[P2P-F] Common Pools and Wage Funds -- A Reply to Simon Wren-Lewis

Fri Aug 15 00:05:36 CEST 2014

Common Pools and Wage Funds -- A Reply to Simon Wren-Lewis

http://econospeak.blogspot.com/2014/08/common-pools-and-wage-funds-reply-to.html

Simon Wren-Lewis raises an extremely important issue regarding Inequality
and the common pool problem
<http://mainlymacro.blogspot.ca/2014/08/inequality-and-common-pool-problem.html>:
"there
is a clear connection between the rise in incomes at the very top and lower
real wages for everyone else."

Wren-Lewis explains the common-pool problem as being "about how the impact
of just one fisherman extracting more fish on the amount of fish in the
lake is small, but if there are lots of fishermen doing the same we have a
problem." This needs a bit more explanation. The problem has to do with the
difficulty of excluding fishermen (or limiting the catch of any particular
fisherman) and with the limitation on the amount of fish in the lake. The
essential reference on this is Elinor Ostrom's discussion of common-pool
resources.

Two caveats: *difficult* does not mean *impossible* and *limited* doesn't
mean *non-renewable* or *fixed in quantity*.

When it comes to income, it is easy to get lost in a money illusion. Yes,
incomes are measured and paid in money amounts. But what they provide are
rights of access to material things -- goods and services, "the power of
purchasing; a certain command over all the labour, or over all the produce
of labour, which is then in the market" (Smith).

Nominally, the amount of income can increase without limit. But in real
terms, increases in income are constrained by the amount of goods and
services available in the market. That last qualification, *the amount of
goods and services available in the marke*t, has led to a prodigious amount
of confusion in economic thought. The classical wages-fund doctrine
*assumed* that the amount of wage goods available at any given time was
fixed. Accordingly, if one group of workers formed a union to enforce a
wage increase, their gain would be at the expense of other workers.

The amount of goods and services in the market *at any given time* is not
fixed. But the key to the confusion is not the stipulated quantity but the
imaginary temporal dimension of a "given time." Zeno's paradox of the arrow
involves the same logical conundrum of dividing time into points.

In 1869, W. T. Thornton argued persuasively that the wages-fund doctrine
was erroneous and John Stuart Mill concurred and "recanted" the wages-fund
doctrine. Exactly *what *Mill recanted may be in dispute but that is beside
the point -- the classical doctrine was consigned to the dustbin of history
of political economy. Or so we are told...

By virtue of one of the most miraculous metamorphoses
<http://econospeak.blogspot.com/2014/08/making-sense-of-brad-delongs-making.html>
imaginable,
the old wages-fund doctrine, used by polemicists as a club against unions
demanding higher wages was transformed into the theory of the
lump-of-labor, allegedly assumed by trade unionists, whose fallacy was used
by economists as a club against unions demanding higher wages. "Heads I
win" seamlessly became "tails you lose."

But, getting back to Wren-Lewis, isn't his contention that higher executive
pay "has to come from somewhere [that is, from the other 99%]" a reversion
to the wages-fund -- or lump of labor -- doctrine/fallacy? No, it isn't.
But this requires more explanation. There are not one, but two illusions at
work here. One is the money illusion. The other is the point-in-time
illusion. Combined, these two illusions constitute a powerful temptation to
cognitive dissonance.

To dispel those two illusions, let's first go back to Adam Smith's
definition of wealth: "a certain command over all the labour, or over all
the produce of labour, which is then in the market." 'Labor' appears to
refer to a definite quantity and 'then' appears to refer to a definite
point in time. Labor is not, however, a *discrete* distinction and a
"point" in time is strictly conceptual.

Just as with Zeno's arrow, no labor is performed in a "point in time."
Labor can only be performed *over a duration,* be it an hour, a day, a
week, a year or a lifetime. Furthermore, the amount of labor performed by
one person during any interval of time is variable. It is not infinitely
variable but it is flexible within certain definite limits. The expression
labor-power indicates this characteristic of labor as *potentially* equivalent
to a given quantity of production.

So, we can now amend Smith's definition as follows: income represents
command over a portion of the labor-power in the market during a given
extension of time. This definition could be further refined but the point
that I want to get to is that it is the labor-power that constitutes the
common-pool resource. The amount of goods and services that corresponds to
this amount of labor-power is not fixed -- but neither is it "infinitely"
variable.

The extent to which real GDP may vary depends on people's capacity to work,
on their motivation and on their opportunities for employment, all of which
may be affected by the distribution of income. In other words, great
inequalities of income may well *diminish* the common pool of goods and
services -- and ultimately of labor-power itself -- from which incomes are
derived.

That is, executive pay may be taking a bigger slice of a pie that is
smaller than it would be if executives weren't taking such a big slice of
it. Or to put it bluntly, they may be being richly rewarded for a
*negative* contribution
to social production that results from their excessive incomes!

There is much more that can said (and has been said
<http://www.scribd.com/doc/44657733/Time-on-the-Ledger-Social-Accounting-for-the-Good-Society>)
about both the implications and the background of the analysis of labor-power
as a common-pool resource
<http://commonsandeconomics.org/groups/stream-2-labor-and-care/forum/topic/labour-power-as-a-common-pool-resource/>.
I will pause for now to see how the conversation unfolds.

-- 
Cheers,

Tom Walker (Sandwichman)
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