Knowledge And Decisions

The most elaborate vision of this sort is the Marxian theory of “surplus value” — or rather, his definition of surplus value as the difference between the wages of the working class and total output.¹⁴⁰ Like so many emotionally powerful visions, the Marxian vision is not a testable hypothesis but an axiomatic construction. Output per unit of labor is simply called “labor’s output,” a practice common far beyond the circle of Marxists. Obviously output can be divided by any input, just as any numerator can be divided by any denominator. Instead of output per man-hour we can arbitrarily divide automobiles by ounces of hand lotion. The mere fact that one number is upstairs in a fraction and the other number downstairs does not establish any causal relationship between the two things. The implied connection between automobiles and hand lotions is one we would see through immediately. But once we begin with two things which are plausibly connected, we can add the appearance of proof or precision to that plausibility by making fractions out of them. Businessmen often ask for tax reductions on grounds that they need X number of dollars of investment per job, so that increasing employment will result from the tax cut. That investment and employment are connected seems reasonable and plausible in general, but proof or precision by fractions is spurious. Quite aside from the possibility of distributing a business tax cut as dividends or higher executive salaries, even if it all goes into investment, this investment can just as easily go into displacing existing employees with machinery as into hiring new employees. It all depends on the relative prices, the state of the market for the output, and technological developments. None of these prospective variables are captured by retrospective data on total investment divided by total employees.

The Marxian argument is the same game played with a different deck of cards. Output per unit of labor becomes labor’s output by definition — indeed by a whole system of subsidiary definitions based on the same arbitrary postulate.¹⁴¹ The same doctrine expressed as a testable hypothesis would collapse like a house of cards. If labor is the sole — or even main — source of value, then in those economies where there is more labor input and less nonlabor input, output per capita and therefore real income would be higher. The opposite is blatant. In the most desperately poor countries, people work longer and harder for subsistence than in more elaborate and prosperous economies where most people never touch physical goods during the production process. Indeed, it is only in the latter countries that subsistence is sufficiently easy to achieve that it is taken for granted, and that there is time and money to spend on books on the “exploitation” or “alienation” of labor.

Attempts to salvage the exploitation theory sometimes use an international framework to claim that prosperous “capitalist” nations are guilty of “robbery of the rest of the world” through “imperialism.”¹⁴² Sometimes this is based on nothing more than the verbal arbitrariness of referring to a prosperous country’s consumption of its own output as its disproportionate consumption of “the world’s” output or “the world’s” resources. This is a particularly misleading procedure as regards the United States, whose total international economic transactions are an insignificant fraction of its domestic economic activity. Moreover, American international activity is disproportionately concentrated in other industrial nations rather than the Third World which is supposedly the source of American prosperity. The United States has more invested in Canada than in all of Latin America, or in Asia and Africa put together. American investments in Western Europe are even higher than in Canada.¹⁴³ Even the data in Lenin’s classic, Imperialism, shows industrialized nations investing their money in each others’ economies more than in any underdeveloped areas,¹⁴⁴ even though the words in the text claim that capitalism has escaped its economic self-destruction only by exporting capital to noncapitalist nations. When all else fails, believers in this vision point to specific activities by capitalist nations that have behaved in ways which are regarded as morally wrong. Whatever the merits of their arguments in particular cases, the abuse of power is too universal an historical phenomenon to be made a defining characteristic of capitalism. It seems especially inappropriate as part of an argument for alternative systems with more concentration of power.

SUMMARY AND IMPLICATIONS