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Monday, February 17, 2014


It has often been observed that when the body is afflicted, one's sphere of awareness constricts.  Confined to bed by an illness, sensitivity to the slightest changes in your body expands and events beyond your home, or your  room, or even beyond the bed itself dwindle in importance.  Indeed, Eric Goldstein [later Eric Cassel], the boy my sister's age who lived across the back driveway from us in the housing development in which I grew up, reported in a professional publication, written when he had become Dr. Eric Cassel, that patients after general anaesthesia regress for a while in their cognitive capabilities to the level of young children, as originally measured by the Swiss psychologist jean Piaget.  [Piaget's tests of cognitive development involved asking children of different ages to perform such tasks as comparing the amount of water in a tall thin glass with the amount in a short fat glass.  Cassel's conclusion, which seems eminently reasonable, was that you should not ask patients still in the Recovery Room to make adult decisions about such things as inheritances or further medical care.]

Since returning from Paris, I have been on an extremely strict diet in a desperate effort to lose fifteen pounds or more over a stretch of eight weeks.  Today is the end of the first two weeks, and I must in all candor confess that anything less than a nuclear war cannot at this moment command my full adult attention.  My day is filled with deliberations about the dangers of a dill pickle.  Yesterday while munching a raw carrot, I asked my wife in all seriousness whether she had ever seen a fat rabbit.

In an effort to combat this decline into solipsism, I should like today to broach a very large subject on which I have been brooding for a long time.  I do not have clearly formed views about it, nor am I sufficiently knowledgeable about it to have any confidence in my intuitions.  But I have no doubt at all of its importance, and perhaps I can stimulate some discussion on this blog that we would all find helpful.  You will forgive me if I pause from time to time as I write to nibble a lettuce leaf or indulge in a grape.  [I am reminded of the lovely moment in Act One, Scene One of Cyrano de Bergerac in which the impecunious but fiercely proud Cyrano makes a meal of a few grapes, a sip of water, and half a macaroon.  This is, by the bye, another example of the observation in my last post about the role the web plays as an extension of memory.  I am of course quite unable to quote the play by heart, but I had enough of a recollection of the bit of dialogue to find it in an on-line version of Cyrano in a few moments.]

The question, to put it as simply as I can, is this:  How are we to understand the dramatic increase in economic inequality in America and what, if anything, can we do about it?  The broad outlines of the facts are quite well known, and have become, I am happy to say, the subject of constant comment in the public conversation.  America is now almost the most economically unequal of the fully developed industrial nations and it exhibits as well virtually the lowest level of socio-economic mobility.  [For a very useful summary of the data in a NY TIMES column co-authored by my old friend and former UMass colleague Samuel Bowles, go to this link: 

The proximate causes are well known:  the outsourcing of manufacturing jobs, the successful assault on union rights, the failure of regulatory oversight, the explosive growth of the financial sector, the repeated cuts in tax rates for upper incomes.  Can we put these factors in some larger or more general frame of reference?

As is so often true, I find it helpful to go back to Marx.  Although he could not have foreseen in any detail what capitalism has become, his insights were nonetheless penetrating because he was looking at its birth and early youth.  Four thoughts come to mind when I once again view capitalism through his eyes.

First, the driving force of capitalism is the ceaseless quest for profit, for the augmentation of capital.  "Accumulate, accumulate!  That is Moses and the prophets," he says in a famous passage.  Capitalism is not driven by greed nor is it driven by the desire of the executors of capitalist enterprises for self-indulgent gratification.  Lord knows, there is more than enough of that, but as Max Weber taught us, capital accumulation can even be accompanied by, indeed is facilitated by, the paradoxical self-denial of those guided by a secular Puritanism.

Second, the augmentation of profits compels capitalists to seek ever cheaper labor, for labor is a major cost of production and, unlike the prices of other factor inputs, wages are variable and can with effort be driven down.  The familiar justifications for low wages and the shredding of the social safety net are ex post ideological rationalizations, not genuine reasons for the relentless efforts of capitalism to cheapen labor.  This effort to drive down wages can for a time be weakened or even halted by labor shortages, by the collective opposition of organized labor, or by the actions of a government for the moment influenced by the voting power of the workers.  But the maintenance of high wages is, for capitalism, an unacceptable and unstable compromise, not an equilibrium that can be sustained indefinitely.

Third, the cheapening of labor exposes a contradiction in capitalism [as we used to say in the old days], for in any rapidly expanding capitalist system, the principal source of market demand is the wages of laborers.  Indeed, in some of the simpler and more elegant formal models of a capitalist economy, both of the Marxian and the neo-classical sort, final demand by capitalists and their beneficiaries for luxury goods is non-existent.  In any event, even the most blatantly self-indulgent "masters of the universe" with their yachts and private planes and elevator-serviced mansions and multi-million dollar weddings account for only a tiny fraction of the Gross Domestic Product.  Hence, by driving down wages, Capital is depriving itself of buyers for its goods, and hence of profits.

Fourth, in its contradictory quest for cheap labor and effective consumer demand, Capital has historically pursued two policies which for generations served it quite well:  The enlistment of a work force even poorer and more desperate than its domestic labor supply and the opening up, by the force of the state if necessary, of new markets.  Hence outsourcing and colonialism, including their modern variant, neo-liberal economic policies.

There is a limit to the unending movement of capitalist enterprises to nations with even cheaper labor:  Eventually, one would think, Capital will run out of pre-capitalist enclaves in which pools of cheap and desperate labor can still be found.  I am reminded of this extraordinarily prescient passage by David Ricardo, written almost two hundred years ago, in the extraordinary chapter "On Wages" in his 1817 magnum opus, The Principles of Political Economy.  "An English labourer would consider his wages under their natural rate, and too scanty to support a family, if they enabled him to purchase no other food than potatoes, and to live in no better habitation than a mud cabin; yet these moderate demands of nature are often deemed sufficient in countries where 'man's life is cheap', and his wants easily satisfied."  [Ricardo, Chapter v.]   Quite clearly, we are nowhere near the limit of the benefits to Capital of the search for cheaper labor, although it is perhaps possible to see that terminus now as a possible future in which, at long last, a world-wide shortage of labor will begin to drive wages back up.

But at the same time, there is another development under way that threatens to make even that distant hope a mirage.  As Paul Krugman has recently noted [but this time Google lets me down -- I cannot find it], advances in robotics are reducing the amount of human labor required for production -- this is called an increase in "labor productivity" -- so that in America today [America understood as including the scores of millions of workers overseas who work for American enterprises] there are increasing numbers of human beings who are simply superfluous.  They persist in hanging around, they eat food and sleep somewhere or other and wear clothes and use medical resources at some level or other, but they really are not needed by Capitalism, not even is a Reserve Army of the Unemployed.  The rational and humane response to this fact would of course be to cut the length of the workday, share the jobs around, and pay everyone a more than living wage.  The economy is materially productive enough to accomplish this easily.  But it would not be profitable.  Hence no serious person even considers it.

Well, there are as many thoughts as I can put down on an empty stomach.  I invite thoughtful comments of any length.


Unknown said...

I believe you made an excellent synthesis of the paradoxes.

Unknown said...
This comment has been removed by the author.
Michael said...

While I agree with you for the most part, Professor Wolf, I think you could probably do to put more emphasis on something brought up in your last point, which is that the economy is changing (and has been changing for the last twenty to thirty years) in ways that go beyond the 19th century conception of capitalism.

Simply put (and it will have to be, because as a non-economist I can't pretend to have a particularly deep understanding of how this all works) since the end of the Glass-Steagall act, most, if not all, the major growth in the economy has been made in a sector of Wall Street that has little to do with material production. Along with the increased specialization of finance you get things like fast as light trading that can only be done by computer programs, the buying of sub-prime mortgages which are passed around and made profitable until someone realizes that they're actually worthless, and so on. It's why Mitt Romney made so much at Bain by taking over companies, making them look good to investors, and selling them to huge profits while the companies them selves often failed because they had become atrophied versions of what they were before. It's how we get to the extreme inequality between the 1% and everyone else.

All of this can be extrapolated from what you've said, of course, and it may just be my extreme dissatisfaction with the state of things that leads me to emphasize this point. Still, I can't help but note how absurdly strange our economy is, and how devastating that seems to have made it.

GTChristie said...

There may be some older Krugman articles on impact of automation, but this is his latest take as far as I know (he has changed his views at some point, I am told)

But he's saying in this article pretty much what you are saying, especially that automation has skewed the possibilities for upward mobility in income (or reduced income disparity) so badly that the ordinary worker (including the university educated worker) is becoming superfluous.

Magpie said...

@GTChristie and all

Yes, Paul Krugman has written a lot on inequality and, to his credit, he may have been the first public intellectual to bring the subject to the fore, at least in the U.S.

Unfortunately, he has been rather inconsistent on his opinions.


Mike Konczal is regarded as a knowledgeable and serious commentator on economic issues in the U.S. Maybe you guys would find interesting his article for the New Republic, on wage manipulation in Silicon Valley:

Robert Paul Wolff said...

Magpie, thank you for the link. It is a very interesting piece, and adds one more dimension to the ways in which labor is treated theoretically as a commodity like any other while in fact it is not at all like other "commodities." That is the idea I was trying to get at in my essay "A critique and Reinterpretation of the Labor Theory of Value."

Magpie said...

I enjoyed your article and I started your Understanding Marx; but I had some health and personal problems and had to stop for a while.

Have you made progress with Kliman's book?