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Some Marxian Musings

Brad Delong offers a critique of the labor theory of value that is, I think, helpful as an exercise in understanding economics but not a very useful contribution to Marxiania. Brad suggests that Marx would have us prefer the situation in which there's zero exploitation and real wages of 3,000 wage-units to the one where there's 60,000 units of aggregate exploitation but real wages of 4,500. This, however, is wrong. What Brad describes here is essentially the transformation from a pastoralist economy to a capitalist one. Marx emphatically does not condemn the tranformation to a capitalist economy and certainly does not suggest that we ought to move backward to a world of subsistence farming. Rather, he looks at the exploitative capitalist economy where average labor product is 5,100 and real wages are only 4,500 and suggests that, though the collective ownership of the means of production, we could move forward to a world where the real wage is pushed up to the average labor product (i.e., 5,100) and the element of profit/exploitation is reduced to zero.

The response is that such a move would eliminate the incentives for investment and new capital accumulation. This was one of the problems the Bolsheviks faced as they tried to govern Russia, dominated as it was by an under-productive (by world standards) agrigultural sector. The Trotsky/Stalin proposal that ultimately carried the day was that central planning of the economy could allow the government to force the population into underconsuming relative to production and thereby generate new capital for investment in industrial infrastructure and large scale farming. As we know, that particular story doesn't have a happy ending. One can see also Hayek's critique of central planning, to say nothing of the fact that this path, unlike welfare capitalism, really does put you on a road to surfdom.

Bukharin advocated an alternative path of development. On his view, the only thing to do was to allow agricultural capitalism to continue operating, allowing the country to build up investment capital and become more prosperous. Socialism would need to wait for another day. This was truer to the spirit of Marx, who believed that the socialist revolution would come first in countries that had reached a very high level of capitalist development, which was supposed to involve an "overabundance of goods" and therefore lead to a crisis.

I think there's a real question somewhere in this neighborhood. Right now, America's GDP per capita is around $37,800. The hedonics literature suggests that in international comparisons, greater national wealth stops reaping dividends in terms of happiness at an average income level about one third of this -- $12,000 per person, or so. But intra-national differences in wealth still matter. If we could achieve a distribution of income such that each person actually earned around $37,800 this might well be a good idea even if the elimination inequalities, profit, "exploitation," etc. involved led to a situation where productivity growth essentially stopped and per capita income no longer rose. Now one major problem with this proposal is that you can't simply view the U.S. economy in isolation.

World population is thought to be around 6.3 billion and gross world product at something like $50.6 trillion, for a global per capita income of approximately $8,000 -- distributed in a massively unequal manner. That's still well below the hedonic threshold at around $12,000 per person, but it's not so wildly off the mark that he can't envision reaching a $12,000 per capital world product at some point in the not-so-distant future. Sometime around then, we're going to need to start asking the question: What price growth? Creating a property-rights system that encourages investment and growth by permitting large profits and inequalities seems like an excellent idea when boosting real wages is a major priority. It does seem, however, that a point comes when we can do more good by redistributing the pie we already have than by baking more pie. I don't think we're at that point yet, nor are we in danger of reaching it in the near future, at least in global terms. Beyond that there are not yet at this point any mechanisms for the sort of international wealth and income transfers I'm contemplating. So for now, capitalism is safe from my ire, at least. But that safety is a reflection of some contingent circumstances whose time will end someday....

April 5, 2005 | Permalink

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» Matt Yglesias and the Socialist Utopia from Indefinite Articles
I've been waiting for this concept to get mentioned, and thankfully Matt Yglesias has obliged me. (Note, I'm not picking on Matt, he just happened to make this argument). What price growth? Creating a property-rights system that encourages investment a... [Read More]

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» The Redistribution of Wealth from The Colossus
Matt Yglesias is dreaming of a benevolent, Marxist world, much like children have visions of sugarplums dancing in their heads on Christmas Eve. Creating a property-rights system that encourages investment and growth by permitting large profits and ine... [Read More]

Tracked on Apr 6, 2005 8:28:02 AM

» The Redistribution of Wealth from The Colossus
Matt Yglesias is dreaming of a benevolent, Marxist world, much in the way that children have visions of sugarplums dancing in their heads on Christmas Eve. Creating a property-rights system that encourages investment and growth by permitting large prof... [Read More]

Tracked on Apr 6, 2005 8:49:53 AM

Comments

this might be more of a criticism of MY than KM, but i hardly think KM would say, "capitalism until X, then to enjoy the fruits of its 'labor'". well, i take that back, taken to its conclustion that is a criticism of both MY AND KM

Posted by: matt | Apr 5, 2005 4:52:02 PM

It isn't impossible to imagine new technologies that could radically extend peoples lives. And, things like colonizing other planets could help ensure that human civilization will last significantly longer. Growth may help these things happen which would be good even if we had enough to redistribute and make everyone happy.

Posted by: joe o | Apr 5, 2005 5:07:57 PM

Serfdom. Road to serfdom. The guy running www.roadtosurfdom.com has opened a real can of worms ...

Posted by: Nick Beaudrot | Apr 5, 2005 5:13:55 PM

A crisis of utopianism there at the end, MY: we’re going to reach a point someday where we can engage in massive redistribution of wealth; we’re not there yet, we’re not even close yet, but someday, someday, we’ll reach the promised land.

Nah. The societies that didn’t engage in such niceties would beat the pants off us.

Posted by: ostap | Apr 5, 2005 5:22:41 PM

Wow, Matt's a marxist. Who knew?

Posted by: John | Apr 5, 2005 5:24:51 PM

Brad's thought experiement assumes yeomen farmers, and I think also assumes perfect information - or at least reasonably open knowledge of supply/demand curves.

Marx I think was looking ahead to a world where most humans would be wage-earners, not landowners, and large wage-payers would have demand curves not known to employees. Which is I think the case today.

Also assymetry arguments need to be addressed, as in the consequences of me quitting are that I starve to death, whereas the consequnces of Wal-Mart firing me are zero.

Cranky

Posted by: Cranky Observer | Apr 5, 2005 5:28:30 PM

It does seem, however, that a point comes when we can do more good by redistributing the pie we already have than by baking more pie.

Oh, Matt. To say that the utility value of the marginal dollar diminshes sharply past a certain threshold does not begin to imply that taking money away from people already above the threshold has no negative effect on their utility. Here's an analogical argument that is obviously terrible: People are happiest with exactly two children. I have three and you have one. Therefore, if one of my children is "redistributed" to you, we'll both be happier.

Of course, there will be a world war before there is massive Pogge-style coercive redistribution from the G7 to the third-world. The argument of that section in The Theory of Justice about the strains of commitment, stability, and the unviability of utilitarianism really isn't something that can be waved away.

The best possible utilitarian solution is to accelerate the rates of growth in already rich contries while at the same time increasing economic interconnectivity (globalization). Through trade, the futile race for relative position in rich counties raises average income and thus happiness in below-threshold Bangladesh, and is therefore a kind of voluntary progressive tax on the happiness of the already wealthy. This is good Marxism, no?

Finally, and obviously, happiness is good, but it isn't everything.

Posted by: Will Wilkinson | Apr 5, 2005 5:35:48 PM

"Surfdom?" Duuuuude!

Posted by: C.J.Colucci | Apr 5, 2005 5:49:49 PM

> Of course, there will be a world war before there is
> massive Pogge-style coercive redistribution from the G7
> to the third-world.

I think you are absolutely right about that, although not in the way you think!

Cranky

Note that I do NOT support forced redistribution myself.

Posted by: Cranky Observer | Apr 5, 2005 5:53:46 PM

I'd like to be there when you convince Donald Trump that he will be perfectly happy living on $12,000 per year per family member.

Posted by: Freder Frederson | Apr 5, 2005 6:08:58 PM

To say that the utility value of the marginal dollar diminshes sharply past a certain threshold does not begin to imply that taking money away from people already above the threshold has no negative effect on their utility.

Well, this is not clear:

(1) You're talking about intra-society individual happiness, Matt's talking about average societal happiness. We could raise the average but lower some people's happiness.

(2) Intra-society happiness might have a lot to do with status. Maybe money only raises someone's happiness because it raises perceived status. Making everyone's status equal may or may not significantly boost a lot of people's happiness. Yes, some people will be less happy, just like royalty are worse off in a democracy than a monarchy. That's an important consideration, but not decisive.

(3) Even within a society, that nice logarithmic utility-of-money curve is only an approximation of reality. If you took a survey, you might find that average happiness at 100K/year income is the same as avg happiness at 1 million/year. I dunno, it's an empirical question.

But again, it may be fallacious to simply read off the projected happiness of an equalized society by looking up $37K on the current "utility-of-money" curve and multiplying by the US population. Changing the society by levelling it may change the utility of $37K (for better or worse, I dunno)

Here's an analogical argument that is obviously terrible: People are happiest with exactly two children. I have three and you have one. Therefore, if one of my children is "redistributed" to you, we'll both be happier.

Well, redistributing children is not like redistributing money, so the analogy is not very good. (Losing 1/3 of your children would be intensely negative; losing 1/3 of your income not even comparably negative -- also, gaining someone else's child is presumably not comparably positive to having a child of your own.)

Finally, and obviously, happiness is good, but it isn't everything.

Fair point, but explicitly wondering about maximizing happiness (as opposed to say, maximizing economic growth) may be a positive step forward in these public policy considerations.

Posted by: mk | Apr 5, 2005 6:15:32 PM

OMG, if you take LSD when you're young you really will get flashbacks. Here we are in the happy Land of Yesterday, when we assumed everyone in the world could eventually live like us. Good times, good times.

But we know now that ain't gonna happen. Not enough water, not enough ways to dispose of waste heat and soot. In fact, just bringing every American up to the "average" standard (which nobody seems to know how to do) would be an ecological disaster.

And Lord knows, that wouldn't be enough. A pensioner on $12k a year is happy with two shiny quarters to rub together. Raise his salary to $60k, and he will insist he needs to save a million for retirement. Raise his salary to a million, and now he needs a billion to feel comfortable. In America these emotions are a lot more predictable than the ancient attraction of sex.

Sad to say, maybe we really do need to look at a 1981 Papal Encyclical to find some clues as to a way out of the mess our desires have made.

Posted by: serial catowner | Apr 5, 2005 6:17:22 PM

Lord have mercy. Where did this come from? Rawls?

DeLong was talking I think about the analytical utility of the labor theory of value. First thought came into my mind as I read this was a possible difference between a mathematical economist and a political economist.

Second thought was whether "GDP per capita" was median or mean.

Third thought was that Will just keeps getting better.

Posted by: bob mcmanus | Apr 5, 2005 6:24:49 PM

Will, I think that children are less fungible than dollars.

But you are right that people don't like giving up things that they already have - that's called the "endowment effect" in the literature - though I imagine that it's a much stronger effect for things like children than for things like money. So if the government wants to drastically change society's distribution of wealth, that probably won't be painless, and it is probably best to find a more indirect route than the Robin Hood redistributive strategy of taking from the rich and giving to the poor.

I think that a better approach than drastic redistribution is to try to avoid the extremes in the growth vs. equality tradeoff, to encourage utility-promoting innovations (which are often unexpected), and to work to gradually raise the floors, in the US and internationally, through an integrated global economy and by other means (like charity and development programs). But that might not be as exciting as waiting for utopia.

Posted by: Blar | Apr 5, 2005 6:51:41 PM

But what system would you pick, if you didn't know who you would be?

Posted by: scott lewis | Apr 5, 2005 6:58:46 PM

The hedonics literature suggests that in international comparisons, greater national wealth stops reaping dividends in terms of happiness at an average income level about one third of this -- $12,000 per person, or so.

Now this is the most interesting sentence I've read on a blog in quite some time. I'm inclined to agree, but I'd love to see some cites to that "hedonics literature." I'm ashamed to admit I didn't even know there was such a thing.

Posted by: lemuel pitkin | Apr 5, 2005 7:13:53 PM

(I did know that this is what you find with health indicators, and of course health is important both as a source and an indicator of wellbeing.)

Posted by: lemuel pitkin | Apr 5, 2005 7:17:42 PM

Does the road to surfdom lead to Waimea Bay, Pipeline, or Banzai Beach?

Posted by: Will Allen | Apr 5, 2005 7:19:02 PM

That Pogge style redistribution might look something like forced licensing for drugs and public support for their development based on potential health effects. But WW wants you to be afraid! They will take your babies away!

Anyway, arguing that crazy redistributionist schemes are all pie in the sky but the hard nosed answer is "economic interconnectivity" has to be a joke.

Posted by: david | Apr 5, 2005 7:31:17 PM

But you are right that people don't like giving up things that they already have - that's called the "endowment effect" in the literature - though I imagine that it's a much stronger effect for things like children than for things like money. So if the government wants to drastically change society's distribution of wealth, that probably won't be painless, and it is probably best to find a more indirect route than the Robin Hood redistributive strategy of taking from the rich and giving to the poor.

Well, unless you accept a big short term cost. In a purely "average utility of living persons" analysis, the "endowment effect" can be counteracted by annihilating the rich while you are taking and redistributing their stuff, for instance.

Or, less violently, you could do gradual redistribution and except the short-term disutility of each group effected as the cost of getting the long-term utility of decreased relative deprivation.

Best of all, you redistribute future expected returns, and (on a purely utilitarian level, not my preferred actual policy approach) you do so with as opaque a policy as possible so that no one feels that their future entitlement is being taken away.

Posted by: cmdicely | Apr 5, 2005 7:47:46 PM

Very best of all: Don't redistribute at all, because it's not your's to redistribute.

You want to redistribute some income, do it with your own, nobody's stopping you.

Posted by: Brett Bellmore | Apr 5, 2005 7:59:40 PM

I do redistribute mine, Brett. But since it's not enough to save all the starving people, I'm going to redistribute yours too. You'll probably complain, but the world will be a better place.

Posted by: Ethical Werewolf | Apr 5, 2005 8:08:28 PM

"Best of all, you redistribute future expected returns"

Like a 1955 tax policy with a 98% top rate?

Posted by: bob mcmanus | Apr 5, 2005 8:17:50 PM

Gosh, ethical, I can think of all sorts of things that will make the world a better place. Am I thus legitimately empowered to stick a gun in your face to force your compliance in all these things, as long as I get 50.1% of the population to agree with me?

Posted by: Will Allen | Apr 5, 2005 8:24:03 PM

"But what system would you pick, if you didn't know who you would be?"

I would pick the system that creates huge amounts of wealth, such that the poor person is rich by current standards even if he is fantastically less wealthy than top earners. That would be the X+500 to the poor X+10000 to the rich system.

Or I might pick the system that produces a lot of wealth overall with a very few poor. The X+10 to 1% with X+400 to 99%.

I would pick either over the Rawlsian everybody gets X system.

Or am I supposed to pretend that there is an everybody gets X+500 system?

Posted by: Sebastian Holsclaw | Apr 5, 2005 8:24:15 PM

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