The Economics Thread

[Einherjar86]

His middle name's Maynard.

 

[Jimmy... Dead.]

Capitalism just like Socialism & Communism has never been and will never be idealized, but according to most intellectual objectivist Capitalism is the only moral social system.

and is Bradys "quip" and comment on Rand being dead in the same context as Nietzsche claiming god was dead? or am I giving him too much credit?

 

[Einherjar86]

People continually debate about the morality of capitalism, and Ayn Rand even published an essay on it. Most classical liberalist thinkers believe that infringement on one's own liberty is immoral, so capitalism provides the most moral groundwork for an economic system. The problem occurs when, I believe, you begin to have class differentiation, poverty and destitution. Is it immoral to let those people go on living that way? Shouldn't we help them? It seems that we should, but is it also immoral to demand that people who are not responsible pay for it?

Some people argue that a system overhaul is in order; that we should abandon capitalism in favor of a different political-economic system. One needs to be careful when making this accusation because blaming the actual system of capitalism for our current woes is a slippery slope. The actual system of capitalism does not require class differentiation or poverty; it just doesn't impose any internal regulations that would restrict it. By definition, capitalism does not require people to be homeless and jobless; indeed, that is antithetical to its definition.

Walter Benn Michaels writes:

"Marx argued that capitalism itself was inevitably producing the contradiction that would destroy it, and this is what Fukuyama denied. In denying it, he didn't need to say that actually existing capitalism had solved the problem of economic inequality- and indeed he didn't say it: he does not say that 'there are not rich people and poor people in the United States, or that the gap between them has not grown in recent years.' What he does say is that 'the root causes of economic inequality do not have to do with the underlying legal and social structure of our society.' In actually existing capitalism, in other words, there are inequalities, but capitalism does not in principle require such inequalities and does not itself cause them."

And I'm pretty sure that Brady just intends that Rand is literally dead.

 

[Death Aflame]

So what does cause economic inequality if, as you argue, it is not a systemic effect of actually-existing capitalism? Certainly something/some factors must cause it?

I myself have been influenced by various socialist, Marxist, libertarian, Austrian, and anarchist thinkers when it comes to economics. The term socialism itself is so loaded that one needs to be careful when deploying it in discourse; case in point, it is very likely that the socialism discussed here is anchored in different conceptions of the individuals writing about it.

Ambiguity aside, I think it is important to emphasize the multiplicity of socialisms that exist. From my own perspective, libertarian socialism is particularly important since it rejects the manifest and latent authoritarianism of state socialism in favor of local autonomy.

I myself come from a free(d) market socialist perspective in which what Marx termed 'surplus value' is internalized in the workers who produce it and not collected as a rent by a capitalist. And while I favor the cooperative form of firm organization, I do not advocate for a forced implementation of it. Rather, I think given the conditions of a truly free market (no state, no patents/IP, no money monopoly, no land monopoly, and a property system based on Proudhonian use/occupancy criteria) the cooperative form would become predominant because of its internal economic efficiencies.

 

[Einherjar86]

So what does cause economic inequality if, as you argue, it is not a systemic effect of actually-existing capitalism? Certainly something/some factors must cause it?

I would argue that the inequalities that currently exist are consequences of historical conditions, not current economic ones.

The United States has a history of slavery (to take an example), which has created very unfortunate circumstances in the country today. However, slavery is not a necessary condition of capitalism; and the institution of slavery is not, in my opinion, an economic institution so much as a socio-political one. The arguments against slavery were not economic arguments, although the arguments for it were; but its immorality has nothing to do with capitalism, since capitalism doesn't constitute slavery.

I myself come from a free(d) market socialist perspective in which what Marx termed 'surplus value' is internalized in the workers who produce it and not collected as a rent by a capitalist. And while I favor the cooperative form of firm organization, I do not advocate for a forced implementation of it. Rather, I think given the conditions of a truly free market (no state, no patents/IP, no money monopoly, no land monopoly, and a property system based on Proudhonian use/occupancy criteria) the cooperative form would become predominant because of its internal economic efficiencies.

This is interesting. How exactly is surplus value "internalized" by the laborers? This is problematic for a free market system in that surplus value is what perpetuates a business. Do you envision a kind of barter system wherein capitalists sell their products for a price that is exactly representative of the amount of labor that went into them, and merely receive other companies' products in additional exchange?

 

[Cythraul]

The one thing I do find hilarious is that there exists an assumption about the market; that assumption being that it is controlled by rational people who have the best interests of the people at heart (as a free-market would hold). Even though it is apparent that the sole means of most businesses is to acquire as much wealth and power as fast as one can in order to stay at the top of the power pyramid by mostly any means necessary.

Who makes that assumption? I'm not denying that somebody does make that assumption, but I would like to know who you are targeting with that comment. Also, what does it mean for the market to be controlled? No one person or group of persons controls the entire thing; various people influence what occurs in the market, and a large part of what occurs is dependent upon the actions and subjective valuations of millions of people.

Also, what is the relevance of what you've said anyway? The pragmatic argument for free markets has never, to my knowledge, depended upon the assumption that individuals are perfectly rational and benevolent. The argument has always pretty much been that, given the existence of imperfect benevolence and rationality, free markets yield greater social benefit than any feasible alternative arrangement.

 

[Death Aflame]

I would argue that the inequalities that currently exist are consequences of historical conditions, not current economic ones.

The United States has a history of slavery (to take an example), which has created very unfortunate circumstances in the country today. However, slavery is not a necessary condition of capitalism; and the institution of slavery is not, in my opinion, an economic institution so much as a socio-political one. The arguments against slavery were not economic arguments, although the arguments for it were; but its immorality has nothing to do with capitalism, since capitalism doesn't constitute slavery.

Interesting. But how does your pre-capitalism historical perspective explain ever increasing inequality, stagnant wages, etc.?

This is interesting. How exactly is surplus value "internalized" by the laborers? This is problematic for a free market system in that surplus value is what perpetuates a business. Do you envision a kind of barter system wherein capitalists sell their products for a price that is exactly representative of the amount of labor that went into them, and merely receive other companies' products in additional exchange?

I do not advocate for a barter system or gift economy (unless of course we are talking about the idea of a post-scarcity society, but I try to temper my idealism).

"Internalizing surplus value" is just a roundabout way of saying that since "the natural wage of labour is its product", workers ought to receive that product in full. This can be best accomplished, I argue, through the subjective mechanism of the market combined with a cooperative firm structure of ownership. So what really would be happening in this case is that profit or surplus value simply becomes distributed throughout a given firm based on its internal democratic structure of ownership. The market continues to provide the incentive for success, but that incentive is driven by and for the workforce, not managers and absentee owners.

I similarly do not advocate for an objective pricing system. A phrase that is often associated with an objective pricing system is "cost the limit of price", but this misses the point and undoubtedly will have negative effects. Instead, "cost the basis of price" is a more apt and workable idea in that it keeps external market forces at bay (think command-style economics where Communist governments forced producers to sell their product to the state at a rate below cost, this is undesirable, to say the least) by utilizing the subjective nature of the market. In other words, in a free market "all costs of providing goods and services should be internalized in market price, and borne by the consumer."

 

[Einherjar86]

Interesting. But how does your pre-capitalism historical perspective explain ever increasing inequality, stagnant wages, etc.?

I believe that increasing inequality is a snowball effect. The gap created by the abolition of slavery became a kind of "poverty pool" into which all jobless/homeless are thrown. The number of "freedmen" was too great to support, and no one wanted to take responsibility for reparations. Now we can't help only white people who are poor/destitute, because that would be racially profiling; we need to help everyone equally. But that's impossible; so the impoverished population boomed and no one was willing to do anything.

As far as the causes of stagnant wages and job loss now, it's certainly true that these things occur in our economy. But again, capitalism doesn't require people to be jobless or their wages to stagnate. Many of our current woes are the cause of poor decision-making and manipulation of the market.

"Internalizing surplus value" is just a roundabout way of saying that since "the natural wage of labour is its product", workers ought to receive that product in full. This can be best accomplished, I argue, through the subjective mechanism of the market combined with a cooperative firm structure of ownership. So what really would be happening in this case is that profit or surplus value simply becomes distributed throughout a given firm based on its internal democratic structure of ownership. The market continues to provide the incentive for success, but that incentive is driven by and for the workforce, not managers and absentee owners.

This idea is new to me, so I'm trying to understand it properly. If I'm correct, there's no money left over for the company to pay taxes; but perhaps that would be unnecessary, since this appears to be an entirely market-driven/regulated system.

There's also no surplus funds for expansion. One reason for surplus value is that it feeds back into the company to provide for new equipment that will inevitably lead to new jobs. Your idea seems more like a systematically designated, organized socio-economic ideal that would require some kind of central committee in order to be put into place (and would thus require taxes, I'm sure).

What if, after such a society is created, the need for a new product or service arises? Where is the money for that enterprise to be located? It would seem that someone (whoever came up with the idea) would have to report to some kind of central committee to suggest it.

I may be gloriously misinterpreting this.

I similarly do not advocate for an objective pricing system. A phrase that is often associated with an objective pricing system is "cost the limit of price", but this misses the point and undoubtedly will have negative effects. Instead, "cost the basis of price" is a more apt and workable idea in that it keeps external market forces at bay (think command-style economics where Communist governments forced producers to sell their product to the state at a rate below cost, this is undesirable, to say the least) by utilizing the subjective nature of the market. In other words, in a free market "all costs of providing goods and services should be internalized in market price, and borne by the consumer."

Who are you quoting here?

As a final note, regarding the theory that the natural wage of a laborer is the product and that surplus value is a form of exploitation, I would ask someone to imagine this scenario:

A young man decides to start his own company. He has very little money and no employees at first. He is forced to work late, work weekends and drive his product all over in order to realize his goal. He begins setting aside surplus funds in order to expand. Finally, after some months/years of doing so, he is able to hire one or two extra pairs of hands. He continues setting aside funds. Years later, it's a thirty-person company whose employees are paid well and offered benefits; but the owner still sets aside surplus value in order to expand further.

In this case, does the man who started the company not deserve the surplus value since it is part of the product he created (i.e. the company), which provides jobs for its workers, and supplies a necessary product to the community?

My problem with Marx's theory on surplus value is that on paper (i.e. in theory) it's logically sound; but in practice, I don't think it makes much sense.

 

[Dak]

If a theory doesn't work in practice, how can it be logically sound?

 

[Badbird]

Marx theory's works in a robotic world. Not the real world.

 

[Death Aflame]

As far as the causes of stagnant wages and job loss now, it's certainly true that these things occur in our economy. But again, capitalism doesn't require people to be jobless or their wages to stagnate. Many of our current woes are the cause of poor decision-making and manipulation of the market.

Are you talking about capitalism as a theory or actually-existing capitalism? I'd agree with you if you are referring to the former, but I'd say that actually-existing captialism does require people to be jobless, this keeps labor subject to unnaturally competitive market forces which in turn helps corporate firms maximize the value extracted from workers, all the while keeping capital inaccessible to most.

This idea is new to me, so I'm trying to understand it properly. If I'm correct, there's no money left over for the company to pay taxes; but perhaps that would be unnecessary, since this appears to be an entirely market-driven/regulated system.

There's also no surplus funds for expansion. One reason for surplus value is that it feeds back into the company to provide for new equipment that will inevitably lead to new jobs. Your idea seems more like a systematically designated, organized socio-economic ideal that would require some kind of central committee in order to be put into place (and would thus require taxes, I'm sure).

What if, after such a society is created, the need for a new product or service arises? Where is the money for that enterprise to be located? It would seem that someone (whoever came up with the idea) would have to report to some kind of central committee to suggest it.

I may be gloriously misinterpreting this.

A few things that hopefully will help to clarify my position. First, the economic theory is called Mutualism and was first put forth by Pierre-Joseph Proudhon. You can read an overview of it here: http://en.wikipedia.org/wiki/Mutualism_(economic_theory)

Regarding cooperatives: the profit could certainly be used to reinvest and expand, I did not mean to imply that the ONLY use for the surplus value was for the owners to profit individually. In fact, given free market conditions there are certain built-in incentives to expand and grow if the firm is successful. No central committee would be required as the largest actor in the market network would be individual firms. Again, I do not support a solemn decree to enforce this model of organization as the de facto one, rather I believe given the individualist anarchist definition of a free market that this form of organization would become the norm due to its inherent efficiencies.

The mutualist model is a form of anarchism, so no taxes would be paid (again we are talking about the ideal form, of course cooperatives exist today and do pay taxes, so this is not a necessary condition for a more democratic organization to flourish).

In terms of general investment capital availability, I'd argue that it would become more accessible if capital were subject to direct market competition. This would decrease barriers of entry into the market and allow for entrepreneurs/cooperatives/firms to meet the demands of the market as needed. Once capital is subject to competition, its price will drive downward toward cost (known as equilibrium in neoclassical economic models). Capital would be made available by local credit unions and mutual banks. The wiki I linked to earlier has some more info on credit/capital schemes.

Who are you quoting here?

"The natural wage of labor is its product" is a quote by American individualist anarchist Benjamin Tucker.

The second quote about costs being borne fully by consumers is from a contemporary mutualist/anarchist/libertarian thinker Kevin Carson.

"Cost the limit of price" was a maxim coined by Josiah Warren, a 19th Century American anarchist. Conversely, "cost the basis of price" is attributed to Kevin Carson and is perhaps better known as the cost principle. The former is a prescriptive interpretation of Adam Smith's labor theory of value, while the latter is descriptive and more akin to Ricardo's work.

As a final note, regarding the theory that the natural wage of a laborer is the product and that surplus value is a form of exploitation, I would ask someone to imagine this scenario:

A young man decides to start his own company. He has very little money and no employees at first. He is forced to work late, work weekends and drive his product all over in order to realize his goal. He begins setting aside surplus funds in order to expand. Finally, after some months/years of doing so, he is able to hire one or two extra pairs of hands. He continues setting aside funds. Years later, it's a thirty-person company whose employees are paid well and offered benefits; but the owner still sets aside surplus value in order to expand further.

In this case, does the man who started the company not deserve the surplus value since it is part of the product he created (i.e. the company), which provides jobs for its workers, and supplies a necessary product to the community?

My problem with Marx's theory on surplus value is that on paper (i.e. in theory) it's logically sound; but in practice, I don't think it makes much sense.

I see nothing wrong with the scenario you describe. However, if the entrepreneur continues to expand and hierarchy within the firm increases, his company will become less and less efficient (assuming free market, anarchistic conditions) and become out-competed by firms whose organizational structure is more efficient. My argument is less a moral one about exploitation (though there is an element of that, especially in actually-existing capitalism) and more an economic one about efficiency.

If you have the time, I would encourage you to listen to this essay by Kevin Carson that is more or less the basis for my position on economics and politics. It's called The Iron Fist Behind the Invisible Hand: Corporate Capitalism As a State-Guaranteed System of Privilege.

[ame]http://www.youtube.com/watch?v=bFVx79vYQn8&feature=player_embedded[/ame]

 

[Dak]

Marx theory's works in a robotic world. Not the real world.

Any theory could work given appropriate hypothetical circumstances in some imaginary reality.

 

[Einherjar86]

If a theory doesn't work in practice, how can it be logically sound?

Pretty easily. The fact is, Marxism tries to remedy capitalism by pointing out a discrepancy in the logic of its system. It thus posits another system to replace it, which (in my opinion) is even more flawed. The point is, the discrepancy that it highlights is logically sound. However, that doesn't stop capitalism from existing and evolving in reality.

Are you talking about capitalism as a theory or actually-existing capitalism? I'd agree with you if you are referring to the former, but I'd say that actually-existing captialism does require people to be jobless, this keeps labor subject to unnaturally competitive market forces which in turn helps corporate firms maximize the value extracted from workers, all the while keeping capital inaccessible to most.

Again, the problems between theory and practice show their faces. But I disagree; I don't think that actually existing capitalism requires job loss. A labor force is still at the disposal of capitalism even if every worker has a job, and this doesn't affect the competitive forces of the market. In actual capitalism, workers change jobs all the time; sometimes because they have to, other times because they're offered a job with better hours or a higher salaries. Either way, laborers move about within the job market all the time. And naturally, there are pools of unemployed people preparing to enter the workforce (i.e. students). I wouldn't say capitalism requires people to be jobless; I'd say it requires workers to be actively seeking better positions.

A few things that hopefully will help to clarify my position. First, the economic theory is called Mutualism and was first put forth by Pierre-Joseph Proudhon. You can read an overview of it here: http://en.wikipedia.org/wiki/Mutualism_(economic_theory)

Regarding cooperatives: the profit could certainly be used to reinvest and expand, I did not mean to imply that the ONLY use for the surplus value was for the owners to profit individually. In fact, given free market conditions there are certain built-in incentives to expand and grow if the firm is successful. No central committee would be required as the largest actor in the market network would be individual firms. Again, I do not support a solemn decree to enforce this model of organization as the de facto one, rather I believe given the individualist anarchist definition of a free market that this form of organization would become the norm due to its inherent efficiencies.

The mutualist model is a form of anarchism, so no taxes would be paid (again we are talking about the ideal form, of course cooperatives exist today and do pay taxes, so this is not a necessary condition for a more democratic organization to flourish).

In terms of general investment capital availability, I'd argue that it would become more accessible if capital were subject to direct market competition. This would decrease barriers of entry into the market and allow for entrepreneurs/cooperatives/firms to meet the demands of the market as needed. Once capital is subject to competition, its price will drive downward toward cost (known as equilibrium in neoclassical economic models). Capital would be made available by local credit unions and mutual banks. The wiki I linked to earlier has some more info on credit/capital schemes.

"The natural wage of labor is its product" is a quote by American individualist anarchist Benjamin Tucker.

The second quote about costs being borne fully by consumers is from a contemporary mutualist/anarchist/libertarian thinker Kevin Carson.

"Cost the limit of price" was a maxim coined by Josiah Warren, a 19th Century American anarchist. Conversely, "cost the basis of price" is attributed to Kevin Carson and is perhaps better known as the cost principle. The former is a prescriptive interpretation of Adam Smith's labor theory of value, while the latter is descriptive and more akin to Ricardo's work.

I see nothing wrong with the scenario you describe. However, if the entrepreneur continues to expand and hierarchy within the firm increases, his company will become less and less efficient (assuming free market, anarchistic conditions) and become out-competed by firms whose organizational structure is more efficient. My argument is less a moral one about exploitation (though there is an element of that, especially in actually-existing capitalism) and more an economic one about efficiency.

If you have the time, I would encourage you to listen to this essay by Kevin Carson that is more or less the basis for my position on economics and politics. It's called The Iron Fist Behind the Invisible Hand: Corporate Capitalism As a State-Guaranteed System of Privilege.

http://www.youtube.com/watch?v=bFVx79vYQn8&feature=player_embedded

I won't comment anymore on Mutualism for now because I'm unfamiliar with it. While I agree that plenty of companies that become hierarchically stratified to the point where certain levels of management are no longer in communication with the labor force, I don't agree that it's an exact science (i.e. I do believe that there are actually existing companies of impressive size that function efficiently).

 

[Death Aflame]

I won't comment anymore on Mutualism for now because I'm unfamiliar with it. While I agree that plenty of companies that become hierarchically stratified to the point where certain levels of management are no longer in communication with the labor force, I don't agree that it's an exact science (i.e. I do believe that there are actually existing companies of impressive size that function efficiently).

Perhaps I should have made my initial comment more nuanced: there are certainly large companies/corporations that can be considered efficient, but that is given current economic conditions of immense subsidization, privilege, and general market distortion by the state. Subtract those special conditions and force said corporations to internalize costs (instead of externalizing it on taxpayers) and they would cease to be profitable enterprises.

It is certainly not an exact science but I think Mises economic calculation problem is apt in outlining the issues surrounding bloated organizations in general. You can read more about it here: http://en.wikipedia.org/wiki/Economic_calculation_problem . Of course this critique was initially aimed at such economic absurdities as the Soviet Gosplan, but much of it can easily apply to large multi-nationals in contemporary society as well.

Edit: I guess I should also point out that Marx despised Proudhon's ideas of voluntary socialism and viewed Proudhon himself as a petit-bourgeoisie. So while aspects of Marx's thought are useful for the libertarian left, his proposed economic substitute for capitalism is ultimately rejected by mutualists and other free market anarchists.

Off-topic edit: I really like your song Seeds of Indignity, amazing lyrics. Is it original?

 

[Einherjar86]

Thanks very much! It is an original.

And thanks for sharing all the above information, I'll look into it more.

 

[Death Aflame]

No problem.

About your music, do you have an album/demo? If not, you should. This is some great singer/songwriter stuff.

 

[Matt]

I'm just gonna jump in here randomly and say that this new tax cut deal is bullshit and Obama could've gotten much more if he had balls. Hooray, lets add 900B to the deficit and line the bank accounts of the rich!

 

[Badbird]

Hey Death Aflame, you really should start a career in economics. Reading your posts teaches me even more about economics and the systems of it.

 

[Dak]

I'm just gonna jump in here randomly and say that this new tax cut deal is bullshit and Obama could've gotten much more if he had balls. Hooray, lets add 900B to the deficit and line the bank accounts of the rich!

So you are saying Obama should had held his ground to add more to the deficit? Also, lol at tax cuts "lining the banks of the rich". More like, "and not steal more of American's hard-earned money".

 

[Matt]

So you are saying Obama should had held his ground to add more to the deficit? Also, lol at tax cuts "lining the banks of the rich". More like, "and not steal more of American's hard-earned money".

No, not at all, and how is taxing people properly "stealing" from them? Rich people don't spend or create any more jobs with those tax cuts than they would otherwise, they'll just save it and continue to make this country's economy even more disproportional and one-sided. No, Obama could've gotten what he wanted if he and his party had held together