The wartime economy?

In 1935, six years before Pearl Harbor, the US Congress approved the largest peacetime allocation ever, nearly five billion dollars, for unemployment relief. Over the next decade, Congress would throw $350 billion taxpayer dollars into the war effort. Why?

The war to defeat fascism cost the United States 405,000 of its citizens, in four years. Too high a price to defeat the Germany’s and Italy’s fascists and Japan’s nationalists? Would Donald Trump’s white nationalist supporters think so?

Already in less than four months, Covid-19 has claimed over 60,000 lives, one seventh the number lost to European and Asian right wing extremists. In World War II terms, this would be the equivalent of losing 60,000 US lives before January 1942. Covid-19 is a super-killer. But it is also an economic killer.

Over 30M Americans have applied for unemployment benefits so far. That number only includes individuals eligible for apply for unemployment. And we are only in our third month.

If we think of the Coronavirus as a deadly killer, a foreign assailant, the republican-led Congress and White House should be allocating $5 trillion to wipe out this plague. So far, they have allocated less than half that number. Why?

A large part of the problem is ideological. Republicans are, well, anti-republican. They do not believe in res publica, the wealth we hold in common. They do not believe that publics should even exist. So, the very notion of a public entity appropriating and redistributing private wealth is inimical to the (anti-) republicans. Instead, what they believe in is the redistribution of public money into private hands. That is the whole idea behind public debt and why public debt is preferable (for anti-republicans) to taxing wealth. Public debt will have to be paid off, eventually, if in no other form then simply in debt servicing. And guess who will pay for that debt? Hint: the (anti-)republicans just gave their billionaire friends the largest tax break in history.

To put this all in perspective, in 1947, when US taxpayers began paying off their huge $5 trillion dollar war debt, the effective corporate tax rate in the US was close to 50 per cent — yes, corporations were taxed at 50 per cent and the US economy never had it so good. Today it is less than 20 per cent. So, again: who is going to pay off the debt? Working families. That’s who. Which, in effect, means that the (anti-)Republicans are fighting the most significant war since 1941 not only with the bodies of working families, but at the expense of working families. Where the 1938-1941 Congressional appropriations put working Americans back to work and put money in their savings accounts, the 2020 Congressional appropriation is largely aimed at “wealthcare,” caring for the wealthiest among us.

We need a Congress and a White House that once again serves the public interest, not private interest. We need to have the guts to make wealth bear its burden: restore tax burdens to their 1950s levels, Green New Deal, National Health Care (not “wealthcare”).

Globalization and Exchange

Globalization predates capitalism. Nevertheless, it has occasionally been argued that contemporary globalization is no more than the elaboration of the original chance exchange between two communities. In every standard economics textbook published since the eighteenth century, the simple exchange is counted the foundation for globalization. There are gains in trade.

Today critics of globalization, such as right wing white nationalist Steve Bannon, are eager to highlight not the gains, but the costs, from trade. Whenever an individual exchanges a good common in her community for a good rare in hers but common in another community, it is not only a foreign, alien, good that enters her community. In the exchange, she ties the fortunes of her community to the fortunes of the other. And, to this degree, she weds a foreign system of social production to the system of social production in her own community. Each community sacrifices some small quantum of its sovereignty. Each community joins a larger, more abstract, more universal, homogenized community. Globalization is predicated upon exchange.

Right wing white nationalists feel that exchange dilutes their racial and cultural pool. They feel there is a net loss, not gain, in exchange. In exchange, communities lose their particularity, their unique identity.

But right wing white nationalists are not the only political actors to advance this argument. Some individuals on the left take Karl Marx to have advanced a similar argument in volume 1 of Capital, part one, chapter two:

The exchange of commodities begins where communities have their boundaries, at their points of contact with other communities, or with members of the latter. However, as soon as products have become commodities in the external relations of a community, they also, by reaction, become commodities in the internal life of the community. Their quantitative exchange-relation is at first determined purely by chance. They become exchangeable through the mutual desire of their owners to alienate them. In the meantime, the need for others’ objects of utility gradually establishes itself. The constant repetition of exchange makes it a normal social process.

Capital 1.1.2

And we are off to the races, so to speak. That is to say, from the first chance exchange we see an unbroken line leading directly to the universal equivalent (whatever that might be) and, from there, to abstract value.

In the course of time, therefore, at least some part of the products must be produced intentionally for the purpose of exchange. From that moment the distinction between the usefulness of things for direct consumption and their usefulness in exchange becomes firmly established. Their use-value becomes distinguished from their exchange-value. On the other hand, the quantitative proportion in which the things are exchangeable becomes dependent on their production itself.

The particular kind of commodity to which it sticks is at first a matter of accident. Nevertheless there are two circumstances which are by and large decisive. The money-form comes to be attached either to the most important articles of exchange from outside, which are in fact the primitive and spontaneous forms of manifestation of the exchange-value of local products, or to the object of utility which forms the chief element of. indigenous alienable wealth, for example cattle.

It could therefore be argued that the Marxian critique of globalization begins not with labor, but with exchange; and not with exchange within a discrete community, but with exchange between communities. In other words, the exchange of commodities between communities initiates a dialectic that “bursts its local bonds . . . [and] expands more and more into the material embodiment of human labour as such.”

Even were Marx himself not critical of globalization (and there is no evidence that he was), contemporary Marxian theorists cannot ignore the implications of Marx’s analysis for “globalization and its discontents.” Is there not, at the very least, an implicit criticism of the destruction of “local bonds” and the impending transition into a “material embodiment of human labor as such”?

I actually don’t think so. First, insofar as Marx’s analysis contemplates working through the contradictions immanent to capitalism, it is not likely that in this instance he was contemplating a Rousseauean/Frankfurtschule restoration of antediluvian isolation. More importantly, if Marx grounded his dialectic of history in the production function — i.e., in the difference between any good’s material form of appearance and its abstract value — then it would be odd for him to revert in this instance to what could only be an uncritical reproduction of GWF Hegel’s Logic. Which is not to say that communities might not generate out of their own practical regimes certain kinds of directional dynamics not grounded in the commodity form’s immanent dialectic. Such directional dynamics, however, would be socially and historically specific, perhaps limited even to single communities. What distinguishes the dialectic immanent to the commodity from these others is the two-fold commodity form itself, which will not make its appearance, at the very earliest, before the fourteenth century.

Marx’s analysis in 1.1.2 points to transient, purely episodic, ephemeral encounters. “The universal equivalent form comes and goes with the momentary social contacts which call it into existence. It is transiently attached to this or that commodity in alternation.” Which distinguishes it qualitatively from capital. Capital acquires its universal, global, validity not in the act of exchange, but in the act of measuring the value of human action marginally, i.e. measuring the marginal product of labor as ΔQ [a change in some quantity] divided by ΔL or ΔK [a change in labor or capital]. Once measured marginally, as the ratio of a change in quantity divided by a change in labor and/or capital, investors are henceforth compelled to maintain or increase that ratio. This compulsion will bring them to cross every boundary, every border, raze every mountain top, fell every tree, and excavate every valley.

Gains in trade, or gains through exchange, therefore, does not merely indicate, as Carl Menger believed, that a good is valued more by one party than another. It means, first, that both parties value the goods they are exchanging in terms of the same abstract substance. But, second, unless the exchange is episodic, ephemeral, and transient, it also means that the communities are members of a social formation that includes both communities. Finally, in commodity societies, the abstract substance in which all goods are valued is the socially generalized, average of the aggregate cost of abstract labor: the cost of bringing any value-bearing good to market and placing it in relationship to other value-bearing goods (or the universal equivalent itself) with which it might be exchanged.

When right wing white nationalists invoke protectionism on goods and labor, they therefore do no more than change the rules by which investors will fleece consumers. A barrier on the southern border (for labor, not capital) will increase the marginal value of labor, which, in this case, is the constrained commodity. It will therefore increase the cost of producing the good dependent on that constrained commodity. Investors are perfectly happy to take advantage of the higher prices. But, even should we throw the borders open, flooding the market with lower-priced labor, lowering prices on goods produced by this labor, the increased volume of goods and lower labor costs will, in this case, attract investors to the higher returns. Protectionism is one way to generate returns. Free trade is another. In neither case, however, is the relationship between abstract value and its material form of appearance altered in any way.

At least where globalization and exchange are concerned, the real problem with extreme right wing white nationalism (and its left-wing cousins) is that both mistake surface forms of appearance for underlying social logics. Under capitalism, investors are as well equipped to value local idiosyncrasies as they are international law. They are masters of the art of arbitrage. Exchanges at borders often yield far higher returns for investors than exchanges where there are no borders. Borders have value. Which is why the one place working families need to go, is the one place extreme right wing nationalism will not take them. Working families need policymakers to decouple value from human action; they need policymakers to restore the public character of wealth: res publica.

To do so would not resolve the problems of globalization. But it would resolve the problem of homogenization and universalization. How? By eliminating the substance that all goods hold in common under capitalism. Once the values of goods are measured not in terms of their marginal product, but in terms of their satisfaction of human desire and need, we could then live into the highly differentiated world that capitalism promises, but never delivers.

Exchange must have appeared very early on the Savanah plains. Capitalism appeared in the fourteenth century at the earliest. We need ways to differentiate between what has happened to human beings over the past 2.4M years and what has happened to them in the last 500 years. Exchange is not the problem. Globalization is a problem, but it is not unique to capitalism. Capitalism is the problem.

Capital I.3.2. as “end time” text

I finished a draft today of “Christianity after capitalism,” which explores how Christianity might cope with the end of capitalism, assuming that it does not in fact go down with the ship. As with most classical texts, I have read Marx’s Capital several times. With each reading I discover something new. Such is the case with the text in volume 1, part 1, chapter 3, part 2:

There is an antithesis, immanent in the commodity, between use-value and value, between private labour which must simultaneously manifest itself as directly social labour, and a particular concrete kind of labour which simultaneously counts as merely abstract universal labour, between the conversion of things into persons and the conversion of persons into things; the antithetical phases of the metamorphosis of the commodity are the developed forms of motion of this immanent contradiction. These forms therefore imply the possibility of crises, though no more than the possibility. For the development of this possibility into a reality a whole series of conditions is required, which do not yet even exist from the standpoint of the simple circulation of commodities.

Capital, volume 1, chapter 3, part 2

Since they are predisposed to interpret Capital through the eyes of a thirty year old, if not a twenty-six year old, Marx, most interpreters of Capital miss many of its subtleties. In all likelihood they will therefore miss the theological dimensions of Marx’s analysis of the commodity. Hint: “immanent” (immanente) is not an economic category.

Perhaps it is not obvious, but religions in general and Christianity in particular are troubled by immanence, by the immediate presence of divine things in earthly things. It is important to note that Islam and Judaism will have nothing of it. God is transcendent. (Except when God is not. But we will not take that up here.) Christianity created a huge, perhaps insurmountable, problem for itself by highlighting not simply the immanence of God, but God’s arrest, incarceration, sentencing, and death.

Contemporary Christianity has overcome this problem by completely isolating Jesus’ material form of appearance (i.e., Jesus) from Jesus’ essence (i.e., Christ). In one among many comical passages in Capital, Marx dispatched this mental tick by crediting it to the commodified character of the contemporary Christian God:

For a society of commodity producers, whose general social relation of production consists in the fact that they treat their products as commodities, hence as values, and in this material form bring their individual, private labour into relation with each other as homogeneous human labour, Christianity with its religious cult of man in the abstract, more particularly in its bourgeois development, i.e. in Protestantism, Deism, etc., is the most fitting form of religion.

Capital, volume 1, chapter 1, part 4

Take that! You disembodied contemporary Christianity! Jesus had a body! Live with it!

Which leads me back to I.3.2.

Let us suppose that we — all of us whose lives are structured around the two-fold commodity form of capital — have grown accustomed to qualitatively differentiating the abstract values of things from their material forms of appearance. And let us suppose that it is around their abstract values that we all coordinate our decisions, judgments, prejudices, and turns of phrase. Since the world is, in fact, embodied and not abstract; since value is in fact substantive and not multivariate and abstract; does it not follow that bodies, real bodies, will find themselves in opposition to the abstractions dealt out by the abstract form of the commodity?

And might we not more accurately grasp this apocalyptic moment as “the end times”?

I do not promote this as a Book-of-Daniel-Revelations-Hal-Lindsey-End-Time-Prophecy. That clearly was not on Marx’s radar. What I am suggesting is that Marx discerned, in much the same way as the author of First Corinthians, that bodies were central to the stories that free people have to tell, and that the abstract value form of the commodity, much like the abstract laws of popular Roman Stoicism, was inadequate.

From this vantage point, the immanent tension between abstract value and its material forms of appearance counts as a kind of apocalyptic wake up call, an indication of the possibility, but no more than the possibility, that bodies might be resurrected after all.

Race and AI

In 1964 University of Chicago economist Milton Friedman faulted civil rights legislation barring discrimination because it was less efficient and less effective reducing discrimination. The example he gave was a restaurant that refused to serve African Americans. Such a restaurant, he argued, would lose the business not only of African Americans, but of civil rights advocates generally and would end up with an ever smaller clientele composed of racists and bigots. Private consumers would vote with their wallets.

A similar argument has been made for gender and race based hiring decisions. A firm that introduces race or gender into its criteria for hiring necessarily devalues the weight it places on criteria that measure competence and skill for the position the firm is trying to fill. In other words, discrimination does not pay.

In light of this free market analysis, some firms have moved entirely to double blind AI for their hiring decisions. Because AI doesn’t care. Or does it?

The assumption upon which this analysis is based is that the market is value neutral. But is it?

As an alternative, let me propose that, as Cornel West reminds us, “race matters.” Let me suggest, moreover, that race is valued differentially. Because, like all surface forms of appearance under capitalism, the differentia among and between things are indications of consumer preference. I like chocolate. You like vanilla.

Only in a market where ALL decisions are made by AI, would such differentia be of no consequence. But the moment private consumer preference is introduced, even as an algorithm, differentia flood back into the analytical frame.

So, for example, let us assume that I am an investor in a firm that sells high end automobiles. Data analysis suggests that consumers are marginally more likely to be white and that they are marginally more likely to purchase a car from a white male. That is to say, the marginal value of a white male sales force is higher than a white female, a black male, or a black female sales force. Were I to include this algorithm in my AI hiring choices, presumably the AI would yield “neutral” racist and misogynist decisions. That is to say, insofar as race has value — race matters — socially, an algorithm that measured value would necessarily give rise to racist outcomes.

But let us say that policy makers count race and gender equality non-negotiable, i.e., not subject to marginal analysis. And let us say, instead, that race and gender were weighted such that the disutility imposed on women and people of color were folded into the algorithm. And the social value of whiteness was discounted.

In effect, this would eliminate the market effect. Abstract value would, in that case, lose its function. It would be replaced by substantive right.

This, in fact, was the proposal against which Professor Friedman was arguing in Capitalism and Freedom. Any interference in the market undermines (market) freedom. Well, yes. By definition. But perhaps some things do not lend themselves to marginal analysis.

More immediately, in a racist and misogynist society, AI cannot but yield “neutral” racist and misogynist results.

Useless Labor

I am repeatedly struck by how poorly scholars, not all of them economists, grasp the most fundamental principles of economics. Even though I am not myself an economist. Let me hazard that one reason for the preponderance of sloppy analysis among economists is that, like children of the rentier, they know how to use the system, but they have little grasp for why it works.

Having taught this history of economic thought for more than twelve semesters, I have attempted to instruct the next generation of economists why the system works.

As you know, I have been working through Yuval Noah Harari’s three volumes. I took a brief break in order to read GWF Hegel’s Phenomenology and Slovoj Žižek’s Puppet and the Dwarf. But I am now back at it. Overall, Harari is well worth the read, all one thousand or so pages of him. But, along with most scholars, including many economists, Harari has a blind spot: economics. Here is what I mean:

The technological revolution might soon push billions of humans out of the job market and create a massive new “useless class,” leading to social and political upheavals that no existing ideology knows how to handle.

Harari, Yuval Noah. 21 Lessons for the 21st Century (p. 19). Random House Publishing Group. Kindle Edition.

Like most scholars, including most economists, Harari believes that people work in order to produce goods that people need, or, in any case, believe they need. Under capitalism, however, people work because they are part of what every economics textbook calls the Circular Economy. Here is how it works:

There is nothing specially mysterious about this system. People work in order to produce goods, which other people (or firms) purchase in order to generate returns for investors and satisfy consumer (or firm) need/want. The capitalist economy forms what since the 1850s (WS Jevons, K Marx) economists have characterized as a comprehensive, integrated, self-regulating system for distributing abstract value. In practice, what this means is that should any critical “link in the chain” (C Menger) fail, the entire system fails. But — and this is the linchpin — since abstract value is derived marginally, there arise no points within capitalism where any critical link in the chain gives rise to systemic failure.

Let us take Harari’s dire prediction. Machines are better equipped to perform nearly all of the tasks, now including the most sensitive tasks, humans perform. So, for example, Harari calls attention to the loan officer at a bank. The loan officer has access to all of the data that AI has. But, in addition to the data the loan officer enjoys, AI enjoys sensors that are able to detect heart beat, serotonin levels, pupil dilation, perspiration; and, besides, is not inclined to be side-tracked by the bad lunch the loan officer just ate, the fight she had with her girlfriend, the subconscious resentment she bears toward her employer, and so on. Moreover, in a comprehensive, integrated, self-regulating system, AI can simultaneously be purchasing and selling shares in assets that benefit shareholders in the loan-making institution. What is Harari missing?

Harari is missing the marginal value of uselessness. Because, remember, under capitalism, everything enjoys a marginal value. Which brings us to the marginal value of useless labor?

Here is what happened during the Great Depression. So little did human beings come to be valued that they collected and sold cigarette butts, sharpened pencils, earned money from dancing marathons; in short, anything. That is to say, the marginal value of human beings plummeted. But, as John Maynard Keynes pointed out, this was not evidence for market failure. To the contrary, it was evidence that the Circular Economy worked. It sent the value of the least valued goods downward until investors were ready, at a given price, to have their pencil sharpened.

But, of course, this also meant that the human pencil sharpener was purchasing goods only equal to her wage. In fairness, like Lord Keynes, Harari recognizes that capitalism is equipped with a nifty solution to this problem. Because the Circular Economy is not a temporally static system, a dollar today is not worth the same as tomorrow’s dollar. (Indeed, as Gary Becker noted in 1962, taking a page from Alfred Marshall’s 1891 Principles, a dollar here, today, is not worth the same as a dollar elsewhere or in someone else’s pocket today. $1≠$1.) This is because money is always a temporally and spatially constrained value, relative to the aggregate value of all dollars and dependent on questions of where and when. When I borrow $1 from the future to inspire a consumer to spend $1 today, that future dollar may be worth more, it may be worth less, than today’s dollar. But, if the economy is in a trough, then it is reasonable to assume that tomorrow’s dollar is worth more than today’s. How much more? Economists differ. But only marginally. Keynes’ point was that any debt accumulated today sufficient to stimulate economic growth over time greater than its cost is worth the investment.

The temporal and spatial envelope in which value modulates is social in character. This does not make it any less real. Rather does it make this envelope hyper-real. Consider, for example, the condition under which, as in Hunger Games or Drowned Cities, human beings have become little more than cockroaches. Their value reduced to virtually nothing. Their overlords invested with absolute power. There is still, here, a marginal calculation. How much value, if any, do I need to extract from the subject population? How much value do I spend policing the subject population? What is the risk of an uprising? What is the marginal cost of political stability? What die-rate will the subject population tolerate?

The point is, for economists who wish to reflect rigorously, there is absolutely no direct correlation of innovation to job loss. Not in the long run. Because the marginal calculation is a social calculation. Value is always, inevitably, social. But, if I have simply learned the formulas passed down and modified from Jevons to Marshall to Keynes to Krugman to Romer, how would I know that this is only social?

In 2018 the University of California, Berkeley, Department of Economics did three things: (1) they declared Economics a STEM major; (2) they eliminated the History of Economic Thought; and (3) they failed to renew my contract.