Tuesday, February 10, 2009

Looking on the bright side

People learn quickly. As Lenin recognized: they can learn in 20 days what they forgot in 20 years. Richard Gott - Guardian

When Confucius was asked what the first thing he would do if he were named Emperor was, he replied, "I would clarify the language".

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The longer I hang around on this planet, the more sense Confucian "clarification of language makes" to me.

Contemporary American English is especially treacherous in this regard. In the USA a lover may be known as a "significant other" or even as a "partner": as if all the rumpypumpy was happening in a law office or a hardware store. In this slippery dialect problems aren't called problems, they are called "issues" and child molestation is called "inappropriate behavior"... it goes on and on.

In the world of politics, the horror of plain speech, the effort to verbally cloud, obfuscate and confuse goes to truly Orwellian lengths. Thus, the world wide, historical and universal color of revolutionary socialism: red, is used in America to denominate reaction... as in "red state". So in contemporary American English a "red state" is not Cuba or Vietnam, it is Texas or Oklahoma. In Texas the song isn't "The East is Red", it's "The East is Blue".

So naturally, in the USA, this Alice-less wonderland, Marx, instead of being associated with the struggles of the working class, is much more likely to be associated with white wine and Camembert cheese: "elitism" is of course the word used to describe political agitation in favor the less fortunate. Thus certain otherwise extremely useful terms associated with Marx may sound a trifle exotic, indeed dangerous to most American ears.

Two terms that I'd like to fling carelessly around today are "use-value" and "exchange-value." Technically accurate definitions of these terms can be found here and here.

To bring home some of the intrinsic meaning contained in these concepts and to make them more "real", I would give the following example. Imagine you are a graduate engineer, who speaks four languages with an MBA from Harvard. You are a hard worker with many skills and much knowledge, all of which may be very useful to yourself or to friends and family or to anyone who comes up and asks you, solving problems and devising strategies to improve the quality of life. This might be a loose definition of your use-value, just as the walls and the roof of your house keep out the wind and the rain and give you shelter and home, which is its basic use-value.

However, until you take your skills or your house to the market and try to sell them, they have no "exchange-value". They will acquire that value and become a commodity when they are exchanged for a "universal medium of exchange" (read money). In the well oiled, smoothly functioning capitalist system that the United States embodies as no other, the conversion of "use" to "exchange" is normally so fluid, so automatic, that many may have spent their whole lives confusing the two and thinking that something that isn't a commodity, which cannot be exchanged for money, has no value, is of no use... useless.

This automatic identification of usefulness and exchange-value tends to fray in a depression. You as a graduate engineer with an MBA may find yourself out of work with few immediate prospects of finding any. You know you are still a useful person, but now you have no exchange value because the system finds you useless. The collapse of the financial system and with it much of the the power to exchange means that many people are going to find themselves in the place of our imaginary engineer or are already there. When the system of exchange breaks down the useful - people and things - become useless. Useless houses rot and so do useless people: for people this is painful. When you begin to feel useless the system is destroying you.

In 2002, when the following text by Slovenian philosopher Slavoj Zizek was written, many who stumbled upon it would have dismissed it as so much elitist mumbo jumbo. Read in the light of the present deepening crisis, its relevance jumps out at the reader. Just in case some readers find it a little heavy going, I have taken the liberty of highlighting some of Zizek's words in boldface. Adjusting for the jargon and the technocisms, try this on for size:
"Marx located the elementary capitalist antagonism between use- and exchange value: in capitalism, the potentials of this opposition are fully realized, the domain of exchange value acquires autonomy, is transformed into the specter of self-propelling speculative capital which uses the productive capacities and needs of actual people only as its dispensable temporal embodiment. Marx derived the very notion of economic crisis from this gap: a crisis occurs when reality catches up with the illusory self-generating mirage of money begetting more money- this speculative madness cannot go on indefinitely; it has to explode in ever stronger crises. The ultimate root of the crisis for Marx, is the gap between use-value and exchange value: the logic of exchange value follows its own path, its own mad dance, irrespective of the real needs of real people." Salvoj Zizek - Revolution at the Gates
So that is the situation we are presently facing. People who know how to work hard and love to work hard will have no work. Powerful machines will sit idle and rust and so will powerful minds and hearts.

There is a bright side to all of this: lucidity has its price, but once acquired it is priceless. Perhaps Americans will finally learn again to call things by their real names. DS


RC said...

I read a lot of Zizek a few years back {in English} and I really had to plow. I eventually arrived at the determination that he had little use value in my sphere of reality. But after reading the excerpt today I am beginning to think I ought oil up the plow again and see if I can turn up some gems in Slavoj's grueling terrain of nomenclature.
This paragraph you highlighted DID have value. Thanks.

Anonymous said...

There's a reason that Americans associate Socialism with elitism. That's because only elitists read Marx in this country, probsbly while going to a university their bourgouis parents are paying for. You see them in the East Village all the time. There were a few poor kids I knew who were into that kind of stuff when I was a kid, but it was mostly for shock value.

The use-value and exchange value thing was interesting. However, I always thought depressions happen because of irrational actions on the part of the state, the people, or usually both. Keynes was wrong and so was Alan Greenspan (much as it pains me to say it). I say the solution is to encourage entrepeneuship. Atleast the market is chaotic and therefore fair. There's no favorites. It's completely random, unless the state gets involved.


David Seaton's Newslinks said...

The USA is a strange country, but it is about to take "normal" lessons.

forensic economist said...

In defense of monetary values:

How else do you measure the value of your work? If it is useful to someone else, someone else will pay you what you are worth to them.

The value of your work to yourself - fulfillment, actualization etc - may lead you to take a job that pays less than you could earn elsewhere. Economists say that you are maximizing your utility which isn't the same thing as maximizing your income. The trouble with utility or use value is that it is awfully hard to quantify.

The problem in the bubble was that people buy products and investors invest in assets due to their "animal spirits" in Keynes phrase - ie their expectations as to the values in the future, their expectations as to their income in the future. These expectations can be wildly wrong.

People also buy and invest due to short term effective price, rather than considering all long term costs. With nothing down loans, the effective cash cost of a new house was zero - not surprisingly, demand boomed. Somehow no one in the entire chain thought that they were bearing the whole costs - the originator sold the loan, the packager sold the securities backed by the loan, the purchaser of the securities saw the AAA rating based on insurance or purchase of a CDS.

The solution? The regulators have to lean against irrational expectations, either high or low. Now that expectations are extremely low, interest rates have been lowered to zero. When expectations were irrationally high, interest rates should have been raised to choke off over investment.

Likewise, regulation of the financial markets should have disallowed nothing down mortgages; should have insisted that originators retain some of the risk. The fed and other institutions had the power to regulate but were cheerleaders for the lack of control.

People had the illusion of buying something for nothing. A lot of jobs - from investment bankers to loan officers to appraisers to construction workers to lumber mills - all depended on this illusion. The short run exchange value of these jobs (what the workers were paid) was far in excess of what the real, long run exchange value (what the workers produced) was. A nice house that no one can afford built far away has no real value.

We didn't really have much of an boom in the last three years in the US, measured in terms of real wage growth or growth in household income; what little we had was based on illusion.