🤔📝Justin's Replies to curi's Questions About Reisman's Marxism Book 💰📺
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Justin Mallone
Dec 10, 2018, 12:45:05 PM12/10/18
to brucenielson1@gmail.com [fallible-ideas], fallibl...@googlegroups.com
curi’s educational materials on Reisman’s Marxism book contain some questions to help the learner gauge their understanding of the material.
https://gumroad.com/l/szitM
I have been filling in these questions as I go.
Below are my attempts to answer the questions. In case anyone is planning to work through the materials on their own and doesn’t want the questions spoiled, I’ve scrolled my response down a bit as a SPOILER AVOIDANCE courtesy. Also note that answer 18 was posted previously (I might have made a minor edit to it or something — I forget).
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
#replies to curi questions
1. Why is terror a part of socialism?
Reisman says that socialism takes on full responsibility for people’s economic well being and does a very bad job of handling that responsibility. People live in misery, have to stand in line for basic necessities, can’t move freely, and have to share accommodations with strangers. So people get mad at their conditions under what’s supposed to be this great wonderful socialist system.
So the socialist rulers (rightfully) live in terror of the angry, oppressed, impoverished people, and the rulers therefore need to crush freedom and have propaganda and secret police in order to keep the people under their control.
When there’s terror under people like Stalin, the terror isn’t simply cuz Stalin was a bad guy. The cause of the terror isn’t due to some individual personality quirks. Instead the socialist system actually *selects* to put ruthless terror-enthusiasts like Stalin in power in the first place. Terror is what it takes to maintain a socialist state for any amount of time (otherwise the people would just rise up in revolution).
2. Explain how wages are set under capitalism. And does it have to do with minimum subsistence?
Wages are set according to supply and demand for labor. Just like an auction, businessmen and capitalists have to try to outbid their next nearest competitor for labor or go without that labor.
Wages don’t have anything to do with subsistence. A given wage might be below, above, or just at subsistence. (People might rely on outside help to help survive on a wage that pays below subsistence).
And subsistence wage theorists can’t really explain why there’s people who earn a *wage* of 100k or 200k or more, which is common in our advanced capitalist society.
3. Explain how wages are set under socialism. And does it have to do with minimum subsistence?
In capitalism, wages are determined by the competition (auction) for labor. By contrast, under socialism, there is no competition for labor. The only employer is the state, which holds a monopoly on employment and which prohibits any competition by prohibiting private ownership of the means of production. Therefore, without the auction for labor to bid prices up, wages can stay at subsistence. 🙁
Socialist rulers might pay more for stuff that helps them extra (e.g. weapons scientists). But basically socialist society is about the individual serving the ruling elite. Compare that to capitalism, where capitalists stay up at night figuring out ways to better satisfy the consumers!
4. Explain how production is of consumer’s goods determined under capitalism.
The price system harmonizes people’s demand for goods with the scarcity of available goods. Capitalists and businessmen guide production and stay up late at night thinking of ways to produce stuff that’s better and cheaper so they can make more profit.
5. Explain how production is of consumer’s goods determined under socialism.
According to the preferences of the rulers/central committee/Supreme Dictator and their 4/5 year plans. These plans have massive, irreparable deficiencies compared to production plans formulated on the free market:
They don’t take advantage of everyone’s brains, instead relying on the planning capacity of a tiny handful of people.
They are revised with vastly less frequency than free market plans, and thus become increasingly disconnected from the material situation in the real world.
Both the people formulating the plans and the people carrying them into effect don’t have much incentive to care about the satisfaction of the consumers, often have little information about what people like, aren’t doing customer surveys, don’t have competing products to refer to as a baseline (competition having been outlawed), and very frequently have personal tastes that are far out of line with the masses of people.
6. Is the value of a product based on the amount of labor that went into it? Explain.
No. There are numerous counterexamples. Whiskey can gain value despite simply being held in storage. Bread can lose value as it goes stale, and become less valuable than flour. iPhones can lose value merely sitting on a shelf.
What determines value is the demand for consumers for the existing supply of items in question in light of the scarcity of that supply.
7. Under capitalism, are wage earners like slaves? Explain.
No. A wage earner is given an opportunity by a capitalist that he would not have had otherwise. The default position is everyone is trying to make profit as an independent earner of sales revenue, and historically this typically took the form of subsistence farming. Wage earning represents an additional way of earning a living that people value. If they did not value it, they would not accept it — they would instead try to earn their own sales revenue independently. Some people do, but the opportunity to earn a wage is a nice opportunity to have!
8. Under socialism, are wage earners like slaves? Explain.
Yes. They work at the direction of the state, where the state tells them, in the line of industry the state tells them, and they are paid roughly subsistence (if that). They have no liberty and cannot improve their situation. They are prohibited from choosing other employers, since the govt has established a monopoly on employment. They work under threat of starvation (with no other employment possible) and under threat of coercion if necessary. The state doesn’t offer incentives like higher wages and bonus pay — instead it offers whips and bullets. So that is like being a slave.
Reisman says that under socialism you need to be forced to work, whereas under capitalism someone would need to use force to keep you from your work!
9. Are profits a deduction from wages? Explain.
No. Capitalists *create* wages and reduce the proportion of total sales revenue that is profit.
Example: If an independent lumberjack was chopping wood using his homemade axe and making $1000 a year, that was all sales revenue/profit. So 100% of the sales revenue was profit. If a wood company hires him for $1500 a year to do the work with a $500 commercial axe they provide and sells the (now increased amount of) wood he chops for $2500, the “profit” proportion of sales revenue resulting from the labor of this lumberjack goes from 100% to 20%. The wages of $1500 per year and the axe cost of $500 are deducted from the sales revenue to arrive at this figure.
10. Are social democrats socialists? Explain.
No, because they’re unwilling to do what’s necessary to establish socialism, including large scaled armed robbery and a systematic terror campaign to suppress dissenters. So what social democrats wind up doing is just messing up capitalism with some socialist-inspired policies, but their stuff is mixed economy stuff not actual socialism. So social democrats should stop calling themselves socialists.
11. Does capitalism exploit workers? Explain.
No.
Capitalism serves the market. The benefit from things like factories, steel mills etc largely goes to the wage-earning workers, who are earning wages being productive in these very factories and mills and the like. So capitalism generates both the stuff the workers buy and the wages they buy it with.
So capitalism improves the material condition of the workers.
And it offers them the opportunity to earn a wage in the first place.
And it incentivizes the businessmen to try and please the consumers with new and better and cheaper producers.
12. Does socialism exploit workers? Explain.
Yes.
Under capitalism, wages are determined by the competition (auction) for labor. Under socialism, there is no competition for labor. The only employer is the state, which holds a monopoly on employment and which prohibits any competition by prohibiting private ownership of the means of production. Therefore, without the auction for labor to bid prices up, wages can stay at subsistence.
Socialist rulers might pay more for stuff that helps them extra (e.g. weapons scientists). But basically socialist society is about the individual serving the ruling society. The choices of the worker under socialism are: 1) serve the ruling elite especially well and possibly eke out an okay-ish existence (by the standards of a socialist society), or 2) accept subsistence wages that transition to starvation as the socialist system collapses.
13. How do capitalism and socialism handle economic planning? Explain.
Under capitalism, the capitalist businessmen provide the guiding intelligence to direct the use of capital in a way that satisfies consumers’ preferences. But planning operates throughout capitalist society — all are engaged in economic planning, including big industrialists, small businessmen, employees, housewives, etc. It’s a big churning mass of planning distributed across the minds of everyone in society!
Socialism OTOH operates according to the economic planning of the Supreme Dictator or maybe a central planning board. They formulate one grand master plan to run the economy for years at a time. This sort of planning is very slow to update, will fail to take lots of things into account, and doesn’t tap into the huge resource of millions of human minds in a society. And it actually requires the outlawing of the vast amount of planning that would take place in a free society.
(Side comment: People often say that societies which oppress women don’t tap like half of their human potential, and that’s true. But socialist societies don’t tap ALMOST ALL of their human potential in terms of economic planning!)
14. Do capitalists steal their profits from the workers? Explain.
No. Originally everything is sales revenue, and profit is 100%. An independent lumberjack selling his wood in a primitive economic situation has no wages to pay and no capital outlays so he’s making all profit. What businessmen create are wages and the possibility of being a wage earner. That is not theft, but a nice opportunity!
15. What would be the fate of the wage earners without businessmen? Explain.
They’d have to scratch out a living independently on their own. Lots of people can’t actually do this (as famines under subsistence farming demonstrated), so lots of people would have starved and there would just be way fewer people overall.
16. Does a greater degree of capitalism increase or decrease the profit margins of businesses? Explain.
Decrease. As Reisman defines it, the degree of capitalism is the extent to which wage payments and capital goods are high relative to sales revenues. He says that the degree of capitalism in today’s economic system (excluding govt distortions) might be like .9 or .95. By Reisman’s very definition of what the degree of capitalism is, a higher degree of capitalism creates more expenses to deduct from sales revenue, which therefore reduces profits.
17. Why do things get progressively better under capitalism? Explain.
Capitalism progressively raises real wages by facilitating the division of labor and the creation of wealth.
Under capitalism, the capitalists/businessmen do things like buy things in order to sell stuff at a profit later, and hire helpers. These capitalist activities lead to a complex division of labor, since instead of everyone e.g. trying to scratch out a living as an independent farmer, they take on more specialized roles where they can focus on getting better at a limited set of tasks. This division of labor thus leads to increased productivity. This increased productivity itself allows us to take on longer-range projects since we have more wealth. So we can allocate production for tasks further and further in the future, thus leading to an upward spiral of productivity as the years pass and we produce more and more.
With way more goods/wealth, people can afford to work fewer hours, not have their kids work, etc. And employers have to compete for the workers and do so in an environment of increased productivity (and thus rising wages) and where workers can afford more and more leisure.
#18. Was Marx a skilled economist? Explain.
No, Marx was not a skilled economist. He had serious misconceptions in the following areas I will elaborate on below: the labor theory of value, the nature of capital, the determination of wages, and the nature of capitalism.
## Labor theory of value
Marx thought the amount of labor that went into a product determined its value. His idea of the labor theory of value leads to various absurd conclusions, such as that the labor of a gardener and a brain surgeon are worth the same, and his attempts to defend these conclusions from refutations are confused and inadequate. He thinks skilled labor is just multiplied simple labor, ignoring that you can’t e.g. hire 500 gardeners to do your brain surgery.
Marx’s labor theory of value can’t handle issues like:
Why do iPhones lose value over time even if they just sit on a shelf unused, despite the labor involved in producing them staying the same?
Why does stale bread become less valuable than flour, despite being the product of more labor than flour? Or why does stale bread become less valuable than newly made fresh bread, despite being the product of the same amount of labor?
Why does stored whiskey gain value despite just sitting around?
Why do certain rare collectibles (rare coinage, currency, baseball cards, stamps, that kinda stuff) become super valuable, despite being the product of a similar amount of labor as a bunch of very similar stuff? (E.g. one baseball card in a set will become valuable and not another cuz of the player it depicts, or a dollar bill that had some misprint will become super valuable despite otherwise being the same as all the other bills).
## Nature of capital
Marx thought human labor was the only value-creating substance, and didn’t take into account human ideas that let us transform stuff (e.g. oil) into useful material. Marx thought capital invested in machines, materials, factories, etc, yields no profit, because only labor creates value, so these things can’t. He calls the allegedly valueless capital “constant capital” and the wage-paying part “variable capital.” Marx thought that the wage-paying part was the only profitable part. If this were true, as Reisman points out, then investments in labor intensive businesses like restaurants would be more profitable than capital-intensive lines of business such as steel mills. Reisman reminds us that the rate of profit tends towards being the same in different branches of production cuz profit-seeking businessmen move capital around.
## Determination of wages
Marx thought the capitalists had virtually unlimited power to set terms with workers due to there being an essentially unlimited supply of workers and only a few employers. This imagined *lack of scarcity of labor* is central to Marx’s confusion. Rather than understanding the labor market as an auction with a finite supply of labor being bid up by employers, Marx instead falsely imagines something like an infinity of sellers of labor bidding away their wages and leisure in order to survive. Marx also can’t answer the question “why wouldn’t more people try to become capitalists in order to take advantage of this unlimited supply of cheap labor?”
Reisman points out that if labor is fully employed then any wage reduction would cause a shortage — as in, there would be employers trying to pay the reduced wage and unable to find the labor they need. Needing labor for their factories, they would naturally bid the price of labor back up.
## Nature of capitalism
Marx thought that there was an inherent tendency in capitalism towards longer hours, worse pay, and even worse food, which both ignores reality and can’t answer the question “why would the capitalists wait for any amount of time in the first place before imposing these awful conditions, assuming, as Marx does, an essentially unlimited supply of labor?”
Marx thinks machines are bad because they let women and children work and thus let the capitalists further decrease wages and increase exploitation. He thus ignores the desperate poverty people were trying to avoid and the independence that the availability of factory work gave to women.
Marx was an awful economist. It is amazing his misconceptions became as popular as they did.
19. Under socialism, what happens if the rulers are self-interested? Explain.
(Assuming a narrow, situational meaning of “self-interested” that excludes stuff like “try to reform the socialist society by spreading good ideas).
The socialist rulers will incentivize things that they find particularly useful or helpful to their goals. In other words, they’ll use the individuals in that society as means to their ends. Since the rulers are directing production, they have control over the allocation of resources, labor, etc. The people don’t have a say. The people have no way of trying to get their preferences expressed, other than risking trade on the black market or trying to overthrow the leadership of the state.
20. Under capitalism, what happens if the businessmen are self-interested? Explain.
The self-interested “greedy” businessman tries to make better and cheaper stuff for the consumers so that they can make money. They do this via a relationship of voluntary trade for mutual gain. The businessmen’s “narrow” pursuit of their self-interest improves their own lot and the lot of everyone in society. Atlas Shrugged:
> "I don't like it, Hank. It's not good."
> "What?"
> "What they write about you."
> "What do they write about me?"
> "Well, you know the stuff. That you're intractable. That you're ruthless. That you won't allow anyone any voice in the running of your mills. That your only goal is to make steel and to make money."
> "But that is my only goal."
-JM
https://gumroad.com/l/szitM
I have been filling in these questions as I go.
Below are my attempts to answer the questions. In case anyone is planning to work through the materials on their own and doesn’t want the questions spoiled, I’ve scrolled my response down a bit as a SPOILER AVOIDANCE courtesy. Also note that answer 18 was posted previously (I might have made a minor edit to it or something — I forget).
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
Reisman Good, Marx Bad
#replies to curi questions
1. Why is terror a part of socialism?
Reisman says that socialism takes on full responsibility for people’s economic well being and does a very bad job of handling that responsibility. People live in misery, have to stand in line for basic necessities, can’t move freely, and have to share accommodations with strangers. So people get mad at their conditions under what’s supposed to be this great wonderful socialist system.
So the socialist rulers (rightfully) live in terror of the angry, oppressed, impoverished people, and the rulers therefore need to crush freedom and have propaganda and secret police in order to keep the people under their control.
When there’s terror under people like Stalin, the terror isn’t simply cuz Stalin was a bad guy. The cause of the terror isn’t due to some individual personality quirks. Instead the socialist system actually *selects* to put ruthless terror-enthusiasts like Stalin in power in the first place. Terror is what it takes to maintain a socialist state for any amount of time (otherwise the people would just rise up in revolution).
2. Explain how wages are set under capitalism. And does it have to do with minimum subsistence?
Wages are set according to supply and demand for labor. Just like an auction, businessmen and capitalists have to try to outbid their next nearest competitor for labor or go without that labor.
Wages don’t have anything to do with subsistence. A given wage might be below, above, or just at subsistence. (People might rely on outside help to help survive on a wage that pays below subsistence).
And subsistence wage theorists can’t really explain why there’s people who earn a *wage* of 100k or 200k or more, which is common in our advanced capitalist society.
3. Explain how wages are set under socialism. And does it have to do with minimum subsistence?
In capitalism, wages are determined by the competition (auction) for labor. By contrast, under socialism, there is no competition for labor. The only employer is the state, which holds a monopoly on employment and which prohibits any competition by prohibiting private ownership of the means of production. Therefore, without the auction for labor to bid prices up, wages can stay at subsistence. 🙁
Socialist rulers might pay more for stuff that helps them extra (e.g. weapons scientists). But basically socialist society is about the individual serving the ruling elite. Compare that to capitalism, where capitalists stay up at night figuring out ways to better satisfy the consumers!
4. Explain how production is of consumer’s goods determined under capitalism.
The price system harmonizes people’s demand for goods with the scarcity of available goods. Capitalists and businessmen guide production and stay up late at night thinking of ways to produce stuff that’s better and cheaper so they can make more profit.
5. Explain how production is of consumer’s goods determined under socialism.
According to the preferences of the rulers/central committee/Supreme Dictator and their 4/5 year plans. These plans have massive, irreparable deficiencies compared to production plans formulated on the free market:
They don’t take advantage of everyone’s brains, instead relying on the planning capacity of a tiny handful of people.
They are revised with vastly less frequency than free market plans, and thus become increasingly disconnected from the material situation in the real world.
Both the people formulating the plans and the people carrying them into effect don’t have much incentive to care about the satisfaction of the consumers, often have little information about what people like, aren’t doing customer surveys, don’t have competing products to refer to as a baseline (competition having been outlawed), and very frequently have personal tastes that are far out of line with the masses of people.
6. Is the value of a product based on the amount of labor that went into it? Explain.
No. There are numerous counterexamples. Whiskey can gain value despite simply being held in storage. Bread can lose value as it goes stale, and become less valuable than flour. iPhones can lose value merely sitting on a shelf.
What determines value is the demand for consumers for the existing supply of items in question in light of the scarcity of that supply.
7. Under capitalism, are wage earners like slaves? Explain.
No. A wage earner is given an opportunity by a capitalist that he would not have had otherwise. The default position is everyone is trying to make profit as an independent earner of sales revenue, and historically this typically took the form of subsistence farming. Wage earning represents an additional way of earning a living that people value. If they did not value it, they would not accept it — they would instead try to earn their own sales revenue independently. Some people do, but the opportunity to earn a wage is a nice opportunity to have!
8. Under socialism, are wage earners like slaves? Explain.
Yes. They work at the direction of the state, where the state tells them, in the line of industry the state tells them, and they are paid roughly subsistence (if that). They have no liberty and cannot improve their situation. They are prohibited from choosing other employers, since the govt has established a monopoly on employment. They work under threat of starvation (with no other employment possible) and under threat of coercion if necessary. The state doesn’t offer incentives like higher wages and bonus pay — instead it offers whips and bullets. So that is like being a slave.
Reisman says that under socialism you need to be forced to work, whereas under capitalism someone would need to use force to keep you from your work!
9. Are profits a deduction from wages? Explain.
No. Capitalists *create* wages and reduce the proportion of total sales revenue that is profit.
Example: If an independent lumberjack was chopping wood using his homemade axe and making $1000 a year, that was all sales revenue/profit. So 100% of the sales revenue was profit. If a wood company hires him for $1500 a year to do the work with a $500 commercial axe they provide and sells the (now increased amount of) wood he chops for $2500, the “profit” proportion of sales revenue resulting from the labor of this lumberjack goes from 100% to 20%. The wages of $1500 per year and the axe cost of $500 are deducted from the sales revenue to arrive at this figure.
10. Are social democrats socialists? Explain.
No, because they’re unwilling to do what’s necessary to establish socialism, including large scaled armed robbery and a systematic terror campaign to suppress dissenters. So what social democrats wind up doing is just messing up capitalism with some socialist-inspired policies, but their stuff is mixed economy stuff not actual socialism. So social democrats should stop calling themselves socialists.
11. Does capitalism exploit workers? Explain.
No.
Capitalism serves the market. The benefit from things like factories, steel mills etc largely goes to the wage-earning workers, who are earning wages being productive in these very factories and mills and the like. So capitalism generates both the stuff the workers buy and the wages they buy it with.
So capitalism improves the material condition of the workers.
And it offers them the opportunity to earn a wage in the first place.
And it incentivizes the businessmen to try and please the consumers with new and better and cheaper producers.
12. Does socialism exploit workers? Explain.
Yes.
Under capitalism, wages are determined by the competition (auction) for labor. Under socialism, there is no competition for labor. The only employer is the state, which holds a monopoly on employment and which prohibits any competition by prohibiting private ownership of the means of production. Therefore, without the auction for labor to bid prices up, wages can stay at subsistence.
Socialist rulers might pay more for stuff that helps them extra (e.g. weapons scientists). But basically socialist society is about the individual serving the ruling society. The choices of the worker under socialism are: 1) serve the ruling elite especially well and possibly eke out an okay-ish existence (by the standards of a socialist society), or 2) accept subsistence wages that transition to starvation as the socialist system collapses.
13. How do capitalism and socialism handle economic planning? Explain.
Under capitalism, the capitalist businessmen provide the guiding intelligence to direct the use of capital in a way that satisfies consumers’ preferences. But planning operates throughout capitalist society — all are engaged in economic planning, including big industrialists, small businessmen, employees, housewives, etc. It’s a big churning mass of planning distributed across the minds of everyone in society!
Socialism OTOH operates according to the economic planning of the Supreme Dictator or maybe a central planning board. They formulate one grand master plan to run the economy for years at a time. This sort of planning is very slow to update, will fail to take lots of things into account, and doesn’t tap into the huge resource of millions of human minds in a society. And it actually requires the outlawing of the vast amount of planning that would take place in a free society.
(Side comment: People often say that societies which oppress women don’t tap like half of their human potential, and that’s true. But socialist societies don’t tap ALMOST ALL of their human potential in terms of economic planning!)
14. Do capitalists steal their profits from the workers? Explain.
No. Originally everything is sales revenue, and profit is 100%. An independent lumberjack selling his wood in a primitive economic situation has no wages to pay and no capital outlays so he’s making all profit. What businessmen create are wages and the possibility of being a wage earner. That is not theft, but a nice opportunity!
15. What would be the fate of the wage earners without businessmen? Explain.
They’d have to scratch out a living independently on their own. Lots of people can’t actually do this (as famines under subsistence farming demonstrated), so lots of people would have starved and there would just be way fewer people overall.
16. Does a greater degree of capitalism increase or decrease the profit margins of businesses? Explain.
Decrease. As Reisman defines it, the degree of capitalism is the extent to which wage payments and capital goods are high relative to sales revenues. He says that the degree of capitalism in today’s economic system (excluding govt distortions) might be like .9 or .95. By Reisman’s very definition of what the degree of capitalism is, a higher degree of capitalism creates more expenses to deduct from sales revenue, which therefore reduces profits.
17. Why do things get progressively better under capitalism? Explain.
Capitalism progressively raises real wages by facilitating the division of labor and the creation of wealth.
Under capitalism, the capitalists/businessmen do things like buy things in order to sell stuff at a profit later, and hire helpers. These capitalist activities lead to a complex division of labor, since instead of everyone e.g. trying to scratch out a living as an independent farmer, they take on more specialized roles where they can focus on getting better at a limited set of tasks. This division of labor thus leads to increased productivity. This increased productivity itself allows us to take on longer-range projects since we have more wealth. So we can allocate production for tasks further and further in the future, thus leading to an upward spiral of productivity as the years pass and we produce more and more.
With way more goods/wealth, people can afford to work fewer hours, not have their kids work, etc. And employers have to compete for the workers and do so in an environment of increased productivity (and thus rising wages) and where workers can afford more and more leisure.
#18. Was Marx a skilled economist? Explain.
No, Marx was not a skilled economist. He had serious misconceptions in the following areas I will elaborate on below: the labor theory of value, the nature of capital, the determination of wages, and the nature of capitalism.
## Labor theory of value
Marx thought the amount of labor that went into a product determined its value. His idea of the labor theory of value leads to various absurd conclusions, such as that the labor of a gardener and a brain surgeon are worth the same, and his attempts to defend these conclusions from refutations are confused and inadequate. He thinks skilled labor is just multiplied simple labor, ignoring that you can’t e.g. hire 500 gardeners to do your brain surgery.
Marx’s labor theory of value can’t handle issues like:
Why do iPhones lose value over time even if they just sit on a shelf unused, despite the labor involved in producing them staying the same?
Why does stale bread become less valuable than flour, despite being the product of more labor than flour? Or why does stale bread become less valuable than newly made fresh bread, despite being the product of the same amount of labor?
Why does stored whiskey gain value despite just sitting around?
Why do certain rare collectibles (rare coinage, currency, baseball cards, stamps, that kinda stuff) become super valuable, despite being the product of a similar amount of labor as a bunch of very similar stuff? (E.g. one baseball card in a set will become valuable and not another cuz of the player it depicts, or a dollar bill that had some misprint will become super valuable despite otherwise being the same as all the other bills).
## Nature of capital
Marx thought human labor was the only value-creating substance, and didn’t take into account human ideas that let us transform stuff (e.g. oil) into useful material. Marx thought capital invested in machines, materials, factories, etc, yields no profit, because only labor creates value, so these things can’t. He calls the allegedly valueless capital “constant capital” and the wage-paying part “variable capital.” Marx thought that the wage-paying part was the only profitable part. If this were true, as Reisman points out, then investments in labor intensive businesses like restaurants would be more profitable than capital-intensive lines of business such as steel mills. Reisman reminds us that the rate of profit tends towards being the same in different branches of production cuz profit-seeking businessmen move capital around.
## Determination of wages
Marx thought the capitalists had virtually unlimited power to set terms with workers due to there being an essentially unlimited supply of workers and only a few employers. This imagined *lack of scarcity of labor* is central to Marx’s confusion. Rather than understanding the labor market as an auction with a finite supply of labor being bid up by employers, Marx instead falsely imagines something like an infinity of sellers of labor bidding away their wages and leisure in order to survive. Marx also can’t answer the question “why wouldn’t more people try to become capitalists in order to take advantage of this unlimited supply of cheap labor?”
Reisman points out that if labor is fully employed then any wage reduction would cause a shortage — as in, there would be employers trying to pay the reduced wage and unable to find the labor they need. Needing labor for their factories, they would naturally bid the price of labor back up.
## Nature of capitalism
Marx thought that there was an inherent tendency in capitalism towards longer hours, worse pay, and even worse food, which both ignores reality and can’t answer the question “why would the capitalists wait for any amount of time in the first place before imposing these awful conditions, assuming, as Marx does, an essentially unlimited supply of labor?”
Marx thinks machines are bad because they let women and children work and thus let the capitalists further decrease wages and increase exploitation. He thus ignores the desperate poverty people were trying to avoid and the independence that the availability of factory work gave to women.
Marx was an awful economist. It is amazing his misconceptions became as popular as they did.
19. Under socialism, what happens if the rulers are self-interested? Explain.
(Assuming a narrow, situational meaning of “self-interested” that excludes stuff like “try to reform the socialist society by spreading good ideas).
The socialist rulers will incentivize things that they find particularly useful or helpful to their goals. In other words, they’ll use the individuals in that society as means to their ends. Since the rulers are directing production, they have control over the allocation of resources, labor, etc. The people don’t have a say. The people have no way of trying to get their preferences expressed, other than risking trade on the black market or trying to overthrow the leadership of the state.
20. Under capitalism, what happens if the businessmen are self-interested? Explain.
The self-interested “greedy” businessman tries to make better and cheaper stuff for the consumers so that they can make money. They do this via a relationship of voluntary trade for mutual gain. The businessmen’s “narrow” pursuit of their self-interest improves their own lot and the lot of everyone in society. Atlas Shrugged:
> "I don't like it, Hank. It's not good."
> "What?"
> "What they write about you."
> "What do they write about me?"
> "Well, you know the stuff. That you're intractable. That you're ruthless. That you won't allow anyone any voice in the running of your mills. That your only goal is to make steel and to make money."
> "But that is my only goal."
-JM
Elliot Temple
Dec 12, 2018, 6:07:01 PM12/12/18
to FIGG, brucenielson1@gmail.com [fallible-ideas]
> 2. Explain how wages are set under capitalism. And does it have to do with minimum subsistence?
>
> Wages are set according to supply and demand for labor. Just like an auction, businessmen and
> capitalists have to try to outbid their next nearest competitor for labor or go without that labor.
>
> Wages don’t have anything to do with subsistence. A given wage might be below, above, or just at
> subsistence. (People might rely on outside help to help survive on a wage that pays below
> subsistence).
>
> And subsistence wage theorists can’t really explain why there’s people who earn a *wage* of 100k or
> 200k or more, which is common in our advanced capitalist society.
It's complicated by multiple successful buyers and multiple sellers. Not an auction of just one thing at a time, from one seller, to only one winning bidder.
>
> Wages are set according to supply and demand for labor. Just like an auction, businessmen and
> capitalists have to try to outbid their next nearest competitor for labor or go without that labor.
>
> Wages don’t have anything to do with subsistence. A given wage might be below, above, or just at
> subsistence. (People might rely on outside help to help survive on a wage that pays below
> subsistence).
>
> And subsistence wage theorists can’t really explain why there’s people who earn a *wage* of 100k or
> 200k or more, which is common in our advanced capitalist society.
It's simplest with an example: if factories need 100 workers and there are 500 factory workers in town, then the 5 most productive factories need to outbid the 6th best factory – pay wages that the 6th factory can't afford (it wouldn't be profitable if it paid that much). Note the 1st factory does not need to outbid the 2nd factory, they can both pay identical wages because there are enough workers for both of them. (This is with simplifying assumptions like all workers being equal, and no possibility of expanding the businesses, which aren't actually true.)
> 3. Explain how wages are set under socialism. And does it have to do with minimum subsistence?
>
> In capitalism, wages are determined by the competition (auction) for labor. By contrast, under
> socialism, there is no competition for labor. The only employer is the state, which holds a monopoly
> on employment and which prohibits any competition by prohibiting private ownership of the means of
> production. Therefore, without the auction for labor to bid prices up, wages can stay at subsistence.
> 🙁
> Socialist rulers might pay more for stuff that helps them extra (e.g. weapons scientists). But
> basically socialist society is about the individual serving the ruling elite. Compare that to
> capitalism, where capitalists stay up at night figuring out ways to better satisfy the consumers!
>
> 4. Explain how production is of consumer’s goods determined under capitalism.
>
> The price system harmonizes people’s demand for goods with the scarcity of available goods.
> Capitalists and businessmen guide production and stay up late at night thinking of ways to produce
> stuff that’s better and cheaper so they can make more profit.
> 5. Explain how production is of consumer’s goods determined under socialism.
>
> According to the preferences of the rulers/central committee/Supreme Dictator and their 4/5 year
> plans. These plans have massive, irreparable deficiencies compared to production plans formulated on
> the free market:
>
> They don’t take advantage of everyone’s brains, instead relying on the planning capacity of a tiny
> handful of people.
>
> They are revised with vastly less frequency than free market plans, and thus become increasingly
> disconnected from the material situation in the real world.
> Both the people formulating the plans and the people carrying them into effect don’t have much
> incentive to care about the satisfaction of the consumers, often have little information about what
> people like, aren’t doing customer surveys, don’t have competing products to refer to as a baseline
> (competition having been outlawed), and very frequently have personal tastes that are far out of line
> with the masses of people.
> 9. Are profits a deduction from wages? Explain.
>
> No. Capitalists *create* wages and reduce the proportion of total sales revenue that is profit.
>
> Example: If an independent lumberjack was chopping wood using his homemade axe and making $1000 a
> year, that was all sales revenue/profit. So 100% of the sales revenue was profit. If a wood company
> hires him for $1500 a year to do the work with a $500 commercial axe they provide and sells the (now
> increased amount of) wood he chops for $2500, the “profit” proportion of sales revenue resulting from
> the labor of this lumberjack goes from 100% to 20%. The wages of $1500 per year and the axe cost of
> $500 are deducted from the sales revenue to arrive at this figure.
how would the world be different if ppl could do basic math, and actually gave economics some thought instead of being caught up in propaganda, before forming strongly-held political opinions? a lot of this stuff ain't rocket science! your answer is good, and it's also pretty strikingly *simple* – a lot more people ought to be able to understand that.
>
> No. Capitalists *create* wages and reduce the proportion of total sales revenue that is profit.
>
> Example: If an independent lumberjack was chopping wood using his homemade axe and making $1000 a
> year, that was all sales revenue/profit. So 100% of the sales revenue was profit. If a wood company
> hires him for $1500 a year to do the work with a $500 commercial axe they provide and sells the (now
> increased amount of) wood he chops for $2500, the “profit” proportion of sales revenue resulting from
> the labor of this lumberjack goes from 100% to 20%. The wages of $1500 per year and the axe cost of
> $500 are deducted from the sales revenue to arrive at this figure.
> 12. Does socialism exploit workers? Explain.
>
> Yes.
>
> Under capitalism, wages are determined by the competition (auction) for labor. Under socialism, there
> is no competition for labor. The only employer is the state, which holds a monopoly on employment and
> which prohibits any competition by prohibiting private ownership of the means of production.
> Therefore, without the auction for labor to bid prices up, wages can stay at subsistence.
> Socialist rulers might pay more for stuff that helps them extra (e.g. weapons scientists). But
> basically socialist society is about the individual serving the ruling society. The choices of the
> worker under socialism are: 1) serve the ruling elite especially well and possibly eke out an okay-ish
> existence (by the standards of a socialist society), or 2) accept subsistence wages that transition to
> starvation as the socialist system collapses.
>
>
>
> 13. How do capitalism and socialism handle economic planning? Explain.
>
> Under capitalism, the capitalist businessmen provide the guiding intelligence to direct the use of
> capital in a way that satisfies consumers’ preferences. But planning operates throughout capitalist
> society — all are engaged in economic planning, including big industrialists, small businessmen,
> employees, housewives, etc. It’s a big churning mass of planning distributed across the minds of
> everyone in society!
> Socialism OTOH operates according to the economic planning of the Supreme Dictator or maybe a central
> planning board. They formulate one grand master plan to run the economy for years at a time. This sort
> of planning is very slow to update, will fail to take lots of things into account, and doesn’t tap
> into the huge resource of millions of human minds in a society. And it actually requires the outlawing
> of the vast amount of planning that would take place in a free society.
>
> (Side comment: People often say that societies which oppress women don’t tap like half of their human
> potential, and that’s true. But socialist societies don’t tap ALMOST ALL of their human potential in
> terms of economic planning!)
> 15. What would be the fate of the wage earners without businessmen? Explain.
>
> They’d have to scratch out a living independently on their own. Lots of people can’t actually do this
> (as famines under subsistence farming demonstrated), so lots of people would have starved and there
> would just be way fewer people overall.
It's not just that some people lack the skills to be self-employed. There aren't enough plots of land in the world to have that many farmers. There aren't enough buildings to have that many store owners. It wouldn't work logistically to have this many people, and this much economic activity (like today) but have it all fractured into one-man businesses and not have some big, organized groups of many people *working together in harmony* like Walmart.
>
> They’d have to scratch out a living independently on their own. Lots of people can’t actually do this
> (as famines under subsistence farming demonstrated), so lots of people would have starved and there
> would just be way fewer people overall.
Supply chains are complicated enough today. Imagine trying to run Apple but instead of dealing with Foxconn as one supplier that can assemble millions of iPhones, you have to instead deal with millions of one-man businesses. And instead of getting Mac CPUs from Intel you're trying to get them from thousands of different one-man CPU foundries. That doesn't even make sense. Some jobs take multiple people. Without employees you'd at least need most people to spend most of their time as contractors helping with other businesses instead of running their own independent business – that way multi-person activities could be done.
Elliot Temple
www.fallibleideas.com
Justin Mallone
Dec 13, 2018, 3:59:42 PM12/13/18
to fallibl...@googlegroups.com, brucenielson1@gmail.com [fallible-ideas]
>> 3. Explain how wages are set under socialism. And does it have to do with minimum subsistence?
>>
>> In capitalism, wages are determined by the competition (auction) for labor. By contrast, under
>> socialism, there is no competition for labor. The only employer is the state, which holds a monopoly
>> on employment and which prohibits any competition by prohibiting private ownership of the means of
>> production. Therefore, without the auction for labor to bid prices up, wages can stay at subsistence.
>> 🙁
>
> Note the socialist state doesn't just prohibit other people from hiring and paying wages to fellow citizens. It also prohibits them from being self-employed and producing stuff for sale, on their own, with no employees.
> In May 1929, the Sovnarkom issued a decree that formalised the notion of "kulak household" (кулацкое хозяйство). Any of the following defined a kulak:[3][13]
>
> • Use of hired labor.
> • Ownership of a mill, a creamery (маслобойня, "butter-making rig"), other processing equipment, or a complex machine with a mechanical motor.
> • Systematic renting out of agricultural equipment or facilities.
> • Involvement in trade, money-lending, commercial brokerage, or "other sources of non-labor income".
> ***By the last item, any peasant who sold his surplus goods on the market could be automatically classified as a kulak.***
(emphasis added)
Their repression was brutal:
> According to the political theory of Marxism–Leninism of the early 20th century, the kulaks were class enemies of the poorer peasants.[3] Vladimir Lenin described them as "bloodsuckers, vampires, plunderers of the people and profiteers, who fatten on famine".[4][5] Marxism–Leninism had intended a revolution to liberate poor peasants and farm laborers alongside the proletariat (urban and industrial workers). In addition, the command economy of Soviet Bolshevism required the collectivization of farms and land to allow industrialization or conversion to large-scale agricultural production. In practice, government officials violently seized kulak farms and killed resisters[3][6] while others were deported to labor camps. Another result of dekulakization was the mass migration of these "class enemies" from the countryside to the cities[7] following the loss of their property as it was turned over to the collective as part of the collectivization campaign.
Back to curi & I:
>> 9. Are profits a deduction from wages? Explain.
>>
>> No. Capitalists *create* wages and reduce the proportion of total sales revenue that is profit.
>>
>> Example: If an independent lumberjack was chopping wood using his homemade axe and making $1000 a
>> year, that was all sales revenue/profit. So 100% of the sales revenue was profit. If a wood company
>> hires him for $1500 a year to do the work with a $500 commercial axe they provide and sells the (now
>> increased amount of) wood he chops for $2500, the “profit” proportion of sales revenue resulting from
>> the labor of this lumberjack goes from 100% to 20%. The wages of $1500 per year and the axe cost of
>> $500 are deducted from the sales revenue to arrive at this figure.
>
> how would the world be different if ppl could do basic math, and actually gave economics some thought instead of being caught up in propaganda, before forming strongly-held political opinions? a lot of this stuff ain't rocket science! your answer is good, and it's also pretty strikingly *simple* – a lot more people ought to be able to understand that.
Being able to give a simple example that varies in at least some details from other examples you’ve seen before is a good test for understanding … that’s not really what people’s “learning experience” is like though, for the most part.
I was thinking about it, and I’ve had some exposure to the topic of economics for over two decades. And I had the good fortune of having my first serious exposure be Hazlitt’s “Economics in One Lesson.” So it’s something I’ve put a lot of thought into over a long period of time. And I can basic math okay. Nonetheless, my economic analysis can still be erroneous sometimes. I’m not a grandmaster-level über expert by any means. And yet you think of the people that have life-or-death regulatory power over industries, and where their understanding is, and where the current political trend line is (e.g. the left is getting super socialist, and the people even somewhat serious about things like defending the border tend to be awful on trade)... sigh.
>> 12. Does socialism exploit workers? Explain.
>>
>> Yes.
>>
>> Under capitalism, wages are determined by the competition (auction) for labor. Under socialism, there
>> is no competition for labor. The only employer is the state, which holds a monopoly on employment and
>> which prohibits any competition by prohibiting private ownership of the means of production.
>> Therefore, without the auction for labor to bid prices up, wages can stay at subsistence.
>
> it's weird how much ppl complain about "monopoly" under capitalism – and then advocate government monopolies, including on really crucial things like *offering jobs*, *roads* and *healthcare*.
>> Socialist rulers might pay more for stuff that helps them extra (e.g. weapons scientists). But
>> basically socialist society is about the individual serving the ruling society. The choices of the
>> worker under socialism are: 1) serve the ruling elite especially well and possibly eke out an okay-ish
>> existence (by the standards of a socialist society), or 2) accept subsistence wages that transition to
>> starvation as the socialist system collapses.
>>
>>
>>
>> 13. How do capitalism and socialism handle economic planning? Explain.
>>
>> Under capitalism, the capitalist businessmen provide the guiding intelligence to direct the use of
>> capital in a way that satisfies consumers’ preferences. But planning operates throughout capitalist
>> society — all are engaged in economic planning, including big industrialists, small businessmen,
>> employees, housewives, etc. It’s a big churning mass of planning distributed across the minds of
>> everyone in society!
>
> This could use examples of how employees and housewives do economic planning.
>> 15. What would be the fate of the wage earners without businessmen? Explain.
>>
>> They’d have to scratch out a living independently on their own. Lots of people can’t actually do this
>> (as famines under subsistence farming demonstrated), so lots of people would have starved and there
>> would just be way fewer people overall.
>
> It's not just that some people lack the skills to be self-employed. There aren't enough plots of land in the world to have that many farmers. There aren't enough buildings to have that many store owners. It wouldn't work logistically to have this many people, and this much economic activity (like today) but have it all fractured into one-man businesses and not have some big, organized groups of many people *working together in harmony* like Walmart.
> Supply chains are complicated enough today. Imagine trying to run Apple but instead of dealing with Foxconn as one supplier that can assemble millions of iPhones, you have to instead deal with millions of one-man businesses. And instead of getting Mac CPUs from Intel you're trying to get them from thousands of different one-man CPU foundries. That doesn't even make sense.
> Some jobs take multiple people. Without employees you'd at least need most people to spend most of their time as contractors helping with other businesses instead of running their own independent business – that way multi-person activities could be done.
-JM
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