egalitarian social order.  Capitalists are doing their part.  Not only are they crafting the elements of rational planning that a socialist economy would require.  They are in the forefront of efforts to put the divisiveness of race, ethnicity, nationality, and religion behind us, for these divisions are not good for business.  It is the people who remain mired in self-destructive and self-defeating irrationality.

            Marx’s third and most serious mistake concerns the direction in which the labor force evolved as feudalism gave way to early capitalism, and then to the mature capitalism we see today.  In the middle of the nineteenth century, when Marx was doing the British Museum research on which his hauptwerk was based, one of the most striking changes taking place in British society was the destruction of the old crafts – weaving, spinning, woodworking, and the rest – and the incorporation into machinery of the skills they once required.  In late feudal and early modern times, a working man was known by the trade he plied, learned in a long apprenticeship and symbolized by the kitbag of tools he brought with him to the job.  The complex social structure of crafts left indelible marks on the family names that so many Americans bear today – Wheelwright, Carver, Chandler, Taylor, Cartwright, Schneider, Schreiber, Weaver, Shepherd, Farmer, Smith.

            Capitalism ate away corrosively at the craft tradition, deskilling artisans and turning them into a homogeneous pool of semi-skilled workers who could master the skills of a factory job in a few weeks and were thus available to be moved easily from job to job by the fluctuations in the market demand for industrial labor.  Marx saw this progressive homogenization of the labor force as the correlate to the process by which small independent entrepreneurs were being crushed by competitive forces and absorbed into larger and larger firms driven to expand by a need to achieve control over their input and output prices.  He foresaw a world in which a united industrial working class would confront concentrated capital, until finally, when a major crash had fatally weakened capital, labor would seize control of the means of production and substitute socialist planning for capitalist anarchy. 

            It was not only an inspiring dream, at least for some of us.  It was also a quite plausible projection of trends that were working themselves out powerfully in Marx’s day.  But it was not to be.  On the side of capital, as Marx anticipated, relentless concentration did take place, leading to the world of vast multi-national conglomerates with which we are all familiar.  To be sure, a subordinate domain of small business flourished, rather like the flora that live under the soaring canopy in an Amazon rain forest.  Nevertheless, Marx got that part of the future right.

            It is on the side of labor that things have not progressed as Marx imagined they would.  For a time, the growth of industrial capitalism did indeed produce a vibrant labor movement that evolved very much as Marx expected.  First individual factories, then entire industries, finally entire national labor forces were organized, giving rise in the United States to the American Federation of Labor and the Congress of Industrial Organizations, while in Europe the labor movement was so successful that it was able to create and sustain major political parties.

             But as industrial capitalism gave way to a complex mix of industrial and service firms with huge, bureaucratically managed assemblages of employees, the leveling and homogenization ceased.  There came into existence a pyramidal hierarchy of job categories with sharply unequal wage, salary, and compensation schedules.  Instead of a world in which the propertyless masses sell their labor and are poor, while the owners of capital hire labor and live on the profits from this unequal exchange, we see today an economy in which even the very rich, by and large, are salaried, and capital is owned by share holders who exercise little or no control over what is nominally their property.  Indeed, comfortably compensated and securely tenured economists like Paul Samuelson, bemused by the reversibility of their equations, have taken to saying that it makes little effective difference to the economy whether capital hires labor or labor hires capital.

            This highly unequal allocation of the rewards and burdens of labor has undermined that solidarity on which Marx was counting.  Steel workers, miners, and textile operatives could forge some degree of unity, despite their geographic dispersion and the many differences in the nature of their jobs.  Even hospital and hotel workers, secretaries and fast food workers, could find some common ground on which to stand in their struggle against the exploitation inflicted on them by capital.  But whatever theoretical connections there might be between them and lawyers, middle managers, and tenured college professors, the gap in the salaries and conditions of labor between the two groups, the utter disparity in their life experiences and life chances, have made a fruitful solidarity out of the question.  Workers have grown progressively less unified, until at long last, Organized Labor has come to be, and to be seen, as nothing more than an interest group, on a par with, but often less powerful than, gun owners, retirees, and fundamentalist Christians.

            All of us are familiar with this world, for it is, after all, our world, and we understand intuitively that our life chances are determined not by whether we own the means of production, but rather by where on the pyramid of jobs we end up.  It is worth taking a moment to look at a few facts and figures, simply to remind ourselves just how steep that pyramid is.  I am referring not to the much-discussed explosion of compensation at the highest executive levels, but to the deeply entrenched inequality all up and down the pyramid.  [These numbers come from Bureau of Labor Department tables, and date from 2004, the latest year for which the statistics are available on their website.]

            In the town of Amherst, Massachusetts, where my university is located, a teacher at the Amherst Regional High School with a Master’s Degree will, after fourteen years, earn $61,353 a year.  If her husband is a fireman in town who is also trained as an EMT, his salary will go up to $45,000 a year.  Their combined family income will then be larger than that of ninety percent of the families in the United States.  Stop and think about that for a moment:  a high school teacher and a fireman.  If the teacher had married a professor at the University, by the time he had risen to the rank of full professor and served in that rank for a while, he might well be earning about $140,000 a year.  Their family income would then be larger than that of roughly 97% of all American families.  By any reasonable classification, they should count as among the rich, and yet all of us are so conditioned by the meretricious images of the mass media that we would unthinkingly describe them as a “middle-income family.”

            Not surprisingly, the numbers are much worse for African-American families.  Now that the federally mandated minimum wage is on its way up to $7.25 an hour, a Black husband and wife working fulltime minimum wage jobs can look forward to the time when their annual household income of $29,000 puts them solidly in the Black Middle Class, with more than forty percent of Black households doing less well.

            The shape of the income pyramid in America has changed very little in the past century and more, save to become somewhat steeper.  This in itself is odd, when we reflect that over that period of time America has been transformed from primarily an agricultural economy into to an industrial economy, then to a service economy, and now to an information age economy.  One might plausibly have expected that so radical a series of transformations would work some alteration in the pattern of compensation, but it has not.

            Apologists for capitalism, who are now as common as houseflies, like to offer two connected explanations for the inequality in wages and salaries, which taken together are intended as a justification as well.  The first rests on a misinterpretation of a famous eighteenth century mathematical theorem, the second on a common logical fallacy.
 
            Mathematics first.

            Leonhard Euler, the great Swiss mathematician, proved a theorem about linear homogeneous functions that was, in the nineteenth century, given an important economic interpretation.   The theorem was construed as saying that under certain conditions, the wages paid to workers in a free and competitive labor market exactly equal their marginal contribution to the output of the firm for which they work, or, as it is sometimes called, their marginal product.  Thus, if a vice-president in an executive suite makes more than a secretary in the steno pool, that is because the vice-president contributes exactly that much more to the productive activity of the firm.  It would be both unjust and inefficient to take away some of the executive’s pay and give it to the secretary, even though they are both, no doubt, nice people and hard workers.

            The problem with this rationale for unequal pay is that it turns out, upon closer inspection, not to apply to any known or even possible capitalist system.  In the first place, the theorem holds only for economies whose production function is linear homogeneous [assuming that it even makes sense to speak of the production function of an entire economy], and as is easy enough to show, this is equivalent to saying that the economy is in long run equilibrium.  But as Marx pointed out, and as every economist since has reaffirmed, capitalism is never in long-run equilibrium.  A capitalist economy is always engaged in what Joseph Schumpeter, in a famous phrase, called creative destruction.  Furthermore, it follows directly from Euler’s equation that a firm with a linear homogeneous production will, if it pays each of its employees his or her marginal product, make a zero profit, and a firm regularly making zero profit will of course cease to exist.

            All of this is quite well known to all economists, but it has not dissuaded them and their epigones from wrapping themselves in the sanctity of mathematics whenever proposals for wage and salary equalization surface.
 
            So much for mathematics.  Now logic.

            When economists are asked why some employees are so much more productive than others, and hence deserving of such inflated compensation, their standard answer is education, or, as they sometimes say in an attempt to make the answer sound more impressive, human capital.  Actually, that last sentence inverts the real order of explanation, and thus participates in the ideological rationalization that I am attempting to debunk.  Let me restate the point:  When asked to explain the striking inequality in compensation schedules, economists begin by assuming that the inequality must be justified, for to think otherwise would be to call into question both the foundation of American society and their own comfortable compensation.  Those of us at the top of the income pyramid must have a much greater marginal productivity, they conclude.  And how can that in turn be accounted for?  Education.

            Now, it is demonstrably true that in America today, your level of education [or, to be more precise, the number of years of schooling you have completed – not at all the same thing] powerfully affects where on the income pyramid you end up.  Indeed, it may be the single most significant determinant.  There are very few MBA’s working on the loading dock, and very few K through Twelvers in the executive suites.

            But this fact does not imply that the shape of the income pyramid itself is in any way determined by the levels of educational attainment in the work force as a whole.  If you have a college degree, your chances of climbing up the pyramid at least to the middle levels are quite good.  But if everyone gets a college degree, the pyramid will not flatten out, because there are only so many jobs at the middle level.

            To think otherwise is to commit what logicians call the Fallacy of Composition, which is simply the mistake of thinking that because something is true of each member of a group, it can be true of them all.  Each of us, we may suppose, can with hard work and determination, be above average, but only in Lake Woebegone can all the children be above average.

            Because the American economy is so large, it is easy to lose sight of this simple truth.  For each individual, or for all immigrants, or for all African Americans, or even, within limits, for all women, it is indeed true that greater educational attainment will tend to lead to higher compensation, but that is only because the individuals or the group will over time displace some of those in the favored slots.  If all the applicants for jobs at a corporation present themselves to the Human Resources Office with MBA’s, the Board of Directors will not terminate the positions of secretary, mail room clerk, and claims adjuster and make everyone a senior manager!

            There is one way in which a dramatic educational upgrading of the entire workforce might conceivably trigger a flattening of the entire income pyramid.  With better prepared workers available, corporations might shift to different and more profitable production techniques, and those new techniques might result in an array of job positions with more equal associated compensations.  Economists would say that the positions defined by the new production function had more equal marginal productivities, which, as we have seen, is nonsense, but nevertheless, the end result might be a flatter pyramid.

            Is this likely to happen?  Well, for more than one hundred years, the average level of educational attainment in America, as measured by number of years of schooling completed, has been rising.  The level of education demanded by the production techniques and job specialties in the American economy has risen correspondingly.  And the shape of the pyramid has remained essentially unaltered.  Literacy, not to mention computer literacy, is today required even by such poorly paid jobs as department store clerk.  And yet, no flattening of the pyramid can be discerned.

            What then does explain the shape of the income pyramid?  A number of bright economists, willing to challenge the received wisdom, have been puzzling over this question for several generations.  More than thirty years ago, Lester Thurow, the MIT economist who served there for a while as Dean of the Sloan School, published a little book called Generating Inequality that took a fresh look at the question.  But although it is possible to give partial explanations, especially of an historical sort, for the pattern of compensation in this or that capitalist economy, the seeming permanence of the steep pyramid, its imperviousness to even the most striking changes in the world economy, remains a mystery.

            Thus, there is little prospect for the labor solidarity on which a successful socialist transformation must be built.  It is now the best of times and the worst of times.  Economic rationality marches relentlessly on, while poverty and inequality harden into permanent injustice, and racial, ethnic, national, and religious rivalries tear the world apart.

            What can we anticipate for the future?  What will my grandfather’s great, great grandson, my grandson Samuel, inherit as he grows to maturity?  The impetus within corporations to substitute economic planning for subservience to market forces will strengthen, as the managerial class responds to the imperatives of institutional rationality.  Meanwhile, the obscene gap between the gilded life chances of the fortunate and the life-threatening poverty at the bottom of the world economy will persist and come to be seen as an inevitable concomitant of the rational workings of the market.

            There will always be class traitors like myself who rail against the inequality from which they personally benefit.  But though our excoriating tracts may bring us tenure and advancement, the revolutionary transformation they celebrate will seem as fanciful as the Chronicles of Narnia. 

            What then is the future of socialism?  If socialism is the substitution of rational planning for the anarchy of the market, it is already upon us.  If socialism is the achievement, at long last, of justice and equality, it is a dream that has been aborted in the womb of the old order.
           


THE FUTURE OF SOCIALISM PART THREE


Which brings us to the third and most problematic of the sources of accounting ambiguity, joint production, for that is precisely what is at stake when it comes time to allocate the cost of the space in which the two divisions carry out their productive activities.  Speaking generally, joint production is the use of a factor input to produce two distinct salable outputs.  In this case, the input is the company’s building and the outputs are cardboard and boxes.  An oil refinery usually generates an entire array of products from its processing of crude, as does a slaughterhouse from its transformation of beef on the hoof into an assortment of meat products, hides, and other outputs.  It is not too much to say that in a modern corporation, joint production is the rule rather than the exception.

            The accountant, in preparing an annual report of a firm, is called upon to allocate the cost of the inputs that are used jointly in the production process.  As Thomas demonstrates, there is no neutral pattern of allocations that can determine how much of the cost of such a factor is to be allocated or imputed to each unit of the several outputs in whose production process it is employed.  The problems are manifold, as should by now be obvious.  Thomas cites as one example an attempt to distinguish the cost of a building in which are carried out production processes having multiple outputs from the cost of the land on which it is built.  The problem is that tearing down the building would so significantly alter the land values in the neighborhood in which the factory is located that the sale price of the cleared land would in no way reflect the cost to be allocated among the several outputs. 

            Well, enough is enough.  Even these remarks, which might be characterized as accounting lite, are more than any sensible layman would want to read.  Why does all this matter to someone like myself who is trying to assess Marx’s analysis of the transition from capitalism to socialism? 

Perhaps the best way to begin is with the classic essay by Ludwig von Mises entitled “Economic Calculation in the Socialist Commonwealth.”  First published in the original German version in 1920, and included in an English version in Friedrich von Hayek’s widely read 1935 collection of essays, Collectivist Economic Planning, von Mises’ essay is generally thought to be a devastating dismantling of the socialist penchant for central planning.  His thesis, in a nutshell, is that since the free market does the best possible job of pricing factor inputs, through the interplay of individual decisions to buy or sell, the very most that socialist planners could do, in the ideal case, would be to mimic the operations of the market.  Since in the real world they have no hope of achieving that ideal, collectivist planning will always be inferior to free market competition as a way of deciding how most efficiently to employ scarce resources.  Thus, contrary to the expectation of Marx and his followers, socialist planning can never improve on the unplanned outcome of the marketplace, but will fall disastrously short of that standard, producing wastage, bottlenecks, shortages of necessary productive inputs and calamitous failures to meet consumer demand.  In the jargon of modern economists, unfettered capitalism will tend to put an economy on its production possibility frontier, while socialist planning will consign an economy to a position well below and to the left of that desirable location.

The first thing to be said is that in 1920, von Mises was dead right, and I think it is a fair guess that Marx, had he been alive, would have agreed.  Von Mises was of course looking at the fledgling Bolshevik government that had just seized power in Russia, ostensibly in the name of Marx and communism.  Russia was then still a late feudal economy with a tiny nascent capitalist sector pretty much confined to a few cities west of the Urals.  The social relations of capitalist production had scarcely begun to grow in the womb of feudalism, and nothing remotely resembling socialist relations of production could be discerned anywhere in Russia’s economy.  The Bolsheviks were well aware of this fact, and engaged in a lively – ultimately bloody – discussion about whether it was theoretically possible to “skip a stage” and go directly from late feudalism to socialism.  Marx knew that the answer was no, and so, I suspect, did they, but when one has unexpectedly taken control of a vast nation at considerable personal risk, it would have seemed unnecessarily doctrinaire to turn the state over to whatever capitalists one could find and wait patiently for the slow evolution of new social relationships to run its course.  Not surprisingly, what emerged in Russia, and later in the even vaster peasant society of China, bore no resemblance at all to what Marx had in mind when he spoke of socialism growing in the womb of capitalism.

So von Mises was certainly right with regard to the world he was looking at in 1920.  The market clearly did a better job of allocating scarce capital resources than any group of planners could, even though Russia numbered among its intelligentsia some of the best economists in the world.  [Indeed, it is said that some years later when the young Wassily Leontief took his brilliant new technique of linear programming to the Soviet Commissars and offered it as a tool for sophisticated central planning, they dismissed his offer on the bizarre grounds that since Marx only used addition, subtraction, multiplication, and division, Stalin had decreed that his planners must do likewise.  Leontief eventually moved to Harvard, where his theoretical innovation assisted corporate planners to manage their capitalist empires.  Many years later, he was awarded the Nobel Prize in economics.]

But von Mises was fundamentally wrong in his conception of the question under debate.  Marx did not think that socialists could do a better job than capitalists of running a capitalist economy.  Marx had only the greatest admiration for the explosive efficiency of capitalism.  No one has ever penned more effusive panegyrics to capitalism than Marx.  What Marx said was that inevitably, ineluctably, socialist relations of production would develop within capitalism, devised and advanced by capitalists, not by socialist moles burrowing into the heart of enemy territory in an effort to undermine their fortresses.

If market forces were adequate to the task of making rational allocations of scarce resources, there would be no internal impetus for the evolution of new ways of organizing production.  But as we have seen, in a large modern corporation, the play of the market does not of itself resolve questions of allocation, resource use, and profitability.  Capitalists do not develop internal planning models of economic decision making because they have been seduced away from the faith of their fathers by tenured radicals on effete Eastern campuses who have never met a payroll.  They develop new modes of corporate decision making because their accountants and financial experts cannot tell them, in a neutral, objective fashion, which of the available alternatives will be most profitable.  Our cardboard C. E. O., struggling to decide which of his division managers has made the most significant contribution to the firm’s profits, must somehow resolve the disagreement between the two over the proper allocation of the fixed costs of the building in which their production takes place, and over the proper amounts to be charged against the box division’s accounts when it draws its raw materials from the stocks produced by the cardboard division.

Once the firm’s president becomes persuaded by his accountant’s argument, he realizes that the disagreements between his division managers will have to be worked out politically – they will either have to be negotiated, or else he will have to decide them by an exercise of sovereign authority.

            In either case, what has happened, even in this very elementary case, is that a decision originally made for the firm by the market, and then made for the firm by an accountant, now has been transformed into a political decision to be made essentially by some form of political mechanism.  In short, economic calculation has been replaced by political planning.

            No doubt, none of the actors in this miniature drama would consider it in the slightest appropriate for what is usually called the political system to get involved in deciding how fixed costs are to be allocated in the cardboard carton firm. But though there might be many other reasons for keeping the city, the states, or the federal government out of the process, the principal and most plausible reason has evaporated, namely that the decision, being economic in nature, is best made by the impartial working of market forces. The fact of the matter is that the decision isn’t simply economic – it is not actually an objective scientific decision at all. It is a political decision, required in order to resolve a conflict between the incompatible ambitions of the two division managers, one of whom is seeking to hold his job against the threat of replacement, the other of whom is trying to advance her career by demonstrating her ability to run a division profitably.

            The situation we have analyzed in this hypothetical small firm is reproduced throughout the modern capitalist corporate world, with complications, elaborations, and variations that cannot even be hinted at in our example. A major multinational corporation, as has often been remarked, is better compared to a state than an entrepreneurial firm.  Contained within it are huge bureaucratic systems and sub-systems in whose hallways and meeting rooms men and women live their entire working lives.  The processes by which corporate-wide calculations of profitability are made involve considerations of tax codes, local ordinances, international trade, exchange rates, inflation rates and regional differential development patterns that are substantially indistinguishable from the corresponding considerations weighed by economic planners in centralized national economies.

            The running of such a corporation requires systems of data acquisition and retrieval entirely beyond the capabilities of the eighteenth and nineteenth century capitalist firms on whose behavior the original models of capitalism were based. To manage such information systems, and thereby to coordinate the decisions, the purchasing and shipping patterns, the product development time-tables, and the promotional campaigns of the many divisions of the firm require an extremely high level of literacy – both linguistic and computer – on the part of lower and middle level, as well as upper level, employees.  Until it is possible to get reliable answers quickly to questions about employee levels, warehouse inventories, price shifts, exchange rates and capital availability, those charged with the central planning of the corporation cannot even begin to carry out their tasks.

            Nothing resembling this level of information flow, and consequent decision implementation, existed in the early capitalist firms, not even in those that grew to great size in the nineteenth century.  The importation into capitalist industrial organization of the model of military command and control was due at least as much to the sheer unavailability of any alternative way of managing and coordinating the behavior of large numbers of people as to the ideological affinity of the early industrial magnates for militaristic modes of organization.

            In short, when Marx talks about socialism, he has in mind an economy whose stage of development of technology and organization is so far advanced that national planning is technically possible.  Such a stage exhibits both a certain level of technology of production, of data generation and retrieval, and of communication, and also a corresponding level of knowledge and skill on the part of workers at every level, not merely at the top.  Although Marx failed to foresee the digital computer, it is not far-fetched to say that his conception of socialism presupposed it, or something equivalent.

            Marx expected, for sound reasons, that the technology of production, communication, and management required for the central planning and control of an entire economy would develop first within capitalist firms, in direct response to the pressures of competition and the demands of profitability.  And so they have.  An immediate consequence of this process is the transformation of economic calculations into political decisions, within the firm.  Thus, if by socialism we mean the rationally coordinated planning of an entire national economy in such a way as to transform the major economic choices of the society into political choices, responsive to the will of the people, then it is true that socialism has been growing within the womb of capitalism, or at least that the technical preconditions for socialism can be seen to be developing there.

            The economic systems established in the Soviet Union, in Eastern Europe, in the People’s Republic of China, and in a number of other nations self-described as “socialist,” were not in any usable sense examples of socialism.  This description must be denied them not because of the character of their political systems, but quite simply because they did not exhibit either the stage of development of productive forces or the level of development of, and rationalization of, relations of production pre-requisite for what Marx meant by “socialism.” An economy cannot, with the best will and the strongest ruling party in the world, move directly from a feudal or early capitalist economic organization to socialism. The reason has nothing whatever to do with piety, ideology, or the inexorable march of history, and has everything to do with the impossibility of planning food production rationally when you cannot even find out with any precision how many acres are under cultivation, or what the pattern of crop yields is from county to county, and when your work force is computer-illiterate.

            Note, by the way, that the development of efficient techniques of central planning within a modern capitalist corporation is advanced, not impeded, by the ambition, acquisitiveness, and egocentricity of the workers and managers.  Switching over to a planning system in our carton factory does not require the development of socialist consciousness. It requires only that the objective structure of the firm make policy-neutral calculations of profitability theoretically impossible, as in fact they are once the second division of the firm starts to operate. Somewhat more to the point, the coherent management of large modern firms does not require that the capitalist mentality so often credited with the rise of modern capitalism be somehow transcended. The same men [and recently women] who manage the great corporations would, if they were suddenly to find themselves running small firms in a classically competitive environment, adopt precisely the calculations of profitability traditionally conceived as determined for them by the free market. They do not do so when managing large corporations simply because it is technically impossible to do so.

            What, then, is the fundamental difference between socialism and capitalism at its most advanced, rationalized, and centralized?  Under socialism, economic decisions would be treated [I use the subjunctive because there does not yet exist a socialist society] as collective political decisions, to be made democratically on the basis of the aggregated will of the entire people. In a capitalist society, decisions are taken privately, within the firm, in response only to the interests, the will, or the pressures of those who occupy positions of power within the firm.

            The issues available for decision are not at all comparable in the two systems. A socialist society will be presented with choices among economy-wide investment policies or systematic wage policies that simply do not come within anyone’s ambit of decision in a capitalist economy.  This, of course, is the principal source of the greater rationality of a socialist economy.  But the mechanisms for the acquisition and management of information, and the consequent management of economic activity, will have been developed and tested within the capitalist firm – within the womb of the old society.


Monday, April 15, 2019

HORROR!

Notre Dame de Paris is burning.  This is unimaginably awful.

QUICK RESPONSE TO DEAN


Dean asks:  “Why is the suggestion "that the company write off the entire cost of the machine in the year it is purchased, and treat it in all the subsequent years of its use as a free good" not objective and impartial? As for inventory, wouldn't the objective, impartial valuation be the actual price paid for each unit used? Sure, that would be a cumbersome, inefficient method, but it would be objective...wouldn't it?”

The problem is that all of these alternative schemes are objective, but none of them is impartial.  None is dictated by the market, so the company must choose among them, and each choice benefits some persons in the management of the company and disadvantages others – i.e. each is in a sense an internal political choice.

For example:  Suppose the item to be written off is an air conditioning system with an expected life of ten years.  If it is entirely written off in the year it is purchased and for the next nine years is treated as a free good, then a division chief who was appointed in year three gets seven years of free air conditioning, which decreases the costs of her division for that time, as compared to the chief of a different division who was appointed the year before the new system was installed and had to take a share of that cost against his division’s profits.  And so forth.  All the alternative accounting conventions are objective, in the sense that they do no rely on someone’s subjective estimate of the value of having air conditioning, but there is no impartial basis for preferring one scheme over another.

As for the pricing of inventory, LIFO, FIFO, and so forth are all objective, but as I indicated, one favors one branch of management [or one group of investors] and another favors a different branch.