A sort article on the 2006 (non-)Nobel prize for economists going to Edmund Phelps basically repeating what socialists had argued as regards the role of unemployment in capitalism since at least Karl Marx<\/p>\n\n\n\n\n\n\n\n
Unsurprisingly, the Economist <\/em>was cock-a-hoop over the giving of the (non-)Nobel prize for economics to Edmund Phelps (\u201cA natural choice: Edmund Phelps earns the economics profession\u2019s highest accolade\u201d<\/em>, The Economist<\/em><\/strong>, Oct 12th<\/sup> 2006). The reasons why become clear.<\/p>\n\n\n\n According to the magazine, \u201cPhelps won his laurels in part for kicking the feet from under his intellectual forerunners\u201d<\/em> by presenting a neo-classical explanation for the breakdown of the so-called \u201cPhillips curve\u201d which presented a statistical trade-off between inflation and unemployment (\u201cunemployment was low in Britain when wage inflation was high, and high when inflation was low\u201d<\/em>). The problem was that economists \u201cwere quick \u2013 too quick \u2013 to conclude that policymakers therefore faced a grand, macroeconomic trade-off.\u201d<\/em> The magazine presents it as follows:<\/p>\n\n\n\n \u201cIn such a tight labour market, companies appease workers by offering higher wages. They then pass on the cost in the form of dearer prices, cheating workers of a higher real wage. Thus policymakers can engineer lower unemployment only through deception.\u201d<\/em><\/p>\n<\/blockquote>\n\n\n\n Phelps innovation was to argue that \u201d[e]ventually workers will cotton on, demanding still higher wages to offset the rising cost of living. They can be duped for as long as inflation stays one step ahead of their rising expectations of what it will be.\u201d<\/em> This meant that the \u201cstable trade-off depicted by the Phillips curve is thus a dangerous mirage\u201d<\/em> which broken in the 1970s with the rise of stagflation (high unemployment and high inflation). Phelps, reports the Economist, argued that there was a \u201cnatural\u201d rate of unemployment, where \u201cworkers\u2019 expectations are fulfilled, prices turn out as anticipated, and they no longer sell their labour under false pretences.\u201d<\/em> This \u201cequilibrium does not, sadly, imply full employment\u201d<\/em> and so capitalism required \u201cleaving some workers mouldering on the shelf. Given economists\u2019 almost theological commitment to the notion that markets clear, the presence of unemployment in the world requires a theodicy to explain it.\u201d<\/em> The religious metaphor does seem appropriate as most economists (and the Economist<\/em>) do treat the market like a god (a theodicy is a specific branch of theology and philosophy that attempts to reconcile the existence of evil in the world with the assumption of a benevolent God).<\/p>\n\n\n\n And, as with all gods, sacrifices are required and Phelps\u2019 theory is the means by which this is achieved. As the Economist <\/em>notes: \u201cin much of his work he contends that unemployment is necessary to cow workers, ensuring their loyalty to the company and their diligence on the job, at a wage the company can afford to pay\u201d<\/em> (i.e., one which would ensure a profit). Unsurprisingly, attempts to lower the \u201cnatural rate\u201d have all involved using the state to break the economic power of working class people (attacking unions, increasing interest rates to increase unemployment in order to temporarily \u201ccow\u201d<\/em> workers and so on). All so that profits can be keep high in the face of the rising wages caused by the natural actions of the market!<\/p>\n\n\n\n Yet Phelps\u2019 conclusions are hardly new. Anarchists and other socialists have been arguing that capitalism has no tendency to full employment since the 1840s either in theory or in practice. They have also noted how periods of full employment bolstered workers\u2019 power and harmed profits. It is the fundamental disciplinary mechanism of the system (\u201ca whip in [the bosses\u2019] hands, constantly held over you, so you will slave hard for him and \u2018behave\u2019 yourself,\u201d<\/em> to use Berkman\u2019s memorable phrase). It is, in other words, \u201cinherent in the wage system\u201d<\/em> and \u201cthe fundamental condition of successful capitalist production.\u201d<\/em> While it is \u201cdangerous and degrading\u201d<\/em> to the worker, it is \u201cvery advantageous to the boss\u201d<\/em> and so capitalism \u201ccan\u2019t exist without it.\u201d<\/em> (Alexander Berkman, What is Anarchism?<\/em><\/strong>, p. 26)<\/p>\n\n\n\n These kinds of arguments used to be dismissed as nonsense by neo-classical economists (the main branch of the religion). So it is ironic Phelps has got a (non-)Nobel prize for restating, in neo-classical jargon, the model of the labour market expounded in, say, Chapter 25 of the first volume of Marx\u2019s Capital<\/em><\/strong>:<\/p>\n\n\n\n \u201cIf [capital\u2019s] accumulation, on the one hand, increases the demand for labour, it increases on the other the supply of labourers by the \u2018setting free\u2019 of them, whilst at the same time the pressure of the unemployed compels those that are employed to furnish more labour, and therefore makes the supply of labour, to a certain extent, independent of the supply of labourers. The action of the law of supply and demand of labour on this basis completes the despotism of capital. As soon, therefore, as the labourers learn the secret, how it comes to pass that in the same measure as they work more, as they produce more wealth for others … as soon as, by Trades\u2019 Unions, etc., they try to organise a regular co-operation between employed and unemployed in order to destroy or to weaken the ruinous effects of this natural law of capitalistic production on their class, so soon capital and its sycophant, Political Economy, cry out at the infringement of the \u2018eternal\u2019 and so to say \u2018sacred\u2019 law of supply and demand. Every combination of employed and unemployed disturbs the \u2018harmonious\u2019 action of this law. But, on the other hand, as soon as … adverse circumstances prevent the creation of an industrial reserve army and, with it, the absolute dependence of the working-class upon the capitalist class, capital … rebels against the \u2018sacred\u2019 law of supply and demand, and tries to check its inconvenient action by forcible means and State interference.\u201d<\/em><\/p>\n<\/blockquote>\n\n\n\n That the Economist <\/em>and Phelps are simply echoing, and confirming, Marx is obvious. Phelps\u2019 theory has informed \u201cState interference\u201d in the economy for the last 30 odd years. The use of Phelps\u2019 theory by capital in the class war is equally obvious \u2014 as was so blatantly stated by the Economist.<\/p>\n\n\n\n <\/p>\n","protected":false},"excerpt":{"rendered":" A sort article on the 2006 (non-)Nobel prize for economists going to Edmund Phelps basically repeating what socialists had argued as regards the role of unemployment in capitalism since at least Karl Marx<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[32,36],"tags":[],"class_list":["post-180","post","type-post","status-publish","format-standard","hentry","category-economics","category-karl-marx"],"_links":{"self":[{"href":"https:\/\/anarchistfaq.org\/anarcho\/wp-json\/wp\/v2\/posts\/180","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/anarchistfaq.org\/anarcho\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/anarchistfaq.org\/anarcho\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/anarchistfaq.org\/anarcho\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/anarchistfaq.org\/anarcho\/wp-json\/wp\/v2\/comments?post=180"}],"version-history":[{"count":1,"href":"https:\/\/anarchistfaq.org\/anarcho\/wp-json\/wp\/v2\/posts\/180\/revisions"}],"predecessor-version":[{"id":181,"href":"https:\/\/anarchistfaq.org\/anarcho\/wp-json\/wp\/v2\/posts\/180\/revisions\/181"}],"wp:attachment":[{"href":"https:\/\/anarchistfaq.org\/anarcho\/wp-json\/wp\/v2\/media?parent=180"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/anarchistfaq.org\/anarcho\/wp-json\/wp\/v2\/categories?post=180"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/anarchistfaq.org\/anarcho\/wp-json\/wp\/v2\/tags?post=180"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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