Marx for me (and hopefully for others too)
Branko Milanovic
Yesterday I had a conversation about my work, about how and why I started studying inequality more than 30 years ago, what was my motivation, how it was to work on income inequality in an officially classless (and non-democratic) society, did the World Bank care about inequality etc. The interviewer and I thus came to some methodological issues and to the inescapable influence of Marx on my work. I want to present it more systematically in this post.
The most important of Marx's influences on people working in social sciences is, I think, his economic interpretation of history. This has become so much part of the mainstream that we do no longer associate it with Marx very much. And surely, he was not the only one or even the first to have defined it. But he applied it most consistently and most creatively.
Even when we believe that such an interpretation of history is common-place today, this still is not entirely so. Take the current dispute about the reasons that brought Trump to power. Some (mostly those who believe that everything that went on previously was fine) blame a sudden outburst of xenophobia, hatred, and misogyny. Others (like myself) see that outburst as having been caused by long economic stagnation of middle class incomes, and rising insecurity (of jobs, health care expenses, inability to pay for children's education). So the latter group tends to place economic factors first and to explain how they led to racism and the rest. There is a big difference between the two approaches—not only in their diagnosis of the causes but more importantly in their view of what needs to be done.
The second Marx's insight which I think is absolutely indispensable in the work on income and wealth inequality is to see that economic forces that influence historical developments do so through "large groups of people who differ in their position in the process of production", namely through social classes. The classes can be defined by the difference in the access to the means of production as Marx insisted but not only by that. Going back to my work in socialist economies, there was a very influential left-wing critique of socialist systems which held that social classes in that system were formed on the basis of differential access to state power. Bureaucracy can indeed be seen as a social class. And not only under socialism, but also in pre-capitalist formations where the role of the state as an "extractor of the surplus value" was important, from the ancient Egypt to the medieval Russia. Many African countries today can be usefully analyzed using that particular lens. In my forthcoming "Capitalism, Alone" I use the same approach with respect to the countries of political capitalism, notably China.
But to underline: class analysis is absolutely crucial for all students of inequality precisely because inequality before it becomes an individual phenomenon ("my income is low") is a social phenomenon that affects large swathes of people ("my income is low because women are discriminated", or because African Americans are discriminated, or poor people cannot access good education etc.). To give a couple of examples of what I have in mind here: Piketty's work especially in "Top incomes in France" and Rodriguez Weber's book on Chilean income distribution over the long-term ("Desarrollo y desigualdad en Chile (1850–2009): historia de su economía política"). On the other hand, I think that Tony Atkinson's work on British and various other income and wealth distributions failed to sufficiently integrate political and class analysis.
This is also where the work on inequality parts ways with one of the scourges of modern micro- and macro-economics, the representative agent. The role of the representative agent was to obliterate all meaningful distinctions between large groups of people whose social positions differ, by focusing on the observation that everybody is an "agent" who tries to maximize income under a set of constraints. This is indeed trivially true. And by being trivially true it disregards the multitude of features that make these "agents" truly different: their wealth, background, power, ability to save, gender, race, ownership of capital or the need to sell labor, access to the state etc. I would thus say that any serious work on inequality must reject the use of representative agent as a way to approach reality. I am very optimistic that this will happen because the representative agent itself was the product of two developments, both currently on the wane: an ideological desire, especially strong in the United States because of the McCarthy-like pressures to deny the existence of social classes, and the lack of heterogeneous data. For example, median income or income by decile was hard to calculate but GDP per capita was easy to get hold of.
The third extremely important Marx's methodological contribution is the realization that economic categories are dependent on social formations. What are mere means of production (tools) in an economy composed of small-commodity producers becomes capital in a capitalist economy. But it goes further. The equilibrium (normal) price in a feudal economy, or in a guild system where capital is not allowed to move between the branches will be different from equilibrium prices in a capitalist economy with the free movement of capital. To many economists this is still not obvious. They use today's capitalist categories for the Roman Empire where wage labor was (to quote Moses Finley) "spasmodic, casual and marginal".
But even if they do not realize it fully, they de facto acknowledge the importance of institutional set up of a society in determining prices not only of goods but also of the factors of production. Again, we see it daily. Suppose that the world produces exactly the same set of commodities and the demand for them is exactly the same, but it does so within national economies that do not permit movement of capital and labor, and then does it in an entirely globalized economy where borders do not exist. Clearly, the prices of capital and labor (profit and wage) will be different in the latter, the distribution between capital owners and workers will be different, prices will change as profits and wages change, incomes will change too and so will consumption patterns, and ultimately even the structure of production will be altered. Indeed this is what today's globalization is doing.
The fact that property relations determine prices and structure of production and consumption is an extremely important insight. The historical character of any institutional arrangement is thereby highlighted.
The last among Marx's contribution that I would like to single out—perhaps the most important and grandiose—is that the succession of socio-economic formations (or more restrictively, of the modes of production) is itself "regulated" by economic forces, including the struggle for the distribution of the economic surplus. The task of economics is nothing less than global historical: to explain the rise and fall not solely of countries but of different ways of organizing production: why were nomads superseded by the sedentary populations, why did Western Roman Empire break into a few large feudal-like demesnes and serfs, while the Eastern Roman Empire remained populated by small landholders, and the like. Whoever studies Marx can never forget the grandiosity of the questions that are being asked. For such a student then using supply and demand curves to determine the cost of pizza in his town will indeed be acceptable, but surely will never be seen as the prime or the most important role of economics as a social science.
John Case
Harpers Ferry, WV
Harpers Ferry, WV
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WASHINGTON, DC – The contours of the nineteenth and early twentieth century were defined in part by a series of consequential British foreign policy and economic decisions. As recently as 2007-2009, British policy affected global outcomes: whereas deregulation of the City of London contributed to the severity of the global financial crisis, British leadership at the London G20 summit in April 2009 ultimately proved a stabilizing influence. Today, however, despite all the political theater and dramatic rhetoric, Britain's impending exit from the European Union – Brexit – really does not matter for the world.Add to Bookmarks
The global economy may have hit a patch of uncertainty, but this is more due to the mercurial actions of US President Donald Trump, self-proclaimed "Tariff Man," who seems intent on undermining the credibility of the Federal Reserve, disrupting supply chains, and negotiating through random pronouncements. The eurozone is struggling to break out of its prolonged agonies, but the fundamental problem remains bad banking practices and potentially unsustainable public finances in some member countries. While Brexit may well prove an unfortunate idea for many inhabitants of the United Kingdom, the likely impact is lower British growth, not a significant disruption of regional, let alone global, trade.
It is hard to overstate British influence over global affairs after it became the cradle of the Industrial Revolution. From about 1750, British inventions created a wave of technological innovation that transformed how power was generated and how metal was worked. Railways and steam ships revolutionized transportation. Even when the center of innovation shifted across the Atlantic, British capital and emigration supported industrialization around the world.
Not all British contributions were positive, of course. Britain's rise as a global power was accompanied by the horrors of the Atlantic slave trade and the many abuses of colonial rule.
But there is no question that British actions – good and bad – were consequential for many people, some of whom lived far away. British alliances and willingness to intervene militarily shaped European wars, from Napoleon through the German invasions of France in 1870, 1914, and 1940. Neville Chamberlain's policy of appeasement – including his personal strategy and decisions at the 1938 Munich conference with Adolf Hitler – had a major impact on the timing, nature, and perhaps even the eventual outcome of World War II.
The UK's peak global influence was probably in 1940-1941, when it stood essentially alone against the seemingly unstoppable might of Nazi Germany. Ironically, America's entry into the war both tipped the balance decisively against Hitler and soon led to a complete makeover of the world economy.
The 1944 Bretton Woods conference made it clear that the era of European empire was over. Also gone was privileged trade within economic zones established by previous waves of imperial expansion. Post-World War II trading arrangements were determined by American preferences. With US business, labor, and politicians unanimous in wanting access to all markets, successive rounds of trade liberalization followed.
In 1945, the British Empire contained more than 600 million people, about one-quarter of everyone alive, making it (briefly) the most populous political entity ever on the planet. In subsequent decades, the UK's global impact was felt mostly through a combination of decolonization debacles, including the spectacular humiliation suffered during the Suez Crisis of 1956, and gross macroeconomic mismanagement. In 1976, Britain became the only country issuing an international reserve currency that has been forced to borrow from the International Monetary Fund during the (post-1973) era of floating exchange rates.
Nothing about this loss of global influence can be attributed to Britain's membership of the EU. Overall, Britain has done well from post-war trade, about half of which is currently with Europe. The UK's total trade (exports plus imports) was around 40% of GDP during the 1950s; it currently runs closer to 60%, with most of that increase occurring after the country joined the European Economic Community in 1973. More broadly, active participation in the global economy over the past four decades has helped close the gap (in terms of GDP per capita) with the United States.
Perhaps there is a mad version of Brexit that could have ramifications beyond British shores, but that seems far-fetched. Unlike Trump, no responsible politician in the UK really wants to restore protectionist tariffs to the level of the 1930s. Also unlike the US, no prominent official in Britain is keen to gamble again with the country's future by weakening financial regulation.
Most of the British political elite seems just as out of touch with global reality as their predecessors were in 1938, 1944, and 1956. The world has moved on, again. A chaotic Brexit could do great damage to ordinary people – as was the case with Britain's self-ejection from the Exchange Rate Mechanism of the European Monetary System in 1992.
But those ordinary people will be overwhelmingly British. The days when Britain could move the world are long gone.1