## Sunday, April 26, 2015

### Guns don't kill people. Labor kills people.

Arthur Chu, Jeopardy champ extraordinaire, tweets:
No, LABOR made your iPhone. Labor makes things under any -ism. The -isms just determine who gets paid
He's right that "-isms", in econ terms, are about distribution of resources (though he should broaden his definition of resources to include control, not just payment).

Consider the following two situations:
A) I make fire by rubbing two sticks together.
B) I make fire by using a butane lighter.

In both of these situations, you can say "labor made the fire". But in the first situation, there was a lot more labor for the same amount of fire. Saying only that "labor made the fire" leaves out this important fact.

Now suppose I want to make fire with no tools. No matter how much labor I apply - the labor of millions of people over millions of years - I will not be able to make fire.

So saying that "labor makes fire" also leaves out this important point - the necessity of having tools.

Labor is a necessary input into producing an iPhone. But there are other necessary inputs - machines, buildings, land, natural resources, vehicles, tools, etc. And labor is not a sufficient input for making an iPhone - without the right tools and the right organizational system, no amount of labor will get the job done.

But didn't labor "make" the machines, buildings, etc.? Since labor is necessary to create any intentionally produced good, you can say "Labor is what makes everything" if you want to. But you know what else is necessary to create those goods? Electromagnetism, gravity, and the strong and weak nuclear forces. So I could reply to Arthur Chu by saying "Labor didn't make your iPhone. Physics made your iPhone." Now who's right?

The basic point here is that our language, and our intuitive way of thinking about causation, views everything as perfect substitutes. A + B = C. If A + B = C, then you can determine how much of C is due to A, and how much is due to B.

But in reality, things are only partial substitutes. You more often have stuff like
(A^a)(B^b) = C. When you have complementarity, it doesn't make sense to ask how much of C is due to A, and how much is due to B. But we always do it anyway. Arthur Chu's tweet is one example. The slogan "Guns don't kill people, people kill people" is another example. A third example is the perennial debate over whether humans have "free will."

Our intuitive concept of causal attribution is simply wrong and useless in most cases.

1. "A third example is the perennial debate over whether humans have 'free will.'"

You lost me. Could you elaborate?

1. Do you choose to do something, or do the chemicals in your brain make you do it?

This is a silly question, but people ask it all the time.

2. Anonymous5:16 PM

you can do as you will but you cannot will what you will.

3. ...yet.

4. The meaning is "Noah doesn't understand philosophy."

2. bad quants do this all the time in attempting to assign values to each individual player's contributions to team outcomes

3. Unrelated comment: your Bloomberg column on the value of a PhD was one of your best pieces. I fully agree with everything you wrote.

1. Thanks, man.

4. Yeah, I immediately thought Chu's statement was stupid the second I read it. No iPhone would have been made under the Soviet system, no matter how much labor would have been applied, precisely because the Soviet system had no intent to build any iPhones, ever.

Your post here is mostly spot-on.

1. Anonymous6:41 AM

iphones are made in China, which is a communist and dictatorial country

2. China is:
1) Communist in name only; and
2) Producing iPhones under the direction of a capitalist enterprise.

3. Anonymous4:26 AM

The Soviets could and did produce interesting tech, almost always in military output and sometimes in heavy industry. Their space shuttle design was superior in some ways (not all) to ours. Lots of human capital (e.g. math).

Once again, a Noah post & responses reveal a distinct lack of any appreciation of the empirical world.

5. Except that labor calls all other materials into production. Labor acquires the two sticks. Labor produces the butane lighter. Factories can function exactly the same regardless of the economic system (that is, the system that determines allocation - payment is the form of allocation in capitalism). The only thing that capitalism determines is who isn't given that iPhone.

1. Except that labor calls all other materials into production.

So what? Physics calls all labor into action. :-)

The only thing that capitalism determines is who isn't given that iPhone.

But without capitalism, there never would have been an iPhone. Capitalism was a necessary input into the iPhone's creation. As was labor. As was physics. As was biology.

2. Anonymous6:49 PM

"So what? Physics calls all labor into action."

Physics doesn't call anything into action because it has no purposeful intent. Only living creatures can make plans and act on them.

"But without capitalism, there never would have been an iPhone"

Whilst it's true that both physics and labour are necessary conditions for the production of an iPhone, can we really say the same for capitalism? Unless there is something in the laws of physics that says iPhone's can't be made without capitalism, there is simply no way to prove or disprove a counter-factual claim like that.

I'm not saying you are wrong in your conclusion, just that the way you've gotten there doesn't logically follow.

3. "Whilst it's true that both physics and labour are necessary conditions for the production of an iPhone, can we really say the same for capitalism?"
-Pretty much. Just look at the constant shortages of consumer goods in all the fully centrally-planned economies. Centrally planned economies do not promote the advancement of minds who could have come up with the thought keyboardless phones would be a good idea.

And I don't think there are any other viable economic systems besides capitalism (broadly defined; including modern Russia, Switzerland, Italy, the U.S., and Sweden) and central planning (e.g., socialist Albania, North Korea, Cuba, Mongolia, Romania).

4. Do we really need to go into the whole correlation/causation thing?

Most centrally planned societies became centrally planned because there was already a shortage of resources and society as a whole said "Enough, let's do something different."

Russia, China, Cuba went communist because people were starving and they demanded a change. They were resource starved in relation to their population before they went communist so claiming their lack of resources due to communism completely lacks intellectual integrity.

5. Physics doesn't call anything into action because it has no purposeful intent.

So what made the mountains and the trees? Did we just use semantics to prove the existence of God? ;-)

Whilst it's true that both physics and labour are necessary conditions for the production of an iPhone, can we really say the same for capitalism? Unless there is something in the laws of physics that says iPhone's can't be made without capitalism, there is simply no way to prove or disprove a counter-factual claim like that.

True. But you definitely need capital - tools and the like.

6. >>So saying that "labor makes fire" also leaves out this important point - the necessity of having tools.

I don't get it. Isn't the obvious response, "labor makes the tools, also" ? All those other inputs – "machines, buildings, land, natural resources, vehicles, tools" – labor made those too.

We had physics for, I don't know, 13.6 billion years but no iPhones until people gathered in a warehouse somewhere and got to work. Put a bunch of capitalists in that warehouse and see how many iPhones come out. None, unless they sit down at the work bench and start snapping pieces together.

1. I don't get it. Isn't the obvious response, "labor makes the tools, also" ? All those other inputs – "machines, buildings, land, natural resources, vehicles, tools" – labor made those too.

The obvious bad response. Physics made all of those things, not labor. See? ;-)

We had physics for, I don't know, 13.6 billion years but no iPhones until people gathered in a warehouse somewhere and got to work.

We had labor for, I don't know, 5000 years, but no iPhones until some capitalists got some money together and funded its creation.

See what I did there? ;-)

2. Isn't there just a sematic trick here? Chu uses "make" in the literal sense of "construct by hand." You're using "make" in the figurative sense of "create the necessary conditions." Physics and human beings make things in two different senses the way thieves and taxes "steal" private property in two different senses. Chu's comment may be glib but it is accurate enough in his sense of "make."

3. Isn't there just a sematic trick here?

No, it's not semantics. It's the crappiness of our intuition about causal attribution. Do guns kill people, or do people kill people? It's an ill-posed problem. As is the question of whether labor or capital makes iPhones.

The tweet in question seems to signal some politics, so you'd probably still have room to disagree about whether capital or labor is a more important ingredient in the production of the iPhone, or about whether this is even an intelligent question, but you, Noah, missed Chu's point immediately.

7. Anonymous5:08 PM

I thought the labor theory of value was dead.

8. All this discussion is basically about "who gets paid." Certainly the amount of money being paid to labor as been on the decline. The Republican partty seems to exist almost entirely for one reason: to minimize the amount of payment going to labor.

9. China had labor in abundance but did not produce a single iPhone until a Taiwanese manufacturer showed up and used Western: technology, product design, marketing, distribution, merchandizing, finance and telecommunications infrastructure.

Without Foxconn and Apple most of that labor would still be knee deep in a rice paddy.

10. "You more often have stuff like (A^a)(B^b) = C. When you have complementarity, it doesn't make sense to ask how much of C is due to A, and how much is due to B."

But even with this production function the amount of C is still affected by differing amounts of A vs. B. You're just showing that magnitudes of each input differ and therefore levels are less important compared to A+B=C.

1. Suppose a=1, b=1, A=4, B=5, and so C=20.

How much of C was "made by" A and how much was "made by" B?

2. 4/9 of 20 units comes from A and 5/9 of 20 units comes from B...I guess I'm not understanding where the confusion lies.

3. Nick: I think the importance of what Noah says lies in extreme cases.

Example 1: Imagine that A drops to 0 and therefore no amount of B produces anything. This is what Noah wanted to say about producing fire without tools or producing iPhones without capitalism.

Example 2: Imagine that you wanted to divide all units produced by combined effort A&B based on your calculation (4/9 to A and 5/9 to B). A now has a lot of power in any negotiation. If he halves his effort the number of produced goods (and therefore payoff for both A&B) also halves. Both A and B may literally choose whatever level of salary for the counterpart if they play continuous game. If we assume that effort made by A or B (as percentage of their potential) depends on actual level absolute payment (number of goods recieved at the end of any round) the equilibrium is when they share the payout fifty fifty even of A(maxeffort) = 0.1 and B(maxeffort) = gazillion

11. Capitalism - in its modern variant - is interested in selling iPhones (note that they are "made" in nominally communist China) . Soviet communism was interested in making things that would keep the Germans from (again) massacring millions of Russians. Chinese communism was interested in uniting the country and providing basic access to the necessities of life. All did what they were interested in. So what?

1. Soviet and Chinese leadership were interested in maintaining their power and making their citizens compliant not fighting Germans or giving anyone anything necessary for their survival. If they wanted those things they would have chosen a better economic system and freer system of governance.

12. Just to pursue the "labour made the tools" argument a little further:

There's intellectual labour as well. I think Noah's argument is:

iPhone = physical labour + knowledge

Labour(ers) supply the physical labour, and Noah is arguing that capitalists supply the knowledge. But there's a fairly straightforward response to that: capitalists are only in a position to supply the knowledge because they created an artificial scarcity of knowledge with their stupid intellectual property laws.

NB. I don't necessarily subscribe to the view above, but I think the disagreement here, at base, is over whether it is right for capitalists to restrict access to the fruits of other people's intellectual labour, and derive rents from them.

Though there is also another factor, which is the coordination of labour: irrespective of the intellectual property that goes into it, the process of coordinating the global construction of an iPhone is also a remarkable feat. But again, it's unclear who the benefit of that coordination should flow to.

1. I think Noah's argument is:

iPhone = physical labour + knowledge

Nope. My argument is that addition can't be used here.

2. Anonymous5:54 PM

>>I think Noah's argument is:
>>iPhone = physical labour + knowledge
>Nope. My argument is that addition can't be used here.

Physical labour? why is physical labour decriminated from labour?
knowledge is genetated by Intelectual Labor alone

iPhone = Physical labour [some op] Intelectual Labour = Labour

before you start a discution like this you should define "Capitalism"... I bet you can't

13. Noah argues (quite rightly) that addition cannot be used here, while subscribing to doctrines that put marginal inputs and outputs at the centre of their analysis.????

1. Anonymous3:56 PM

Wow, you're dumb.

14. Haha, I started thinking about Cobb-Douglas as soon as I started reading this. So, if you have labor but no capital you can't really make anything, and if you have land (capital) but no people to work it you're also screwed. Short version: you need shit to make other shit.

15. Here's an interesting quote by Bohm-Bawerk:

http://robertvienneau.blogspot.com/2007/05/b-on-surplus-value.html

16. Anonymous4:59 PM

I still don't understand how the fact that physics does everything contradicts the fact that labor alone is the only human input in the making of an iPhone. Human input is physics so there is no contradiction there. Capitalism has no input, because capitalism is a status not an action. The "act" of a capitalist is to own capital... this "act" doesn't participate in any phase of a iphone construction.

17. I thought a lot about what to comment in this post. I think it has two main implications. The first one, is that it discards the substitution principle. I agree with that. There is no smooth substitution between "factors", which has severe implications for production functions, almost ignored by mainstream economists.
The second point is that this post is revealing about a disappointing feature of many other economists: the unwillingness to learn about the history of economic thought. This post would not have been written with just a superficial reading of Marx.

18. For about half a century, mainstream economists have had no coherent and agreed upon theory to explain the returns to capital or to wages. All the knowledge you want of physical stocks and flows in production will not get you there.

1. Anonymous3:57 PM

Well, gee, if noted scholar Robert Vienneau says something on a third rate blog, it must be true! I should just go home and take up knitting.

2. Thanks for the compliments. (I think you could have been more graceful by being silent here about any derogatory comment on your host.) But I don't think of myself as so noted. Rather, I think of my point as well known among educated economists.

Christopher Bliss and Christian Bidard are two economists who tried to address this issue. I try to set out their point here: http://robertvienneau.blogspot.com/2014/06/a-sophisticated-neoclassical-response.html

19. I think the lesson here is this:

Twitter is a terrible avenue for communication, because it encourages the production of ambiguous rhetorical utterances that can be arbitrarily deconstructed and interpreted any way the reader wishes.

There's about a dozen different things Chu could mean:
1. A morale boosting slogan about how workers are the best.

2. A point about how current economic inequalities are what enables affordable manufacture of electronic goods.

3. A claim about how in the counterfactual, where capitalism didn't exist iPhones would still be made in the happy utopian communist society that results

4. A claim about how in the counterfactual, where capitalism didn't exist state commissioned luxury iPhones for high level officials would still be made in horrible dictatorship that would exist

5. A claim about the inevitability of technological progress and human labour despite any differences in economic systems.

6. A point about how at the ground floor, on the factory floor, capitalism is generally invisible.

etc etc

If you like Chu, you pick a sensible interpretation. If you dislike Chu, you pick a ridiculous one. Noah has chosen the latter. So again, Twitter sucks. It's not about communication, it's about scoring points.

20. Necessary but not sufficient in general doesn't add up

Notable exception: 1 + 1 = 2 and the rest