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Suresh Naidu: Capital and Labor: Substitutes or Complements?: Weekend Reading

Suresh Naidu: The Slack Wire: Substitutes or Complements: Marx and Brad and Me: "Since Brad Delong has attributed some thoughts on Marx to me...

...and I have gotten some emails inquiring whether or not I did say them, I thought it would be useful to publicly air what I understand to be the context. Brad has been a mentor and advisor for 10 years now, and is one of the very few economists broad and open enough to know anything about what Marx wrote. I have met very few other people in mainstream economics departments who cared enough to read Marx, let alone enough to assign the Communist Manifesto and Wage Labor and Capital in a mandatory first-year economics Ph.D. course (even I don’t do that).

The context of the long-running conversation has been trying to establish a dialogue between Marx and modern growth theory. Inside the modern production function there is a pretty undifferentiated view of “K” (which leads it into some troubles as bad as any in the labor theory of value). Marx on the other hand distinguishes (at least) machines, technology, and money-qua-productive-input as different from each other conceptually. The fact that these are rolled into an aggregate production function by mainstream growth theory is not Marx’s fault. And so when somebody is trying to translate Marx into modern economics, the slippage between what is “K” and “what Marx meant” can get confusing. I am still thinking about these issues, and won’t pretend to have figured it all out, but let me lay out some preliminary thoughts.

Brad in one sense is correct. I believed and still believe that Marx’s view of capitalist technological change is labor-saving. There is no way to read the chapters on machines and modern manufacturing without thinking that Marx was pretty convinced that technologically advanced machinery would displace labor and lower wages. 

But we have already seen that, with every advance in the use of machinery, the constant component of capital, that part which consists of machinery, raw material, etc., increases, while the variable component, the part laid out in labour-power, decreases. But on the flip side, the increased use of machines can increase the demand for labor. More factories means more labor demand, even if those factories are 90% robot. So the relationship of capital and labor is both of these things: the net substitutability of labor by capital, holding output constant, and the gross complementarity of capital and labor while output changes.

We also know that in no, other system of production is improvement so continuous, and the composition of the capital employed so constantly changing as in the factory system. These changes are, however, continually interrupted by periods of rest, during which there is a mere quantitative extension of the factories on the existing technical basis. During such periods the operatives increase in number.

In terms of wages, Marx I think can be read as saying that that medium-run wages are pinned down by institutions and norms and the reserve army of labor. Long-run wages could be determined by political conflict and changing economic institutions, and short-run wages could be determined by the business cycle and labor-saving technological change. This is a pretty rich theory of wage-setting, and I think focusing on the technological change dimension of it is missing a lot of the full Marx story.

When "capital" is understood as money and financial services enlisted in circuits of production (the M-C-M' increments) or the quantity of investment, I think you can find passages where Marx thinks of them as complements to labor (i.e. they increase labor demand, even if marginal products don’t exist and wages are institutionally set). For example, here is a passage where (a young) Marx talks about capital and labor as complements, and perhaps even thinks of wages at marginal products:

To say that "the worker has an interest in the rapid growth of capital", means only this: that the more speedily the worker augments the wealth of the capitalist, the larger will be the crumbs which fall to him, the greater will be the number of workers than can be called into existence, the more can the mass of slaves dependent upon capital be increased...

In fact, rhetoric aside, this passage is completely consistent with, say, vintage optimal tax theory, which says that the best way to increase workers' crumbs wages in the long run is to not tax capital ever. And I think it is illuminating about the manifold criticisms Marx makes of capitalism. Perhaps Marx thought that even if workers’ standard of living increased under capitalism, it would not undo the exploitative/unfree/ undemocratic institutions inherent in the labor market. Maybe some of those criticisms are empirically wrong or don't resonate with contemporary ethical intuitions. In any case, it is not just any particular analysis of inequality and business cycles, but instead the unrelentingly political and conflict-ridden view of the economy that is what is precious to me in Marx. 

But all this said, I think Brad wrote a good column, even if the question of “Was Marx Right?” is fundamentally silly. The larger point is that Marx’s fertile mind generated many ideas, distributed over a lifetime of thinking and writing exactly as capitalism was transforming itself and the world. The theological endeavor to discern and police "what Marx really meant" is the worst kind of intellectual program. Marx, like Smith and Ricardo and Keynes, is a place to draw on for inspiration and hypotheses, not the last word on anything. So, at the end of the day, I don’t really care if “Marx was right”, and I certainly don’t begrudge others the right to find support for a variety of arguments on the invaluable The howls of outrage from the online guardians of the one true Marx in response to the NYT panel were more irksome than anything written by the panelists. Marxist economics is much larger than Marx, and textual exegesis of the original manuscripts, as opposed to reinventing and redeploying the concepts in new historical and intellectual environments, does it a great disservice. Brad is right to look to Capital  for inspiration to understand our possible robot future, even if Marxists don’t like it. To paraphrase Joan Robinson, the critics have Marx on their screens, not in their bones...