Mr. Ip and the Wall Street Journal Discover Wealth Inequality

It was in 2013 that Thomas Piketty rediscovered the problem of wealth inequality with his celebrated book Capital in the Twenty-first Century. Published by Harvard University Press and selling several million copies, the book turned prevailing mainstream economic thinking on its head. Academic economists and capitalist apologists had long assured us that capitalism persistently created wealth and distributed it fairly to all the factors of production, with deviations from this fair distribution attributable to unusual or exceptional intervention in the process.

But Piketty’s look at all the available, relevant data showed just the opposite: capitalism-- absent any external or exceptional circumstances-- invariably generated growing inequality. Using sources dating to the eighteenth century, Piketty showed that, with the exception of the destruction of capital or the rare active measures to redistribute it, wealth inequality was bound to grow. Piketty offered no deep explanation of why this is a feature of capitalism, but he did offer the usual social democratic panacea-- tax the rich!

Coming only four years after the steepest economic downturn since the Great Depression, Piketty’s opus was well received by a wide audience. As a consequence, one might think that the idea of overthrowing the system responsible for more than two centuries of growing inequality would accordingly enter the popular conversation.

But it was not to be. Though a new gilded age of conspicuous consumption, new manifestations of privilege, and raging demand for luxury emerged, no serious threat to the capitalist system sprung forth. Anger was contained effectively in the US by a rotten, corrupt two-party system. Fear and a deeply ingrained hostility to socialism gripped older generations. And younger people-- facing a desperate future-- were open to an alternative to capitalism, but saw no clear road for it.

Now, thirteen years later, The Wall Street Journal’s top economic commentator, Greg Ip, has again rediscovered inequality. He writes about today’s economy:

Its rewards are going disproportionately toward capital instead of labor. Profits have soared since the pandemic, and the market value attached to those profits even more. The result: Capital, which includes businesses, shareholders and superstar employees, is triumphant, while the average worker ekes out marginal gains.

The divergence between capital and labor helps explain the disconnect between a buoyant economy and pessimistic households. It will also play an outsize role in where the economy goes from here.

The brute financial force of all that wealth means market fluctuations, like last week’s, matter more for consumer spending. Meanwhile, artificial intelligence could funnel even more of economic output toward capital instead of labor. Last week may be a taste. Amid reports that layoffs are climbing and job openings plunging, especially for professionals exposed to AI, the Dow Jones Industrial Average closed above 50000 for the first time…

The shift to capital from labor has actually been under way for more than 40 years. Labor received 58% of the total proceeds of economic output, as measured by gross domestic income (conceptually similar to GDP), in 1980. By the third quarter of last year that had plummeted to 51.4%. Profits’ share, meanwhile, rose from 7% to 11.7%.

Ip’s charts show that S&P 500 profit margins have doubled over the last 15 years, with corporate profits rising 43% since the end of 2019.

Where Ip tells us that this is an alarming trend over the last 40 years, Piketty tells us that growth in inequality is the long-term trajectory of the capitalist economy. Both are right.

What is disconcerting is that the victims of this trend, the vast mass of working people, have no voice, no representation, no program to address this inevitable-- if we are to believe Piketty-- consequence of a capitalist system.

What is even more disconcerting is that voices on the left that purport to advocate for working people offer such unimaginative, weak alternatives.

Now Ip only raises the specter of growing inequality to alert ruling circles of the danger that the masses will sharpen their pitchforks and rebel against the privileges of capital. Piketty proposes redistributing wealth through mechanisms-- like taxation-- that the system controls with its most loyal agents. The idea that bourgeois political parties will substantially tax the bourgeoisie is truly fantastic. 

Unions-- one of the few remaining mass organizations supporting workers-- offer a poor record of staunching the flow of wealth to capital, even in industries where unions are well represented and strong. And union leaders seldom have any vision beyond that offered by center-left parties. 

Sadly, too many of the left’s public intellectuals are mired in side shows: cooperatives as an answer to international monopolies, romanticizing the capitalist order existing before Thatcher and Reagan, or cheering on an abstract “global south” bringing capitalism to its knees. 

Others paint a dire picture of wealth being cannibalized by a cabal of rentiers, scorning the Marxist theory of bourgeois and exploited proletariat. This novelty finds currency in the fashionable, but deeply incoherent idea of “technofeudalism.”

Missing from these distractive theories is any understanding of capitalism’s fundamental logic: the contradiction between workers and capital. Oddly enough, a capitalist apologist, a conservative writer, Greg Ip, understands this contradiction all too well in his observations about growing inequality, as does Piketty in his writings. 

For many of those offering their thoughts to working people, the working class is inconsequential or decimated by deindustrialization in their relatively small part of the world (typically, English speaking or Eurocentric). As a result, they spin arcane theories of inequality or oppressions. They overlook the reality that there are over a billion and a half workers in Asia alone, most of whom are working under conditions of capitalist exploitation as described by Karl Marx and Frederick Engels. They have forgotten that while industry has shifted globally, while there is a constant change in the global division of labor, the material wealth is still created by working people. 

The mobility of production and the division of labor are permanent features of capitalism that have only accelerated in recent decades. New technologies and industries have sprung up, where older technologies and industries migrated to areas of cheaper labor. A country like the United States is hollowing out, with a diminishing manufacturing sector, but a high-value, high-income technology sector at one level and a precarious, lower-income service sector at another level. Workers at all levels in all countries where capital employs labor are exploited by capital. 

The lengths to which so many supposed leftists go to ignore or deny the fundamental relationship between workers and capitalists-- the ultimate cause of growing inequalities-- is startling. The dawn of the industrial age gave new meaning to the word “exploitation.” Marx and Engels refined that meaning, giving it a rigorous role at the center of their analysis. And it remains essential to our understanding of the world today.  

Workers are exploited.

Reformers seek to blunt exploitation’s sting.

Revolutionaries act to eliminate it.

Greg Godels

zzsblogml@gmail.com

Karl Marx: The Most Worldly Philosopher

Karl Marx turns up in the most unlikely places. Two and a half decades after most US and European public intellectuals gleefully announced Marx’s ideas henceforth irrelevant, The Wall Street Journal offers a surprisingly measured discussion of his thought under the title The Most Worldly Philosopher (10-1&2-2016). The author, Jonathan Steinberg, an emeritus fellow of Cambridge and professor at the University of Pennsylvania, closes with: “Marx left a legacy of powerful ideas that cannot be dismissed as an obsolete creation of a vanished intellectual climate…” and that stimulated “...the growth of Marxist parties and the millions who accepted that ideology over the course of the 20th century. That was worldly philosophy indeed.”

I would like to believe that the WSJ editors, who displayed the following banner over the full-page article, are enjoying a droll moment in this pathetic electoral season: “The oppressed are allowed once every few years to decide which particular representatives of the oppressing class are to represent and repress them.” The welcome quote, attributed to Marx by Lenin (more likely a paraphrase of Engels), is never permitted into the conversation by our lesser-of-two-evil friends who screech every four years that this is the election that changes everything.

Professor Steinberg uses the opportunity afforded by a review of a current book on Karl Marx by Gareth Stedman Jones to share some of his own views on Marx. And, judging by some of his attributions to Jones’ book, that’s a good thing. Stedman Jones, like so many of his academic contemporaries, once counted himself a kind of Marxist, but only while Marx remained in fashion. With changing times, identities quickly fall in line, a sorry reflection on the integrity of the discipline of the humanities in academe. It’s no wonder that few students are fighting for a humanities-rich curriculum.

While no follower of Marx’s ideas, Steinberg shows a healthy respect for them and a willingness to differ with them honestly; there are no Black Book of Communism tallies of the “victims” of Marx’s ideas; no denigration of the personal lives and morality of Marxists; and no paeans to the glory of capitalism that one would expect in The Wall Street Journal.

Confronting Ideas

Steinberg offers a collection of challenges to Marxism that, while neither new nor original, have been at the core of many intellectual critiques:

The so-called “transformation problem.” Steinberg writes that “Eugen von Böhm-Bawerk, one of the main figures in the Austrian School of economics, declared that it [Marx’s Capital] failed to produce ‘a satisfactory theory of the relation between values and prices’...” The period after Marx’s death, after the publication of volume three of Capital, coincided with the decline of classical political economy and the rise of economics based upon formal and mathematical reconstructions of immediate economic relationships and a grounding of market relations in psychological dispositions and attributed individual choices.

Many Marxists (including Engels), perhaps overly impressed with the professed rigor of the new economics, took up the challenge, constructing “proofs” of the quantitative relation between Marx’s value calculations and real-world prices. That debate between “proofs” and “counter-proofs” continues to obsess academic Marxists to this day, particularly among those trained in bourgeois economics.

But Marx sought only to demonstrate a reasonably approximate quantitative relationship between commodity values and commodity prices. Values and prices are like the contrast between shared moral standards (values) and a common legal system (real-world jurisprudence); it is not necessary to show a formal derivation or rigid correlation between a moral value and a counterpart law in order to know that one is grounded in the other. Indeed, it would be absurd to argue that legal systems are not decisively shaped by underlying moral codes, but rather that they have a remarkable independent existence based solely upon judicial whimsy or individual preference. Arguing in this fashion is the legacy of a discredited positivism.

The search for a rigorous proof that prices can be derived from values is a scholastic exercise that occupies academics, but is of little relevance to the Marxist project. That values underlie prices is as certain as the belief that the moral prescription against unwarranted killing is the basis for all laws against murder. Imagine, in the same vein, that the scientific status of psychology were shackled to a formal demonstration of the relation between psychological dispositions and physical behavior. Psychology as a discipline would disappear. And if Böhm-Bawerk and his foolishness were heeded, Marxism as a science might disappear as well!

The so-called “immiseration thesis.” Steinberg writes: “In 1899 even Eduard Bernstein, one of Engel’s closest colleagues, attacked the so-called immiseration theory, which claimed the working class was destined to get poorer and the concentration of industry greater.”

Professor Steinberg, like Bernstein and others, misinterpret Marx on this point. In Capital, Theories of Surplus Value, and Wage-labor and Capital, Marx is unequivocal: “A notable advance in the amount paid as wages presupposes a rapid increase of productive capital… Therefore, although the comforts of the laborer have risen, the social satisfaction which they give has fallen in comparison with these augmented comforts of the capitalist, which are unattainable for the laborer, and in comparison with the scale of general development society has reached… Since their nature is social, it is therefore relative.”[my italics]

Marx clearly sees workers’ misery as relative to the advances of living standards in higher reaches of society. When productivity advances, working class living standards may advance as well, though less so, relative to the gains of the capitalist class. The immediate period after the Second World War was one such time when productivity advances brought a general, but unequal rise in the standard of living. Liberals and social democrats celebrate this era as the golden age of capitalism-with-a human-face, conveniently ignoring the relative impoverishment of the working class, the increase in the exploitation of workers.

However, for most of the last four decades, the impoverishment of the working class has been both relative and absolute, with workers’ standards of living stagnant or declining. Thus, we are living in a period even more dire, more miserable than Marx’s prediction.

The engine for the relative impoverishment of the working class is the growth of what Marx called the “reserve army of the unemployed” (unemployment), a process that diminishes the bargaining power of labor as a result of a readily available and desperate labor source. This pressure on working class standards of living has been muted dramatically in our time by the mass incarceration of potential workers (vastly over represented by minorities) throughout the last decades. While the mass imprisonment of over two million people forcibly reduces the potential unemployment (“reserve army”) and its accompanying pressure on wages and benefits, it represents recognition by the ruling class of the explosive, even revolutionary possibilities of many young, rebellious people without hope of employment in the late twentieth-century de-industrialized economy. Thus, they have been kept out of the “reserve army” through imprisonment.

Historical materialism. Professor Steinberg is perplexed by Marx’s view that the socio-economic conditions within which people are immersed largely determine the parameters of their behavior. Or as Marx so simply and more eloquently put it in the Eighteenth Brumaire of Louis Bonaparte: “Men make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past. The tradition of all dead generations weighs like a nightmare on the brains of the living.” Steinberg quotes the more cryptic, but concurring statement to the same effect in the preface to Capital.

But, Steinberg ponders: “When, if ever, would workers know what was happening to them? If the preface to “Das Kapital” is right-- that humans act out laws of economics without awareness or intent-- how will the system change?”

The Professor confuses the recognition of historic processes with surrender to fatalism.

As the quote from the Eighteenth Brumaire affirms, workers will change the system when the historically evolved socio-economic conditions are ripe, and not before. The nineteenth-century English Luddites fought fervently, but futilely against capitalism’s devastation of their living conditions. But nascent industrial capitalism emerged with the vitality to crush a sincere movement associated with the old order. Twenty-first century capitalism, like the order clung to by the Luddites, is the old order, a decaying, untenable system carrying on a successful, but doomed struggle against its demise. Marx argued that as the system exhausted its potential, the socio-economic conditions sufficient for the workers to overthrow it would also arise.

It is precisely when the conditions for revolutionary change are apparent that workers may “know what is happening to them.” To insure that workers understand and seize the revolutionary moment, Marx-- and especially Lenin-- emphasized the need for a revolutionary party, a party of Communists. That party will bring forward the ideas of a new order.

Marxist Humanism. Professor Steinberg alludes to the “vast literature” on what has come to be called “Marxist Humanism.” Spurred by the publication and popularization of Marx’s early, unpublished notebooks (Economic and Philosophical Manuscripts of 1844), many leftists fashioned an idealized Marx believed to be the embodiment of liberal values. At the height of the Cold War, anti-Communist leftists embraced the tentative thinking of a youthful Marx-- a Marx three years removed from his graduate degree, filled with social reformism, still new to the working class movement and only recently seriously studying political economy-- and represented it as the true Marx.

Central to the “humanist” turn was the key concept of “alienation,” a term that Marx borrowed from Feuerbach. For the young Marx, the term served as a provisional expression marking the social distances standing in the way of individuals achieving their “nature.” As a crude philosophical tool, the concept cried out for the elaboration and refinement realized by the mature Marx. Historical materialism replaced the veiled teleology of “species-being.” Concepts like “class” and “exploitation” replaced the vagueness and generality of “alienation.” As Dirk Struik explains: ‘When we study Marx’s exposition [in the Manuscripts] in detail, we find the beginning of his mature analysis of capitalist society…” [my italics] Only the beginning!

But many writers, like Erich Fromm and Herbert Marcuse, grasped the opportunity to shape “alienation” into a class-free concept serving as an expression for every form of social separation-- from the most trivial offense to the most dreadful cruelties. Liberals heralded the new Marxism since it elevated the ennui of the pampered bourgeoisie to the level of the greatest injustices of class and race. Accordingly, the capitalist exploitation nexus was lost in a sea of social alienations. Today’s politics of the personal owes much to this contorted, unbridled abuse of the concept of alienation.

The Marxism of “the millions who accepted that ideology over the course of the 20th century,” as Professor Steinberg so felicitously put it, was not the Marxism of misspent youth or failed romance, but the Marxism of low wages, brutal working conditions, and bloody wars. Inspired by the mature Marx, the struggle against these conditions and for a new social order was true “Marxist humanism.”

These and other criticisms of Marxism-- based sometimes on honest mistakes, more often upon willful distortion-- remain a constant to be challenged. But that is surely a tribute to the timeless relevance of Marxism.
 
Zoltan Zigedy 
zoltanzigedy@gmail.com