Monday, 1 October 2012

Liberal Economists vs K. Marx.

Or Serfs, Workers, and Economists.

I should have posted today the third instalment of my series "Who Creates Wealth?" But considering that "Show me the Money!" already deals with this matter, I decided to give this a rest, for this week.


Some days ago I found this example of exploitation by Argentine professor Orlando Astarita (here, in Spanish).

I could have simply linked to Google Translate; but the translation is still crappy. It seemed better to offer here my own version of Astarita's example. Any screw up is entirely mine.

Here we will play a kind of a game: you are the judge in the Liberal Economists vs Karl Marx trial. First I'll present the facts, which are pretty much well-known. Then you'll hear the arguments as the two parties would have presented them. Then you'll pronounce a verdict.


Perfect Feudal Society

Imagine a feudal lord; he owns some land (manor) and divides it up in two equal plots. He keeps one for himself (demesne); the other one is subdivided into 20 smaller subplots, each assigned to a serf:

How the surface and production are apportioned.

The serfs and feudal lord have "mutual" obligations involving lots of things. Here we'll focus on the economic obligations. As the serfs live in the feudal lord's manor, they must pay him a tribute: they all work 3 days a week on his plot, for his benefit; each serf then works 3 days on his individual subplot, for his individual benefit. The seventh day, they rest.

Come harvest time, the serfs harvest their lord's crop for him. Say, 20 units of wheat. As each serf worked his own subplot and each subplot is 1/20 the size of the lord's plot, they each collect 1 unit of wheat. The entire harvest was 40 units of wheat (the lord's 20 + the serfs' 20).

The same figure above, considering now wheat units instead of land surface, describes how the agricultural production is distributed.

Each serf must subsist on 1 unit of wheat until next harvest, so let's assume it's indeed enough for a serf (and his family) to subsist on that.

The lord, of course, won't consume 20 units of wheat. He takes 7 for himself and his family, assigns 7.5 to his 5 soldiers (1.5 each) whose job it is to keep the serfs in their place; and 1.5 units go to the priest, whose job it is to teach the serfs that feudal society is God's will: there is no alternative.

This leaves the lord with 4 units, which he uses any way he likes. Say, he trades it for a suite of armour or for luxury items:


We can describe the situation this way: the lord "leases" his land to the serfs; the serfs pay their "lease" to the lord, in work. Payments flow from serfs to lord; not from lord to serfs.

19th century liberal economists saw this and considered the lord's income unearned. Those economists also saw that serfs were coerced into the arrangement, and considered the situation unfair.

Wage Labour and Capitalism

Time passed, the lord of the manor became a capitalist. He evicted his serfs and hired 20 workers (farmhands): former serfs, expelled from other manors, who lost their livelihoods. This in British history was called the enclosure movement.

The hired farmhands work the whole property for the capitalist, for a wage.

Come harvest time, the farmhands harvest the crop, which the capitalist takes to the market and sells for, say, 40 gold coins (GC). The capitalist spends 20GC in wages: 1 GC to each farmhand. With her GC, each farmhand buys now 1/40 of the harvest, which we'll again assume must be enough to subsist until the next pay day.

The capitalist's operating profit, before tax, is 20GC. He pays 9GC as tax: out of them, 7.5GC go to fund a 5-man strong police force (1.5GC each cop) and the remaining 1.5GC for an economist, whose job it is to teach the workers that society would unravel if it weren't for the capitalist: there is no alternative.

This leaves the capitalist with 11 GC: he keeps 7 for his livelihood, plus a net of 4GC, which he can spend any way he sees fit (say, invest or further consume).

The table above sums up the situation. Contrast it with the previous table, to find any real difference.


Today's liberal economists find capitalism a vast improvement over feudalism. Unlike their 19th century forefathers who condemned feudal lords, they say the capitalists' income is not unearned: their thrift puts the whole machinery in motion. Further, they'd say pay flows from the capitalist to the workers in proportion to their contribution.

Marx would say it was the serfs' original eviction (enclosure) that kick-started the machine in Britain and he would admit that money flows from capitalist to workers, the same money that, after spent, flows back from the workers to the capitalist. And the capitalist, just like the feudal lord of the manor, still keeps a portion of the excess output and needs to do nothing for it: at least 4GC after tax (assuming the capitalist actually did some very handsomely rewarded work worth 7GC). This is exploitation.

Unlike feudalism, liberal economists would say, capitalism isn't coercive: workers are free to look for another job. Liberal economists, they'd say, stand for freedom.

Marx would say: lacking effective means of survival, which belong to the capitalists, workers are free in name only; free to chose between working, at one hand, or starving or being evicted from their homes, at the other. That's why both feudal lords and capitalists keep men in arms. In reality, he'd say, our farmhands aren't much freer than the serfs.

Liberal economists would close their case by claiming they played a major role in all this improvement. Marx is a pathetic, "nutty" fool, they'd say, who didn't understand things. For some reason they don't explain, Marx chose a life of hardship (instead of the upper-middle class life he could have led) with the sole purpose of lying to the impoverished workers.

Marx would say there wasn't much improvement in the essentials of the situation: you are still at the mercy of your boss. But even in a more pragmatic level (unemployment, poverty) things don't look too awesome right now, eh? And he called these economists "vulgar" (or charlatans, if you prefer), whose extremely well remunerated job it is to lie to keep things from changing.


Both cases are closed. It's time to issue a verdict.

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