Representative appearances

• Steve Keen: Marxism, Capitalism, and Economics | Lex Fridman Podcast #303

  The exchange value of a commodity in a capitalist economy will be its cost of production the use value is what you do with it okay once you purchased it but labor is a commodity in this case when you when a worker is being hired for a job yes so the workers's labor has an exchange value and a use value as well yeah use value use value of a worker's labor exchange value let me think about that so that so the hours they put in is the use value interesting so what uh what does the worker want in this what are the motivations are we not considering the worker in this context as a human being with want you come and that's actually that's that's the next layer what what marks give was just like a a layered cake starting from a foundation of saying straight commodity exchange and then saying well you're treating a work as a commodity now a commodity is something you know like this okay that has so far as I'm awar no soul okay yeah not going to be complaining if I turn it upside down it'll fall over but you so that's there's no soul there as a human is both a commodity and a non-commodity yeah and therefore there'll be a tension in the person I'm being treated as a commodity here I'm being paid just enough to stay alive you know I've got a wife and kids back at home yeah so that that is another layer of of of thinking in marks and and on that layer he then says well workers will therefore demand more than their value so that's when you get like political you get political and you get money coming above that and so on but the basic idea starts from the Commodities the fundamental unity and capitalism the important commodity in Marx's thinking was the worker because that's where he said profit came from yeah okay and then that explains the motivation of the capitalist and that ultimately leads to the labor theory of value and Marx's arguments about how capitalism will come to an end okay okay okay so first of all what is the labor Theory of value and actually before that what is value is that um this is like me asking what's happiness uh is there something interesting to say while trying to Define value you vary and this is a huge problem in economics is arguments of what does value mean and the neoclassicals came down as that it's subjective it's value is whatever you get out of it it's your personal evaluation of something your personal feelings so they've got that very subjective idea of value whereas the marxists and being inheritors of the classical school talk in terms of objective value so the value is the number of hours it takes to make something or the effort the value is value is the effort that goes into making something in the classical school well that's just like one measure of objective where do you fall huh where do you fall I subjective versus subjective versus objective Spectrum I think have you have to have the capacity to to move between one and the other in a structured way model of value yeah well my my base model is the objective okay but above that as soon as you start talking you did about the worker for example um then you get involved in subjectivity because a worker will be angry and justifiably so about being treated as a commodity because I'm I'm not I'm not a commodity I'm a human being okay and that's where Mark saw political organization coming from from so and that's subjective now and then when you get to money itself Marx actually said well what's the what's the value of money now if you use an objective theory of value you would say well the cost of money the value of money is its cost of production what's the cost of producing a dollar it's about 2 cents so he said it can't be the value of the money cannot be its cost of production or the must value I think if you remember the phrase properly what must is value here is it must mean the effectively uncertain expectations or subjective valuation uncertain expectation or subjective valuation okay but he's okay with that he was okay with that because he could move between different levels because he had a structured Foundation of this dialectical Vision foreground background tension uh commodity having use value exchange value and a gap between the two when you're talking about machines when you're buying stuff for production and then at the next level he could look at workers worker organization and say that's driven by being treated as a a commodity when you're a non-commodity so the basic uh labor theory of value that is ascribed to KL Marx is that value at the base layer fundamentally comes from the labor you put into something yeah and you say well there's some deep truth there except he misses one fundamental point which is machines can also bring value to the world he was saying they don't he was he was uh the only thing that matters is human labor not not labor how do you measure what's the role of the uh whatever value machines bring to the world this is this is another intriguing history because Marx when he first started had what you can call a a an exclusivist explanation for why lab created value that and that was to say that uh there's the labor is the only commodity with both what you call commodity and commodity power so you have Labor and labor power labor is the and I get fuzzy about this I haven't read it for something like 30 years but labor has both commodity and commodity power the commodity is you can buy labor which is the means of subsistence labor power is the capacity to work inside a factory there's a difference between the two therefore that difference will give rise to Surplus and there's no other commodity that has this essence of commodity and commodity power so that was his exclusivist argument in the middle of the 1857 he was um visited by a guy called Otto brow in his home in Chelsea and Otto returned to Marx a copy of of hegel's phenomenal I think it's called phenomenology of right I haven't read it but that's the book and Marx was then at that stage reading through all the classical theorist again and he was suddenly he read Hegel again and if you know hundes Thompson mhm okay course okay who doesn't know H Thompson somebody who hasn't had enough drugs obviously yeah but hes Thompson he comes to you in a dream after you take your first or whatever if you know your drugs well enough you can tell okay he's stoned okay he's on cocaine you know well Mark suddenly his writing style in the middle of a book called The Granda completely changed he switched from weed to cocaine from Ricardo to Hegel okay and what in Ricardo he had this exclusivist argument about Labor and suddenly Hegel is back talking in terms of dialectics not actually using the word but foreground and background and tension and then he that's where this use value exchange value attention thing came from is rereading Hegel 13 years after he stopped reading philosophy because made in 44 he was reading just the economists so you're saying Karl Marx is human after all he's human he could be in I would love to have a beer with Carl for one for Carl he's Carl to you m he's Mr Marks to Me Maybe Call to me I'm afraid after all these years yeah yeah you've you've had quite a journey together so that's where after Hegel his interpretation of the dialect comes in the form of background foreground and background and then on page 267 of the penguin edition of the grandr literally your memory one and a half pages long footnote it's pretty hard to forget cuz what when when I did this when I first read marks way way back when I was uh how old was I 20 okay I tried to explain my explanation of Marx's use value exchange value stuff to my colleagues in this philosophy discussion room at Sydney University during a beautiful summer that we are inside concrete Sandstone walls discussing marks and I went to say look the use value exchange value argument can be applied to a machine what's the exchange value of a machine it's cost of manufacturing it what's its use value its capacity to produce goods for sale no relation between the two there will be a Gap a machine can be a source of profit mhm now I said that and I got laughed at I quite literally laughed at so when I went back to University 13 years later to do my Master's Degree uh I chose to read through and find in marks where he first came across this Insight so I made a my first Master cees failed by the way and justifiably so okay I was learning I I didn't know the level of of um academic discourse necessary I had an advisor who didn't understand what I was writing he got me to write for his um new cannan audience and it was a mess and it got failed so I got rid of him did it get failed because like why do you think it wasn't a good thesis it was I didn't know the level it was written for audience my my supervisor thought that I should be writing for MH and it was a mess and so I met another guy Jeff Jeff Fishburn uh as a lecturer at my in New South Wales University and Jeff was open-minded he was not a a conventional neoc classical thinker and I realized I was i'throw out the half that Bill had got me to do focused just on marks and so I decided to read marks in chronological sequence from his very first works of Economics which are called the economic and philosophical manuscripts of 1844 and he wrote those in a Garrett in Paris after he'd been expelled from Prussia and so he decided to read uh the having been an expert on philosophy and regarded as the Towering intellect of of hegelian philosophy in in Prussia but driven out because he was a radical he he ended up uh writing a uh running a newspaper or being writing for a newspaper and he was reporting about the eviction of of peasants from the forests taking away their feudal rights and so this is where his passion for economics and Humanity came from and he was a poet as well he wrote Love poetry to Jenny Von West West Halen that's his first published Works were pretty much in poetry he was a rouseabout he was you know a wild character we'd probably F fight like crazy I imagine if we met over the beers I'm I'm slightly even though I can be um I can get involved in an argument like no nobody's business no really no really but I'm a bit more peaceful of Personality oh you think Marx is feistier than you he was feisty but uh feisty with he could be arrogant like I'm i' I've got an intellectual arrogance I've come to accept that but there's like a fundamental humility to you saying Marx is like has ego that's hard bit too big ego yeah I'm guessing I mean I'm never going to meet him well the beard says ego to me the beard is Hu yeah that's that's that's huge okay so this is so you went chronologically the development of the human being through his works yeah and I was trying to find the point at which he discovered this use value exchange value idea and it occurs in a footnote on page 267 to 268 of the penguin edition of the griesa which his notes he was taking literally not meant for publication literally sitting at a stall inside the British museum I think reading all the classical authors in chronological sequence and then somebody throws Hegel at him and suddenly he's talking in hegelian terms and he suddenly says is not uh because this whole value issues what is value is it exchange value use value how do they relate to each other that's what he was thinking about he said is not uh use value which was left out of the classical school a fundamental aspect of the commodity is there not a tension between the use value and exchange value just so we're clear in that context use value is kind of the subjective thing exchange value is the objective thing and Marx was found a way to integrate the two but he was focused on uh labor being the only thing that can generate both the US value and the exchange value but no if you look at the classical school they focus on Exchange value objective look at the neoc classical they faces upon use value subjective well they call it utility so Marx coming from the ricardian tradition basically dismissed the role of utility and then when he reads Hegel he's suddenly starting to think in terms of unities and exchange value and use value is the unity of the commodity and he thinks well I Can't Ignore use value so rather than leaving it out completely which is what Ricardo and Smith does I've got to somehow bring it in and this healan Insight occurs to him and you it's it's remarkable to I really recommend taking a look at the book even just a look at that particular page because what it would have been shown as a footnote but it would have been him saying oh wow and he asteris asteris is not U use value a fundamental aspect of the unity of a commodity so in the notes you see the discovery of an idea in the human mind the integration of an idea and he actually writes does this have significance in economics question mark and then he probably went home that night and like that that that idea changed him yeah he changed him completely okay and from that point on his writing was completely different but he still had this idea from the ricardian days of saying that labor is the only source of value using an exclusive argument to say there's something unique about Labor that explains why it's a source of value but suddenly this Insight occurs to him and he thinks I can get a positive derivation I can use use value and exchange value and the fact they not related to each other as a dialectical tension to explain Surplus value and that's what he does so he goes from a negative explanation of where value comes from to a positive explanation on that page of the gresa and he then triumphantly uses it to explain why labor is a source of value you buy it for its exchange value you use its use value they're unrelated the use value will be bigger that's where profit comes from then he does exactly the same thing for Machinery about 30 pages on mhm he says uh it also has to be contemplated which was not done before this is wrot nice to himself by the way that's it's written really in a colloquial style that the use value of a machine significantly greater than its exchange value he actually left out the word is it's use this is OB be a ter it'll be a translation into English of the German I'm sure I don't know I haven't I haven't seen the original notes I'd love to see them but uh he says he lives out the word is it also has to be contemplated that the exch the use value significantly greater than its exchange value I.E that the contribution of the machine to production exceeds its depreciation and that was an Insight which undermined his explanation for revolution okay can you say that again the uh the cost of production exceeds is depreciation is that can you Ling on that um well what marks argued and you read this in capital and I read this in capital when I first saw the contradiction in his own thought he said that no matter how useful a machine is uh whether it has uh took 100 hours to make or cost 150 it cannot under any circumstances add more to production than 150 which in his old exclusivist logic he could justify by and which in his mod his his post 1857 argument is bullshit Can you steal man his case can we go to the mind of Marx and thinking if a machine costs 100 bucks it can't be ever more bring more value than 100 bucks but that contradicts his previous logic because what he said what he said is uh youd have a commodi is the essential unity in capitalism capitalism focuses upon the exchange value that pushes the use value into the background and there's a tension between the two what that means is the exchange value of a commodity sets its price the use value is independent he called them incommensurable he literally would used the word incommensurability between exchange value and a use value whereas neoc classicals make them commensurable so you're saying exchange value and use value in Inc commensurable and that normally means that exchange value is objective like the number of hours it takes to make something use value subject of how comfortable the chair is the fact you can sit in a chair uh so that's incommensurability but when you apply it in production The Exchange value of something is objective it's how many hours it takes to make a machine or how many hours it takes to make the means of subsistance for a worker the use value is also objective you're making commodities for sale and the worker does 6 hours six hours of work will make the the the uh means of subsistence for the worker but the worker will work a 12h hour day and the 6 hours becomes a gap now that's incommensurability between use value and exchange value of labor but when you look at what he said about no matter how long it takes to make a machine or how many pounds it costs he's saying they're identical and that's contradicting his own logic well what's what's the use value of a machine fact that it can produce uh goods for sale exactly the same as the worker now what I in my modern re interpretation of marks which brings in my work on energy I see both labor and Machinery as a means to harness energy and produce useful work and they can both do that in fact they they do it together it's a collective Enterprise okay so and we'll go to that so there's no there's no fundamental difference from an exchange value and use value perspective between a human and a machine and therefore they're using the same logic they can both be a source of surplus yeah which is what marks contradicted because his explanation for where socialism would come from is that only profit comes from profit comes only from labor over time will add more Machinery than labor that will mean a falling rate of profit and therefore a tendency towards socialism and what he did in that Insight in 1857 is contradict his own idea about what would lead to socialism and he couldn't cope with it okay what's the difference between marxian economics and Marxist political ideology the gap between the two the overlap the differences what the the real the real Foundation of Marx's political philosophy was the economic argument that there would be a tendency for the rate of profit to fall and that tendency for the rate of profit of fall would lead to capitalists battening down on workers harder paying them less than the subsistence uh a Revolt by workers against this and then you would get socialism on the other side so his he what he called the tendency for the Rader Prophet to fall played a critical role in his explanation for why socialism would have to come about he was saying it would have to come about or is it a good thing for it to come about um should come about he had a should but he was trying to say it must so you if you look at Marx in the history of radical thought he was preceded by what were called utopian socialists say even the Cadbury's company came out of utopian socialist and they had an idea about a perfect Society in the future where people were properly rewarded were treated as human beings rather than cogs in a machine and all this sort of stuff and they said socialism should come about because it's it treats humans better than capitalism does Mark said I can prove that socialism must come about so he preferred he had a utopian vision of a future Society but he thought he could prove that it had to come about and the the proof relied critically upon tendency for the rate of profit to fall and that relied upon labor being the only source of profit what what was his utopian view so this this idea from each according to his ability to each according to his needs yeah is that the utopian I think it's utopian in in the context of our modern world it it it says that you you rather than being rewarded like Jeff bazos gets enormous Fortune uh you get what you need not what you want necessarily all all needs is fulfilled it it was it was a vision of Utopia where he could be a fisherman in the morning um a poet in the afternoon and a chef at night okay this paraphrasing one of his phrases so he did have a utopian vision of a future society and he did think human creativity would be much much greater under socialism than it was under capitalism he was wrong uh so let's explore in different ways where he was wrong you're saying there's a fundamental flaw in the logic but also if it can link if it can explore the high level philosophical concepts of socialism too like the dreams of a Utopia yeah uh so what uh first of all what is socialism that's another loaded term what it is socialism particularly in America is a very loaded term and what Americans call socialist is um u a large amount of provision of services by the state which is Common Place in Europe it's still moderately common place in my own home country of Australia uh and and that Americans will call you know public education socialist it's a total parody of the word uh strictly speaking what socialism meant is the public ownership of the means of production no private ownership of the means of production what is the means of production What factories factories so all the goods that are produced in factories no the means of producing the goods is owned by a centralized entity yeah centrally planned this is what what actually was done under God's plan under the Soviets uh and even with the collective Collective Farms as well you no longer owned your own the state owned your owned the land you worked on the land and this was supposed to be a Utopia right now it didn't turn out to be one and we'll talk about maybe your ideas of why it didn't turn out to be one uh so the the fascist did same so is fascism also fascism so-called national socialism it's also a kind of socialism so yeah but I there was no it wasn't public own it there was public Direction so the state would tell factories what to do with there still private profit and a large part of why the Nazis succeeded was the extent to which they managed to co-opt Major manufacturers in Germany uh so it's you know Direction versus ownership it's a dictatorial I mean that's a very particular impementation so you have you have to consider the full details of the implementation but it's basically dictator guided yeah if you want to if you want to take owned if you want to take a a proper Vision then you have to say it's the ownership of the means of production by the state yeah okay versus the ownership by private that rules out the Nazi period they use the word that again they're bastardizing as much as Americans do in the opposite direction well what do ownership exact l mean it's became incredibly complicated and this is um the and this is actually the best work on this is done by a recently deceased Hungarian Economist called Janos corai and corai tried to explain why socialism failed okay because why did socialism fail in your view in his view in giannis's view in your view I think jannis is 100% correct and it's it's a brilliant piece of work so I'm going to be really paraphrasing his View and he imagined a ideal socialist society and there wasn't a Stalin there weren't purges and you lded up to all the ideals that Marx had for socialism so he said in but you do it in a in a context of a economy which is incredibly primitive Russia okay because if you look at Marx's own vision of the Revolution it was going to happen in England okay the advanced economies would be first to go through the revolution the Socialist the the Primitive economies would have to go through a capitalist transition and this is the difference when the menix and and the bolik so the menik and hman Minsky came out of the menik family the menik believed you had to go through a capitalist phase Russia had to go through a capitalist period before it becom socialist the Bolsheviks believe they could get there in one go okay by bypass the capitalist phase du the development under uh socialism rather than under capitalism and this is what Yana Yannis was actually analyzing you start from A Primitive you uh feudal economy very little industrialization and you want to jump to a in advanced industrial society from that foundation so he said what you uh have then for is a whole range of Industries all of which need as much resources as you can get for them okay so you want to develop agriculture uh mining industry every little division of it they all have legitimate demands on the resources of the country and the state that means that all your resources are fully employed and they're probably overemployed okay so you have a resource constraint in that Society the easiest way to cope with a resource constraint is to produce last year's commodity not to innovate not to make change so what they will give you is as you start to add you know you invest so you now have a beginnings of a steel industry beginnings of a car industry and so on you start investing but you continue producing the same product you made last year and I have a perfect personal example of that which I'll throw in now if you like pretty heavy conversation I my first major girlfriend uh had a brother who wanted to get a motorbike but he couldn't afford a Honda or a Kawasaki at the time they cost about $3,000 for a 650cc Japanese motorbike he found he could buy a CAC mhm for $650 $1 per CC so I was there when per C this is in this is in Subban Sylvania Waters in in Sydney so this crate arrives with the CAC motorbike inside it so we take it apart it's then got all these wooden palings we have to pull off the wooden palings to open it up then there's oil saked rag over this thing which is tied on a on a wooden base yeah we take the oil soak rag off and we stare in all its glory in a not in 42 BMW yeah okay it was exactly the same as Steve McQueen and Great Escape so the Russians for 30 years were making the same bloody motorbike it had a bicycle seat yeah okay and this is what that's how they cope theyve just made the same damn machine every year they said so that's that's the outcome you you actually want the best possible world you're trying to build as fast as possible you're paying workers as high wages as you possibly can and that leads to a world where you don't innovate but he said capitalism on the other hand pure capitalist economy you're trying to pay workers as little as possible you have competitive Industries you're trying to take demand away from your Rivals you have Kawasaki versus Honda versus you know um BMW etc etc the way you get demand away from your competitors is by innovating so what you will get is cycles and Booms and slumps but you will innovate and change over time so what you found with this huge gap between socialist volume production with no innovation and capitalism with innovation so that was the the fundamental failing that jonos corai saw so why did why did socialism not innovate because if you go back to this famous historical incident with krushev in the United Nations bangs takes off his shoe and bangs the death says we will bury you he literally meant we're going to bury you in Commodities yeah we're going to produce more output than you are and he was wrong because fundamentally in the long term to bury somebody in commodity production you have to innovate yeah and like there's also there's another um remarkable Soviet engineer who was given the job of interpreting Marx's ideas of industrial sectors so you had the uh commodity sphere the industry sphere sector one sector 2 sector 3 uh sector one producing consumer goods sector 2 producing capital goods sector 3 producing luxury goods for capitalists and so he had a three sector model of the economy and he was talking about the Dynamics between them and what Feldman did was reinterpret this as an engineer would reinterpret it which was brilliant work um so what he said was uh you you need to produce the means of production if you want to grow quickly you focus on producing the means of production rather than Commodities so you don't make cars you make car factories okay you make a few cars but most of the effort goes into expanding how many factories you have and what he did was do a mathematical model where you'd start off with very low levels of consumer good output but then you would just go exponential okay now I took a look at that back when I was doing my Master's Degree training in mathematics I took Feldman's equations and then looked at what was actually driving it was he was imagining correctly a huge pool of unemployed labor if you go back to the earli stages of Soviet industrialization back in 1917 post the second world post the first world war you had all these unemployed workers you had all these peasants you could take off the land and put into factories so you had a huge supply of workers what you had to do was build the factories see building the factories but at a certain point you exhaust the supply of un lowly employed or unemployed labor and so rather than having this this exponential takeoff you hit a ceiling and then you can only grow as fast as the population because you're not innovating okay so that's what actually hit the S Soviet system and it's why they never buried the Western consumer goods and instead why Eastern consumers looked in Envy of the goods being purchased by their Western people and said if that's exploitation we want exploitation so okay there's a lot of interesting stuff to ask here which is so Marx's vision for the Socialist Utopia is you have to go through capitalism the menix were true to Marx's original idea right so is there a case to be made that in the long Arc of human history on like human civilization on Earth that we're going to live out Marx's vision for Utopia which is like will we run into a wall with capitalism I think we are running into a wall with capitalism in fact I think we've already gone through the wall and we haven't yet realized we smashed our skulls okay okay but on the other side we're bleeding and everything like that uh is does Marx have any insights on what the other of Capal what is beyond I think that beautiful phrase of from each according to his ability to each according to his needs describes what we we should end up with and I think that's actually if I think about you know you know I'm a Elon Musk fan that's what I think is partially going to be the nature of society if we build one that functions on Mars because and I've actually seen interview with his the Italian Who's involved in designing what the future Colony will look like he was actually asked this question can there be enormous inequality in Martian civilization the guy said absolutely not because the resources again resource constraint applies uh you simply can't give somebody a underground bunker 100 times a size of somebody else's 100 underground bunker there's a the the scarcity of resources imp imposes a need for uh for for equality overall is that always that's interesting I mean this scarcity or resource wait but I feel like that's the contradiction I thought you thinking classical about scarcity yeah I'm I'm barely thinking at all it's uh uh so wait I I thought scarcity the best way to build on top of scarcity is a capitalist type of machine well now this is this is where again our vision of what scarcity is is wrong because and Ricardo said this actually better than Marx cuz Ricardo said there are some products uh whose value is determined entirely by their scarcity yeah paintings rare wines etc etc said they are things you cannot reproduce in a factory so the essence of capitalism is what you can make in a factory and therefore for these unique objects these rare objects Picasso painting um uh you know a beautiful bottle of wine etc etc then the utility it can't be reproduced uced easily so its price will be determined by subjective valuation you said what we're talking about in capitalism is the stuff you can make on mass okay and that that that is the true focus of a capitalist economy and that is not about scarcity that is about the only scarcity applies when you don't have the resources to make them anymore or you can't use the energy involved because you'll damage the biosphere too much which we've already done okay but fundamentally the scarcity the neoclassical have B us think about and austrians think about as well is is non-reproducible but the essence of capitalism is the commodity the back scratcher the two buck back scratch that anybody can you know the cheapest chips to make and that's why it can make