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March 12, 2008

Comments

Mitchell Hoffman

Marx (I will refer to Marx’s and Engel’s idea in the Communist Manifesto as Marx’s) is relevant to 21st century economics because he accurately describes some current problems in contemporary labor supply and he anticipated the importance of workers’ feelings and attitudes which has become a central issue in behavioral labor economics. He is irrelevant in that his predictions on growing inequality are incorrect or grossly overstated, and he mispredicted the evolution of people’s attitudes towards redistribution, private property, education, and the family.
One of the main ideas in the Communist Manifesto is that, under capitalism, labor becomes another input in production, just like a conveyor belt or a stack of wood. Given profit maximization, firms will sometimes do things that are not in the workers’ interests. Consider the issue of worker training. “Fast Food Nation,” a book I recently read, describes how fast food companies seek to create jobs that require the least amount of training possible. They do this so that they can hire low education, transient workers, and pay them low wages and not give them health insurance. On the one hand, it’s a good thing that capitalism creates jobs for workers that may otherwise not be able to have them. On the other hand, the profit motive creates a disincentive to giving workers good training and to intellectually challenging and involving them in the business.
Marx’s views on labor can also be related to the question of gift exchange in behavioral economics. In a famous article, George Akerlof argued that workers may expend more effort than is required by a firm in keeping with a social norm of providing extra labor effort. Increasing a worker’s wage may induce worker’s wage and/or training may make workers provide more effort than is needed. If gift exchange occurs under capitalism, Marx is in a sense wrong, because he would’ve hypothesized that gift exchange would not be a robust phenomenon in capitalist economies. However, his arguments in the Communist Manifesto are closely related to ideas of worker well-being and satisfaction, as these have real economic consequences.
Marx is irrelevant in that his predictions about inequality have not held up. In his description of the evolution of economic systems, Marx seems to argue that capitalism will become more and more unequal over time, with capitalists getting a higher and higher share of profits and workers a lower one. While inequality may have increased in America in the last twenty years, inequality over the last hundred and fifty years seems to have decreased. Moreover, the standard of living for poor people in developed countries has not hovered at Malthusian subsistence, but has substantially increased. Poor people in developed countries generally now haw enough to eat, can send their kids to school (instead of forcing them to work), and sometimes own cars, homes or apartments, and fly in airplanes.
Also, people’s attitudes towards redistribution have not converged to a cry of the masses for the abolition of private property. In the United States, poor Americans often vote for politicians and policies that oppose redistribution. Poor and middle-class Americans are among the champions of school vouchers and the right to home schooling, and supported laws and policies that remain the centrality of the family as the primary social unit.
Thus, some aspects of Marx are relevant and some are irrelevant.

Josh Hausman

Josh Hausman
19 Mar. 2008
Ec. 210: Memo #8

I suspect most 21st century economists believe that they have nothing to learn from Marx. I disagree. Marx has much to tell economists. In this memo, I consider what economists can learn from Marx about labor markets, collective action, and the danger of combining normative and positive economics.

1) Neoclassical economists tend to consider labor markets to be fundamentally like other markets. Marx recognizes that this view has serious limitations. Price and quantity capture most of what is important in, say, a wheat market. In a labor market, however, other variables may be nearly equally important. Marx notes, “the work of the proletarians has lost all individual character, and consequently, all charm for the workman” (p. 479). ‘Individual character’ and ‘charm’ are not typical variables in labor market models. Perhaps they ought to be. Tyler Cowen writes: “Being happy at work is one of the most important things in life. Marx saw the importance of this more clearly than did many of the classical economists.”

2) Why was Marx wrong? He appears to firmly believe that a communist revolution would take place in Germany. None did. For economic historians, and perhaps for other economists, asking why Marx was wrong is fruitful. In The Communist Manifesto, Marx spends remarkably little time describing how a communist revolution will take place. In particular, he ignores collective action problems completely. He implicitly assumes that if something is in the interest of the working class as a whole, each individual member of the working class will work for it. Thus Marx can speak of the day in which the proletariat’s “strength grows, and it feels that strength more” as if the proletariat were an individual and not a class made up of individuals with disparate interests (p. 480). Marx thus provides a useful lesson to economists on the importance of remembering collective action problems when discussing society-wide phenomena.

3) I read Marx as confusing what he wants to be true with what is true. He wanted a Communist revolution to take place and this preference was inextricably linked to his view that a Communist revolution would take place. In less dramatic form, 21st century economists also make this mistake. It seems that many Republican economists, for example, let their desire for lower taxes lead them to falsely predict that lower taxes will cause government spending to fall. As Christina and David Romer (2007) show, there is no empirical evidence to support this claim. More generally, economists would do well to take Marx as a cautionary tale: mixing normative claims with positive economics can lead one far astray.

References

Marx, Karl. The Communist Manifesto, in Robert C. Tucker The Marx-Engels Reader.

Romer, Christina and David Romer. 2007. “Do Tax Cuts Starve the Beast: The Effect of Tax Changes on Government Spending”, NBER Working Paper W13548.

Monica Deza

According to the Marx and Engels’ manifesto, the bourgeoisie converted professionals into a wage paid laborer. In a non-communist society, workers sell their labor, which is immediately owned by the bourgeoisie, and they have control over it. In a bourgeois society, the worker’s efforts only accumulate labor for the bourgeois, whereas in a communist society, the worker’s labor enriches the existence of the laborer.
Marx and Engels’ motivation to write this manifesto was that they felt the need to end the exploitation of workers.
When we think of communism, the first thing that comes to mind is that private property is not allowed. According to the communist manifesto, Marx and Engel would not expropriate the artisan or the peasant; however, the bourgeois will be expropriated since them owning properties cause workers’ exploitation, and because Marx thought that the bourgeois kept a higher share of profits, whereas workers kept a smaller share, and he thought that getting rid of bourgeois would be good for the economy.
Communism is a socioeconomic structure that promotes the establishment of a classless, stateless society based on common ownership of the means of production.
I can see many benefits from adopting the communist system. Since there are no social classes, discrimination would be greatly reduced, so would the gender gap.
A common criticism of communism is called the “tragedy of the commons.” Somehow, the ideas of a common good can be applied to natural resources. Since we all own it and we all get unlimited enjoyment out of it, everybody feels a little share of responsibility over it, and we do not take care of the, falsely assuming that someone else will. The same principle can be applied to common assets of any kind. Common property encourages irresponsibility because no one feels directly responsible for it. Another criticism is that people would not have an incentive for technological innovations.
As of today’s economy, Marx and Engel’s communist ideas are relevant to the purpose of taxes. The rich pay higher taxes than the poor, to account somehow for income inequality. Taxes set a limit on the amount of gross income that each person gets to keep depending on their level of income. Another communist principle that is still enforced is the right to education. Our society values education and gives equal right to education to everyone, which was one of the communist principles.

Edson R Severnini

The “Manifesto of Communist Party”, by Marx and Engels, is relevant for the twenty-first economist as a referential guide in the analysis of distinct economic systems. Today, the economic theory has tools to analyze with a good precision the desirability and/or the consequences of abolition of property rights, monopoly of production by the State, centralization of means of communication, heavy progressive income tax, family behavior, abolition of child labor, free basic education, and integration between education and work, for example, proposed in the Manifesto. Furthermore, given the socialist experience of some countries in the world, it is possible to evaluate the outcomes of the adoption of this economic system and verify that even when leaders have good intentions in implementing some policies, those policies can generate serious inefficiencies in the future.

Although Marx and Engels claimed for changes in policies and institutions in order to benefit the whole worker group, several claims have been shown as undesirable by the economic theory from a social point of view. The literature of economic growth, for example, has suggested that social infrastructure (that includes the preservation of property rights) has enormous importance for the growth in income per capita. Further, the central planning is efficient only if there are no costs of coordination, but the economic literature has showed the presence of huge such costs in big societies. The centralization of means of communication can imbalance the political power in a society contributing to the preservation of the status quo even if it is not desirable (and eliminate some cultural manifestations, something that the authors claims that the bourgeois was doing with the proletariats' one at that time). Heavy progressive taxes can distort the incentives for work, reduce worker's effort and cause the decrease of income for the whole society. On the other hand, the family behavior have been modeled as a maximizing utility problem, and some researchers showed rationality at some level on the changes that Marx and Engels predicted. Moreover, the economic theory for human capital has showed the inefficiency of child labor, the necessity of financing the education of “all children”, and the desirability of education at work with the learning-by-doing process.

Besides the analysis of each proposal separately, the economists have been able to evaluate the socialist experience of some countries. Using natural experiments of the division of some countries in a socialist and a capitalist part, such as Germany, Korea and China, some researchers have showed that the adoption of the socialism provoked lower growth income per capita. Maybe those countries did not implemented the economic system exactly prescribed by Marx and Engels, but it seems clear that the political process after the adoption of the socialism lead to inefficient outcomes. This is an example of a situation where even the policies are the result of sincere beliefs by the political leaders that they are the best for the entire society at the time of the implementation, like Marx and Engels believed, such policies can generate bad equilibrium results from a social point of view.

Given the arguments above, I really think the Manifesto is a useful reference to economists in the twenty-first century when they want to compare and evaluate economic premises and outcomes.

Lemin Wu

This is perhaps the tenth time that I have been reading the Manifesto. All the former nine of the reading experiences occurred when I still stick to Marx’s doctrine closely. I regarded the Manifesto as poetic prophecy. However, it’s been three years since my last reading and during the past three years I learnt a lot beyond the limited intellectual circle of Marxism or rather modern Maoism and total converted against Marx’s ideas.

His prediction was wrong because his theory was wrong, which in turn was because his methodology was wrong. This time, I tried my best to find a coherent line of reasoning behind his poetic curse about bourgeois but failed. Surely, it was partly because the article was merely a manifesto rather than voluminous academic writing, but I think the lack of scientific-methodological elements defined in an economic sense was also due to the nature of Marx’s way of studying history, the so-called dialectics. After seeing so many “application” of dialectic ideas all through my Marxist education, I viewed dialectics as nothing but rhetoric. All that was contained in Marx’s narrative of the European history of the change of production relationship was the weak conjecture of the “pattern” of class conflicts, by which Marx was actually taking it for granted that there was no part in the change from slavery to employment that was more fundamental than the identity of the players in the game of “exploitation”.

As for this argument, I would most like to follow Alchian’s idea which was simple and deep. People have to compete, he said. What’s relevant is how they do it. In a world without clearly defined property rights and related enforcement mechanisms, people compete no less, but in a way that involves great transaction cost and somewhat barbarian in nature, say, queue, all kinds of bribery, hierarchy, all the things that dominated before the age of capitalism and still prevailed after. All the bribery, hierarchy stuff was also positive in the sense that they saved the resources from dissipation. The “noble” and brutal hierarchy was, anyway, better than close fighting, which was even more brutal and dissipating. Capitalism is different. I’d rather call it the dominance of price mechanism, or simply, priceism. People compete, no more, by how much they pay. How much they can pay, before the age of dominance of priceism, often depends on the one’s position in the hierarchy. However, when priceism dominates, it is determined by how much others pay them or rather how much service they provided to others. See, the rule of the game is changed. He who serves others well gets served well. This is the essence of capitalism.

Marx seemed not like the idea of going back to pre-capitalism society. I guess he was actually suggesting the possibility of a third choice of the rule of competition or, maybe, he was simply saying that once the proletarians take office, there will be no more competition ever. The latter being stupid, I focus on the first. When the so-called socialism happened in some society, the truth was that, hierarchy returned. The return of the king was inevitable after the fellowship of the ring and the tale of two towers. Any society that has to save itself from death through dissipation of resources has to figure out a way to define who to use what and enforce the definition. With the pricing mechanism deprived, the definition of rights, naturally falls into the alternative category of hierarchy by which people are kept unequal from birth. The membership of party, where you live-city or countryside (if countryside, no immigration to city), whether your parents and grandparents were workers or not, how close you were to the bureaucracy, etc. They are the ways to allocate resources. Is there any way other than the above Dark-Age stuff? Marx perhaps didn’t even think about it. But it’s the key issue, isn’t it?

Is there a third choice? I can think of none only if people compete, which is close to being tautologically true. The only two options are:
A. Get away with the hierarchy, give people equal rights, let Price say who gets what.
B. Turn away from priceism, (have to) define a hierarchy saving a bit efficiency of allocation in a far less efficient way than Priceism does.

P.S. Maybe I was too opinionated to mention a possible third choice.
That, I guess, is
C. Simply die, silently, sometimes without leaving enough documented lessons to teach the successors the golden rule of the fatalism of the exclusive triangle A. B. C.

james zuberi

The Communist Manifesto is a provocative narrative that has had a far reaching impact on economic policies and theory in the 20th century and for that reason alone a 21st century economist should have an understanding of its content – but as a piece of literature I have a hard time seeing relevance to a modern economist.

In the Manifesto, Marx and Engel describe different ideas which either have been or could be studied by economists like hierarchies or in the authors words “manifold gradation of social rank” and the expansion of capitalism to different parts of the world. However, the fact that the Manifesto contains elements which have been studied by economists is a very weak argument for its study by modern economists. Further, basic intuition does allow most of us to realize that there are stratifications in society and gross inequalities both within societies and across societies.

Secondly, a modern economist is not a normative thinker (at least not in academic publications). Economists tend to consider the effects of economic policies which are enacted by governments and do not often study revolutions as a means to solve the inequality in wealth. Instead most economists use theoretical models to lead to conclusions about policy and do not (often) arbitrarily point to one particular policy as the solution. In this way the Manifesto is in contrast to modern economic perspective.

In a conversation with another first year a few weeks ago, I gave my impression about the study of institutions and social infrastructure when I said something to the extent that institutions are not an economic phenomenon, they are a social phenomenon with large economic consequences. Similarly, Stalins and Deng Xiaopings can affect huge economies and drastically change the economic landscape of the world, but I’m not sure that an economist can really speak about leaders who make great impacts or works of literature with strong economic implications with any authority. Maybe the other social sciences can do it better.

Rion

Marx and Engels have no place in modern economics.

As a theory to explain societies, they failed to predict the outcome. Science is characterized by its falsifiability and in this respect their hypothesis must be rejected.

It can be safely said by now that the economic system of communism doesn’t work. Aside from the difficulty to replace the price mechanism with centralized order, Chandler emphasized the lack of organizational learning in the communists’ economies. With the emergence of new capital-intensive industries, the organizational capabilities, such as managerial, marketing, and coordinating abilities, became very important to be efficient. While centrally planned economies are good at accumulating necessary investment through non-market venues, they do not provide the learning opportunities for workers to develop such skills. This, too, provides a good reason why the Marxian economy failed. This failure to predict the consequence comes from the lack of careful observation, motivated by over-zealotry.

The treatment of their statement as a science might be questionable from historians’ perspective, but it is important to asses their work on this ground, especially when they claim their work is scientific.

Even if their work are not valuable for economics, you may argue that their work is important for “economists” in that it provides a different way to see the world, especially the labor market. I am against it, too.

First, the uniqueness of labor market can be attributed to other characteristics of the market, such as information asymmetry or psychological aspect of workers. By these, one can tackle the same problem without additional, redundant assumption that labor market is different, which is definitely a good scientific practice.

Second, they seem to be obsessed with a notion that workers are exploited to the extent that they failed to separate the positive side and normative side. They were right in seeing bourgeois taking much profit from the profit in new capital-intensive industries, but stating it as exploitation is different. This is apparent in their rather naïve belief that revolution will take place in western societies. If such exploitation as they claim were to give rise to revolution, any wide-spread social problem would cause revolution. This kind of confusion is not tolerated in any science and economists should avoid it by any cost.

In sum, I think they are only valuable to learn how communism failed to prevail and to understand philosophy of science (as a bad example), both of which economists should already know very well.

Insook Lee

Even though the great experiment of communism in the real society turned out not to work well, it does not mean that we should ignore which idea originated and sparkled this long movement. At least, why they failed give us some lessons and caveats for the future endeavor. Economics, which has shown remarkable progress among social science, is essentially about the allocation of the resource whether it is physical or not, eventually for the sake of welfare of society as a whole. But after stacks of highly intellectual presentation, what we arrived is where some individual but without ‘individuality’ should get their marginal satisfaction is the same as the market price. Who takes how much? And how the difference in it makes difference ahead?
The struggle between classes, in the context of Marx’s era, bourgeoisie against proletariat, might not be good framework for the analysis of 21st century. But at least, it still ring a bell that in analyzing the growth or development of an economy keeping in mind ‘who’ gets the ‘what’ might shed a light on the unanswered question. If how the mode of production realizes itself in ‘who gets what’ affect economic welfare of society, then it is still relevant to economics, beyond political science.
At the same time, about the role of government, perfect competition without any interruption of so called ‘social planner’ is the issue that Marx’s tackled and gives a warning not to be too utopian to give it all. In economic welfare analysis, first best allocation is usually proceeded by the benevolent social planner as Marx dreamed of and neoclassical economists implicitly regard as government. The historical experience in the application of the idea of Marx tells us that God-like merciful predictor, however, is just unrealistic or too naive. This might assign 21st economist to skeptically look into the black box of ‘government’ which inevitably so influential to welfare unless we are in anarchy.
Moreover, the long journey of communism production showed that the selfishness or greed of individual is a virtual workhorse of economy and that incentive is good carrot to mobilize them. Even though Marx pointed out that bourgeoisies is captured with this greed, fail to apply this view on the other class lead unrealistic conclusion about the development of proletariat. This might give some triumphant feeling that modern economist who did not agree with Marx’s view and have strong belief what is under the economic behavior of human in generic sense. But, at the same time, question on if it is indeed greed that propelled rational people under the invisible hand magic, why communism economy last that long and why pure competition and disappearance of government is not yet imminent required the current economist to pause before uncritically applying the model. Is it enough to say that it was just ‘short run’ phenomena? Then how long is long enough to be ‘long run’?
The words and sentence in the manifest of communist party does not look based on thoroughly consistent logic, sometimes contaminated with tons of emotional reaction, but its intuition about the historical development from feudal to capitalism might still be telling. Considering that in the long run, the society we are in right now will eventually change, even though we do not expect exactly how, some attention to how Marx tried to approach fundamental change of society might gift 21st economist some lessons and fresh air in looking forward.

Gabriel Chodorow-Reich

I don’t know that the Communist Manifesto has many lessons for contemporary economists. I was tempted to write about political economy, and how Marx serves as a strident reminder that good economic analysis should have political economic theoretical underpinnings. But does Marx’s characterization of the rise of the bourgeoisie and the emergence of the proletariat, and his prediction of a final class conflict, survive rigorous scrutiny? Indeed, affinity to this point leads Marx in the Manifesto to reject gradualist policies such as minimum wages and regulation of the length of the workday. Political economy today recognizes the importance of the second best; reading the Manifesto undermines rather than reinforces this position.

I also thought of using Marx as an example of how economists can advance normative claims. The last of the Theses on Feuerbach makes this point more strongly than the Manifesto: “The philosophers have only interpreted the world; the point, however, is to change it” (italics in original). In the Manifesto Marx lists the policies he deems necessary to enact social change, including abolition of land property and inheritance rights, and centralization of communication and transportation networks. But here too the nobility of his project runs into the disaster of its implementation. Correlation does not imply causation, but it is hard to take Marx as evidence in favor of economists intervening more forcefully in policy and normative discussions.

I am left to treat the Manifesto as a cautionary tale. Grand ideas can go wrong, perhaps with downside potential in proportion to their grandeur. Radical change draws radical individuals, so that just as Danton yielded to Robrespierre Stalin followed after Marx. In this sense I take Marx’s charge against economists for trying to improve the conditions of the working class as a compliment – better to preserve the bourgeois order and strive for marginal improvements than to father the political, economic and humanitarian legacy of Marxism.

I did find one passage of the Manifesto quite edifying. In it Marx describes how “modern bourgeois society with its relations of production, a society that has conjured up such gigantic means of production and exchange, is like the sorcerer, who is no longer able to control the powers of the nether world whom he has called up by his spells.” Marx has in mind nineteenth century capitalism, but how well does it also describe current conditions on Wall Street, replete with the notion of an elite financial class that grew rich by inventing ever new financial vehicles without retaining control over the risks they created?

Tijl Vanneste

It is important realizing, when reading the Manifesto that it is, indeed, a manifest that describes a program for the Communist Party to achieve. As such, and considering the turbulent time in which it was published (1848) it seems that its relevance today is reduced to a work of historical value, a useful source in itself to study the past but nothing more. However, Marx and Engels were more than individuals with a radical program. Their ideas stem from historical analysis that is most apparent in the first part (‘Bourgeois and Proletarians’). The basic idea that ‘the history of all hitherto existing society is the history of class struggles’ (p. 3) is a powerful statement, that has contributed to science in an important way. In my opinion, it is also the framework of thought that led Marx to think, through the idea of exploitation by the bourgeoisie and capitalism, about a growing inter-dependence of the world. He started to see the world more and more as one system, within which class antagonisms but also national ones existed, and attention is paid to the link between the necessity of expanding markets and colonialism. It is this line of thinking that has inspired in particular historians, maybe mostly the ones writing about ‘one world-system’ or one ‘world-economy’ and in a time of globalization such as ours, relevance of Marx’ analytical skills seem real enough, although his ideas for action and revolution might be dated and even his reading of historical events might be wrong. The statements that ‘the ruling ideas of each age have ever been the ideas of its ruling classes’ (p. 19) and that, until the proletarian movement of Marx’ time, ‘all previous historical movements were movements of minorities’ (p. 11), new or not new, also seem to have been inspirational in the fields of history and economics, insofar once this is realized, it could lead to a history of peoples that were not in power, leading to fields such as micro-history or the Indian subaltern studies movement, who definitely found inspiration in Marx. In the field of history today, these types of history has a very valid point to make and could be seen as counter-forces to a Europeanized world history. Marx also remains relevant, especially to economists, in pointing out the aggressive, all-compassing and destructive nature of capitalism that always had to reshape itself and continue to expand. I am not an economist, my training in the field remains limited to an introductory course years ago, but in today’s globalised world, where old political antagonisms have disappeared, let’s say in the post-Berlin wall era, ethic questions as well as purely scientific questions regarding free market forces, freedom and the global market seem very relevant and in those debates, it seems that Marx still deserves a voice among many voices. Marx’ idea about the economic factor as a driving force for many things, behavior, the social, the cultural and the political, was maybe not entirely new at the time, and can be said to fit in a tradition of writers on economy in past times (such as Adam Smith) but also in the important movement of nineteenth-century scientists such as Auguste Comte, Friedrich Nietzsche and Charles Darwin as founders of new types of scientific and philosophical analysis, one more iconoclastic than the other. As such, as scientist of structures, his relevance may have been considerable but is perhaps less so today. The idea that the economic is a motor for human life seems too well incorporated.

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