Saturday, June 9, 2018

The Wage[s]-Lump Doctrine -- still dogma after all these years

"The wage-fund doctrine was the quintessential product of what Marx termed vulgar political economy; a dogma concealing real economic relations, on the one hand, and justifying them, on the other. It was a transparent effort to disarm the working-class movement, and an attempt (largely successful) to rally public opinion behind bourgeois resistance to the demands of working people for a better life. It was the principal ideological weapon in the arsenal of capital in its disputes with labor over the level of wages." -- Kenneth Lapides, Marx's Wage Theory in Historical Perspective
The lump-of-labor fallacy CLAIM is the wage-fund doctrine in disguise. The fallacy claim's conclusions about the ultimate futility of workers' demands are indistinguishable from the doctrine's conclusions.. Only the premise from which those conclusions are deduced has been altered. Instead of asserting a certain quantity of work to be done, the fallacy claim attributes that fixed assumption to a designated scapegoat: workers, unions, populists. The claimants' own assumptions are left undefined, as an amorphous "in reality."

That undefined "reality" is a given amount of capital for employing workers that can only be increased or decreased as a result, respectively, of a decrease or increase in the cost of labor. That is to say, a wage-fund lump!

The wage-fund doctrine was debunked in 1826 by Sir Edward West. It was "recanted" in 1869 by John Stuart Mill. The lump-of-labor fallacy CLAIM was shown to rely on the discredited fixed wage-fund assumption by Charles Beardsley in 1893. So why do economists (& CEOs) still cling to this dogma?

Because it conceals real economic relations, on the one hand, and justifies them, on the other.

Because it disarms working-class movements and rallies public opinion behind bourgeois resistance to the demands of working people for a better life.

Because it is the principal ideological weapon in the arsenal of capital in its disputes with labor over the the hours of work.

16 comments:

AXEC / E.K-H said...

Employment theory as an example of proto-scientific soapbubbling

Comment on Sandwichman on ‘The Wage[s]-Lump Doctrine ― still dogma after all these years’

“In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

Fact is that economists do NOT have the true theory. This holds in particular for employment theory, and the lump of labor theory is a case in point. The lethal methodological blunder of employment theory consists in the Fallacy of Composition, i.e. the illegitimate transfer of truths that hold for one firm/market onto the economy as a whole. What the representative micro-brained economist never understood is that what is true for the molehill is not true for the universe.

Methodological conclusion: the traditional microfoundations approach is as false as one can get and has to be fully replaced by the macrofoundations approach.

The axiomatically correct macroeconomic Law of Employment/Unemployment#1 is reproduced on Wikimedia.#2

From this objective-structural-systemic relationship follows inter alia:
(i) An increase in the expenditure ratio rhoE leads to higher employment L or lower unemployment u (the Greek letter rho stands for ratio).
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase in the factor cost ratio rhoF=W/PR leads to higher employment.

The complete Employment Law is a bit longer and contains, in addition, the public sector and the foreign trade sector.

Item (i) and (ii) cover the familiar arguments about how aggregate demand affects employment. Item (iii) embodies the macroeconomic price mechanism. It works such that overall employment L INCREASES if the average wage rate W INCREASES relative to average price P and productivity R and vice versa.

From this follows the rules of effective employment policy. In the unemployment situation (with rhoE and I given), the scientifically enlightened Legitimate Sovereign sets the parameters as follows: price increase zero and wage increase greater than productivity increase. This increases employment for a while. Afterward: price increase zero and wage increase equal to productivity increase. This stabilizes the economy at full employment.

Mentally retarded economists do after 200+ years still not know how the price- and profit mechanism works. The one thing that they have brought to perfection in all this time is the trick of blowing bigger and bigger communicative soap bubbles.#4 Not to forget, economists reward themselves with the Nobel Prize for Proto-Scientific Soapbubbling a.k.a. Economic Sciences.

Egmont Kakarot-Handtke

#1 NAIRU, wage-led growth, and Samuelson’s Dyscalculia
http://axecorg.blogspot.de/2015/01/nairu-wage-led-growth-and-samuelsons.html

#2 Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2130421

#3 Wikimedia
https://commons.wikimedia.org/wiki/File:AXEC36.png

#4 Economics: communication without content
http://axecorg.blogspot.com/2018/02/economics-communication-without-content.html

Sandwichman said...

That's the ticket! Alls we needs is a Scientifically Enlightened Legitimate Sovereign and we're cookin'! Maybe an unemployed Walrasian Auctioneer would be available for the job.

AXEC / E.K-H said...

Sandwichman

The Walrasian Auctioneer is not unemployed but dead. But Sandwichman is still soapbubbling.

I wonder if you ever realize that the employment theory is false for 200+ years and that the only worthwhile issue in economics is how to abandon soapbubbling and to start with serious scientific work.

For a beginning, you could try to empirically refute the axiomatically correct Law of Employment/Unemployment.

Egmont Kakarot-Handtke

Sandwichman said...

"For a beginning, you could try to empirically refute the axiomatically correct Law of Employment/Unemployment."

I just did. As you admitted, the Walrasian Auctioneer is dead. You can't resurrect such hogwash with a name change. "Scientifically enlightened Legitimate Sovereign," my foot.

rosserjb@jmu.edu said...

I do not know if it is still true, but for a long time supposedly the London gold auction had a system that resembled that of the Walrasian auctioneer. However, he may be dead by now as well.

Sandwichman said...

If there is a vacancy, perhaps Egmont's Legit Sovereign should apply.

AXEC / E.K-H said...

Sandwichman, Barkley Rosser

Your dialogue about the Walrasian Auctioneer is a wonderful demonstration of soapbubbling.

The Walrasian Auctioneer is generally known as one of the most idiotic constructions in the history of cargo cult science. You are the last persons who remember him.

The empirical refutation of the axiomatically correct Law of Employment/Unemployment means the application of econometrics which in turn means: “the quantitative analysis of actual economic phenomena based on the concurrent development of theory and observation, related by appropriate methods of inference.” (Wikipedia)

The Employment Law defines the set screws for policymakers#1 who are institutionalized differently in different national monetary economies and here lumped together under the heading of Legitimate Sovereign.

Stop soapbubbling, try to empirically refute the Employment Law. You are in for a big surprise.

Egmont Kakarot-Handtke

#1 The set screws of overall and individual employment
https://axecorg.blogspot.com/2018/05/the-set-screws-of-overall-and.html

Sandwichman said...

Please, not the set screws, Egmont! Anything but the set screws.

rosserjb@jmu.edu said...

Wow, set screws indeed.

Eggie, we may be the last to remember him, but we are talking about actual empirical facts, namely that the London gold auction was run for quite a long time, possibly still is, by an auctioneer whose behavior reportedly resembled that of the Walrasian auctioneer. I got that from econophysics quant fin Doyne Farmer, who I have reason to believe knows.

This most certainly does not mean that either S-man or I think the WA is a useful way to think about general equilibrium or has any significance more generally in the economy, either theoretically or actually. Simply noting that such a figure, or someone resembling him, has existed in at least one market.

But then, I have noticed and pointed out repeatedly that you have a problem dealing with actual real world facts, given that for you true science is all about theory and nothing else, especially your own tautological theory, with or without set screws.

AXEC / E.K-H said...

Sandwichman, Barkley Rosser

The London gold market is micro/partial, the auctioneer refers to general equilibrium and overall simultaneous market coordination. The auctioneer has been a construct of breathtaking idiocy and this means a lot in view of the hereditary delirium of the representative economist who is caught in the endless lump-of-labor loop since 200+ years.

It should be clear even to an admirer of the hallucinating Doyne Farmer that the Walrasian auctioneer never had any resemblance with anything real.

Why do Sandwichman and you not simply forget all this crap and quit economics and soapbubble amicably about real-world facts like cow flatulence, or the assassination of JFK, or the death of Yeshua bin Yusuf?

Egmont Kakarot-Handtke

rosserjb@jmu.edu said...

Yes, Eggie, I already pointed out what you so obstreperously pronounce, that the London gold market is not a general equilibrium. Nevertheless, it may be mini-version of it in that the trade for all the different futures prices for gold may be set simultaneously, and thus it would resemble a GE a bit more, if not exactly. Beyond that, Eggie, we agree with you that it is not a very useful concept. Your ranting at us over that point is just plain stupid. We agree with you on this. Take yes for an answer once, you effing moron.

AXEC / E.K-H said...

Sandwichman, Barkley Rosser

Stop soapbubbling about the auctioneer and cow flatulence and simply try to empirically refute the axiomatically correct Employment Law. It is never too late to do serious scientific work.

Egmont Kakarot-Handtke

rosserjb@jmu.edu said...

Eggie,

Since your "law" is tautological, it cannot be tested empirically. It is true by definition, thus both irrefutable while also totally vacuous and worthless.

AXEC / E.K-H said...

Barkley Rosser

Of course, soapbubblers cannot test the Employment Law. But since it consists exclusively of measurable variables, every econometrician who has tested the Phillips Curve has already a good part of the data for testing the macroeconomic Employment Law.#1

Looking forward to the grand showdown.

Egmont Kakarot-Handtke

#1 Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2130421

rosserjb@jmu.edu said...

I just reread your supposed "Employment Law." Has there ever been an example of a nation with zero inflation, wages rising more rapidly than productivity, and rising employment, where then after reaching full employment wages rose at the rate of productivity increase while inflation remained zero> I cannot think of any. Going to be pretty hard to test your argument then.

Sorry, but no showdown coming, not even a miniscule one, much less a "grand" one.

AXEC / E.K-H said...

Barkley Rosser

You say: “I just reread your supposed ‘Employment Law’.”

Fine, but obviously you still do not understand how things work. There are TWO uses of the equation.

(i) For testing, one simply feeds the historical data in and looks how the Law fits. Needless to say that inflation has not been zero in the past but if the Law is true it fits perfectly with the historically given rates of inflation/deflation and employment and all the other variables.

(ii) For achieving his employment goal, the policymaker uses the equation as a tool which tells him how to set the independent variables on the right-hand side while the target value of employment is entered at the left-hand side.

Testing the Employment Law is in principle not different from testing the Phillips Curve. The beauty of the test is that the Employment Law (= structural Phillips Curve) is confirmed and the silly behavioral Phillips Curve is refuted.

Testing can be done and will be done ― not by soapbubblers, though, that much has always been clear but by scientists. In the meantime, you can tell me more about your fields of expertise ― cow flatulence and proto-scientific methodology.

Egmont Kakarot-Handtke