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Saturday, February 28, 2015


My remarks on the subject of human capital have provoked some interesting comments and links, so it occurs to me that I ought to say  something more on what is actually a complex subject.  Let us begin with the fiction on which the ideological rationalization of capitalism is founded, namely that workers are petty capitalists who produce the commodity labor-power, which they bring to market and offer for sale, like other commodity producers, in competition with other producers of the same commodity.  Marx's anatomization of this fictio juris is exquisite, and cannot be improved upon.  The treatment of workers as producers of the commodity labor-power is of course crazy, as Marx very nicely shows us.  To think in that fashion is to suppose that the worker's body is her fixed capital and her food and clothing her circulating capital.  The problem is that a worker who notices that she is not earning the economy-wide equilibrium profit rate on her capital, "and who, like any prudent capitalist, wishes to shift to a more profitable line, will find it necessary to separate herself ("alienate herself," to use the technical legal term) from her body. And by a quite unfortunate metaphysical accident-which, however, can scarcely be blamed on capitalism itself! -she is unable to survive that particular liquidation of her investment!"  [to quote myself from my essay A Critique and Reinterpretation of Marx's Labor Theory of Value -- see the archive at]

Economic theory, of course, cooperates in the fantasy that workers run small businesses producing the commodity labor power.  And The Law in its majesty enforces wage bargains as though they were contracts between capitalists who meet as equal participants in the free market.  But The Law is not an ass, and when a worker with more book learning than is good for him comes before the bar and requests that he be permitted to deduct on his income tax return the cost of "doing business" -- which is to say, his food, clothing, shelter, and other expenses incurred in the course of producing his commodity for the market -- the Law sniggers behind its hand and denies his request.

Enter Gary Becker, who resurrected the concept of "human capital" to take account not of the worker's body or her food and clothing but rather to incorporate into Economic Theory the important fact that in a modern capitalist economy, some categories of workers regularly earn wages significantly higher than the standard pay for semi-skilled machine operatives, as a consequence of their educational credentials and the skills supposedly thereby represented.  These workers, it is suggested, have invested in themselves by holding themselves off the labor market while they acquire further education, often at considerable expense, thereby accumulating "human capital." .  They are thus like business owners who use a portion of their profits [or take loans] to purchase more sophisticated machinery, the cost of which, amortized over the life of the machines, is a good deal less than the market value of the additional product churned out by the improved capital goods.

This modern version of the old notion of human capital allows economists to blame the low wages of unskilled workers on their own improvident failure to invest rather than consume, an interpretation of poverty that is quite comforting to those sitting atop piles of accumulated capital.

But the analytical concept of human capital has other interesting uses in our attempts to understand modern capitalism, which exhibits a segmented and highly pyramidal wage structure.  It can, for example, be deployed to make sense of the notion of relative exploitation.  High wage workers can be understood as both exploited by their employers and exploiting lower wage workers, a construal that seems to comport with our intuitive sense that corporate executives, lawyers, professors, and such like high wage employees occupy a social position more akin to the owners of capital than to hourly wage earners at the bottom of the income pyramid.

In the essay referenced earlier, I tried to build a simple mathematical model that would capture some of these ideas formally, as a substitute for the classical labor theory of value, which, as I show, is fatally flawed.


Magpie said...

"And The Law in its majesty enforces wage bargains as though they were contracts between capitalists who meet as equal participants in the free market."

This is a very good point, particularly for those with some knowledge of accounting.

Firms positive cash flows are differentiated: they have revenues, but they do not pay income taxes on them; they only pay corporate income taxes over the excess of revenues over expenses: their net income. In other words, their "income" is equal to their profit.

Wage earners' positive cash flows are not differentiated: in general they pay personal income taxes over their gross incomes. For taxation purposes, and roughly speaking, there's no difference between their "revenues" and "profits".

However, all expenses the worker incurs are used to reproduce the worker's labour power: they are a cost. It's as if workers' income taxes were in general calculated over "revenues".

Take for instance children's education. Parents are paying for the education of their replacements in the labour force. This is similar to what capitalists do with depreciation: a machine (constant capital) gradually wears off and a deduction is made from revenue so as to cover this cost. Capitalists pay no corporate income taxes over depreciation charges, why should workers pay income taxes over costs of children's education?

classtruggle said...

From the market's point of view, workers are embodiments of human capital -- their value is related to the value of accumulated skills, knowledge and experience and the demand for them. The problem, however, is when the market does not need workers, the worker as commodity is unable to access the means of life -- no job, no income = no life. Hence the need for extra-market mechanisms (such as disability and old age pensions, unemployment and occupational accident insurance) that allow for a degree of decommodification. Hence social and economic reforms and the rationale for KWS.

classtruggle said...

Although postwar conditions allowed for a degree of compromise between capital and labour (and helped convince many members of the working class that liberal democracy or the parliamentary road was the best way to achieve a materially better life) by the 1980s, new conditions brought the demand for new policies. The growth of reforms (capitalism with a human face) comes more or less to a halt, with economic stagnation due in part to their growth. It became apparent that growing wages and social reforms helped produce stagnation and inflation; incentives for more investment was eroding.

The era of reformist policies was/is over and there can be no return to the postwar compromise because the conditions have changed (with capital increasingly asserting itself at the global level while labour is kept regulated at the national level). And here is the dilemma -- social democracy is still being promised by reformist parties in an age when the possibility of reforms is little to none (no more national economy, national labour and capital markets, no more Fordist mode of production, or economic growth, or a relatively independent state). Social democrats can only pretend to be what they once were. Yes, liberal democracy did allow the WC to get more than the system could sustain -- as one element causing its stagnation/inflation. During the 1970s, however, the reaction sets in the form of corporate policies labelled as Thatcherism and Reganism. Class struggle then becomes a conscious concerted act on the part of capital to reverse all that labour had won in the previous decades, while labour wallows in the memories of the Keynesian postwar era. Its leaders are still there.
The social democrats can't offer a program to transform the system because that was never their raison d'etre and they cannot pass significant reforms (that come at a cost to capital) because the conditions which made reforms once possible simply don't exist anymore.

The lesson? The end goal must be to transform the system and not reform it (although reforms are still important). But this can occur only through its being willed by the vast majority i.e. emancipation of the working class has to be the task of the working class itself. As long as members of the working class remain unconvinced of the practicality of this goal the majority of them will remain in the negative condition of capitalist exploitation. This is what Marx meant when he wrote in imperative mood of the "centralisation of the means of production and the socialisation of labour [which] reach a point at which they become incompatible with their capitalist integument. This integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropiated" (1976; p.929). The language Marx employs here is that of necessity and not physical inevitability.

Magpie said...

"From the market's point of view, workers are embodiments of human capital -- their value is related to the value of accumulated skills, knowledge and experience and the demand for them."

Sorry, classtruggle, workers are not embodiments of human capital. Capital is the capitalist's private property; workers are not the capitalist's private property.

A couple of years back, a well-known mainstream Canadian economist wrote about robots and why they wouldn't replace human workers. To make his argument, he assumed that robots' "wages" would be the same as human wages. But robots are paid no wages, anymore than your car, or your phone are paid wages: robots are items of capital. Human wage workers (at least I) are not.

A slave, at the other hand, is indeed the slaveholder's (not the capitalist's) property.

There is no "market's point of view": there's the single capitalist's point of view; likewise with workers.

Markets don't have points of view. When financial analysts say "the market was spooked by news of insider traders being arrested", for instance, what they mean is that individual traders saw their neighbours' beard on fire and watered their own.

These things are not human, don't attribute human attitudes to them.

classtruggle said...

Capital is not a thing; it is a social relationship. Although the concept of property can refer to a thing/object(s) possessed/owned, its use in law and in logic, refers to relationships among and between people and things i.e. rights attached to ownership, specifically the right to control the use or benefit to which ownership is put. "Property denotes not material things but certain rights...A property right is a relation not between an owner and a thing, but between the owner and other individuals in reference to things" (Morris Cohen, American jurist). Moreover, the use of the concept property as things and property as identical with private property can be traced historically to the period of the rise of the full capitalist market society (see Macpherson, 1978).

Marx understood everything as a relationship/process, that is why he did not simply talk about labour as such, but rather the labour process/relation. Capital was not a thing for Marx, but rather a relationship (hence the meaning of the last chapter of Volume I of Capital: capital is a social relation -- no working class = no capital and vice versa: "First of all, Wakefield discovered that in the Colonies, property in money, means of subsistence, machines, and other means of production, does not as yet stamp a man as a capitalist if there be wanting the correlative — the wage-worker, the other man who is compelled to sell himself of his own free will. He discovered that capital is not a thing, but a social relation between persons, established by the instrumentality of things (Marx, 1976, p.932).

Corporate private property divided the world under capitalism into two basic classes: one class that owns and has exclusive rights to the use and disposal of the means of production and another that does not have that right but only the private individual right to sell its living commodity, labour power, in return for wages. The working class becomes subordinate to the corporate class because it must sell itself to it in return for wages. In doing so, labour gives over to capital control of its labour-power and is subject during specified periods to the command of capital. Labour is thus obliged to obey the rule of capital or face penalties. By virtue of their control over property and over employment of the labour-power of others, capitalists control the means by which capital is accumulated, the products of labour, the use of labour, and the direction of the labour process. As Marx observed: "the consumption of the commodity belongs not to the seller who parts with it, but to the buyer who acquires it." The use of the worker's daily labour power, therefore, belongs not to the worker, but to the employer.

"The serf belongs to the soil, and to the lord of the soil he brings its fruit. The free labourer, on the other hand, sells his very self, and that by fractions. He auctions off eight, 10, 12, 15 hours of his life, one day like the next, to the highest bidder, to the owner of raw materials, tools, and the means of life – i.e., to the capitalist. The labourer belongs neither to an owner nor to the soil, but eight, 10, 12, 15 hours of his daily life belong to whomsoever buys them. The worker leaves the capitalist, to whom he has sold himself, as often as he chooses, and the capitalist discharges him as often as he sees fit, as soon as he no longer gets any use, or not the required use, out of him. But the worker, whose only source of income is the sale of his labour-power, cannot leave the whole class of buyers, i.e., the capitalist class, unless he gives up his own existence. He does not belong to this or that capitalist, but to the capitalist class; and it is for him to find his man – i.e., to find a buyer in this capitalist class" (Marx, Wage Labour Capital)

classtruggle said...

And it is worth noting, labour power can be bought and sold against the real wishes of the worker even though s/he owns his/her own labour power (various gradations of freedom and unfreedom are possible, and free wage labour can combine with slave labour or semi-slavery (see the work by Marcel Van der Linden). As Marx noted capital "reproduces and perpetuates the conditions under which the worker is exploited. It incessantly forces him to sell his labour-power in order to live, and enables the capitalist to purchase labour-power in order that he may enrich himself...In reality, the worker belongs to capital before he has sold himself to the capitalist. His economic bondage is at once mediated through, and concealed by, the periodic renewal of the act by which he sells himself [contract], his change of masters [employers], and the oscillations in the market-price of his labour...The capitalist process of production, therefore, seen as a total, connected process, i.e. a process of reproduction, produces not only commodities, not only surplus-value, but it also produces and reproduces the capital relation itself; on the one hand the capitalist, on the other the wage-labourer" (Marx, 1867/1976, p.723-724)

But now days most corporations are run by very well paid CEO's and executives and not capitalists themselves (in fact, union/workers' pensions and sovereign wealth funds comprise a very large share of total investment around the world). The age of actual capitalists running the world has passed.

Magpie said...


You'll probably love this:

Hume & Kapp, et al.