Saturday, April 25, 2015

Useful and useless commentary

As much as I disagree with LK, he* always has reasons for why he holds the views that he has, and why he disagrees with people. See, e.g. the comments for Marx's project and Measuring socially necessary abstract labor time. We came to an impasse, but we argued our way there.

*Presumably; I don't know LK personally, and he or she has never explicitly indicated his or her gender.

In contrast, this comment is completely useless. The commenter, the-stone-guest, clearly disagrees with me. I don't mind people who disagree; I always think I'm right (if I thought I was wrong, I would change my mind), but I think I can change my views based on evidence and argument. If someone agrees that I can, then I really would like to hear the evidence and arguments why I'm wrong. The cited comment, however, does not do that; it basically consists of "Larry, you're wrong about this idea, you're wrong about that idea, and you don't even understand this other idea." The author does not even explain what the correct idea is. I asked for clarification, but none has yet been forthcoming. Perhaps the author will respond later.

To be honest, I don't understand why the-stone-guest even commented at all. I suppose it made him or her feel better, but it didn't advance my own understanding one iota.

Remember: I already know that people disagree with me (I try not to write about things that everyone already agrees about); knowing that you personally disagree with me does not help me at all. Hardly anyone even reads this blog at all, and no one but me reads the comments, so if you don't want to help me (and are not trying to intimidate* me), why bother commenting on my blog?

*It's very difficult to intimidate me, but an attempt at intimidation is at least a reason I can understand.

Tuesday, April 14, 2015

The ultimate goal

Sports teams do not go "all out" to get around the rules of their particular sports. Individual teams do not try to do anything to win. They do not do so because winning games is not the ultimate goal of any sport. The ultimate goal is putting on an entertaining show, and, in a capitalist economy, (metaphorically) selling as many tickets as possible. Winning a lot of games does not give a particular team more power, even just within the sport: if everyone knew the Yankees would win almost every baseball game they played, no one would watch baseball. Not even the Yankees themselves want to always win; they want to sell tickets just like the next team, so their victory cannot be a foregone conclusion.

In contrast, in a capitalist economy, acquiring money is the ultimate goal, for most people literally a matter of life and death, and even for the richest, a matter of metaphorical life and death. So long as making money is the ultimate goal, individuals and organizations (i.e. businesses) will go "all out" to make money; they will do anything to win, because losing is death.

Thus, one goal of communism is to transform society so that acquiring money is not the ultimate goal. Under communism, the struggle to acquire money is not a matter of literal life and death for workers, and it is not a matter of metaphorical life and death for prominent or privileged members of society.

It is an open question as to whether or not there will even be any prominent or privileged people. It is possible that, even in a democratic society, unusual individuals will rise to positions of prominence and have privilege, i.e. a substantially greater voice in the operation of society than ordinary people. Martin Luther King and Gandhi are examples of prominence and privilege granted to unusual individuals by virtue of their popularity. However, democracy demands that any prominence and privilege is granted by the people, and can be arbitrarily revoked by the people.

In a capitalist society, prominence and privilege by virtue of acquiring money (or money-generating instruments such as stocks and bonds) is not democratic; in a capitalist society, money is property, and cannot be arbitrarily expropriated. Needless to say, to the extent that this private ownership of money confers prominence and privilege, it is inherently anti-democratic. Hence, a society can be considered fully democratic only if it either refuses to consider money as property or refuses to grant prominence and privilege on the basis of money. In other words, a democratic society must be communist.

The big question, though, is how do we optimize the economy without the struggle for money being the ultimate goal? I should note that now that we have achieved heavily specialized and industrialized economies in developed countries, the struggle for money is not optimizing the economy. It is definitely not the case that communism seeks to overthrow an otherwise pragmatically efficient system on the grounds of some abstract notion of justice. Quite the contrary: communism seeks to overthrow a system that, its historical victories notwithstanding, has proven itself in a modern society to be pragmatically inefficient. Indeed, most modern apologists for laissez faire capitalism argue not on a basis of pragmatic efficiency, but on abstract notions of justice, and modern apologists for democratic "socialism" to some degree or another just argue on the basis that There Is No Alternative to a fundamentally capitalist society.

Communism rejects both apologetics. While abstract notions of justice are important, pragmatic efficiency is also important, and provides a stronger argument for communism than only justice. The argument is not that we have to trade prosperity for justice; the argument is that we can have a society that is more efficient and more just.

More on discrimination and freedom of association

I can't come to any other conclusion than that commercial anti-discrimination laws infringe on the freedom of association. But so what? All laws infringe on some freedom. The question is, rather, do commercial anti-discrimination laws unjustly infringe on freedom of association? There are several reasons why they do not.

First, to engage in public commerce, a person necessarily waives some aspects of his or her freedom of association. If you have a business that is open to the public, you are saying that you wish to associate with the public at large. In a similar sense, if I leave my front door open (perhaps to show my house for sale), I am waiving my right to arbitrarily exclude people from entering it. A closed door is the signal that you may not enter without permission. This argument does not, of course, establish that there are no limits on waiving a right (leaving my front door open does not signal permission that people may take all my stuff), but if a person waives even a part of a right, then they have undermined the argument that the right is absolute. Once a person signals that they are intentionally waiving part of a right, it becomes a social construction, not purely an individual construction, as to precisely what parts of a right the person is waiving.

Even under theories of natural law, whenever we have a conflict of rights, then direct utilitarian concerns come to the fore. Since "natural law" is in conflict, we cannot use "natural law" to resolve the conflict. In the case of commercial anti-discrimination laws, we have a lot of evidence going back a century or more that discrimination causes more harm to the excluded than it does benefit to the excluding. This utilitarian conclusion depends on no small part on the truth that commerce, trade, and employment are not individually discretionary activities; instead, they are necessities of life. Permitting individually arbitrary discrimination risks excluding classes of people from the requirements of life, a considerable harm, but affords a benefit that is at best rarefied and abstract. The person denied the right to arbitrarily discriminate does not lose any economic necessity.

Finally, the legal resolution of the conflict between anti-discrimination and freedom of association is participatory, transparent, and deliberative. It is not being imposed by an unaccountable, exogenous source; it is instead being established by a government that is, to some extent, accountable to the people. Even the judiciary makes its decision-making process a matter of public record. The government is not just acting capriciously; there has been a process of public deliberation about how to resolve the conflict of rights.

If you admit to citizenship in a democracy, you (ideally) have the right to participate in the deliberation, but at some point you have to just say, "The people have spoken," and allow the judgement of the masses to override your own personal preferences. If you feel that individual preferences in some area should override the majority, then you can lobby for a constitutional right, and there are several avenues available: amend the US Constitution, amend your state constitution, or persuade the US Supreme Court or the state's constitutional court that your proposed right exists in the existing constitution.

The argument that the people should never override an individual's "conscience" is fundamentally anti-democratic. It affords sovereignty to the individual, not the people. There's nothing wrong a priori with individual sovereignty, but historically, we have abandoned the notion of a sovereign individual so long ago that reestablishing the notion would abandon millennia of political development and return us to... well, I'm not sure, perhaps a hunter-gatherer economy. Again, maybe not a bad idea, if we can keep seven billion people alive in such an economy. However, a return to individual sovereignty is a radical, revolutionary proposal; it therefore fails as an argument against a particular social construction in a democratic republic.

Sunday, April 12, 2015

Discrimination and freedom of association

I'll let y'all check the original post Response to a Distressed Libertarian Reader about Discrimination, my reply, and Andrew's response.

Are we all up to speed now? Because I can't comment there right now (comments may be closed for the post), I'll reply to Andrew here.

I really don't care if someone's conscience is offended by having to serve gay people as part of a public accommodation. Yes, they're freedom of association is being infringed. Tough. Too bad for your freedom of association. The people have decided that if you want to open a business to the public, you have to serve all the public. If your conscience is offended, too bad for you.

Could the government force us to compromise our freedom of association (or any other freedom) in unacceptable ways? In one sense, yes of course: the government has all the guns, and they can use these guns "justly" or "unjustly." In another sense, no: a truly democratic government cannot compromise a freedom in a way that the majority objects to: if they were to try, they would be voted out, and the compromise reversed.

If this is a problem for you, if you believe that your conscience should never be infringed, would you extend the same right to those who believe, in all good conscience, that your stuff belongs to them? That it is an offense against their conscience that you have a nice car and they do not? I doubt it. Andrew just wants the right of conscience to extend only to his own conscience and those he agrees with, and not that of others.

Friday, April 10, 2015

The political psychology of taxation and government spending

There's a curious contradiction (in the dialectical sense) regarding taxation and government spending. On the one hand, Modern Monetary Theory holds, correctly, that the government's spending and taxation are not connected in the same sense that household spending and income are connected. The government can always spend what it wants, regardless of the amount taxed, past, present, and future. There are always physical consequences to an activity, but there are no financial consequences, in the sense that, unlike a household, a government (with a fiat currency) can never run out of money. Indeed, given that the economy is growing (and that a stably growing economy is a Good Thing), the government should always be spending more than it taxes, and there's a lot of evidence that, at least in a capitalist economy (and I suspect also in a socialist/first-stage communist economy), there should almost always be a positive inflation rate, so that real interest rates (nominal rates minus inflation) can be negative when necessary.

What taxation actually does is control inflation: the (or some) people in an economy make a social decision to trade off explicit taxation for the implicit taxation of inflation: inflation, i.e. lowering the real value of money, is in effect the same in the aggregate as just taking money away and burning it, which is essentially what taxation is.

On the other hand, government spending is a demand on the productive capabilities of the people. When the government demands an aircraft carrier, the government must remove the workers who will actually build the aircraft carrier from creating things that that people want to consume directly, and those people still need to consume others' social product: food, clothing, shelter, etc. In this sense, taxation really does, at least to some degree, represent people actually paying for public goods: there is a legitimate conceptual sense in which our taxes not only subtract money to control inflation, but also represent actually paying for government spending. The taxes an individual pays substantively represents the proportion of her labor that goes not to exchanging her effort for her own individual consumption but goes to exchanging her effort for public goods and services.

This contradiction is precisely what Theodor Adorno in The Actuality of Philosophy would call a riddle. It is not an economic question that needs a scientific answer; it is a contradiction, a tension, in meaning that requires a philosophical answer. How can we think about taxation and government spending to resolve this conceptual contradiction? I'm not sure about the answer, but when posed like this, at least the contradiction seems clear.

Monday, April 06, 2015

The organic composition of capital

In Capital, Marx introduces the idea of the organic composition of capital. In the LTV, a capitalist can achieve profit only by expropriating surplus labor from the workers who actually work for him. The labor embodied in machines and raw materials is "dead" labor: the surplus value has already been expropriated by the capitalist who sold him the machines or raw materials. A capitalist has to pay for capital, raw materials and directly employed labor up front*; he realizes a profit only after he has created, marketed, delivered, and sold his commodity. From the capitalists perspective, his rate of return $r={l_s}/{l_p+c}$, where $l_p$ is the cost of labor power, $l_s$ is the surplus value of labor (total labor minus cost of labor power), and $c$ is the constant capital, the cost of raw materials and the amortized cost of capital equipment.

*Wages are usually paid for in arrears, but labor is still usually paid for before the product is sold.

This model leads to two problems, one which Marx addresses and the other a puzzle Marx was not able to solve.

The first problem is why a capitalist would invest in capital: the more value a capitalist invests in capital, the lower her overall rate of return ($c$ is in the denominator, so as $c$ goes up, $r$ goes down). Marx answers this problem in two ways. First, as the value of wage goods falls, $l_p\/l_t$ falls, which means that more surplus labor can be extracted from workers, increasing the rate of profit. Second, Marx invokes competition. The value of a commodity is the socially necessary labor time. If a firm can produce a commodity for less that the socially necessary labor time, it can capture a producer surplus in addition to the surplus value of the labor it employs. (Essentially, the firm is exploiting its customers, getting them to give more embodied labor than they receive.) In the short term, a firm can make more money by investing in capital and become more efficient than its competitors; in the long term, absent monopoly, what one capitalist can figure out another can copy, and efficiency just leads to a lower rate of profit overall. Thus capitalism must constantly innovate to keep going in the short term, but this constant innovation leads to the constantly falling rate of profit.

The second problem is more severe. Firms in an economy create many different commodities. Some of these commodities will use more capital relative to labor, some less: they will have different organic compositions of capital. However, capitalists want to equalize profit. To make the typing simpler, I'll use $w$ to represent labor power ($l_p$) and $s$ to represent surplus labor ($l_s$). We'll keep the corn-corn model from my earlier post.

$v={w+s}/{1-a}$
$p=(1+r){w}/{1-(1+r)a}$

If the labor theory of value holds, we would expect that the values and prices of two commodities with different organic compositions of capital would be in the same proportion: $v_1/v_2=p_1/p_2$. However, unlike the previous model, adding an extra degree of freedom by separating labor into cost of labor power and surplus labor doesn't help us. We see that, holding the quantity of labor and the rate of profit constant, and letting the proportion of constant capital ($a$) vary,

$v_1/v_2=p_1/p_2→{{w+s}/{1-a_1}}/{{w+s}/{1-a_2}}={(1+r){w}/{1-(1+r)a_1}}/{(1+r){w}/{1-(1+r)a_2}}$

therefore,

${1-a_2}/{1-a_1}={1-(1+r)a_2}/{1-(1+r)a_1}$

which can be true if and only if $r=0$. Labor just divides out, no matter how it's expressed.

There are several ways of interpreting this equation. One way, which is not illegitimate, is that the LTV is just internally contradictory. But there are other ways. The LTV is, like most traditional economic theories, an equilibrium model; it does not talk about how or why an economy might not be in equilibrium, or how it achieves equilibrium. Thus we might conclude that in equilibrium all firms must have the same organic composition of capital; alternatively, we might conclude that in equilibrium the rate of profit is zero.

Another way of looking at this equation is that differences in the organic composition of capital is a source of fundamental instability in a capitalist economy. (A growing economy, protestations of traditional economists notwithstanding, is not in equilibrium.) It does not have an economic solution; instead, it requires an exogenous political solution: to stabilize the economy, capitalists can redistribute profits among themselves to equalize the rate of profit. It's not common, bu capitalists can work together, especially when their main tool, control of capital, cannot be used to gain short-term advantage.

Wednesday, April 01, 2015

Modeling the labor theory of value

In The Demise of Marx’s Labour Theory of Value and the ‘New Interpretation’ [pdf] Ernesto Screpanti uses a simple one-commodity model to show the theoretical incoherence in the Labor Theory of Value (LTV). (I don't think the model Screpanti's own invention; I've seen the model, and variants of it, for many years.) You can look at the article for the details of the model and the definitions.

The model states that value (exchange-value) is equal to the labor used in current production, plus a fraction $0<a<1$ of value from previous production. Price is equal to the cost of labor plus a fraction of the price of previous production, with the latter receiving a return on investment, $0<r<1$.

(1)$v=l+av$
(2)$p=l+(1+r)ap$
therefore
(3)$v=l/{1-a}$
(4)$p=l/{1-(1+r)a}$

A little algebra shows that value = price if and only if the rate of return on capital is zero.

There are some problems with this model, and not because it's simplified. First of all, it assumes that value and price are constant over time, i.e. that production is not growing. Otherwise, we would have to say $v_n=l+av_{n-1}$ and $p_n=l+(1-r)ap_{n-1}$, and have to worry about changing values over time. If production is not growing, then it is perhaps legitimate to say that the rate of profit really must be zero. However, this objection doesn't matter, because it is not a model of Marx's LTV. Absolutely central to Marx's theory is that capitalists do not pay workers for all their labor; capitalists only pay the cost of labor power, the amount of Socially Necessary Abstract Labor Time (SNLT) to produce the goods the workers must consume to continue working and reproduce the working class. Thus, a more accurate model is that value represents the total labor, whereas price represents the cost of labor power plus the cost of capital. Furthermore, capitalists want a return on their total investment, which includes both capital used and advance wages. Therefore, a more accurate model would be:

(1)$v=l_p+l_s+av$
(2)$p=(1+r)(l_p+ap)$
therefore
(3)$v={l_p+l_s}/{1-a}$
(4)$p=l_p/{1/{1-r}-a$

with $l_p$ the cost of labor power (in SNLT) and $l_s$ being the surplus labor. Therefore total labor $l_t=l_p+l_s$, and the rate of exploitation $l_e=l_s/l_t$

Because we're introducing the extra term, we can set value = price and just get a relation between the rate of exploitation and the rate of profit.

$l_e=l_s/{l_p+l_s}=1-{1/{1+r}-a}/{1-a}=r/{(1+r)(1-a)}$
$r=1/{1-(1-a)l_e}-1$

Both of these equations are well-behaved in the relevant ranges ($0<l_e,a<1;r>0$). They also show that holding the exploitation rate constant, as capital requirements increase (as $a$ gets larger), the rate of profit must decrease.

Tuesday, March 31, 2015

The labor theory of value as philosophy

The Labor Theory of Value is not itself a scientific theory. It is, instead, a "philosophical" or "historical" theory about more-or-less scientific theories of political economy. The LTV does not by itself predict the world; it is, instead, a way of making our economic predictions intelligible and meaningful. It asks the question, what do we mean when we're talking about economics? What is a "price"? What is "money"?

The LTV is not an "unscientific" theory: it does not (like many theologies) make covert scientific predictions that the real world does not bear out. It is, instead, a "metaphysical" theory, but only in Popper's sense; there's nothing transcendental or mystical about the LTV. It's about that most ordinary and material activity: real material human beings doing real material work producing real material goods and services. Indeed, the LTV denies transcendent or immaterial elements in economics.

The LTV starts from the premise that the only thing human beings have that we can trade is our labor. Our labor is (collectively and individually) the only thing that's ours. We must, of course, work upon nature; without a natural world, our labor would have nothing to work on, but nature itself is not ours; only our own labor is truly ours. Even Locke agrees: what fixes a part of nature as someone's property is precisely her labor operating on that part of nature, and she may expropriate a part of nature only so long as there is enough of nature sufficient so that others can expropriate their own part of nature. If nature is freely available, one cannot trade it, just as no one can trade air; all we have left to trade is our own labor.

The only free trade is a trade of equivalent exchange-values: one unit of labor embodied in a commodity for one unit of labor embodied in another commodity. The entire reason that trade actually does occur is because of the division of labor, the use-values of the two commodities are asymmetric: first, my commodity is of more use to you than to me, and your commodity is of more use to me than to you; second, my commodity is of more use to you than your own commodity, and your commodity is of more use to me than my own commodity. The asymmetry of use-values makes trade possible; the equivalence of exchange-values is what makes trade fair.

Marx did not invent this idea. Adam Smith and David Ricardo invented the LTV, and in Capital, Marx credits Benjamin Franklin with the idea that all we can do is trade our own labor. Marx's innovation is the distinction between labor power and actual labor: the ability to work for a period (i.e. a day), and the amount of work that can be actually done in a day. Labor power is (under capitalism) a commodity: it has an exchange-value, the Socially Necessary Abstract Labor Time (SNLT) required to create a working day, and a use-value, the total amount of Abstract Labor Time (LT) actually created. Marx labels the difference between the cost (in SNLT) of labor power and the amount of labor expended as "profit".

There are several objections to the LTV, most of which Marx addresses in Capital.

The first objection is that that if two people (or firms) create a commodity, and the first person expends half as much labor (in total, including labor used to produce raw materials, intermediate goods, amortized capital and administration) than the second, then the second person's commodity is absurdly worth twice as much as the first person's. To overcome this objection, Marx introduces the modifier, "socially necessary." If for example, in the material social and technological context of a society, the demand for coats can be satisfied by people working at most two hours per coat, then the exchange-value of a coat is two hours. If your firm takes four hours to make a coat, well, too bad for you. There are enough coats being produced using two hours of labor per coat that no one is forced by the scarcity of coats to pay you four hours. If, on the other hand, your firm can create a coat in only one hour, well, good for you. Because there are not enough coats that can be produced using only one hour of labor, people are forced to pay two hours of labor for a coat. Your firm will make an "economic profit" of an hour of labor per coat. (The capitalist who can capture such an economic profit is thus exploiting not only his workers, but his customers as well.) Economic profit is different from profit; even a producer who requires two hours of labor per coat, and exchanges them for two hours, will make a profit, because she will pay her own workers only for the cost of their labor power, which will be less than the total amount of labor they actually expend making coats.

The second objection is that actual labor (like use-value, as Marx argues elsewhere in Capital) is radically heterogeneous. The actual tasks performed by one individual laborer making one commodity are qualitatively different from those performed by another laborer making another commodity. Marx admits this, but what is still equivalent is the time a laborer expends, abstracted from the specific tasks he performs. (Of course, the worker still has to actually perform those tasks, and perform them efficiently, but the specific nature of the tasks does not enter into exchange value).

Related to the second objection that even labor abstracted from the heterogeneity of specific tasks is still heterogeneous. People differ in relative skill, talent, the intensity of their labor, etc., again, even abstracted from the specific tasks. Marx himself mostly handwaves this objection away, talking about averages and aggregates. However, this objection does not seem that important. First, Adam Smith argues that there is actually little difference in inherent ability; the difference between a philosopher and a laborer arises because of education and social situation, not inherent ability. Second, what matters is the socially necessary (marginal) labor time. If the "last" person hired to make a commodity were an inefficient slacker who takes twice as much time to produce the commodity as his most efficient co-worker, well, then that sets the socially necessary labor time. If the firm could hire someone more efficient, they would do so; if they could not sell the commodity for the price implied by the slacker's time, they would not hire him. Even if there really are innate differences in ability, we're still interested only in ability at the margin, which is measurable.

A third objection is that firms do not actually account for labor and labor power in the way corresponding to the LTV. Marx argues that this discrepancy is by design. If our accounting were honest, then no one would stand for capitalist exploitation; instead, the exploitation has to be carefully hidden for a capitalist society to work at all. Marx argues that this obfuscation is discernable: he argues that we (absurdly) think we have a social relationship with objects, when in reality producers of different commodities have a social relationship with each other.

There are other, deeper objections to the Labor Theory of Value, which I will (might) discuss in a further post,

Monday, March 30, 2015

This video will make you angry

The puzzle of political debate

The puzzle of political debate:
[P]olitical communication is almost exclusively conducted by means of purported debate among people with different views, yet citizens seem increasingly unable to grasp of the perspectives of those with whom they politically disagree. . . .

As the social and political world gets smaller, it also grows more obviously complex, complicated, and confusing. . . . Thus a premium is placed on epistemological stability, consonance, clarity, and ease. This is why it's easy for our political rhetoric to look so tribal in the first place. . . . [Proponents] must portray their perspective as superior without actually engaging with any actual opposing views. . . . [T]he central aim of mimicked debate is not that of making a direct case for one's favored view, but rather that of making the opposing views look unintelligible and incompetent rather than merely mistaken.

This comes up in economics too, which is unsurprising, because (with apologies to von Clausewitz) economics is just politics by other means.

As an economics student, I'm very comfortable working with different models — marginalist, Keynesian/Hicksian, (neo-)classical, and a little DSGE — all with different assumptions, depending on what I want to talk about. I really don't care what models are "true"; I care about whether they're useful. So, in doing one sort of analysis, I'll count capital in money, set the marginal product of labor and capital equal across two sectors, and see what happens. So, on the one hand, I don't have a lot of respect for advocates who say this or that model is really true, but on the other hand, critics who condemn a model because it's not really really true irritate me as well. All I ask of a model is: does it help me understand what's going on in the world? Can I get a reasonable sense of the limits of the model, i.e. when it does and doesn't work?

YMMV. Please don't waste our time complaining that you do want to know what's really really true. That's fine. Go figure out what's true and come back to me with an answer, or at least an argument. I do care about what's true; it's just that I'm too dumb, and economics is, at least presently, too complicated, to figure out myself what's really true.

So... is the LTV true? Really true? Really really true? Maybe, maybe not. That's not why I use it. I sometimes use the LTV because it's mostly correct, not blatantly wrong, and it tells a certain story about what exploitation actually is and why and how it happens, a story I find compelling and informative. That's about it. Unlike most economists and economics students, my project is not to give policy advice to agents — banks, corporations, governments — in the republican-capitalist-imperialist world system. (Any, unlike some economists, my project is definitely not morally justifying the the republican-capitalist-imperialist world system.) Of course, I'm in an economics program in the republican-capitalist-imperialist world system, so I have to learn the tools and techniques to give policy advice. C'est la vie. It's good to know, and I can do it, but it's not at the heart of my project. Again, if your project is to advise or justify the existing world system, good for you. Go do it. If it's of tremendous importance that I share your views, however, you will be disappointed.