Compare and contrast the analysis of the
rise and fall of the Golden Age of Capitalism/Social Democracy in Bowles and
Carlin’s CORE-ECON Chapter 17, “The Great Depression, the Golden Age Of
Capitalism and the Global Financial Crisis”, with the analysis favored by your
instructor. In what ways are they the same and in what ways are they different?
Are the views of Bowles, Carlin and your instructor consistent with Thomas
Piketty’s view that the Golden Age was an aberration, unique and
non-repeatable, the result of a special set of historical circumstances
(chiefly, the two world wars and great depression) and that the years after
1980 (the era of Neoliberalism / hypercapitalism) have been a return to normal?
Langer
notes that there were several defining traits in the so-called golden age of
capitalism. He emphasizes that they are a strong safety net; a high minimum
wage; a situation where a good number of workers are in unions; a high top
marginal tax rate; strong regulations on wall street; and low inequality. These
were all caused through various mechanisms. First was the existence of the
labor movement as a countervailing power. There was also the communist threat, so
the postwar capitalist order was determined that a fair deal was possible under
capitalism. Then there was the need to rebuild the economy and physical infrastructure
after the destruction of war, so labor peace was needed. Then there were a
couple self-reinforcing ideological where the decadence of the nineteenth
century was seen as the result of rampant capitalism and greed, and Keynesianism
was seen as the key to economic policy.
For
Langer, this all fell apart with the rise of Reagan’s and Thatcherism. This was
pushed thorough with the decline of the labor movement and increased union
busting, anti-labor legislation and the growth of globalization. Corporate
profits had been squeezed, so there was pushback from big business and the
wealthy. Geopolitically, the end of communism in the Soviet Union as a
countervailing political / economic structure decreased the incentive to create
an equitable social system.
A
somewhat alternative view of the postwar economic utopia is seen in Bowles and
Carlin’s CORE econ book. In their formulation, the defining traits of the
golden age are low unemployment; high productivity growth; high growth rate of
capital stock; falling tax rates on corporate profits; and falling inequality
(7). Additionally, they note relative labor peace, as Langer does (21). They
also note the falling profit rates (25) as a reason for the end of the golden age
but seem to lay that more on worker militancy rising and less on government
policy pushback. Overall, they seem to rely more on a productivity-led
explanation for the growth than Langer does, as well as noting the effect of
the outside oil shock (25-6).
One
of the big questions in economic policy is if we can return to the period where
everything worked. It is called a golden age because prosperity was shared
between the workers and the capitalists in a sort of treaty (The treaty of
Detroit on a grand scale perhaps?). But the returnability is under debate
still. Thomas Piketty draws a giant asterisk on most of the 20th
century, saying that the period of 1914 to 1980, most of the whole “short
twentieth century” at least does not count. Now, this feels mighty presumptuous
to exclude a huge chunk history when your time period of examination is maybe
450 years. That is with dating the modern era generously. How far back do you
go, Watt, Luther, or Columbus? Piketty is wrong, and that perhaps Langer and
Bowels would agree in that we could get back to the economic conditions around
the golden age of capitalism. However, Langer’s class-based analysis is closer
to the key. Looking at how much emphasis Bowles et al put on productivity
growth is to remind me that TFP is more a “measure of our ignorance” than
someth8inga that can be gunned for in policy. Add to that my sympathy towards
Robert Gordon’s argument that we have picked the low hanging fruit of productivity
growth already, and the CORE golden age is less re-attainable. Of course,
history does not repeat itself, it merely rhymes. I hope that we are fortunate enough to come
out the other side of the current crisis with a reevaluation of our economic
priorities. I am just not that optimistic that we will.
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.
In times of crisis and great uncertainty it is easy to panic and to focus on the short term and to forget about the long term. The current economic situation is scary, but for most of us it will pass. How do I know this? Because in 2008 I faced the same thing. I was laid off from my job right as I was starting to develop my career in the face of a slow recovery. Despite that, I was able to meet financial goals – I paid off my student loans and bought a house. I do not want to pretend I did not have some advantages. I was lucky enough to have gone to college. I was married so we had a two-income household. However, these hints helped me, and I hope that they can help you too.
1)Have a plan. It is too easy to go from paycheck to paycheck and shuffle what you’re paying and then to splurge when you have a little bit more if all you’re doing is focusing on the next paycheck. By having concrete financial goals, you are saving FOR something and not just nebulously putting money away. This mental accounting means that if you decide to splurge you are taking something away from your future self that you have already decided you want. This goal can be something small like those Riotfest tickets or something bigger like a house. As the saying goes, if you fail to plan, you are planning to fail.
2)Track your money. The biggest thing I did to help myself was to start plugging in all my financial information into the website Mint.com. Mint acts as a central repository that allows you to track your spending and wealth growth across all your accounts. What this does is not only allow you to see what is going on in the short term with your money, but also what your larger trends are in terms of your spending month by month and you can watch your net wealth grow. If you have software that you trust, you must commit to staying on top of things. You will make better financial decisions when you have an ongoing snapshot of your financial position in your head.
3)Pay yourself. One of the best things you can do is to automatically have a set amount of funds go directly into a savings account. Set this up through direct deposit if you have the ability. If you have an account that is savings and you never see the money in your checking account then it was never yours to spend, but it goes into savings for your future self’s goals. If you do not have direct deposit you can set up a small deposit from your checking to a savings account on a regular basis. This does not have to be a lot. As little as five dollars a week can start to grow a nest egg. The other thing to note here is that if your company offers a match on a retirement account, you should save enough of your paycheck to at least get the match. Not only is it free money in the short term, depending on the kind of account you use, you might gain tax advantages.
4)Cheat. Though you do not want to steal from your long-term goals, the point of saving money is to meet those financial goals. The point is not to live like some Buddhist monk. If you want some ice cream or some avocado toast, get that threat. But you must do this in moderation. Enjoying small luxuries can help prevent the splurge when you have totally denied yourself.
5)Inherit Money. This might be the hardest one to pull off. Hopefully you have someone that is connected to you who is a bit older and has some capital put away somehow. This is the opportune time for them to die so that you can get some of that capital. Now, I hope it isn’t someone you care about a lot, since that would add in tragedy and we don’t want that. You don’t need to inherit a lot either. Back in about 2010 my wife’s grandma died and had a windfall of about ten thousand dollars. That was enough to pay off most of our debt and turn the cash that wasn’t being consumed from debt service to savings. Soon after that, we were putting a down payment on our house!
I hope that you can take away a couple of things here and help you meet your financial goals. I know it is a scary time and most of us have debt already – that should be paid down promptly. Some debt loads feel so crushing that it feels like you will never be able to get out from underneath it because you did all the right things and got the degrees and impressed your parents but still live on six figures of debt with a five figure job. The advice you hear to have six months of savings in cash just sitting around is hard to reconcile with studies that show 40% of Americans cannot cover a $400 emergency expense. But if you follow these steps you can start to turn around and face the uncertainty off the future with a small plan to make sure you have financial flexibility in the future.
Keep Running: A Graduation Speech for the Class of 2020
Graduation was canceled, but that means that we have to be even more resilient. Below is the speech I prepared for a special celebration of one.
Good afternoon honored guests, esteemed faculty, parents, and the amazing graduating class of 2020. Before I begin my speech, we should note all who could not be here today through illness, bad Wi-Fi, or untimely passing. We love them and miss them dearly. However, we realize that they are all here with us in spirit on this joyous day.
I am overwhelmed with gratitude for having been chosen to speak on such a momentous occasion. Of all the members of the class of 2020 I can imagine that there are many who might be as qualified than I am or perhaps more so. But I was chosen. So, I get to tell my story and give my advice.
In West Virginia High School Track and Field, there is an event called the 300 intermediate hurdles. The runners start a quarter of the way around the track, and all come towards the same finish line that is used for all events. The hurdles are high, but not that high. I just googled this while writing and it seems that they are 36 inches. Three feet doesn’t seem that daunting, but you’re running at full speed and you have to clear them and not lose your stride. If you find yourself jumping hurdles, you’re doing it wrong. The key is to kick with your leading leg and then snap your hip over with your trailing leg so you’re basically a real big bounding step.
I was in track for three years, and if you can believe it from looking at me was a fairly successful sprinter given the context of school size and state. During my track career, I think I participated in every possible event except for long jump and the distance races. This happened because my coach, Harrison County Sports legend Ted Robinette, god rest his soul, would say “MIHELIC! You’re running the 400 relay” when I had never practiced the 400 relay and the thing I really wanted do was run my 20 second event and then go flirt with girls and smoke cigarettes. You know, the things a track athlete does.
One meet Coach Robinette did that thing, asking me what I thought of the 300 hurdles and I told him they were high and the race was longer than I wanted to run and he told me I was running the 300 and that’s fine I’ll be ok since I ran the shuttle hurdles I’ll know what to do. Now, here’s where I point out the intermediate hurdles are six inches higher and I’m not that tall.
Class of 2020, let me tell you there is nothing like the tension and anticipation you feel when you’re in the starting blocks coiled and ready for the pistol to go and then you start thinking if its ever coming and sometimes you get caught off guard. But the starting for the 300 is away from everyone, on the back straightaway where the first handoff zone for the 4 x 100 relay is so you’re all alone and your teammates on the bleachers are flirting with girls anyway and it’s just you and the lane and the hurdles. It’s a lot like right now, here.
The gun goes off and you set off at a full sprint like you know how to do and I, this specific time, started to realize I had no plan. If you do the hurdles a lot, you know how many steps to take, you know how many times you breathe during the race and you have a plan. I didn’t have a plan. I ran ran ran, then hopped. Then I did it again. I was in the lead. I was on one of the outer lanes, so you feel like you’re in the lead, but we were coming up to the last turn and I started getting a bit cocky. I had this. I was going to win the heat. Those girls will be impressed.
I was rounding that turn and then I felt another feeling that is unmatchable, that of your body failing you. I came up on one of the last hurdles, right before the home stretch. I kicked my front leg and that back leg just said no. Instead of clearing that hurdle and winning that heat, my foot hit clear in the center of the crosspiece of the hurdle.
And we’re going to put a pin in that right there. Because this is a graduation speech, it is clearly not just an excuse to talk about the highlights of my sporting life which is half a lifetime ago now. NO! this is a didactic frame because we’re going to talk about failure.
I have failed in many ways, many times. I was unemployed for two years, each week reaching out to try to find a job, any job. I got engaged at way too young an age to a great person but who I was not the right person for. Twice I ran for election and lost. Twice I was demoted at work. Twice I was escorted home by the police. Once they didn’t take me home.
I applied to MFA programs in 2004 all out of state because I wanted to leave West Virginia and find greener pastures, but I didn’t get in anywhere, so I was in West Virginia for another year. I had all sorts of crushes go unrequited, and some of those people I even told about my crush and they said we’re better friends. The specific person I’m thinking of right here was right since at the time I was waving a whole army’s worth of red flags (Which makes sense since I just told you about them in the last paragraph there). Just this year I applied to Harvard and Harvard said we don’t want you here. I flew to LA to be on Jeopardy only to be reminded now that when I was on the television, I got a question about Rocky Balboa “wrong”.
Failure can define you if you let it define you. If you allow it to be the final act in your story. But what it can also be is a teacher. What you learn through failure is the humility to know where your weaknesses are, and where you can improve. If you’re failing at something — if you’re trying for the first time or you’re failing at something you though you have mastered, every mistake is a teacher. True wisdom is being able to find those moments and have the bravery to admit to yourself that you have failed this time. You are not a failure. This resilience is a mark of character that you can learn through adversity. The most interesting person has a lot of scars. If you’ve never failed, you don’t know who you are.
I’m going to take this pin back out now.
I kicked that hurdle and it fell over and I went tumbling after. I was splayed out on the track on the part of the track that is right in front of the main bleachers where everyone was sitting. And I got up. And I started running towards the finish line. There were two more hurdles. I didn’t try the fancy hurdle step, but instead did the inelegant little hop over the last two and finished.
I didn’t come in first. But I tell you what. I didn’t fucking come in last either.
It is a lesson I learned from my father a long time ago but never really understood until I got older: “Suck it up and drive on”.
And here is where I stop for a second and transition. My father was a huge part of helping me develop intellectually. I feel his absence today. He set an example in showing what can be achieved and the hard work it takes to keep developing your knowledge, like watching him study hard when he had to take the boards again. He and my mom encouraged me by letting me explore my interests. They didn’t work against me when I decided I wanted to study poetry nor did they kick me out too often when I wanted to stay inside reading the encyclopedia or make me go to bed when I was staying up late just to finish one more chapter.
My parents were my first and best teachers, but I have had the good fortune to have great teachers at every level. From Pat Clayton in elementary school to Karen Morgan and Mary Anne Ferris in high school to Doctor P and Jim Harms and Mark Brazitis and Greg Eiselein and Tim Dayton and Christina Hauck and Joe Stachnick beyond that, I have been fortunate to find guides who have helped me develop by sharing their knowledge. I have found two more mentors here at Roosevelt, and the sadness I have in leaving the school is tempered with the knowledge that Professors Langer and Ziliak are now a part of my life and we live in parallel. Roosevelt’s economic department has been an intellectual home for me like no other. I have been challenged and grown academically and personally. Here I want to note all my peers who I was fortunate to work with, learning and growing together. I have many friends I have made through my schooling, but meeting Anita takes the cake. There’s not enough praise I can give her as all human languages are too constrained in the face of her greatness. She is the most important person in my life. She makes me laugh and she makes me want to be a better person, and with her I know I can do anything.
I know that because I have been through a lot and have picked myself off the ground and kept running. Those mistakes and how you approach them are what define you. When you fall, will you get back up?
And class of 2020, that’s what I have to share with you. This year is not a good year to be graduating. Many of us are trying to start our lives or at the very least a new chapter. There are a lot of scary things out there from a virus to a pandemic to Murder Hornets and near-earth asteroids. We cannot live in fear but learn from our mistakes and know that when we fall down, the best thing we can do is pop back up and keep running.
So normally, high level you look at what your activity was last year and you adjust that based on what you think is coming in the next year taking into consideration your contracts and other outside information.
You do the same with your expenses and look at what the activity is expected to be and you multiply that by your wages and overhead and add in your salaried employees and your other fixed and variable costs and tie it all together and you have a budget.
The problem this year is the unknown and the assumptions you make. I have spent a chunk of today trying to find what other kinds of organizations are looking at in terms of hits in their activity. I cannot find anything that is a direct parallel to our situation. Universities are game planning for this to hit their bottom line through 2022. Some public health people are saying that we are looking at optimistically a vaccine at the end of 2021. The Federal response has a lot to be asked for in terms of both health and economically. Economists range from a roaring recovery this fall and winter as pent up demand to a pessimistic slow growth back to where we were in January, made harder because of so much capacity loss in the service sector – loss exacerbated the longer we have this semi-shutdown situation.
There is no consensus, but we need to make realistic assumptions about our income and expenses. Because often the budget comes down to those two numbers and the difference between them. We end up with many estimates under uncertainty coming up with a bottom line. Often an error in one estimate is not additive, it is washed by an error of similar magnitude but an opposite sign so we can get pretty close to realty – it is pretty amazing in a normal year.
Unfortunately, it is not a normal year. Thus, there are two sorts of things in my head as we think on budgeting:
1)Baseline and projection: The lookback for what the future looks like cannot really be annualizing the last financials’ income and expense. We have the time period through February, and then March and April and not even done with April numbers. I hope to have some preliminary numbers through April as soon as possible. Then once we have our baseline there is more unknown about when we return to anything like “Normal” if we do at all. Which leads me to the next part.
2)Strategic concerns: How do you look at this crisis as an organization? Is it just as many people go home as possible and work from home for as long as we need to? Do we imagine this is just a pause from what the prior life was? Alternatively, does the crisis accelerate operational concerns we were worried about before. Are programs and business lines impacted disparately? Then we have to think that if activity is down, the overhead is supported by fewer hours. The longer this lasts the less sense it makes to support all the fixed costs from positions to real estate that is empty. None of these are fun considerations but ultimately important for the long-term success of the agency. How proactive are we strategically, and do we tie that into the budget?
These concerns on the short term are always present since the future is always unknowable; it is just even more in flux now. What it makes me think about is the futility of budgeting in a normal time. Those errors I spoke of above always exist. The hope is that they do wash and are not additive. For me, this is a conflict between two strains of my thinking. The idea of point estimates, looking at income and expenses and their difference is an accounting view. However, thinking of economics I would put measure of uncertainty around your final numbers. You might budget a gain or loss but have error bands. Unfortunately, that is not how it is done. This is not a problem unless your budget is used as a constraint and is not flexible, but that is a concern for later.
With the COVID-19 pandemic in the background, I have been trying to think of how all the social orders have been upset and what the post pandemic world will look like. In parallel, I have been revisiting some fiction I read when I was younger. The whole thing has made me more distractible and narrowed my bandwidth, but I started Piketty’s new book the week it came out, but the problem was that it coincided with the rise of the pandemic into full blow consciousness of something that was happening here. All of the pre-pandemic economic texts will also have to be evaluated with the lens of the pandemic. And we still are in the process of whatever it might be. It looked initially that there might be a sense of solidarity that grew out of this, but it soon has devolved that the best we can do is survive in spite of all those who would want us to not survive. We have to hope that the institutions are not too degraded.
It has made me more melancholy, and this is most likely not helped by my choices of fiction to get through all time at home. I started with Camus’s the Plague and have been reading the Grapes of Wrath. Camus brought to mind the need for survival, and how capricious and random that survival is. We can do what we can to limit our exposure, but the plague comes for us all. Steinbeck has in many ways felt more relevant than our Algerian friend since what the Grapes of Wrath is about first and foremost is the death of the American Dream in two different senses. In the first sense, it is about community and the sense of place you have by growing crops on your land and losing that to the banks and other forces out of your control but then it is also about the false Edens that we are presented with. California of the Joads was supposed to be a place that they would get to at the end of the road and be able to eat grapes falling at them from the left and right.
But there is no garden of Eden in California or elsewhere. What the Joads find is hundreds of thousands of people just like them, wanting to do work and everyone else in the same boat. The people thus fight for scraps and sheer survival. But we also see the attitude of the California natives, themselves only a generation or two removed from their own migration. They hate the Okies. They hate the Okies because their suffering shows in stark light the immiseration that their own lifestyles depend on to be supported. There’s hate for the outsiders going way back in America. Their poverty brings us disgust and hate because we do not admit to ourselves that we are very close to having that suffering brought upon us. Steinbeck has a character say that he is able to live on fifteen dollars a day, then what is stopping the bosses from offering an Okie twelve dollars an hour? The worry about the race to the bottom is real.
This does not happen in a vacuum though. We see it today not just in anti-Hispanic racism, but also the urge to open the economy quickly. It is not about the need to work, but the desire to increase the suffering of those seen as lesser. If you are poor or a minority or working class in the service industry, your humanity is discounted by overweight people in shiny late model Ford pick up trucks.
Photo by Max Andrey from Pexels
This is how it always has been. If you look at the models we have examined in this class, the implication is that individual militancy is destructive. In Grapes of Wrath, there is a scene where a labor contractor comes into an impromptu camping site where a lot of families are gathered on the edge of a town, colloquially called a “Hooverville”. The contractor tells the assembled mass that there is work and they should all come. One of the men stands up and asks to sigh a contract for promise of work and a set pay rate, asking for his basic rights as a man to be respected. Then the contractor goes back to the car and aa deputy sheriff comes out and is prepared to arrest the man who stood up for his rights if ever so briefly. Steinbeck wrote fiction but the scene made me think of all those scenes in labor history that do not make the pages of the history books that are taught in school – from Haymarket Square to Ludlow Colorado. What is a common denominator in these situations is that agents of the state either directly took part or were neutral as the Rockefeller or Carnegie sent thugs at workers who stood up for their rights?
The bias of the state towards capital was not just in the past. More recent research shows that you only get your way in the statehouse or in Washington if your preferences align with those of the rich. There may be direct influence because of need of politicians to keep their jobs thus the money spigot needs to stay turned on, or it may simply be affinity of those in power to either be of the upper classes or to want to be part of that crew sometime. We live in a democracy but are ruled by millionaires. Simultaneously to this, we have seen demonization of minorities to an ongoing propaganda campaign to make sure people do not look at structural factors but remain atomized. Success or failure in America is seen as a personal and moral judgment on the person and the rules of the game that are being played are ignored. As Warren Buffet has said, there is a class war in America, and his class is winning.
What is to be done then? We see in economic models from Goodwin, Beveridge, Marx, Robinson, and Blanchard that show individual militancy either will just increase inflation like Blanchard or will decrease the average rate of employment like Goodwin. Working as an individual or a singular bargaining unit or setting up a cooperative organization does not transcend the logic of capitalism because you are still working under these rules. Ultimately if we remain in thrall of capitalism as an economic system we need to go back to the words Marx and Engels wrote in 1848, “Workers of all lands unite, you have nothing to lose but your chains”. The question then comes if we can accomplish all that, so we end up with the best solution in the game theoretic outcome Mehrling outlines, why is the working class happy to allow the existence of a capitalist class? It sets the stage for a move beyond these models and into a post capitalism.
The problem is in creating that worker unification. So many people of the working class have bought into the idea that the current system is the best of all possible systems, even if they are directly victimized by the system. It takes an act of political imagination to move beyond the existing ideology and into one where they can take power. In America it ranges from an allegiance to the state since the idea of America has been so successfully wedded to the existing economic structure, and combined with a distrust of all bureaucracies that the idea of a worker organization would just relocate all the bad things about the existing state. This is where I get back to my melancholy. The Okies in California were white Americans, and they were still able to be seen as an other. They were outsiders by creation, and by necessity as in crisis there was an us and a them – artificial identities that became very real. We are in the midst of our own crisis, one making the last one seem quaint. From the ashes of that one rose the Tea Party and Trumpism in America. I know what needs to be done, but I don’t know how to make it so, and that’s what frightens me, as destruction and hate seem to be much easier than solidarity and building a new world. This is especially true when the state is not neutral
Models are deliberate simplification. You do not necessarily have one kind of labor and one kind of input and you have that input at a higher amount by applying a to b. But models do reduce the complexity and see how things look at the root of the relationship -- a truly radical examination.
Gary Langer, in “Capitalism, a Classical Model,” does just that, taking the simplest of models and building upon it to see what is “true” (1). He works through a simple model that is self-reproducing, the application of labor to corn to make more corn, a surplus over the amount. This surplus is what allows more growth to happen in the next period if your economy does not hit up against restraints, but those are not seen in the simple system.
The question with the surplus is what happens to the surplus at the end of the year. How is it divided. In our system we assume ownership of everything and the only thing to own is corn. How do you divide it? If the original supplier takes all the surplus and the worker is stuck with their subsistence due to the iron law of wages, everything is profit. But the amount of that profit then is defined by the production process so that you have profit but it will not become more profit on the same level of inputs unless you change how the agents in model go about making the new corn. Better technology allows increased profit, to the point where the level of technology in the production process is what determines the rate of profit (3). This surplus is all that is left over, no matter how big, so it is the shape of the pie to be fought over between the different agents in the model, those who do the owning and those who do the working.
Langer then moves from the basic outlines of his simple model. He remarks that there are stories that we tell ourselves about why certain tings happen, why profit is created and who does the hard work. He calls this ideological construction “Mystification” because it spreads a foggy mist (4) over the simple relationship between the workers and the owners in the simple capitalist relationship. Langer claims that the goal should be to see the world as it is without these mystifications (6).
The argument is further extended, noting that the rate of growth is limited by the rate of profit, since it is the surplus in its entirety that can be plowed back into production as a long as you have idle hands around. Any creation of consumables outside the simple corn production cycle lowers the amount of growth possible.
Langer continues by laying out the idea of the “Widow’s Cruse,” a thought experiment where we see that profit is not diminished by consumption. In this framework, the growth of the system based on the rate of growth of population is knocked out of alignment. If the owning class consumes luxuries and does not reinvest, then the growth of the system slows and thus wages shrink, meaning that there is always some cream at the top to skim off for the owning class since the working class must do more with less (7).
The author also works through some the implications of the system where the agents are conscious people. This system generates class differences and thus various levels of antagonism, so out of the profits and wages must come an overseer, managerial class to keep discipline among the workers to generate that surplus (8). This class interest also means that the owning class works together. In Langer’s model this means that the owners diversify their holdings so that they are protected from ill effects (8). This diversified ownership means that the owning class becomes not wholly interested in their individual holdings but their class and the continued replication of the system, an ownership that grants them power they are not afraid to yield to maintain their place in the system and the system itself (9).
This sense of class consciousness is where I want to transition to this idea of class consciousness as it arises as an implication from the simple model. I am supposed to be writing a reaction paper and it is hard when I have been taking in so much information about the coming and current crisis I cannot focus. It is interesting that we are looking at classical models right now. I have also been making my way through the Wealth of Nations concurrently to this class and it had me thinking about the absence of the state in Capital and in Smith. The classical model was based on the best knowledge of the time and in my recollection, it shows up more in terms of factory inspectors and mints and not as fully fledged economic actors. But now, we sit here and wait for the state to act but these models are about the conflict of the three great classes from Land Labor and Capital. Marx is more political in the Manifesto where the state is the organizing committee of the whole bourgeoise. The state itself is an edifice that interacts with these three interrelations but sits on top of and around as it sets the rules and sanctions for the relationships. It is also a huge source, with the media as an institution creating the mystification, the formal creation of ideology that says that the current order is the best and only natural order.
It is not though. The most recent headline I saw forecasting the decline in activity was a 30% unemployment with a 50% drop in activity. Why is it dropping? It is because labor is dropping out of the process. Capital without labor is dead, living like a nightmare on the minds of the living. If you do not have L in your production function, K does nothing. This matters now because we can see how integral the working class is to the economy. The hope is that it reinforces the class positions and multiple roles people have in the economy as workers and consumers and we can move past this crisis with a world that is built more for the working class of the world, who is the vast majority of the people. It takes a crisis sometimes to clear the mist.
Cited
Langer, Gary. “Capitalism: A Classical Model,” July 7, 2006
