Work, Unemployment and Aggregate Demand

(I originally posted this as a series of comments on a 2012 post at Steve Randy Waldman’s Interfluidity. In that post, Steve suggested that we should think of redistribution under capitalism as “the poor collectively sell[ing] insurance against riot and revolution, which the rich are happy to pay for with modest quantities of efficiently produced goods.”)

In Theories of Surplus Value, Marx writes:

Assume that the productivity of industry is so advanced that whereas earlier two-thirds of the population were directly engaged in material production, now it is only one-third. Previously 2/3 produced means of subsistence for 3/3; now 1/3 produce for 3/3. Previously 1/3 was net revenue (as distinct from the revenue of the labourers), now 2/3. Leaving [class] contradictions out of account, the nation would now use 1/3 of its time for direct production, where previously it needed 2/3. Equally distributed, all would have 2/3 more time for unproductive labour and leisure. But in capitalist production everything seems and in fact is contradictory… Those two-thirds of the population consist partly of the owners of profit and rent, partly of unproductive labourers (who also, owing to competition, are badly paid). The latter help the former to consume the revenue and give them in return an equivalent in services—or impose their services on them, like the political unproductive labourers. It can be supposed that—with the exception of the horde of flunkeys, the soldiers, sailors, police, lower officials and so on, mistresses, grooms, clowns and jugglers—these unproductive labourers will on the whole have a higher level of culture than the unproductive workers had previously, and in particular that ill-paid artists, musicians, lawyers, physicians, scholars, schoolmasters, inventors, etc., will also have increased in number.

A large and growing share of employment, in other words, is unnecessary from a technical standpoint. It exists because useless jobs are more conducive to social stability than either mass poverty or a social wage. The payments the majority of the population receives for not rioting or rebelling look better when they are dressed up as payment for our work as mistresses, grooms, jugglers — or as yoga instructors or economics professors. This way, people are still dependent on a boss. In a differently organized world, we could dispense with most of these jobs and take the benefits of increased productivity in some combination of shorter hours for productive workers and a shift toward more intrinsically fulfilling (craft-like) forms of productive work.

By starting from here we can think more sensibly about employment and unemployment. From a macroeconomic standpoint, all we need is that expenditure on unproductive labor changes in some rough proportion with income.

From my point of view, the essential facts about employment are (1) As long as the most socially accepted form of claim on the social product is wages for work, work will be found for people, along the lines Marx suggests. (This is not true in poor societies, where a large portion of the poor engage in subsistence labor, of either the traditional or garbage-picking variety.) And (2) In the short run, employment will rise and fall as the rich feel a smaller or a greater need for the insurance-value of financial wealth.

As soon as you being to think about employment in terms of an input of labor to a production process, you’ve taken a wrong turn. We should not try to give supply-based explanations of unemployment, i.e. to show how the allocation of some stock of productive resources by some decision makers could generate unemployment. Unemployment is strictly a phenomenon of aggregate demand.

Unemployment in advanced countries is not characterized by exogenous factor supplies and Leontief-type production functions, where some factors are exhausted leaving an excess supply of their complements.  (The implicit model that lies behind various robots-will-take-all-the-jobs stories.) Unemployment in capitalist economies involves laid-off workers and idle factories; it involves unemployed construction workers and rising homelessness; it involves idle farmworkers and apples rotting on the trees. Unemployment never develops because we need fewer people to make the stuff, but because less stuff is being made. (Again, things are different in poor countries, and in the early stages of industrialization historically.) Unemployment cannot be explained without talking about aggregate demand any more than financial crises can be explained without talking about money and credit. It exists only to the extent that income and expenditure are determined simultaneously.

Unemployment rises when planned money expenditure falls for a given expected money income. Unemployment falls when planned money expenditure rises for a given expected money income. Conditions of production have no (direct) effect one way or the other.

Recognizing that unemployment is an aggregate expenditure phenomenon, not a labor-market phenomenon, helps avoid many errors. For example:

It is natural to think of unemployed people as people not engaged in productive work. This is wrong. The two things have nothing to do with each other. Unemployed people are those whose usual or primary claim on the social product takes the form of a wage, but who are not currently receiving a wage. There are lots of people who do not receive wages but are not unemployed because they have other claims on the social product — children, retirees, students, caregivers, the institutionalized, etc. Almost all of tehse people are capable of productive work, and many are actively engaged in it — caregiving and other forms of household production are essential to society’s continued existence. At the same time, there many people who do receive wages but who are not engaged in productive work; one way to define these is as people whose employment forms part of consumption out of profits or rents.

While there is no relationship between people’s capability for and/or engagement in useful work, on the one hand, and employment, on the other, there is a close link between aggregate expenditure and employment, simply because a very large fraction of expenditure takes the form directly or indirectly of wages, and aggregate wages adjust mainly on the extensive rather than the intensive margin. So when we see people unemployed, we should never ask, why does the production of society’s desired outputs no longer require their labor input? That is a nonsense question that will lead nowhere but confusion. Instead we should ask, why has there been a fall in planned expenditure?


Going beyond the 2012 conversation, two further thoughts:

1. The tendency to talk about unemployment in terms of why some peoples’ labor is no longer needed for production, is symptomatic of a larger confusion. This is the confusion of imagining money claims and payments as a more or less transparent representation of physical and social realities, as opposed to a distinct system that rests on but is substantially independent from underlying social and biological existence. Baseball requires human beings who can throw, hit and run; but the rules of baseball are not simply shorthand for people’s general activity of throwing, hitting and running. Needless to say, economics education assiduously cultivates the mixing-up of the money game with the substrate upon which it is played.

2. It’s natural to think of productive and unproductive labor as two distinct kinds of employment, or at least as opposite poles on a well-defined continuum. Marx usually writes this way. But I don’t think this is right, or at least it becomes less valid as the division of labor becomes more extensive and as productive activity becomes more directly social and involves more coordination of activities widely separated in space and time, and more dependent on the accumulation of scientific and technical knowledge.

Today our collective productive and creative activity requires the compliance of a very large number of people, both active and passive. This post will never be read by anyone if I don’t keep on typing. It will also never be read if the various tasks aren’t performed that are required to operate the servers where this blog is hosted, my internet connection and yours, the various nodes between our computers, the utilities that supply electricity to all the above, and so on. It would not be read if someone hadn’t assembled the computers, and transported and sold them to us; and if someone hadn’t developed the required technologies, step by step as far back as you want to go. It would not be read, or at least not by anyone except me and a few friends, if various people hadn’t linked to this blog over the years, and shared it on social media; and more broadly, if the development of blogs hadn’t gotten people into the habit of reading posts like this. Also, the post won’t be read if someone breaks into my house before before I finish writing it, and steals my laptop or smashes it with a hammer.

All of these steps are necessary to the production of a blog post. Some of them we recognize as “labor” entitled to wages, like whoever is watching the dials at Ravenswood. Some we definitely don’t, like the all-important not-stealing and not-smashing steps. And the status of some, like linking and sharing,  is being renegotiated. Again, a factory only runs if the workers choose to show up rather than stay home in bed; we reserve a share of the factory’s output to reward them for making that choice. It also only runs if passersby choose not to throw bricks through the windows; we don’t reserve any share of the output for them. But if we were going to write down the physical requirements for production to take place, the two choices would enter equivalently.

In a context where a large part of the conditions of production appear as tangible goods with physically rival uses; where the knowledge required for production was not itself produced for the market; where patterns of consumption are stable; where the division of labor is limited; where most cooperation takes the form of arms-length exchanges of goods rather than active coordination of productive activity; where production does not involve large commitments of fixed capital that are vulnerable to disruption; then the idea that there are distinct identifiable factors of production might not be too big a distortion of reality. In that context, splitting claims on the social product into shares attributable to each “factor” is not too disruptive; if anything, it can be a great catalyst for the development of productive capacities. But as the development of capitalism transforms and extends the division of labor, it becomes more and more difficult to separate out which activities that are contributing to a particular production process. So terms like productivity or productive labor lose touch with social reality.

You can find this argument in chapters 13-14 and 32 of Capital Volume 1. The brief discussion in chapter 32 is especially interesting, since Marx makes it clear that it is precisely this process that will bring capitalism to an end — not a fall in the rate of profit, which is never mentioned, nor a violent overthrow, which is explicitly rejected. But that thought will have to wait for another time.

Marx’s “On ‘The Jewish Question'”

Over at Crooked Timber, Corey Robin has a very short post suggesting that “Islam is the 21st Century’s Jewish Question,” which has attracted a long and perhaps predictably heated comments thread. Some of the more agitated commenters at CT apparently think that such comparisons are inherently dishonest or immoral.  To me, it seems obvious that, however you weigh the similarities and differences in this particular case, the historical experience of anti-semitism is an important reference point for thinking about the way various Others are regarded today.

I don’t want to relitigate that comment thread here — except, again, to say that I don’t see anything unreasonable or offensive about the comparison Corey is making. No, the reason I’m writing this is that Corey’s mention of it reminded me of what a brilliant and profound, and profoundly misunderstood, essay Marx’s “On ‘The Jewish Question'” is.

The essay is a response to Bruno Bauer – note the additional quote marks in the title. Bauer in turn is responding to various demands for emancipation of Germany’s Jews from the legal restrictions they were subject to. Bauer has two objections. First, he says, there are no citizens in Germany, only different classes of subjects with their own distinct privileges and assigned roles. Jews have one set, Christians have another, but no one is free. Second, even if freedom were possible in Germany, Jews could only become citizens if they were willing to limit their Jewisness to private life — no special accomodations for religious observance, no maintaining their own institutions. “The Jew must retreat behind the citizen.”

Marx replies: All that is true as far as it goes. But that only shows the limitations of the liberal conception of freedom. It is true, as Bauer says, that political emancipation requires the Jews (like everyone else) to make their religion a purely private matter, but all that shows is how far short political emancipation falls of human emancipation.

Human emancipation would recognize that we exist only in relation to myriad other people, and in these relationships we are conscious, moral, rational beings, making choices about our collective lives. Political emancipation, by contrast, isolates our conscious collective life in the political sphere, leaving us disconnected egoists in our private life.

Where the political state has attained its true development, man … leads a twofold life, a heavenly and an earthly life: life in the political community, in which he considers himself a communal being, and life in civil society, in which he acts as a private individual, regards other men as a means, degrades himself into a means, and becomes the plaything of alien powers. … In his most immediate reality, in civil society, man is a secular being. Here, where he regards himself as a real individual, and is so regarded by others, he is a fictitious phenomenon. In the state, on the other hand, where man is regarded as a species-being, he is the imaginary member of an illusory sovereignty, is deprived of his real individual life and endowed with an unreal universality.

Political emancipation allows people to participate in collective decision-making but only on condition that they give up or deny any concrete, organic identity or connections they have beyond abstract citizenship. While in private life people are free to be really ourselves, but disconnected from the society we continue to depend on, we experience this freedom as being “the plaything of alien powers.”

This connects directly back to the Jewish Question: Judaism is the kind of community or collective identity that people must give up to become citizens in the liberal state. Or rather, pretend to give up:

Man, as the adherent of a particular religion, finds himself in conflict with his citizenship and with other men as members of the community. This conflict reduces itself to the secular division between the political state and civil society. For man as a bourgeois, “life in the state” is “only a semblance or a temporary exception to the essential and the rule.” Of course, the bourgeois, like the Jew, remains only sophistically in the sphere of political life, just as the citoyen only sophistically remains a Jew or a bourgeois. But, this sophistry is not personal. It is the sophistry of the political state itself. The difference between the merchant and the citizen, between the day-laborer and the citizen, between the landowner and the citizen, between the merchant and the citizen, between the living individual and the citizen. The contradiction in which the religious man finds himself with the political man is the same contradiction in which the bourgeois finds himself with the citoyen, and the member of civil society with his political lion’s skin.

While liberal political life is organized on the principle of reasoned debate between disinterested equals, it is not actually the case that inequality and particular interests disappear. One important thing to note in this passage: Here, as elsewhere, Jewishness is only one of various examples of a particular identity. Which should make clear: This is an essay about the limits of political freedom in the liberal state, not an essay about Jews. It’s an essay about “The Jewish Question,” not about the Jewish Question.

So: Under the bourgeois state (of which Marx already recognizes the northern US as offering the purest example) religion goes from being the most public question, to the most private. “Religion … is no longer the essence of community, but … the expression of man’s separation from his community … It is only the abstract avowal of specific perversity, private whimsy, and arbitrariness.” It is, in short, just a matter of taste.

In the private sphere we are all just automatic pleasure-and-pain machines; our capacity for moral and rational action is limited to the political sphere. Just look at the distinction the French Revolution made between the “rights of the citizen” and the “rights of man”:

The rights of man, … as distinct from the rights of the citizen, are nothing but the rights of a member of civil society, the rights of egoistic man, separated from other men and from the community. … It is the question of the liberty of man as an isolated monad. … The rights of man appear as “natural” rights because conscious activity is concentrated on the political act. … Political emancipation is the reduction of man, on the one hand, to a member of civil society, to an egoistic, independent individual, and on the other, to a citizen, a juridical person.

Economics, perhaps even more than other social sciences, has taken this distinction and made it doctrine. A core methodological assumption of economics is that private choices are purely arbitrary, they are given natural facts. We can’t discuss them, debate them, subject them to reason: De gustibus non est disputandum. In private life, we are animals or not even, we are mechanical objects. Where economics poses a choice, it is invariably: What should the State do?

There is a more direct connection with economics, too. While individuals in civil society are conceived of as monads, they do still relate to each other, through the medium of property. Marx:

The practical application of man’s right to liberty is man’s right to private property …, the right to enjoy one’s property … without regard to other men, independently of society, the right of self-interest. This individual liberty … makes every man see in other men not the realization of his own freedom, but the barrier to it.

Social life, to take another tack, is a series of hugely complicated coordination problems. When these problems are solved through norms or tradition, or through rational debate, we experience their resolution as freedom. We see ourselves doing what is right, because it is right. When they are solved by markets or other forms of coercion, we experience unfreedom. One person decides and the rest of us comply.

At the start of the essay, Marx poses the question: “Does the standpoint of political emancipation give the right to demand from the Jew the abolition of Judaism?” Here towards the end, it’s clear that Marx’s answer is, No. A democratic politics that allows us to act as rational beings only by denying our particular identities is no true democracy. And a private life that allows us our individuality only as arbitrary personal tastes, and in which have no organic ties or moral duties to anyone else, offers no true freedom. Marx does hope and expect that Judaism, like all religions, will eventually disappear. But that’s only possible once the separation of political life and civil society has been transcended. We will be able to dispense with religion only once we are able to act as moral agents in our daily lives. Or as he says:

Only when the real, individual man reabsorbs in himself the abstract citizen, and as an individual human being has become a species-being in his everyday life, and in his particular situation, only when man has recognized and organized his own powers and, consequently, no longer separates power from himself in the shape of political power, only then will human emancipation have been accomplished.

What Comes Before Capital?

“The wealth of those societies in which the capitalist mode of production prevails, presents itself as an immense accumulation of commodities.'”

Everyone knows that line. If your intellectual formation is like mine, it has approximately the same status as “In the beginning God created the heavens and the earth.”

The rabbis, I’m told, used to like to point out that in Hebrew the first letter of “In the beginning…” looks like a box with three sides, and only one opening. This was to convey the message, don’t ask what happened before, or what might be happening somewhere else. The only story we care about starts here.

We all have our rabbis. But we keep asking anyway, what comes before? What comes before that first sentence of Capital, what’s happening elsewhere? What form does wealth (claims on the good life) take in societies where the capitalist mode of production doesn’t prevail? And apart from how it appears, or presents itself, what can we say about what it really is?

I think the biggest problem with how people read Capital is, they don’t take the subtitle seriously: It really is a “critique of political economy.” There’s an overarching irony, the whole thing is written under the sign of the hypothetical. (In general, I think this irony is one of the most important, and hardest, things that students have to learn in any field.) The whole book is written to show that even if everything Ricardo said was true, capitalism would still be an unjust and inhumane (and unstable, though that doesn’t come til later) economic system. But that’s not the same as saying that everything Ricardo says really is true. In my opinion — people I respect disagree — everything Marx says about the Labor Theory of Value is preceded by an implicit “even if…” It shouldn’t be interpreted as a set of positive claims about the world.

So what does Marx positively believe? For this, I think we have to turn to the early writings. I know these are deep waters, on which I am innocently paddling about in my little water wings. But in my opinion, the Economic and Philosophic Manuscripts of 1844 are the essential “before” to Capital.

In Capital, exploitation is defined in terms of the share of the product (already quantifiable; the transformation of the infinitely heterogeneous content of human activity into a mass of commodities has already taken place) to which claims accrue as a result of wage labor. But in the Manuscripts, he says

A forcing-up of wages (disregarding all other difficulties, including the fact that it would only be by force, too, that the higher wages, being an anomaly, could be maintained) would … be nothing but better payment for the slave, and would not conquer either for the worker or for labour their human status and dignity.

Or equivalently, “The alienation of the product of labour merely summarizes the alienation in the work activity itself.” What’s important is exhausting one’s creative powers on alien ends. How many channels you have on tv afterward doesn’t matter.

Alienated labor means (to take various of Marx’s definitions):  “the work is external to the worker”; the worker “does not fulfill himself in his work”; the worker “does not develop freely his mental and physical energies”; “work is not voluntary, but imposed, forced labour”; work “is not the satisfaction of a need, but a means for satisfying other needs”; the worker “does not belong to himself but to another person.” This is the non-quantifiable fact about life under life under capitalism for which questions about the distribution of commodities are a stand-in. Everything that happens in Capital, happens after this.