Sunday, April 11, 2021

PART VIII: WHAT MARX GOT WRONG

A number of readers have raised important questions that I need to address, but before turning my attention to that I have decided to finish my exposition. I am sure it is clear that I have vastly more to say than I am putting into this little multipart essay – I mean, I have published two books and a number of lengthy articles on the subject. My purpose here has been simply to highlight my claim that it is possible to bring the literary criticism and the mathematical economics together in a fruitful fashion.

 

I am fond of saying that Karl Marx was the greatest student of society who ever lived and I genuinely believe that, but I do not think he was a prophet or messenger from God. He was a student of society, which means that he looked at the world around them, studied it as deeply as he could, analyzed it as best he could, got a great many things – important things – right, and of course got a number of things wrong. Today, I want to talk about what he got wrong or more broadly what he failed to foresee, because understanding those failures or inadequacies can help us to understand a good deal about the world in which we live.

 

As I see it, Karl Marx got four big things wrong or failed to foresee them. The first of these concerned how the capitalist class would evolve; the second concerned how the consciousness of the working class would evolve; the third concerned what would happen to capital; and the fourth concerned what would happen to labor. That is a lot of big things. Before I turn to them one by one, let me repeat that Marx got the very biggest thing dead right. He was right about it when he wrote and he is still right about it. One can express that one big thing in a simple sentence only nine words long and those nine words remain the most difficult nine words for the greatest economists in the world to comprehend. Here they are:

 

Capitalism rests on the exploitation of the working class.

 

The first thing Marx failed to foresee was that the capitalists, despite their vicious leave no prisoners competition with one another, would manage in a crisis to band together sufficiently to save capitalism itself. Marx was correct that the booms and busts characteristic of early capitalism would get worse and worse until there was a worldwide economic crash. But to put the matter simply in a phrase, Marx failed to foresee Keynes. He understood that the state was the executive committee of the capitalist class but he did not see that the committee would prove capable of pulling capitalism back from the brink each time its own self-destructive expansion and competition threatened its survival.

 

The second thing Marx failed to foresee or to appreciate was the power and permanence of the national, racial, and religious identifications that in the early days tended to set German workers against French workers, white workers against black workers, Catholic workers against Protestant workers, and all Christian workers against Muslim workers. In the second decade of the 20th century, socialists like my grandfather confidently predicted that German and French workingmen would not willingly go into the trenches and kill one another for their capitalist masters. Indeed, at the beginning of the first world war, many socialists were pacifists, not out of religious conviction but out of a belief that workers would and ought to be united across national boundaries by their class position in the ever more international capitalist economy. One hundred years later, we are compelled to face the bitter truth that in the lives and passions of hundreds of millions of men and women worldwide, class solidarity is trumped by patriotic nationalism, religious fervor, or racial animosity.

 

The third thing Marx failed to foresee was that capitalism, as it grew in the way that he anticipated it would, would morph into shareholder ownership of capitalist enterprises. I have talked about this before on this blog and I will not go into any detail about something that is, after all, familiar to us all because it is the world in which we live. Since Marx insisted that the functioning of capitalism could not be traced to the personalities or desires or greed of individual capitalists but had to be understood systematically and structurally, his theory was well positioned to adapt to the new form that capitalism took, but he himself did not, so far as I know, anticipate the rise of the limited liability joint stock enterprise. The complete divorce in the general case (Jeff Bezos to the contrary notwithstanding) of ownership from managerial control is, looked at one way, the perfection and logical conclusion of the tendencies that Marx perceived in the earliest days of the development of capitalism, but of course he did not foresee how it would play out in detail.

 

And fourth – perhaps most important, to my way of thinking – Marx completely failed to see that a permanent steeply pyramidal structure of jobs, wages, and salaries would become the seemingly unalterable face of mature capitalism. When Marx was writing, capitalism was systematically destroying traditional crafts and guilds and breaking down structures of job knowledge and performance that had characterized the pre-capitalist era. The world that Marx was looking at seemed to be reducing the workers to an undifferentiated mass of semiskilled machine operatives who lacked both tools and skills in particular historical crafts. Indeed, it was this development which encouraged him to believe that class consciousness would grow as workers first in one factory, then in one industry, then in many industries, then in one nation, and finally worldwide would come to understand their common interest in uniting and confronting capital. But what happened in the 20th century was the emergence of a steep pyramid of jobs and compensations. A manual worker making a barely survivable wage might, from an analytical perspective, occupy the same position in the structure of a capitalist economy as a middle manager of a large corporation making perhaps 40 or 50 times as much money, wearing a suit, getting fringe benefits, and so forth, but there was no likelihood whatsoever that the two of them would make common cause against their common exploiter. Indeed, as my two old University of Massachusetts friends and colleagues Sam Bowles and Herb Gintis demonstrated in a lovely mathematical essay, one could show that in the modern capitalist world relative exploitation had replaced absolute exploitation, so that not only did capital exploit its high paid employees, but they in turn relatively exploited employees further down in the pyramid of wages and salaries.

 

It follows from all of this that there is a very serious need not to reject Marx’s fundamental insight concerning the exploitative character of capitalism but rather to continue developing modern understandings of contemporary capitalism grounded in that fundamental insight and completely attendant to the realities of 21st-century international capitalism.

 

This analysis, which echoes somewhat the analysis I offered in my essay “The Future of Socialism,” goes some way toward explaining to those of us still in mourning why socialism has not succeeded capitalism.

10 comments:

  1. This comment has been removed by the author.

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  2. (Apologies - a bit late to talk about the maths).

    I’ve seen this linear algebra approach to value a few times and there’s something about it that I’ve never seen explored. Not so much a problem - the maths is convincing - as just a mystery.

    The value equation is, in effect,

    Value embodied in output = value embodied in all inputs + value added by labour in the production process.

    Now, necessarily output value > input value. Therefore, for each period, the value embodied in all commodities is increasing. If the value added by labour were constant, then after a while we’ll get (in whatever units you like)

    1001 = 1000 + 1

    and a little later

    100001 = 10000 + 1

    The value added becomes increasingly insignificant, and eventually effectively zero relative to the values embodied. At that point labour no longer measurably contributes to the creation of value, and either the LToV is no longer true (if it ever was) or capitalism has flat-lined and become static in some sense.

    How to avoid this? Well, perhaps the values embodied in inputs are discounted or depreciated each time round the loop. But raw materials aren’t, and plant and machinery can be thought of as raw materials that just aren’t used in one cycle. The only other solution I can think of is that value added by labour also increases each time round. So in an early period (whatever “early” means here - of Capitalism? Of homo sapiens? Of life on earth?) we might have

    2 = 1 + 1

    whereas later on we might have

    20000 = 10000 + 10000

    The value added by labour is going up partially because of the constantly increasing labour force, but mainly because of increased productivity. Value can still be proportional to price, but the “constant” of proportionality is growing. It seems to me that’s fine, but it’s puzzling that it never seems to be mentioned.

    The next question is why this argument doesn’t apply to the money equation, RPW’s second equation in post VI. In brief, that equation says

    Sum of all costs to firm (ie of staff, plant, raw materials, overheads, etc) X (1 + profit mark-up) = revenue from selling product

    (This is really simply the definition of profit).

    Now, why can we not apply the same argument to this that we did to value, leading to runaway prices? Well, for starters, profit mark-up might be negative, so it isn’t necessarily true that revenue > sum of costs. Then we have inflation on the right-hand side of the equation - normally insignificant for any one period, but over many periods the above equation would have to be modified to allow for it. But both of those seem to me to be inadequate explanations of why prices aren’t runaway the way, in this model, values have to be: profit usually is positive, and usually profit outstrips inflation. Probably my thinking is just confused, but I just can’t shake the feeling that it’s a mystery: not just something I don’t get, but something missing from the model.

    Robert Loughrey

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  3. On another but related subject, I notice RPW’s first equation in part VI was effectively

    Value added by labour + value embodied in inputs = value embodied in outputs

    RPW then notices that there’s no specific mention of labour-power in this, and tries as an experiment to recast the equation in terms of corn-value or iron-value. The attempt succeeds, and all significant desired results are still valid. RPW deduces that there is nothing special about labour-power (which I think he would argue is the same as labour anyway) and we might as well have a corn theory of value.

    On the other hand, the traditional Marxian equation is

    Value added by labour + value embodied in inputs + surplus value = value embodied in outputs

    Professor Woolf, I love your system and I’m not talking about correctness or consistency here, but can you still recast in terms of corn-values (or whatever) with that extra term?

    Thanks!

    Robert Loughrey

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  4. Whoops - apologies for the spelling. A slip i’ve made before, as well!

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  5. 1) Écrasez L'infâme (aka Robert Loughrey?) first wrote:

    The value equation is, in effect,

    Value embodied in output = value embodied in all inputs + value added by labour in the production process.

    Now, necessarily output value > input value.

    2) Écrasez L'infâme (aka Robert Loughrey?) then wrote:

    On the other hand, the traditional Marxian equation is

    Value added by labour + value embodied in inputs + surplus value = value embodied in outputs

    *********************************

    I think the confusion, first evident in Now, necessarily output value > input value. is not recognizing that

    Value added by labor = surplus value + wages paid to labor.

    The wages paid to labor are sufficient to reconstitute itself -- i.e., workers are paid enough to feed, clothe and house themselves and to raise children whose labor will replace theirs when they age and die. These wages are less than the value added by labor, the difference being surplus value which then becomes profits.

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  6. Capitalism rests on the exploitation of the working class.

    So far as I am aware, all economic systems more technologically advanced than that of hunters and gatherers -- perhaps excepting pastoralism -- depend fundamentally on the exploitation of someone. The only reason that I can understand for taking this to be the Marx's key insight is that capitalism has successfully mystified itself, if I may engage in a huge bit of anthropomorphism and attribute agency to the system itself. Nearly everyone who is part of the system believes that one way or another, they are making free choices and therefore cannot possibly be exploited.

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  7. Hi, Marcel. I *think* I kept that very distinction clear in my mind as I was writing, but you might be right. I’ll double-check.

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  8. Do you recall the name of the Bowles and Gintis paper? I looked, but they're so prolific, I wasn't having any luck finding it.

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