Rational Class Consciousness

The “rational class consciousness'” hypothesis is that in a class-based model, each class, besides being modeled, will use the model to decide upon how it should act. Discuss the implications of this hypothesis when it is applied in a Goodwin-Mehrling style model.

 

The rational class consciousness is in looking at a model and using it to shape how you act. If we take the Goodwin-Mehrling model, we can see that there are the four outcomes that they model. Goodwin models the business cycle as wage shares go up and down while unemployment goes down and then up, baring a special case where unemployment and wages shares somehow hit on an equilibrium point and stay there. Mehrling extends this model and says what if the classes are not acting as autonomous individuals, but instead worked together. Through this assumption (and several others), he models three other outcomes. There are three possibilities. Two where the individual classes bargain as a class and where the opposite class bargains separately and a third possibility where both classes bargain.

These three possibilities have different outcomes in terms of wage share and unemployment. If the capitalists bargain as a class and the workers bargain alone, the system operates in a situation where the capitalists share of output is the great majority and the workers only get enough to socially reproduce (iron law of wages here?). Even with the lowered wage share, the workers will still see unemployment in this model. If the opposite happens and the workers are united and the many small businesses organize on their own, unemployment does not exist, and the worker wage share is increased. It is in the third case where both classes bargain as one where the best outcome happens for both classes. There is full employment and the business class gets more of the wage share than if they did not organize. 

So, if you are a capitalist or a worker, you can look at this a menu with multiple outcomes. Either you are a capitalist and you bargain, or you do not, or you are a worker and you bargain, or you do not. Importantly, you must have your entire class with you. If you just try to bargain on your own what you are doing is making your ultimate outcome worse than if you did nothing at all (averaged over the course of the cycle). It is like the people on the stern of the Titanic, unable to believe that they are sinking when they are so high up.