Re: Marx and Keynes on Unemployment

[Jim Devine <JNDF%LMUACAD.BITNET@xxxxxxxxxxxxxxxxx>]

On Thu, 27 Apr 1995 00:44:55 -0600 Ajit Sinha in Oz said:
>That is, at best machinery could only cause "structural unemploymen"--as calle
>by macroeconomists now a days. Ricardo showed that this is not the case. The
>former situation could hold only if the increase in productivity due to the
>intoduction of machinery was so great that the concomitant increase in profit
>would cause accumulation to increase so rapidly that all the laid off laborers
>would be absorbed. However, there is no guarantee that this would happen and
>the possibility of this is quite remote....

Again, Ajit, please _narrow your margins_ to help readability.

Harrod summarized this in terms of the need for aggr. demand to grow
faster than the "natural" growth rate in order to keep U from rising.
(Demand has to grow faster than the growth rate of labor productivity
plus that of the labor force.)

>It seems in Jim's understanding, Marx's type unemployment is identified with
>"structural unemployment" (macroeconomists' term) plus a bit of "bargaining
>power" unemployment....

I see "structural unemployment" as distinct from "bargaining power"
unemployment (or the reserve army of labor).  The reason is that
truly structural unemployment (unemployment because one has the wrong
skills in the wrong place, or mismatch unemployment) doesn't
threaten the bargaining position of employed workers. An unemployed
coal miner who can't afford to move out of W. Virginia doesn't
threaten the status of an auto worker in Ohio.  Of course, in
practice, these concepts are hard to separate. Both structural
unemployment (due to the relative immobility of labor-power) and
bargaining power unemployment (needed to keep workers' power
in check) represent lower limits on the actual U rate. If U falls
below these limits, profit squeezes and accelerating inflation
threaten.

(Of course, there may be the benefit of lower structural unemploy-
ment as the literature on the "hysteresis effect" -- the dependence
of the structural/frictional unemployment on the actual U rate --
points out.)

>... however, as Ricardo
>had already shown (with which Marx agreed), the unemployment caused by
>labor-saving technical change should not be identified with "structural
>unemployment"--this would be theoretically wrong.

Right. Technological unemployment may exist because demand for goods
may not grow fast enough. But technological unemployment may also
cause structural unemployment, as the buggy-whip manufacturers and
key-punch operators discovered. A mismatch between skill supplies
and demands (to speak loosely) can result as some skills are made
obsolete. Tech. unemployment and structural unempl. are not the same,
but the former may cause the latter.

>As far as the "bargaining
>power" unemployment is concerned, the meaning of this is not quite clear. My
>guess is that Jim holds ...
>that is that it is Marx's doctrine that to conteract the workers
>pressures to raise wages, the capitalists introduce labor-saving technical
>change, and they maintain a "reserve army" of labor to maintain the low wages
>(as a bargaining power device). Though this position may be true for the
>present day real world, this doctrine is not found in Marx's writing, at least
>in *Capital*. The reason is simple--it does not fit-in in Marx's framework.

As a macroeconomist inspired by Marx rather than one _limited_ by Marx,
I care about the "real world" (present, past, & future) much much more
than I care about "what Marx (really) said" and I tend to be bored by
exegeses and seances. Further,
I object to the idea that capitalists "maintain a reserve army" because
that sounds overly intentional, even conspiratorial. The existence of
the reserve army is an unintended macro-outcome of micro-decisions.
It's also not just due to labor-saving technical change. It may also
result from investment cut-backs, which reduce aggregate demand. In
fact, Marx sketches a cyclical story in vol. I of CAPITAL in which
the "problem" of high wages is "solved" via slowing accumulation.

>....the idea that labor-saving technical change is introduced because
>of an upward pressure of wages carries with it the neo-classical germ of
>switching to relatively capital intensive technology in response to higher
>wages-- and this kind of reasoning was quite foreign to Marx. This aside, For
>Marx a labor-saving technical change is a long-run or secular tendency in
>capitalism. Moreover, in his framework, the real wages as well as the value of
>labor-power also have a secular falling trend. That is why the rationale for
>labor-saving technical change had to be found somewhere else than in wage
>pressure.

But one of the reasons why Marx saw the real wage as having a
downward trend (NB: relative to productivity growth, so that the
value of labor-power falls) is that technical change and accumu-
lation keep the demand for labor-power down.

Also, on p. 638 of vol. I of CAPITAL, Marx wrote that
in response to higher agricultural wages, the capitalist farmers
"introduced more machinery, and in a moment the laborers were
redundant again in a proportion satisfactory even to the farmers....
the demand for labor fell, not only relatively but absolutely."
I've also seen other references to this kind of substitution in Marx.
However, I would agree that the emphasis on substitution is _not_
central to Marx's concerns.  BTW, the role of substitution is not
unique to the neoclassicals (or Austrians, god help us). Nicholas
Kaldor and Maurice Dobb had non-neoclassical substitution stories.

>For Marx, the cause of technical change in capitalism are the
>intraindustry competition, where everybody is trying to reduce the cost of
>production and beat the competitor, and control over the work process as well
>as the desire to intensify labor process in the face of the fall in the length
>of the working day. The system requires "reserve army of labor" because its
>accumulation process is cyclical. There is no such thing as "bargaining power"
>unemployment explanation in Marx.

Yes, I agree. But this technical change does have an effect on
worker bargaining power, however unintentional.  So even if Marx
didn't mention the phrase "bargaining power," it is useful for
understanding how his theory might work in practice.

sincerely,

Jim Devine
jndf@xxxxxxxxxxxxxx or jdevine@xxxxxxxxxxxxxxx
Econ. Dept., Loyola Marymount Univ., Los Angeles, CA 90045-2699 USA
310/338-2948 (daytime, during workweek); FAX: 310/338-1950