A Terse Elucidation of Marx’s Concern with Alienation in the Mature Writings

By David Fields

Note: The references below are drawn from The Marx-Engels Reader, edited by Robert C. Tucker.

Is Marx’s concern with aspects of alienation subsumed in his mature writings? To suggest so is a falsity. Marx’s depiction of the proletariat becoming, in the Hegelian sense, emancipated from the objective conditions of estranged labour, is not withered as the analysis moves toward the technical conditions of production. Marx’s humanism is still apparent.

In Wages, Labour, and Capital, Marx explicates that labour power is a life activity (204). It is the manifestation of human creativity, so that when it is sold as a commodity, a worker, in fact, sacrifices his life; the “product of his activity is no longer the object of his activity” (204-205). Life, as such, no longer has meaning.

Marx asks a pertinent question: “And the worker, who for twelve hours weaves, spins, drills, turns, builds, shovels, breaks stones, carries loads, etc.-does he consider this twelve hours’ weaving, spinning, drilling turning, building, shoveling, stone breaking as a manifestation of his life, as life” (205)? The answer is a resounding no: “On the contrary, life brings for him where this activity ceases, at table, in the public house, in bed […] The twelve hours’ labour, on the other hand, has no meaning for him as weaving, spinning, drilling etc., but [only] as earnings […] If the silkworm were to spin in order to continue its existence as a caterpillar, it would be a complete wage-worker” (205).

Another example is Marx’s attention to commodity fetishism: “In production, men not only act on nature but also on one another. They produce only by co-operating in a certain way and mutually exchanging their activities. In order to produce, they enter into definite connections and relations with one another and only within these social connections and relations does their action on nature, does production, take place” (207). This actuality is mystified given that “the noble reproductive [labour] power that the worker surrenders to the capitalist [for sustenance]” (209) is the mechanism that generates the “means of employment” (210), of which labour, which by definition “possesses nothing but its capacity to labour” (208), socially depends on. This social dependency is the force that manufactures ‘false consciousness for “to say that the worker has an interest in the rapid growth of capital is […] to say that the more rapidly the worker increases the wealth of [capitalists], the richer will be the crumbs that fall to him” (211).

In Marx’s Grundrisse, there are more examples of where Marx alludes to alienation. For instance, Marx begins his analysis with a scathing critique of Enlightenment ideology: “The [rational] individual [who] belongs among the unimaginative conceits of the eighteenth-century Robinsonades […,] which brings natural independent, autonomous subjects into relation and connection by contract”, is an “ideal whose existence is [systematically] project[ed] […] by [the] detach[ment] [of the individual] from [his] natural bonds” (222). Hence, “forms of social connectedness confront the individual as mere means toward his private purposes, as external necessity” (223). And to suggest that material production, of which forms the bedrock of society, is determined “by isolated individual[s] […] is as much as an absurdity as is the development of language without individuals living together and talking to each other” 223). Society “does not consist of [isolated] individuals, but expresses the sum of interrelations, the relations within which […] individuals stand” (247).

In continuance with a concrete understanding  of the nature of commodity fetishism, Marx indicates that the unity of production, distribution, and consumption is a mystification that clouds the reality that the worker is inherently an agent in production, of which the worker’s social position determines its pattern of distribution, and ultimately its pattern of consumption (223-234)…the unperceived “mutual interaction” that consummates the capitalist system as an “organic whole” (236).

Furthermore, Marx discerns that when labour exchanges with capital in the selling of labour power, a worker “divests himself” of his “vital forces” to the submission of superfluous “forced labour”, surplus value, of which work in production is in excess of that which is necessary for the means for “mere subsistence”, to generate a “general form of [capitalist] wealth (247-249). This facet of capitalism is striking for that it inevitably blinds the worker from realizing that his social condition is, indeed, a relation of domination similar to that of slavery, or what Marx defines as “direct forced labour” (250). Work in capitalist production is “indirect forced labour” for that wealth generated from labour is not accumulated for the gratification of overlords, but exploited to foster general industriousness that generates the means of employment, the means of subsistence, of which labour, by definition, socially depends on. Workers are nothing else than soulless cogs in a wheel, an “alien person”, whose objective social conditions appear as separated, independent, and of another kind (252-253).

Examples of Marx’s adherence to the thesis of alienation are also prevalent in Das Kapital. We again see commodity fetishism highlighted: “A commodity is […] a mysterious thing, simply because in it the social character of men’s labour appears to them as an objective character stamped upon the product of that labour; because the relation of the producers to the sum total of their own labour is presented to them as a social relation, existing not between themselves, but between the products of their labour. This is the reason the products of labour become commodities, social things, whose qualities are at the same time perceptible and imperceptible by the senses” (320). Commodities thus appear, according to Marx, as a social hieroglyphic (322), an alienating state of existence where one “cannot decipher the peculiar social character of the labour that produces them […] in the same way [that] light from an object is perceived […] not as the subjective excitation of the optic nerve, but as the objective form of something outside the eye itself” (321).

Marx also rehashes his argument, albeit in condensed form, of labour power as a life-activity that is ultimately dispossessed in capitalist exchange. When a capitalist purchases labour power for capitalist production, “the labourer, instead of being in a position to sell commodities in which his labour is incorporated, must sell that very labour-power, which exists in his living self” (337). Workers are free in the double sense; on the one hand, “as a free man, [the worker] can dispose of his labour power as his own commodity, on the other hand […] he has no other commodity for sale, which is short of everything necessary for the realization of his labour power”. This is an estrangement whose unadulterated existence makes the so-called rational-maximizing individual a self-perpetuating mythological understood form of social life (324).

In hindsight, Marx’s interest with the social conditions of alienation is not abandoned as he matures. To suggest that this is indeed the case would be to assume that there is supposedly an epistemological break between Marx’s early and later writings. This, however, would ignore a critical comprehension of Marx’s work as a totality.

Originally posted on URPE Blog

Maurice Obstfeld and the IMF push structural reforms

Spot the difference

The new World Economic Outlook (WEO) is out, now under the direction of Maurice Obstfeld, after the retirement of Olivier Blanchard. They suggests many reason for why the global economy has been Too Slow for Too Long, as the title of the report indicates. In the forward Obstfeld tells us that part of the solution would be to promote:

"structural reforms in product and labor markets [since this] can be effective in boosting output, even in the short term, and especially if coupled with fiscal support. Tax reform, even when budget neutral, can create demand if well targeted, while simultaneously improving labor force participation and enhancing social cohesion."

So the idea is to liberalize labor markets, and reduce the costs of hiring labor (wink, wink, nudge, nudge, they mean reduce benefits).

So this pretty much confirms that nothing much has changed at the IMF. For more go here.

On the Panama Papers at the Rick Smith Show

A Short Account of The Rise of Neoliberalism

By David Fields

Between roughly the early 1940’s and early 1970’s, the financial architecture of the world economy centered on a US engineered Keynesian accumulation agenda, as a response to the devastation wrought by the Great Depression. The capitalist institutional structure, or social structure of accumulation (Kotz, McDonough, and Reich, 1994), rested on finance being subservient to the promotion of  industrial enterprise. With socially-engineered capital-labor compromises in core-capitalist countries, neo-colonial governing institutions in the periphery, and the Bretton Woods system (along with the Marshall Plan), the immediate post-World War II era was a so-called ‘golden age’ of ‘regulated capitalism’.

By the late 1960’s, nevertheless, capital movements began to undermine the Bretton Woods preoccupation with capital controls, as US officials began actively encouraging the growth of the Euromarket—the pool of unregulated dollar reserves concentrated in the City of London. Moreover, with traditionally marginalized segments of the population in core capitalist countries demanding social, political, and economic rights, and national liberation movements in the periphery overthrowing oppressive governments, calls for expanded role of the state in meeting citizen’s needs dramatically circumscribed global capital accumulation. Pressures for higher nominal wages spawned wage-price spirals. Consequently, the rate of profit fell in core capitalist countries (Dumenil and Levy, 2004: 24).

The globalization of finance became the means for international financial markets to allow industrial enterprise to rebuild the conditions for future profitability. From the 1970’s, activity in financial markets began to rise relative to non-financial economic activity, reflecting not international traded goods and services, but speculative capital flows. Foreign exchange transactions in the world economy rose from $15 billion per day in 1973 to $80 billion in 1980 and $1,260 billion in 1995 (Kotz, 2008). In this sense, the inherent conflict between financial and non-financial capital became relatively obsolete.

Speculative capital flows, however, began to undermine the capacity for the US to guarantee the convertibility of dollars into gold at fixed parity (Triffin, 1960). In 1974, Nixon closed the gold window and loosened capital controls. This marked the end of the Bretton Woods arrangement and the breakdown of the social structure of accumulation that specifically rested on material expansion.

The deregulation of financial markets established a global market of mobile financial capital, yet Keynesian inspired institutional arrangements remained intact, especially the maintenance of cheap money policy for aggregate demand management. As such, hyper-inflationary crises stemming from labor militancy, coupled with international capital movements, turned real rates of interest negative by the mid 1970’s. Although the US became a financial hegemon (cf. Fields & Vernengo, 2013), so to speak, in the sense that its currency became a global fiat money standard, allowing the US to borrow in international markets in its own currency (and essentially perform macroeconomic policy on a global scale), without the friction of gold, price instability undermined real rate of return. As a result, global commitment to deflationary policies was marked by the appointment of Paul Volker as the chairman of the US Federal Reserve in 1979.

The Volker ‘shock’, as it came to be known, reflected the complete shift from finance subservient to industry to industry subservient to finance with the imposition of fiscal and monetary discipline as the means to constrain the capacity of national governments to pursue expansionary policies (that ultimately favor the working class). The high real interest rates set in motion an increasing financial-market orientation of US-led global capitalism. As interest payments, as a factor in capitalist investment (with respect to expected future earnings), rose substantially from 1980 to 1982, leading to the worst recession (at the time) since the Great Depression, a new organization of capitalism was introduced. Capital would no longer rest on production, sales, and growth, but on a speculative strategy of ‘downsize and distribute’ for immediate short-term maximization of shareholder value (Campbell, 2004; Lozonick & O’Sullivan, 2000).

If the monetary authority increases and maintains high interest rates for long periods of time, then for given nominal wages and given nominal exchange rates, there will be falls in real wage and appreciations in the domestic currency. Tight monetary policy will be sustainable, if, and only if, the depression of real wages is accepted, i.e. there is an absence of real wage resistance, and if exporting industries affected by currency appreciation do not have the power to react. The US was victorious in this capacity through successful attacks on labor, along with institutionalizing the so-called Washington Consensus (cf. Meeropol, 1998; cf. Pollin, 2005).

Originally posted on URPE Blog.

References:

Campbell, A. (2004): “The Birth of Neoliberalism in the US: A Reorganization of Capitalism.” in A. Saad-Filho & D. Johnston (ed.) Neoliberalism: A Critical Reader. London and Ann Arbor, MI: Pluto Press

Duménil, G. & D. Lévy (2004): Capital Resurgent. Boston: Harvard University Press.

Fields, D. & M. Vernengo (2013): “Hegemonic Currencies during the Crisis: The Dollar versus the Euro in a Cartalist Perspective.” Review of International Political Economy, 20(4): 740-759

Lazonick, W. & M. O’Sullivan (2000): “Maximizing shareholder value: a new ideology for corporate governance.” Economy and Society, 29(1): 13-35

Kotz, D. (2008): “Neoliberalism and Financialization.” Political Economy Research Institute, University of Massachusetts Amherst, mimeo

Kotz, D., McDonough, T. and Reich, M. (1994) (eds.): Social structures of accumulation: The political economy of growth and crisis. Cambridge: Cambridge University Press.

Meeropol, M. (1998): Surrender: How the Clinton Administration Completed The Reagan Revolution. Ann Arbor, MI: University of Michigan Press

Pollin, R. (2005): Contours of Descent: U.S. Economic Fractures and the Landscape of Global Austerity. London and New York: Verso

Triffin, R. (1960): Gold and the Dollar Crisis: The Future of Convertibility. New Haven, CT: Yale University Press

A Brief Sketch of the Classical-Keynesian Perspective

By David Fields

From a Classical-Keynesian perspective (Bortis, 1997, 2003), rates of interest regulate rates of profits (Panico, 1980, 1985), and, thus, real wages are endogenously determined. The presence of financial instruments, which represent titles to future flows of income, makes it so that the actual center of distributive conflict in capitalism lies not in the technical conditions of production, but is rather governed by the real rate of interest, which is a conventionally-determined exogenous variable that reflects the relative powers of finance capitalists vis-à-vis industrial capitalists & labour (Pivetti, 1985, 1991, 2001).

The rate of profit, as a ratio, has a significance, which is independent of any prices, and can well be ‘given’ before the prices are fixed. It is accordingly susceptible of being determined from outside the system of production, in particular by the level of money rates of interest. (Sraffa, 1960: 33)

In this sense, high real rates of interests induce industrial capitalists to prefer short-term speculative financial investment, instead of long-term productive real investment, since access to credit is expensive. Consequentially, industrial capitalists center attention on the pursuit of immediate surplus value realization, via speculation, in order to handle the burden of costly interest payments—the social cost being nominal wage suppression, which, by implication, exhibits an enlargement of the reserve army of labour.

[…] the credit system, which has its focus in the so-called national banks and the big money-lenders and usurers surrounding them, constitutes enormous centralisation, and gives this class of parasites the fabulous power, not only to periodically despoil industrial capitalists, but also to interfere in actual production in a most dangerous manner— and this gang knows nothing about production and has nothing to do with it. (Marx 1894: 544-45)

Along these lines, heterodox growth and distribution models have been put forward (cf. Hein, 2008), highlighting the need for a redistribution of income from finance/industrial capitalists to labour (Lavoie and Seccareccia, 1999) and making unemployment the primary policy target (Smithin, 2004). Underpinning these models are works that incorporate Keynes’ principle of effective demand and Sraffian price theory in a long-period analysis of capital accumulation (Park, n.d.; Cesaratto et al. 2003). These studies pay considerable attention to the extent to which the Hicksian supermultiplier concept effectively explicates the degree to which induced consumption and investment, via the accelerator, determine average levels of total output (Serrano, 1995) and, thus, normal capacity utilization (Amadeo, 1986; Trezzini, 1998), with the richness of a framework inspired by Kaldor and Pasinetti (Docherty, 2012) that meticulously constitutes the palpability of Kalecki’s famous aphorism that ‘capitalists get what they spend…workers spend what they get’.

Originally published in the URPE blog.

References:

Amadeo, Edward J. 1986. “Notes on Capacity Utilisation, Distribution and Accumulation.” Contributions to Political Economy 5(1):83–94.

Bortis, Heinrich. 1997. Institutions, Behaviour and Economic Theory: A Contribution to Classical-Keynesian Political Economy. Cambridge: Cambridge University Press.

Bortis, Heinrich. 2003. “Keynes and the Classics: Notes on the Monetary Theory of Production.” In Modern Theories of Money: The Nature and Role of Money in Capitalist Economies, (eds.) Louis-Philippe Rochon and Sergio Rossi. Cheltenham, UK: Edward Elgar.

Cesaratto, Sergio, Franklin Serrano, and Antonella Stirati. 2003. “Technical Change, Effective Demand and Employment.” Review of Political Economy 15(1):33.

Docherty, Peter. 2012. “Long Period Interest Rate Rules in a Demand-Led Kaldor-Pasinetti-Sraffa-Keynes Growth Model.” Journal of Post Keynesian Economics 34(3):521–46.

Hein, Eckhard. 2008. Money, Distribution Conflict and Capital Accumulation: Contributions to 'Monetary Analysis'. Basingstoke: Palgrave Macmillan.

Kalecki, Michal. 1971. Selected Essays on The Dynamics of the Capitalist Economy 1933-1970. Cambridge: Cambridge University Press

Kaldor, Nicholas. 1955. “Alternative Theories of Distribution.” The Review of Economic Studies 23(2):83–100.

Kaldor, Nicholas. 1966. “Marginal Productivity and the Macro-Economic Theories of Distribution: Comment on Samuelson and Modigliani.” The Review of Economic Studies 33(4):309–19.

Lavoie, Marc, and Seccareccia, Mario. 1999. “Interest Rate—Fair.” In Encyclopedia of Political Economy, vol. 1, (ed.) Phillip Anthony O’Hara. London: Routledge.

Marx, Karl. 1894. Capital Vol. III. New York: International Publishers.

Panico, Carlo. 1980. “Marx’s Analysis of the Relationship between the Rate of Interest and the Rate of Profits.” Cambridge Journal of Economics 4(4):363–78.

Panico, Carlo. 1985. “Market Forces and the Relation between the Rates of Interest and Profits.” Contributions to Political Economy 4(1):37–60.

Park, Man-Seop. n.d. “Towards a ‘Classical-Keynesian’ analysis of Effective Demand in the Long Period.” Retrieved May 8, 2014.

Pasinetti, Luigi L. 1962. “Rate of Profit and Income Distribution in Relation to the Rate of Economic Growth.” The Review of Economic Studies 29(4):267–79.

Pasinetti, Luigi L. 1974. Income Distribution and Growth. Cambridge: Cambridge University Press

Pivetti, Massimo. 1985. “On the Monetary Explanation of Distribution.” Political Economy: Studies in the Suplus Approach 1(2):73–104.

Pivetti, Massimo. 1991. An Essay on Money and Distribution. London: Macmillan.

Pivetti, Massimo. 2001. “Money Endogeneity and Monetary Non-Neutrality: A Sraffian Perspective.” In Credit, Interest Rates and the Open Economy, (eds.) Louis-Philippe Rochon and Matias Vernengo. Cheltenham, U.K: Edward Elgar.

Serrano, Franklin. 1995. “Long Period Effective Demand and the Sraffian Supermultiplier.” Contributions to Political Economy 14(1):67–90.

Smithin, John. 2004. “Interest Rate Operating Procedures and Income Distribution.” In Central Banking and the Modern World, (eds.) Marc Lavoie and Mario Seccareccia. Cheltenham, UK: Edward Elgar.

Sraffa, Piero. 1960. Production of Commodities by Means of Commodities. Cambridge: Cambridge University Press.

Trezzini, Attilio. 1998. “Capacity Utilisation in the Long Run: Some Further Considerations.” Contributions to Political Economy 17(1):53–67.

Tom Palley on Inequality, the financial crisis and stagnation

From the abstract:

This paper examines several mainstream explanations of the financial crisis and stagnation and the role they attribute to income inequality. Those explanations are contrasted with a structural Keynesian explanation. The role of income inequality differs substantially, giving rise to different policy recommendations. That highlights the critical importance of economic theory. Theory shapes the way we understand the world, thereby shaping how we respond to it. The theoretical narrative we adopt therefore implicitly shapes policy. That observation applies forcefully to the issue of income inequality, the financial crisis a nd stagnation, making it critical we get the story right.

Read full paper here.

The student loan crisis

The student loan situation is critical, and the WSJ (subscription required) suggests that there are increasing worries that a large number of borrowers will default. The numbers are indeed concerning with 43% in default already, delinquent or in postponement as shown below.

This has had strange implications. But while I think that the increase in student loan debt is part of the increasing inequality in the country, and one might add, the increasing costs of college education, that forces kids to borrow large amounts for a shot at a better life, it's unlikely that it would lead to a short run crisis, and a recession. In contrast to the sub-prime and mortgage based borrowing, student loans are about the possibility of future income, not short run consumption. So I would not expect a collapse of current consumption, if the default rate increases significantly. And I doubt that there is a large bank, like Lehman, that would go under if a large number of borrowers default (of course I might be wrong on that).

At any rate, that does NOT mean that the problem is minor. Quite the opposite. By reducing the ability of people to spend earlier in life, and delaying other normal commitments like, for example buying a house, the increase in the student debt burden might be drag on long term growth prospects. That's why a bailout of students is necessary, and a permanent solution for the cost of college education is needed.

Economists don't read (enough) books

So Ann Petiffor twitted a link to a post on why economists do not read Polanyi's The Great Transformation (or the other GT; yes the one is Keynes' General Theory) The author, Marko Grdesic, basically suggests that economists do not read books, period.* I would add, let alone Polanyi that was always at the fringes of mainstream economics. He estimates that about 3 percent of economists have read Polanyi. That reminded me of a story that Eichengreen had told me about a course he taught based on reading books, since he thought that graduate students in economics do not read them anymore, and, even worse, do not quite get the point of writing books. He was nice to twit the link to the current version of the course. I taught in Utah a course that was not directly based on books, but instead on what I referred to as unresolved issues in economic history. These are the ones that involve the big questions, the ones economists do not deal with anymore, at least not often (as discussed yesterday). In a way, I think that the inability to read and appreciate books is also connected to the reduced ability to engage in the big questions.

* He points out that: "one economist said, 'I haven’t read Polanyi, nor have I read Smith, Keynes, Hayek, Schumpeter, or Friedman'." Yes, we noticed it.

Year of the Outsider: Why Bernie Sanders’ Democratic Rebellion is so Significant

By Thomas Palley (Guest blogger)

2016 was supposed to have been the year of Jeb Bush versus Hillary Clinton: the year when the established Bush dynasty confronted the upstart rival Clinton Dynasty. But the year of the insider has turned into the year of the outsider. On both sides, voters have unexpectedly given vent to thirty years of accumulated anger with neoliberalism which has downsized their incomes and hopes.

Though the Republican rebellion has been more clear-cut in its dismissal of insider candidates, it is Bernie Sanders’ Democratic rebellion that is of potentially far greater historic significance.

Read rest here.

Big Think and the nature of capitalism

Jack Goody was one of those rare thinkers that tried to think big. Not common in economics anymore, and less clear in other social sciences, as somewhat narrowly defined techniques take over the breadth of historical understanding. I've only read before his The Theft of History, somewhat iconoclastic book in which he debunks the idea that individualism, democracy and freedom were somehow invented by modern Western society.

I started reading now his Metals, Culture and Capitalism. There are already some interesting things associated to his emphasis on iron, rather than precious metals, in the trade interaction between the West and the Rest. Note that this suggests, probably against the grain of Goody's concern, that the metallurgic advantages of the West, played an early role in the so-called Rise of the West.

But what caught my eye is the following quote:

“In this piece I have covered a long period of time and will undoubtedly have got some things wrong, although I hope my references will usually bear me out. On few, perhaps none, of the subjects am I expert, but the expert does not always see the wood for the trees. One reason for my taking a long time-span is that historians have taken a much too restricted view of their subject and this has prevented them from going back to the commonalities which join us both to the Near and the Far East of what is essentially one continent. For this reason I would question the history cultivated in part of that region, in Europe since the eighteenth, but especially the nineteenth and twentieth centuries when the west led the way in many things. They emphasised the development of ‘capitalism’ as a new mode of production in Europe (an idea not limited to Marxism) and have therefore overlooked the commonalities of which I have spoken.”

First of all, there is the admission that to think big it requires to deal in areas that one is not a specialist, and that leads to mistakes. But most of the mistakes are not central to the argument in my view (see for example, the discussion with Brad DeLong related to David Graeber's book on debt; see comments section).

The second and more relevant point is that he seems, as much as Gunder Frank in ReOrient, to suggest that the notion of mode of production is problematic, and that the very idea of capitalism should be questioned. While I find revisionism with regards the timing and the causes of the Rise of the West (including the work of Gunder Frank, but even more Pomeranz and Bin Wong) relevant to understand the limits of conventional views on the subject, both that it happened much recent than normally thought and that demand forces might have played a role, I find the dismissal of the notion of capitalism problematic (I discussed some of that here). In extremely simplified way, one could argue that it's capitalism that is behind the Rise of the West.

On the blogs

How Much Has Global Economic Power Really Shifted? -- C.P. Chandrasekhar and Jayati Ghosh suggest that less than you might think

Prime-Age Workers Re-Enter Labor Market -- Dean Baker on the job numbers

Economic Rationality Explains Everything and Nothing -- Geoffrey Hodgson on rationality and utility maximization

Labor market numbers at the Rick Smith Show

Payroll employment rose by 215,000 in March

That's more or less the same pace of growth as before, and suggests that the slow recovery continues. The unemployment rate ticked up to 5%, since the labor force participation rate increased from previous month. (but still below the pre-recession level, as shown below). So in this case, a slightly higher rate of unemployment is not a bad thing. It means more people are confident they can find jobs.

Notice that manufacturing employment has declined for the third month in row.  This also might add to Yellen's reasons for being dovish, as discussed earlier this week.

PS: Report here.