Marx vs Smith: The randomized evaluation

The laborer receives means of subsistence in exchange for his labor-power; the capitalist receives, in exchange for his means of subsistence, labor, the productive activity of the laborer, the creative force by which the worker not only replaces what he consumes, but also gives to the accumulated labor a greater value than it previously possessed.

The laborer gets from the capitalist a portion of the existing means of subsistence. For what purpose do these means of subsistence serve him? For immediate consumption.

But as soon as I consume means of subsistence, they are irrevocably lost to me, unless I employ the time during which these means sustain my life in producing new means of subsistence, in creating by my labor new values in place of the values lost in consumption.

But it is just this noble reproductive power that the laborer surrenders to the capitalist in exchange for means of subsistence received. Consequently, he has lost it for himself.

That is Marx’s rather pessimistic view of wage labor. It is from <S>1891</S> 1847, in Wage Labor and Capital, his precursor to Das Kapital.

Marxists ever since fear wage labor means earnings are lost, enslavement to capital emerges, and with it a loss in humanity.

There are plenty of unsavory factories to worry about in the world. But the Marxist view is difficult to reconcile with the thousands of Africans that line up for the chance at a factory job (when they’re available). A good number of people—maybe most—already farm or have small businesses. Perhaps the lineup simply illustrates the paucity of other options and the ravages of global capitalism.

Another view is that farming and small business are hard work, risky, unrewarding, and unpleasant. Factories give a steady wage and less risk, at possibly monotonous tasks. But at what cost? Ill health? Or the noble reproductive power lost?

I’m in Ethiopia with Stefan Dercon partly to see if we can figure that out. An industrialist will be opening a dozen businesses this year: commercial farms, mines, tool factories, and the like. There will be thousands of applicants for several hundred unskilled jobs. Which unskilled workers they hire is often practically random, so we’re seeing if we can make it perfectly so. The result (if we can make it happen): the effect of wage labor on incomes, health, aspirations, and happiness. Also, if I can figure out what it is, that noble reproductive power.

Here’s an alternative view of self-employment versus factory labor. Farmers and micro-entrepreneurs seldom specialize in the activity that brings the highest return. Earnings get invested in new, often less productive activities–maybe some goats, maybe a shop, maybe bricks or charcoal production. This spreads the risk, but lowers average returns. Give a woman a micro-loan or a small grant and she’s likely to add a new activity to her portfolio rather than put it in her current, highest return one. All perfectly sensible under the circumstances.

So what happens when one family member suddenly gets a steady, fairly riskless stream of income? Quite possibly the other members start to specialize too. Land gets concentrated in, and worked by, fewer fewer hands. Perhaps they add capital investment to make up for the lost laborer, or hire a neighbor. Productivity in the household rises by a tenth, or a quarter, or maybe more. This is Adam Smith’s specialization at work.

That, at least, is the theory. Look for updates on the test. Today I am off to the an herb farm and a plastics factory on the outskirts of Addis.

17 thoughts on “Marx vs Smith: The randomized evaluation

  1. A grad student at Berkeley, Jonas Hjort [hjort AT econ.berkeley.edu], already ran an experiment like this. He randomized long-term employment offers at a number of flower farms in Ethiopia. He has presented this work already at our development lunch. Just a heads up…and perhaps you guys could exchange ideas.

  2. Quick point – it doesn’t at all run counter to Marx that people would line up for factory jobs. Marx actually was very impressed with capitalism’s ability to compel labour to work, and frequently wrote of it as a functional form of escape from rural feudalism. He just thought that capitalism was an intermediate stage on the path to socialism.

  3. Following on to what Adam said:

    There is this usual misconception that Marx didn’t see the benefits of capitalism. This couldn’t be further from the truth. He was very aware of the dynamic capacities of capitalism to – as he called it – develop the forces of production. So in other words, Marxist accept that capitalism (i.e. production based on the hiring of wage labour) is the most dynamic and progressive mode of production mankind has seen so far, however, the price to pay is that capitalism also comes usually with rising inequality (e.g. compared to a peasant society) and inevitably with exploitation. Also they stress that the existence of capitalism itself can never be a sufficient condition for ‘development’, as all this is never a strictly linear process.

    Good luck in Ethiopia … will be there working on cut flowers soon, too! (can’t wait)

  4. Chris, Henry at ‘The Monkey Cage’ also has criticisms – in short, when Marx said ‘the idiocy of rural life’, he wasn’t joking.

  5. “So what happens when one family member suddenly gets a steady, fairly riskless stream of income?”

    I think that you are using the word ‘riskless’ in a entirely new fashion. There are internal risks (“oops, sorry about that hand – you’re fired, and we’re docking your salary for bleeding on the equipment!”) and external risks (‘business is bad, you’re fired!’ and factory closed – back wages are gone).

  6. Factories, sweatshops, etc. can damage alternatives indirectly by offering an incentive to kleptocrats to push people into the new cash cow. But cash crops – like cut flowers – do so far more directly, by taking land and water resources away from subsistence farming with little or no compensation; it is analogue of wool impoverishing people in the Highland Clearances in Scotland or in the early (Tudor) phase of the Enclosure of the Commons in England.

    P.S., surely “yes” is a valid answer to that test question, “Is fire hot or cold”?

  7. Adam and MzunguMrefu have already made the basic points I was going to make. But to drive them home, you should read Marx’s Pre-Capitalist Economic formations. Marx was completely aware of how much better capitalism was than any other economic form for creating wealth and economic dynamism (and btw, capitalism does not = industralism; Capitalist farms were a crucial pre-cursor to capitalist towns in England).

    He just also felt that the forms of ownership that capitalism depends on ultimately prevent the ‘noble’ form of self-labour -labour for oneself and for one’s own sustenance. Marx was at the same time brutally realist and remarkably naive. He was truly in favour of a capitalist period but also felt that there must be something better beyond it, because the drudgery of working for another and seeing the value of what you produce accrue to the man who puts the system in place was not in keeping with his sense of ‘natural’ justice. He just never really convincingly specified what the laws of motion that socialism would depend on and reproduce and extend value by were.

    Finally, It’s no surprise at all that China would still censor Marx. China’s ‘Communism’ was never Marxist, it was closer to Marxist-Leninism (by abandoning the stage of capitalist development); and the current ‘Capitalism with Chinese characteristics’ bears more resemblance to state-heavy capitalism than communism or marxist socialism in many towns and villages. Exposing people to Marx’s original thought may well create a second front of criticism of the Government, coming from a leftist perspective.

  8. True. It’s all relative, of course. The one thing factory workers here have highlighted, amidst many compaints about wages, is that the steadiness of the job and wage is the biggest attraction. But nothing is forever.

  9. As negative as Marx may have been in the description of the working class condition in capitalist system, he did not get a chance to see the advent of the socialist bloc and how they “mis-applied” his theories and killing his ideas in the process. The solutions that he had proposed to solve the labor condition may have been good, however someone else has to re-word them so they can be accepted in today’s world.

  10. Good that so many left remarks qualifying Marx’s views. The same needs to be done for Adam Smith.
    The latter knew that increasing specialization of labor was not just a blessing for the worker. Rather, the gain in productivity was bought by work that more and more stultified and stupefied the worker. The objective boon turned out to be a subjective bane. Which is why Smith thought it necessary to call for the state in order to ensure the countervailing powers of a broad education for all and restrictive laws that prohibited the excessive exploitation of each. Therein, then, Smith and Marx agreed. Wherein did they differ?
    Marx criticized that Smith viewed capitalism in an unhistorical manner. Acknowledging the transient advantages of a capitalist economy, Marx felt history would reach a point, where the “conditions of production” would be burst asunder by the “means of production”. In more mundane terms, we would reach a point of doing business (through higher technological and organizational sophistication), where the hitherto successful drivers of innovation – profit maximization based upon the notion of exclusively private property in the means of production – actually turned into fetters of the dynamics of further development. Then, he prophesied, the dynamic factors of the economy – which in its industrial form already was a de facto collective endeavor – would deal a deadly blow to the rather static political frameworks of possessive individualism.
    Marx was wrong assuming the blow would come by the clenched fist of a globally united proletariat. Yet he still might be proven right by seeing the same happen by the gentle hands of social entrepreneurs: a relativization of both the absolute character of private property in the means of production (towards more cooperative models) and the focus on the maximization of private utility over and against public benefit (changing towards more collectively oriented and common-weal based goals). … A sight for sore eyes.