Re: workers' saving & Marxian political economy

[<gskillman@xxxxxxxxxxxx>]

Jim writes,

> A key introductory point: I am _not_ defending the specifics of Marx's
> analysis per se (e.g., what he says in volume I, ch. 25, of CAPITAL).
> Instead, I am defending his general method and theoretical framework,

This is indeed a "key point."  The comment of mine that prompted this thread
(post 23407, point 3) was explicitly targeted to Marx's arguments in Volume I,
Ch. 25, so to the extent that Jim is talking instead about Marx's "general
method and theoretical framework,"  his comments, albeit thoroughly interesting
in themselves, are not responsive to my argument.

My reason for focusing on Marx's specific argument in Volume I was not, as Jim
suggests below, for the sake of "exegesis of old books," but rather for the
sake of specificity, to make clear the comparative relevance of Veneziani's
analysis for Roemer's and Marx's accounts. [Indeed, Veneziani makes clear in
his concluding comments that his target is Roemer's specific model in GTEC, not
a more generalized "neoclassical" framework.]  In contrast, any attempt to
compare the specifics of Roemer's analysis in GTEC with something as open-ended
and amorphous as "Marx's general method and theoretical framework" is both
unavoidably and pointlessly one-sided and irrelevant to the original thread,
since I wasn't arguing against Marx's general method and theoretical framework
to begin with.  Others may want to pursue this interesting and very large
topic, but I think I'll beg off.

However, the issue that first prompted this thread still stands, because I
don't see how Jim demonstrates in his comments below that Veneziani's key
result *doesn't* apply with equal force to the broader framework he delineates
below, and if it does, why similar considerations couldn't be embodied in a
manner consistent with Roemer's "general method and theoretical framework," as
opposed to the specific model criticized by Veneziani.

Gil



> which
> I see as applicable to all sorts of new questions and consistent with
> some
> of the conclusions of more sophisticated (i.e., non-Walrasian) orthodox
> economists. Thus, I don't quote from Marx below, while I see the KI/25
> analysis as only valid or useful at its own (very high) level of
> abstraction. (It _may_ be invalid, by the way, but I am not at all
> convinced
> by Gil's critique of it.) While Marx's abstractions are useful, it's
> important to avoid dwelling at such a high level of abstraction -- and
> to be
> very clear what the level of abstraction is.
>
> I wrote:>>...the possibility of workers' saving doesn't undermine Marx's
> theory. Marx does discuss workers' saving in volume III... It's often
> assumed that the "classical" (Smith/ Ricardo/Marx/etc.) assumption was
> that
> workers didn't save, but that's not true for Marx.<<
>
> Gil Skillman writes:>We're on the same page here.<
>
> good.
>
> >I didn't say Marx never talks about worker saving. To the contrary, I
> anticipated your remark above when I said that one can find potential
> responses to the issues raised by Roemer in Volume III, the Resultate,
> or
> Theories of Surplus Value. What I did say is that Marx doesn't discuss
> this
> possibility and its consequences in his discussion of "the general law
> of
> capital accumulation" in Volume I, Chapter 25.<
>
> Of course, in KI/25 Marx was talking about the accumulation of
> surplus-value, while in the land of abstract capital and labor (i.e., in
> volume I of _Capital_, after chapter 3) workers can't get surplus-value.
>
>
> (Most or many Marxists would say, however, that some people who are
> formally
> proletarians (i.e., have nothing to sell but their labor-power) can get
> a
> piece of the action (i.e., of surplus-value) when we consider a lower
> level
> of abstraction: some top executives are not capitalists themselves,
> while
> the experience of star athletes and actors springs to mind. These folks
> quickly _become_ capitalists.)
>
> I continued:>>The thing is that, as Sweezy says in his THEORY OF
> CAPTIALIST
> DEVELOPMENT [pp. 139-40, 140n], is that workers' saving is for
> use-value,
> not for accumulation of power and wealth. What Sweezy described ... is
> what's now described as "life-cycle saving," delaying some consumption
> to
> retirement and the like. (Some is to buy consumer durables, such as
> houses.)<<
>
> Gil:>I don't see the significance of this point. I'm not suggesting that
> worker saving is tantamount to capital accumulation *by workers*, and I
> don't see why that possibility is relevant.<
>
> It is relevant, since would-be theorists such as Roemer simply ignore
> the
> phenomenon of workers' saving (or don't attempt to explain the economic
> basis of the "workers don't save" assumption except in the most _ad hoc_
> way) even though in theory at least, workers' saving can allow mass
> entry
> into the capitalist class, abolishing not only the scarcity of capital
> goods
> but also the differential ownership of the means of production -- and
> thus
> the basis of profits and exploitation in his woefully inadequate theory
> [cf.
> Devine/Dymski, 1991, pp. 255f].
>
> (BTW, I should belatedly thank my former colleague Howard Naish for
> suggesting the concept of "barriers to entry into the capitalist class"
> to
> me, a few years before the D/D paper.)
>
> In fact, it's also a common practice for lefty economists of all sorts
> to
> simply assume that workers don't save, without analyzing this
> assumption. If
> nothing else, this contradicts the personal experience of a lot of
> working
> people. It's also sloppy. (BTW, for those who didn't read my original
> missive in this thread, my main concern was with the knee-jerk
> application
> this assumption.)
>
> >The immediate *purpose* of saving shouldn't alter its potential impact
> on
> the rate of capital  accumulation in market economies, so long as
> workers
> don't put their savings in their mattresses or piggy banks [i.e.,
> hoarding].
> If they deposit it in banks, it becomes available to capitalists for
> accumulation.<
>
> On the "purpose" of workers' saving: when Sweezy talks about saving
> being
> for use-value, he's not talking about its subjective purpose as much as
> its
> objective effect (so his analysis differs on a basic level from Ando &
> Modigliani's later life-cycle hypothesis). That is, even if some workers
> save _in order to become_ capitalists, that's not the result in practice
> for
> a significant number. (Even the Ando-Modigliani model hardly explains
> upward
> mobility into the capitalist class if the coefficients are anywhere near
> being realistic.)
>
> But turn to Gil's main point. Consider the following very simple
> equations
> (which ignore the role of liquidity preference (hoarding) and bank
> credit
> creation, while simplifying in other ways, such as leaving out the
> government and the foreign sector). (Assume that we have supply = demand
> equilibrium.)
>
> supply of loanable funds = capitalist saving + worker saving.
> demand for loanable funds = capitalist investment + the demand for loans
> to
> finance the purchase of consumer durables (including houses & condos)
> and/or
> the effects of declining income due to unemployment, retirement,
> illness,
> etc.
>
> The contribution of workers as a class to the flow of loanable funds is
> typically less than or equal to their aggregate demand for loanable
> funds,
> especially once one considers the role of dissaving by the retired, the
> unemployed, etc. So, in this simple framework, capitalist class saving
> is
> typically greater than or equal to their demand for funds (so that some
> capitalists can make profits by lending some surplus-value to workers,
> not
> simply by acting as financial intermediaries). At least for the
> corporate
> sector, US capitalists are almost completely self-financing as a group,
> though there is sometimes leakage of funds across class boundaries. (I
> haven't seen data for the capitalist class as a whole, but it's hard to
> imagine that it would be much different.)
>
> >To suggest otherwise, in the context of Marx's Chapter 25 argument, is
> to
> presume that when capitalists can no longer accumulate out of retained
> earnings, they can't borrow money to invest.  But they do systematically
> rely on the credit system, as Marx also acknowledges in Volume III.<
>
> You didn't make it clear that you were working at the KI/25 level of
> abstraction. I usually don't work at that level, since my main focus is
> using theory to understand empirical reality, not to exegesis of old
> books.
>
> (That is, my aim is to understand and use Marx's method and theoretical
> framework to help build political economy, not to defend or attack
> so-called
> "substantive propositions" that some distill from his texts. I see
> Marx's
> work as contributing to a living alternative "way of thinking" in
> economics
> to replace the orthodox micro-madness, not simply as a collection of
> dead
> books.)
>
> But turning to the high level of abstraction of KI/25, Marx is talking
> about
> abstract capital accumulating wealth and power. So he's talking about
> the
> capitalist class _as a whole_ accumulating from the "retained earnings"
> of
> the class as a whole (i.e., the aggregate surplus-value). Intra-class
> borrowing is implicit in the story, though since he's abstracting from
> the
> heterogeneity of capitalists ("many capitals") it's also irrelevant.
>
> Volume III is another (lower) level of abstraction, where the role of
> the
> heterogeneity of the many capitalists is relevant. (It's important to be
> very careful if mixing different levels of abstraction.) And _of course_
> capitalists use the credit system: but they typically borrow only from
> each
> other (via financial intermediaries), so that as a class they are
> typically
> net lenders.
>
> (Though Marx never really gets to an analysis of the role of the
> heterogeneity of _workers_, that shouldn't stop anyone. cf. Mike
> Lebowitz's
> BEYOND CAPITAL.)
>
> Gil writes:>Let me take that point a step further. Marx states ... that
> the
> interest rate of loan capital is determined by "supply and demand" [for
> loanable funds]. Thus, additional saving, *whatever* its source, should
> by
> Marx's own analysis lower the interest rate and promote accumulation.<
>
> This only follows in a significant way if you ignore workers' role on
> the
> demand side of the loanable funds market.
>
> More importantly, let's go back to Keynes, whom I abstracted from in
> discussing the supply of and demand for loanable funds. As he pointed
> out,
> interest rates aren't determined by the flow of loanable funds as much
> as by
> the existing stock of money and the asset-demand for money (liquidity
> preference). Keynes' monetary theory is better than Marx's. In the IS-LM
> lingo that dominates orthodox macro, a rise in workers' saving has a
> very
> small impact on the interest rate -- as opposed to the level of national
> income -- unless the LM curve is very steep, i.e., if the demand curve
> for
> labor is interest inelastic and the money supply is exogenously given,
> independent of interest rates.
>
> moi:>>The existence of unemployment and similar threats to the security
> of
> workers makes it extremely hard for any but a very small number of
> workers
> to save enough to cross the line between life-cycle and similar saving
> for
> use-value on the one hand, and capitalist accumulation on the other.
> Further, small savers face extreme barriers to becoming large savers
> because
> of their lack of the ability to diversify. In any event, almost no-one
> becomes a capitalist -- i.e., running others' lives by owning sufficient
> means of production -- by saving. Usually, luck or theft plays a bigger
> role.<< [interestingly, the spell-checker suggested that I replace "moi"
> with "moil"! A cutting experience.]
>
> Gil:>I agree that both of these considerations would raise obstacles to
> workers accumulating capital on their own. But again, so far as I can
> see,
> that's not the relevant issue in capitalist economies, the world Marx is
> considering in Volume I Chapter 25.<
>
> Strictly speaking, Marx is considering a very abstract picture of
> capitalist
> economies in KI/25, since he has abstracted from the heterogeneity of
> the
> capitalist class. He approaches "capitalist economies" (in the sense of
> referring to a more empirical picture) step-by-step, still leaving us at
> a
> very abstract level at the end of vol. III (since he doesn't seriously
> deal
> with the heterogeneity of the working class).
>
> >Indeed, the threat of unemployment and other sources of uncertainty is
> a
> *spur* to saving, other things equal,  promoting the potential impact of
> worker saving on the interest rate of loanable funds, described above.<
>
> The working class' close-to-zero net saving (supply of saving minus
> demand
> for loanable funds) is _also_ the result (as Sweezy says) of the fact
> that
> retired or unemployed workers' dissaving cancels out middle-aged
> workers'
> saving on aggregate. The general insecurity of working-class life --
> along
> with such real-world phenomena as liquidity constraints -- means that
> many
> or most workers accumulate _debts_ or are unable to attain desired
> saving
> levels. Insecurity encourages people to _want_ to save, but most can't
> do it
> (or to save as much as they would prefer). There's often a big gap
> between
> what people _want_ to do and what they are _able_ to achieve.
>
> An aside: That helps explain the popularity of forced saving schemes.
> Before
> the 1930s in the U.S., workers did tremendous amounts of saving by
> setting
> up burial societies (so that they'd have enough cash to pay the
> always-exorbitant cost of funerals while perhaps keeping the cost down),
> often linked organizationally to labor unions. Some pension-type saving
> was
> done this way, too, if I understand correctly. Both of these seem to fit
> the
> rubric of self-imposed forced saving, an effort to insulate individual
> workers from the normal vagaries of labor-power markets, personal
> disasters,
> etc. In the 1930s, the state centralized this activity in the form of
> the
> Social Security system, while inadvertently or advertently undermining
> the
> power of independent working-class organizations. BTW, the fact that the
> US
> Social Security system does net saving is only a result  of relatively
> recent legislation and is now being cancelled out by the rest of the
> government's dissaving.
>
> ...
> > Two comments:
>
> > First, this [reference to Sweezy's comment on the close-to-zero net
> saving
> of the working class as a whole based on life-cycle considerations]
> ignores
> Veneziani's key contribution, which is to indicate that the mere
> *possibility* of [worker?] saving leads to a tendentially declining rate
> of
> exploitation. Again assuming that workers don't "hoard"--put their
> savings
> in their mattresses--then a similar argument should apply in Marx's
> scenario. Conversely, if it were true that this reality--that dissaving
> cancels out saving-- rescues Marx's account, then incorporating it also
> rescues Roemer's, since he also allows for the possibility of
> dissaving.<
>
> As I noted before, I am not familiar with Veneziani's article (though I
> have
> it somewhere under all of these piles of paper). As I said above, I
> agree
> that _all else equal_ in a simplistic Roemerian theory, the existence of
> workers' net saving would speed up the demise of capitalism. In fact,
> that
> was one of the points against Roemer in Dymski's and my article in
> ECON.&
> PHIL [pp. 255f]. (I'd bet that Veneziani cites us on this, since he sent
> me
> a copy of his article and our article appears in his bibliography.)
>
> As noted above, Marx's KI/25 story is about accumulation of
> surplus-value,
> not about saving in general. Even if we ignore this point, as we should
> if
> we're interested in the real world rather than poring over dusty texts,
> it's
> not Marx's story that needs to be "rescued." His socio-economic analysis
> of
> capitalism as a whole gives us sufficient understanding to make it clear
> why
> workers' net saving doesn't undermine the capitalist system in practice.
> In
> fact, that analysis is what I've been presenting in this missive and the
> previous one.
>
> Specifically, getting beyond the simplistic Roemerian model, Gary and I
> said
> that if workers' saving _did_ start undermining the power of capitalists
> by
> raising workers' net worth, it would raise wages, thus encouraging the
> mechanisms that Marx points to (in ch. 25) to operate, i.e., the
> cut-back in
> the rate of accumulation encouraging the reserve army of labor to swell
> and
> the speed-up of the implementation of labor-power-saving technical
> change.
> These not only reduce the ability of workers to claim wages that squeeze
> profits, but also would encourage worker dissaving and a fall in their
> net
> worth as a class. In sum, the notion of workers sometimes doing net
> saving
> as a class doesn't change Marx's story significantly.
>
> It's Roemer who needs to be rescued, since he attempts to replace a
> socio-economic analysis with an atomistic, static, and idealized general
> equilibrium framework, with none of the real-world phenomena such as
> class-specific liquidity constraints, uncertainty, etc. One of the key
> points of the Dymski/Devine article is that in order to save Roemer, we
> need
> to go back to Marxian method and theory. Indeed, we should skip the
> whole
> detour into Walrasian and/or game-theoretic stuff as an unneeded
> substitute
> for Marx's analysis.
>
> >Second, even if this [dissaving cancels out saving] were valid, it's
> not
> part of Marx's account in Volume I, Chapter 25.<
>
> since he was discussing the accumulation of surplus-value, as noted
> above.
>
> >The possibility of working class differentiation such that some workers
> save and some dissave is a possible *implication* of his argument there.
> But
> to establish this argument *in the first place* he needs to argue that
> workers don't save, before any such differentiation has been justified.
> In
> the theoretical world invoked at the beginning of the chapter, if the
> wage
> rate rises above subsistence, it does so for all workers.<
>
> Again, the "workers don't save" assumption makes perfect sense (as a
> first
> approximation, for the society as a whole) given Marx's socio-economic
> analysis of capitalism, as does the fact that it doesn't undermine
> capitalist exploitation. It doesn't make sense from a Roemerian (i.e.,
> Walrasian) perspective.
>
> >A corollary of this point is that Marx allows the possibility that the
> average wage rises above subsistence.  If this is so, the savings of
> workers
> should also increase, nullifying his claims, *even granting* the point
> that
> some workers might dissave.  To suggest otherwise  is to assume  that
> savings are not income-elastic, which is empirically not the case.<
>
> Again, this knocks Roemer's method down, not Marx's.
>
> >>If workers were not constrained by the reserve army of labor and other
> forms of insecurity from significant saving, then they would be able to
> enter the capitalist class in droves.<<
>
> >I don't think this alters my point.  Here's the chain of reasoning:
>
> >1)  Marx's Chapter 25 argument *establishing* the existence of a
> persistent
> reserve army depends on the premise that, when excess accumulation
> drives
> wage rates up and profit rates correspondingly down, the rate of
> accumulation will therefore fall.<
>
> right, where "excess accumulation" refers to the effect of the demand
> for
> labor-power growing too quickly to allow a rise in the rate of
> surplus-value. Also, it should be remembered that Marx points to the
> capitalist introduction of labor-power-saving technology as part of his
> story.
>
> >2)  This argument does not follow unless workers as a class don't save,
> and
> more specifically don't increase their savings as a class when the wage
> rate
> rises. Your suggestion about the effects of insecurity from the reserve
> army
> assumes what must be proven, since if workers do  save, then the
> argument
> for the existence of a reserve army will not have been established.  At
> any
> rate, Marx does not discuss this consideration, so my point that the
> possibility of worker saving challenges Marx's account in Volume I,
> Chapter
> 25 would seem still to be appropriate.<
>
> It's important to remember that in CAPITAL, Marx was not presenting his
> analysis in a deductive way, i.e., starting with a bunch of premises and
> deriving conclusions. (Bertell Ollman presents one good description of
> Marx's methods of analysis and presentation, in his ALIENATION. See also
> Marx's own discussion in the "introduction" to the GRUNDRISSE. Marx
> engages
> in _some_ deductive reasoning, but it's hardly the main theme of his
> work.)
> It's hard to imagine a realist (materialist) such as Marx applying a
> deductive approach, while he would have been silly to do so: instead, he
> starts with empirical reality and tries to understand the totality
> inductively. Instead of deductive reasoning, he applies the "law of
> value,"
> but that's another subject.
>
> If Marx had been following the deductive approach, your criticism would
> be
> valid. But his non-deductive (institutionalist) approach turns out to be
> much more fruitful than, say, Roemer's deductive approach in plugging
> the
> (small) hole you point to in his analysis. (I don't know if Roemer would
> have gotten anywhere if he hadn't Marx's works to translate into
> orthodox
> lingo.) If you start with an institutional analysis of capitalism as a
> whole, you're more likely to understand the problem than if you start
> with
> an idealized and totally unrealistic picture of markets (the way Roemer
> does).
>
> >3)  If the effects of "insecurity" on savings were added, I think it
> would
> reinforce my point, since other things equal insecurity about the future
> raises the savings rate rather than reducing it.<
>
> see above. Again, I wasn't referring to subjective insecurity as much as
> the
> inability of people to live up to their plans.
>
> >4)  Again, remember the significance of Veneziani's new result is that
> the
> mere *possibility* of saving creates a tendentially falling rate of
> exploitation, other things equal.  Assuming workers use banks, this
> should
> effect Marx's scenario as well.<
>
> I don't know the context of Veneziani's result, so I can't comment.
>
> >5)  But finally, suppose the considerations you raise were somehow to
> validate Marx's account.  That would mean that if we introduced
> "security"
> considerations into worker savings patterns, then the possibility that
> workers save would somehow not contradict Marx's account. But then
> building
> a similar consideration into Roemer's account would also rescue it from
> Veneziani's critique. Nothing in the neoclassical methodology precludes
> doing so.<
>
> As Gary and I argue, Roemer's "general" theory of exploitation has _so
> many_
> flaws (besides this one) that if all of them are fixed, the benefits of
> his
> Walrasian framework are clearly less than its costs. Going back to the
> Marxian approach -- whence Roemer got any insights he had -- is the best
> idea.
>
> >>The scarcity of fixed capital goods would evaporate, along with the
> basis
> for Roemer's neo-Georgian theory of exploitation. (That is, for Roemer,
> profits are a form of scarcity rent, a
> la Henry George -- or George Bernard Shaw.) The profit rate would fall
> to
> zero.<<
>
> >This is worth an entirely distinct discussion concerning the
> relationship
> between Marxian "surplus value" and "scarcity rents."<
>
> Not really, since I wasn't equating Marxian surplus-value with scarcity
> rents. To do so would be an error, since surplus-value refers to new
> production. It's _Roemer's_ theory of profits that's an unconscious
> generalization of the George/Shaw tradition. (I don't think he knew that
> he
> was following their lead.)
>
> >But for now I'll simply make the point that it is also true in *Marx's*
> scenario that excessive capital accumulation--however funded--would
> drive
> the profit rate to zero, a possibility Marx acknowledges at the
> beginning of
> chapter 25, before spending the chapter explaining why it wouldn't
> happen.
> But that explanation, again, is built on the premise that worker saving
> is
> not responsive to changes in labor income.<<
>
> No, his explanation is based on the fact that capitalists already own
> the
> vast majority of the productive assets and control the production
> process,
> while workers are dependent on the good graces of the capitalists for
> their
> survival, so that the workers are almost totally dependent on capitalist
> accumulation. Thus, the capitalists can cut back on accumulation and
> institute labor-power-saving technical change as wages begin to squeeze
> surplus-value. (The pre-existing capitalist hammerlock on the economy is
> explained historically, in the last part of KI, where he discusses the
> so-called "primitive accumulation.")
>
> Put another way, Marx's argument rests on the capitalists' control of
> the
> existing _stock_ of means of production (and thus the production process
> which creates the means of subsistence), whereas your argument is about
> the
> _flow_ of new workers' net saving, which is a small compared to the
> existing
> stock. This gives an argument akin to the Keynesian story above.
>
> >>Roemer's solution, if I remember correctly, is to simply assume that
> workers don't save. A clear understanding of how capitalism actually
> works
> would have helped him here. I'm afraid his general equilibrium and game
> theoretic approaches undermine his ability to achieve such an
> understanding.<<
>
> > I don't see how this follows, since it's possible to generate the
> results
> you refer to in the appropriately specified general equilibrium/game
> theoretic model.  I demonstrate this in one such model of dynamic
> capital
> markets.<
>
> what model is that? Just because you present a model doesn't mean that
> its
> assumptions are valid.  (I'm sure your logic and mathematics are
> perfect, so
> the validity of your conclusions rests entirely on your premises.)
>
> >In sum, I still don't think Veneziani's nonetheless insightful and
> interesting contribution alters Roemer's fundamental point.<
>
> what was Roemer's "fundamental point"? I interpret it as saying that
> modern
> economic orthodoxy  (Walras, game theory) has replaced -- and should
> replace
> -- Marx's method and theoretical framework. I don't see you arguing that
> above, except for the reference to the "dynamic capital markets" model
> at
> the end.
>
> Alternatively, Roemer's fundamental point may be that "exploitation" is
> a
> matter of the inequality of wealth ownership encouraging some
> individuals to
> voluntarily submit to exploitation by others. You don't argue for that
> above, either.
>
> Again, what is his "fundamental point"?
>
> >But if it did, I still assert it would necessarily challenge Marx's
> account, at the level of abstraction pursued in V. I Chapter 25, and
> probably even when the real-world considerations introduced here by you
> (but
> not mentioned by Marx in Ch. 25) were added to the analysis.<
>
> Of course the real-world considerations weren't mentioned in KI/25 (a
> chapter I didn't know we were discussing), since it's at a very high
> level
> of abstraction. But his general political-economic method has been
> proven
> again and again to be more productive than the idealized static
> equilibrium
> approach of orthodox economics.
>
> Jim Devine
>
>