Saturday, February 28, 2015

Bits and Pieces (IV): "Human Capital" Edition.


Prof. Robert Paul Wolff offers his views on "human capital". For him, following Marx, this alleged equivalence between labour and capital is a foundational fiction of capitalism:
"Economic theory, of course, cooperates in the fantasy that workers run small businesses producing the commodity labor power.  And The Law in its majesty enforces wage bargains as though they were contracts between capitalists who meet as equal participants in the free market.  But The Law is not an ass, and when a worker with more book learning than is good for him comes before the bar and requests that he be permitted to deduct on his income tax return the cost of 'doing business' -- which is to say, his food, clothing, shelter, and other expenses incurred in the course of producing his commodity for the market -- the Law sniggers behind its hand and denies his request."
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Personally, I find that comment particularly useful as it inspires a simple example, close to most workers' heart, showing why capital and labour are not only different, but also acknowledged as different before the law, regardless of mainstream economists' absurd claims:

Firms' positive cash flows are differentiated: they have revenues, but they do not pay corporate income taxes on them; they pay income taxes on the excess of revenues over expenses (their income). In other words, their income is equal to their profit.

Wage earners' positive cash flows are not differentiated: they pay personal income taxes on their gross income. For taxation purposes, and roughly speaking, there's no difference between a wage earner's "revenue" and "income", as there is among a firm's revenue and income.

However, all expenses the worker incurs are used to reproduce the worker's labour power: they are a cost. It's as if workers' income taxes were in general calculated on "revenues".

Take for instance children's education. Parents are paying for the education of their replacements in the labour force. This is similar to what capitalists do with depreciation: a machine gradually wears off and a deduction is made from revenue so as to cover this cost. Capitalists pay no corporate income taxes over depreciation charges, why should workers pay income taxes over costs of children's education?

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Prof. David Ruccio also gives his views on this subject. He concludes a very interesting post thus:
"As I see it, all these new forms of capital, like human capital, are ways of expanding Smith's wealth of nations; they all seen as contributing to the production of more 'stuff'-more use-values, the 'immense accumulation of commodities.' But the expanding universe of capital also serves to hide the extent to which all that stuff, which is in reality socially produced, is then privately appropriated-leading to a growing gap between a tiny minority at the top and everyone else. In other words, it's a pattern of private capitalist appropriation that creates a more and more unequal distribution of income and wealth.
"The capital controversy will remain with us, then, as long as we refuse to solve the problem of capital."
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Unfortunately (and ironically, too!), Prof. Branko Milanovic provides the discordant note. After arguing quite correctly (February 19) that:
"It is not the amount of income that makes you a worker, but the need for continuous application of your labor. This is the fundamental difference between labor and all forms of capital. This is the cleavage, so obvious to anyone, that has been at the source of the classical distinction between labor and capital."
Milanovic, commenting on Vilfredo Pareto, writes now (February 28):
"Before him [i.e. Pareto], economics was about functional income distribution which, of course, makes sense if you assume that all workers are at subsistence, all capitalists rich, and all landlords even richer."
So, what gives?

Update:
Prof. Milanovic explains his views in the comment thread attached to a MNE post.

Monday, February 23, 2015

Matt Bruenig on "Human Capital".


Matt Bruenig joins the "human capital" controversy.

Bruening comments on Branko Milanovic's pieces, and on some other related stuff. For him "Milanovic's basic point about the confusion engendered by 'human capital' is exactly correct". He has made this point before, and, for what it is worth, I agreed with him then.

But then, Bruenig writes:
"Ultimately, ideology determines whether the classical distinction between income from working and income from owning truly matters. But the distinction carries a lot of weight in many common ideological frames."
While Bruenig is an astute observer, that is a common and unnecessary mistake.

Classical authors of radically different ideological perspectives, like Marx, Ricardo and Smith, had no difficulty accepting that capital and labour were objectively distinct. Their opposed ideologies did not stop them from seeing what is evident. They evaluated it in different ways, to be sure; but they did not deny reality.

They were not alone, either. Before them, other pre-classical authors divided society and the economy along similar lines. Across the pond, people like John C. Calhoun also conceived society as built upon labour (see also or here).

Indeed, the attempt to blur the distinction between labour and capital became a central concern in economics only with the works of John Bates Clark, Knut Wicksell and Philip Wicksteed (suggestively, Veblen called them "neoclassicals").

Mind you, it's not like these three authors were secretive about their underlying political motivations; quite to the contrary, they were very open and upfront about that:
"The welfare of the laboring classes depends on whether they get much or little; but their attitude toward other classes—and, therefore, the stability of the social state—depends chiefly on the question, whether the amount that they get, be it large or small, is what they produce. If they create a small amount of wealth and get the whole of it, they may not seek to revolutionize society; but if it were to appear that they produce an ample amount and get only a part of it, many of them would become revolutionists, and all would have the right to do so. The indictment that hangs over society is that of 'exploiting labor.' 'Workmen' it is said, 'are regularly robbed of what they produce. This is done within the forms of law, and by the natural working of competition.' If this charge were proved, every right-minded man should become a socialist; and his zeal in transforming the industrial system would then measure and express his sense of justice. If we are to test the charge, however, we must enter the realm of production. We must resolve the product of social industry into its component elements, in order to see whether the natural effect of competition is or is not to give to each producer the amount of wealth that he specifically brings into existence." (John Bates Clark; for a comment on Wicksell, here).
There are two ironies here.

For starters, the intellectual progeny of Clark, Wicksell and Wicksteed now want to claim the non-ideological high ground.

And smart people, who otherwise know better, leave them the battle ground uncontested.