I thought that the current orthodoxy -- including PK -- embraced skill-biased technical change.
Jim DevineFred Moseley <[email protected]> wrote: Krugman is “transitioning to the left” only so far as to recognize the obvious stagnant real wages and declining wage share of income in the US in recent years and to worry about the “uncomfortable” implications of these facts. But his explanation of these facts is in terms of the widely criticized marginal productivity theory of distribution, according to which profit is determined by the “marginal product of capital” (as opposed to the surplus labor of workers). His explanation of stagnant real wages is “capital-biased technological change”, which is defined as technological change which increases the “marginal product of capital” in relation to the “marginal product of labor” (i.e. ↑MPK/MPL). This is such BS! Marginal products do not exist and can’t explain anything. Below is a response of mine to another recent post by Krugman on the same subject. It also refers to a prior post by Krugman and a prior criticism by me which was posted on the Economist’s View blog. I would appreciate comments. Fred Krugman’s explanation of stagnant real wages This is a brief response to a recent post by Paul Krugman on his blog about “capital-biased technological change” as an explanation of stagnant real wages and the declining wage share of income: (http://krugman.blogs.nytimes.com/2012/12/26/capital-biased-technological-progress-an-example-wonkish/). This is a follow-up to a previous comment of mine on Economists’ View: http://economistsview.typepad.com/economistsview/2012/12/krugmans-explanation-of-stagnant-real-wages.html which was a response to a previous post on this subject by Krugman: http://krugman.blogs.nytimes.com/2012/12/10/technology-and-wages-the-analytics-wonkish) Krugman still has not clearly defined what he means by “capital-biased technological change”, but he says that he is following Hicks (1932), and Hicks definition is technological change which increases the marginal product of capital (MPK) more than the marginal production of labor (MPL); i.e. ↑MPK > ↑MPL (at a given K/L ratio). Thus, Krugman’s definition of “capital-biased technological change” is in terms of the marginal products of the marginal productivity theory of distribution. Krugman presents an example of office work with two inputs (capital and labor) and two possible techniques, one capital-intensive and one labor-intensive. However, this example does not include raw materials (and other intermediate inputs), and thus does not address the criticism that raw materials render the concept of the MPL (or the MPK) impossible (a criticism which I made in my earlier post and which goes back to Hobson and Pareto in the early 20th century). Raw materials cannot be held constant (as the concept of marginal product of labor or capital requires) while increasing labor (or capital) and output. In order to produce another car, one must have additional wheels, brakes, etc. And between labor and raw materials, there is only one factor proportion possible (i.e. only one “technique”), so Krugman’s example of two techniques and extrapolation to a “bunch” of techniques (the usual hand-waving to approach a “smooth isoquant”) does not apply. There is no isoquant (kinked or smooth) between labor and raw materials. One cannot increase labor and reduce raw materials and produce the same quantity of output. A car still needs four wheels. In order to reassure readers with doubts about marginal productivity theory (“if you’re worried”), Krugman just asserts that “labor and machines are paid their marginal products”. I argue that this conclusion is invalid in cases that include raw materials, since marginal products do not exist in these cases. I agree with Krugman that technological change is replacing labor, not just low-skilled labor, but also medium-skilled labor, and even increasingly high-skilled labor (as he has been writing about: http://krugman.blogs.nytimes.com/2012/12/08/rise-of-the-robots/) But this important phenomenon cannot be analyzed in terms of MPK and MPL because these marginal products do not exist. There are a number of other major (and probably insoluble) problems with marginal productivity theory that are fairly well known and have been known for a long time: the “aggregation” problem, the “adding-up” problem, the “reswitching” problem, the “multi-causality” problem (which is similar to the “raw materials” problem in that it renders marginal products impossible), the precise definition of the “price of capital”, the lack of adequate theories of the supply of either labor or capital, etc.. But the impossibility of marginal products in production processes that include raw materials is the most obvious insoluble problem. Marx’s theory predicted in the early days of capitalism that technological change would tend to be labor-saving (in the usual sense of using less labor to produce the same quantity of output, not in Hicks’ and Krugman’s sense of a ratio of marginal products), and this labor-saving technological change would cause increasing unemployment (the “reserve army of the unemployed”) which in turn would put downward pressure on wages and the wage share of income (Capital, Volume 1, Chapter 25). He called this important conclusion “The General Law of Capital Accumulation” (the title of Chapter 25). One does not have to use the very dubious marginal productivity theory to explain these important phenomena. Marx’s theory provides a perfectly adequate explanation without the extremely problematic concepts of marginal products of labor and capital. To his credit, Krugman acknowledges in another recent post http://krugman.blogs.nytimes.com/2012/12/08/rise-of-the-robots/ that the current capital-labor dimension of inequality “has echoes of old-fashioned Marxism – which shouldn’t be reason to ignore the facts, but too often it is.” But Krugman still wants to explain these “uncomfortable” facts in terms of marginal products and marginal productivity theory, in spite of the many well-known deficiencies of this theory. I suggest that he should not ignore, not only these facts, but also Marx’s robust theoretical explanation of these facts and the capital-labor dimension of inequality. Fred Moseley On Wed, Jan 2, 2013 at 10:07 AM, c b <[email protected]> wrote: Re: [Pen-l] Ann Davis(nib) Now maybe the left can pay some attention to technological change....which has been out of style among Marxists since the 1970s....alas.
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