Marx and the Matthew effect

11 July, 2017 at 13:04 | Posted in Economics | 4 Comments

People who are short of money are often desperate to borrow and so willing to pay high interest rates to loan-sharks, payday lenders or car finance companies. If you lack negotiating power, you’ll get a bad deal.

matthew-effect3_603_316This is an example of the Matthew effect …

All of this means there’s some truth in the old cliché: “the rich get richer, the poor stay poor.” Although the ONS says that the UK has a relatively low rate of persistent poverty, I suspect this is the result of people shifting to just above the poverty line rather than into great fortune. Other ONS evidence (pdf) shows that half of those who were in the bottom income quintile in 2010 were still there in 2014, and that a further quarter were in the next quintile, implying that only a quarter made it into the top 60%.

You might think all this is trivial. Maybe. But there’s another arena in which the Matthew effect operates: capital-labour relations. Exploitation, thought Marx, arises because the worker’s poverty puts him in a weak bargaining position. He “has no other commodity for sale” than his labour-power and in “bringing his own hide to market…has nothing to expect but — a hiding.” This is still, generally, true. Yes, there are some instances whereby labour can exploit capital (such as top-league footballers or chief executives) but these are rare exceptions. In most cases, it’s capital that has bargaining power and labour that doesn’t, and this gives us another Matthew effect.

Chris Dillow

So true, so true. But you won’t find it in Greg Mankiw’s textbooks. Wonder why …

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4 Comments

    • Interesting and perplexing 🙂

  1. The model simulation has no allowance for people with no money being able to borrow.

    • Yes, I was going to make that point. Also, money is loaned into existence so the supply of money increases over time. Shadow banks created more money out of promises to each other before 2008 than they lost in 2008.

      Even Hicks notes, in “A Market Theory of Money”, Part II “Money and Finance”, Chapter 7 “Banks and Bank Money”, that: “The bank notes could become a quasi-money, in rather general use.”


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