Thursday, June 18, 2015

Let's talk about... abolishing the wages system

Does that phrase, abolition of the wages system, bring to mind "abolition of the law of gravity" or "proposals for the speedy extinction of evil and misery"? This is unfortunate and misleading because unlike gravity, evil and misery, the wages system is a relatively recent innovation. That is not to say that wages were unheard of before they became systematic. Only that they weren't the principal means of subsistence for a large proportion of the population until recent centuries.

The telegraphic version of my argument against the wages system is that it is based on a false accounting analogy, just as national income accounts are based on a false accounting analogy.

The analog is the business enterprise with its system of double-entry bookkeeping. For the profit-seeking firm, monetary receipts and expenditures transit a boundary that corresponds, by definition, with the legal entity of the firm. For the individual employee and for the nation, there is no such obvious correspondence between exchange transactions and welfare. In both cases, the accounting analogy ignores the contribution to public and private welfare of non-market work and environmental amenities and effectively double counts remedial costs -- such as medical expenses and commuting costs -- by what Hueting calls "asymmetric entering": counting expenditures to restore a loss as income with no offsetting entry for the loss.

It turns out that these accounting anomalies are advantageous for some parties in the transactions. That is the "beauty" of capitalist production -- beautiful from the perspective of the capitalist. As Joan Martinez-Alier paraphrases K.W. Kapp, negative social and environmental externalities "are not market failures, they are cost-shifting successes." There is nothing inevitable, universal or eternal in the use of an inappropriate accounting analogy. It is not gravity.


Thornton Hall said...

I think one way of bringing the conventional wisdom around to this way of thinking is re-imagining the invention of agriculture as the crappy solution humanity was forced to accept after exterminating all the tasty protein known lovingly as "megafauna". A diet of grain instantly took 30 years off our lives, but at least there was enough food to go around. Wage slavery is just the most recent incarnation of this desperate measure.

One strength of this approach is that it should be intuitively obvious to American "conservatives".

Among the many insights afforded by the Internet is the discovery that rural America has basically turned prepping for Armageddon into the national hobby. These folks demonstrate--in discussion boards debating the design of DIY knife sheaths, blogs exploring off-grid energy, and Pinterest pages devoted to clever ways to hide a shotgun--that being a hunter gather is a ton of fun! Meanwhile, not even in Brooklyn is anyone trying to recreate the joy of walking behind a pair of shit spewing oxen in order to enjoy the most "authentic" way of dying from anthrax.

Civilization sucks ass and, left to their own devices, everybody knows it.

Peter Dorman said...

S-man, I'm curious about why you go from accounting to welfare in paragraph 3. Double-entry accounting is correct in both firms and countries as accounting entities, but welfare for a country and even equity value for a firm are separate. GDP can go up and welfare down, as we both know. And accounting profit can go up, but the firm's "fundamental" value can go down if it is accompanied by changes in risk, for instance. (There's an important literature on the incentive-distortion effects of paying bonuses to financial sector people based on non-risk-adjusted returns.)

Why not go the simple route? Leave purely monetary accounting systems in place to do their job, but have other types of reporting and analysis to deal with the aspects of business or life that accounting leaves out?

Sandwichman said...


I have no objection to leaving "purely monetary accounting systems in place to do their job." What I object to and have been objecting to is the spillover from "their job" to being represented as a beacon of hope and progress. As you acknowledge, GDP is neither a measure nor an indicator of welfare. It is in the latter role, as presumed indicator, that economists tout GDP growth. This is like saying speed is an indicator of how soon you will get someplace, regardless of direction.

What you say about divergence between profit and business fundamentals is true, of course. A thorough accounting statement should note such risk factors but there is always room for fudging the numbers, creative accounting and sheer inattention. The expression "small print" doesn't refer exclusively to font size.

A country is only an accounting entity by analogy (which is to say it is not one, exactly). More precisely, a country is a collection of accounting entities and fictional accounting entities. Every transaction appears, as it were, twice. Whether this happens the first time as tragedy and the second time as farce depends on the conventions adopted by the national income accountants, which in turn are constrained by matters of expediency and feasibility. Some of the conventions are clearly wrong, as Kuznets pointed out, but defensible in that to be "correct" would require a impossibly large number of subjective judgments each of which could be contestable on various grounds.