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Class conflict and economics

from David Ruccio

A funny thing happened on the way to the recovery from the Pandemic Depression: class conflict is back at the core of economics.

At least, that’s what Martin Sandau (ht: bn) thinks. I beg to differ. But more on that anon. First, let us give Sandau his due. His argument is that the current labor shortages have shifted the balance of power toward workers (an issue I discussed a couple of weeks ago). As a result, economic analysis is starting to change:

What this looks like is the return of something that was exiled from centrist policy debate and mainstream economic analysis for decades: class conflict and its economic consequences. To be precise, we may be witnessing the manifestation of two outmoded ideas: that the relative power of economic classes alters macroeconomic outcomes; and that macroeconomic policy tilts that relative power.

For Sandau, that means a return to the work of Michal Kalecki, especially his theory of the “political aspects of full employment.” Kalecki was a contemporary of John Maynard Keynes but, in contrast to Keynes, Kalecki was well versed in Marxian theory and spent considerable time investigating the relationship between macroeconomics and class conflict. As I explained back in 2010, Kalecki developed a cogent analysis of business opposition to measures designed to achieve full employment:

The reasons for the opposition of the ‘industrial leaders’ to full employment achieved by government spending may be subdivided into three categories: (i) dislike of government interference in the problem of employment as such; (ii) dislike of the direction of government spending (public investment and subsidizing consumption); (iii) dislike of the social and political changes resulting from the maintenance of full employment. . .

Under a regime of permanent full employment, the ‘sack’ would cease to play its role as a disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire; and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But ‘discipline in the factories’ and ‘political stability’ are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the ‘normal’ capitalist system.

As readers can clearly see, not much has changed since Kalecki published that analysis back in 1943. Employers and their financial backers are still adamantly opposed to government measures designed to move capitalist economies toward full employment.

Sandau is correct in arguing that “conventional economic thinking has little room” for the possibilities outlined by Kalecki. Mainstream economists assume that, when the labor market is in equilibrium (at A), workers are paid a wage (W) equal to their contribution to production. If workers manage to receive wages higher than the equilibrium rate, the result will be unemployment—that is, the improvement in the situation of some workers will come at the expense of other workers. So, there can’t be class conflict within conventional economic thinking.

And there isn’t any class conflict in Sandau’s analysis. That’s because, if workers’ wages rise, capital can respond by raising productivity. Therefore, in his view, “productivity incentives from greater worker power can boost profits as well.”

Problem solved! Except. . .

What Sandau fails to see is that, as productivity increases, the prices of wage goods fall, and capital therefore needs to advance less money to purchase workers’ ability to labor. Capitalist profits rise precisely because the value of labor power falls. Within the confines of capitalism, that’s precisely the option capitalists have, to extract more surplus-value from the workers they employ.

That’s the class conflict that remains missing in Sandau’s analysis as in the rest of conventional economics.

  1. September 17, 2021 at 2:51 pm

    It is true that in terms of the value of wage goods necessary for workers’ subsistence, the “value of labor power falls.” But this ignores the fact that as Marx asserted, “subsistence” isn’t biological — it has an “historical and moral element.” If we recognize that, we realize that as the cost of wage goods falls, workers will in effect be able to consume MORE than the biological subsistence out of the “historical” wage — The resistance to wage cuts as productivity increased throughout the 19th century was the cause of extraordinary labor struggles — the violence of 1877 and the 1894 Pullman Strike up to the Ludlow Massacre — In the 20th century, wage cuts occurred “Keynes’ way” via price increases and when prices fell, money wages did not fall in tandem — During the Great Depression in the US, the real wage actually rose!!!

  2. Gerald Holtham
    September 20, 2021 at 5:41 pm

    Actually a great deal has changed since 1943. The main thing is deindustrialisation of big Western countries and the shrinkage of the unionised or organised workforce. People now see themselves as individuals not as members of a proletariat. Class consciousness has declined. The supply and demand for labour influences wages, as it always did, but lower-skilled workers are less well-placed to extract their share of economic rent than they were. In the 1960s and 1970s in Europe economic policy was vividly aware of class conflict. Witness the existence of prices and incomes policies to try and regulate the incipient conflict and all the talk of the “social partners”. That has all disappeared with the fragmentation of the post-industrial labour force. There may be a swing back to wages at the expense of profits as a result of labour shortage but the growth of inequality within wages will continue unless there is a return to notions of workers’ solidarity. It is hard to see where that would come from. It was a product of the factory and the mine.
    Capitalism has survived because it accommodates technical progress that raises productivity over time. Whatever happens to shares, that permits everyone to gain a bit. The Soviet Union failed because outside the military sphere the system provided no incentive to innovation. The threat of ecological and climate disaster now requires innovation to be channelled so as to reduce carbon emissions and promote biodiversity. It is not obvious whether capitalism, of either the Western or Chinese variety, can make the necessary adjustments. Current form suggests not.

  3. Ken Zimmerman
    September 21, 2021 at 7:57 am

    Wrong topic. All societies are Communist. Not in the sense often used as a magical utopia, and neither does it have anything to do with ownership of the means of production. It is something that exists right now—that exists, to some degree, in any human society, although there has never been one in which everything has been organized in that way, and it would be difficult to imagine how there could be. All of us act like communists a good deal of the time. None of us act like a communist consistently. People simply are not capable of such selflessness consistently! ‘Communist society’—in the sense of a society organized exclusively on that single principle—could never exist. But all social systems, even economic systems like capitalism, have always been built on top of a bedrock of actually-existing communism.

    Starting, as I say, from the principle of “from each according to their abilities, to each according to their needs” allows us to look past the question of individual or private ownership (which is often little more than formal legality anyway) and at much more immediate and practical questions of who has access to what sorts of things and under what conditions. Whenever it is the operative principle, even if it’s just two people who are interacting, we can say we are in the presence of a sort of communism

    So, capitalism is really just a second-best option for organizing human lives and activities, including provisioning activities.  And that is not an attack on society until by error or some sort of sociopathy we forget what has always been first.

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