Liberals and conservatives argue over whether Keynes or Friedman has the right prescription for what ails our capitalist economy. Keynes argued for judicious governemnt intervention to keep the economic “pump” primed, while Friedman argues for free markets and little government intervention. But what about a disconcernting third possibility. That they are both wrong. Did Marx have anything relevant to say?
One of Marx’s fundamental critiques of capitalism, which seems logically irrefutable, is simply that workers cannot consume the value of their own production using only their wages. This is a flaw that is only apparent when considering aggregate production versus aggregate consumption, not in any isolated case of someone buying a loaf of bread with cash. In aggregate, workers cannot consume what they produce using only the wages of that production. The truth of that should be obvious, as workers are paid less in wages than the selling price of whatever it is they produced.
Credit (consumer debt) is the only means of making up that difference, hence our exponentially increasing consumer debt load. Of course, the missing value didn’t dissappear, it went to the capaitlists owners of the production who do not (and as a pratical matter, cannot) consume all the excess production that workers are unable to. If they could and did, this key flaw in capitalism wouldn’t exist.
Does the fact that future wages can never purchase future consumption (as Marx pointed out) make capitalism some giant Ponzi/Pyramid scam? A scam based on the expectation that future earnings will forever finance current consumption? Sooner or later (looks like sooner!) wouldn’t the ever growing debt load become so large that the illusion of future earnings ever catching-up be broken, the credit supply choked-off and with it, consumption? Sound familiar?
‘One of Marx’s fundamental critiques of capitalism, which seems logically irrefutable, is simply that workers cannot consume the value of their own production using only their wages.’
What exactly is their production value?
‘Credit (consumer debt) is the only means of making up that difference, hence our exponentially increasing consumer debt load.’
Ah you are making an incorrect remark. It is not that workers cannot consume their value of production. No one, capitalist or worker can consume the full value of their production in the present because that would assume that future goods will stay at the same price as present goods. This is a result of time preference on individual consumers.
Friedman argues for federal reserve to loosen the money supply and inject new credit into the market. Neo-keynesians believe that both monetary (friedmanite) and old keynesian (fiscal) policies can be counter cyclical.
Aggregates are meaningless. The value of all market transcations is subjective.
Everyone is paid their marginal revenue product. Employees work for a business owner, who’s job is to manage the business. Their “wage” is the surplus they can gain from combining many different inputs (labor, resources) in more efficient ways. The surplus decreases as more firms figure out new production strategies.
Marx does not critique actual free market capitalism but post-fuedal mercantilism. Please present an actual definition of capitalism before you argue against it.
I thought rich people were still rich even when consumers borrowed. But they can’t borrow out of thin air? The money creation comes from the central banking industry, which chose to extend credit to people.
So one major problem is that you think that everyone who goes to a job is a “worker” and everyone who owns capital is not. But owners of capital have to WORK to figure out new ways to combine it to keep their enterprise profitable. Everyone is a “worker”.
Wait what? I can purchase stuff in the future.
You are going to have to explain the future earnings thing a lot better. People did not buy giant houses because they were homeless. They did so because cheap credit was continuously being extended to them by central planners, who promised housing prices would always go up.
I think this argument also assumes a static state of production and speaking of production…where is the capital? Socialists like to think that capitalism is just this profit machine like some kind of token charm. You just pull the lever and blam certain people get rich. It’s a rather simplistic and naive view.
P.S. I think Rob is trying to invent a new Marxist clause. The immiseration of credit.
I just want to clarify what exactly is being said here
In aggregate, workers cannot consume what they produce using only the wages of that production
Is the argument that the workers cannot purchase back all that they produce at the prices they are sold at with the wages they earn producing those goods? In other words you have an economy that produces only bread. There are 100 loafs of bread produced and they are sold for $2 apeice. It took 10 workers to produce those loaves of bread and they are paid $1 per loaf. So in aggregate there is $200 of bread to be sold and only $100 or wages to purchase that bread. The only way to fill the gap is to borrow the other $100.
Is that it in a nut shell? Is this a monetary issue, dealing with a percieved lack of money? If so we need to clarify the term value. Value and price are two different things. And may be leading to confusion.
Or is this a overproduction concern? That the physical volume of what is produced cannot be physically consumed by those who produce it.
Or is this some combination of the two above concerns?
One of Marx’s fundamental critiques of capitalism, which seems logically irrefutable, is simply that workers cannot consume the value of their own production using only their wages.
The “enough to buy back the product” doesn’t go far enough into detail (or I haven’t seen one that does).
If I make $10 an hour, and I make widgets, and I can make 50 widgets an hour (I’m really good at what I do), and we sell these widgets $10 a piece, under the Marxist logic I should be making $500 an hour, but if that’s the case there would be no profit on the part of the business after I’m paid. There would have been no income to continue production.
Let’s say I still make $10 an hour, but this time I assemble doors for a car, this is a large product that takes a lot of people and parts. We sell the complete car for $15,000, but I assemble 10 doors an hour (5 cars), under the Marxist logic should I get paid for what the retail price of the door is, or some fraction of what the car is worth? How does this spread across the other workers who were all involved with the same car? Do we collectively get paid $15,000 for each car, and then split it amongst ourselves?
The monetary value of your work is nothing but the amount that somebody else is willing to pay you. Nothing less and nothing more.
It is this point that you must understand or challenge further if you like. But there really is no point in debating about anything else until the above can be agreed upon.
The value they added to the goods or services they produced through their labour.
<<< Ah you are making an incorrect remark. It is not that workers cannot consume their value of production. No one, capitalist or worker can consume the full value of their production in the present because that would assume that future goods will stay at the same price as present goods. This is a result of time preference on individual consumers. >>>
But future goods get produced in the future (most often, of course some are in stock and will be sold in the future), so I don’t see your point.
<<< Is the argument that the workers cannot purchase back all that they produce at the prices they are sold at with the wages they earn producing those goods? In other words you have an economy that produces only bread. There are 100 loafs of bread produced and they are sold for $2 apeice. It took 10 workers to produce those loaves of bread and they are paid $1 per loaf. So in aggregate there is $200 of bread to be sold and only $100 or wages to purchase that bread. The only way to fill the gap is to borrow the other $100.
Is that it in a nut shell? Is this a monetary issue, dealing with a percieved lack of money? If so we need to clarify the term value. Value and price are two different things. And may be leading to confusion.
Or is this a overproduction concern? That the physical volume of what is produced cannot be physically consumed by those who produce it.
Or is this some combination of the two above concerns? >>>
The aggregate of all the values being produced simply is always bigger then the aggregate of all wages being paid. Simple as that.
Now, this is (within Marxist theory) labelled as the problem of overproduction.
If people continue to buy the stuff anyway, and start lending money, this will ultimately result in a credit crisis, since people need to buy the goods they need AND need to pay interest for the things they purchased in the past but could not afford, so the problem only goes worse. Until finally the credit system collapses.
If the people do NOT lend money, this simply means a crisis of overproduction as part of the production never get sold, and factories and busnisses break down and get broke, workers are laied off, causing an even intenser crisis because the real wages go down.
This was the usual cycle of business in 19-th century.
Time preference is the idea that a person currently values acquiring a good now more than they currently value acquiring that same good later.
So far what I see is that you (Rob Heusdens) are here, on the forum of an organization that supports free markets, criticizing the free market while you do not understand the economics of a free market. You are here using arguments that have been refuted over a century ago, demonstrating that you do not even understand your own arguments very well (if you had, you’d already know they have been refuted). Many here that have studied economics are using arguments that have gone unrefuted (not that it hasn’t been tried many times by many individuals) for as long as your arguments have been refuted.
As others have said, the capitalist forwards money to the workers (wages) so that the workers can get paid before the final product is sold. The capitalist has to wait until the final product is sold before being paid so he is assuming all the risk. The reason that the workers wages are discounted compared to the value they add to the product is due to this risk and, more importantly, the value of the time the capitalist has to wait, as at the time the wages are paid, the present money is worth more per unit than the future revenue from the sale because of time preference. However, in the free market, there is a limit to the extent to which the capitalist can discount the wages, because if the margin exceeds the market’s overall time preference by very much, other capitalists will be able to hire the workers away to perform the same work at higher wages and still make a profit.
I think the biggest problem with the OP and this particular Marxist angle is that is does not take into account intertemporal relationships. It is not like workers produce goods and do not get paid until after the product is sold. Workers get paid up front and regardless of whether or not what they produce is anything that is valued by the consumers.
And I haven’t even mentioned entrepreneurial risk (until now)
Those are the two main reasons why a product would sell in the future for more than the sum of all the wages of the workers and the cost of raw materials.
<<< The monetary value of your work is nothing but the amount that somebody else is willing to pay you. Nothing less and nothing more.
It is this point that you must understand or challenge further if you like. But there really is no point in debating about anything else until the above can be agreed upon. >>>
There are two different things involved here.
First, the cost of the labor himself for being able to reproduce his labor. The combined costs of housing, cloting, food, etc.
Second the value the labor adds to the goods or services he produces.
“The aggregate of all the values being produced simply is always bigger then the aggregate of all wages being paid. Simple as that.”
Wages are a cost. What about the cost of marketing, shipping, storage, depreciation (i.e., cost of maintenance)? What about risk? What about the “surplus value” the capitalist pays himself? That’s a wage, correct?
“Now, this is (within Marxist theory) labelled as the problem of overproduction.”
So if there are 100 people, and there is only one bread worker, and he makes 2 loaves of bread but is paid one loaf of bread, that is an overproduction of a loaf of bread?
Au contraire, it is certainly possible that worker could be able to consume what he produces. For example, a worker could produce a sofa that a capitalist plans to sell for $80 for a wage of $20. Then, the capitalist liquidates the sofa for $15 and, now, the worker has the opportunity buy the sofa for the less than he was paid.
“Second the value the labor adds to the goods or services he produces.”
But what is the value of the labor? You’re missing the point. There is no objective value that you can refer to and say that the wage is too high or too low. There is only what people are ready to pay you according to how much they value your services. That valuation is purely subjective.
Look, if you want to pay no more the $1/tomato because you value that $1 more then the tomato (since that $1 can buy you other things), then how silly would it be if the seller complained to you that you are undervaluing his tomato. That tomato is worth no more to you then that $1. If you were allergic to tomatoes, it would be $0