18.0 Capitalism and socialism express conflicting reciprocity norms: A reinterpretation of Marx’s theory of capitalist decline

Capitalist stagnation

U.S. workers’ wages stagnated in the last three decades, state-driven China almost alone internationally in substantially improving popular living standards. While other political economists in Marx’s day had observed a tendency for profit rates—driving production under capitalism—to decline, Karl Marx claimed the decline is inevitable, this forming the conclusion of Marx’s three-volume magnum opus, Capital.

Marx’s central argument is counterintuitive but simple. Value consists of labor hours embodied in products. Employers (capitalists) profit by paying laborers for their time, the amount of value paid being less than the amount of socially necessary labor the workers add. With capitalism’s evolution, a declining proportion of the value produced is constituted of labor directly employed, an increasing proportion of labor already concretized in capital goods, since mechanization of production is the fundamental means to increasing economic efficiency, where capital goods contribute to the value of a product to the extent they are consumed in its production. With the increasing organic composition of capital—as proportionately more value is created through capital goods—rate of profit must fall, since it is based on exploiting labor and that already embodied in capital goods has been sold and accounted for.

Despite its centrality to Marx’s analysis of why capitalism eventually comes to retard economic progress, the tendency of the rate of profit to decline is far from universally accepted as true even by Marxian commentators. Marxian academics have even questioned it mathematically, but the real issue isn’t the almost-trivial mathematics but its mapping to reality: does the declining Marxian rate of profit entail a declining actual rate of profit?

Conflicting reciprocity norms

That owners of capital (capitalists) profit from a series of “fair” exchanges could be termed the central premise of Capital. Workers exchange their labor time for its value—that is, the laborers’ own price of reproduction. The arrangement is fair under a reciprocity norm according to which commodities trade at their market value. But it is unfair under a reciprocity norm according to which all receive in proportion to their value-producing labor. Although Marx didn’t stress the point, what’s striking is that each antagonist in the historical drama—the social classes workers and capitalists—frames its interests in terms of a simple coherent reciprocity principle, with the difference that the workers favor a ratio derived from production and the capitalists from distribution. (See Alan Page Fiske, Structures of Social Life: The Four Elementary Forms of Human Relations (1991) [“equality matching” and “market pricing,” but Fiske, while discussing Marx, doesn’t link equality matching to the labor theory of value].)

The market’s function

Attacks on the soundness of Marx’s law of the tendency of the rate of profit to decline derive from its seeming impossibility—this, in turn, due to not seeing the connection between “profit” as defined in the theory and in the ledger. We must start from fundamentals. According to Marx, civil society exists to allow human cooperation in the labor process. Civilization is built on accomplishing this by fostering the accumulation of economic resources by few; capitalism was the form economies came to take at the onset of the industrial revolution. Like other economic systems that followed the agricultural revolution, it arose and became ascendant because of its efficiency in extracting value from labor, but it accomplishes this with a progressive enlargement of the value diverted to augmenting industrial machinery rather than directly producing more products for consumption, which gradually changes the tasks presented. As the contribution of machinery grows relative to the direct contribution of laborers, the basic economic tasks besetting society change from producing value from labor to realizing the value embodied in machinery.

But the capitalist market continues to be a system adapted to extracting value from labor. Insofar as profit represents a gain in value accruing to the capitalist class as a whole, it comes from the value contributed by the laborers. As the production process has progressively less proportionate need for laborers, it becomes harder to profit sufficiently at their expense.

Limits of state action under capitalism

It might be thought that this Marxian profit is a reification. Who’s to say it is the proper abstraction for understanding capitalist motivation, rather than, say, the concept of “interest,” favored by the ultracapitalist “Austrian school.” One response that denies the centrality of Marxian profit (technically, surplus value) is that state action can co-opt the market to new ends. Since the market tends to overproduce capital, adroit government spending might redirect it to produce more consumer goods. This is the essence of Keynes’s policies. The most obvious problem is that unprofitable spending is competitively inefficient and is only sustainable in huge nation states with considerable economic autonomy; otherwise, it may cause a nation’s industries to fail against international competitors, who are free-riders on the increased buying power of the local population. International economic competition sets limits on a country’s ability to use Keynesian policies or any policies involving state subsidy. Yet periods aren’t rare when one capitalist power dominates and is subject to diminished international competition. Also, if Keynesian policies are directed to creating positive externalities or “public goods” favoring profitability, their benefit may outweigh their harm to profits.

But insuperable obstacles to using government to redirect the market keep Marxian surplus value a good first approximation to balance-sheet profit. While a government-regulated market is often thought to provide the best of capitalism and socialism, in an important sense, it provides the worst of each in that the state attempts to regulate in ignorance of the facts, a company’s plans a closely guarded commercial secret. But the more fundamental problem with government-directed capitalism is that it amounts to the government’s adding to some capitalists' profits at the expense of other capitalists. Where political power follows economic power, the political unity of the class of capitalists depends on their shared economic interests. Private property is the means of coordinating individuals into a social class sufficiently unified to legitimize government. This unity depends on allocating wealth according to the dominant reciprocity norm, based on market exchange rates.

The result is only limited government intervention can please the capitalist class. Rather than contributing to the profits of the class, government policy must use incentives which advantage parts of the class at the expense of the other parts. To create an incentive sufficient to replace the incentive of Marxian profit with balance-sheet profit, differently constituted, would involve huge wealth transfers within the capitalist class, calling the system’s legitimacy into question by undermining its broad support by the dominant social class.

Corrected on January 2, 2013: the organic composition of capital increases rather than declines. The point is purely terminological and the result of my still not grasping why machinery is termed "organic." Thanks to a correspondent, who corrected me.

11.1 Is epistemic equality a fiction? THE CONFUSION BETWEEN BELIEF AND OPINION AND THE NATURES OF FANATICISM AND PHILISTINISM. PART 2.

Concepts

The leading concept, epistemic superiority (discussed in 11.0), refers to relatively greater capacity to distinguish relevant truth from falsity, as demonstrated by objective evidence. Epistemic justification refers to evidence proving an adherent's epistemic superiority. Credentialing means according epistemic superiority. The agreement theorem (according to my parsing) requires epistemic justification to claim epistemic superiority rationally. Rational adherents modify their beliefs upon learning that an epistemic equal disagrees.

Superior expertise

Proving the agreement theorem is mathematically trivial, and the previous post was supposed to demonstrate, almost intuitive. Yet, because the theorem conflicts with prevailing norms, which reinforce adherents' untoward opinionation, mathematically sophisticated students commonly reject the proof initially. Contentious beliefs—their adherents regarding themselves epistemically superior—indeed complicate matters, but self-description isn't epistemic justification: a claim to epistemic superiority is just another justification-requiring belief. Self-credentialing is rational only if adherents first prove their epistemic superiority with respect to their claim to epistemic superiority!

Circular reasoning is obvious when adherents contend adherence to the belief itself proves their epistemic qualifications, but some dodges are subtler. As an example of the evasions, consider "birthers" (Americans who believe Obama's "real" birthplace is presidentially disqualifying), called upon to justify their ideological self-confidence enough to survive their beliefs' overwhelming rejection. Birthers may believe that, as such, antibirther beliefs epistemically discredit their adherents, but this argument is circular because the same ideological isolation discredits both belief and credential. Sophisticated birthers might invoke a subtler form of question begging, claiming vindication by other equally contentious positions—perhaps, adherents' "discernment" that Obama is Muslim—but these adherents' struggles against the stigma of intellectual isolation unwittingly prove their epistemic inferiority, despite the lesser absurdity of Muslim baiting compared to citizenship paranoia.

Leveraging credible beliefs to demonstrate adherents' expertise occasionally succeeds, but credentialing is more commonly based on direct grounds, as when experts' training vouchsafes their expertise against masses of disagreeing nonprofessionals. Also, experts reasonably disregard lesser experts, as Albert Einstein did Niels Bohr, who insisted Einstein was mistaken to reject quantum mechanics. Einstein replied he had earned the right to be mistaken. His demonstrated powers of physical intuition justified self-credentialing his opinion. Analogizing the credentialing process to averaging measurements of duration—with equally accurate clocks, the readings should be averaged, but a reading from an ancient 0-jewel wind-up clock should be overridden by one from an atomic clock.

Superior methods

Claiming superiority in method—in the manner of the Catholic Church—is a systematic way to bolster epistemic credentials and save an opinion from its fate as one of many. If the Church's claim that the Pope speaks for God were demonstrable, then taking your cue from priests would be more rational than relying on your cogitations.

Another bootstrapping method is Marxist sociological justification, which can be treated as an answer to demands for epistemic justification: under the agreement theorem, what justifies accepting Marxism when most intellectuals disagree? The Marxist answers that these opponents, however erudite, belong to (or identify with) an exploitative social class, blinding them to subversive truths. If the workers accept Marxist socialism, while the bourgeoisie espouses liberalism, conservatism, or reaction, the line-up reveals politics' class dependence, and the argument avoids circularity if independent historical evidence supports the bourgeoisie's epistemic inferiority. Thus, Marxism contains theoretical machinery adequate, in principle, to justify Marxists' intellectually isolated iconoclasm. No doubt this contributes to its endurance.

Equal credentials

Granting the Marxist claim that the main political divisions represent social classes differing in epistemic endowment, most political and religious disputes still would be between approximate epistemic equals. Republicans and Democrats vituperate with language proven lethal, without there being a rational basis justifying either's epistemic superiority. Marxist ideologues, too, disagree vehemently, although none occupy superior epistemic positions. The disputants' epistemic equality doesn't temper these disagreements, whereas it should among rational adherents.

Under-weighting others' beliefs in effect equates belief (all-things-considered position) with individual opinion (others' beliefs factored out) despite the rationality of differentiating them. Confusion about the distinct societal roles of belief and opinion explains this irrationality.

Next essay: The distinct societal functions of belief and opinion.