Friday, December 09, 2011

Fetishism in Economics

The thought of Karl Marx continues to resonate throughout the world and is never more prominent than in the use of the propaganda term “capitalism” by both advocates and opponents of economic freedom. The opposition to “capitalism” by the Occupy movements show that Marxist thought has penetrated deeply into global economic culture. Therefore it behooves us to understand Marxism in order to understand the global culture of economics, especially to know how Marxist culture blocks reforms to enhance prosperity and economic justice.

If you talk to Marxists, they will tell you that the concept of “fetish” is fundamental to the economic ideas of Marx and his followers. Fetishism is described in Das Kapital or Capital, Volume 1, Part I “Commodities and Money,” Chapter 1 on Commodities, Section 4 on “The Fetishism of Commodities and the Secret Thereof.”

Marx states that a commodity abounds in “metaphysical subtleties and theological niceties.” An object such as a kitchen table does not merely serve some want to use, but can get transformed by the human mind into “something transcendent.” It can acquire a mystical character.

This commodity meaning of “fetish” is a different application of the concept from the meaning as a sexual attraction to things, such as feet and leather, that are not usually regarded as being sexual.

We can clearly see fetishism in religious objects, which to the believers, are not just physical statues or candle holders but have a metaphysical significance and even life. But there is a fetish also to non-religious things. Marx says, “the productions of the human brain appear as independent beings endowed with life... So it is in the world of commodities with the products of men’s hands. This I call the Fetishism which attaches to the products of labor.”

Objects with sentimental value acquire such a “life.” But to Marx, fetishism applies generally, and in private enterprise, fetishism reduces labor to a disrespected commodity. The whole economic system of private enterprise becomes a fetish - something people think is holy and not to be disturbed.

The injustice and low wages of labor are rationalized away by this fetishism in economic thought. To Marx, the exchange value of commodities comes only from “the amount of labor bestowed” on objects. “Nature has no more to do with it, than it has in fixing the course of exchange.” Thus to Marxists, value comes from labor, and if the Worker is not paid that full value, he is exploited, and the Capitalist wrongly takes the surplus that should belong to Labor.

The concept of economic fetishism is a valuable addition to economic thought, but this has to be applied generally, including also to Marxist doctrine. It is understood in modern economics that labor is generally paid the contribution to output of the marginal worker, conceptually the last one to be hired, what economists call the “marginal product of labor.” Because of diminishing returns, the average product of labor is higher than the marginal product, and that is a surplus that by superficial appearance goes to the owner of the firm, the Capitalist. But Marx made a fetish out of “capital,” applying it even to the title of his major works. By denigrating nature, Marx also made a negative fetish out of nature.

In the analysis of the American economist and social philosopher Henry George, the surplus from production is ground rent. Suppose in some geographic region, the average product of labor is greater than the wage paid to workers. The existence of that surplus at that location makes the location valuable, and so entrepreneurs will bid up what they pay to be located there. They will keep bidding up the rent until the rent has soaked up all the surplus. Generally, what economists call the “producer surplus” is really land rent, and since landowners produce nothing, they are non-producers, and the surplus is better called the “non-producer surplus.”

Hence Marx is right that economists have fetishes. Most economists have made a fetish out of the producer surplus, imagining that it goes to the better producers rather than to non-productive landowners. This is what Mason Gaffney has called the “corruption of economics.” But Marxist economics falls to the same fetish in saying that nature is not involved in the course of exchange. In a market economy, each factor - land, labor, and capital goods - is paid its marginal contribution to output. There is no injustice in being paid what you contribute.

Karl Marx recognized that land rents grow not just out of soil but also from society. But rather than conclude logically that this rent should belong to society, Marx made a fetish out of labor and thought that the surplus is part of the economic wage. Marx did not understand that this surplus should be paid by the land title holder for the use of land, in order to have efficient economic calculation. The rent is an implicit reality apart from any explicit payments by tenants to landlords or no explicit payments by owner-occupants. If that rent is not explicitly paid, not only does the landowner take what comes from society and nature, but the rent generates land value that becomes an object of speculation that creates the boom and bust sequence.

Some followers of Henry George also have fetishes. When they treat George’s thought as religion, then Saint George becomes a fetish. The concepts that all taxation comes from rent, that services have a different function than tangible goods, and that “interest” is the yield of capital goods, all fetishize George. Of course it is difficult to not have any fetishes.

The prime achievement of Marxism is the adoption of the fetish term “capitalism” even by those who defend private enterprise. By applying “capitalism” both to the mixed economy and to private enterprise, Marxists have turned a nonsense word into a brilliant fetish term used to blame economic freedom for the social problems that come from government intervention. Those opposed to economic freedom also make a fetish out of the state, endowing it with god-like qualities of omniscience, omnipotence, and benevolence.

It is in human nature to create fetishes, but it is also in human nature to apply logic. There is nothing wrong with treating objects such as a photograph of a loved one or a special gift into a fetish, i.e. qualities that come from the mind, but we need to learn to apply unhampered logic when it comes to science, including the science of economics.