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Problems of capitalism: �Dehumanization

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Dehumanization

  • Capitalisms follow their own dynamics that do not obey the control of individuals.
  • In capitalist systems, resources are allocated among units, or companies, coordinated through market exchanges. To survive in the market, companies must maximize profit. And maximizing profit is not the same as meeting human needs.
  • The most serious problem with “pure” capitalisms is that, due to their very dynamics, the allocation they generate is dehumanized.
  • However, in some countries the allocation has been greatly modified by institutions such as labor laws or the welfare state, which have managed to partially humanize the allocation.

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Reminder: Market Results

  • Traditional economics assumes that the world is the result of the interaction of subjects who exchange and produce to maximize their subjective utility.
    • (Imagine further that the subjects somehow manage to reach a situation in which none can improve without worsening another, and claim that such a state is somehow "optimal".)
  • However, if some of these subjects or agents maximize profit by using techniques similar to others, they will tend to obtain a proportionally higher output in the long run than by maximizing any other objective.
  • Therefore, in the long run, profit maximizers will tend to survive , displacing those who pursue any other objective. Even starting from a world of utility maximizers , this will tend to evolve into a world of profit maximizers .
  • We will call PM1 the world of utility maximizers , and PM2 the world of profit maximizers .
    • Von Neumann economic model , or VN, an economy with maximum proportional growth.)
  • But PM2 (and VN) is an ahuman allocation ; it doesn't take human objectives into consideration, only profit. Profit maximization determines a non-anthropocentric economy, where human beings participate on an equal footing with other resources, where the subordination of human beings, their objectives, and their needs to production for production's sake prevails.
  • Therefore, the unrestricted market leads to the subordination of human beings to the maximization of profit.

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From PM1 to PM2

  • PM1 is a world where subjects produce and exchange, each maximizing a particular objective.
  • PM2 is a world where subjects produce and exchange, maximizing the benefit for each of them.
    • PM2 is a particular case of PM1, where each subject's objectives are their own benefits.
  • But in PM1, when production techniques are similar, subjects with some specific goals will tend to have a greater proportion of long-term resources available.
    • The objective that allows for a greater proportion of resources to be available in the long term is precisely the maximization of profit.
  • Consequently, in PM1, subjects who maximize profit will tend to displace those who maximize any other objective.
    • The strength of the trend will depend on the environment in which it develops. In a world where profit maximization is widespread, it will be very difficult to allocate resources to another purpose; in a world where profit maximization is barely present, it will be more feasible.
  • Therefore, a PM1 system with diverse objectives will tend to evolve into a system where the objectives of the subjects are the maximization of their benefits, towards a PM2 system.
    • There are other ways to get from PM1 to PM2; for example, if the goal is to maximize a long-term objective (see highway theorems). Increasing the investment rate, while reducing consumption, also brings us closer to PM2.

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Optional. From PM1 to PM2

  • In PM1, the law of capitalist profitability does not necessarily apply:
    • Marginal utility plus marginal revenue equals marginal cost.
    • The price of something is the marginal utility plus the marginal revenue it will yield.
  • PM1 takes into consideration the subjects' objectives, which may be different from the benefit .
  • This is the world studied by the theory of general equilibrium in the second half of the 20th century ( Debreu) Theory of Value , Arrow, McKenzie)

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  • In PM2, the law of capitalist profitability applies:
    • Marginal revenue equals marginal cost.
    • The price of something is the marginal revenue it will generate.
  • PM2 only takes the benefits into consideration.
  • This is the world studied by the reproduction school ( von Neumann model, Leontief and input-output analysis, Sraffa ).

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PM1

PM2

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Modeling PM1. �General Equilibrium Theory (GET)

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Optional. Arrow, Debreu . �The equations of general equilibrium (II)

Prices as coordinators of the actions of the agents economic .

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Kenneth J. Arrow (1921-2017)

Gérard Debreu (1921-2004)

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Optional. General balance, Debreu version

  • Goods are items or services, fully specified physically, temporally and spatially.
    • It is supposed to be assigned from here to a future time, in a series of time steps and geographical regions.
    • Each item has a price, which depends on the time and the region in which it is located.
    • There are certain quantities of resources available.
  • There are two types of economic agents:
    • Producers who maximize their profit.
    • Consumers who maximize their utility, under their wealth constraint.
  • Given certain prices, each producer maximizes their profits, which are distributed among the consumer-shareholders.
  • The allocation is supposed to be established in the present, but with a "telescopic" forecast of the entire future.
  • Can prices be found that make the actions of consumers and producers compatible with total resources (at all time steps and in all geographical regions)?

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  • Equilibrium is a state in which no consumer can improve their preferences without increasing their spending and no producer can increase their profits.
  • The optimum is a state where it is not possible to satisfy the preferences of any consumer without satisfying the preferences of another.
  • It is shown that, under certain assumptions:
    • If a feasible state for certain prices is an equilibrium, that state is an optimum.
    • If a feasible state is an optimum, there are prices at which the economy is in equilibrium.
  • The equilibrium existence theorem demonstrates that (under certain conditions) there exist prices that make the actions of consumers and producers compatible with total resources. A feasible state is an optimum if and only if there are prices to which all agents adapt.
  • These two essential theorems of the theory of value thus explain the role of prices in an economy. The theory of value explains the prices of all goods and the actions of consumers and producers in a privately owned economy.

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Optional. General balance, Debreu version

Theory of Value : https://archive.org/details/theoryofvalueaxi0000debr

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Modeling PM2. Reproduction

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Optional. Theoretical models

  • We can model PM2 with several systems:
    • Leontief input-output matrices and Sraffa equations .
      • The Leontief and Sraffa equations are snapshots of stationary economies.
    • von Neumann 's economic model (VN).
      • VN is a snapshot of an economy that grows as much as possible;
      • The Leontief and Sraffa equations are a special case of VN.
    • Maximum long-term profit (MBLP).
      • MBLP is a film about an economy that can move in any way, but that (under certain conditions) ends up growing exponentially as a VN;
      • VN is a special case of MBLP.
  • Classical economists also understood capitalism as a system that tended towards profit, PM2, not towards other objectives such as meeting needs, PM1.

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The classics. Political economy as the “dismal science”

  • They saw capitalism as a mechanism with implacable laws imposed upon humanity. Humanity did not control its own destiny.
    • Capitalism functioned for profitability.
    • It was destined to a stationary state, due to the limitations of the land, the mines, etc.
    • The social classes (capitalists, landowners, workers) were in opposition and struggle with each other; the interests of each class were opposed to those of the others.
    • Economic progress, while it was possible, did not improve the situation of workers or capitalists, but it did improve the situation of landowners through increased rents. Landowners were seen almost as a parasitic class.
    • Workers could not expect to improve their living conditions in the long term. Wages tended to be the bare minimum for survival, following the Malthusian mechanism.
  • For classical economists, the economy was a machine that essentially treated human beings as just another commodity.

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Dispensable. Leontief (1906-1999), �input-output analysis

System of price equations

Total cost = Price

a 11 p 1 + a 21 p 2 + … = p 1 The total cost of process 1 is equal to the price of commodity 1 �a 12 p 1 + a 22 p 2 + … = p 2 The total cost of process 2 is equal to the price of commodity 2 �… … … … �a n1 p 1 + a n2 p 2 + … = p n The total cost of process n is equal to the price of commodity n

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System of output equations

Total consumption = Output

a 11 x 1 + a 12 x 2 + … = x 1 The total consumption of good 1 is equal to the output of process 1 �a 21 x 1 + x 22 x 2 + … = x 2 The total consumption of commodity 2 is equal to the output of process 2 �… … … … �a n1 x 1 + a n2 x 2 + … = x n The total consumption of commodity n is equal to the output of process n

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Expendable. Piero Sraffa (1898-1983)

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Optional. John von Neumann (1903-1957)

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Expendable. Maximum long-term benefit (MBLP)

  • We will propose the linear program

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  • We seek the intensities X with which the processes operate over time that, fulfilling the fact that the quantities consumed do not exceed those produced since the previous instant, D + XF ≥ 0 , and that the intensities are non-negative, X ≥ 0 , maximize the final benefit XC .
  • If the evolution were reduced to 6 time steps, the matrices would be

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  • A is the input matrix and B is the output matrix, Q is the row vector of initial quantities used in the simulation, and R is the column vector of final weights used to determine the profit.

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Comparing both perspectives

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Comparing both approaches

  • General equilibrium studies PM1. The reproduction school studies PM2.
  • PM2 is a special case of PM1. The reproduction school can be understood as a special case of general equilibrium.
  • But real-world capitalisms are closer to a PM2, which maximizes profit, than to a PM1, which aims to maximize subjective utility. While not pure capitalism, real-world capitalisms are closer to profit maximization than to maximizing the subjective utility of individuals.

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Optional. General balance vs. Reproduction

  • MBLP (long-run profit maximization) as a special case of TEG (general equilibrium theory)
    • MBLP is a particular case of TEG, when consumer consumption takes place in the very long term.
    • The trajectory that TEG follows from the beginning until close to that very long term is MBLP.
    • Therefore, comparing MBLP with simulations can also be understood as a way of comparing TEG, in the time period in which they coincide.
  • MBLP as an alternative theory to TEG
    • But MBLP can also be interpreted as an alternative theory to TEG, in the sense that MBLP does not need that final consumption of consumers, it does not need the existence of consumers in order to be posed and resolved.
    • MBLP is production for production's sake, as is VN ( Von Neumann model), and can be understood as the description of an economy oriented in that direction, and not oriented towards final consumption as it would be if seen as a particular case of TEG.
      • With MBLP, as with VN, we don't even have to assume that we are dealing with a market economy, but it can also be applied to non-market systems, such as the study of population dynamics.
      • In MBLP and VN the value may or may not be an exchange rate (such as the reproductive values of demography, which are obtained with VN, and which make sense without exchanges).
    • Furthermore, in VN and MBLP, value is an objective consideration, which does not depend on any human subjectivity, but on the production processes (and the quantities available in MBLP).
  • In short:
    • TEG describes a market economy, ultimately oriented towards consumption.
    • MBLP describes a system (which may or may not be commercial) in which production is governed by production itself.
    • MBLP is the trajectory of TEG when consumption is carried out in the very long term, up to close to that very long term.

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Recapitulation

  • The “evolutionary” transition from a world of utility maximizers (neoclassical or general equilibrium view) to one of profit maximizers (reproduction view) allows us to understand not only the limitations of general equilibrium, but also the structural root of the main problem of capitalism.
  • MP1: world of utility maximizers (neoclassical, general equilibrium)
    • Individuals are consumers; producers are subordinate to consumers.
    • Individuals have preferences, desires, and a sense of well-being. The system is designed to satisfy needs.
    • Coordination occurs through market prices.
    • The goal is competitive general equilibrium: Pareto efficiency .
    • This world is formally harmonious: if everyone maximizes their utility, and prices adjust, the system is efficient (in the Pareto sense).
  • MP2: world of profit maximizers (playback)
    • The agents are not abstract consumers, but companies or subjects that maximize profit.
    • There is no longer coordination towards the common good, but competition for accumulation.
    • The logic of the system is to reproduce, grow, and become profitable.
    • Here, the goal is no longer human benefit; the objective is for the system itself to perpetuate itself.
    • If the agents were perfectly efficient, the system would resemble MBLP.
  • Conclusion
    • What begins as a world of subjective utility ends as a world of production for production's sake.
      • In the neoclassical world, it is assumed that there are human ends (pleasure, well-being).
      • In the world of MBLP, what is useful is what is profitable, not what meets human needs.
    • Even if the system worked well (like MBLP), it would still be inhuman .
    • The problem with “pure” capitalism is not that it fails to achieve its goals, but that its goals lack human meaning.

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Other forms of dehumanization. �Psychology of competition

  • In classical antiquity, certain activities were considered degrading, debasing those who performed them by their very nature, such as trade or prostitution.
  • The need to maximize profit for the people who run a company (of any size), or the need to earn a living in a capitalist environment, leads to a drive towards competition and extreme selfishness that debases human beings, distancing them from their own humanity.
    • (As a curious and largely comical anecdote, in our game, when it became necessary to implement a redistribution in the first semester, there was strong resistance to it, even from people who support redistributive measures in real-world politics. The game had many positive aspects as a learning tool, but it also had a certain negative impact by stimulating competition and rivalry among the students.)
  • This degradation caused by competition has been pointed out by many authors. We will mention only one:
    • Albert Einstein, Why Socialism ? , https://monthlyreview.org/2009/05/01/why-socialism/ , �Why Socialism?, https://dialnet.unirioja.es/descarga/articulo/233264.pdf �“Now I have reached the point where I can briefly indicate what, for me, constitutes the essence of the crisis of our time. It concerns the relationship of the individual to society. The individual is more aware than ever of his dependence on society. But he does not see this dependence as a positive fact, as an organic bond, as a protective force, but rather as something that threatens his natural rights, or even his economic existence. Moreover, his position in society is such that his selfish impulses are constantly being accentuated, while his social impulses, which are by nature weaker, are progressively deteriorating. All human beings, whatever their position in society, are suffering this process of deterioration. Those who are aware of their own selfishness feel insecure, alone, and deprived of the naive, simple, and uncomplicated enjoyment of life.” �“Unlimited competition leads […] to that amputation of the social conscience of individuals that I mentioned earlier. �I consider this mutilation of individuals the worst evil of capitalism. Our entire educational system suffers from this evil. An exaggerated competitive attitude is instilled in the student, who is trained to worship covetous success as preparation for his future career.” �[In a socialist] “The education of the individual, in addition to promoting his own natural abilities, would seek to develop in him a sense of responsibility for his fellow men instead of the glorification of power and success that occurs in our present society.”
  • In capitalist systems, too much importance is given to the economy at the expense of other aspects of society; too much importance is given to the stomach over the brain. A life spent chasing economic success doesn't seem like the best way to live.

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Food for thought. �The productivist Robinson Crusoe

  • To illustrate the distance between the allocation of capitalism and that of socialism (understood as an economy that maximizes attention to needs, not a “real socialism”), let us imagine a hypothetical Robinson Crusoe who on his island maximizes profit, the final production weighted at given prices, not the attention to his needs.
  • This productivist Robinson Crusoe would work as much as possible and consume as little as possible, because this is how he would obtain the greatest benefits, the highest final output. The accounting and values he would use, and the allocation he would obtain with them, would be those of the capitalists.
  • However, the Robinson Crusoe of Defoe's novel does not behave this way; he saves on his labor and maximizes attention to his needs. Robinson Crusoe lives a one-person socialism, not a one-person capitalism; he does not behave like a productivist Robinson Crusoe.
  • If we observed a castaway on his island behaving in a productive manner, we would tend to think that there is some force compelling him to do so.
  • However, humanity on this planet behaves largely like a productivist Robinson Crusoe, not like Robinson Crusoe himself. Capitalism maximizes profit, not the fulfillment of human needs.
  • Why does humanity live in a capitalist system, in an economy that fundamentally functions to maximize profit and not to meet its needs? What force compels it to do so?

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Pure capitalisms and �partially humanized capitalisms

  • In real capitalist systems, a whole series of institutions have emerged that partially humanize the allocation, such as welfare states, wages above the minimum living wage, legislation, etc.
  • From the experience in these modified capitalisms, it may seem that the allocation is indeed humanized, at least partially, and that it is indeed oriented towards addressing human needs.
  • But in “pure” capitalisms, where such institutions do not exist, profit is the only criterion, and allocation is completely inhumane .
  • A real capitalism closer to the "pure" ones is the England of the early 19th century, which was so well studied by classical economists.
  • If those institutions that manage to partially humanize the allocation were to disappear, then we would return to completely dehumanized capitalism, similar to early 19th-century England, to classical capitalism.

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