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Haunted by surplus

from David Ruccio

income  wealth

Inequality in the United States is now so obscene that it’s impossible, even for mainstream economists, to avoid the issue of surplus.  

Consider the two charts at the top of the post. On the left, income inequality is illustrated by the shares of pre-tax national income going to the top 1 percent (the blue line) and the bottom 90 percent (the red line). Between 1976 and 2014 (the last year for which data are available), the share of income at the top soared, from 10.4 percent to 20.2 percent, while for most everyone else the share has dropped precipitously, from 53.6 percent to 39.7 percent.

The distribution of wealth in the United States is even more unequal, as illustrated in the chart on the right. From 1976 to 2014, the share of wealth owned by the top 1 percent (the purple line) rose dramatically, from 22.9 percent to 38.6 percent, while that of the bottom 90 percent (the green line) tumbled from 34.2 percent to only 27 percent.

The obvious explanation, at least for some of us, is surplus-value. More surplus has been squeezed out of workers, which has been appropriated by their employers and then distributed to those at the top. They, in turn, have managed to use their ability to capture a share of the growing surplus to purchase more wealth, which has generated returns that lead to even more income and wealth—while the shares of income and wealth of those at the bottom have continued to decline.

But the idea of surplus-value is anathema to mainstream economists. They literally can’t see it, because they assume (at least within free markets) workers are paid according to their productivity. Mainstream economic theory excludes any distinction between labor and labor power. Therefore, in their view, the only thing that matters is the price of labor and, in their models, workers are paid their full value. Mainstream economists assume we live in the land of freedom, equality, and just deserts. Thus, everyone gets what they deserve.

Even if mainstream economists can’t see surplus-value, they’re still haunted by the idea of surplus. Their cherished models of perfect competition simply can’t generate the grotesque levels of inequality in the distribution of income and wealth we are seeing in the United States.

That’s why in recent some of them have turned to the idea of rent-seeking behavior, which is associated with exceptions to perfect competition. They may not be able to see surplus-value but they can see—at least some of them—the existence of surplus wealth.

The latest is Mordecai Kurz, who has shown that modern information technology—the “source of most improvements in our living standards”—has also been the “cause of rising income and wealth inequality” since the 1970s.

For Kurz, it’s all about monopoly power. High-tech firms, characterized by highly concentrated ownership, have managed to use technical innovations and debt to erect barriers to entry and, once created, to restrain competition.

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Thus, in his view, a small group of U.S. corporations have accumulated “surplus wealth”—defined as the difference between wealth created (measured as the market value of the firm’s ownership securities) and their capital (measured as the market value of assets employed by the firm in production)—totaling $24 trillion in 2015.

Here’s Kurz’s explanation:

One part of the answer is that rising monopoly power increased corporate profits and sharply boosted stock prices, which produced gains that were enjoyed by a small population of stockholders and corporate management. . .

Since the 1980s, IT innovations have largely been software-based, giving young innovators an advantage. Additionally, “proof of concept” studies are typically inexpensive for software innovations (except in pharmaceuticals); with modest capital, IT innovators can test ideas without surrendering a major share of their stock. As a result, successful IT innovations have concentrated wealth in fewer – and often younger – hands.

In the end, Kurz wants to tell a story about wealth accumulation based on the rapid rise of individual wealth enabled by information-based innovations (together with the rapid decline of wealth created in older industries such as railroads, automobiles, and steel), which differs from Thomas Piketty’s view of wealth accumulation as taking place through a lengthy intergenerational process where the rate of return on family assets exceeds the growth rate of the economy.

The problem is, neither Kurz nor Piketty can tell a convincing story about where that surplus comes from in the first place, before it is captured by monopoly firms and transformed into the wealth of families.

Kurz, Piketty, and an increasing number of mainstream economists are concerned about obscene and still-growing levels of inequality, and thus remained haunted by the idea of a surplus. But they can’t see—or choose not to see—the surplus-value that is created in the process of extracting labor from labor power.

In other words, mainstream economists don’t see the surplus that arises, in language uniquely appropriate for Halloween, from capitalists’ “vampire thirst for the living blood of labour.”

  1. November 4, 2017 at 6:09 am

    I’m begging you. Read Steve Keen. I’ve paid my dues. Studied nonlinear systems at the knees of great math physicists. Hard to relate but the power of nonlinear analysis, nascent though it is, is friggin awesome. Pay your dues. Read about
    Equations of Math Physics and so read about chaos theory, stability theory, bifurcation, read Lorentz, Elizabeth Dussan, Steve Davis (Senior editor JFM), Ed Reese, for starters.

    • Neville
      November 4, 2017 at 11:02 pm

      I agree totally

    • Stefanos
      November 5, 2017 at 4:41 pm

      I’ve read all these but the answer is not there…

      Read more philosophy, political theory and then you’ll realize what positivism means.

  2. lobdillj
    November 4, 2017 at 12:29 pm

    I think it is appropriate to view the economy as Michael Hudson does. Break the economy into two parts, the real economy and the rentier economy. Then it can be seen that the rentier segment sucks up the surplus generated in the real economy and funnels it into the Ponzi scheme they are running, where all surplus is used to fuel cancerous exponential growth that dominates all and ends, as all Ponzi schemes do, in a crash. But this time it is not the perpetrators who lose all; they are bailed out by the monetarily sovereign government, and the real economy is the loser.

    • robert locke
      November 6, 2017 at 7:59 am

      Hey, these ideas have been kicked around for a long time. I ran into them when I read the comte de Saint-Simon, lived 1760-1825, make a distinction between those in society who contributed value to society through work and those who did not. Saint-Simon included workers, businessmen, merchants, professional people, bankers, among workers, rentier of all sorts among the parasites. Auguste Comte was Saint-Simon’s secretary, Saint-Simon himself was an engineer, but one who was not a materialist. Social Catholics took the social question seriously in France; There is a vast literature that mirrors these concerns, about which people in America seem to know nothing, except some historians, whose fund of knowledge is ignored by all but a few in this blog. Not their fault, entirely, because in their education they were cut off from the “workers” with the limited thinking that only economists, and for the broad minded social scientists, too, can have anything to say about economics; this despite the fact that we are constantly fed a diet of criticism against social science theory and practice.

      Social science and the way it has been institutionalized is the problem. As an historian, I have studiously avoided reading it, until I have looked at the sources the workers produced as they labored in the fields and factories.

      • lobdillj
        November 6, 2017 at 10:08 pm

        The ideas I am talking about have not been kicked around for a long time. They are not about social science. They are about monetary and fiscal policies permitted by fiat money systems that cannot be allowed when a government is financed the same way households are financed.

      • robert locke
        November 7, 2017 at 6:26 am

        So here we go again,, Lobdillj, don’t need to know the past because some smart fiscal observer today has the answer. What I learn reading the memoirs and letters of people who lived a hundred, two hundred, five hundred years ago, is how smart people were then. They haven’t had to wait for a lot of social scientists to tell them what is going on. What I have learned from people struggling with their own generation’s problems is that the problems they found were not those intellectuals dream up in their social science, which includes finance and economics. I write about the concerns of the doers in my work. You won’t even find problems identified in economics that are concerns of those who work. Anti-intellectualism in American life is based, to some extent, on this betrayal of the intellectual elite, the experts who do not deal with real problems, as we are reminded everyday when they open their mouths.

  3. November 6, 2017 at 11:31 am

    From its beginning the US has been afflicted with a brutal and gloomy conflict. It’s been the subject of hundreds of books, songs, laws, and stern sermons. None of which has done much to resolve the conflict. Thomas Jefferson summed the conflict in these words, “…disparaged the Federalists as Tories, aristocrats, merchants who traded on British capital and ‘papermen’ (bondholders, financiers, and investors) …” Speculation was their game, from land to financial securities of all sorts. Already by 1794 “speculator” became an effective political epithet. Already by 1791 wealth concentration based on this pattern was significant. But the US was more than speculators. Working and trading people also called America home. They accumulated no large fortunes except by manufacturing or trade. The small businesses and farmers Jefferson idealized. The heart and soul of the newly created Democratic-Republicans opposing the Federalists. This struggle has never stopped. There have been waves of wealth concentration in American history. All created around this struggle. All overcome by the actions of Americans who resent the unfairness and injustice of such concentrations. But this is not a class struggle, a la Marxism. Many rich persons shared this resentment and participated in the resistance that ended one wave of wealth concentration after another. Such is the case today as the antipathy and fury of Americans about the current wave (which began during the 1980’s) continues to swell. The great unknown is whether this anger and fury will end this wave as it has the others.

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