Marx Theory of Surplus Value Debunked with George Reisman

I called George Reisman up for a private economics lesson! You can listen in now. Episode 158 of the Scottish Liberty Podcast with Antony Sammeroff.

[Swift-mrzi]

Based, need to do another one on the falling rate of profit
This is a very unique critique of Marx's exploitation theory, very cool.

[stlouisix]

I'm Scottish, pro-market, pro-Austrian and pro-capitalist. Scotland's the home 9f some of the greatest modern economists💪💯🏴󠁧󠁢󠁳󠁣󠁴󠁿

[restonthewind]

If I buy shares of Tesla stock after selling a house inherited from my father, describing me as the "primary producer" of a Tesla seems a stretch. Reisman conflates my role with the role of the entrepreneur when it suits him, and the word "capitalist" describes both roles in common parlance, but the roles are quite different. Also, Adam Smith never says anything about the role of "capitalists" because he doesn't use the words "capitalism" and "capitalist" in this sense at all. The modern usage of these words, in both leftist and right-libertarian senses, doesn't appear until the nineteenth century, and the leftist sense appears earlier.

But I have a bigger problem with Reisman's analysis. He simply ignores monopoly rents or takes them for granted. Even anarcho-capitalists concede the value of forcibly monopolizing productive means. In an an-cap system, "private security agencies" capture this value. An-caps expect the cost to be lower without a state monopolizing the role, but they don't expect the cost to be zero. When a state monopolizes the role, capitalists are constituents of the state deciding, with other constituents, how to divide the spoils.

Expecting competition to drive monopoly rents to zero is akin to the classical labor theory of value, attributable to Smith and Ricardo, not to Marx, but that's another story. Juxtaposing a state monopolizing property rights enforcement with "stateless" rights enforcement is incoherent. If all "private security agencies" enforce the same system of rights, a state exists. That's also another story.

If "surplus value" is the value to proprietors of forcibly monopolizing productive means to an extent unduly limiting competition for wage labor, the Marxist critique of "capitalism" is identical to the libertarian critique of "crony capitalism". The entrepreneur's role in organizing resources to produce goods for sale is a "designer's" role, and the entrepreneur earns the wages of this labor, but capitalists also earn monopoly rents. Reisman never effectively refutes this argument. Marx may conflate an entrepreneur's profit with a monopoly rent, but that's a separate issue. Reisman does the same thing.

Both the wages of entrepreneurship and monopoly rent may appear as profit on the bottom line of an accounting statement. Monopoly rent may also appear as a cost (taxes paid to the state for example), but assuming that taxes exhaust monopoly rent is question-begging. The wages of entrepreneurial design may also appear as a cost.

Riesman's Columbus analogy undermines his point. Columbus didn't finance his expeditions, and he didn't claim discoveries in his name. Ferdinand financed the expeditions, and Columbus claimed the discoveries in Ferdinand's name. If anyone is analogous to a capitalist, Ferdinand is the capitalist in this story. Columbus is more like a CEO, a mere paid agent, but Riesman seems to assume that Ferdinand is a parasite. He sounds like Marx.

Widows and orphans own most shares of Ford Motor Company? Does Riesman have some evidence for this assertion? He seems to be a slick apologist for the capitalist state.

Reisman soon undermines his point again. A venture capitalist, he says, earns dividends or interest (or capital gains) by laboring, by laboriously researching different entrepreneurial enterprises and selecting which enterprise in which to invest. O.K. So the venture capitalist is a researcher earning a wage. A Marxist state could employ people performing this labor.

Marx advocates a central bank, in the Communist Manifesto, for precisely this purpose, and we now have central banks, in nominally "capitalist" economies, buying corporate bonds. In Japan, the central bank even buys corporate shares, but that's not real capitalism. It's only what everyone calls "capitalism" in common parlance.

Of course, China's central bank acts similarly, and China is "communist" in common parlance except when advocates of "capitalism", rationalizing China's remarkable economic growth in recent decades, suggest that China's economy is "really capitalist".

The end of the podcast summarizes the benefits of organizing capital through a market and entitling property holders to employ means producing goods for sale. That's all well and good, but it's not a defense of entitling the property holders themselves exclusively to consume the goods or sales revenue, as opposed to reinvesting profits for example. Reisman describes reinvestment as a benefit and simply ignores the other options, building a castle for the capitalist for example.

An unlimited entitlement of capitalists to consume profits is only one possibility in a market economy. A system of titles could require capitalists to reinvest, in their own enterprises or other enterprises. A progressive consumption tax is one formulation. A capitalist subject to a progressive consumption tax pays a tax on earnings at a progressive rate, say 10% on the first $100k, 20% on the next $100k, and so on, all the way up to 100% on earnings above $1m.

The capitalist does not pay the tax on profits reinvested, i.e. he has a tax-deferred investment account (like an IRA) with unlimited contributions. These accounts are precedented and not merely theoretical. The authority collecting this tax revenue could lend money to other enterprises or simply remove the money from circulation, i.e. the authority could be a central bank rather than a statutory consumer.

Does such a progressive consumption tax exploit capitalists?

All capitalism is crony capitalism, 'cause real capitalism has never been tried ... Capitalism is an unknown ideal, according to Ayn Rand, but her followers (and others) call this ideal "real capitalism" rather than "ideal capitalism". In this respect, they're a lot like communists.