June 20, 2018

Nietzsche, entropy, full employment, and NO class war

Comment on David Ruccio on ‘Utopia and work’


David Ruccio resumes: “The goal of mainstream economists is to get everybody to work. As a result, they celebrate capitalism for creating full employment — and worry that capitalism will falter if not enough people are working.” However, philosophers have long been aware that full employment is not such a good idea: “According to Friedrich Nietzsche …, the dignity of labor was invented as one of the ‘needy products of slavedom hiding itself from itself.’ That’s because, in Nietzsche’s view (following the Greeks), labor is only a ‘painful means’ for existence and existence (as against art) has no value in itself. Therefore, ‘labour is a disgrace’.”

Let us, first of all, take folk psychology out of the issue. Labor must be seen against the background of entropy. Entropy brings humans eventually down to zero. The intake of goods, energy, etcetera slows this process down. The production of goods, though, requires labor input.

Imagine the following initial state. Every living person gets a plot of land in the form of a hexagon. This land delivers all that the person needs. We can put as many hexagons together as we like. Hexagonland is large and symmetrical. There is no scarcity of land or resources. Each occupant works Li=9 hours per day, has 1 hour leisure, and needs 14 hours for regeneration. The necessary and sufficient output is Oi per day. There is no boss, no exploitation, no slavedom, no government. Whether the Hexagonians think that labor is a disgrace is a matter of indifference. If they stop working, they produce no output, entropy takes over and they drop dead in a little while. This is the original material human condition. Labor is a means to counteract entropy. Without external limitations or disturbances, it can go on for an indefinite time.

Now, we switch to the monetary economy. The elementary production-consumption economy is given with this set of macroeconomic axioms: (A0) The objectively given and most elementary systemic configuration consists of the household and the business sector which in turn consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

Under the conditions of market clearing X=O and budget balancing C=Yw in each period, the price is given as P=W/R (1), i.e. the market clearing price is always equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand.

From (1) follows the real wage as W/P=R (2). The output of the i-th worker is Oi=RLi. For a start, it is assumed that individual labor time Li and output Oi are exactly identical to the situation in Hexagonland. Up to this point, the material situation of the people of Hexagonland has not changed. What has changed is that they work in a firm, get an income, and spend it for consumption goods.

The graphical representation of the elementary production-consumption economy is shown on Wikimedia.#1

Monetary profit of the business sector is defined as Qm≡C−Yw and monetary saving of the household sector is defined as Sm≡Yw−C. It always holds Qm+Sm=0, or Qm=−Sm, in other words, the business sector’s surplus = profit equals the household sector’s deficit = dissaving. Vice versa, the business sector’s deficit = loss equals the household sector’s surplus = saving. This is the most elementary form of the macroeconomic Profit Law. Under the condition of budget balancing C=Yw total monetary profit is zero.

So, profit of the business sector is zero, the workers get the whole output O, the real wage is equal to the productivity.

Now, the organization of the production process is improved through the division of labor and the productivity increases. With unchanged individual and total labor time, total output O increases. The market clearing price falls according to (1) and the real wage increases according to (2). The profit of the business sector is still zero because of C=Yw.

From the observer standpoint, the economy has two limiting paths open, (i) individual labor time Li is kept unchanged and output Oi increases, or (ii), output Oi is kept constant and labor time Li is reduced. If productivity is increasing over time, individual labor time Li goes asymptotically to zero.

Let us call this the Diogenes Solution. Curiously, Nietzsche, when he speaks of  ‘the’ Greeks in the preface to The Greek State never mentions Diogenes. In order not to erect another False-Hero-Memorial, though, it should be mentioned that Diogenes was also a practical economist who was banished from Sinope “when he took to debasement of currency” (Wikipedia). Money creation is NOT meant with the Diogenes Solution but fixing the output Oi at some cultural minimum = maximum.

It holds for both limiting paths and all combinations in-between that the real wage is equal to the productivity, the workers get the whole output, and macroeconomic profit is zero. So, as productivity increases, the Legitimate Sovereign can choose between more material wealth or more leisure or a combination of the two. For the business sector, all combinations are indifferent because profit is zero in all cases as long as the household sector’s budget is balanced, i.e. C=Yw. Macroeconomic profit depends neither on labor time nor on productivity. This is a bit surprising for economists and philosophers who are still stuck in the old world of Walrasian, Keynesian, Marxian, Austrian economics, exploitation, and class war.#2

Egmont Kakarot-Handtke

#1 Wikimedia, The elementary production-consumption economy
#2 Ricardo and the invention of class war

Related 'Capitalism, poverty, exploitation, and cross-over exploitation' and 'Employment theory as an example of proto-scientific soapbubbling' and 'The set screws of overall and individual employment' and 'True macrofoundations: the reset of economics.

REPLY to Sandwichman on Jun 21

The Lump-of-Labor Fallacy is NOT solvable by comparing/confronting the statements of politicians on the issue of full employment as you do in your post War is Peace, Freedom is Slavery, Ignorance is Strength.

For the scientifically/philosophically correct answer see the Diogenes Solution in Nietzsche, Entropy, Full Employment, and NO Class War