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Monday, May 6, 2019


From 1980 to 1987, I lived in the Boston area while continuing to teach at UMass.  During that time, I was a regular at the lectures put on by a center for the History and Philosophy of Science run by Bob Cohen and Marx Wartofsky, two wonderful members of the BU Philosophy Department.  The lectures were delightful affairs, on every conceivable topic under the sun, and a distinctive feature of them was that no matter how obscure the topic, somehow a leading expert would show up in the audience to challenge the speaker.  One evening, as I recall, a member of the Worcester based UMass Medical School gave a talk on Aztec medicine, leaving us all to wonder what we could possibly ask during the question period.   Not to worry!  A young man stood up, declared himself to be of Aztec heritage, and proceeded to grill the speaker.

The last few days has made me feel a little bit as though I were back at BU.  My son tells me to read a book on MMT.  I do so, write a blog about some ideas in it out of my profound ignorance, and Tom Hickey pops up to put us all in the picture with a series of long, enormously knowledgeable comments.  It really is wonderful.

I am going to stop blogging about MMT because I almost immediately exhausted my fragile grasp of it, but one thing Tom Hickey said triggered some thoughts that I should like to lay before you.  Here is the passage, from one of his comments:

“Addressing inequality is a social issue more than an economic one, but it is also an economic one that needs to be addressed for optimization. Economically, this would involve taxing away economic rent as "windfall profit," that is, gain from ownership rather than productive contribution. Economic rent includes financial rent, land rent, natural resource rent, and monopoly and monopsony rent, as well as socialized negative externality.”

It is the word “rent” on which I wish to expand, from a Marxist perspective.  These remarks will pull together several things I have said here before.  I first encountered discussions of rent in Adam Smith’s Inquiry into the Nature and Causes of the Wealth of Nations.  Smith was of course writing about land rent, the price the landed gentry charged entrepreneurs who wanted to grow crops on their land.  Smith is scathing in his critique of the gentry, whom he views as leeches sucking the life blood out of England [of course, he may be more than ordinarily negative because he was Scots].  He draws a sharp distinction between the work done by the farmers employed by the entrepreneurs, which he calls productive labor, and the work done by the clouds of servants waiting hand and foot on the gentry, which he calls unproductive labor.  The first sort of labor creates wealth, and is thoroughly praiseworthy; the second gobbles up wealth, and threatens to lead England to ruin.  Ricardo, forty-one years later, echoes Smith in his Principles and warns that the rents charged by the gentry threaten to bring economic growth to a standstill.

It was well understood by both Smith and Ricardo that in the division of the annual product – the “wealth of the nation” – the interests of the entrepreneurs and the workers were diametrically opposed.  What went to one class as profits diminished what was left to the other class as wages.  Rents, Ricardo demonstrated, came out of profits, not out of wages.

Speaking more broadly, a rent is a payment demanded by the legal owner of a scarce and non-substitutable resource entirely independently of any contribution made by the owner to the productive enterprise in which it is used.  The gentry didn’t do anything for their rents.  They just owned the land and demanded payment before allowing it to be used, a demand backed up by the law, the police, and if necessary the army.  Owners of patents do the same thing, as do owners of broadcast frequencies, and mines.

In the early days of capitalism, when most often the owner of a firm also managed it and perhaps invented some of the productive techniques used by the firm, it was easy to imagine, as both Smith and Ricardo did, that the entrepreneurs earned their share of the firm’s income.  The entrepreneurs saved up their money by skimping on their household spending, and lived upright, frugal lives [The Protestant Ethic and the Spirit of Capitalism, anybody?]  They went to their factories and managed them for long hours, directing the labor of their employees.  Oftentimes, they invented new productive techniques, or adapted existing ones in more economical fashion.  In short, from any reasonable point of view, they earned their take from the enterprise, which economists called profit.

But things changed as capitalism developed, until now, almost the entire contribution to production by the owners has been internalized in the firm.  I have written about this before on this blog and will not repeat myself [although I do enjoy the reference to an old Burt Reynolds movie.]  These days, what do capitalists do?  They give permission.  They allow their employees to use the capital that they own, a permission for which they charge a price.

In short, they collect rents.

Capitalists qua capitalists [as we say in the Philosophy trade] collect rents.  To be sure, some of them – the Steve Jobs’s and Jeff Bezos’s of the world – do other things as well, and God bless them for that.  But the vast preponderance of capital in the world these days is collecting the equivalent of the rents that the idle gentry demanded from the go-getting entrepreneurs in the good old days.

So, do we need capitalists?  No.

Don’t take my word for it.  Go read a really fine book, now thirty-nine years old, by David Schweickart, called Capitalism or Worker Control?


Anonymous said...

I presume that in your 80s you are not still earning your "daily bread" by the "sweat of your brow". I presume, that you like almost all retirees are living off a pension or other income stream derived from "rents".

I have no love for the rich nor their greed. But at the same time I have no love for radicalism that questions everything. Civilization rests on pragmatism and compromise, on an empathy for the other, and for social devices that let each of us live as best we can.

I'm not for leveling down. I'm glad to see innovation and entrepreneurship, but I utterly detest monopoly power and the political control that the rich buy. But the answer is not to expropriate EVERYTHING. Some rents are required to grease the wheel of civilization. You post ignores that. You come out as a firebrand radical ready to burn down the house to achieve your vision of a glorious utopian revolution. Sad.

I think you are better than this. You need to be more nuanced. I enjoy your analysis. But I do hope you find a path forward that doesn't destroy the civilization which was so painfully constructed with so much sacrifice. Castigate the rich. Yes! Offer solutions. Yes! But demand that "rents" be completely obliterated. No! Find a path forward. Don't simply destroy.

Tom Hickey said...

Thanks for the kind words. I appreciate the opportunity to spread the word on what I have concluded is a key tool in addressing many of the most pressing issues of the day, nationally and globally. MMT is not a panacea, as some may make it out to be, however. The required changes are so monumental that they require a raising of the level of collective consciousness. MMT can play a part in that but only a part.

As I see it, the major issue in capitalism is its dependence on economic rent, of which surplus value expropriated from labor is a key type along with many other forms of rent.

'Capitalism" is a term with many meanings and these meaning affect the frame of reference. In my view, the simplest and most accurate way to view capitalism is a economic theory that favors capital over the other factors of production, land and labor, because growth is the chief objective (a rising tide lifts all boats, trickle down) and capital accumulation is the basis of increasing growth (GDP). This means that ownership of property, real and financial, and the means of production in particular, is to be favored culturally and institutionally over people and the environment. What this really means is that economic rent and rent-seeking should take precedence over social and ecological affairs. That's just nuts.


Tom Hickey said...


Here are a few links that explain some of these issues. Michael Hudson is the preeminent economist on economic rent these days and Peter Cooper is the preeminent economist on the relationship of MMT and Marx.

Michael Hudson in economic rent (3 min. video)

The Political Economy of Development
Michael Hudson on rent-seeking
Nick Johnson

Michael Hudson is not an MMT economist but an MMT ally. He is a Marxian (adapts Marx to current conditions)

Peter Cooper on the MMT job guarantee and Marx's labor theory of value
Currency Value in Terms of Socially Necessary Labor

Mitchell on Marx and MMT

Bill Mitchell— billy blog
Marxists getting all tied up on MMT

So far MMT economists have not addressed economic rent and inequality specifically in economic terms. Most economists are well aware of both inequality and economic rent, but they have not addressed economic rent. This is not surprising since conventional economics was developed in part to ignore and explain away economic rent as an economic factor, contra the classical economists (Smith and Ricardo), Marx & Engels, Henry George (land value tax) and Thorstein Veblen (conspicuous consumption). This has been the direction of neoclassical economics aka marginalism, where all factors receive their economic reward based on their marginal contribution (just deserts).

MMT economists apparently have also made a strategic decision that it is premature politically to do focus on economic rent. Michael Hudson is now the only one doing so, at least to the degree he is pursuing it. But that would be expected from a Marxian. Of course, Marxists have been banging the drum on this for a long time, but Hudson has carved out a niche in the mainstream that they have not.

The aim of MMT economists (for the most part) is to change the system so that it serves the people rather than the elite using economic policy based on optimal utilization of policy space to achieve optimal growth within sustainable limits, full employment and price stability. But their tax policy implicitly includes addressing economic rent, since taxation has several roles to play. 1) Taxes drive demand for the currency by imposing obligations to obtain it. 2) Taxation controls for inflation. 3.) Taxes discourage behavior that is taxed, so taxation can be used to address economic rent. Generally speaking, MMT economists favor preempting economic rent through legislation and regulation but see that as coming down the line as progressives becomes more influential politically.

Tom Hickey said...

@ Anonymous

Economic rent will be with us as long as there is a capitalist system in place since capitalism depends on rent extraction. Even in the neoclassical model if markets were perfect (no asymmetry of power, knowledge, etc.) there would be no profit because it would be competed away. As Marx noted, the bane of capitalism is falling rate of profit, so. Neoliberalism is about government capture by capital in order to maintain profit rate. That entails financial rent, land rent, natural resource rent, and monopoly and monopsony rent, as well as expropriating surplus value from labor and socializing negative externality.

We don't need to totally eliminate this immediately and making this the objective is utopian. The present need is to harness capitalism and part of that involves changing the tax code to tax away excessive rent and to untax income from productive work. Some market power can be allocated to providing incentive for innovation through intellectual property, but that needs to be adjusted down since it has become the source of excessive rent extraction as shown by the obscene level of inequality of income and wealth — much more than is needed to create incentive for innovation.

Tom Hickey said...

Here is Marx on "vulgar economics," anticipating neoclassical economics.

Vulgar economy really does nothing else but to interpret, in doctrinaire fashion, the ideas of persons entrapped in capitalist conditions of production and performing the function of agents in such production, to systematize and to defend these ideas. We need not wonder, then, that vulgar economy feels particularly at home in the estranged form of manifestation, in which economic conditions are absurd and complete contradictions, and that these conditions appear so much more self-explanatory to it, the more their internal connection is concealed. So long as the ordinary brain accepts these conceptions, vulgar economy is satisfied. But all science would be superfluous, if the appearance, the form, and the nature of things were wholly identical. Vulgar economy has not the slightest inkling of the fact that the trinity from which it takes its departure, namely Land—Rent, Capital—Interest, Labor—Wages of Labor (or Price of Labor), are on their very face three incompatible propositions. First we have the use-value Land, which has no value, and the exchange-value Rent. Here a social relation is conceived as a thing and proportioned to nature. Two incommensurable magnitudes are supposed to be proportional to each other. Then we have Capital—Interest. If capital is conceived as a certain sum of values independently represented by money, then it is manifestly nonsense to say that a certain value shall be valued higher than its value. It is precisely in the formula Capital—Interest that all intermediate links are eliminated, and capital is reduced to its most general formula, which for this reason is inexplicable by itself and absurd. It is also for this reason that the vulgar economist prefers the formula Capital—Interest, with its occult faculty of making a value unequal to itself, to the formula of Capital—Profit, which approaches more nearly to the actual capitalist relations. Then again, driven by the restless thought that four is not five and that 100 dollars cannot be 110 dollars, he flees from Capital as an exchange-value to the material substance of capital, to its use-value as a material requirement of labor, as machinery, raw materials, etc. By this means he succeeds in putting into the place of the first incomprehensible relation, which makes four equal to five, a wholly incommensurable one between a use-value, a thing, upon the one hand, and a definite relation of social production, surplus-value, upon the other, as he does also in the case of private property in land. As soon as the vulgar economist has arrived at this incommensurable magnitude, everything becomes clear to him, and he no longer feels the need of thinking any further. For he has arrived at what is "rational" in bourgeois conception. Finally we have Labor—Wages of Labor, or Price of Labor. This last expression, as we have shown in Volume I, contradicts on its very face the conception of value as well as of price. Price, generally speaking, is but a definite expression of value. And "Price of Labor" is just as irrational as a yellow leogarithm. But here the vulgar economist is all the more satisfied, because it brings him to the deep understanding of the bourgeois, that he pays for labor with money, and because the fact that this formula contradicts the conception of value relieves him from all obligation to understand value.

Capital: A Critique of Political Economy, Vol. III. The Process of Capitalist Production as a Whole, VII.XLVIII.III (VII.XLVIII.1.2)

Enam el Brux said...
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Enam el Brux said...
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Danny said...

I am inspired by this treatment of the word 'rent', from a Marxist perspective. I have another word that is treated *only* from a Marxist perspective. I preface this, by pondering what would be the point of reading 'the Economic and Philosophic Manuscripts, the Grundrisse, the Volumes of Capital, and the Eighteenth Brumaire. Well, I can say about that last one, that I do recall one of the most celebrated set-pieces in The Eighteenth Brumaire. I would emphasize Marx's evident glee. I see a sort of social-literary nerve, here, such as maybe one expects to find in Dickens:

'Alongside ruined *roués* with questionable means of support and of dubious origin, degenerate and adventurous scions of the bourgeoisie, there were vagabonds, discharged soldiers, discharged convicts, runaway galley slaves, swindlers, charlatans, *lazzaroni*, pickpockets, tricksters, gamblers, procurers, brothel keepers, porters, literati, organ grinders, rag-pickers, knife-grinders, tinkers, beggars; in short, the entirely undefined, disintegrating mass, thrown hither and yon, which the French call *la bohème*.'

If this is unfamiliar, then I'll add that the corrupt and thuggish Louis Bonaparte, “Chief of the Lumpenproletariat,” was able to organize this “scum, offal, and refuse of all classes” behind him.

I am not at all sure that I'm doing Marx favors, in the eyes of Marxists, by emphasizing such stuff. I mean, not if Marx is totally unlike Dickens in that this is SCIENTIFIC REALISM, you see. I am not a humorless Marxist dogmatist, closer to the opposite even. Also, I just love the word 'lumpenproletariat' (we may at least agree to think of this as a term used primarily by Marxist theorists) cuz I like to focus on words -- I think that the Roman proletarius informs this. And it occurs to me, that dismissive characterization of the masses stood in a long tradition. Marx of course sought to redeem the masses. Remembering that I'm not any kind of Marxist, I'll suggest that he wanted to hive off the potentially heroic proletariat from the dregs below..? ;)

Anonymous said...

I would like to add something to Dr. Wolff's brief and excellent exposition.

There is a serious problem with the current usage of the term "rent". It has lost its original meaning.

Dr. Wolff puts it thus:

Capitalists qua capitalists ... collect rents.

That's the correct meaning of the word.

That is not, however, what neoclassical economists (including people otherwise as valuable as Joseph Stiglitz, for instance) and free-marketeers mean by "rent". In essence, they limit "rent" to mean monopoly rent only, present in imperfect markets.

So, what's the difference? In this revisionist usage of the word "rent", for example, smaller capitalists cannot be "rentiers", because they do not exercise monopoly power, neither in the market for the goods and services they sell, nor in the factor markets where they buy their inputs.

Unions, on the other hand, can be monopolists in the factor markets.


Dr. Wolff has explained in these pages -- much better than I can -- in connection with Euler's theorem of the sum why economic profits (economic profit is different from accounting profit, btw, the former can be nil while the latter is positive) have to be nil in the long term in a perfectly competitive market. When that economic profit is not nil, it means there is a market imperfection.

The solution to that is to make the market more perfect. Thus, liberalisation of the economy, including deregulation of the labour market. The much-maligned neoliberal doctrines are predicated precisely in the need to eliminate "rent".


But it's not only neoclassical economists who use the term "rent" in this more restrictive modern sense. As far as I have been able to ascertain Michael Hudson, who has done a very valuable work on the FIRE (acronym for finance, insurance and real estate) sector, also uses it in the same restrictive way (if not in practice more restrictive).

That's why we see monopolist bankers singled out, while equally monopolist industrialists and agriculturalists and miners are not.

To the best of my knowledge, and I might be mistaken, no heterodox Keynesian economist uses the word "rent" in Dr. Wolff's sense. Within the strictly MMT school of thought, maybe Bill Mitchell is the exception to that rule. I would be pleasantly surprised his colleagues followed him on that.

Yet Another AnonyMouse