Marx
by Jaime Edwards and Brian Leiter
Routledge, 224; 316 pp.

In Marx, Jaime Edwards and Brian Leiter aim to give readers who haven’t studied Karl Marx an account of the essentials of his thought and, to a lesser extent, the ideas of later Marxists as well. They argue that although some of Marx’s doctrines are wrong, others are correct; in particular, they take Marx to be unrivaled as an analyst of capitalism. In what follows, I’ll comment on a few points in the book.

Marx follows David Ricardo in contending that the exchange-value (price) of a commodity (a good or service bought and sold in the market) is the number of “socially necessary” labor hours required to produce it. This applies to labor as well. The value of labor is determined by the socially necessary labor time needed to “produce” the worker (i.e., the time needed to enable him to consume enough to sustain himself and to reproduce).

The rate at which an exchange takes place will, in equilibrium, be in strict proportion to the number of labor hours needed to produce each good. But now a problem arises. If goods exchange at equivalent values, how do capitalists earn a profit? (By “profit,” Marx means a rate of return on an investment rather than entrepreneurial gains from arbitrage). The capitalist starts with a certain amount of money, and, after a process of production, sells his product for more money than he started with. How is this possible?

Marx’s answer is that when capitalists hire workers, they buy the workers’ “labor power.” During the working day, the worker is generating value by expending labor hours on what is produced. But the employer has paid the worker only for the value of labor, the socially necessary time required to “produce” him. The gap between labor power and labor is “surplus value,” and this is the source profit and rent.

Edwards and Leiter acknowledge that this theory must be rejected. It cannot solve the “transformation problem,” despite the efforts expended on this problem by generations of Marxists. (I will spare readers an account of this). But, if the labor theory of value is dropped, the basis for Marx’s argument that capitalism will eventually come to an end and be replaced by socialism collapses.

According to Marx’s theory of historical materialism, which Edwards and Leiter deem his most significant contribution, the “forces of production”—roughly the technology and creativity available at a particular time—determine the “relations of production,” roughly, how production is organized into different economic classes. The relations of production will tend to be those best-suited to develop the forces of production. As the forces of production continue to develop, a point will be reached when the relations of production will become “fetters,” and a revolution will usher in new relations of production.

Marx maintains that this is what will happen to capitalism. For reasons stemming from the labor theory of value, the rate of profit tends to fall, and this leads capitalists to “squeeze” workers until they become “immiserated.” When conditions get bad enough and workers think a revolt is feasible, capitalism will be overthrown and replaced by socialism.

But, without the labor theory of value, Marx has no argument for the falling rate of profit. Must we then abandon the view that capitalism is eventually unsustainable?

Not so fast, say Edwards and Leiter. We can get to the same conclusion in a different way. To make a profit, it is not enough for a capitalist to produce something with a higher selling price than its cost. He must sell the product. But, as new technologies develop, workers are displaced and lose their buying power, unless they can find another job, which is often difficult. Additionally, capitalists will try to outsource labor, further reducing workers’ buying power, and to replace human workers with automated devices that do not require payment at all. Because of the decreased purchasing power of workers, they will be unable to buy enough to enable employers to sell their products.

The authors are right that capitalists want to minimize their wage costs. But it does not follow from this that they can successfully drive wages below the workers’ marginal product. The argument that they can rests on the view that capitalists have more bargaining power than workers. A worker offered a low wage cannot realistically hold out for better terms because he must have a job to survive, but the employer can readily replace him with someone else from the “industrial reserve army.” What this argument ignores is that if an employer offers a worker a wage below his marginal product, a competing firm will have an incentive to hire him away. To get around this point, we can postulate an agreement among employers not to undercut each other’s wage offers, but that seems implausible. So far as automation is concerned, Edwards and Leiter acknowledge that, in past instances, automation has created more jobs than it has destroyed; but this time, they suggest, things will be different. Why?

Austrians would fault the “spending” argument in another way as well. The whole assumption that an economy requires a level of spending for sustainability must be rejected. If prices are flexible—adjusting to changes in supply and demand—all is well. Here the work of W.H. Hutt is fundamental.

In Marx’s view, socialism will eventually supplant capitalism, after the proletariat reaches the breaking point. But Marx has little to say about how socialism is supposed to work. And, in fact, Ludwig von Mises’s calculation argument shows that, without capitalist market prices, an economy would collapse into chaos. The “centrally planned” economies, established after the Bolshevik Revolution, were able to use world market prices in their plans, so they cannot be cited as a refutation of Mises’s argument.

Some “analytical Marxists,” most notably G.A. Cohen, have responded to the weaknesses in Marx’s theoretical edifice by moving to the normative realm. Socialists should no longer argue that the coming of socialism is inevitable but rather that it is required by morality. Edwards and Leiter make a good case that Marx disdained appeals to morality. Cohen disagreed, but even if he was wrong about what Marx thought, he could still say, “Even if I’ve got Marx wrong, so what?”

Originally Posted at https://mises.org/

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It’s now been nearly 35 years since E.L. Jones first published his watershed book The European Miracle. Jones’s history of Europe’s economic development examined the reasons why Europe—a comparatively poor and backward part of the world in the Middle Ages—somehow became the wealthiest and most productive place on earth in the nineteenth century. The fundamental question remains: why did Europe surpass other civilizations1such as Islam and China—which had once been much richer than the west?

According to Jones, a major factor in Europe’s drive to economic prominence was the high degree of economic freedom. As Jones puts it: “Economic development in its European form required above all freedom from arbitrary political acts concerning private property.” Or, as historian Ralph Raico concluded, Europe’s industrialization was closely connected to the fact that “the economy achieved a degree of autonomy unknown elsewhere in the world except for brief periods.”

This, of course, raises the question of why Europeans enjoyed higher levels of economic freedom. As Raico shows in his work on late antiquity and the Middle Ages, Europe’s political institutions were different from anywhere else, thanks largely to the unique position of the Western Church as a rival and competitor against the civil power. Consequently, no single state or polity was able to consolidate power across the region. Ongoing rivalries between the Church, various kings, and countless private “corporate” organizations further solidified a decentralized political structure in which various groups jealously guarded their property and economic interests from the grasping hands of princes and legislators.

But there’s even more to it than that. Another institution at the core of the story of the European miracle is the family, and specifically the European nuclear family. We find that specific European factors led to growing numbers of nuclear families which, in turn, supported the rise of Europe’s private “corporate” organizations that fueled Europe’s ecosystem of decentralized, diverse, and private organizations.

The Historical Origins of the Nuclear Family

One notable characteristic of Western Europe after the Early Middle Ages is an unusually high proportion of nuclear families. Outside Western Europe, so-called “stem families” and “joint families” were more common. In these two family types, grown children and elderly adults more commonly lived together, and the creation of new households was less common than in areas with nuclear families. In joint families, large extended families could be found living together in close proximity or even on a single estate.(One variation of this model is the Roman ideal of the “pater familias.”)

In the case of stem families, most of the grown children leave to start new households while one of the children—often the oldest son—remained living with the elderly parents in anticipation of inheriting the parent’s land or business.

The historical extended families, and the clan structures that accompanied them, went into relative decline during the Middle Ages in Europe. The resulting rise in prevalence of nuclear families appears to have been encouraged by economic factors and also by religious factors tied to the Catholic Church.

According to economic historian Avner Greif, the Catholic Church in the early Middle Ages “instituted marriage laws and practices that undermined kinship groups.” Polygamy, concubinage, divorce and remarriage we all discouraged, and this worked to limit the overall size of families. Moreover, the Church restricted “consanguineous” marriages—generally marriages among first cousins or other close relatives. The Church also required that women explicitly consent to their marriages. These latter two factors did much to curtail the power of patriarchs and patriarchs of large families who might seek to consolidate their power through arranged marriages and marriages among cousins.

Over time, this all encouraged a proliferation of nuclear families, and Greif notes

By the late medieval period … the nuclear family was dominant. Even among the Germanic tribes, by the eighth century the term “family” denoted one’s immediate family and, shortly afterwards, tribes were no longer institutionally relevant.

The Rise of the Corporations

This created a need for new organizations to replace the old services offered by extended families. That is, individual nuclear families are generally unable to provide their own means of settling disputes and fostering economic exchange beyond the immediate family. Clans and tribes often provide these resources. So, in order to replace what had once been offered by family networks, groups of families participated in the creation of “corporations.”

These were not the corporations we today associate with joint-stock companies. These organizations were “voluntary, interest-based, self-governed, and intentionally created permanent associations. In many cases, they were self-organized and not established by the state.” These included the Church itself, but also monastic orders, universities, the Italian city-states, urban communes, militias, and merchant guilds. All actively sought to protect their own commercial interests in Europe’s various legal institutions.

Moreover, whatever their provenance, these corporations tended to think of their own interests as distinct from the interests of the prince or civil power. The corporations thus acted as yet another institutional brake on state power. As Raico shows, Europe’s decentralized political power—and the accompanying protections for private property—grew out of complex legal environment of contracts, rights, and other legal considerations forced upon princes and civil authorities by the demands of these corporate groups. Thus, Europe came to be home to political and legal philosophies respecting the idea of “mine and thine” rather than the idea that all belongs to the prince or the collective.

Other Factors

Of course, the rise of nuclear families was not only the result of Church reforms. Economic and ideological factors were significant as well. Greif notes that Europeans were more accepting of relatively high levels of individualism—which he claims stemmed from earlier Greek, Roman, and Germanic ideals.

Economic realities also affected the shift in family types.

The Black Death was one factor. As one pair of historians put it in 2013, “By killing between a third and half of the European population, it [the Black Plague] raised land-labor ratios.” Moreover, Christopher Dyer notes “Unskilled workers’ wages rose more rapidly than those of the skilled after 1349, a sure indication of a labour shortage…” It thus became easier to create new, economically viable household under these conditions.

By the sixteenth century, wages were also rising due to increases in urbanization, new forms of wage work, and new economic opportunities that came with proto-industrialization.

Rising economic opportunities did not, however, erase the desire among nuclear family groups to further pursue economic and social opportunities through corporations that provided critical services to member families.

Over the long term, as Greif concludes, these corporations contributed to the economic growth of Europe by streamlining greater economic exchange, developing a reliable legal framework, and by fostering trust among non-kin groups. These benefits accrued to Europeans also in how the corporations limited state power—a key factor in the European miracle, according to Jones.

The Decline of the Corporations

Unfortunately, the rise of new political ideologies and movements in Europe eventually destroyed many independent, non-state corporations while bringing many others under the control of states. Mercantilism, absolutism, and nationalism, for instance, all weakened or destroyed the non-state corporations by promoting the consolidation of state power. As Murray Rothbard notes about the rise of the French absolutist state:

The sixteenth century French legalists also systematically tore down the legal rights of all corporations or organizations which, in the Middle Ages, had stood between the individual and the state. There were no longer any intermediary or feudal authorities. The king is absolute over these intermediaries, and makes or breaks them at will. Thus, as one historian sums up Chasseneux’s view: “All jurisdiction, said Chasseneux, pertains to the supreme authority of the prince; no man may have jurisdiction except through the ruler’s concession and permission. The authority to create magistrates thus belongs to the prince alone; all offices and dignities flow and are derived from him as from a fountain.”

By the late nineteenth century, the free corporations—once tools of the rising tide of nuclear families in the late Middle Ages and Early Modern Period—had become essentially adjuncts of states.

Nonetheless, by then, Europeans for centuries had benefited from the economic growth and political decentralization fostered by these organizations. Even today, we continue to benefit from their important contributions to the European miracle.

Image Credit: public domain. (via Wikipedia.)

[Read More: “Don’t Blame Capitalism for the Decline of the Extended Family“ by Ryan McMaken]

Originally Posted at https://mises.org/

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In a recent conversation with my college-educated friend, they expressed their sentiments that college, for many, was a waste, echoing a common critique among libertarians. Further, they continued, that if they were not led to believe that college would guarantee a well-paying career, they could have started working earlier, developing real-world skills, therefore, making closer to the comfortable pay of their non-college-attending colleagues. While some may view higher education as a necessary step towards personal and professional growth, others argue that the current system is plagued by inefficiencies, inflated costs, and a lack of connection to the job market.

Libertarians argue that the current college system isn’t sustainable due to its reliance on federal guarantees for student loans. This “blank check” has led to rising tuition prices, as colleges know they can basically borrow unlimited funds to finance their day-to-day operation. Without market forces reigning in costs, colleges have almost no incentive to get creative or reduce their expenses. As a result, many students graduate with enormous debt, and many without even securing jobs that justify their investment.

Many libertarians would agree that the education system prioritizes left-leaning indoctrination over gaining knowledge and real-world life skills, offering many programs that focus on irrelevant subjects rather than vocational training. This focus on theory-over-function application leads to a disconnect between education and employment, as graduates rarely can find jobs that align with their degrees.

In a perfect world, education would be decentralized and market-driven. Students would have more freedom to choose programs that align with their interests and career goals, rather than being covered into traditional liberal arts or STEM programs. Giving that choice would encourage innovation and competition among colleges, leading to lower costs while also increasing the value of the degrees.

Additionally, while many colleges solely focus on degrees with little real-world application, ideally there would be a shift towards vocational training and apprenticeships, providing students with hands-on experience and skills useful to the ever-changing job market. This approach would also reduce the burden on taxpayers, as government subsidies for higher education would be minimal. Some might think that prioritizing vocational training discourages higher learning and creates a worker economy, but that ignores the individual entirely and their ability to enrich themselves outside of the college environment. Online courses, lectures, and community programs can provide access to a wide range of subjects and skills without the need for a traditional college degree.

Furthermore, many libertarians would argue that the current system’s focus on “theoretical knowledge” has led to a lack of practical problem-solving skills and adaptability in life as a whole, let alone through the workforce. A more market-driven approach to education would prioritize these types of skills, better preparing students for the current landscape of the job market.

In conclusion, my friend’s assertion that college, for many, is a waste is certainly valid. To combat this increasingly-common sentiment, it’s clear that a more libertarian approach is necessary. While some may disagree with this perspective, it’s essential to acknowledge the very real concerns about cost, relevance, and effectiveness. It’s no secret that college loans are predatory, but the answer is how to combat this practice varies.

By decentralizing education, promoting vocational training, and embracing market forces, libertarians aim to create a solution that better serves students and society as a whole. Ultimately, the debate surrounding college and its value highlights the need for innovation and reform in education. As it benefits us all to create a more efficient and effective system, we must consider the libertarian perspective as a valuable answer to a long unanswered problem.

Originally Posted at https://mises.org/

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In these politically turbulent times, the “illusion of democracy is fading worldwide” as one pundit wrote recently. There is a growing sense in the West that “democracy” is not working well, but there is not yet a full and clear recognition of that fact. Michel Maffesoli, honorary professor at the Sorbonne in Paris, has been saying already for several years, that “the end of the democratic ideal is manifesting itself.” Signs of this can be seen in the problematic elections that have taken place in his native France and other Western countries.

The “ideal” or “illusion” of democracy comes from widespread misconceptions about this political system, despite clear misgivings from the most illustrious political thinkers of the past. The most important misconceptions about democracy are that elected representatives are generally loyal and disinterested, and that the electorate is generally informed and rational with regard to politics.

David Hume wrote in his famous Essays (1777) that democracy cannot be “representative” because all societies are “governed by the few.” Sociologist Robert Michels then defined, in his ground-breaking work on political parties (1911), what he called the “iron law of oligarchy,” methodically showing that all mature organizations, without exception, become oligarchic (i.e., ruled by minorities).

For the early democratic movements of the 19th century, representative democracy was generally not perceived as truly democratic; the Athenian model was the ideal. As Robert Michels noted, it was only when the practical impossibilities of direct democracy on a large scale became evident, that the concept of political representation gained legitimacy. Over time, this concept became synonymous with “democracy.”

Montesquieu considered in The Spirit of the Laws (1739) that the main justification for the representative system is not only that the average person does not have the time or the interest to engage in political life, but that he is incompetent to do so. Tocqueville warned in Democracy in America (1835) that one of the potential threats to democracy is that people can become so absorbed by the pursuit of economic opportunities that they lose interest in politics.

Indeed, the majority has neither the interest nor the motivation to get deeply involved in politics. Voters implicitly understand that their vote is just a small drop in an ocean of ballots and will, by itself, make no difference in the election outcome. It has also been argued by some that not only do voters lack the interest and motivation, they also lack the time and the capability of thinking rationally about politics, as political theorist James Burnham summarized in his essential work, The Machiavellians (1943):

The inability of the masses to function scientifically in politics rests primarily on the following factors: the huge size of the mass group, which makes it too unwieldy for the use of scientific techniques; the ignorance, on the part of the masses, of the methods of administration and rule; the necessity, for the masses, of spending most of their energies on the bare making of a living, which leaves little energy or time for gaining more knowledge about politics or carrying out practical political tasks; the lack, in most people, of a sufficient degree of those psychological qualities—ambition, ruthlessness, and so on—that are prerequisites for active political life.

Though these insights about political representation have long been known, they have been suppressed in order to maintain the illusion of majority rule. “Democracy” has such a positive connotation in the Western value system that it is understandably difficult for most people to accept that they do not “rule” in any meaningful sense. This reality is all the more difficult to grasp since some policies from the ruling minority do, and even must, consider majority public opinion to some extent. If pressed, most people would nevertheless admit that though they have elected “representatives,” they actually have no real say over several areas (e.g., foreign, monetary, and trade policy), even though these areas impact their lives greatly.

The Inherent Instability of All Political Systems

Though the illusion of democracy is slowly fading in the West, it is not so much because of a realization of the truths presented above. Rather, it is because representative democracy, like all political systems, is inherently unstable. It has long been known that conditions constantly change, to paraphrase Heraclitus, but it is not widely understood that political systems are ill-suited for this basic reality. Though democracy might sometimes seem to work well, the never-ending economic, social, demographic, and technical changes to society make such impressions short-lived.

Regardless of the political system, the power balance at any given time between state and society, and between the ruling minority and the ruled majority, is constantly disrupted by such changing conditions. The seemingly inexorable increase in state interventionism has a negative impact on wealth-creation and private property, forcing socialization, and leading to a rise in political tensions. When the state becomes more bureaucratic, it fails to keep up with a changing society, and thereby destabilizes the power balance. Further, political tensions also arise if the ruling minority pushes a political agenda that disregards or even antagonizes the majority.

Democracy, in particular, is subject to constant swings of political tensions due to its inherent lack of fairness: the losing side of an election (more than half in plurality systems) is not represented. As Gustave de Molinari wrote, democracy “insist[s] that the decisions of the majority must become law, and that the minority is obliged to submit to it, even if it is contrary to its most deeply rooted convictions and injures its most precious interests.” Voting phenomena like Duverger’s Law and Arrow’s paradox tend to soften Molinari’s stark description but, by distorting election results, they hardly make them more representative or more fair.

When the state’s size and power is limited (i.e., statist interventionism in society is weak), the state’s record as defender of property rights would naturally be considered more important than whether or not the majority is democratically represented. Conversely, when the state’s power is extensive (i.e., the state is strongly interventionist), whether at a national or supranational level, the majority surely has high expectations from democracy since the direction of society hangs, grotesquely, on the decisions of its executive and legislative branches.

A Necessary Reduction of State Power

It is possible then to conclude that a limitation of state power is necessary in order to reduce political tensions in society and to introduce much-needed stability, regardless of whether or not the political system is considered “democratic.” This requires a decentralization of decision-making and a reduction of the role of the state, by strengthening the free market and individual rights. The result would be a freer society, able to adapt more naturally and harmoniously to the changing conditions. Thus, what is needed is “more freedom” rather than “more democracy.”

Unfortunately, the illusion of democracy has led the majorities in the West to conflate democracy with freedom. This is a significant mistake because democracy is no guarantee for freedom, even if majority rule were possible. On the contrary, when concessions to the majority have been made, such as welfare spending through fiscal redistribution, these have had deleterious effects on society and reduced economic freedom. As Tocqueville said, “I dearly love liberty and respect for rights, but not democracy.”

Considering the misconceptions about political representation that have been presented here, it is high time to fully smash the illusion of democracy in the West and substitute freedom for democracy as the highest political goal to attain and to protect.

Originally Posted at https://mises.org/

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