Thursday, October 02, 2008

Production economics vs. exchange

There are fundamental problems with how economics is conceptualized in the mainstream. Critics of mainstream economics have pointed to a focus on production as opposed to on exchange as a potential way to correct this. But focussing on production is so obscure that it could help to give concrete examples of what is meant by it.

Say you go into a market, a literal street market, and you see something that you want. You tell the proprietor that "I want this" and replies "What have you got to trade for it", you say "Not much", "Sorry!". In order to participate in a market you have to have some sort of capital that allows you to trade what you have for what someone else has that you want. And there starts our story. You gather wood and a forest and bring it into the market. Now you have something to trade, now you have capital. Then, someone takes the wood you sold and makes little statues out of it, goes back to the market and sells them. He just produced more capital that he used for exchange.

Now let's suppose this: inside his house he has someone chained to the floor that he forces to make the little statues, who has no possessions and only gets food. The man buys the wood, goes home, has his slave carve the statues, goes back out, and sells them. There's no difference between the two actions as far as the market place goes. But between making statues yourself and having a slave make statues for you there's a wide difference in conditions of production to say the least.

Capital is created by firms in wildly different conditions and then traded between them. Some of the trade indicates what's popular and should be increased and some of it indicates what's less popular and should be reduced, but the cycle from production, to the exchange of pieces of capital between firms, to the use of that capital to spur new production is one moment, as Marx made the case for in the Introduction to the Grundrisse. The market is blind to the conditions of production.

Let's look at a hypothetical economy where there are a great number of arrangements between workers and owners. In some businesses the workers are the owners, in some the workers are forced to accept very bad arrangements for a number of reasons that give them not a lot of money. In others work is rewarded with a good, although not optimal, wage. Yet in others full on chattel slavery is present. All of these firms produce for exchange. Now, I've been talking about capital being redistributed between firms, but the big point of much economics is production for the consumer. Firms produce, and employees of those firms consume or buy. So say you're an employee of the firm that has a really bad arrangement, although not full on slavery. You and the companies meet in our hypothetical marketplace. Do you have as much power as they do? Are you able to act as an equal partner in this exchange or is your ability to do that limited by the process of production that you're part of at work? On the other hand, the people who own their own business are able to participate much more equally. The slave doesn't participate at all.

The widely different conditions of production, which don't automatically lead in a competitive economy to the best people winning or the ideal situation coming to pass, undermine whatever power the consumer has in the economy and gives the companies unprecedented power over them. The playing out of the inequality leads to the formation of the class in modern society.

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