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Monday, October 11, 2010


Two commentators -- JP and Angus -- have raised some fundamental questions about the underlying thesis of my exposition, and I am going to pause in my frantic writing long enough to respond to the two of them. I think what I have to say will deepen and clarify my argument, although I doubt it will convince them.

Here is a part of what JP writes: "I fail to see the argument here. If I give the unemployment-rate I am saying that, in a certain society, X number of people meet a certain proxy-standard for "unemployed". Saying this does not commit me to the claim that this measure applies to all societies, that it is somehow natural or given, or even to the claim that the relevant proxy is a good measure of unemployment. Could you say a bit more with regards to objectivity or neutrality?"

I shall certainly try. Obviously, in some very narrow, definitional sense, JP is of course correct. An unemployment percentage is a ratio between two quantities, and I can form a ratio of any two quantities I choose, so long as they are measured in the same units. [I cannot ask what percentage of 100 oranges 10 apples is, because, as we say, that is apples and oranges, but I can ask what percentage of 100 pieces of fruit ten pieces of fruit is, and in that case it matters not at all that the 100 are oranges and the 10 are apples.]

But that, I suggest, is not what is actually happening when the BLS cranks out its monthly unemployment estimates. The BLS, like all of us, starts with a pre-analytic non-technical conception of employment and unemployment, a notion that speaks to our concerns about the health of the economy, about the direction in which it is going, about the well-being of the people in America, about the stability of the economy and society, and so forth. The technical definitions crafted by the BLS are designed to capture those underlying notions in a way that will produce numbers useful to us in addressing those questions, while also serving as formalized terms suitable for sampling, surveying, and measuring.

The underlying notions of employment and unemployment are part of a broader understanding of our society, an understanding that embodies assumptions and evaluations that, taken all together, constitute an ideology -- i.e., a systematic rationale for the way things are. The BLS does its best to craft concepts that capture those notions, always recognizing that some compromise may be necessary to make the concepts measurable in a scientific manner. When we use this notion of unemployment as part of our public political discourse, we are buying into the conception of, and rationale for, capitalism, what I am calling, following Karl Mannheim, an ideology.

How would we conceptualize unemployment in a pre-capitalist Walton world? [The Waltons live in Depression era America, which is of course a capitalist world, but I introduced them in a feeble effort to put a face on an abstract argument, or, in the immortal words of W. S. Gilbert in THE MIKADO, "merely corroborative detail, designed to give artistic verisimilitude to an otherwise bald and unconvincing narrative."] Suppose some thoughtful theoretician, well ahead of her time, were to try to form a concept of unemployment in the sixteenth century. Proceeding in the same manner, she might conceptualize unemployment to mean refusal to accept the role of a serf or apprentice, instead taking to the road and becoming a vagabond. She might note that as a result of the enclosure of farm land for the purpose of raising sheep for the wool trade, increasing numbers of former farm laborers are being driven off their traditional lands and are becoming a floating vagabond population of the poor, leading to the imposition of Poor Laws and the founding of Poor Houses in an attempt to control this socially disruptive phenomenon. In formulating this concept, she would be capturing accurately the world view and ideology dominant in England at that time. Suppose now that a colleague were to offer an alternative concept of "unemployment", using the BLS definition. This concept would technically be fully as precise and accurate as it is when used by the BLS in 2010, but it would find very little use in the sixteenth century, not merely because the statistics would be unavailable, but because there were at that time very few people being paid money wages for their labor, and indeed there would be, in the public discourse, no recognizable concept of a wage labor force.

One of the ways in which capitalism mystifies itself is by presenting itself as simple common sense, as nothing more than the way rational people behave when they are free of all superstitions and willing to abide by contracts freely made in a free marketplace. The point of Marx's historical account is to exhibit capitalism as one historically located system of social relations of production, ownership, law, and religious rationale, masquerading as mere simple reasonableness. My goal in writing as I do about the unemployment rate is to expose one aspect of that self-justifying self-description, and to show that it encapsulates and promulgates a normative justification of capitalism for which there is actually no ground.

Now, faced with my arguments, it is always open to anyone to say, "I am merely deploying a proxy-notion, formally defined. I intend no larger claim, no justification of capitalism, nothing more than the exhibition of a simple numerical ratio." And since each of us is the world's leading expert on his or her own state of mind, I cannot challenge such a claim. The person who is making it is the recognized authority on the subject.

However, I can and do suggest that the universal use of this concept of unemployment expresses and at the same time rationalizes the particular set of social relations of production that define a capitalist economy, and that even economists, who perhaps should know better, use this concept as though it were an adequate conceptualization of an acceptable state of affairs [not that the particular number is acceptable -- everybody agrees it is currently too high -- but that that concept of what constitutes unemployment, a concept that for example excludes the discouraged workers, the housewives, the prison population, and the armed forces from the calculation, articulates an image of the good society.]

Just to give you an example of the way in which this slippery shifting of concepts takes place [I am not at all suggesting that JP or Angus says anything like this -- it is just an example drawn from economics], consider the argument so popular in right-wing Cato Institute circles that in a free market workers are paid a wage equal to their marginal product, so that a federally mandated minimum wage distorts the labor market and results in higher unemployment. [If you have not heard this argument, you have been living under a rock.] This argument is based on a model of the economy that assumes an economy-wide linear homogeneous production function, to which one can then apply a famous theorem proved by the great eighteenth century mathematician Leonhard Euler. But as every first year graduate student in economics learns, Euler's theorem applies only to an economy in long-run equilibrium, in which there are constant returns to scale and a zero profit rate. Since there never has been and never could be a functional capitalist economy with a zero profit rate, the argument is irrelevant. But it is perfectly correct technically. IF one has an economy in whose production function is linear homogeneous, THEN each worker is paid his or her marginal product. That is what undergraduates are taught in their Intro Econ courses, and since most of them get no farther, they go through life thinking that really smart economists have conclusively proved that a minimum wage is a bad idea.

At this point, let me turn to Angus' question, which fits right in here. He asks, "Are you saying that it is impossible even for careful individuals to keep all normative connotations of unemployment at bay and just focus on what it is actually measuring, or just that society as a whole cannot sever the concept from its normative connotations?"

Well, obviously I am not saying that careful individuals cannot keep all normative connotations at bay, because here I am doing just that. But the situation is actually very much more complicated than that. I have written about this at length in the first chapter of my little book, MONEYBAGS MUST BE SO LUCKY, where I connect it up with Socratic irony and the proper interpretation of English Metaphysical poetry [no one ever accused me of limiting myself to one discipline.] It would take me much too much space reprise that entire argument here. It is, I honestly believe, one of the subtlest and deepest interpretations of Marx ever written, and I am enough of an author, not a blogger, to feel that if I have written it and published it, I ought to be able to assume that interested persons will take the trouble to read it.

Briefly, Marx argues in Chapter One of CAPITAL that all of us experience capitalist economic phenomena as mystified, even though we may have worked our way to a level of understanding at which we, like Marx, can see through that mystification. Completely to be free of it requires not an intellectual effort only but a political effort. "Up til now, philosophers have only interpreted the world; but the point is to change it." [The 11th Thesis on Feuerbach, more or less loosely quoted from memory.]

I am not going to say more, because I am afraid that someone reading a brief summary of my ideas on this subject will mistake them for the full exposition. I will say again, if you are really interested in this subject, read my little book. It is only 80 pages or so long.

Tomorrow, back to my fable. The Marx family s next.


Unknown said...

Prof Wolff

Thank you for the thoughtful reply. I do agree that the relations of production are frequently mystified, and I do agree that economists are often guilty of believing (and propounding) the ideologoical concept, but hiding behind the strict definition when challenged. (The example that annoys me endlessly is the 'rational' in rational choice theory.) I also agree that this phenomenon is pervasive. I also do agree that our proxy is a proxy for some pre-theoretical, often ideological concept. I am not (yet?) on board with believing that this inevitably compromises us, or makes a neutral view impossible, as I do think you can think only in terms of the proxy, and still say most of the things you wish to say, but I don't have a knock-down argument for that. I suspect this topic will arise again.

(For what it is worth, here is how I think we should think about unemployment: In all societies people have desires, some things can increase or decrease the degree to which these are satisfiable. Under certain systems being employed/unemployed is one of these factors. I think this has two virtues, 1) it shows why we care about unemployment, 2) it treats it as a contingent fact about some societies. It is not obvious to me that this is in any way ideological - and, of course, I am not here treating desires as fixed, constant or universal.)

Anyway, thank you again for this series and the clarification.

Andy said...

Prof Wolff,

A technical comment from my own field of expertise:

Workers being paid their marginal product (MP) does not require linear homogeneity of production. In fact, linear homogeneous production functions assure that workers are paid their average, and marginal, product. Only when there are decreasing returns to hiring additional labor hours (ie, non-homogeneity) will workers be paid a marginal product that differs from their average product.

The zero profit rate condition is also unrelated to the issue of marginal products and wages. Optimizing firms will set MP equal to the wage even if the economy is in disequilibrium and there are positive or negative aggregate profits.

The result of MP = wages arises from the assumption of optimal firm behavior and non-increasing returns to scale.

Angus said...

Thanks very much! I am convinced.

Unknown said...

Professor, mind explaining your quick dismissal of a capitalist system with a zero profit rate? Do you not agree that profits tend to zero?

Robert Paul Wolff said...

Profits tend to zero? In what alternate world do you live? Maybe they do in economics textbooks, but not in the real world. If the profit rate goes to zero, so that one earns on invested capital no more than the interest rate, why on earth would anyone make a risky investment in a capitalist enterprise? For love of the game? For as long as capitalism has been in existence, whenever it has been healthy, which is most of the time, the profit rate has been well above zero.

Think about it. A capitalist with a million dollars can invest it in a productive enterprise, taking all the risks attendant upon such a venture, or she can pjut it in the bank and earn the going rate of interest. If the capital investment earns a 6% return [sales minus all expenses, as a percentage of the investment], and the bank deposit earns 6%, why on earth would she take the risk?

Unknown said...

I assume that it must be that the typical return on capital (money accruing to owner) is higher than the typical interest rate paid by banks (i.e banks take a significant cut)? But this is consistent with profit being zero.

My puzzlement is this: as I understand it, 'profits being zero' basically means the rate of return on capital is constant accross industries. Now it may be wrong that the rate of return on capital tends to equalise accross industries, but it is not obviously wrong.

Of course, I am not an economist, so I may have misunderstood the concept of 'zero profit' somewhere.