The
theory of marginal utility on which the Neoclassical ‘Reaction’ was founded
runs up against insurmountable obstacles and insoluble contra-dictions as well
as practical and historical evidence. If indeed marginal utility, however
“marginal” it might be, is founded ultimately on the concept of “subjective
utility” and “individual choice”, it becomes impossible then to tell for
certain whether market prices really
correspond with subjective marginal utilities for the simple reason that –
as in the “labor” theory of value – we would be “comparing” entities that are
absolutely, toto genere, different in
substance: “visible” monetary prices and “intangible” subjective utilities.
The charge of “metaphysics” that Bohm-Bawerk had moved against the labor theory
of value is now equally applicable to neoclassical theory!
Furthermore,
the “ownership” of the individual of the “goods” – be they “present” or
“future” goods, be they consumption or production goods (primary or
intermediate in Menger’s terminology) – is taken as axiomatic when in fact it
needs to be “explained”! And the ability of “labor-saving devices” as means of
production assumes that the “exchange” of the goods produced through them will
always occur with constant given technologies. But this means that ultimately
there will be a “declining rate of marginal utility” of the productivity of the
labor “absorbed” by these “devices” or means of production: which means in turn
that the economy is bound for “stagnation” and that this theory cannot account
for technological development and economic growth as “endogenous” to the
theory, as “internal” to the capitalist system of production.
That
would mean, in turn, that the system of exchange of marginal utilities would
eventually lead to the economic equality of all individuals in the market
economy! And the neoclassic can explain inequalities of income and “endowments”
on the absurd ground that “people are different” and they have take different
choices, whether rational or irrational. Yet
that does not explain the existence of social classes and the minimal rate of social mobility in capitalist
societies!
Finally,
neoclassical theory takes the entire aim of economic behaviour in capitalist
society to be that of “highest marginal utility” for the individual. But in actual fact the aim of capitalist economic
activity is profit which means not
just the adoption of “labor-saving devices” but rather the “accumulation” of
these “devices” in such a way that the aim of capitalism in practice and in
reality becomes the control and command
over the labor of others!
These
insuperable obstacles and insoluble contradictions (both theoretical and
historical) are wonderfully illustrated in this quotation from Bohm-Bawerk:
The
connection is as follows. Command over a sum of present consumption goods
provides us with the means of subsistence during the current economic period.
This leaves the means of production, which we may have at our disposal during
this period (Labour, Uses of Land, Capital), free for the technically more
productive service of the future, and gives us the more abundant product
attainable by them in longer methods of production. On the other hand, command
over a sum of future consumption goods leaves, of course, the present
unprovided for, and, consequently, leaves us under the necessity of directing
the means of production that are at our command in the present, wholly or
partially, to the service of the present. But this involves curtailment of the
production process, and, as consequence, a diminished product. The difference
of the two products is the advantage connected with the possession of present
consumption goods. (V.IV.19)
But
the “possession” of present consumption goods can be due only to the prior
“possession” of means of production
“which we may have at our disposal during this period” which can
“absorb” the labor of those im-provident
individuals who are now in “want” of present consumption goods! And it is this
“difference” in “want and providence” (Bedarf und Deckung) between individuals
that determines “the advantage connected with the possession of present consumption
goods”. Once again, this “advantage” cannot consist in the finite “present
difference” between the marginal utilities of goods in exchange on the market –
rather, it consists in the permanent accumulation of “labor-saving
devices” or “capital” that will perpetuate (!!) this accumulation of “the labor
of others”!! And here we have
the whole meaning of Profit! Profit is the monetary expression of “command over
living labour through the violent
coercive exchange with dead objectified labour (“present consumption
goods”)!
It follows from all this that both Classical
and Neoclassical theories with their absolute and total theoretical dependence
on the Law of Value cannot explain
two things: the first is that “economic market equilibrium” is absolutely
incompatible with the notion of “profit” and “accumulation of capital”; and, as
a corollary, therefore neither theory can explain the existence or even the possibility (!) of economic “growth” or “development”.
But they are particularly incapable of
accounting for capitalist crises! This
is the conundrum of historical economic analysis that Joseph Schumpeter and JM
Keynes set out to explain. Bohm-Bawerk himself allows of “Uncertainty” as a
source of variations in “expectations” as to the marginal utility of “future
goods”. But again this is something that can be “arbitraged” (agio) away by the
market mechanism at any one time. As he rightly notes, neither “abstention” nor
“Uncertainty” can determine marginal utilities or prices for the very simple
reason that they are “negative” or “passive” emotions that cannot increase the
“productivity” of “labor” through “labor-saving devices” or “means of production”
or “capital”. “Abstention” in and of itself cannot be the source of Value. It
has to be the “switched preference” between consumption and production goods –
“abstinence” in this specific economic context involving “labor-saving devices”
– that is economically relevant. It is not “frugality” or mere “industry” that
leads to the “diversion of the existing powers of nature”, but the “diversion
of time preferences” that leads to a different “distribution or exchange” of
marginal utilities. Exchange is always “relative” but its “content” (marginal
utility) can be of a “higher” or “lower” order for the individuals involved
because of their “endowments” whose “stock” is raised by the preference for
labor-saving devices. These are not “time-saving devices” because the “object”
is always to save “labor” to provide for given “wants”, which will rise in kind
as more capital is employed in production through roundabout methods. Wants
expand to absorb the available labor productivity with scarce resources. Capital
is therefore “stored-up labor” at a given time of exchange; not “labor”
understood absolutely but as “dis-utility” at a given time, given that labor
too is subject to time preference. Thus, Franklin
Weber’s Askesis – ascetic ideal – is not
relevant to “the spirit of capitalism” because it understands “labor as an end
in itself”! And it is also not relevant because it calls for “abstinence”,
“penitence” and “frugality”! On the contrary, for the Neoclassics what occasions Value (does not “create” it,
only “makes it possible through the diversion of the powers of nature”) is the deferral of consumption and its diversion to
tools for production, to means of production as “labor-saving devices”!
It is not “labor” that is “an end in
itself” as Weber had it. Instead, it is “provision for want” that is the “end”
that “money” embodies as “Value” and that is maximized by “labor-saving devices” or “capital”! [Marx
was entirely right in the Paris Manuscripts
to see clearly this difference between “labor” as “poverty” or “need”
(“dis-utility”) and “money” as “wealth” in the inverted world of commodity
production (or “fetishism”).] Thus, “time is money” means “labor-time-saving
devices” or capital is “money” or “generic social wealth” or “claim on social
resources” – remembering that “labor” is “labor-power” or “productivity” in
terms of “output per unit of time” -
that is, not a “quantity” but a “rate”.
[Similarly
for Marx, the speed of circulation of capital would determine the amount of
labour-power it could absorb. “Profit” is a “rate”, and so therefore is
“value”. Marx and Bohm-Bawerk approach the “value” of goods from diametrically
opposed ends but both would agree on “time preference” because a profit today
is obviously greater than one tomorrow, though not for its “immediate
consumption” but rather for its “greater turnover”. Again, Bohm-Bawerk confuses
“utility” with “profit” or “value as command over living labour” as the real
aim and purpose of capitalist production! This is why B-B has to believe in
“diminishing marginal utility” of capital whereas Marx sees it in terms of the
“compression of the necessary portion of labour-time” in the production process.]
“Labor-saving”
is cognate with Schopenhauerian Entsagung in the opposite sense that “Nirvana
is the satisfaction of all needs” (Robbins). Schopenhauer’s Will or “Want” is
“extinguished” by Nirvana seen as “the annihilation of Will-as-Want”; whereas
the Neoclassical Nirvana is only a “limit” for the Will-as-Want in terms of
Provision in that it can never be reached! Maximum provision for wants through
scarce resources or provisions is the subject-matter of economics; the negation
of unattainable want is the renunciation of will by Schopenhauer. In
Schopenhauer Nirvana is the attainable cessation or “bottom” of Want or Will as
endless strife; in Bohm-Bawerk, Nirvana is the impossible dream or “apex” of
endless striving. Schopenhauerian want can never be satisfied but can be
extinguished; neoclassical want can be satisfied but never be extinguished.
Schopenhauer sees “want” as “strife” from the point of view of the Will – labor
as endless and meaningless and purposeless striving or “pain” because
“pleasure” is extinguished in its “provision”. Neoclassics see wants in
quantitative terms – labor as dis-utility or “effort/pain” that can be
“exchanged” for “pleasure/provision” that is “acquired”.
Fisher
will analyse more closely the “deflationary” effect that a change in
expectations could have on the “contract- or term-structure” of investments,
whereas Keynes will look at “liquidity preference” related to the “paradox of
thrift” in a market economy made up of “individual choices”. These are
“technical” factors that do not consider the antagonism of the wage relation –
except in terms of the “downward rigidity of money-wages” seen by Keynes,
again, more as an “institutional defect” than as a form of social antagonism.
Weber notices the antagonism but sees it as something that can be “mastered” or
“overcome” by the “inescapable” hardening of the “iron cage” – the
subordination of wage conflict to the need to rationalize production in a mass
society.
Schumpeter
takes a different course altogether making “crisis” the specific difference,
the historical peculiarity of capitalist economies. Like Keynes, he perceives
that Classical and Neoclassical theories are “static” analyses because they
cannot account for the transformation of the means of production (intermediate
goods) and of consumption goods (primary goods) – and this is quite apart from
the fact that “want” is a purely passive and negative notion that must assume
the exogeneity of production techniques and of changes in consumption patterns.
Here he is:
What
we want to show now becomes obvious. The development of wants, which we observe
in reality, is a consequential creation of the economic development that has
already been present. It is not its motor. The fact that the human economy has
remained constant over centuries heavily weighs in favor of our argument. But
if the development is already under way, then it can, in a concrete case,
certainly be preceded by the development of needs and desires which can trigger
special economic transactions. In principle, needs sustain their own demand
through economic development, and it is economic development that stirred them
up in the first place. The amplification of needs is a consequence and symptom of
development. Insofar as truly new needs and desires exist they will not have a
practical effect on the economy. As has already been shown in the discussion
above, new needs and desires as such mean nothing. But even then, if there were
an original cause in the development of needs and desires, this would still
require creativity and energetic activity in order to create anything new of
importance, so that even the assumption of such a Law of the Heterogeneity of
Social Purposes would not have much to offer in the field of economics. It is
beyond doubt that in a single case a concrete demand can bring forth an entire
industry. [486] (TED, 1st edition, ch.7)
What,
then can explain “growth”? This
is the conundrum of historical economic analysis that Joseph Schumpeter set out
to explain.
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