Saturday, February 28, 2015

Bits and Pieces (IV): "Human Capital" Edition.


Prof. Robert Paul Wolff offers his views on "human capital". For him, following Marx, this alleged equivalence between labour and capital is a foundational fiction of capitalism:
"Economic theory, of course, cooperates in the fantasy that workers run small businesses producing the commodity labor power.  And The Law in its majesty enforces wage bargains as though they were contracts between capitalists who meet as equal participants in the free market.  But The Law is not an ass, and when a worker with more book learning than is good for him comes before the bar and requests that he be permitted to deduct on his income tax return the cost of 'doing business' -- which is to say, his food, clothing, shelter, and other expenses incurred in the course of producing his commodity for the market -- the Law sniggers behind its hand and denies his request."
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Personally, I find that comment particularly useful as it inspires a simple example, close to most workers' heart, showing why capital and labour are not only different, but also acknowledged as different before the law, regardless of mainstream economists' absurd claims:

Firms' positive cash flows are differentiated: they have revenues, but they do not pay corporate income taxes on them; they pay income taxes on the excess of revenues over expenses (their income). In other words, their income is equal to their profit.

Wage earners' positive cash flows are not differentiated: they pay personal income taxes on their gross income. For taxation purposes, and roughly speaking, there's no difference between a wage earner's "revenue" and "income", as there is among a firm's revenue and income.

However, all expenses the worker incurs are used to reproduce the worker's labour power: they are a cost. It's as if workers' income taxes were in general calculated on "revenues".

Take for instance children's education. Parents are paying for the education of their replacements in the labour force. This is similar to what capitalists do with depreciation: a machine gradually wears off and a deduction is made from revenue so as to cover this cost and make possible its replacement. Capitalists pay no corporate income taxes over depreciation charges, why should workers pay income taxes over costs of children's education?

This is an acknowledgement, consecrated by the law I dare say universally, that labour incomes are not equal to capital incomes. How can now anyone claim there is a "human capital"?

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Prof. David Ruccio also gives his views on this subject. He concludes a very interesting post thus:
"As I see it, all these new forms of capital, like human capital, are ways of expanding Smith's wealth of nations; they all seen as contributing to the production of more 'stuff'-more use-values, the 'immense accumulation of commodities.' But the expanding universe of capital also serves to hide the extent to which all that stuff, which is in reality socially produced, is then privately appropriated-leading to a growing gap between a tiny minority at the top and everyone else. In other words, it's a pattern of private capitalist appropriation that creates a more and more unequal distribution of income and wealth.
"The capital controversy will remain with us, then, as long as we refuse to solve the problem of capital."
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Unfortunately (and ironically, too!), Prof. Branko Milanovic provides the discordant note. After arguing quite correctly (February 19) that:
"It is not the amount of income that makes you a worker, but the need for continuous application of your labor. This is the fundamental difference between labor and all forms of capital. This is the cleavage, so obvious to anyone, that has been at the source of the classical distinction between labor and capital."
Milanovic, commenting on Vilfredo Pareto, writes now (February 28):
"Before him [i.e. Pareto], economics was about functional income distribution which, of course, makes sense if you assume that all workers are at subsistence, all capitalists rich, and all landlords even richer."
So, what gives?

Update:
Prof. Milanovic writes on this in the comment thread attached to a MNE post.

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Update 2:
The Sandwichman (aka Tom Walker) strikes again! And he's taking no prisoners.

Hume & Kapp, et al. (you've got to love this title!)