THE OTHER SHOE DROPS

I understand that several Marxist economists are preparing a response to my critique of Marx's labor theory of value, but while they are at it, let me drop the other shoe.  I have said many times that I think Marx is correct in asserting that capitalism rests on the exploitation of the working class [which class includes more of us than you might imagine.]  I have also referred to my published essay, "A Critique and Reinterpretation of Marx's Labor Theory of Value," accessible via the link at the top of this blog to box.net.  But thus far, I have only summarized my critique.  What is my reinterpretation?  Let me see whether I can do this without any math.

If you look at the labor value equations one can write from the specification of an economy's inputs and outputs in each line of production, you can easily identify the labor inputs because the letter l or the Greek letter λ is used to identify them.  But that is just a labeling convention.  Suppose the labor inputs were represented simply by a_q, so that one could not tell from the notation which were the labor inputs.  Where in the formal structure of the equations does Marx capture the distinction, supposedly unique to labor, between labor and labor power?   The answer, presumably, is that labor inputs are put into the equations at full value, as it were -- one unit of labor counts for one -- whereas the iron, corn, and other inputs in the labor value equations are put into the equations at their discounted values, which is to say discounted by their labor values.  The key to all of Marx's conclusions is that the labor inputs are entered at full value, supposedly because "labor is the substance of value."

But this is a classic example of what is correctly called begging the question.  People defending Marx say that the correctness of Marx's mathematical claims [such as the claim that commodities exchange at their labor values] proves that labor is the substance of value.  But to prove those mathematical claims, they construct equations that assume that labor is the substance of value [so that they enter the labor inputs at full value.]  By showing formally that all of Marx's claims for labor values can be replicated for corn values or iron values, I demonstrated that Marx failed to establish his fundamental claim that labor is the substance of value.

But Marx's fundamental intuition about capitalism really is correct.  What he needs [and we as well] is some alternative formal interpretation of that intuition that, when embodied in a set of equations, does in fact identify labor as different from all other inputs, not by a mere notational convention, but by the structure of the equations.

An obvious but wrong answer is that labor is a direct input into every production process whereas no other input can make that claim.  But that is a mistake, the full unpacking of which would take me more time and lead us all deeper into the weeds than I think it wise to venture here.  Let me just say this:  If we restrict ourselves to inputs that are directly or indirectly required in all lines of production, then my mathematical refutation of the claim that labor is the substance of value is correct.  For example, food is required by workers, so it is indirectly required in all lines of production.  [Trust me, it is not a satisfactory reply to point out that no particular food is required by all workers.  I go into this in my article.]

In my essay, I offer an answer.  I do not claim it is the necessarily right answer, just that it captures what Marx has to say about labor and workers, and it yields all the desired mathematical results.  Frankly, I hoped that when I laid my idea out in my essay, some Marxist with much more mathematical ability than I would pick it up and develop it into a robust theory, as they say.  But since no one read the essay, so far as I can tell, that never happened.  Oh well, four hundred years from now, someone writing the early history of the emergence of socialism in the bowels of capitalism [or in the womb, if that sounds better] may hit on my essay when doing a search in whatever takes the place of the cloud, and I will at last get some respect.  Sigh.]

Here is the essence of my idea without all the linear algebra I laboriously worked up to give it an aura of respectability.  Marx says two things about capitalism, among many others, that we can use as keys to an alternative analysis.  The first is that workers are historically robbed of their access to and control over the means of production, until at last they have nothing but their ability to work, their labor, and are forced to sell that labor for a wage.  The second is that in the mystified and ideologically encoded rationalization of capitalism, workers are treated as commodity producers, on a par with all other commodity producers, who enter the free market and strike a free bargain for the "commodity" with buyers -- which is to say, with employers.  How can we model this historically unequal and conceptually mystified situation in the equations of a capitalist economy?

My suggestion was this:  Together with all the price equations defining the price per unit output of iron, corn, and so forth, add an equation for the "industry that produces labor.”   Now, in all the price equations there is a profit markup represented by the expression (1+π).  By hypothesis, competition and the movement of capital from sector to sector in pursuit of the highest possible rate of profit results in the establishment if a single economy-wide profit rate.   So, Ricardo and Marx [and other economists] claim, investment in iron, in corn, in cars, or in hats will produce the same rate of profit on the value of the invested capital.  If a capitalist is making 4% in hats when coat manufacturers are making 6%, he will pull his capital out of hats and put it in coats.  Shifts in output, intersecting with market demand, will move prices, which will move the profit rate, until everyone in hats, coats, or any other sector is making the same rate of return.

But though we talk about workers as producers of the commodity labor, they and they alone are unable to move their capital into other lines of production if their return is inadequate, because their "capital" is their bodies, and as the saying goes, for them to "cash in" their capital is to die!  So the system of equations must actually have two rates of return:  One is (1+π) for everyone but the labor producing sector.  The other, which we may call r, will appear as the factor (1+r) in the labor producing sector.  And it is quite possible that r will be zero even when π is quite substantial.

Now, this is really an odd way of talking, or indeed, of calculating, but it captures perfectly the ironic structure of capitalism, which talks as though workers were petty capitalists while really treating them as expropriated propertyless victims of exploitation.  [My book, Moneybags Must Be So Lucky discusses at length the deeper significance of the role of irony in Marx's economic writings.]

What is the consequence of the fact that the labor producers cannot move their "capital" in pursuit of a return on their "investment"?  The simple answer, easily demonstrated mathematically, is that the prices they pay for their "inputs"  [which is to say their food, clothing, and shelter] are driven up above their "labor values."  What is more, the extra amount they are thus forced to pay for their food, clothing, and shelter exactly equals the profit reaped by the capitalists in the system.

Now, the virtue of this novel and unfamiliar way of modeling what is going on is that the anomalous condition of the workers, and thus of labor, is built into the formal structure of the price equations and is not simply a just so story told as an accompaniment of the equations.

This way of modeling the economy also allows us to analyze the "relative exploitation" whereby those high up on the income pyramid exploit those lower down even while they in turn are being exploited by those who control capital.

Well, I assume that I have now lost all but the most indefatigable of you, so I shall go back to playing FreeCell and searching databases for charitable foundations.

ELEEMOSYNARY EXPLORATIONS

As I plod laboriously through foundation listings looking for possible supporters of or partners with the African Storybook Project [see earlier posts], I continue to be stunned by the sheer size of the non-profit world.  As I think I explained, I obtained access through Duke University to an on-line database of more than two million [!] American charitable foundations, most of them granted tax-exempt status under Article 501, sub-paragraph (c)(3) of the Federal tax code.  [Hence the familiar phrase, "five oh one cee three organization."]  Thirty-five years ago, two current members of the Duke Philosophy Department were my students, so they arranged for me to have a phantom "adjunct professor" status at the university, which in turn gives me access to the library's research databases.

More than two million charitable foundations!  That is one for every one hundred fifty people in the United States, including children.  That must be almost as many foundations as there are gas stations.

Using the key words "Africa children education" I winnowed the two million down to 1113.  After reading through the database listing for each of them, I narrowed the search to forty-eight, and I am now doing a closer reading of those listings in order to decide which of them I ought to contact to open a discussion.

As you might expect, many of the 1113 focus on HIV/AIDS in children.  Many are Christian foundations whose primary organizational goal is to spread the Good News, or Gospel.  Some of the organizations that came up in the search are tiny, with assets and income ranging from $25,000 to zero.  A few are enormous, sporting endowments in the hundreds of millions.  The Master Card Foundation has assets in the billions.

Will all of this sifting ans sorting actually help little kids in sub-Saharan Africa to become literate?  Good question.  We shall see. 

ONCE MORE UNTO THE BREACH, DEAR FRIENDS, ONCE MORE

All right.  I am going to have one more go at this, and then, as they say in the Soaps, I am going to move on with my life.  Chris says that as of now he has never heard a good reason why people reject Marx's value theory.  Of course, that is a bit vague.  "Marx's value theory" may mean "Marx's version of the Labor Theory of Value," which is how I interpret the remark.  But it may also mean, more generally, Marx's claim that capital rests on the exploitation of the working class.  Chris and I agree about the latter.  I am pretty sure he means the former.

Now, I have written a whole book and a serious mathematical article about this subject, so I could simply refer to them [as I do periodically on this blog], but I am unaware of anyone who has actually answered my critique and analysis [except John Roemer, a brilliant Marxist mathematical economist, but that is a somewhat different story], so I am going to tell that story again right here, without the math, and wait for a serious direct engagement with my argument.  Settle down and get a cup of coffee.  This is going to take a while, but hey, this is my blog, and I really care about this stuff.  Those who find it boring may wish to spend the time reading economic statistics on the website of the Bureau of Labor Statistics, always a fun site to visit.  Here we go.

Adam Smith in 1776 argued that in the primitive state of things, before the accumulation of stock or the appropriation of land, commodities would exchange in proportion to the amount of labor it took to produce them [I told you this was going to take a while.]  But he understood that once you took account of the fact that some commodities require a good deal of capital to produce, in the form of tools, factories, etc., whereas others require much less capital and a lot more labor ["labor intensive" rather than "capital intensive," as later economists learned to say], this simple "Labor Theory of Value" would not be correct.  Forty-one years later, David Ricardo came up with brilliant solutions to the problems both of accumulated stock and of land.  Never mind land -- that is a great story but beside the point here.  Ricardo noted that tools and raw materials and buildings and such, which are needed for the production of commodities, are all the products of labor expended in earlier production cycles.  Today's tool, needed as input into the making of a car, is last year's output of the toolmaker.  So we can view the tool as embodying a certain amount of the tool-maker's labor, which is then carried forward and bestowed on, or embodied in, the car that is made with its aid.  Indeed, everything that we use in this cycle of production to make commodities, save for the new fresh labor expended now by workers, can be thought of as simply so much embodied labor carried forward from previous cycles.  Now, of course, last year, when the toolmaker made the tool now being used to make the car, he or she used tools and materials that were themselves the products of even earlier cycles of production, and so forth backwards ad infinitum.  But this does not pose a problem, Ricardo correctly intuited [without any actual mathematics to back him up], because the infinite number of bits of fresh labor expended at various times in the past form a series that converges to a finite sum!  [This is all easy enough to prove mathematically.  You can look it up in the appendix to my book, Understanding Marx.]

So Ricardo said, commodities will not exchange in proportion to the amounts of new, fresh, direct labor that their production require.  But they will exchange in proportion to the amounts of labor directly or indirectly required for their production.  In short, commodities will exchange in proportion to the amounts of labor embodied in them.

As soon as had he made this genuinely brilliant breakthrough, Ricardo realized that it was not quite correct.  To be sure, if the ratio of new, fresh labor to old embodied labor is the same in each line of production [if, to use Marx's language, the organic composition of capital is the same in all lines of production], then commodities will indeed exchange in proportion to the amounts of dead and living labor required for their production -- they will exchange at their labor values.  But, if some industries are capital intensive, using lots of dead labor embodied in machines, such as semi-automated oil refineries, and others are labor intensive, using relatively little embodied labor and lots of living labor, such as sweatshop-style clothing production, then competition in the free market will make prices diverge from their labor values, and the Labor Theory of Value will be wrong.

Ricardo never solved this problem and was still puzzling over it when he died.  Fast forward a half century to Marx.  Marx believed he had a solution to Ricardo's problem, but he also thought there was an ever deeper problem that neither Ricardo nor Smith before him had even seen.  What is more, Marx thought he had a very deep and important solution to this unrecognized problem, a solution that would demonstrate the fundamental fact that capitalism rests on the exploitation of the working class.  Therefore, he wrote all of Volume One of Capital without even discussing Ricardo's problem, leaving that for Volume Three.

The problem, to put it as simply as possible, is this:  Why is there any profit at all in a capitalist system?  How do capitalists turn a profit?  Look, Marx said.  Let us suppose we have a dead simple capitalist system in which each line of production exhibits the same ratio of living to dead labor.  In other words, assume a system in which there is equal organic composition of capital in all lines, so that commodities exchange at their labor values, as Ricardo correctly said.  In this system, capitalists, like everyone else, buy their inputs into production at their labor value [by hypothesis] and sell their output also at its labor value.  How on earth do they make any profit?

There were some economists, so-called, in Marx's day who had been puzzled by this, and had come up with some really dumb answers, which Marx has a lot of innocent fun ridiculing.  Some said the solution was that the capitalists total up their costs and tack on ten percent for profit.  But, Marx noted, since the capitalists from whom they buy their inputs do the same thing, that doesn't really explain the origin of profit.  One hapless chap with the implausible name "Nassau Senior" [there was no Nassau Junior] suggested that all the profit came from the last hour of production, all the previous hours being required just to pay for the costs of the inputs.  hence, he concluded triumphantly, if the then current proposal to reduce the work day from twelve hours to ten hours was put into effect, capitalists would make no profit at all.

In a famous passage in Capital, from which I took the title of one of my books, Marx put the problem in this deliciously ironic fashion:  "Our friend, Moneybags, must be so lucky as to find, within the sphere of circulation, in the market, a commodity, whose use-value possesses the peculiar property of being a source of value, whose actual consumption, therefore, is itself an embodiment of labour, and consequently, a creation of value.  The possessor of money does find on the market such a special commodity in capacity for labour or labour-power."  [Opening paragraph of Chapter VI of Volume One of Capital.]

The solution to the puzzle of the origin of profit, Marx says, lies in the distinction between labor-power, or the capacity to labor, and labor itself, the effort and time expended by workers in the production process.  In a capitalist system, workers are treated in the marketplace like any other producers of a commodity that they offer for sale.  And like all other commodity producers, they are compelled by the workings of competition to sell their commodity at its labor-value.  But what is the labor value of any commodity?  It is simply the amount of living and dead labor required to produce it.  So the labor-value of labor-power is just the amount of living and dead labor embodied in it.

How much is that?  Well, it is however much labor it takes to produce the food, clothing, and shelter that the worker needs to stay alive and go to work the next day.  Like any prudent commodity producer, the worker must set aside a little for depreciation.  In his or her case, that means raising children. who will.  When the adult worker is worn out and dies, the children can step into the production process as labor-power sellers as soon as they are able, say at age twelve.

How much embodied labor is actually required by the worker in the form of food and clothing and necessaries?  Well, Marx says quite correctly, less than the number of hours of new living labor that worker can perform.  And here is the solution to the mystery of profit.  The capitalist [let us suppose just to out some numbers on it] pays the worker an amount of money equal to six hours of labor -- which is to say, the capitalist pays the worker a wage with which they worker can buy the necessary food and clothing and such, which stuff embodies six hours of labor  The capitalist has paid the worker a fair wage -- he has paid the worker a wage equal to the cost of production of the worker's product, labor power, just as the capitalist has paid the tool manufacturer and the iron ore salesman and all the other input providers a price equal to the labor value of their goods. .  But the worker is required to labor for twelve hours [assuming Nassau Senior has his way].  And those extra six hours of labor are embodied in the capitalist's output, which of course he owns since he has paid for all the inputs at their fair market value.  So when the capitalist comes to sell his output, he pockets the money equivalent of those extra six hours of labor, and there is his profit.  The capitalist has found a commodity, in Marx's words, "whose actual consumption, therefore, is itself an embodiment of labour, and consequently, a creation of value."

Problem solved.

Let us call the extra six hours of labor performed by the worker surplus labor.  The first six hours of labor is necessary labor, because it is required to reproduce the labor consumed in the production process -- in other words, it is required to keep the worker alive for another day of work.  What relation does this surplus labor bear to the profit that the capitalist makes in each cycle of production and sale of what is produced?  Well, it will come as no surprise, I would imagine, to learn that the profit appropriated by the capitalist just exactly equals the surplus labor performed by the workers.  In short, profit is nothing but surplus labor-value.

This, in essence, is Marx's Labor Theory of Value.  The key, Marx tells us, is the distinction between labor-power and labor.  So what is wrong with it?  [Never mind the problem of unequal organic composition of capital -- that is a complication that must await the settling of the status of the basic theory.]   Remember please, I am not disagreeing with Marx that profits come out of the hides of the workers.  Not at all.  I am simply saying that his theoretical analysis of this fundamental fact is wrong, that a different theoretical analysis is required.  The new analysis does not let the capitalists off the hook.  Not a bit of it. 

Now we come to my contribution to this debate.  When I published it, in the article "A Critique and Reevaluation of Marx's Labor Theory of Value," I was unaware that anyone had ever put forward these arguments before.  The afore-mentioned John Roemer pointed out that a year earlier, a Spanish economists, Josip Vegara, had published a book in which he proved something similar.  Sigh.  So much for my Nobel Prize in Economics.  Anyway.

Let us ask a question that it never occurred to anyone to ask:  How much iron does it take, directly or indirectly, to produce a bushel of corn or a car or a shirt?  In short, what is the iron value of a bushel of corn or a car or a shirt?  We might equally ask, How much corn does it take to make a ton of iron, a car, or a shirt?  In short, what is the corn value of each of these commodities?  And, while we are at it, let us ask what the iron value or corn value is of a day's labor.

 

Now, this sounds crazy, right?  Smith did not talk like this, Ricardo did not talk like this.  And Marx certainly did not talk like this.  Well, maybe so, but if we ask this peculiar question, here is what we find:

1.  So long as the system as a whole produces some sort of physical surplus in each cycle over and above what is required to run the system for another year, it is mathematically necessary that the iron value of a unit of iron will be less than one unit of iron, that the corn value of one unit of corn will be less than one unit of corn, that the X-value of one unit of X will be less than one unit of X for any X that is a required input in to all lines of production, directly or indirectly.  In order for this to be true, it is not necessary that there be a surplus of X in the system each year.  If we are calculating iron values, it is certain that the iron value of a unit of iron will be less than 1 even if there is no surplus of iron itself produced in the system.

2.  No matter which commodity we choose as the "substance of value"  -- be it labor, iron, corn, or whatever -- all the propositions that Marx states about labor value will be true for that commodity as well -- for iron values, corn values, etc.  Because it takes less than one unit of iron to produce one unit of iron, whenever the capitalist uses a unit of iron there will be some "surplus iron value" embodied in the product being produced.  The sum total of all that surplus iron value will exactly equal the profit appropriated by the capitalist, measured in units of iron value.  The same is true for corn or any other factor of production.  if an economic system exhibits equal iron-organic composition of capital -- which means that in each line of production there is the same ratio of direct to indirect iron inputs -- then the prices of commodities will be strictly proportional in that system to the iron-values of the commodities.

3.  AND ALL OF THIS IS TRUE, EVEN THOUGH THERE IS NO PLAUSIBLE DISTINCTION BETWEEN IRON AND IRON POWER OR CORN AND CORN POWER.  THEREFORE, MARX IS WRONG WHEN HE SAYS THAT THE DISTINCTION BETWEEN LABOR AND LABOR POWER IS THE KEY TO THE EXPLANATION OF THE ORIGIN OF PROFIT IN A CAPITALIST SYSTEM.

So if Marx's Labor Theory of Value is wrong, what is the correct analysis?  In my article, I offered an answer which I think has some merit, but I do not want to summarize that here because this has gone on long enough.

One final word, before, as I promised, I move on with my life.  Marxism is not a religion.  There is no catechism, no official teaching of the Marxist Church to which one must subscribe in order to be allowed to call oneself a Marxist.  Marx was a great social scientist, a great philosopher, and also, as it happens, a great writer.  But he was not the Second Coming [or even the First].  So let us once for all time set aside debates about who is and who is not a true Marxist.  There is more important work to be done.

 

 

THE CONCEPT OF CAPITAL -- A REPLY TO CHRIS

Chris replied to my blog post about whether housing should be included in the category of capital, so I think I owe him [and others] a response, even though this is not something I feel strongly about.  In my response, I am going to refer to the essay I published many years ago called "A Critique and Reinterpretation of  Marx's Labor Theory of Value."  The arguments there are rather technical, but I really think they are central to my response here, so I invite interested readers to look the essay up either on box.net [link at the top of the blog] or in From Each According to His Ability, Volume II of my collected papers, available on Amazon as an e-book.

Briefly, I think Marx's formal explanation of profit as surplus labor value is wrong, for reasons I set out at great length in the paper just referred to, but I think his central and underlying claim is correct, that profit arises out of the exploitation of workers who have been denied access to the means of production they require to live.  Workers are driven off the land on which their food is grown, they are forcibly denied access to the mines and forests where they might find the metals and wood they need for tools and to build their homes, they are even robbed of the craft skills they possessed and passed on to their children, skills that are now, as it were, embodied in the machines they operate.  At last, propertyless, they have nothing left but their capacity for labor, which they are forced to sell for an amount of money that is far less than the value equivalent of what their labor produces.

Over time, a struggle ensues between the workers and those who have seized control of the means of production and use the law, backed by the force of the state, to maintain that control.  The churches bless the capitalists' control, the universities rationalize their control, and the capitalists flourish while the workers, with luck, get by.  The struggle waxes and wanes.  Sometimes, the workers succeed in organizing and compel the capitalists to give them a somewhat larger share of what they, the workers, have produced.  Sometimes, the capitalists succeed in halting the progress of the workers, or even reversing it [as is now happening in America.]

At their most powerless and desperate, the workers lack all control over or access to the land, either to grow food on it or even to build and own and inhabit dwellings on it.  They barely own the clothes on their backs.  But sometimes, the workers are successful, for one reason or another, in gaining some measure of control over, and ownership of, a portion of what they need to live.  One form this partial success takes in modern capitalist economies is privately owned housing.

A working class family that owns its own home has, in this one small way, extricated itself from the total control of the capitalists, although this family is in all likelihood still in hock to the capitalist class for a mortgage, and risks losing even that home when times get hard [as we have seen during the collapse of the housing bubble and the Great Recession.]  The value of that housing, however it is calculated [a very complex problem, to be sure], is a quantum of wealth that the workers have seized back from the capitalists, a quantum of wealth that, were it in the hands of the capitalists, would produce profits for the capitalists and be counted as capital.

It is certainly possible to define capital in such a manner that this wealth in the hands of the workers does not count as capital, but I think that obscures rather than clarifies the situation.  The ability of workers to own their own homes, to command at least a minimum wage, and to claim health care as a right, constitutes a measure of their collective success in fighting back against their total expropriation.  To recognize this is not in any way to suggest that they should be satisfied with what they have thus far wrested from the capitalists.  It is simply to take cognizance of the fact that their struggles have had some success.

One last point.  It is always problematic to construct a scalar measure of a multi-dimensional vector of physical goods.  Even if we restrict the concept of capital to factories and tools and raw material, it is genuinely problematic how to translate a multi-dimensional list of such capital goods into a measure of value.  Should a privately owned automobile factory be valued at what it cost the corporation that owns it to build it?  If so, what depreciation schedule should be used to find its present value?  Or should it be valued at what it could be sold for, which is likely totally different than what it cost to build?  Or, should it be valued at some multiple of the amount at which the cars made in the factory can be sold?  Or should it be valued at some proportion of the market capitalization of the shares of the company's stock that are traded on the stock market?  Analogous problems exist in the valuation of raw materials and tools used in the factory, or of the land on which the factory stands.  As I argued at some length in my essay, "The Future of Socialism"  [available in the same two places as the essay referred to above], there are as a matter of Financial Accounting theory no satisfactory solutions to these problems.

Well, that, in a few words, is my reply to Chris, and implicitly to Marxist critics who have tasked Piketty for his use of what they consider an incorrect or unhelpful or ideologically encoded concept of capital.  I hope someone out there finds this of use.

A BORING AFTERNOON

Meanwhile, I am slogging slowly through one-page descriptions of 1,114 charitable foundations, chosen with the judicious use of keywords from a database of more than two million foundations, looking for possible support for or partners with the African Storybook Project, which I have described on this site.  This is useful but mind-numbing work.  The idea is that when I am done [I am now about halfway through], I will look more closely at the foundations whose contact information I have laboriously copied into my notebook, to see which ones merit a preliminary contact.  At this point I have found thirty-three, so I imagine when I am done I will have sixty or seventy to follow up on.  This is not nearly as intellectually exciting as watching the U. S. Senate on C-Span.  At least there, when the Senate is waiting for a senator to come to the floor and speak, or everyone is twiddling thumbs during a quorum call, the nameless flunky who chooses the music to play usually picks beautiful eighteenth century selections.  I often wonder who that person is, and how he or she gets away with it.

Today's political excitement is the frisson caused by the speculation that Elizabeth Warren might challenge Hillary Clinton for the 2016 Democratic presidential nomination.  I am afraid that calls to mind the old stories about the plucky little flea climbing laboriously up an elephant's leg, yelling "rape!"   But as Raskolnikov did not quite say, everything is permitted in the Hot Stove League.

Faithful readers of this blog continue to send me links to yet more reviews of Piketty.  I am sort of Piketty'd out, though I owe a serious response to Chris's comment.

A propos nothing in particular, it occurred to me that having bragged about my younger son, Tobias, I ought also to brag about my older son, Patrick.  As I have mentioned, Patrick started and is the Managing Director of a San Francisco based hedge fund called Grandmaster Capital.  The name of the fund memorializes the fact that before becoming a financier, Patrick was one of the most famous International Chess Grandmasters America has ever produced.  He twice won the United States Chess Championship and served as a second to Anand in the Anand-Kasparov World Championship match [about which Patrick wrote a book.]  Patrick's most famous game was played when he was twenty, in 1988.  A small group of America's strongest young players played a simultaneous match against Kasparov.  Patrick had black and defeated Kasparov in 25 moves.  It is the shortest game Kasparov ever lost.

This is not the most brilliant thing Patrick ever has done.  That prize goes to his success in persuading Diana Schneider to marry him.  His second most brilliant accomplishment was fathering Samuel Emerson Wolff [aged 8] and Athena Emily Wolff [aged 5].

By the way, I taught Patrick to play chess, and for several years had no difficulty in defeating him over the board.  But then he turned eight, and started whupping me pretty regularly, so I had to back away and become a non-playing fan.

EARLY MORNING MUSING

Chris, one of my most faithful readers, sent me a link to a brief piece by a Marxist, Michael Roberts, summarizing and linking in turn to some French criticisms of Piketty.  This is a bit too inside-baseball for me to comment on, but one line in the piece struck me, and as I was taking my five a.m. walk this morning, I found myself chewing over it.  Roberts says, "[Michel] Husson also points out that Piketty’s merging of the definition of capital, as Marx sees it, into wealth, by including housing and personal financial assets, distorts the real laws of motion of capitalism."

Why wouldn't one include housing in a tabulation or evaluation of the capital in a society? I wondered.  Maybe this is obvious to real Marxists, not cocktail party Marxists like me, but I don't get it.  This was the train of my thinking as I walked along [interrupted only by catching sight of a deer in front of the Finley playing fields on Old Mason Farm Road.]

If a capitalist takes the profits from this year's operations and uses them to build a new factory, that is an addition to capital, right?  Suppose however he decides to diversify and builds a seaside resort, which he runs at a profit.  That is capital too, no?  It provides services rather than goods to consumers, but it is a for-profit enterprise, and the money invested in it surely counts as capital.  How could it not?  Surely Marx, more than anyone, would have argued that capital is not stuff, but surplus value extracted from workers and turned into a source of further surplus value.

Having made a killing on the seaside resort, suppose the capitalist uses his profits to diversify further by erecting a luxury apartment building that he rents to upscale yuppies who want a prestige address.  That building also is capital, right?  I mean, if the seaside resort, where people stay for a week or two, is capital, then the luxury apartment building where they live for years, paying high rents and making a ton of money for the owner, must also be capital.

Now suppose the capitalist decides to cash in his investment, and takes the building condo, as they say in New York.  The renters all jump at the chance to buy their apartments.  The day after the sales go through, the building, if I understand Roberts correctly, ceases to be capital and becomes -- housing, which is not capital, according to him.

But wait, there was a recording error in the transfer of ownership of the apartments from the capitalists to the renters, and each renter, instead of buying his or her own apartment, has actually bought someone else's apartment.  No harm, no foul.  Each renter now owns an investment property [the condo down the hall], on which a hefty rent is paid, and is of course also still paying rent on the apartment he or she or they live in.  Each renter/owner, we may suppose, is making a profit, and so each of them has a piece of capital, yes?  Until the error is corrected, and at a big condo party, everyone swaps deeds [all the apartments are the same size and sold for the same amount], at which point the building ceases to be capital, and finally becomes simply housing.

I have to confess that this seems to me a piece of what  Marx would have called ideological mystification.  I just don't get why housing is not capital even if it is owned by the person who lives in it.

Would the real Marxists out there please enlighten me.

COOKERY AND QUACKERY AND ALL SORTS OF KNICK-KNACKERY

Charles Pigden teaches philosophy at Otago and is, judging from the picture posted on his site, uncommonly cheerful for a self-professed nihilist.  In response to my report that I was off to teach the Gorgias he posted this comment: 

"I teach the Gorgias too in one of my courses and there is [a] continuing historical puzzle. What did the guy whose profession is often translated as 'beautician' actually DO for his clients? Plato suggests that he made them look buffed, toned and even ripped when in fact they were not, but exactly how did he do this?"

Ever ready to delve into the deeper aspects of Plato's philosophy, herewith my reply [keep in mind that I do not read Greek and know next to nothing about Plato.]  The beautician [or cosmetician, in my translation] is supposed to be making the body appear healthy rather than actually be healthy, corresponding to the sophistical politician who makes the body politic feel good rather than be good.  The Greeks were, of course, very big on working out, and an authentic physical trainer makes one healthy by prescribing rigorous diet and exercise ["no pain no gain."]  Plato's beautician, I have always supposed, fools unhealthy clients into believing that they are healthy, even though they eat fatty foods loaded with salt and do no exercise, by rouging their cheeks to give them a healthy glow or applying tanning creams to make them seem browned when in fact they are sickly pale.

Since even an artfully rouged and tanned slob is still a slob with fat where he should have muscles, this may seem like an unsuccessful analogy, but remember that at least a part of Plato's point is that faux political leaders like Pericles fooled Athens into thinking it was in great spiritual shape when in fact it was being set up for the disaster of the Peloponnesian War.  And my unscientific observation of the follies of the well-to-do suggests that "personal trainers" and "diet consultants" are in fact quite good at fooling their clients into thinking they are actually looking good when they do not.

I first taught the Gorgias not long after the 1960 presidential campaign, in which Kennedy and Nixon staged the first ever televised presidential debate.  Those who heard the debate on radio thought Nixon had won, but those who saw it on television thought Kennedy did better.  The reason was so perfect an illustration of Plato's story in the Gorgias that for years afterward I used it as an example, until students started showing up in class who had never heard of either Kennedy or Nixon.

The point was this:  Kennedy was a very sick man.  He suffered from Addison's Disease, one of the side effects of which is to give the sufferer a deep tan, so he looked great.  Nixon was in perfect health, but he was very thin skinned.  I don't mean he was touchy [he was that too], I mean he had a very thin epidermis, and under the harsh bright lights of early television, he looked as though he had a five o'clock shadow even though he was cleanly shaved.  In addition, Nixon banged his elbow getting out of the car at the station and was in pain.  So Kennedy looked healthy but was not, and Nixon looked unhealthy but was not.

For a young Philosophy Instructor searching for a contemporary illustration of the eternal verities, it does not get any better than that.