Saturday, 11 February 2017

Is Economics a Science?

MACH AND ROBBINS

How can a Wittgensteinian language-game be fitted to human reality? Conversely put, how can human reality be made to fit into a Procrustean language-game such as "economic science"? The idealist "separation" (Plato's chorismos denounced by Nicholas of Cusa) of Subject and Object - starting from Berkeley through to Mach and then the Wittgenstein of the Tractatus - is the fateful precursor of Neoclassical Economics. The genealogy of this forma mentis is illustrated in and exemplified by Lionel Robbins's epistemological mise en scene of economics as "the science of choice". Yet far from being scientific, the Robbinsian definition of the economic problem rapidly degenerates into logical formalism, into yet another language-game far removed from the reality of human pro-duction. Any economics worthy of the name must become a "critique of political economy", that is to say, it must acknowledge its political essence, and then seek to overcome the real antagonism of its object of study - the capitalist economy and the society of capital. Cheers.




Even the wildest dream is a fact as much as

any other. If our dreams were more regular, more connected,

more stable, they would also have more practical

importance for us. In our waking hours the relations of

the elements to one another are immensely amplified in

comparison with what they were in our dreams. (p.11)

The ego is not

sharply marked off, its limits are very indefinite and

arbitrarily displaceable. Only by failing to observe this

fact, and by unconsciously narrowing those limits, while

at the same time we enlarge them, arise, in the conflict

of points of view, the metaphysical difficulties met with

in this connexion. (p.13) (Mach, “Antimetaphysik” in The Analysis of Sensations)



Mach’s theory of sensations is pure Schopenhauer. It contains therefore an implicit and stinging critique of Kantian metaphysics. To be sure, already the Kantian “thing in itself” had removed the relation between Subject and Object to one of mere “transcendence”, to the realm of “idealism” – however “critical” Kant intended these to be. And yet Kant’s notion of “intuition”, although it made human objective reality “unknowable”, still retained that indissoluble material link between human thought and “its” object – between fact and concept, between Object and Subject. The Kantian universe is still Galileo-Newtonian in the sense that it is something that can be com-prehended and en-compassed by human beings through the faculty of Reason by means of which the universe acquires an “order” and a “reason” that can be “uni-versally” recognized by all human beings – that can lead to a convergence or con-sensus over ultimate human goals and values. It is not that dreams are neglected because they have less “practical importance to us as scientists!” than waking reality: rather, it is because they have less importance “for the business of scientists!” The con-nection – empirical! – between the rise of capitalism and that of science is undeniable.



For us, therefore, the world does not consist of

mysterious entities, which by their interaction with

another, equally mysterious entity, the ego, produce

sensations, which alone are accessible. For us, colors,

sounds, spaces, times, . . are provisionally the ultimate

30 THE ANALYSIS OF SENSATIONS

Elements [sensations], whose given connexion it is our business to

investigate. 1



Such empirical formalism simply obliterates the role of human goals in the pursuit of science, the search for a shared reality of human values. With Mach and then Wittgenstein, Kantian rationalism gives way to pure empiricist positivism. There is no “substance” behind concepts; there are no “things” behind facts; there is no “reality” behind sensations. The task of science is merely to con-nect these sensations or facts by means of hypotheses whose guiding principle must be that of “economy”.



But anyone who takes his stand as I

do on the economic function of science, according to which nothing is

important except what can be observed or is a datum for us, and

everything hypothetical, metaphysical and superfluous, is to be

eliminated, must reach the same conclusion. (fn1 at pp.27-8)



But what is a “datum”? Mach is deceived by the “given-ness” of facts as data, which are not “given” at all but “found” in the sense of “searched for” by the scientist, in-vestigated like “vestigia” (tracks), hunted for. The tragedy of positivism is to forget the “activity” (auctor, auctoritas), the exercise of decision and power behind the data or facts (from facere, human action) that are “found” or ascertained. Certainly, anything “superfluous” can be neglected – because it is “superfluous”. But what is superfluous relates to a particular line of research – and then we must ask, “Who decides what to research?” Similarly, the hypothetical cannot be abandoned – because all science starts with “hypotheses”. And the drives, the human needs that lead to hypotheses can reflect meta-physical goals. What, then, can be “the economic function of science”?



Robbins:



But when time and the means for achieving ends

are limited and capable of alternative application,

then behaviour necessarily assumes the form of choice.

Every act which involves time and scarce means for

the achievement of one end involves the relinquishment

of their use for the achievement of another. It

14 SIGNIFICANCE OF ECONOMIC SCIENCE OH.

has an economic aspect.1



But economic science cannot prescribe what particular choice an individual must make “scientifically” for it to be “economic”, because from an individual’s point of view the “choice” cannot be dictated by considerations other than the “choice” itself. Given a “choice”, its implementation is a matter for engineering, not for “economics”. Clearly then, economics intervenes only when individual choices are in conflict (scarcity) with the choices of other individuals (Hayek on Walrasian equilibrium). There must be the possibility of “exchange” of “goods”. But this presumes the prior existence of “goods” as individual pro-ducts – hence, the division of social labour into “individual labours” – and then the prior existence of property rights.



There is a tautology of choice here in that choice is reduced to science, and an oxymoron in the sense that “choice” cannot be scientific if “science” is “objective”, that is to say, independent of “choice”. This applies to societies as well – because it is impossible to determine what the “scientific” way of maximizing choices is without first knowing what these “choices” have “in common” – their “interest”, perhaps a “market mechanism” to reach “equilibrium” (Hobbes’s paradox – how can self-interested individuals agree to form a society or set up a market?)



Choice necessarily involves “scarcity” – that is why a “choice” must be made. But this “choice” is not “economic” because there are no parameters by which the “choice” can be graded apart from, outside of, the “choice” itself! If I specify what my parameters for my “choice” are…. then I do not have a “choice”! My choice becomes a mere “calculus”. Both logic and mathematics are just calculi that do not involve “choice”. Choice is ineluctably “political”, it involves many “individuals”. But then economics must become “political economy” and can never be a “science of choice”.



Economics is the science which studies human behaviour

as a relationship between ends and scarce

means which have alternative uses.1

1 Cp. Menger, Orundsätze der Vólkswirtschaftslehre, lte aufl·, pp. 51-70;

Mises, Die Gemeinwirtschaft, pp. 98 seq.; Fetter, Economic Principles, ch. i.;

Strigl, Die ò'lconomischen Katagorien und die Organisation der Wirtschaft,

passim; Mayer, op. cit. (Robbins, p.15)



By rejecting the “classificatory” definition of economics, which refers to “material welfare”, Robbins espouses the “analytical” formalism of Mach and Wittgenstein (p.16). But by so doing he completely dis-embodies economics, divorcing it even from its most fundamental political element – one that even Menger could not ignore: - the exchange of goods (p.16-7).

One may realise completely the implications

for oneself of a decision to spend money in this way

rather than in that way. But it is not so easy to trace

the effects of this decision on the whole complex

of "scarcity relationships"—on wages, on profits, on

prices, on rates of capitalisation, and the organisation

of production. On the contrary, the utmost effort of

abstract thought is required to devise generalisations

which enable us to grasp them. For this reason

economic analysis has most utility in the exchange

economy. It is unnecessary in the isolated economy.

It is debarred from any but the simplest generalisations

by the very raison d'etre of a communist society. (Robbins cites Mises’s Gemeinwirtschaft, p.18)



[I]t is clear that the phenomena

of the exchange economy itself can only be explained

by going behind such relationships and invoking the

operation of those laws of choice which are best seen

when contemplating the behaviour of the isolated

individual.2(p19)



For it is not

the materiality of even material means of gratification

which gives them their status as economic goods;

it is their relation to valuations. It is their form

rather than their substance which is significant. The

"Materialist" conception of economics therefore misrepresents

the science as we know it. (p.20)



Economics is not concerned at

all with any ends as such. It is concerned with ends

in so far as they affect the disposition of means. It

takes the ends as given in scales of relative valuation,

and enquires what consequences follow in regard to

certain aspects of behaviour. (P.29)



It is obvious that this ends-means definition of economics can stand its ground if it breaches the condition of universality that Robbins seeks to ascribe to it: if it is empirically and positivistically confined to the effects of human behavior under specific conditions of exchange – but not to the totality of exchanges - then economics becomes pure engineering or “technique” as Robbins calls it in this chapter on “Ends and Means”. But if it seeks to extend to all combinations of ends and means, then it is clear that “economic science” must also be able to prescribe the ends that are “economic” or “affordable” – which contradicts his categorical exclusion of “ends” from economic analysis earlier in the chapter: Robbins is then forced to amend his definition to include not just the choice of scarce means with regard to known or given ends, but rather also the choice of combinations of all ends and means:



[Th]e problem

of technique arises when there is one end and a

multiplicity of means, the problem of economy when

both the ends and the means are multiple.1(p.31)



In fact, the problem arises when the ends are “given”, not when there is only one end! If the ends being pursued by agents are known or “given” (as in Walrasian equilibrium where utility schedules are common knowledge), then the economic problem does not exist and the “solution” is pure engineering – “technical”. But where the ends are not discernible, then the problem becomes at once political and economic – it becomes political economy, never “economic science”!



Robbins is confusing a technical problem – the choice of appropriate means to given ends - with the essentially political nature of “economics”: the social relations behind capitalist production. This is why, from the piecemeal viewpoint of exchange transactions only, where it remains a “technical” tool, his definition of economic science misses out on the essential political characteristic of capitalism – the accumulation of social power as value, as command over living labour by means of its “exchange” with dead labour. It is the impossibility of this “exchange” that inspired Marx’s critique. Thus, “value” in economics – what lies behind market “prices” and is embodied in “money” – is an entity that cannot have a “scientific” or technical meaning, but one that is intrinsically political. His failure to understand this vital point is why Robbins entirely misunderstands the function of money, leaving out entirely its role as a “store of value” in a capitalist economy:



Money-making in the normal sense of the term is

merely the intermediate stage between a sale and a

purchase. The procuring of a flow of money from the

sale of one's services or the hiring out of one's property

is not an end per se. The money is clearly a means to

ultimate purchase. It is sought, not for itself, but for

the things on which it may be spent—whether these

be the constituents of real income now or of real

income in the future. Money-making in this sense

means securing the means for the achievement of all

those ends which are capable of achievement by the

aid of purchasable commodities. Money as such is

obviously merely a means—a medium of exchange,

an instrument of calculation. For society, from the

static point of view, the presence of more or less money

is irrelevant. For the individual it is relevant only

in so far as it serves his ultimate objectives. Only the

miser, the psychological monstrosity, desires an infinite

accumulation of money. (P.30)




Money is much more than just a means of exchange and a unit of account – “a means of calculation” as Robbins clumsily puts it. Money is above all a store of value: it is the necessary expression of political relations pertaining to the exchange of living with dead labour (pro-ducts or goods or commodities). And the aim of capitalism is precisely “the infinite accumulation of money” as the embodiment of political power through the “exchange” of dead labour with dead labour! The miser Robbins has in mind – “the psychological monstrosity” – intends precisely to reach the Nirvana that is “the satisfaction of all needs” through the renunciation (Schopenhauer’s Entsagung) of present consumption! This is the crucial point behind the theory of capital in both Menger and then Bohm-Bawerk.

Friday, 20 January 2017

Postcard From Salzburg - The Austrian School and the Capitalist Subversion of Labour


Inter-est versus Interest

Ora et labora” – pray and work. Hegel translated this early Benedictine injunction as “pray and imprecate” because under certain historical social conditions work and labour are equal to a curse, to toil, thus inducing our imprecations and profanities. But labour as toil is not a fate. In the worldview of Classical Political Economy, labour is not only the essential expression of human living activity, of creativity and fulfilment: labour is also the source of all produced wealth, and therefore of economic exchange value. Even for the Protestant Work Ethic, although labour is still the divine punishment for the original sin and the expulsion of Adam and Eve from the Garden of Eden, labour is the source of all wealth and the road to salvation. Hegel’s philosophy, and Marx’s critique of it, are in one sense the apotheosis of the Christian-bourgeois exaltation of “labour”. (On the concept of “Christian-bourgeois society”, see K. Lowith, From Hegel to Nietzsche.)
It is with Schopenhauer that the Central European bourgeoisie begins to demolish this late-mediaeval and early-bourgeois glorification of labour as a relic of European aristocratic Absolutism. Schopenhauer is the true riposte of the new European industrial bourgeoisie to the traditions of mediaeval Catholicism. Ricardo and Marx could still be seen as the last of the Schoolmen (cf. R.H. Tawney, Religion and the Rise of Capitalism). But it is Schopenhauer who heralds the rise of Neoclassical economic theory, especially with the more explicitly philosophical elaborations of economic theory in Karl Menger and the Austrian School.


The original sin of bourgeois politico-economic ideology is already contained in its founding document – in its “Bible”, as it were – that is, in Adam Smith’s Wealth of Nations. Smith’s proton pseudon (first mistake) comes as early as Chapter Two of that work dedicated to “The Division of Labor”. For here Smith fails to perceive that there is no “division of labor”, as if “labor” existed independently of human co-existence, but rather there is a “division of social labor”, because all “labor” must necessarily entail the existence of human interdependence. Smith’s appalling fallacy in that chapter is to attribute the “division of labor” to the “natural tendency” of human beings “to truck, barter and exchange”. In reality, instead, it is the institution of market exchange that is made possible by the division of social labor together with the institution of private property. What is “natural” – indeed utterly essential for human being – is the total dependence of individual human beings on social labor. Exchange arises only once private property is added epiphenomenally and arbitrarily on the division of social labor. Thus, whereas social labor is the ineluctable aspect of human being, Smith surreptitiously and mistakenly assumes that human beings can exist and produce in isolation or independently of one another! Smith is still the economic equivalent of Kant’s philosophy of the Enlightenment (cf. the latter’s “What Is Enlightenment?”), whereas Ricardo and Marx develop a theory of value strictly aligned with Hegel’s Phenomenology of Spirit. (On this complex theoretical link see M. Tronti, Operai e Capitale, section on “Ricardo e Hegel”.)

(To clarify, Adam Smith treats “labour” as a commodity whose price is determined by “the market”, and then contradicts himself by arguing that “labour” is the source of value and the determinant of market prices. Here value and labour remain in an antinomical relation of passivity and activity, respectively, as in Kant’s critical idealist opposition of Reason and Object [see G. Lukacs on “The Antinomies of Bourgeois Thought”]. Ricardo, instead, sees that “labour” cannot be a commodity like all others, and thereby overcomes the opposition of value and labour. But then, like Hegel, he is unable to distinguish between concrete labour as the basis of all human expression and communion and abstract labour as the specific historical expression of capitalist command over human living activity, and therefore as the source of “market” value and indeed of “surplus value”. Hegel and Ricardo do not see that “concrete labour” is the use value upon which the capitalist constructs the exploitative institution of quantifiable “abstract labour” and therefore of all exchange values.)

Adam Smith’s fallacious conception of “labor” as individual exertion rather than as social construction of reality, as the necessary extrinsication of human being, and his replacement of it with a mistaken notion of social labor – what he calls “specialization” - as a by-product of exchange between isolated individuals with private property rights over the products to be exchanged – this “original sin” of Smith’s politico-economic theory opened the door to Neoclassical economic theory. In the Neoclassical vision of economic theory, capital replaces labor as the source of human wealth: capital is seen as merely a “technical-neutral” instrument of production which allows human beings to provide for their “infinite wants” through their labor. Human beings therefore do not “create” wealth through their labor: labor is not and cannot be “the source and substance of wealth” as it was for Classical Political Economy. Wealth is not a human construct, a common pursuit or “inter-est” (from the Latin, inter homines esse, to be common to humans). Rather, wealth is seen only as a “satis-faction” or satiation of “indefinite wants” – that is to say, of wants that are simply inexhaustible and unfulfillable – and therefore as the unavoidable product of inevitable conflict between human beings. Consequently, for Neoclassical economic theory, wealth is not a common human goal or inter-est, but rather always as a subjective notion defined by an individual’s ability to exclude others from its enjoyment!

In the economical world man finds himself a being of infinite want, confronted with a universe full of potential wealth but with no tools except hands and brains to give him possession of it. Incapable of creating anything, he yet finds himself endowed with a power of moving things, which, as he masters the secrets of nature's working, gradually enables him to imprison, impress, or suspend the action of her powers, and so make her his servant In various concrete ways he adapts or rearranges nature—never, of course, changing her laws or acting contrary to them, but varying the causal connection of natural processes in such a way that, to a large extent, he remakes the natural world to suit his purposes. Thus, between man and his natural environment there gradually grows up a third term, a machinery for the fuller satisfaction of man's life, and to this, in general terms, we give the name Capital.

Far from the Classical view of wealth as a common human pursuit created by humans through their labor, in this Neoclassical vision of economics, human beings do not transform nature so as to humanize their world: No. Quite to the contrary, individual human beings are unfillable and non-communicating wells of “wants” or avidity that can only be limited or constrained by the equally “infinite wants” of other human beings. In the Neoclassical vision, the instrument of production is not a necessary tool employed by humans, indistinguishable from and truly an extension of their bodies (cf. Hannah Arendt, The Human Condition) to fulfil their constructive common social needs and projects. Instead, tools as capital are seen as an extraneous possession, a “third term” intervening between nature and labor, and that is the fruit of the renunciation by some humans of instant gratification so that other, less ascetic humans can gratify their wants instantly. Capital is, as it were, the by-product of this struggle between the “infinite wants” of selfish human beings and “nature”, so that in the end those who can master their wants and delay their satisfaction earn the benefit or “interest” from their renunciation of immediate gratification at the expense of the “future” gratification of those who find this immediate gratification irresistible – the workers.

In the Classical version, of course, capital is not an instrument at all because the tools of production are an ineluctable “means” in the process of production – not a “third term”!! There is no “natural” antagonism between “infinite want” on the part of selfish human beings and “provision” on the part of “nature”! If anything, in the Classical version of economic theory, human beings co-operate with “nature” through the division of social labour. This inseparable link between labor and tools is disturbed and upset by capital, which, far from being “an instrument of production”, is viewed by Classical Political Economy as a social relation whereby the capitalists extract “surplus value” from the labor of workers precisely by separating workers violently from their means of production. Capital is therefore a “detraction” or “subtraction” from the wealth that ought to belong to workers because all value is “created” through the labor of workers. In this view, capital is not a “tool” that intervenes between labor and nature: it is instead a social relation of production that violates the intrinsic connection between labor and instrument.

Where the Neoclassics see value as a “natural” struggle between equal and self-interested individuals, the Classics see value instead as a product of political violence by one class against another over the distribution of the fruits of social labour, - not, again, as the inevitable by-product of human competition with nature and with one another! The Neoclassics see value as inevitable: the Classics see value as an accident of history. Right throughout, therefore, the bourgeois Neoclassical theory sees human beings in a deadly combat against “nature”, where “nature” includes other selfish individuals. The result of this infinite struggle between selfish individuals is the assignment of “price or exchange value” to present goods in relation to their future discounted utility.

Thus value has no absolute level; it is neither intrinsic nor relative to any personal or material average: it is always found in the relation of these two determinants of Want and Provision. Price, or Exchange Value, again, is a superstructure on this subjective value, determined by the competition of buyers and sellers with each other and among themselves.

Value and Interest

Uber Wert, Kapital und Rente…. brought time, in some aspects at least, into the previously timeless theory of value and income distribution. When Wicksell began to work on the explanation of what determines the general level of money prices and of how the changes of this level come about, he did not turn his back on the theory of the ‘real’ economic forces and start afresh, but on the contrary the theory of the ‘real’ interest rate, which he had developed in Uber Wert, Kapital und Rente on Bohm-Bawerkian foundations, became a central and essential element. (Schackle, Foreword to K. Wicksell, Value, Capital and Rent, p.7).

But what is “interest”? How is it possible? Interest is the rate of increase of capital over a determinate period of time. Because capital “yields” interest, it is empirically evident that capital is the true source of value – market value – because it introduces a temporal component to the calculation of value. The very notion of “capital” implies that human productive activity can and indeed must (!) give rise to the phenomenon of “interest” – that is to say, to the otherwise inexplicable periodic increase of the value of capital. If all market exchanges took place simultaneously, without a temporal component, the value of goods exchanged would never change and all exchange would cease together with the market. It is capital that allows the projection of market exchange into the future by making “interest” possible.

The most obvious fact here is that the payment of interest has some very definite connection with the time when payment is made. This suggests the general question: What is the place and influence of time on the value of goods. And the answer is: It is an empirical fact of undoubted universality that present goods are valued more highly than future goods of like kind and amount. (Transltr’s Preface to K. Wicksell, Interest and Prices.)
By contrast, labour, far from having utility, has dis-utility because its only aim is the immediate gratification of infinite wants. Here, then, is the Arbeit (labour) conceptualized by Schopenhauer: the telos of labour is purely negative; labor does not create wealth, it merely transforms nature to maintain itself in existence: labor is mere survival, sheer struggle for present immediate consumption. For Neoclassical economic theory, the real source of value, and therefore of wealth, is the renunciation of labor, and therefore of immediate consumption, on the part of the capitalist who transforms immediate consumption into “capital” or tools that make “future consumption” less labour-intensive, and therefore makes labour more “productive”.

If, then, interest is so purely a natural phenomenon, why has it met with so much covert dislike, and so much scientific opposition? There are at least three reasons. First, the element on which all interest is based, namely time, has come to be a peculiarly important
xviii TRANSLA TOR'S PREFACE

factor in modern production. All things come to him who waits, and, in economic life, this describes the capitalist. But this fact involves that the labouring classes who cannot wait, and cannot compete with the productiveness of lengthy processes, are put in a position of peculiar dependence: hence the possibility of exploitation of wage, of usurious rates of interest, of unjust rents. Second, from a moral point of view, there is much that is objectionable in the fact that interest allows certain classes to live without working and to make this possibility hereditary in their families. Third, in this income there is no ratio between gain and desert. Those who have little must accept Savings Bank interest for their hard-earned shillings; those who have much have all the chances of bonds, mortgages, joint-stock investments and the like. All the same, so long as men do put a different valuation on present and future goods, interest cannot be prevented. Even a Socialist state could not prevent it: if by forcible means it were stopped between individuals, it would still obtain between commune and labourer. The state in this case would replace the capitalist, and " exploit" the worker in the same way— although, it may be hoped, with a clearer view to the wellbeing of the exploited—but no organisation could make interest into wage.

Friday, 9 December 2016

Postcard From Prague - Capitalism as Kafkaesque Nightmare

POSTCARD FROM PRAGUE

No-one has ever truly understood Franz Kafka until he or she understands Wittgenstein’s enucleation of his maxim: “The law always catches the criminal”. Because if the law “always” catches the criminal, then it is no longer “the law” but becomes instead an inexorable fate. The aim of bourgeois economics is, as it were, to square the circle, to present a specific historical reality – that of the capitalist “market” where human beings alienate their living activity – as an inexorable fate. By reducing this “political” reality to an inexorable fate, bourgeois economics is then able to turn social relations of production into inescapable mathematical formulae and equations that yield “economic equilibrium”. But the very “success” of this operation – the “ful-filment” of its conditions, their “satis-faction” or “com-pletion” – leads to the con-clusion (German, Voll-endung, full-ending) and de-pletion of their con-tent: in other words, the algebraic formulae of bourgeois economic equilibrium, just like the law in Kafka, lose all meaning and content of their categories at the precise instant that they seem to capture it.

This is how capitalism has turned from a specific oppressive historical institution into a Kafkaesque nightmare of ecological suicide for the human race. Even the Classical economists limited the extent of capitalist production and profitability to the exertion of “labour” – in the sense that Classical Political Economy (Adam Smit, David Ricardo and J.S. Mill) could envision the limit of capitalist accumulation as the political choice made by workers to exert their “labour”. Such was the “positive” metaphysical slant of the Labour Theory of Value that Karl Marx himself (!!) in the entirety of his theoretical work could never envisage the eventual destruction on the part of capitalism of the entire ecosphere through sheer human overpopulation!

The Classical Political Economists could see that “goods” in vast abundance – such as water and air – did not and could not carry any “value” – and therefore could not form the basis of capitalist profitability. In its “constructivist” and “objectivist” slant (the labour theory of value poses value as a positive objective quantity), this theory could not lead to the “negative” subjectivist inversion of the theory of value operated by Neoclassical Economic Theory (from Menger to Jevons to Walras) that would lead to the nihilistic Schopenhauerian “renunciation” of life itself – and therefore to the conceivable annihilation of human life on earth. This nihilism of Neoclassical Theory is best captured by the notion of “scarcity”. Where the Classical labour theory of value put value as “wealth through labour”, the Neoclassics erected “wealth through privation”, - that is to say, scarcity as the origin of wealth. But whereas for Classical Political Economy labour, and therefore wealth, were finite quantities easily exhausted, for Neoclassical bourgeois economic theory, wealth becomes an inexhaustible downward spiral of selfish appropriation of resources!

As Bohm-Bawerk put it, “the first law of physics is that in the universe nothing is created and nothing is destroyed: everything is transformed”. For the Neoclassics, the self-interested individual is the centre of the universe. All the Labour in the world – like the Sisyphean Arbeit in Schopenhauer – cannot positively create any “wealth”. Wealth can only be the transferral or “exchange” of possessions or properties from one individual to another – and then only if some individuals “renounce” their right to present consumption “in exchange for” future consumption. “Scarcity” is the inexorable fate of a society that has put the unquenchable thirst for the accumulation of social resources as the endless pursuit of the self-interested individual! Scarcity is the end-result of Wicksell’s “universally free competition” amongst self-interested individuals. In the Neoclassical bourgeois capitalist economy, nothing is created, everything is transformed or delayed. In this “exchange” nothing is “positively” created – selfish individuals have only re-balanced their current legal claims to property into the indefinite future. As Keynes himself put it, “money is a bridge between the present and the future”. For the capitalist, money is the legal claim to future human living labour. Capitalism is a hypothecation, a mort-gage (French, morte, death, and gage, pledge – dead pledge) on the future life of workers.


But the result of this endless capitalist hypothecation of future human activity can only entail the ceaseless exhaustion of social resources through relative overpopulation – that is to say, through a human population of living labour that constantly exceeds the means available for its reproduction, for the survival of the human race. The constant “scarcity” of social resources engineered by the capitalist economic system must perforce engender the depletion of the ecosphere through human overpopulation. The erstwhile saying “Socialism or Death” may yet come to reveal a hitherto unknown facet – one that even the great fatidic Karl Marx could not envisage.

Friday, 2 December 2016

Over-population and Secular Stagnation

To introduce the next post, I can really do no better than to quote our friend Dan's last comment on pur previous post - a comment that, if I may, is once again striking for its perspicacity - either that or the rest of us are too lazy and nonchalant or have too little time to reflect on the reality of capitalist production and society - or else are too greedy and corrupt and irresponsible to care:

Thanks for the reply to my previous comment! If I may add one comment to the present analysis, I think we must also consider the role that innovation plays in increasing relative overpopulation. To use Marx's terminology, relative overpopulation can be increased through innovations that decrease the socially necessary labor time embodied in commodities, which cheapens the means of subsistence and frees a portion of the existing labor force to absorb the surplus product. So theoretically capital can remain profitable in spite of a stagnant population if it is able to sufficiently increase productivity on a continual basis. There is much talk lately of a coming automation revolution (e.g. self-driving cars) that will eliminate millions of jobs. However, those hopes may not be realistic, and even if innovation could prop up the rate of profit sufficiently, the environmental threat that you mention would remain because consumption per person would have to grow.


As we have seen in our previous posts, the Wicksellian notion of “the natural rate of interest” has two main purposes: one is ideological in the sense that it seeks to justify capitalism and profit (Wicksell’s “natural rate of interest” is an equilibrium average rate of profit) as if they were “natural” phenomena. But the other purpose, the one that seeks such ideological justification in the “physiological” relationship between the social conflict that capitalism and the wage relation engender (“universally free competition”), is truly enlightening in that it reveals how the “universally free competition” needed for the natural rate of interest to obtain is really a level of social antagonism that may lead to the “unnatural” demise of civilization.

The reason for this link between the natural rate of interest as “universally free competition” and the demise of civilization at the hands of “market forces” or capitalism is simply this:
If indeed profit can exist only by means of the capitalist “saving” or “renouncing” present consumption for the sake of “future” consumption – and if this “renunciation” is then indefinite because the capitalist never ends up consuming the “saved” product – then in that case it is clear that the entire aim of “saving” is for the sake of accumulating social power over the living activity of more and more workers. Here, workers stand for the people who do not save and therefore are forced to sell their living activity to pay for their immediate consumption.

Extrapolating from this schematic social relation of production, we can then conclude that the effect of capitalism is to increase the “excess” population on the planet – and therefore to destroy the environment in order to keep alive this “excess” population. This population is in “excess” because it exists not in order “to produce” – because its production would not be “profitable” – but rather in order to suppress the part of the population that is actually employed by capitalists – so as to force these workers “to sell” their living labour “in exchange” for part of the product they produce!
As Thomas Friedman once said, “the Earth cannot afford 8 billion Americans” because, if the living standards of Americans are what is needed to maintain capitalism as a system of production, then the “excess” population needed is such that the environmental demands to keep it alive are simply impossible to meet! When economists beginning with Larry Summers and Paul Krugman among a myriad others complain that capitalism has entered a phase of “secular stagnation” because of “the ageing of the population”, what they really mean is that the “excess” population needed for workers to be employed profitably is no longer environmentally and politically “sustainable” – and therefore neither is capitalist industry and society!

In this regard, let me quote what I believe is one of the most important passages in the entirety of Karl Marx’s work – a passage that ought to be read and parsed more carefully than any other in the history of humanity if we are to protect our future survival on planet earth:

It is the law of capital, as we have seen, to create surplus labour, namely, disposable time [free time not needed for the reproduction of workers or not employed for their leisure]. And it is able to do so only to the extent that it creates more necessary labour – that is to say, to the extent that it exchanges dead labour [produced goods] with the worker [fresh living labour, that is, for human beings who are also forced to work]. The tendency of capital therefore is as much to create more [necessary] labour as is possible [in absolute terms, that is, in terms of numbers of workers], as it is to reduce the [amount of necessary] labour [needed for the reproduction of each individual worker relative to disposable labour] to the minimum necessary. Capital therefore tends both to increase the working population and to reduce incessantly part of it to the condition of over-population – as population that is superfluous [useless] until the moment that capital can utilize it [to create surplus value]. (From which we derive the truth of the theory of overpopulation and of surplus value.)

Capital tends both to render human labour (relatively) superfluous and also to push it beyond all boundaries. Value is nothing other than objectified labour, and surplus value (the valourisation of capital) is nothing other than the excess of objectified labour on the amount necessary for the reproduction of the labour force. But living labour is and remains the fundamental requisite of objectified labour and of surplus value, while surplus labour [disposable labour] exists only in relation to necessary labour, and therefore only to the extent that there still is necessary labour. Capital must therefore incessantly create more necessary labour [in absolute terms] to create surplus labour [and therefore surplus value]. It has to multiply surplus labour (by means of simultaneous working days [by means of more individual workers]) in order to multiply surplus value. At the same time, capital has to suppress necessary labour so as to turn it into surplus labour…

It is for this reason that the capitalist seeks the increase of the working population. And it is the actual process of reduction of necessary labour that enables the capitalist to employ new living labour [new workers] (and therefore create surplus labour [that is, surplus value]). (In other words, the production of workers becomes “cheaper”; and therefore it is possible to produce more workers in the same measure as the time for necessary labour decreases or the time needed for the reproduction of the labour force decreases....) – K.Marx, Grundrisse, 3.2.25)



Sunday, 20 November 2016

Finis Mundi: Capitalism, Overpopulation and the Destruction of the Biosphere.

Let us draw together the complex threads of our analysis of “the natural rate of interest” and “relative overpopulation”. It is not the ageing of the working population that is the real cause of the falling “natural rate of interest” or “secular stagnation” – as Lawrence Summers and Paul Krugman and many other bourgeois economists have wrongly opined. (How untenable this thesis is can be desumed quite simply by considering that the global labour force has doubled[!] in the last thirty years.) Nor is it the “immiseration thesis” that Thomas Piketty has incorrectly attributed to Karl Marx. Nor is it Piketty’s own thesis of “income inequality” – a hackneyed Keynesian leftover relic at best [the allusion os to Keynes calling gold “that barbarous relic”] -, none of these catch the true essence of the problem of capitalist society. Here we will deal with the first leg of our thesis: the second leg will come in our next post.

The maximization of profit on the part of capital implies the relative suppression of wages or “necessary labour time”. But then, the excess of production over what can be sold on the market for surplus value to be “realized” – this excess means that the capitalist bourgeoisie needs an “excess population” that can be “purchased” with the excess production from the previous cycle of production. But this “excess population” of workers needs to be paid – and so its “wages” correspond to an absolute expansion in “socially necessary labour time”.

It is this contradictory tendency of capitalism – on one hand, to create unemployment so as to suppress wages, and on the other to expand the absolute size of the exploitable labour force -, it is this contradictory tendency or dynamic that is leading us toward the apocalypse – the destruction of the biosphere.

“Universally free competition” means that the participants to a market are “freely” entitled to exchange their possessions for whatever other possessions available from other participants. The problem with this conception of competition is that on this basis, and on the assumption of “universal freedom” excepting coercion, and the further assumption of universal knowledge (or “common knowledge” in game theory), it is absolutely impossible for a capitalist to make a “profit” from exchange – and therefore there can be no “rate of interest”, natural or otherwise. The only way in which a market participant can become a “capitalist”, and therefore make a “profit” from exchange, is if he can “exchange” his possessions or goods for the “labour” or living activity of other market participants. In that case, the capitalist will be able to buy the living labour of workers and exchange it with less of their product than the workers actually produce. The difference between the value of the products produced by the workers and what the capitalist pays to them in wages is called “profit”.

But the question now arises: what can the capitalist do with this “profit”? He can sell the excess production: but obviously there will be no new buyers because the only market participants who can buy these excess goods are workers who are already so “poor” that the only exchange good they can sell is their own living activity, their “labour”. What this means, quite obviously, is that for the capitalist to be able to sell his “profit”, he must be able either to expand the size of the market with new exchange values from belonging to populations not yet within the capitalist market sphere, or else he has to use it as a hypothecation, as a “mortgage”, on any “future labour” that may be available on the market.

Marx rightly stresses the difference between value and capital – because although all capital is “exchange value”, in the sense that it is capable of being exchanged, not all exchange values are capital: because capital, unlike other “exchange values”, is “value” capable of “valourising” itself. Thus, as we are about to see, capital is a historically specific form of exchange value: its peculiarity is that for capital to exist it must be “exchanged” with a unique “good” – human living labour – that is capable of “valourising” capital by expanding existing production. In other words, the existence of capital implies not only the existence of human living labour available “for exchange”, as if human living activity were yet another “good” or “consumable output”, as if it were a mere material “product”; but also, it implies the constant expansion of the pool of available living labour!

Money, to the extent that it exists already as capital, is therefore simply a policy [a legal claim] on future (new) labour. Objectively it exists only as money. Surplus value, the added objectified labour, in itself is money; but money now exists as capital, and as such it is a policy on future labour. Here capital enters a relationship no longer with existing labour, but also with future labour. It also presents itself no longer as consisting merely of its simple elements in the process of production, but also as money; but no longer as money that is simply the abstract form of social wealth, but again as a policy [as a claim] on the real possibility of general wealth – on the labour-force, or better on the labour-force in actu. In this form as a policy or claim on potential labour-force, its material existence as money is irrelevant and may be substituted by any other claim on the labour-force. Just as with public credit, each capitalist possesses, in the value already appropriated [as product or objectified labour], a claim on the future labour-force; by appropriating living labour in its present form as objectified labour, the capitalist has already appropriated a claim on future labour-power…. Here is already revealed the ability of capital to exist as a social power separate from its objective material existence. Here is already implicit the existence of capital as credit. Its accumulation in the form of money therefore is not at all an accumulation of the material conditions of labour [of the means of production], but rather of the legal claim to living labour [on workers]. This means posing future labour as wage labour, as use value for capital. For tĵhe new [objectified] labour created [the product] there exists no equivalent [that is, no existing exchange value]; its possibility [to be valourised] exists only in a new labour force. (K. Marx, Grundrisse, 3.2.21)


The capitalist must expand the available pool of living labour for capital, the labour force, to keep yielding profits and therefore for capital to be valourised. In other words, the existence and meaning of “interest” or “average profit” requires that the pool of living labour available to capitalists must constantly expand! This is the clear link between “the natural rate of interest” and “relative overpopulation”. Whenever capital is unable to expand the reserve army of workers the natural rate of interest or profit must decline. In other words, the rate of profit is dependent on the existence of “relative overpopulation” because surplus value in the form of objectified labour can be realized as profit only when exchanged with money, and in the form of money or credit it can only be valourised if and when it can be exchanged with fresh labour-power.

Reply to a Reader on the Theoretical Link between "Natural Rate of Interest" and "Relative Overpopulation" in the Capitalist World Economy

Hi Dan,

Thanks for your comments which, with your kind indulgence, are as always  perspicacious in two senses, intelligent and far-sighted. The ideological kernel of "the natural rate of interest" is that it presents profit (or "the average rate of profit", which is its Marxian equivalent) as the result of a "natural" social order - which, as you point out, is infantile nonsense.
But the other, more serious and realistic aspect of this notion is that it may be possible for this "natural" rate to be un-naturally low - and thus for capitalist production to stagnate. This is a tendency that the neoclassical theory seems to discount - because it would be "un-natural" for the "natural" rate of interest to fall to zero - and yet simultaneously opens up as a possibility or threat to the "natural" order of society. Apart from his aphorism about "the long run" (....we're all dead), Keynes saw this intuitively ("money is a bridge between the present and the future", in the GT) and also sociologically - the General Theory is a treatise on the ultimate stagnation of capitalist industry as what he called "the marginal efficiency of capital" declined.
It is a known fact that people like Lawrence Summers and Paul Krugman and many other "bourgeois" economists are pointing to the ageing of the labour force as the main factor behind "secular stagnation". So clearly the Wicksellian theory of "the natural rate of interest" can lead to interesting "negative" conclusions about the future of capitalism even when all the while it seeks to hide the social and political violence behind "interest" or "profit".

The all-important point to which I am getting now through Marx's analysis in the Grundrisse (yet, importantly, not in Das Kapital) is that once we unmask the rate of interest as the average rate of profit, with all the sociological and political consequences of this debunking, we can then tie our theory of the average rate of profit to "relative overpopulation" - precisely because "money is a bridge between present and future" in the sense that "money" (read "capital" and therefore "profit") involves a "hypothecation" - a "deposit" - not just on the "present" labour force, but also on the future and potential labour force!

The implications of this - which, I will argue, not even Marx himself could quite foresee, not in the Grundrisse and certainly not in Das Kapital - are immensely (and frighteningly) far-reaching because of what this "relative overpopulation" means in terms of social conflict internationally due to "the world market" or "globalisation" - but above all else in terms of the future of planet Earth, that is, in environmental terms! It is here, I think, that there is a serious confluence between the environmental threat that capitalism poses to the planet - to our very survival on earth - in terms of environmental devastation through "relative overpopulation", on one hand, and the declining average rate of profit as prognosticated by Marx, on the other. It is the complex interaction between the falling rate of profit due to the capitalist need to expand the "surplus labour force" so as to lower the "socially necessary" part of the working day (wages), and the inability to lower this "socially necessary" portion without exasperating global "overpopulation" (meant to absorb the "surplus" portion of the working day) to the point of environmental catastrophe - it is this catastrophic contradictory tendency on the part of capitalism that Wicksell's theory points to (in terms of the conflict implied in "universally free competition" [Thomas Hobbes] - and the "organic" or "physiological" limits implicit in the notion of a "natural" rate of interest [nothing expands "naturally" forever])- it is this complex and catastrophic series of theoretical links that obviously I am seeking to highlight. Your observations, if I may, go very much and far in this direction:

" I can think of two destabilizing responses to low interest rates: One, low rates don't provide enough return for the "savers"--who really invest to increase their wealth and not to balance their time preference--so instead of increasing their consumption, their response is to pursue speculative investments. With an abundance of speculative investments, the average rate of return on capital can actually become negative--an absurdity by the time preference theory! But then we see the other response to low interest rates, that money is hoarded and not invested at all, and all sorts of deflationary problems result. So...[that is] what the natural interest rate theorists miss--the permanent crisis (secular stagnation) that results once demographic changes push the interest rate below a certain level..." (question mark omitted! I have taken the liberty to turn your question into a statement.)

If I had to summarise my argument tersely and pithily. I could not do better than Thomas Friedman and his tremendously perspicacious observation that "the Earth cannot afford 8 billion Americans!" The theoretical framework I am developing - one that Marx clearly foresaw in the Grundrisse without, alas, being able to see the truly apocalyptic implications of his theory in environmental terms - seeks to capture this complex reality - through which we are already living.

Monday, 14 November 2016

The True Meaning of "The Natural Rate of Interest:

We saw in the previous post how bourgeois economists are quite aware of the fact that “value” is not a “physical property” of the means of production – of what they mistakenly call “capital” and thus, by so doing, inviting the confusion between the social relation “capital” and the physical, objective means of production. But then, once they have acknowledged that economic value – and therefore profit and therefore interest, which is the average rate of profit – is not a physical property, bourgeois economists find themselves at a serious loss: because if one acknowledges that value is not a physical property, then it must follow that it is a political category based on power relations in a society. “Capital” therefore can no longer refer to the physical means of production but rather to the “legal claim over production” that comes from the capitalist’s “ownership” of the means of production. The insurmountable difficulty for bourgeois economics with this realization is that capitalism loses its “natural” status and becomes merely a political reality – a social institution that is either entered into freely by the members of a society or else is enforced violently by some (the capitalists) over others (the workers). It is at this juncture that bourgeois economists balk – because to acknowledge that capitalism is a political rather than a “natural” reality is immediately to call its existence into question and its rationale into doubt. That is why bourgeois economists must perennially oscillate between the notion of “capital” as physical means of production and “capital” as exchange value!

Now, on the assumption of “universally free competition”, we would have to conclude that capital could simply not exist because universally free exchange would mean that no “rate of interest”, natural or monetary, could ever apply to capital. For capital to attract “interest” (read, “profit”) it must be able to be exchanged with an entity that can increase its “value”: but what can that “entity” be? Clearly, that entity can only be the living labour of workers who use the means of production or “capital” made available by their owners, the “capitalists” or “employers”. But again such an admission is anathema to bourgeois economists because that would be tantamount to admitting that there is no “exchange” possible between “capital” as a “thing” and living labour as the living activity of workers. Therefore, bourgeois economists are thrown back to finding a “property” of capital that makes such an “exchange” politically justifiable.
On the assumption of “universally free competition”, the only ways in which one individual, the capitalist or “employer”, is able “to purchase” or “exchange” existing products or “goods” for the living activity of another individual, the worker or “employee”, are two: - either the capitalist already owns the means of production and is therefore able to force the worker to sell his living activity; or else the capitalist renounces his present consumption and exchanges it for the living labour of workers who wish to consume his goods immediately. Of course, in neither case is the capitalist system of production justified, because in the first case, where capitalists already own the means of production, their prior ownership is not explained or justified, and in the other case, where they purchase the living activity of workers by “delaying” or “sacrificing” their present consumption, that may justify the current “exchange” by workers to capitalists, but it certainly does not justify the enslavement of all future generations of workers to capital!
But in this second instance, the rationale for capitalism is that the capitalist is the stronger person, the ascetic who is willing to wait, to deprive himself, to sacrifice present consumption in exchange for the living labour of those who cannot wait – and who therefore become “employees” or workers. (No less a thinker than Joseph Schumpeter espoused this patently flawed rationale.) This capitalist claim to “property” is called “time preference” in bourgeois economics. Thus, bourgeois economists are able to mix the subjective (time preference) with the objective (the contribution of the means of production to the product): there is almost a Freudian “transference” of capability from the clearly political ownership of the means of production to the “metaphysical” or “physiological” contribution of the means of production to the creation of the product itself!
Here is Marx on this precise point and this precious equivocation on the part of bourgeois economists to justify the violence of the wage relation well before the Marginal Revolution came to pass in economic theory:

Altri, anch’essi economisti, come per esempio Ricardo44, Sismondi45 ecc., dicono che soltanto il lavoro e non il capitale, è produttivo. Ma in tal modo costoro lasciano sussistere il capitale non nella sua specifica determinatezza formale, ossia come rapporto di produzione riflesso in sé, ma pensano soltanto alla sua sostanza materiale, alla materia prima ecc. Ma non sono questi elementi materiali che fanno del capitale il capitale. D’altra parte poi essi si accorgono che il capitale per un suo verso è valore, quindi qualcosa di immateriale, di indifferente alla sua sostanza materiale46. E allora Say afferma: «il capitale è sempre di natura immateriale, giacché non è la materia che costituisce il capitale, ma il valore di questa materia, valore che non ha nulla di corporeo» (Say, 21)47. Oppure Sismondi: «Il capitale è un’idea commerciale» (Sismondi, LX)48. Ma a questo punto si accorgono che il capitale è anche una determinazione economica diversa da quella di valore, perché altrimenti non sarebbe nemmeno possibile parlare di capitale a differenza del valore, dato che, se tutti i capitali sono valori, non tutti i valori in quanto tali sono capitale. E allora si rifugiano di nuovo nella forma materiale che esso assume entro il processo di produzione, come fa per esempio Ricardo quando definisce il capitale come «lavoro accumulato impiegato per la produzione di nuovo lavoro»49 ossia come mero strumento o materiale di lavoro. In questo senso Say50 parla addirittura di «servizio produttivo del capitale» su cui si baserebbe la sua remunerazione: come se lo strumento di lavoro in quanto tale pretendesse il ringraziamento dell’operaio, e come se non fosse invece proprio in virtù di quest’ultimo che esso è posto come strumento di lavoro produttivo. In tal modo l’autonomia dello strumento di lavoro — che è una sua determinazione sociale, vale a dire la sua determinazione di capitale — viene presupposta per dedurne i diritti del capitale. (Grundrisse, 3.2.12)


The point here is that bourgeois economists must present capital as the most “natural” of values. And to do so they have to try and fuse two aspects of capital – that of being a social relation whereby the capitalist is able “to purchase” human living activity as “labour power”, and that of being “embodied” in physical commodities or “goods” – means of production and products that can be “exchanged” with human living labour as it the latter itself were a “good” or commodity exchangeable like an object. Thus, capital becomes “objectified or dead labour”. Wicksell’s notion of “the natural rate of interest” widely adopted in bourgeois economics is nothing other than the most nefarious, wicked and brutal apology for the bestiality of capitalist oppression.