Marx has the last laugh

I cannot think of a better interlocutor than Chris Dilow. He raises another set of interesting questions in his reply to my reply. I am in danger of completely forgetting our original divergence of thought, but that bothers me not at all.

I have read a lot of Marx, and always want to read more. Marx is rightly regarded as the greatest social theorist. Marx was legendary synthesiser of thought. In this regard, Habermas – the greatest moral philosopher since Kant – is his true heir.

Marx also created a framework of making sense of social change, organisation and power which is unrivalled in its completeness and coherence. In addition to his profound perceptiveness, this very coherence and completeness appeals in its own right. But I feel a different form of intellectual affinity with Marx. The coherence he attributes to social evolution is also the weakness in his framework. Marx, if you take his writing as a whole, knew this instinctively. There is a coherent theory of social evolution to be found in his writings, but there is also repeated arbitrary divergence from this theory and creative, chaotic asides that make his writing so absorbing. We can thank Marx for providing a theory of social change, a theoretical ‘ideal type’. It is a model that it almost always pertinent, but – perhaps always – incomplete, and often completely misleading.

A perspective I have long held about markets I partly attribute to Marx. It is actually an argument for the moral force of markets (not capitalism, per se, but certainly markets) – that free exchange is the antithesis of tribalism. The great French anthropologist, Marcel Mauss, put it most succinctly: “In order to trade, we must first lay down our spear”. Marx, too, saw very clearly how global capitalism could be the enemy of tribal nationalism.

Perhaps intriguingly, I also want to bring Hayek in here. Hayek, Marx and Mauss view markets in ways which are far more instructive than that present in microeconomic textbooks. And here simplistic economic ideology has hindered understanding. So, one evolutionary function of markets is as a positive-sum method of conflict resolution. Everyone should be aware of this. If we perceive there to be a finite resource – say oil – let us use prices to determine who gets what, and incentivise the invention of substitutes. It’s better than the alternative.

Hayek diverges from the standard micro-theory of markets by assuming imperfect information – quite rightly – and focussing on the role markets play in processing information. This too is profoundly insightful. In Hayek’s view, capital seeks informational advantages – this is a motivating force. If we already knew everything, we would do nothing. The pursuit of ‘excess return’ is the very lifeblood of innovative and dynamic capital.

Hayek’s observations on the distribution of information are equally important. His critique of central planning significantly resides in the insight that the most important information is local to the individual and unobservable – it is in our heads. Only the individual knows what they want at any point in time.

As an aside, it is worth noting that Keynes, unsurprisingly, was the most astute psychologist in this cannon of thinkers on the motives of capital. He was totally open to the likelihood that many of the greatest investors – i.e. those that had the longest time-horizons and made the greatest contributions to human well-being – were motivated by nothing more than fascination at what could be achieved.

How does any of this bear on my discussion with Chris? My sense is that the motives and forms of capital at work in our societies are more diverse than at any point since the industrial revolution. As Mark and I argue in Angrynomics, deregulation has set capital against capital, and asset price delusions add spice to this chaos. Myopic speculators finance blue-sky infinite-horizon destroyers of capital, such as Elon Musk – the world’s embodiment of a Keynesian investor. Somewhat hilariously, a new form of elite social status – start-upism – is fantastically anti-capital, and its effects are super-charged by the secular collapse in the cost of semi-conductors. Despite its importance, none of this was predictable.

I struggle to see capital as the obstacle to progress in this world. If anything, a chaotic series of capitalist motivations – a collapse in the cost of debt to the state and a plethora of extraordinary technological innovations – have provided us with the very means to tackle our greatest challenges. The failure of innovation is in public policy and democratic process.

This leads me in conclusion to more a ominous question. Hayek explained why China could not succeed. Central planning doesn’t work because the most important information is in our heads – only we know what we want to do. Really? Why has China progressed more rapidly and pervasively than any other major economy in AI, machine learning, fintech and social media. Because the contents of our minds is now available to the social planner. Is Marx about to have the last laugh?

About The Author

Eric Lonergan is a macro hedge fund manager, economist, and writer. His most recent book is Supercharge Me, co-authored with Corinne Sawers. He is also author of the international bestseller, Angrynomics, co-written with Mark Blyth, and published by Agenda. It was listed on the Financial Times must reads for Summer 2020. Prior to Angrynomics, he has written Money (2nd ed) published by Routledge. He has written for Foreign AffairsThe Financial Times, and The Economist. He also advises governments and policymakers. He first advocated expanding the tools of central banks to including cash transfers to households in the Financial Times in 2002. In December 2008, he advocated the policy as the most efficient way out of recession post-financial crisis, contributing to a growing debate over the need for ‘helicopter money’.

2 Responses

  1. Wade Matthews

    I’m not sure Marx (and Hayek and Muass) was right that global trade would undermine nationalism (although I think Marx, generally, is a fantastically insightful thinker). In fact, global trade facilitated nationalism, and nationalism might be considered a response to global trade. After all, prior to the last thirty years or so, it was the thirty years prior to WWI (surely an example of hysterical nationalism) which is considered the “golden age” of globalization. In Mauss’s anthropological terms, it’s only when you start trading that you realize that other people exist (and therefore can despise them for being different).

    I don’t agree with your argument, in other words, that there is a moral force behind markets and global exchange. Partly, my argument is empirical – ask most of humanity (i.e. what was once called the Third World) whether they’ve particularly benefited from global exchange. My point: global exchange followed imperialism or was an importance motive force for it. Marx was thinking in the long term that free trade would benefit India and as Keynes said in the long term where’ll dead.

    Marx didn’t really understand nationalism (neither did many others in the late nineteenth century) and consequently was unprepared for the way nation-states would fulfill human being’s need for identity. The Left have systematically under-estimated the power of non-rational forces (such as nationalism) in the determination of political identity (I wrote a book about this in the British context). The Left, historically, has provided two answers – a bloodless and deracinate idea of class, which has proved insufficient when opposed by nationalists; or they have rehearsed their opponents’ nationalism and have appeared indistinguishable from nationalists.

    Our present conjuncture might be summed-up this way: globalization has proliferated senses of tribal identity and has, in fact, facilitated and encouraged them. It should have produced the opposite effect, as Marx and you suggest. But it hasn’t. Why? Maybe we have to except that contradiction lives in reality and not just in our heads.

  2. Nathan

    Hello Eric, I have an article that explains why since 2000: business investment has been weak; the fall in the U.S net labor share; the decline in the prime age U.S labor participation rate vs large gains elsewhere; the rise in deaths of despair. The article is called Skill Stalagmites, Technology Stalactites and can be found here. I have split the piece into two parts: a 1500 word article for the general reader and a longer piece for the more sophisticated reader. There is a link to the latter at the end of the first piece.

    The punchline to the article is that the 4-5% gap in the lfpr between the U.S and peer economies is a form of disguised unemployment. And this is a novel kind of unemployment, which is not caused by a fall in aggregate demand.

    The actual cause is that firms are imposing higher effort levels on workers. I can summarize the argument you will find in the main article; it goes like this:

    1. Firms impose higher effort demands on workers; workers have to complete more tasks (for a higher wage) or be fired.
    2. The higher wage does not compensate workers for their lost work leisure; thus workers look for less demanding job positions (or refuse to move up to more senior roles).
    3. If one imagines a skill ladder, then all workers attempt to drop down a rung. This is easy for higher skilled workers, but what happens to workers at the bottom?
    4. The lowest skilled workers compete for job openings with somewhat more skilled workers. Firms prefer to hire the more skilled worker, resulting in the lowest skilled workers being pushed out of employment altogether.
    5. This assumes that employers can always identify the highest skilled worker from their pool of applicants. This won’t always be the case; if the higher skilled worker has a bad interview or the weaker candidate has positive chemistry with the interviewer, then the objectively weaker candidate can win a job offer.
    6. Thus provided the lowest skill workers are willing to keep searching for jobs they will eventually obtain a job offer and regain employment.
    7. This means though that workers on the second lowest skill rung will be unable to drop down to the lowest rung unless they also increase their job search activity. And in turn this forces the workers above them to increase their job search.
    8. Any person wanting a job now has to apply to many more job positions before they can get their first job offer. But after a string of failures, job seekers become discouraged and temporarily withdraw from the search process. It is this temporary withdrawal that is responsible for the drop in lfpr. For those who are the main breadwinners, the period of withdrawal will be short – perhaps only a few months. But for workers who are more marginally attached to the labor force, it could be years or forever.
    9. Evidence for higher effort in the U.S can be found in the higher U.S productivity growth since 2000 vs peer economies.
    10. Evidence of higher job search can be found in the elevated duration of unemployment, which in 2019 was still equal to recessionary levels. The American Time Use Survey also shows higher than normal time spent on job search.

    The questions of why this is happening post 2000 and not before, and why only in the U.S and not elsewhere, are taken up in the full article.

    Hope you enjoy reading and please do spread word of the article around.
    P.S The article is published on Seeking Alpha, but don’t let that put you off. Though I don’t have a formal background in economics, I do keep up with the relevant literature.


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