Improvements in productivity make it possible to produce more with a given employment of labor. However, under capitalism, whether this greater potential is fulfilled is contingent on there being sufficient effective demand to sustain the higher potential output. Any deficiency in demand will result in unemployment and forgone production.
In a recent post, Neil Wilson points out that for the level of employment to be maintained as productivity improves, there must be continual increases in autonomous demand. If sufficient demand is not forthcoming from the domestic private sector or the external sector, it will need to come from the government. A job guarantee program, as leading MMT economists emphasize, would be the most direct and effective method of delivering full employment because of its price anchoring and automatic demand stabilizing effects.
Neil's observation has initiated an interesting discussion regarding the social implications of rising productivity and, in the extreme, a purely robotized or mechanized economy. The commenter, beowulf, makes an insightful observation:
Long term, there's really no peaceful alternative to redistributing income via a basic income system. Marshall Brain's Robotic Freedom piece does an excellent job explaining why.
Here is a link to Marshall Brain's post (which was provided by beowulf in his comment).
I essentially agree with this observation, and want to explore it a little. There is no suggestion that beowulf or other MMTers would share my reasoning. On the contrary, it seems likely that most MMTers would reject it, since it relates to Marx's theory of value, which is a controversial topic among Marx influenced economists, let alone MMTers. Nevertheless, my own view is that Marx's theory sheds considerable light on the topic. Further, in my opinion, there is nothing fundamental to Marx's theoretical framework that is inconsistent with MMT, though that is not to say that other theoretical approaches - most notably Post Keynesian ones - need be any less consistent.
Mechanization and Value
It is well known that in Marx's theory of commodity production, labor is the source of all new value. The means of production merely pass on their already existing value to new commodities. This is Marx's way of recognizing that capital goods and raw materials either were the output of another production process in the current period or were produced in a previous accounting period. Including them in the value of new commodities would be double counting, since they do not entail new production.
It is critical to recognize that Marx's argument applies to value, not physical output or wealth. He is not suggesting that labor is the only source of physical output or wealth. Nature, other animals and machines all clearly create new physical output and wealth, as does labor. The argument, rather, is that only labor translates into new value. The plant, machinery and raw materials used up in the production period only pass on their pre-existing value (actually, their prices). Nature, in contrast, does not transfer any value to output. Instead, private property rights give owners of natural resources a legal entitlement to a payment of rent, which comes out of the surplus value created in the production period.
Of the new value that is created in the production period, some goes to workers as wages and some goes to capitalists and other social groups as surplus value. Specifically, surplus labor – the labor carried out in excess of what is required to produce the equivalent of the value paid to workers in wages and salaries – is the basis of surplus value in Marx's theory. In aggregate, surplus value equals profit, prior to its distribution among various recipients. Some of it will go to rentiers as rent or creditors as interest income.
Considering that surplus labor is the sole origin of surplus value in Marx's theory, it is interesting to reflect on an extreme scenario in which the entire production of the economy becomes purely mechanized. Marx's theory suggests that, in this scenario, capitalism must have ceased to exist! The reason is that there would be no production of surplus value (profit) in such a system, making it unviable for capitalists.
But what does it mean to say that a purely mechanized economy could not be a capitalist economy? After all, even in such a society, surely we humans would still be doing some things that were not mechanized. So what would be going on?
It would simply mean that this human activity (labor) was no longer being treated as value production and that our human capacity to work or create (labor power) was no longer being treated as a commodity.
In such a system, there might still be a requirement to work in order to gain access to material needs, and there might still be authoritarian measures used to direct production. However, it would not be capitalism. The surplus would not take the form of value, but simply its physical form - the material output produced in excess of the needs of social reproduction.
Equally possible is that we might choose to organize our activities in such a way that income was no longer tied to work. Material needs could be met through the free distribution of the output of mechanized production processes. Required resources and facilities for human endeavors could be made freely available. Human activity could then be genuinely free and associations between individuals voluntary. (See Full Employment and the Environment for a brief reflection on some of the possibilities.)
Highly Mechanized Production Under Capitalism
For capitalism to remain despite a high degree of mechanization, it would instead be necessary that at least some human activity continued to be value production. That would require that some human endeavors were only enabled within the context of value production, just as is the case in our present society.
In the absence of a basic income guarantee, there would be an onus on the government to ensure demand remained sufficient to sustain high levels of employment. Otherwise, in the midst of such plenty, periodic episodes of mass unemployment, especially if continuing for sustained periods, would likely result in extreme social conflict.
If human activity remained commodified – i.e. capitalist social relations remained in place – capitalists would retain significant ownership and control of the means of production, including the purely robotized or mechanized production processes. Surplus value would continue to be created out of the employment of labor under capitalist conditions. Just as now, all capitalists would compete for a share out of aggregate profit, irrespective of how much surplus value was created in their own sectors.
The reason for this, in Marx's theory, is that competition tends to equalize the rate of profit realized by different sectors, even though it is the least capital-intensive sectors (least efficient sectors) that produce the most surplus value (because proportionately they outlay more on the employment of workers than means of production).
Briefly, for Marx, the value of a commodity, λ, equals c + v + s. Here: c is 'constant capital', the value (or dollar amount) outlayed for the means of production used up in producing the commodity; v is 'variable capital', the sum of value outlayed for the employment of labor; and s is 'surplus value', the amount of value produced by workers in excess of the amount (v) outlayed on their employment.
Marx argued that in exchange there would be a tendency for commodities to sell at their 'prices of production', p, rather than their values. These are the prices that would ensure all sectors received the same rate of profit. They are equal to c + v + π, where π is profit. Prices of production differ from values whenever s differs from π. In sectors with an above average 'organic composition of capital' (c/v), π > s and p > λ. The reverse is true of sectors with an organic composition of capital below the average. In this way, competition causes surplus value to be transferred from sectors with below average compositions of capital to those with above average compositions.
In aggregate, however, Marx maintained that total value equals total price (the sum of all values equals the sum of all prices), surplus value equals profit, and the value rate of profit (VROP) equals the rate of profit (ROP). In effect, the creation of aggregate surplus value in production determines the amount of aggregate profit that can be realized in exchange, with competition between capitalists merely causing a transfer of surplus value between sectors according to their compositions of capital.
For example, if the economy were divided into two sectors, one completely mechanized and the other employing a combination of labor and means of production, the situation might look something like this (for simplicity, I have assumed all means of production are used up each period so that there is no fixed capital):
SECTOR c v s λ ROSV p π ROP s/(c+v) p-(c+v) π/(c+v) Robot 100 0 0 100 0% 125 25 25% Mixed 20 40 40 100 67% 75 15 25% Total 120 40 40 200 25% 200 40 25%
In this example, production in the robot sector occurs entirely without labor. Over the period, $100 worth of robots and other means of production, including raw materials, is used up, passing on $100 to the final value. No new value is produced in this sector, and therefore no surplus value. It is simply the already existing value of the means of production that is passed on to the final value. The robots, if able to learn, could be getting smarter and smarter throughout the period, thereby enabling larger and larger material output. But in value terms, there is no new value produced, because the amount paid by capitalists for the means of production will reflect costs of production and the rate of profit, not the material output produced by the means of production.
In the mixed sector, $20 of value is passed on to the final commodity through the using up of means of production and $80 of new value is created through the employment of labor. Capitalists appropriate $40 as surplus value.
As already noted, competition between the sectors and between capitalists tends to equalize the profit rate in each sector (in the example, it is 25% in each sector and in the economy as a whole). This is argued to occur as a result of capitalists seeking out the highest return for their investment. If one sector offered a higher rate of profit than the other, investment dollars would flow into the more lucrative sector until no further advantage could be obtained, assuming competitive conditions, which, for Marx, following classical political economy, entails free mobility of money capital.
The example illustrates that capitalists in the mixed sector do not get to keep the entire surplus value, even though that is the sector in which the surplus value is actually produced. Instead, total price in the robot sector rises above total value produced in that sector ($125 > $100) and total price in the mixed sector falls below total value produced ($75 < $100).
Marx's theory suggests that this tendential equalization of profit rates under capitalism tends to encourage technical innovation and mechanization. It ensures that innovators are not penalized in terms of profit for minimizing their use of labor (minimizing their amount of new value production). It provides a competitive impetus to economize on the use of society's labor time.
The Social Possibilities are Open
Since it is technically possible for capitalism to continue even in a highly mechanized economy provided human activity remains commodified, the social ramifications of increasing mechanization are an open question. Increasing mechanization makes it possible at some point to sever the connection between work and income entirely. That would seem to offer the greatest potential for human freedom and creativity.
Yet, there is no inevitability that this option will be taken unless general populations actively press for this social progression. Those with the greatest stake in the existing system may persist in their efforts largely to confine employment opportunities (and access to infrastructure and productive facilities) to the sphere of capitalist social relations. General populations might be persuaded to go along with this state of affairs provided there was sufficient class compromise to ensure that real wages and general living standards rose more or less in line with productivity improvements.
Nevertheless, with material needs so easily met, the absurdity of such a social relation, in which much of human potentiality can only be expressed on terms acceptable to the capitalist class, may well become increasingly apparent over time. For this reason, I tend to agree with the view that ultimately some kind of basic income scheme or other type of guaranteed access to material needs and facilities is the likely way forward, provided we put our collective foot down and demand it. If there had been the political will, it probably could already have happened.
Marx's theory of value remains controversial. My view most closely resembles the temporal single-system interpretation (TSSI) of Marx's theory. Andrew Kliman's Reclaiming Capital provides a good discussion of the debate from the TSSI perspective. Under this interpretation, all of Marx's three aggregate identities hold true.
The interpretation differs from the one put forward by 'physicalist' interpreters in two respects. First, whereas physicalists interpret Marx's theory as simultaneist – that is, referring to the simultaneous determination of input and output values – the TSSI considers the theory to be dynamic: the values (actually, prices) of this period's inputs enter as data in the determination of next period's output values.
Second, whereas physicalists interpret Marx's theory as dual system – one system determining values, another system determining prices – the TSSI considers the theory to be a single system: value and price magnitudes are mutually determinative. In particular, the economy-wide rate of surplus value determines prices of production and the average rate of profit, while input prices enter (as the amount of value needed to acquire the means of production) into the determination of values.