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Interview: Paul Cockshott on Econophysics and Socialism

Towards a New Socialism by W. Paul Cockshott and Allin CottrellPaul Cockshott is a Scottish computer scientist and a reader at the University of Glasgow. His major areas of work include array compilers, econophysics and the physical foundations of computability.

He has written a number of books including Towards a New Socialism and more recently Classical Econophysics (in PDF format).

Interviewer questions are in bold

You’ve done work recently in Econophysics, can you give a brief introduction to what that is and how it’s relevant to socialists?

I can see that it may seem a bit obscure, but you have to remember that Marx said he was out to discover the laws of motion of capitalism–a sentiment very influenced by physics. What is econophysics? Well in the main it covers any attempt to understand economic phenomena in terms of the conceptual apparatus that physics has developed for the study of systems with a high degree of freedom. As such it borrows heavily from ideas developed in statistical mechanics.

It has originated from two main sources. The mathematicians Farjoun and Machover who studied capitalism as a chaotic system and deduced the emergence of prices which would be proportional to labour values on statistical mechanics grounds. More recently there has been an influx of physics graduates into jobs in the financial sector where they have applied their own conceptual background to economic problems.

Since this latter work is paid for by their employers in the main, it tends to be rather focused on financial markets, but it has created an opening whereby people with a primarily mathematical or physics background have started looking at the economy without the prior ideological formation that they would have gotten from an economics degree. This creates studies that are much more empirical and less ideologically based than what economists tend to turn out.

Its relevance to socialists is that you can use these methods to analyse capitalism and understand why the labour theory of value holds, and why income distribution becomes so skewed.

Can you briefly describe what you think are important results that we’ve found in this area?

To my mind the important results are:

  1. That the labour theory of value is basically accurate.
  2. That any market system has a pretty uneven distribution of income–this would apply even to a system of worker owned firms.
  3. That the existing system, however, contains an even more uneven distribution of income than would be expected just from the considerations above.

The “Tendency of the Rate of Profit to Fall” (TRPF), is an idea that I believe goes back to Adam Smith. Can you give a quick description of the idea?

Yes–Smith originally noticed that the rate of profit tended to fall. He put this down to capitalists piling into a line of business and driving the price down. Marx argued that this is not something that affects just individual lines of business but the whole economy. He spoke of what he termed ‘absolute overaccumulation’ which occurs when the capital stock builds up faster than the growth of the workforce.

He argued that this phenomenon must tend to drive down profits for two reasons. Firstly it generates competition for workers and allows wages to rise; secondly since labour is the source of profit, if there is a rise in the capital to labour ratio, then the amount of profit for each £1 of capital invested must go down.

This is important for developed economies since they have a low rate of natural population growth and that means that over time the rate of profit tends to fall very low as we see in Japan.

How do you think the TRPF is relevant to the current crisis in Europe?

It is a background cause rather than an immediate cause. Background, because the crisis of the 70s/80s was more immediately due to the falling rate of profit than the current one is. The partial recovery that occurred in profitability in the 90s was made possible by a lowering of the rate of accumulation, which meant that the real value of capital stock grew more slowly, or due to depreciation, actually fell in proportion to the working population. The side effect though, was that the profits which were no longer accumulated as real capital, were invested in the financial system and converted into loans to the state or to consumers. The exhaustion of the credit worthiness of these borrowers after 2008 meant that profits were neither being lent out nor reinvested productively, which generated the recession.

What does this mean for socialists in the coming decades?

Well, in my view an important consideration here is the declining rate of profit in China. This will make the threat to jobs in Europe from the export of the jobs to China will be less of a gun to the head of the trades unions here. But more generally it means that the mode of resolution of the contradictions of accumulation that came into place in the 80s is exhausting itself, and it is very difficult for the European economy to re-start on the basis of the old neo-liberal formulas.

Such restructuring crises create potential openings for progressive politics if the labour movement has an alternative economic strategy.

I know that Andrew Kliman has made some statements about the TRPF and countervailing tendencies to this process. Specifically, the destruction of capital (either through physical destructor or obsolescence) or its decline in value due to the lower amounts of labour in producing capital used in production itself can keep the organic composition of capital.

I would tend to agree that the improvement in technology does tend to lower the capital labour ratio by accelerating the depreciation of obsolete capital stock. However, to restore profitability to–say–the levels of the 60s would require an unprecedented rate of growth in labour productivity which is unlikely.

Automation is not a new phenomenon. However, its increasing scope seems to make it unlikely we will attain full employment, considering that a lot of the tasks previously done by people are now done by machines. Do you think this is a merely temporary phenomenon, as it was with the introduction of the power loom in the late 18th century? Do you think our current stage of automation could cause significant new problems or offer new opportunities in the class struggle?

I think it is a mistake to attribute unemployment to automation. Automation has been going on for two hundred years now, and results in a shift in labour from one area to another rather than a reduction in the overall level of employment. A decline in employment is always the direct result of a slackening of aggregate demand, which in turn is influenced by the distribution of income within the economy and the rate of profit rather than the level of automation.

What do you think about minimum basic income proposals, given that sufficient use values can be produced with decreasing amounts of human labour, and that there may be environmental reasons to curtail economic growth in any event?

I tend to oppose these. Under a capitalist system they amount to a subsidy to low wage employers and a subsidy that other workers pay out of their taxes. Instead the labour movement should be demanding the full value that their labour creates.

The Soviet Union had a quite large percentage of the population involved in planning, and yet they were dealing with a much less advanced economy with far fewer goods than we have at present. Do you think we can plan with as diverse an array of commodities as currently exists?

I don’t think this is true. My understanding was that there were only a few thousand people employed in GOSPLAN. Moreover, we now have a much better information technology so I don’t think that the labour required by the planning system would be a problem.

The USSR had serious problems with quality control. It was sometimes the case that industries would reproduce the input products themselves because of shoddy quality, or source them illegally through fixers in order to make planning schedules. Capitalism sometimes deals with this problem by having competing producers which allow producers to source parts from any number of alternatives. Sometimes capitalism also has serious failures along this dimension but it is not generally such a systemic problem.

How can we ensure a more reasonable system of planning that will deal with the problems of quality control if products can not be sourced independently by producers?

I think that in part this can be dealt with by moving to a more real time planning system so that units of production can register new production plans based on new inputs more frequently, thus getting much of the effect of switch in suppliers. On the other hand there are some effects that come from running the economy at close to full capacity that may be hard to mitigate even in these circumstances.

There are quite a number of alternative economic proposals, including Parecon, the GIK proposal, your proposal from your book Towards a New Socialism, Inclusive Democracy and many others. Whatever one thinks about the desirability they all have the problem of being difficult to put into practice. How do you imagine we can practically implement these systems?

Well, there are two kinds of difficulty: 1. Political, 2. Organisational. The first is the more important. Given the political will the organisational problems would be soluble. People would modify the suggested economic model in the light of experience trying to organise it until they had a version they could attain in the given circumstances.

Do you think some form of mutualism, where cooperatives come together in order to institute some form of planning coexisting with capitalism might be a transitional form?

Yes, but only if there was the legislative support to convert a large portion of the economy to a mutual basis, irrespective of the wishes of current shareholders.

Currently Heinrich and other value theorists are enjoying a certain popularity in socialist circles. What do you think of value theory as put forward by Heinrich?

I am more familiar with the English and American value form theorists than Heinrich but I feel that value form theory concedes rather much to contemporary economics and attributes more power to the market in creating value than is realistic. My unhappiness with their approach is that they overload the meaning of socially necessary labour in such a way that, were their meaning to be used, they would make the labour theory of value unscientific.

From discussions with them, it seems to me that they hold that it is the sale of commodities at a given price that establishes the social necessity of the labour embodied in them. But if that is the case then there is no independent way of checking whether the price of commodities is determined by their labour content. They end up with a theory in which it is prices that determine what they count as labour content, and you end up with a price theory of labour rather than a labour theory of value. For a scientific theory of causality to be of any use, if we say A causes B, then A and B must be independently measurable. If you can only measure A by measuring B, then the inference that A even exists becomes unnecessary, which of course was Samuelson’s objection to the labour theory of value.

The econophysics approach is that both A (labour content) and B (money flow from sales of output) are in fact empirically measurable, and that we can show that variations in B are caused by variations in A.

Jonathan Gruber, an economics professor at MIT recently said in an online microeconomics course, “Economics is fundamentally a right wing science…our models always assume the market knows best, and you are going to be indoctrinated into this basic position.” Do you think that economics is as biased as Gruber makes out?

Yes.

What do you think are important areas for socialists to be looking at in terms of economics as a science?

I think that to make progress you always have to face up to getting a causal model for some real phenomenon that is going on in the world. Theoretical advances have to come from a confrontation with real phenomena. You have to look at what is happening and see if you can model it with your current conceptual apparatus. Often you will find that you cannot. At that point you need to develop the theory, but it is only in confrontation with the empirical that you can advance. To make the advance you may have to borrow concepts from other domains, but this borrowing has to be guided by pre-existing real problems.

If young socialists are interested in economics, how would you suggest they get involved in learning and advancing a programme of socialist economic research?

I would strongly suggest that they start off by doing a conjunctural analysis of the economy they live in.

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About Gavin Mendel-Gleason

An ex-patriate American living in the land of leprechauns. Former anarchist, present mass partyist, but always committed socialist. Has been accused of menshevik centrism and even *gasp* Bernsteinism.
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4 Responses to Interview: Paul Cockshott on Econophysics and Socialism

  1. Pingback: Darwiniana » Towards a New Socialism

  2. modulus says:

    A most interesting interview, as I had expected. I have a few observations.

    I think it is a mistake to attribute unemployment to automation. Automation has been going on for two hundred years now, and results in a shift in labour from one area to another rather than a reduction in the overall level of employment.

    I’m sympathetic to this view. At the same time, there’s a case to be made that this process leads to the new areas of employment being more knowledge-intense, or, put a different way: if we conceive of skilled labour as the addition of the training time plus the effective labour time, the more things get automated the less simple labour can be directly employed in an economy, and consequently the more previous training will be required to produce value. I think this may have important implications for the future. Likewise there’s a case to be made that, given the speed of technical change, we’re not just getting depreciation of capital but depreciation of complex labour–i.e., people need to be retrained more intensely and more often.

    Regarding the issue of a basic income, such would be a sort of subsidy or excuse for low wages; but if everyone got it–with no means testing at all–the situation would be rather different, I think. Arguably this could have inflationary effects in a money economy (or in a labour economy, perhaps lead to shortages, or a relatively lower return on labour time?) but I wouldn’t entirely discount it as an idea.

    Also, Marx is very critical of the phrase full product of labour due to things I’m sure Cockshott understands a lot better than me (machine depreciation, provision for those unable to work, etc). So I’m assuming it’s being used here as some sort of short-hand for the class as a whole capturing surplus value, and not as a sort of individual right to full proceeds for each worker.

  3. Niebuhr says:

    Modulus: whether the basic income would have inflationary effects or not would really depend on how producers react to its implementation. Depending on where we begin to analyze the effects of such a thing, it might actually have any number of effects, among which, the deflatiationary sort should also not be overlooked. How can giving people more money lead to deflation? While it may seem a far stretch on the surface, a syste which establishes this type of remuneration would possibly work to simplify the production and distribution of any number of commodities on the market. Take, for instance, the exampl of a cup of coffee. A cup of coffee you pay for today includes any number of taxes which inflate the price of the final product. Some of these taxes are unavoidable for political and economic reasons (import tarrifs, for instance), and some others are a bit trickier to understand. If we look at how much “Value added” tax goes into the final price of a cup of coffee versus the actual labor that was involved in its production, we see the picture becomes a bit more complicated. The introduction of a BIG might reduce the gross quantity of “value-added” that goes into your coffee by minimizing the amount of labour that each individual carries out. That being one of the stated goals of the BIG, it just takes some basic arithmatic to see how this would work out: if, say, you buy a cup of coffee in a country where the bulk of income is “value-added” (generated through selling one’s labour), then typically this means that behind the cost of that cup of coffee is alot of “Value-added” tax: not merely that which you see in the receipt, and which is issued in accordance with the laws of the land, but also the labour of the worker is taxed through payroll taxes, income taxes, etc. which are calculated into the end price. If, on the other hand, you buy your coffee in a country with a basic income guarantee, the price entails less of this “Value-added”, since, on the average, there’s less of the employee’s income which is generated from “Value-added”, and more from direct consumption taxes (or whatever means by whcih the BIG is financed). Of course, whatever those means are matters, and one may see an inverse inflationary push in regards to the amount which those additional taxes increase prices, but the net effect of this would have to be weighed out, and is not so easy to discern. I merely make this digression to illustrate the point that the introduction o a BIG would result in more effects than simple inflationary ones (though those, too, are part of the equation).

    There’s no reason, moreover, to think that the BIG would lead to labour shortages. If there is a demand for labour, there will always be a supply, ceterus paribus. The ability to easily solicit low-paid labour, on the other hand, would be greatly reduced, but this is a good thing: it would force employers to value each employee’s contribution more, and, of course, lead to higher wages (since the marginal utility of a little bit more income is less than the cost of lost time as a result of having to sell one’s labour). Again, a bit of simple arithmetic can confirm this is the case. There are, of course, all sorts of disaster stories that the economy would stop working, and so forth and so on, but these are purely speculative, and, if anything, a BIG would allow the economy to streamline further and reduce unnecessary and superficial labour (which will become an increasingly evident feature of our societies as automation takes its toll): in many regards, it’s just the next step in reforming society and opening up space for intellectual and artistic development, which is an aspect most naysayers are not willing (for obvious reasons) to acknowledge. One could, additionally, make the argument that the reduced expenditures in the state sector alone would make up for a large part in the financing for such a venture. I haven’t done the math, so I’m not going to make that argument, but it’s pretty clear that some tinkering with the present state of affairs might lead to great improvements in the lives of ordinary citizens, politically, socially, economically, among others.

    I’m not sure about the “full product of labour” notion, but I’ll take your word that’s what Paul means. In this case, sure, communal ownership of resources is a great way to motivate individuals to engage in their communities. If I may make one anecdote: I’ve seen projects to convert abandoned lots into inner-city gardens in the Southern Tier of New York state which really exemplify this notion of communal entitlement and collective rights. The lots would otherwise have been turned into private parking garages for local landowners, to lease to their tenement dwellers. One can see the vastly superior use community gardens would generate, not the least of which is, as the old SDS slogan went “to bring people out of isolation”.

    Sorry for the long-winded commentary.…

  4. Jacob Richter says:

    Sorry for coming about this blog late, but great interview on economic planning, political determination, and basic income problems.

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