I have heard that competition is one of the virtues of capitalism. But what is competition?
It is not in the spirit of this post to look up an answer without saying so. And reposting the output of a LLM is, of course, never appropriate.
This post is one of a series. I am not re-asking these questions here in listing the post titles:
The University of Notre Dame, in Indiana, is well-known for being a Catholic university. The Church has a history of social teaching. I'll mention the 1891 Rerum Novarum, the 1965 document from the second Vatican Council on the church in the modern world, and the 1986 pastoral letter by the United States bishops on the economy. For much of the twentieth century, this teaching was stridently anti-communist. On the other hand, liberation theology exists. Maybe the question of socialism vs. capitalism is not the right dichotomy.
Economics is not solely a technical subject. It has a political or value-based side. How should a great Catholic university research and teach the subject, while maintaining high standards of academic rigor?
Charles Wilber, chair of the economics department in 1975, pursued this question. By the turn of the millennium, Notre Dame had some very interesting researchers in economics, including in its history. And they had interesting researchers getting their doctorates there. I like, for example, some work of Esther-Miriam Sent, who knows that histories are constructed. Other histories could be told. Philip Mirowski, who has journal publications,, is known for books.
A later dean looked at this heterodox department and objected. The department was split in 2003. The heterodox economists were put in Economic and Policy Studies (ECOP). They could no longer supervise graduate students. And then the administrators closed ECOP in 2010. With tenure, I do not think they could fire some.
Deidre McCloskey, well known for her praise of bourgeois virtues decried this slow-motion purge when it was happening. She also mentions a few whose work she knows something of:
>"... [David} Ruccio is a leading Marxist economist. (If your reaction to that is to exclaim, 'Marxist economist!' then you really need to get out more. Does it strike you as a reasonable hypothesis that every one of the thousands and thousands of very intelligent people who take the Marxist tradition seriously are just dopes from whom you can learn nothing at all?)...
>... The standard should be Notre Dame's, not that of the editorial board of the American Economic Review (I have served on it, and know). Read the stuff. Isn't that obviously the only way of raising standards-having some?
>...Academic economics in the United States has a methodological and ideological range all the way from M to N. This is not because it is such a smashing scientific success, unless you count numbers of mainstream articles certified by mainstream scientists as 'success.' Real insight ... comes from the dwindling number of individual economists and sometimes whole departments of economics ... who think, as the present Department of Economics at Notre Dame does...,, that economics is the study of the economy and is a part of the conversation of humankind." -- Deidre McCloskey
Do you have a view on this academic bullying?
I went to Washington, DC, in April 2000 to protest the International Monetary Fund (IMF). The IMF imposes structural adjustment programs on less developed countries to ensure continued dominance of the North over the South. As Joseph Stiglitz noted in The New Republic at the time, the IMF was imposing policies based on obsolete, empirically unsupported theory.
The protesters supposedly invited the IMF to send staffers outside for a friendly soccer game. If the protesters won, the IMF would forgive the debts of the third world, in a biblical jubilee. If the IMF won, the protesters would suspend protesting the IMF's very existence for six months or a year.
Anyways, one morning the cops were starting a riot, as they do. They had their pepper-spray out. As a cop approached me, he said, "I hate commies." I said, "I'm an anti-communist". He said, "I don't care what kind of communist you are."
I can think of at least three answers off-hand. And I have an unoriginal taxonomy, too. But I do not say any of this so as to leave the question open.
This post is one of a series:
Sraffa (1960) is an epoch-making book. It is a part of a demonstration that neoclassical economic theory is incoherent and incorrect.
Ian Steedman created a stir in the 1970s. He turns Sraffa's theory against some aspects of Marx's theory of value. He argues that labor values are redundant in explaining prices of production and the rate of profits. This was a novel accusation.
Sraffa did not see his book as refuting Marx. John Eaton wrote a review of Sraffa's book. Eaton was the pen name of Stephen Bodington. Sraffa wrote him a letter, in 1961, after this review. A draft is in Sraffa's archives:
>"Dear Bodington,
>It was most kind of you to send me through M[aurice] D[obb] an offprint of your article in Societa. I am grateful for this splendid review, which presents the subject in a more lucid and interesting way than I should have thought possible; it certainly sets a high standard for the discussion which I hope it will stimulate (initiate?).
>I should like to take this opportunity to try and give a brief answer to the question you hint at, when you express some doubts as to the usefulness of the construction of the "Standard Commodity". First of all I am convinced that it does represent a real property of the econ[omic] system; and while this could be described in other ways, it should not be ignored, even if it did not find immediate application. It is, however, applied in one or two cases in the book: For instance, in the proof that there is a unique set of all-positive prices in the case of single-product industries. (the proof isn't without importance for the number of sets of solutions is very large, being equal to the number of commodities in the system; if any appreciable proportion of these sets could be all-positive, a large element of uncertainty would be introduced.) Another application is for defining basic and non-b[asic] comm[oditie]s. (This can be done intuitively in a system of s[ingle]-p[roduct] industries, but in complicated cases of multi-product industries, this or some equiv[alent] math[ematical] construction is, I think, necessary.)
>There are besides, many possible applications, which I have not mentioned in the book, in problems discussed by Marx. Take, e.g., the determination of a general rate of profits, from the rate of surplus value. Marx takes an average of the rates of profits, obtained from the proportion of the different commodities on the basis of "values", and he gets, as he acknowledges, an approximately correct result. An exact result could however be obtained by taking, instead of a simple average, a weighted average: and it can be shown that the appropriate weights can be derived directly from the proportions in which the comm[odities] enter the st[andard] comm[odity]. Similarly, in the application of M[arx]'s notion of the comm[odity] produced by "a cap[ital] of av[erage] org[anic] comp[osition]": for an exact result the average must be found in the same way. In other words, that comm[odity] is the st[andard] comm[odity].
>I doubt, however, that it would be ??? to ??? the at the present ??? ??? onto these lines.
>With kind regards,
>Yours sincerely," -- Piero Sraffa. D3.12.111/132
I cite Eatwell (1975) in explaining how the standard commodity is a commodity of average organic composition of capital. It provides a solution of the transformation problem.
In finding the general rate of profits, Sraffa starts with the value rate of profits in each industry. The value rate of profits is the ratio of surplus value to the sum of the value of variable capital and constant capital, with each found in the system of labor values. The rate of profits in the system of price of production is the weighted sum of the value rates of profits, where the weights are a modification of the weights for Sraffa's standard system. This weighted sum is one way that Sraffa draws a connection between labor values and prices of production. Perri (2023) explains further.
Inasmuch as Marx's solution of the transformation problem is not exactly correct, it can be and has been set right.
REFERENCES
An immense accumulation of commodities can be expected to be of an average capital-intensity, if that term makes sense. Marx wrote about an average Organic Composition of Capital (OCC). Extremes in the OCC for individual commodities would cancel out.
The total output of the economy might then be expected to be of an average OCC. So would the goods bought out of wages. The labor value of a composite commodity of average OCC is not changed when transforming to prices of production. Prices of production are what Adam Smith calls natural prices, the prices that market prices gravitate around, the average you would expect in competitive markets over time if technology was not varying. Obviously, I am thinking about a society under capitalism.
These claims can be set out formally. A commodity of average OCC is associated with the maximum eigenvalue of the Leontief input-output matrix characterizing the technique in use. This matrix should be specified in terms of physical commodity flows, not in terms of prices. In producing this commodity, it values is unchanged between summing up individual commodities evaluated with labor values or with prices of production. Likewise, the rate of profits in the system of labor values is the same as the rate of profits in the system of prices of production.
In this formalization, prices of production of individual commodities deviate from labor values. Likewise, you can calculate that workers do not obtain the entire net product only if they work longer than the part of the year needed to (re)produce wage goods. These claims do not depend on a simple labor theory of value.
When Marx writes about a commodity of average OCC, as I understand it, he looks at all the commodities being produced at the time. This includes luxury commodities. By a luxury commodity, I mean a commodity that capitalists purchase for consumption, but workers do not purchase. Luxuries do not enter the production of non-luxuries. I have seen an ostrich egg cited as an example. If more of a luxury commodity were produced, the average OCC would change for Marx.
But this is inconsistent with the formalization mentioned above. Luxuries do not enter into the commodity of average OCC used there.
Was Marx wrong in his treatment of luxuries? Notice that it does not help to answer this question by whining that value is not socially necessary abstract labor time (SNALT). The question can only be posed by accepting Marx's categories in some sense.
I do not know how a proponent of Duncan Foley's new interpretation (NI), with his monetary equivalent of labor time (MELT), would answer.
Keynes had a low opinion of Marx. He did not think it was worth understanding him. It is therefore something of a surprise when he goes along the same lines.
Keynes thought of his General Theory as a monetary theory of production. In his notes, he writes about Marx's distinction between the trading of commodities for money, C-M-C’', and the use of money to make more money, M-C-M'. A monetary theory of production investigates the latter structure.
But more, he set his theory out in terms of labor values:
>"In dealing with the theory of employment I propose, therefore, to make use of only two fundamental units of quantity, namely, quantities of money-value and quantities of employment. The first of these is strictly homogeneous, and the second can be made so. For, in so far as different grades and kinds of labour and salaried assistance enjoy a more or less fixed relative remuneration, the quantity of employment can be sufficiently defined for our purpose by taking an hour's employment of ordinary labour as our unit and weighting an hour's employment of special labour in proportion to its remuneration; i.e. an hour of special labour remunerated at double ordinary rates will count as two units. We shall call the unit in which the quantity of employment is measured the labour-unit; and the money-wage of a labour-unit we shall call the wage-unit." -- John Maynard Keynes. 1936. The General Theory of Employment, Interest, and Money. Chapter 4.
Keynes had a concept of the long period rate of employment. But most of his argument was set in Marshall's short period. Even though investment is given, he takes the stock of capital goods as given. His question is how much of it is used and how much labor is required. He deals with complex labor very shortly. For his problem, this makes sense.
Joan Robinson noticed the parallel with Marx:
>"Keynes changed the question back again. He started thinking in Ricardo's terms: output as a whole and why worry about a cup of tea? When you are thinking about output as a whole, relative prices come out in the wash-including the relative price of money and labour. The price level comes into the argument, but it comes in as a complication, not as the main point. If you have had some practice on Ricardo's bicycle you do not need to stop and ask yourself what to do in a case like that, you just do it. You assume away the complication till you have got the main problem worked out. So Keynes began by getting money prices out of the way. Marshall's cup of tea dissolved into thin air. But if you cannot use money, what unit of value do you take? A man hour of labour time. It is the most handy and sensible measure of value, so naturally you take it. You do not have to prove anything, you just do it.
>Well there you are-we are back on Ricardo's large questions, and we are using Marx's unit of value. What is it that you are complaining about?
>Do not for heaven's sake bring Hegel into it. What business has Hegel putting his nose in between me and Ricardo?" – Joan Robinson, 1953, An open letter from a Keynesian to a Marxist.
Michal Kalecki probably had the best insight into the political consequences of Keynes.
When Von Mises came to American, no university would hire him. He ended up at New York University, funded by the Volker fund and the Foundation for Economic Education (FEE), not the normal academic position. He had a seminar, so to speak, from 1948 to 1969, past the usual retirement age.
His students consisted of the usual youngsters seeking credit for a grade and a weird cohort of adults, who attended year after year.
>"As Robert Nozick … said, 'In 18 years of teaching at Princeton and Harvard, I never encountered any professor teaching a seminar where non-degree-seeking adults would continue to attend year after year . . . [Mises was] unique in attracting mature minds without demanding discipleship.'" -- Brian Doherty. 2008. Radicals for Capitalism: A Freewheeling History of the Modern American Libertarian Movement.
Much of the description of this seminar contradicts that last sentence. In defense of Von Mises' unwillingness to brook questions at a supposed seminar, he was becoming hard of hearing.
Israel Kirzner describes what many saw as Von Mises’ arrogance:
>"But by the time I was at his seminar, he was of advanced age and had heard all of the arguments in favor of other points of view. There's no doubt he felt convinced that he knew what was valid and invalid. That awareness on his part was fairly obvious to anyone, from body language if you like, and it could be that some members of the seminar might have felt put off." -- Kirzner, quoted by Doherty
Kirzner also comments on the weird cohort:
>"Another aspect of those years that has to be kept in mind is that for various sociological reasons Mises became surrounded by people who were very eager to protect him. Some of those well-meaning individuals may have projected an image Mises is not to be criticized, not to be disagreed with. That was unfortunate..." -- Kirzner, quoted by Doherty
Margit Von Mises, the great man's wife describes the behavior of his acolytes:
>"four or five students had formed a group in order to protect the professor against dissident students who opposed his views. They occupied a table ahead of the class next to the professor in order to be ready to protect him against any possible violence." -- Margit Von Mises, quoted by Doherty
Murray Rothbard, a later cult leader, was one of these followers. I do not list more because I do not want to encourage propertarians. George Koether was another admirer:
>"Mises's friend George Koether, an editor at Look magazine, commissioned a bronze bust of the great scholar." -- Doherty
I have not exhausted the oddities of Von Mises' seminars. These cult meetings were important in preserving the Austrian school until the 1974 South Royalton Conference on Austrian Economics.
I have any number of posts about the silliness, confusion, and lack of scholarship from Von Mises: one, two, three, four, five, six, seven, eight, nine, ten, eleven.
1. Introduction
Karl Marx, like Adam Smith, David Ricardo, Alfred Marshall, and many others, thought of market prices as fluctuating around prices of production. For reasons of exposition, he assumed, in volume 1 of Capital, that prices of production are equal to labor values in competitive markets. He knew this was only a first approximation and said so explicitly in volume 1. This post explains how he dropped that assumption towards the start of volume 3.
By the way, volume 3 was written before volume 1. So it could not be a response to the marginalists in the 1870s. I do not see why a socialist activist should care about details of the many demonstrations that Marx was, by and large, correct.
2. Labor Value Accounting
Suppose you observe a competitive capitalist economy at the end of the year. There are a number of commodities being produced. For Marx, the gross output in the first industry, however you order them, is c1 + v1 + s1, where c1 is the (labor) value of constant capital used up in the year, v1 is the value of variable capital, and s1 is the surplus value for that industry.
Constant capital is plant, machinery, raw materials, semi-finished goods, lubricants, and all that is needed as inputs for the worker to produce a commodity. With certain abstractions, one can evaluate it as the labor time that goes into making these inputs. I figure out the labor value of constant capital from the technique in use in the given year, not as a series using labor inputs in past years. A different technique may have been used last year. In this sense, labor values are not conserved.
Variable capital is the labor-power or the ability to work. I like to think of it as the labor time that goes into making the commodities bought from wages. This differs from the labor hours that the capitalist obtains from buying labor power.
The contribution to net output from this industry is v1 + s1.
Now, aggregate over industries:
c = c1 + c2 + c3 + ...
v = v1 + v2 + v3 + ...
s = s1 + s2 + s3 + ...
c is the constant capital used up in this year in the economy as a whole. v is the labor value of the commodities that the whole labor force gets to consume out of the net output. s is the labor value of the remaining net output.
Marx assumes that the rate of exploitation, e, does not vary among industries:
e = s1/v1 = s2/v2 = s3/v3 = ...
The rate of exploitation is also known as the rate of surplus value. Surplus value can be increased by increasing the time workers work; by increasing the intensity with which they work; and by decreasing variable capital by, for instance, technological progress in producing wage goods. (Wage goods are commodities bought out of wages.)
The rate of profits for the economy as a whole is, in Marx's account:
r = s/(c + v) = e/(1 + c/v)
I am assuming that wages are advanced.
I understand the ratio c/v to be what Marx calls the organic composition of capital. The organic composition of capital varies among industries. This variation is partly for technical reasons. If prices are proportional to labor values, the rate of profits in value terms will generally differ between industries. Marx deliberately and knowingly abstracts, in volume 1 of Capital, from the variation of the organic composition of capital among industries.
3. Cost Prices and Prices of Production
Since this is a competitive economy, capitalists will tend to increase investment where the rate of of profits is relatively high and decrease investment where it is relatively low. (Many Marxists have written about non-competitive capitalist economies, for example, Baran and Sweezy.) Prices of production are such that this leveling process has been completed.
Marx calls c1 + v1, c2 + v2, c3 + v3 the cost prices of the first, second, and third industries. For him, these are the values of the capital investments in the many industries. Prices of production are found by charging the common rate of profits on the cost prices:
p1 = (c1 + v1)*(1 + r)
p2 = (c2 + v2)*(1 + r)
p3 = (c3 + v3)*(1 + r)
And so on. Prices of production show the surplus value generated in relatively labor-intensive industries redistributed to relatively capital-intensive industries. Prices of production are not labor values. The price of production, however, of a commodity of average organic composition of capital will be its labor value by the above formula.
Marx's assumption in volume 1 that prices are equal to labor values is an hypothesis to go on with. It allows him to, for instance, say something about the evolution of technology and the domination of capital. Marx's fully developed theory of value is NOT the labor theory of value.
4. Invariants
By construction:
I guess I could list more invariants.
5. Conclusion
Where, if anywhere, does Marx go wrong in this account?
I note that bringing up supply and demand, marginal utility, and so on fails to be an internal criticism of the above.
Modern economics has models much like those in the classical theory of value and distribution. I think of, for example, Johnny Von Neumann's theoretical work and Wassily Leontief's empirical work.
I quote:
>"when another famine struck India in the nineteenth century, now under the colonial rule of British officials and during the heyday of free market economics, opposite policies were followed, with opposite results:
>'In the earlier famine one could hardly engage in the grain trade without becoming amenable to the law. In 1866 respectable men in vast numbers went into the trade; for the Government, by publishing weekly returns of the rates in every district, rendered the traffic both easy and safe. Everyone knew where to buy grain cheapest and where to sell it dearest and food was accordingly bought from the districts which most urgently needed it.'
>All elementary as this may seem, in terms of economic principles, it was made possible politically only because the British colonial government was not accountable to local public opinion." - Thomas Sowell. 2011. Basic Economics: A Common Sense Guide to the Economy, fourth edition. p. 64-65
The ‘Nobel’ laureate Amartya Sen has a very different view of famines. Naturally, Sowell does not tell the student that or even who he is quoting. The Irish, too, might have a view on how the English handled famines outside England.
The bankers at the Swedish central bank, in the 1960s, wanted to justify their political independence. It would be nice if the general public thought of them as experts in some sort of science, not making political decisions in favor of the owning class. So they set up a ‘Nobel’ prize, that is, the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.
The first prize was awarded in 1969. You can find the start of a list here. The table below provides an inadequate overview of a selection of winners of this ‘Nobel’ prize.
| Year | Economist | Work |
|---|---|---|
| 1978 | Herbert Simon | When making choices all people deviate from the strictly rational. He described companies as adaptable systems, with physical, personal, and social components. |
| 2001 | George Akerlof, Michael Spence, Joseph Stiglitz | Demonstrated that markets in which agents have asymmetric information can be inefficient. |
| 2002 | Daniel Kahneman | Demonstrated experimentally that people do not maximize utility. His research on decision-making under uncertainty resulted in the formulation of a new branch of economics, prospect theory. |
| 2013 | Robert Shiller | Found that stock prices fluctuate much more than corporate dividends. Shiller’s conclusion was therefore that the market is inefficient. |
| 2017 | Richard Thaler | Paid special attention to three psychological factors: the tendency to not behave completely rationally, notions of fairness and reasonableness, and lack of self-control. |
| 2021 | David Card | Showed empirically that labor markets are not to be explained by supply and demand. Among other things, increasing the minimum wage does not necessarily lead to fewer jobs, as was previously thought. |
I do not claim that these, and other ‘Nobel’ prizes add up to an alternate paradigm. (I have one.) But those who want to understand capitalism might pay some attention to some of this work.
I have heard that capitalism is more efficient than socialism. Or that markets are efficient. Or something.
These types of claims raise a question.
What do you mean by 'efficiency'?
It is not in the spirit of the question to look up an answer before responding.
I suppose I can say this question is part of a series:
Milton Friedman was an illogical advocate of right wing capitalism. C. B. MacPherson, in examining Friedman's Capitalism and Freedom, writes "One almost despairs of logic".
But never mind that. This post is about how his descendants engage in LARPing. Do you find them absurd?
Capitalism and Freedom is co-dedicated to Milton's son, David. David continues the silliness with his book, The Machinery of Freedom. His fantasy novel, Salamander, has the system of magic partially taken from LeGuin's Earthsea series and partially built on linear algebra. He is an active participant in the Society of Creative Anachronisms, where he is known as Duke Cariadoc of the Bow. In addition to this LARPing, he writes about saga-period Iceland as a model of how law might work in a capitalist society.
Patri Friedman is the son of Davd Friedman. His confusion about LARPing can be seen in his founding of the Seasteading Institute. He was the executive director at its founding in 2008, with a large donation from Peter Thiel. He continued the LARPing with the founding of the Future Cities Development Corporation. I am sorry that Paul Romer promotes this anti-democratic idea.
This LARPing may strike you as a combination of harmless recreation and silliness with no chance of being implemented. But here we are, with rich effs close to political power.
Marx provides a supposed proof of the labor theory of value (LTV) in the first section of the first chapter of Capital. The worth of his analysis depends on neither the soundness nor the validity of this argument about the third thing. If you are interested in Marx, you should be willing to see where he goes after chapter 1. I find most insightful the last section in chapter 1, the bit on commodity fetishism.
Manufacturing goods in an ongoing society depend on many activities happening in parallel. For example, somebody must be mining iron for the blacksmith to be manufacturing horse shoes out of steel. Under capitalism, nobody is coordinating these activities. For Marx, this coordination results from prices under the anarchy of production characterizing capitalism. Capitalists see whether they are making lots of profits or not in marketing the commodities produced under their direction. Each capitalist adjusts their establishments accordingly.
Marx explains his overall approach to the theory of value in a much-quoted 11 July 1868 letter to Ludwig Kugelmann:
>Dear Friend,
>The children are getting on well, though still weak.
>Thank you very much for the things you sent. Definitely do not write to Faucher, otherwise this mannequin pisse will feel too important. All he has achieved is that, if a second edition appears, I shall aim a few necessary blows at Bastiat where I speak about the magnitude of value. This wasn't done before, since the 3rd volume will contain a separate and extensive chapter about the 'vulgar economy' gentry. Incidentally, you will find it quite natural that Faucher and consorts derive the 'exchange value' of their own scribblings not from the amount of labour power expended, but from the absence of such expenditure, that is from 'saved labour'. Moreover, the worthy Bastiat did not even himself make this 'discovery', so welcome to these gentry, but just 'cribbed' it, in his usual manner, from much earlier authors. His sources are of course unknown to Faucher and consorts.
>As for the Centralblatt, the man is making the greatest concession possible by admitting that, if value means anything at all, then my conclusions must be conceded. The unfortunate fellow does not see that, even if there were no chapter on 'value' at all in my book, the analysis I give of the real relations would contain the proof and demonstration of the real value relation. The chatter about the need to prove the concept of value arises only from complete ignorance both of the subject under discussion and of the method of science. Every child knows that any nation that stopped working, not for a year, but let us say, just for a few weeks, would perish. And every child knows, too, that the amounts of products corresponding to the differing amounts of needs demand differing and quantitatively determined amounts of society's aggregate labour. It is SELF-EVIDENT that this necessity of the distribution of social labour in specific proportions is certainly not abolished by the specific form of social production; it can only change its form of manifestation. Natural laws cannot be abolished at all. The only thing that can change, under historically differing conditions, is the form in which those laws assert themselves. And the form in which this proportional distribution of labour asserts itself in a state of society in which the interconnection of social labour expresses itself as the private exchange of the individual products of labour, is precisely the exchange value of these products.
>Where science comes in is to show how the law of value asserts itself. So, if one wanted to 'explain' from the outset all phenomena that apparently contradict the law, one would have to provide the science before the science. It is precisely Ricardo's mistake that in his first chapter, on value, all sorts of categories that still have to be arrived at are assumed as given, in order to prove their harmony with the law of value.
>On the other hand, as you correctly believe, the history of the theory of course demonstrates that the understanding of the value relation has always been the same, clearer or less clear, hedged with illusions or scientifically more precise. Since the reasoning process itself arises from the existing conditions and is itself a natural process, really comprehending thinking can always only be the same, and can vary only gradually, in accordance with the maturity of development, hence also the maturity of the organ that does the thinking. Anything else is drivel.
>The vulgar economist has not the slightest idea that the actual, everyday exchange relations and the value magnitudes cannot be directly identical. The point of bourgeois society is precisely that, a priori, no conscious social regulation of production takes place. What is reasonable and necessary by nature asserts itself only as a blindly operating average. The vulgar economist thinks he has made a great discovery when, faced with the disclosure of the intrinsic interconnection, he insists that things look different in appearance. In fact, he prides himself in his clinging to appearances and believing them to be the ultimate. Why then have science at all?
>But there is also something else behind it. Once interconnection has been revealed, all theoretical belief in the perpetual necessity of the existing conditions collapses, even before the collapse takes place in practice. Here, therefore, it is completely in the interests of the ruling classes to perpetuate the unthinking confusion. And for what other reason are the sycophantic babblers paid who have no other scientific trump to play except that, in political economy, one may not think at all!
>But satis superque [Enough and more than enough]. In any case, it shows the depth of degradation reached by these priests of the bourgeoisie: while workers and even manufacturers and merchants have understood my book and made sense of it, these 'learned scribes' (!) complain that I make excessive demands on their comprehension.
>I would not advise reprinting Schweitzer's articles, though Schweitzer has made a good job of them for his paper.
>You would oblige me if you sent me a few issues of the Staats-Anzeiger.
>You should be able to get Schnacke's address by enquiring at the Elberfelder.
>Best greetings to your wife and Fränzchen.
>Yours,
>K. M.
>Apropos. I have received an article by Dietzgen about my book; I am sending it to Liebknecht.
I fault Marx for spending so much time in rewriting volume 1 of Capital after its publication. He should have put more time in preparing the later volumes for publication. Some have recommended that on a first reading, you skip the first chapter. If I took some comments here more seriously, I could see an argument that Marx should have worked on rewriting chapter 1 a few more times.
Suppose that you are not a knave and are curious about what socialism is. Then you know that you do not need to rely on a short sentence from some pseudonymous commentator on the Internet. You can find statements, programs, etc. from organizations historically important or of current importance.
For example, I think of the Socialist International as following on from the Second International. Their June 1989 Declaration of Principles is here.
The Democratic Socialists of America (DSA) currently has a certain prominence in the United States. They offer a definition of Democratic Socialism here:
>"Capitalism is a system designed by the owning class to exploit the rest of us for their own profit. We must replace it with democratic socialism, a system where ordinary people have a real voice in our workplaces, neighborhoods, and society.
>We believe there are many avenues that feed into the democratic road to socialism. Our vision pushes further than historic social democracy and leaves behind authoritarian visions of socialism in the dustbin of history.
>We want a democracy that creates space for us all to flourish not just survive and answers the fundamental questions of our lives with the input of all. We want to collectively own the key economic drivers that dominate our lives, such as energy production and transportation. We want the multiracial working class united in solidarity instead of divided by fear. We want to win 'radical' reforms like single-payer Medicare for All, defunding the police/refunding communities, the Green New Deal, and more as a transition to a freer, more just life.
>We want a democracy powered by everyday people. The capitalist class tells us we are powerless, but together we can take back control."
The Rochdale Principles for co-operatives were stated in 1844, and been updated by, for example, the International Cooperative Association. One statement of these principles is here.
Others will have other statements or historical statements they think important. For example, Rosa Luxemburg's Reform or Revolution was of historical importance in responding to Eduard Bernstein's The Preconditions of Socialism and the Tasks of Social Democracy. I will grant that if you are uninterested in socialism, recognizing which documents are of more importance in history might not be obvious.
The laws of supply and demand, as presented in neoclassical economics, are muddled and confused. Demand for consumer goods, for eample, is the result of households maximizing some non-existent utility subject to constraints. A market is an unanalyzed entity, generally with no brokers who make markets, willing to trade on either side. Although not discussed, the market in neoclassical microeconomics is typically a posted price market, corresponding to the lowest level of the Chomsky hierarchy.
Those who specialize in finance might say they observe something like supply and demand in order books. But those curves are not the supply and demand curves in neoclassical microeconomics. These financial markets are structured, with algorithmic rules for matching bids and offers. They often parallel future markets, capable of going into backwardation and contango.
A certain sort of mathematics is needed to fully analyze markets. From one perspective, computers should be designed to execute our algorithms, which are abstract mathematical entities independent of such implementation. Computational complexity is a part of this mathematics. From literature on algorithmic game theory, I know that if P ≠ NP, complexity classes exist in-between. My favorite approach to price theory, concentrating on reproducibility, can be developed with an emphasis on algorithms. I once presented a derivation along this path.
Philip Mirowski explains more about the ideas on which I draw here. Towards the end, after about 19:30, he explains, "There's no such thing as a law of supply and demand."
>"It was thenceforth no longer a question, whether this theorem or that was true, but whether it was useful to capital or harmful, expedient or inexpedient, politically dangerous or not. In place of disinterested inquirers, there were hired prize fighters; in place of genuine scientific research, the bad conscience and the evil intent of apologetic." -- Karl Marx
Suppose you run a restaurant. You think that you could expand if you paved your parking lot or put a deck up out back. You convince your local bank manager. The bank credits their own account with an asset and credits your account with a loan. That asset, for the bank, is a promise from you to pay off the loan. You spend the money in your account by paying a paving or building contractor.
The bank has created money. No third party must first choose to increase their saving rate and deposit money in the bank. You are able to obtain resources to implement plans for increased production.
The author of a prominent introductory textbook for economics has another, confused story:
>"Financial intermediaries are financial institutions through which savers can indirectly provide funds to borrowers. The term intermediary reflects the role of these institutions in standing between savers and borrowers. Here we consider two of the most important financial intermediaries: banks and mutual funds.
>Banks If the owner of a small grocery store wants to finance an expansion of his business, he probably takes a strategy quite different from that of Intel. Unlike Intel, a small grocer would find it difficult to raise funds in the bond and stock markets. Most buyers of stocks and bonds prefer to buy those issued by larger, more familiar companies. The small grocer, therefore, most likely finances his business expansion with a loan from a local bank.
>Banks are the financial intermediaries with which people are most familiar. A primary job of banks is to take in deposits from people who want to save and use these deposits to make loans to people who want to borrow. Banks pay depositors interest on their deposits and charge borrowers slightly higher interest on their loans. The difference between these rates of interest covers the banks’ costs and returns some profit to the owners of the banks." -- Greg Mankiw. 2018. Principles of Economics, 8th edition p. 545.
Mankiw then goes on with archaic nonsense about loanable funds and government spending crowding out private investment.
Why do economists teach balderdash?
Libertarianism is a kind of communism. I need a label for a right-wing, extreme defense of property by those who repudiate many of the functions of government. According to Wikipedia, David Boaz and others call this political philosophy, 'Propertarianism'.
Robert Nozick is the most respected proponent of propertarianism among recent analytical philosophers. Anarchy, State, and Utopia is his attempt at a fairly comprehensive defense of propertarianism. He later repudiated it, but no matter. His utopia is of a federation of free communities, with the federation being a minimal state. People are free to move to the community which has rules closest to what they prefer.
Nozick explicitly says that slavery can exist in some of these communities:
>"The comparable question about an individual is whether a free system will allow him to sell himself into slavery. I believe that it would… But some things individuals may choose for themselves, no one may choose for another… But remember that any individual may contract into any particular constraints over himself and so may use the voluntary framework to contract himself out of it." – Robert Nozick. Anarchy, State, and Utopia. p. 263.
Those who do not know better might think academic economics would be useful for understanding capitalism. But much of academic economics is propaganda and reactionary justification for the ruling class of capitalists.
This post describes two ways of classifying economic theory (Table 1). Even if you had paid attention in class, you probably would have only been exposed to ideas in the column for the neoclassical position in the table.
Table 1: Two Classification Of Economists
| Neoclassical Position | Correct Position | |
|---|---|---|
| Price Theory | Emphasis on allocating scarce resources | Emphasis on social reproduction |
| Monetary Theory | Money as a veil | Money Non-Neutral |
I have written about the row for price theory before. Classical and Marxian political economy focuses on what needs to hold such that society is reproduced. Neoclassical economics is defined, by many, as being about the allocation of scarce resources.
Post Keynesians and others describe money as having real effects. Many mainstream economists, on the other hand, model capitalist economies as, basically, barter economies. They hold money to be neutral, at least in the long run. They mistakenly think a natural rate of interest would arise in a barter economy. It is the task of the monetary authority to set the money rate of interest equal to this natural rate so that the economy, in the short run, would behave as if it were a barter economy, with no inflation.
The above describes two ways of dividing economists into two groups, for a total of four buckets. For example, an economist could think of prices as scarcity indices and of money as non-neutral. Finance allows entrepreneurs to obtain the resources they need for innovation.
Can you name economists in each of these four buckets?
I turn to Colin Rogers when I want to see the Cambridge Capital Controversy used to criticize Wicksellian monetary theory. My more direct inspiration for this post is Mason and Jayadev's current book, Against Money.
All civilization has been built on slavery. It is endorsed in the Bible, for example, in Paul's letter to Timothy. Are you godless?
Intellectuals in coffee houses with no practical experience can say what they want. They only think they are smart.
Look at what happens when slaves listen to you, like Spartacus and Nat Turner. Nothing but violence and death result.
Our crops can only be grown by many slaves working together on large fields. If they were freed, they would each tend a small field for themselves. Only the master can be expected to have the understanding of a cash crop, like cotton, for sustaining people far away.
You will only hurt the people you are trying to help. Right now, the slave is taken care of and does not face the uncertainty of the master who makes the decisions. The master bears the risk that the crops being grown are the right ones, that they will not be attempting to sell into a glut. If the slave were free, they would have all this uncertainty and become a worse, grasping person.
Sure, some masters are abusive. But no better society has been devised. And the masters have laws and norms to limit abuse.
You want to eliminate innovation. Right now, a freeman with a good idea is at liberty to pledge themself to obtain the needed finance. If he fails, he becomes an indentured servant or slave. But society is vastly improved by successful inventions and innovation.
You want to eliminate civilization and culture. Sculpture, painting, plays can only be created by those with the leisure to do so. Likewise, they need an audience and patrons free to develop their tastes. They cannot be this audience if they are daily grubbing in the muck to earn their keep.
When you grow up, you will begin to understand how the world works. And you will drop these impractical, undeveloped musings of youth. You will realize we cannot get rid of slavery.