Greater than Itself: Value, Capital, and Involuntary Unemployment in Classical Political Economy
My first book project addresses a contentious topic from classical political economy as it appears in the works of Hegel, Marx, and Keynes. It’s what I call the “problem of overproduction or underconsumption” (POU), which arguably gives rise to unemployment and poverty. In terms of their explanatory power, I consider Hegel’s account of what he calls the “rabble” (Pöbel), Marx’s view of “the industrial reserve army of the unemployed” (“relative surplus population”), and Keynes’s view of “the paradox of poverty in the midst of plenty” (“involuntary unemployment”). Ultimately, Marx is closer to Keynes than Hegel or Ricardo, I conclude, anticipating much of the Keynesian revolution.
First, I reconstruct Hegel’s account of the POU in his Elements of the Philosophy of Right and situate it in the context of debates of his day. The POU can give rise to unemployment and poverty for a portion of a nation’s citizens, Hegel claims, and thereby obstruct the actualization of freedom in modern society. Yet Hegel picks strange allies for this claim. He refers to the orthodox school of classical political economy (Smith, Say, and Ricardo), which denies that the POU is even possible or can cause problems at all. The orthodox school’s fundamental assumptions rule out the possibility of such problems (“general gluts”, POU) from the start: if one construes market exchange as the direct, moneyless barter of goods for goods, as they do (viz. “Say’s Law”), then supply and demand are always basically in harmony, and all is well. Detailed inspection shows, however, that Hegel’s view is much closer to the heterodox school of “underconsumptionists” (Malthus and Sismondi). Though he does not mention them by name, their view anticipates later breakthroughs in the theory of “effective demand” in ways similar to his own. Like the heterodox school, he recognizes the POU was arguably happening in cases like the post-Napoleonic recession. And this ought to motivate revision of the classical assumptions, which neither Hegel nor the heterodox school entirely succeed at doing. In their descriptions, both recognize that the POU can cause unemployment and poverty. But neither explain why or how the POU itself comes about. Indeed, they’re too steeped in classical assumptions.
Second, I consider Marx’s Capital and argue that it presents the alternative assumptions which one needs for a proper explanation of the problem Hegel recognizes, albeit obscurely. Marx’s novel concepts of value and capital differ from those of the classical school (and especially Ricardo’s labor theory of value) in ways which lend his view greater explanatory power. Like Keynes, he rejects the fundamental assumptions about markets and money which lead the orthodox school of classical economists to rule out the conceivability of the POU from the start (“Say’s Law”). For Marx, value and capital are essentially monetary, unlike the classical view, which abstracts from money. Again like Keynes, Marx takes a fundamentally macroeconomic perspective, unlike Smith, Say, and Ricardo. With these means he can claim that, beneath the surface of unemployment and poverty, the changing composition of capital investments gives rise to the POU, which in turn gives rise to those phenomena. Over the course of so-called cycles, he argues, capitalists tend to invest relatively more money in labor-saving machinery or financial speculation and yet less in wages. This can result in a relative shortfall in those productive investments (aggregate demand) which determine the buying power of consumers (wages), ultimately impacting employment and profits negatively as well. This framework is not an option for any of the classics or Hegel, but it’s virtually identical to Keynes’s more-powerful view of stagnation and unemployment.
Ultimately, I argue, Marx’s value-theoretical framework is a breakthrough anticipating much of the later “Keynesian Revolution” and post-Keynesian macroeconomics by nearly 70 years. Specifically, I reconstruct Marx’s theory by comparison to his successors, such as Keynes or Schumpeter, rather than his predecessors, such as Ricardo or Mill, as traditional interpretations tend to do; and I emphasize the categorical distinctions Marx draws in volume 3 of Capital, between “profit,” “interest,” and “rent.” On these bases, I propose a new way of approaching his economic thought and a new interpretation of what it is fundamentally about. In short, it is what I call an exploitation theory of profits and a production theory of aggregate profit (“surplus value”), not just another iteration of the troubled “labor theory” of relative prices, as Marx’s critics often assume.
Working Papers
Karl Marx: The First Post-Keynesian?
This paper explores and unpacks the suggestion that significant aspects of the “Keynesian revolution” and post-Keynesian economics were already prefigured in Marx’s mature economic writings. If true, this would contradict what one might call the standard interpretation of Marx, according to which he was basically a “minor post-Ricardian”, in Paul Samuelson’s words. Post-Keynesians generally recognize the following features as distinguishing Keynes’s theoretical framework from its neoclassical predecessor: (1) money is essential in capitalist economies and must be included in the models we use to understand them: it is not a “neutral veil”, a mere medium of exchange, exogenous, or a commodity; and market exchange may not be conceived as though it were the barter of “real” goods for goods; (2) effective demanddoes the explanatory work: changes in aggregate investment expenditure determine changes in employment, incomes, individuals’ spending, profits of firms, and saving, not vice versa; and (3) uncertainty frustrates any projections about the “long run”: capitalist economies and actions within them have a temporal structure which makes it very difficult, if not impossible, to have certain knowledge of the future or even just to calculate risk probabilistically.
In what follows, I’ll argue that Marx’s writings after 1858 contain at least the first two if not all three features. I’ll present an interpretation on which his view is closer to the newer economics of Keynes than to the older one of Ricardo, contradicting the standard narrative. Marx’s value-theory is first and foremost a theory of aggregate-profit formation, explaining it in terms of employments in production; his theory of prices and individual profits, which is a separate item, explains them in relation to the amount of capital invested by capitalists and the level of competition, not ratios of quantities of labor time. Reading Marx’s Capital as a macroeconomic and monetary theory avant la lettre dissolves many of the more troublesome, metaphysical-sounding aspects of his theory, without losing explanatory power. And appreciating the relevant points comparison shows how many of the biggest worries and problems from which his theory is said to suffer turn out to be spurious.
What Constitutes a Society? Three Views of Social Synthesis
In this essay I consider three possible answers to the question: what constitutes a society? Drawing on the history of philosophy and economic theory, will adopt a broadly naturalistic perspective and reconstruct each one as a type of social ontology. What all have in common is that each gives some account of how individuals are united in a society — a process I will refer to as “social synthesis” — yet each is distinguished by what entity it claims would perform that unifying function. The first emphasizes the importance of individuals’ beliefs, ideas, or ideologies, and so I refer to it as “ideologism”; the second focuses on the role of money (cash or coin), and I refer to it as “material-economism”; and the third concentrates on relations of credit and debt (corresponding assets and liabilities), and so I refer to it as the “credit view.” After presenting each view, I evaluate each and conclude that the third is the strongest possible candidate for a realistic social ontology, though it still leaves some room for improvement.
First, drawing on statements by thinkers of various political persuasions (Hobbes, Tocqueville, Pareto, Rawls, Lenin, Gramsci, Burnham, Althusser), I reconstruct the customary view that the entity which binds individuals together and consequently forms a society is primarily just the fact that they hold the same or similar sets of beliefs, have the same ideas, or are committed to the same “ideologies” or worldviews. Because it boils down to the belief that the fundamental cohesive holding society together is just the contents of individual minds, I consider it an implicit form of “sociological idealism.” And I refer to it as “ideologism” because it reduces society to a matter of ideas and ideologies. Admittedly, it is appealing because it fits so readily with common-sense intuitions. Yet I will argue that it suffers from a question-begging problem which makes it unsatisfactory: it takes individuals and their beliefs as primitive constituents to explain society, yet it does not (or cannot) present any deeper explanation of them.
Second, drawing on Karl Marx’s and Alfred Sohn-Rethel’s economic writings on society, I reconstruct the view that money — paradigmatically conceived of as cash or coinage — is the entity which performs the coordinating “social synthesis” of individuals, in Sohn-Rethel’s terms. In this view, individuals constitute society, whether they are conscious of it or not, by way of sets of market-relations in which they exchange labor-power and the products of human labor as commodities for money (e.g., profits, wages). I call this view “material-economism” because it holds that the physical money-form of value is the “medium of exchange” which links and binds individuals together into a coherent social whole. The framework of society is just an “exchange matrix” or “cash nexus,” and intersubjective transactions are doing all the work, not individual beliefs or ideas. Material-economism might be a stronger view of social synthesis than ideologism, because it points to a non-subjective entity which performs the social synthesis. Yet I will argue that it suffers from problems as an empirical description: most actual money in circulation is bank credit (debt), not a physical or material entity like paper or metal; it rests on the so-called commodity theory of money, which is just factually false.
Finally, I reconstruct a view that provides an alternative to both of the previous views, which keeps their advantages without their defects, is empirically accurate, and thus can provide a stronger framework for social ontology. Drawing upon various sources in philosophy and economics, I present what I will call the “credit view” (Nietzsche, Marx, chartalism, central banking lit, Graeber, post-Keynesianism, MMT). According to this view, relations of credit-debt are the entity that performs the “social synthesis,” one person’s asset being identical to another person’s liability or obligation to pay, and vice versa. What Hyman Minsky called the “set of interlocking balance sheets” constitutes the financial matrix of any economic system today, mediating the transactions on which social existence and reproduction depend. On this view, we glean the framework for our social ontology from the financial structure of double-entry bookkeeping and macroeconomic accounting. This view recuperates the importance ideologism places on individuals’ beliefs, which are essential in credit-debt relations (viz. credo; credit, creditor’s beliefs concerning debtors’ abilities to pay); and it retains material-economism’s insight about the importance of money-mediated market exchange, while substituting a more accurate view of money as credit-debt for the physical view of money as mere cash or coin. I conclude by considering the respects in which the credit view still requires some development as a finished view of social ontology.
Social Classes and Social Ontology: Reconsidering Classical Political Economy
In this paper I address the conception of social classes that one finds in classical political economy and argue that it can provide a convenient ontology of modern society or a useful ‘social ontology’. That is, it can help us to understand the kinds of individuals which constitute a modern society, or ‘what there is’ in society, as well as some of the latter’s peculiar dynamics and problems.
First, the paper considers important statements from the orthodox school of classical political economy (Smith, Ricardo, Mill) and its heterodox school (Malthus, Sismondi, Marx) in order to reconstruct the analytical framework which they all share. In short, the kinds of beings that populate a modern society and their class membership are determined by the following three criteria: (a) what kind of assets one owns (viz. labor-power, capital, or land), (b) what one does with them, in exchange for (c) which form of revenue one receives (viz. wages, profits, or rents), yielding the following three classes: (1) workers, (2) capitalists, and (3) landlords. In contemporary terms, this is a “structural” or “functional” social ontology, foregrounding positions in a system which are defined by what one does to reproduce it. In two additional steps, the paper then continues to show how Marx takes the classical view a step farther by clarifying an issue that it never fully and explicitly elaborated as well as how the classical view might be updated for a more modern view of contemporary society in our own time.
The paper then considers Marx’s argument that the aggregate of value which is distributed in various forms of revenue (i.e., wages, profits, rents) is produced and increased by the employment of labor in industry (“exploitation”). Profits are possible in the aggregate, Marx shows, only if more commodities are produced and exchanged in a subsequent period than in an earlier one, because market exchange is always the exchange of equivalents, and market distributions can only yield individual or relative profits (net-zero gains). Labor in production is the source of net value added in the aggregate (“surplus value”), of which the various revenues are just “forms,” deductions, or transfers that distribute that value. So, there is arguably only one source of revenue, which takes three “forms,” and the classical school succumbs to an illusion (“fetish”) when it believes classes are distinguished by three different “sources” of revenue.
Finally, the paper then considers how the classical view might be updated for a more contemporary perspective, taking hints from aspects of the works of Marx, Veblen, Keynes, and Berle and Means. To this end, it focuses on the financialization of capital and the consequent “separation of ownership and control” of it, which occurred with the formation of joint-stock companies, monopolies, and trusts (ca. 1870–1930). In this light, the classes or kinds of individuals which constitute modern society differ slightly from those identified in the classical view: capitalists, landlords, and workers. Rather, they arguably consist of owners of capital (rentiers, recipients of passive income or returns on investment), controllers of capital (salaried professional managers of the capital of others and labor), and wageworkers.
Some payoffs of my reconstruction of the theory of social classes as a type of social ontology include the alternative it presents to oversimplified views of class (e.g., dualisms of bourgeoisie vs proletariat, rich vs poor, etc.), to widespread misconceptions that economic views of class are excessively reductive, and to social theories which understand matters solely in terms of mentality, intentionality, language, race, gender, sexuality, or culture—yet ignore questions of economic class.
