naked capitalism

DownSouth says:

@”Willem Buiter Apparently Does Not LIke Gold, and Why”

Jesse’s post ties in beautifully with comments by ndk and Anonymous Jones from yesterday’s “Links,” and also with Yves’ post “Do Businesses Hate Their Workers? (Income Disparity Myths Edition).”

ndk commented that “I do want to see all employees and employers who do meaningful work rewarded, and rewarded fairly.” Anonymous Jones, picking up on the word “fairly,” responded that “Hayek elucidates how broad markets give the market participants context with which to determine whether deals are ‘fair’ or not.”

Yves’ post talked about how “most companies treat employees as liabilities, doing everything they can to minimize labor costs, getting rid of workers whenever possible.” And Jesse’s post is an argument with Buiter over the price of gold.

What Jesse’s post, Yves’s post and the comments by ndk and Anonymous Jones all have in common is how we arrive at value.

As Jesse explains, value is arrived at in three different ways. First, there is what Marx called “use value,” Locke called “worth,” and Jesse calls “industrial and decorative uses.” Second, there is “exchange value,” which according to Abbey Galiani is “an idea of proportion between the possession of one thing and the possession of another in the conception of man.” It “always means value in exchange,” says Alfred Marshall. “For it is only in the exchange market, where everything can be exchanged for something else,” writes Hannah Arendt, “that all things, whether they are products of labor or work, consumer goods or use objects, necessary for the life of the body of the convenience of living or the life of the mind, become ‘values’.” “This value consists solely in the esteem of the public realm where the things appear as commodities,” she continues, “and it is neither labor, nor work, nor capital, nor profit, nor material which bestows such value upon an object, but only and exclusively the public realm where it appears to be esteemed, demanded, or neglected.” And third, as Jesse points out, there is value imposed by government “fiat.”

It is placing a value on labor where the classical economic theory that has perhaps come to most grief.

First there is the commoditization of labor within capitalist theory, subjecting it to the vagaries of the exchange market, or as Arendt put it the “degradation” of labor “in a manufacturing society which judges men not as persons but as producers.” It’s all laid out in Adam Smith’s Law of Population, described here by Robert Heilbroner:

To Adam Smith, laborers, like any other commodity, could be produced according to demand. If wages were high, the number of workpeople would multiply; if wages fell, the numbers of the working class would decrease. Smith put it bluntly: “…the demand for men, like that for any other commodity, necessarily regulates the production of men.”

Nor is this quite so naïve a conception as it appears at first blush. In Smith’s day infant mortality among the lower classes was shockingly high. “It is not uncommon,” says Smith, “…in the Highlands of Scotland for a mother who has borne twenty children not to have two alive.” In many places in England, half the children lived only to the age of nine or ten. Malnutrition, evil living conditions, cold, and disease took a horrendous toll among the poorer element. Hence, although higher wages might have affected the birth rate only slightly, they could be expected to have a considerable influence on the numbers of children who would grow to working age.
–Robert L. Heilbroner, >i<The Worldly Philosophers

The second place where capitalism has come to grief is that it has proven itself completely impotent in the face of those who would affix the value of labor by fiat. The multi-million-dollar remuneration that our financial overlords pay themselves is the most blatant example of this. These colossal pay packages cannot be justified by “use value,” and even less so by “exchange value,” which requires sanction by the society. No, as Reinhold Niebuhr said:

No impartial society determines the rewards. The men of power who control society grant these prerequisites to themselves. Whenever special ability is not associated with power, as in the case of the modern professional man, his excess of income over the average is ridiculously low in comparison with that of the economic overlords, who are the real centres of power in an industrial society.
–Reinhold Niebuhr, Moral Man & Immoral Society

MyLessThanPrimeBeef says:

Nice, Jesse. About time we have a little poetry in this blog.

Here is one of my best ones (a Haiku about Haiku)

If you can’t say it
In seventeen syllables
Well, don’t say it then.

almuixe says:

About the kitten, a thousand of dollars vet bill ? for five kitten ? Is it a mistake or everything get inflated when it is too close from Goldman Sachs ?