A Return to Basics: Rasmus, the “Neoliberal” Turn, and Exploitation

Instead of the conservative motto, 'A fair day's wage for a fair day's work!' they ought to inscribe on their banner the revolutionary watchword: 'Abolition of the wage system!' Karl Marx, Value, Price, and Profit

Today, the point that Marx made in his 1865 address to the First International Working Men’s Association is largely lost on the trade unions and even with many self-styled Marxists. The distinction between the goal of “a fair day's wage” and the goal of eliminating exploitation-- the wage system embedded in capitalism-- is lost before a common, but unfocused revulsion to the exploding growth of inequality. It is one thing to deplore the growth of inequality, it is quite another to establish what would replace the logic of unfettered accumulation.

Marx offered no guidelines for a “fair wage”. Indeed, his analysis of capitalism made no significant use of the concept of fairness. Instead, he made the concept of exploitation central to his political economy. He used the concept in two ways: First, he employed “exploitation” in the popular sense of “taking advantage of” -- the sense that the capitalist takes advantage of the worker. “Exploitation of man by man” was a nascent concept, arriving in discourse with the expansion of mass industrial employment and borrowed from an earlier, morally-neutral usage regarding the exploitation of non-humans. Its etymology, in that sense, arises in the late eighteenth century.

Marx also uses the word in a more rigorous sense: as a description of the interaction of the worker and the capitalist in the process of commodity production. Even more rigorously, it appears in political economic tracts like Capital as a ratio between the axiomatic concepts of surplus value and variable capital.

As a worker-friendly concept, exploitation is most readily grasped by workers in the basic industries, especially in extractive and raw-material industries. Historically, an early twentieth century coal miner-- bringing the tools of extraction with him, responsible for his own safety while risking a more likely death than a war-time soldier, and accepting the “privilege” of going into a cold, damp hole to dig coal for someone else’s profit-- intuitively understood exploitation. A reflective miner would recoil from the fact that ownership of a property could somehow-- apart from any other consideration-- confer to someone the right to profit from a commodity that someone else had faced mortal danger to extract from the earth. What is a “fair day’s wage” in such a circumstance?

Organically, from its intuitive understanding by workers, and theoretically, from class-partisan intellectuals like Marx and Engels, as well as their rivals like Bakunin, exploitation became the central idea behind anti-capitalism and socialism.

Today, most workers’ connection to the exploitation relation appears far removed from the direct relation of a coal miner to the coal face and to the owner of the coal mine. The immediacy of labor and labor’s product in extraction is often of many removes in service-sector or white-collar jobs. Moreover, the division of labor blurs the contribution of the individual’s efforts to the final product.

Well into the twentieth century, “labor exploitation” fell out of the lexicon of the left, especially in the more advanced capitalist countries, where Marx thought that it would be of most use. Left thinkers, as well as Marxists, rightly attended to the colonial question, focusing on the struggle for independence and sovereignty; they were discouraged by the tendency for class-collaboration in many leading working-class organizations; Communist Parties correctly felt a primary duty to defend the gains of the socialist and socialist-oriented countries; and the fight for peace was always a paramount concern.

Exploitation was attacked from the academy. The Humanist “Marxist” school trivialized the exploitation nexus to a species of the broad, amorphous concept of alienation. The Analytical “Marxist” school congratulated itself by proving that given an inequality of assets, a community of exchange-oriented actors would produce and reproduce inequality of assets, a proof altogether irrelevant to the concept of exploitation, which the school promised to clarify. Both schools influenced a retreat from Marxism in the university, followed by a stampede after the collapse of the Soviet Union.

Liberal and social-democratic theory revisits the “fair day's wage” with the explosion of income inequality and wealth inequality of the last decades of the twentieth century that was too impossible to ignore. But what is a “fair wage”? What level of income or wealth distribution is just, fair, socially responsible, or socially beneficial? The questions are largely unanswerable, if not incoherent. 

Thanks to the empirical, long-term study of inequality shared in Thomas Piketty’s Capital in the Twenty-first Century, we learn that capitalism’s historical tendency has been to always produce and reproduce income and wealth inequality, a conclusion sobering to those who hope to refashion capitalism into an egalitarian system and making a “fair wage” even more elusive. Piketty’s work offers no clue to what could constitute a “fair wage.”

Others point to the productivity-pay gap that emerged in the 1970s, where wage growth and productivity took entirely different courses at the expense of wage gains. Researchers who perceptively point to this gap as contributing to the growth of inequality often harken back to the immediate postwar era, when productivity growth and wage growth were somewhat in step, when the gains of productivity were “shared” between capital and labor. But what is magical about sharing? Why shouldn't labor get 75% or 85% of the gain? Or all of the gain? Is maintaining existing inequalities the optimal social goal for the working class?

Where the concept of a “fair wage” offers more questions than answers, Marx’s concept of exploitation suggests a uniquely coherent and direct answer to the persistent and intensifying growth of income and wealth: eliminate labor exploitation! Abolish the wage system!

Thus, the return to the discussion of exploitation is urgent. And that is why a serious and clarifying account of exploitation today is so welcome.

*****

Jack Rasmus takes a step toward that end in a carefully argued, important paper, Labor Exploitation in the Era of the Neoliberal Policy Regime. I have followed Rasmus’s work for many years, especially admiring his respect for the tool of historical inquiry and his scrupulous research, interpretation, and careful use of “official” data. On the other hand, I thought that his work failed to fully consider the Marxist tradition, unduly drawn to engaging with the pettifoggery of academic “Marxists.”

However, his new work proves that assessment to be mistaken. Indeed, his latest work reflects an admirable reading of Marx’s political economy and offers an important tool in the struggle to end the wage system.

Rasmus understands that we are in a distinct era of capitalism, forced by the failure of the prior “policy regime” and typified by several features: intensified global penetration of capital and trade expansion (“globalization”), a massively growing role for financial innovation and notional profits (“financialization”), and most significantly, the restoration and expansion of the rate of profit (“the intensification of labor exploitation in both Absolute and Relative value terms that has occurred from the 1980s to the present”). 

It should be noted that Rasmus does not discuss why a new “policy regime” became necessary in the 1970s. Both the stagflation that proved intractable to the reigning Keynesian paradigm and the attack on the US profit rate by foreign competition (see Robert Brenner, The Economics of Global Turbulence, NLR, 229) necessitated a sea change in the direction of capitalism.

I might add that while so-called globalization was an important feature of “the neoliberal policy regime,” the 2007-2009 economic crisis has diminished the growth of global trade. Indeed, its decline has fostered the rise of economic nationalism, the latest wrinkle on the “neoliberal policy regime.”

Rasmus carefully and methodically documents and explicates the intensification of labor exploitation in commodity production (what he calls “primary exploitation”) over the last fifty years. He recognizes the important and growing role of the state in enabling this intensification. This is, of course, the process that Lenin foresaw with the fusing of the state and monopoly capitalism-- a process associated in Marxist-Leninist theory with the rise of state-monopoly capitalism. Today’s advanced capitalist states fully embrace the goal of defending and advancing the profitability (‘health’) of monopoly corporations (‘a rising tide lifts all boats’), including intensifying labor exploitation.

Just how that intensification is accomplished is the subject of Rasmus’s paper.

*****

Rasmus is aware that Marx expressed the exploitation nexus in terms of labor value. He avoids the scholasticism that side-tracks academically trained economists who obsess over the price/value relationship-- the so-called transformation problem. Value-- specifically a labor theory of value -- is central to Marx because it explains how commodities can command different, non-arbitrary exchange values and how the different proportionalities between the exchange values of commodities are determined. That is the problem Marx sets forth in the first pages of Capital, and value-- as embodied labor-- is the answer that he gives.

Using labor value as his theoretical primitive enables Rasmus to discuss exploitation in Marx’s framework of absolute and relative surplus value-- exploitation by extending the working day or intensifying the production process. While Rasmus offers a persuasive argument that his use of “official” data couched in prices can legitimately be translated into values, it is unnecessary for his thesis. The relations are preserved because the proportionalities are, in general, preserved. It is a reasonable and adequate assumption that prices and values run in parallel, though a weaker claim than that prices can be derived from values.

Methodological considerations aside, Rasmus sets out to show-- and succeeds in showing-- that exploitation has accelerated in the “neoliberal” era in terms of both relative and absolute surplus value:

Capitalism’s Neoliberal era has witnessed a significant intensification and expansion of total exploitation compared to the pre-Neoliberal era. Under Neoliberal Capitalism both the workday (Absolute Surplus Value extraction) has been extended while, at the same time, the productivity of labor has greatly increased (Relative Surplus Value extraction) in terms of both the intensity and the mass of relative surplus value extracted.

Regarding Absolute Surplus Value, he demonstrates: 

[I]t is true the work day was reduced during the first two thirds of the 20th century—by strong unions, union contract terms, and to some extent from government disincentives to extend the work day as a result of the passage of wages and hours legislation. But that trend and scenario toward a shorter work day was halted and rolled back starting in the late 1970s and the neoliberal era. The length of the Work Day has risen—not continued to decline—for full time workers under the Neoliberal Economic Regime.

Through a careful combing and analysis of government data, as well as original arguments, Rasmus shows how capital has succeeded in extending the workday. His discussion of changes in mandatory overtime, in temporary employment, in involuntary part-time employment, in paid leave, in changing work culture, in job classifications, in work from home, internships, and other practices form a persuasive argument for the existence of a trend of the lengthening of the average workday. 

Similarly, Relative Labor Exploitation has accelerated in the “Neoliberal” era, according to Rasmus:

Rising productivity is a key marker for growing exploitation of Labor. If real wages have not risen since the late 1970s but productivity has—and has risen at an even faster rate in recent decades—then the value reflected in business revenues and profits of the increased output from that productivity has accrued almost totally to Capital.

In this regard, the numbers are widely recognized and non-controversial. Labor productivity has grown significantly, while wages have essentially stagnated. Rasmus tells us that it is even worse than it looks:

So, wages have risen only about one-sixth of the productivity increase.  But perhaps only half of that total 13% real hourly wage increase went to the top 5% of the production & nonsupervisory worker group, according to EPI 10 (Economic Policy Institute, February 2020). That means for the median wage production worker, the share of productivity gain was likely 10% or less. The median wage and below production worker consequently received a very small share in wages from productivity over the forty years since 1979. It virtually all accrued to Capital…

According to the US Labor Department, there were 106 million production & nonsupervisory workers at year end 2019—out of the approximately 150 million total nonfarm labor force at that time. Had they entered the labor force around 1982-84, they would have experienced no real wage increase over the four decades.

Rasmus notes that the US maintained the same share of global manufacturing production through the first two decades of the twenty-first century, but doing it with six million fewer workers. This, of course, meant a rising rate of exploitation and a greater share of surplus value for the capitalists. Though the job losses struck especially hard at an important section of the manufacturing working class relegated to unemployment, the remaining workers lost further from concessionary bargaining promoted by a business-union leadership. Thus, they were unable to secure any of the gains accrued by rising productivity. They experienced a higher rate of exploitation.

*****

Demonstrating that labor exploitation has increased in the last 45-50 years in terms of absolute and relative surplus value does not, according to Rasmus, close the book on labor exploitation. Drawing on a suggestive quote in Volume III of Capital, he develops an original theory of “secondary exploitation.” Marx writes:

That the working-class is also swindled in this form [usury, commerce], and to an enormous extent, is self-evident… This is secondary exploitation, which runs parallel to the primary exploitation taking place in the production process itself. Capital, Volume III, p. 609 

Rasmus explains secondary exploitation this way: “Secondary Exploitation (SE) is not a question of value being created in exchange relations. It’s about capitalists reclaiming part of what they paid initially in wages. It’s about how capitalists maximize Total Exploitation by manipulating exchange relations as well as production relations.” 

To be clear, Marx is not using the technical sense of “exploitation” here, but the popular sense. However, the fact that the worker has “earned” a measure of value and that capitalists can wrest some of it away in various ways is exploitation and important and worthy of study. 

Here, however, Rasmus digresses, reverting back to the price form in his explanation of secondary exploitation. He seems to assume, without elaboration, that systemic “taking advantage of workers” outside of the production process must be explained in terms of prices and not values. He also seems to believe that all means of secondary exploitation must be within the exchange nexus. And he seems to believe that all secondary exploitation must be systemic. It is not clear why these assumptions should be made.

These methodological questions, however, bear little relevance to his fresh and original insights on secondary exploitation. Rasmus presents five mechanisms for capital to “claw back” from the working people the variable capital captured by the class in the value-producing process: credit, monopolistic price gouging, wage theft, deferred or social wages, and taxes. Importantly, Rasmus connects much of this exploitation to the active intervention of the state on behalf of capital.

Credit: Allowing workers to acquire commodities through deferred payment is not a sympathetic act by the capitalist, but a method of furthering accumulation in an environment where demand is restricted by the inequalities of income and wealth. The capitalist extracts additional value from the worker through interest charges. Additional value is “swindled” from the worker through the credit mechanism. Rasmus points out that interest-bearing loans to working people have expanded from $10 trillion-plus in 2013 to $17 trillion-plus in 2024, with dramatically higher interest rates in the last few years.

Monopolistic price gouging: Rasmus is fully aware that when prices go up, they are the result of decisions by capitalists to secure more revenue-- that action is not to benefit society, not to help the workers, but to secure more for investors. Insofar as they succeed, their gains are at the expense of workers-- a form of secondary exploitation.

Our current run of inflation is the result of a cycle of price increases to capture more of the consumers’ (in the end, the workers’) value and to catch up with competitors. But the impression must not be left unchallenged that this price gouging is painlessly left to the capitalist at his or her whim or that it is without risk. The impression must not be left, as it was in the 1960s with Sweezy/Baran, Gillman, and others, that monopoly concentration meant a sharp decline in the power of competition to retard and even thwart monopoly power to do as it liked. That lesson was sharply brought home in the 1970s with humbling of the US big three automakers and the US electronics industry. Monopoly and competition play a dialectical role in disciplining price behavior around labor values.

Wage theft: While theft is not exploitation, when it is common, frequent, and rarely sanctioned, it resembles exploitation more than theft! Rasmus provides an impressible list of common ruses-- “The methods [of wage theft] have included capitalists not paying the required minimum wage; not paying overtime wage rates as provided in Federal and state laws; not paying workers for the actual hours they work; paying them by the day or job instead of by the hour; forcing workers to pay their managers for a job; supervisors stealing workers’ cash tips; making illegal deductions from workers’ paychecks; deducting their pay for breaks they didn’t take or for damages to company goods; supervisors arranging pay ‘kickbacks’ for themselves from workers’ pay; firing workers and not paying them for their last day worked; failing to give proper 60-day notice of a plant closing and then not paying workers as required by law; denying workers access to guaranteed benefits like workers’ compensation when injured; refusing to make contributions to pension and health plans on behalf of workers and then pocketing the savings; and, not least, general payroll fraud.”

Deferred or Social wages: Rasmus shows how the government mechanisms that are meant to socially meet needs are skewed to draw more from workers proportionally while benefiting them less proportionally. He has in mind retirement, health care, and welfare programs that politicians persistently demand more sacrifices from working people to fund, while restricting their ability to draw the benefits through various tests of eligibility.

Taxes: Rasmus reminds us that the dominant political forces espousing the “Neoliberal policy regime” have dramatically increased the tax burden on workers:

Since the advent of Neoliberalism, the total tax burden has shifted from capitalists, their corporations, businesses, and investors to working class families.

In the post-World War II era the payroll tax has more than doubled as a share of total federal tax revenues, to around 45% by 2020. During the same period, the share of taxes paid by corporations has fallen from more than 20% to less than 10%. The federal individual income tax as a percent of total federal government revenues has remained around 40-45%. However, within that 40-45%, another shift in the burden has been occurring—from capital incomes to earned wage incomes…

Not just Trump, but every president since 2001 the US capitalist State has been engaged in a massive tax cutting program mostly benefiting capital incomes. The total tax cuts have amounted to at least $17 trillion since 2001: Starting with George W. Bush’s 2001-03 tax cuts which cut taxes $3.8 trillion (80% of which accrued to Capital incomes), through Obama’s 2009 tax cuts and his extension of Bush’s cuts in 2008 for another two years and again for another 10 years in 2013 (all of which cost another $6 trillion), through Trump’s massive 2017 tax cuts that cost $4.5 trillion, and Biden’s 2021-22 tax legislation that added another $2 trillion at minimum—the US Capitalist state has reduced taxes by at least $17 trillion!

Reducing capital’s taxes, as a proportion of tax revenue, increases future national obligations-- national debt-- that will ultimately be paid by working-class taxes. Or, if that proves unfeasible, it will be met by a reduction of social spending, which reduces social benefits for workers. Either way, the working class faces secondary exploitation through ruling-class tax policy.

Interestingly, Rasmus acknowledges that the state plays a big role in what he deems “secondary exploitation.” Yet, he also suggests that the proper province of secondary exploitation is in the bounds of exchange relations. This seeming anomaly can be avoided if we understand the increasing role of the state in engaging, broadly speaking, in the arena of exchange, as well as regulation. It is precisely this profound and broad engagement that many twentieth-century Marxists explained as state-monopoly capitalism.

*****

Jack Rasmus’s contribution is most welcome because it argues that returning to the fundamentals-- the concept of exploitation-- can be a fruitful way of looking at contemporary capitalism. It establishes a firm material base for an anti-capitalist politics that addresses the interests of working people as a class, the broadest of classes. 

Further, the theory of exploitation unites people as workers, but allows for the various ways and degrees of their exploitation. And it links the material interests of the protagonists in the class struggle to the many forms of social oppression and their contradictory interests in promoting or ending those oppressions: the capitalist sows oppressive divisions to gain exploitative advantage; the worker disavows oppressive divisions to achieve the unity necessary to defeat exploitation. That is, exploitation motivates the capitalist to divide people around nationality, race, sex, culture, social practices, and language. Ending exploitation motivates the worker to refuse these divisions.

In an age where capitalism owns a decided, powerful advantage because of the splintering of the left into numerous causes and where capitalism elevates individual identity to a place superseding class, the common goal of eliminating exploitation is a powerful unifying force.

Today’s left has too often interpreted anti-imperialism as simply the struggle for national sovereignty, rather than through the lens of exploitation. Consequently, the dynamics of class struggle within national borders is often missed. 

Of course, for Lenin and his followers, an advanced stage of capitalism-- monopoly capitalism-- was the life form of imperialism. And its beating heart was exploitation.

The vital tool that Marx, Engels, and Lenin brought to the struggle for workers’ emancipation was the theory of exploitation. 

Greg Godels

zzsblogml@gmail.com

Getting Serious about Inequality

“The tenacity of the Yankees... is a result of their theoretical backwardness and their Anglo-Saxon contempt for all theory. They are punished for this by a superstitious belief in every philosophical and economic absurdity, by religious sectarianism, and by idiotic economic experiments, out of which, however, certain bourgeois cliques profit.” Frederich Engels, letter to Sorge, London, January 6, 1892. Translation by Leonard E. Mins (1938)

One hundred and twenty-two years later, the Yankees remain bereft of theory while clinging to every outlandish scheme promising to curtail the appetite of an insatiable capitalist system. Churning on without interruption, capitalism generates greater and greater wealth for its masters while devouring everyone else in its wake. From regulatory reform to alternative life styles, from tax policies to cooperative endeavors, self-proclaimed opponents of this rapacious economic behemoth have announced newly contrived exits from its destructive path. While “...people [in the US] must become conscious of their own social interests by making blunder upon blunder...” as Engels put it in another letter to his US friend Frederich Sorge, the contented capitalists merrily continue profiting.

Engels' brutal indictment of the North American allergy to theory and the affinity for unfocussed activism was tempered by an optimism based more upon hope than reality: “The movement itself will go through many and disagreeable phases, disagreeable particularly for those who live in the country and have to suffer them. But I am firmly convinced that things are now going ahead over there... notwithstanding the fact that the Americans will learn almost exclusively in practice for the time being, and not so much from theory.”

That conviction may well seem misplaced today as many of those who claim opposition to capitalism continue to decry theory and invest instead in utopian schemes and isolate burning issues from a general critique of capitalism and its social policies.

Nothing illustrates the Engels' diagnosis more than the current public discussion of inequality and poverty. It is tempting to call the new-found interest a fad or fashion, since it seems to spring from nothing more than a sitting President's alarm. But the present-day rage to address economic inequality is far more cynical. With interim national elections on the horizon and a competitive Presidential race on its heels, Democratic Party leaders served notice on the lame-duck President that it is time again to rouse the Party base, the labor unions, the progressive single-issue organizations, internet lefties, and the deep-pockets social liberals. Hence, despite the fact that inequality and poverty are neither newly discovered nor newly arrived, the alarm goes up: inequality is with us! Poverty is on the rise!

It is true, of course. Only a few outliers would deny that income and wealth growth for most people in the US have been stagnant or declining since some time in the 1970s (Even right-wing ideologue, Representative Paul Ryan, concedes that there are 47 million US citizens living in poverty). Health care has been in crisis, with millions left without any significant health options and untold numbers dying prematurely. The education system, like the physical infrastructure, is underfunded and crumbling. Employment continues to decline as discouraged workers exit the labor market. In short, poverty, disease, declining living standards, crime-- all the attendant problems of social and political neglect-- continue unabated, increasing dramatically over the last forty years.

At the same time, a privileged minority has enjoyed increasing income and wealth, a sharp rise in that group's share of the economic pie. As the economy marched forward, the “fortunate few” marched forward as well, but at an ever accelerating pace.

Without Theory

“Data, not stultifying political or ideological rhetoric, must drive our agenda.” So says rising Democratic Party superstar, Senator Cory Booker, in a newsprint debate with Republican policy icon, Representative Paul Ryan. Sponsored by The Wall Street Journal (A Half Century of the War on Poverty, 1-25/26-14) to commemorate the fiftieth anniversary of the Lyndon Johnson-era “War on Poverty,” the two contestants demonstrate the futility of addressing poverty without a broad and deep understanding of its sources and its history-- the “how” and “why” of social theory. Representing the “respectable” Left in the US two-party political pantomime, Booker rehearses a host of liberal think tank palliatives based on education, job training, apprenticeships, de-criminalized drug use, and a bare-bones safety-net designed to shrink the number of those unlucky enough to fall below official government floors.

Solutions, for Booker, come through the tools of business and commerce: investments, cost-benefit analysis, returns on investment, cost savings etc. Rather than improving peoples' lives, the task of reducing poverty resembles an MBA project of this new generation of Democratic Party politician. He draws on suspect, often out-of-date correlations once found between education levels and future economic outcomes to sell education as a magic elixir. These long unexamined verities are now shaken by the absence of good paying jobs, the declining worth of higher degrees, and the enormous growth of student debt. Booker's feeble defense of the leaky safety-net that remains as a tarnished legacy of the New Deal and Johnson's anti-poverty legislation centers on food stamps and Medicaid, a formula to barely sustain life, but to not escape poverty. Add a dash of Moynihan-like sermon against single-motherhood and you have the anti-poverty program of the new generation of Democratic Party leaders-- truly a patchwork of “economic absurdity” worthy of Engels' contempt.

As for the Republicans, they argue for nothing, only against Democratic Party plans. Theirs is a simple contention: Forty-seven million US citizens remain in poverty. While the “War on Poverty” may have shifted the victims of poverty demographically, the poor are still with us and in great, stubborn numbers. For Representative Ryan, charity and moral suasion-- the remedies of two centuries ago-- are the only alternative to liberal interventionism and its failure.

Now liberals will recoil from these harsh conclusions. They can and will point to significant pockets of improvement, temporary declines in the poverty rate, or promising social experiments. But what they can neither explain nor address is the persistent reproduction of poverty by our economic system. For nearly forty years, measures of income and wealth inequality have grown, signally an inevitable increase in poverty. Even those ill-disposed to theory can surely see a relationship between growing inequality and increasing poverty.

Glaringly absent from Booker's program is any significant plan to redistribute income and wealth. We can attribute that absence to the near complete ownership of elected officials of both parties by the corporations and the wealthy. But on the periphery of mainstream politics, voices can be heard advocating measures both to grow the economy beyond mass impoverishment and/or to redistribute wealth through taxation.

The Krugmans, Reichs, and Stiglitzs and the like enjoy a measure of independence afforded by their academic tenure and widely celebrated intellectual stature, allowing them to somewhat sidestep fealty to corporate masters. As esteemed economists, they understand that the continued growth of inequality will ultimately bring harsh economic or social consequences. But their nostrums, like those of the political establishment, only treat the symptoms of a persistent malady that continually generates inequality, unemployment, and crises. A study of economic history demonstrates that bursts of economic growth and progressive taxation have indeed tempered, even slightly reversed inequality and the growth of poverty, but over time both return to their former trajectory.

A Dose of Theory

A new study by a French economist, Thomas Piketty, brings forward the view that the long-term tendency of capitalism is to produce and reproduce inequality. Though his book, Capital in the Twenty-first Century, is not scheduled for release in the English language until March, it has already generated serious discussion across the spectrum of the US commentariat. New York Times columnist, Thomas B. Edsell, asserts that the book “suggests that traditional liberal government policies on spending, taxation and regulation will fail to diminish inequality.” (Capitalism vs. Democracy, 1-28-2014)

How can that be? The liberal and social democratic consensus cries out for government spending, progressive taxation, and corporate regulation as the answer to growing inequality. A gaggle of Nobel laureates embrace these tools, attesting that they are effective means to combat inequality. What does Piketty see that they do not? 

History.

Piketty is not afraid to study the history of inequality, a necessary condition for any proper socioeconomic theory. What he finds, according to Edsell, is that:

...the six-decade period of growing equality in western nations – starting roughly with the onset of World War I and extending into the early 1970s – was unique and highly unlikely to be repeated. That period, Piketty suggests, represented an exception to the more deeply rooted pattern of growing inequality.

According to Piketty, those halcyon six decades were the result of two world wars and the Great Depression.

In other words, growing inequality is the normal for capitalism and its shrinkage the aberration. Apologists would have us believe otherwise, that capitalism does not carry a gene for inequality. Unlike his Yankee counterparts, Piketty is willing to study the economy as a system-- capitalism-- and explore its historical trajectory. Both methodological dispositions give rise to a theory of inequality, an incomplete theory, but a theory no less.

Now Piketty and his frequent collaborator Emmanuel Saez are widely acknowledged to be among the leading experts documenting inequality world wide as well as in the US. Undoubtedly this gives a high plausibility to his core claim to identify a strong correlation between capitalism's typical course and the growth of inequality.

Of course students of Marxist theory or followers of this blog should not be surprised by Piketty's findings. For over a hundred and fifty years Marxists have maintained that inequality and impoverishment are necessary products of the capitalist system. That is, the logic of capitalism necessitates growing inequality. By locating profit at the heart of the capitalist organism, Marxists understand that wealth will invariably flow to the tiny minority of the owners of capital and away from the producers. It is this process of profit generation that overwhelms all barriers, all “reforms,” to channel society's resources to the capitalist class.

Piketty's argument is a welcome antidote to the paucity of explanatory theory presented by the liberal and social democratic punditry. The controversy stirred by Piketty's argument well before its English-language availability is a sure sign that he offers something beyond the conventional.

However, his interpretation of the long-term trajectory of capitalism, especially its departure from the norm, may be incomplete. He reportedly sees the time between 1914 and 1973-- a time when he claims that the growth of inequality was uncharacteristically retarded-- as a period when the after-tax rate of return on capital lagged behind economic growth. One could quibble that this is perhaps too simple and mechanical, the era was certainly one in which many factors worked to change the “normal” course of capitalism and often buffered the growth of inequality, together constituting a tendency.

But it would be a simplification to locate these factors entirely in economic or political events while overlooking policy. For example, throughout most of the twentieth century capitalism paid an anti-Soviet levy or rent to the working class as an inoculation against the threat of socialist or Communist ideology. That factor played no small part in moderating inequality, creating the mirage of working class equality, and ensuring labor peace.

Closer examination of Piketty's interesting thesis must await publication of the book.

For a Robust Theory of Inequality

We needn't wait for Piketty, however, to find an adequate theory of inequality. Elements of Karl Marx's theory of socioeconomic development offer the key to understanding the production and reproduction of inequality in our time as well as earlier times.

There are, of course, many possible causes for the concentration of wealth. Theft, good fortune, guile, dishonesty are only a few of the ways that humans have redistributed wealth since antiquity. Such causes occur often in history, but only haphazardly. The only systemic cause of inequality is the expropriation of the labor of one by another under the protection of social norms. Marx called this process exploitation. He was the first to identify its forms and its trajectory. He was the first to explain adequately the mechanisms of expropriation. Armed with Marx's theory of exploitation, the inequalities of slavery, feudalism, and, of course, capitalism are revealed with all their specific features. Thus, the concentration of wealth produced by expropriation of the labor of slaves, serfs, and employed workers is connected to unique socially protected forms of exploitation.

Exploitation explains how inequality arises and continues. Without recognition of this mechanism embedded in capitalist economic activity, liberals and social democrats cannot explain the persistence of inequality. They will apply inadequate reformist measures to stem the tide of wealth and income concentration springing from capitalist exploitation, but the tide will not be forestalled by reforms.

It cannot be overemphasized that inequality springs from a process, a process definitive of capitalist economic relations. Outside of the Marxist orbit, commentators view inequality as a state-of-affairs, a state-of-affairs existing between various social groupings. While they authentically decry the misery generated by inequality, they are at a loss to find the proper quantitative relationship between different groups constitutive of society. Sure, some have more than others, but what is the socially just distribution of society's goods? Granted that inequalities exist, what is the optimal way to assign shares of wealth? How much and for whom? Should everyone get an equal share? Should those on the bottom get a 10% larger share? 20%? These are the questions that perplex the non-Marxists.

The best answer from the best minds of Anglo-American social philosophy is a pretty nasty and unsatisfactory principle called Pareto efficiency. Rather than solving the inequality puzzle, Pareto efficiency justifies an unequal state-of-affairs provided that it does not diminish the well-being of others, including the least advantaged. Because of the theoretical intractability of settling on exactly what constitutes a just distribution of goods and services, modern bourgeois academic philosophers attempt to establish what would be the least objectionable, but unequal state-of-affairs. Nothing demonstrates the theoretical barrenness of Anglo-American social thought than this misguided, impossible task of determining distributive justice once and for all and for all times and places. There is no idealized state-of-affairs that could answer this question. The question itself is misguided.

Rather, in our time, the task of reducing inequality, of advancing distributive justice, is to eliminate exploitation. There can be no ideal, perfect solution to the inequality issue, but there is a way of eliminating the primary cause of indefensible inequality in a capitalist society: end labor exploitation.

Liberals and social democrats have no answer to the rightist challenge that workers today are immeasurably better off under capitalism than they were two hundred years ago. It is certainly true that most workers now live longer, are healthier, and have more free time than did their counterparts two centuries earlier. Marxist theory does not challenge that point. Instead, it asserts that the logic of the capitalist system tends to impoverish working people at all times. Whether capitalism succeeds in suppressing living standards is entirely a different matter. Other factors-- labor fight back, labor shortages, the cheapening of the means of subsistence, etc.-- may buffer, even overwhelm this tendency for a time, but the tendency never disappears.

The tendency towards impoverishment flows logically from the Marxist understanding that labor under capitalism is a commodity like any other commodity. Capitalists buy and sell the labor power of workers just as they do any other factor of production or distribution. And as with any other cost, they seek to pay the lowest possible price for it. Accordingly, the capitalist system, through the cost-cutting actions of individual capitalists (or corporations), is constantly pressuring the compensation of workers downward to levels of mere maintenance-- that is, poverty. The only systemic constraint upon that pressure is the necessity of securing labor in the future.

Therefore, we find in Marxism a basis for understanding (and addressing) inequality and poverty. Thanks to a theory that identifies the two closely related afflictions with specific historically evolved mechanisms and that connects their production and reproduction to economic systems, we can avoid the muddiness and ineffectiveness of the liberal and social democratic approaches. Both mystify the causes, offer a balm instead of a cure, and fail to halt the continuing reproduction of inequality and poverty. Like quacks and faith healers, liberals and social democrats may make the patient more comfortable, but only excising the cancer of capitalism will finally end the suffering.

Zoltan Zigedy

zoltanzigedy@gmail.com