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Posted: May 16, 2025
In our introduction to microeconomics, we noted the abstraction from political and historical realities that occurs in microeconomics. Yet these political and historical factors are a fundamental part of socialist economics. Both micro- and macroeconomics also often abstract class from their analysis. In this post, we’re going to look at some of these disciplines’ weak points, to separate the insights, which can be utilized in socialist construction, from ideology.
Let’s start by recognizing that the individual consumer or firm behaviour studied by microeconomics always occurs within a real and historical macroeconomic context. There is never a hard border between these two disciplines in practice. That’s not to say that macroeconomics determines microeconomics. Marx analyzes the dialectical relationship between a society’s economic base (forces and relations of material production) and its legal and political superstructure. The base is the primary element in the relationship, shaping a superstructure that both maintains and further shapes the base.
We should think about the relationship between individual microeconomic behaviour and macroeconomic systems in the same way. Macroeconomics creates the environment within which we make microeconomic choices. Our demand, utility preferences, and opportunity costs are dependent on factors like availability of credit, and what services the state provides (healthcare, transportation, etc.). These choices are then reaggregated in macro indicators, like the consumer part of GDP.
For example, let’s compare two workers. Worker A’s country has excellent public transportation in every city, and subsidized high-speed rail between cities and popular rural destinations. Worker B’s country has fine public transportation in big cities, antiquated private rail between cities, and no mass transportation to popular rural destinations. Both workers also take public transportation to work. A car will likely have less utility and weaker demand for Worker A than B. This is not because Worker A prefers car ownership less, but because the state provides them with high quality, lower cost transportation alternatives. Worker A can live a functionally identical life without owning a car. This enables them to make other choices based on their opportunity cost curves between cars and other higher demand goods. Worker B has higher utility and stronger demand for a car, if they want to travel between cities and to popular rural destinations like Worker A. They must buy a car, and forgo alternatives based on their opportunity costs. This choice is not made because of their own ‘natural’ or ‘individual’ preferences, but a lack of government investment in public transportation systems.
We can take the results of this example to reintroduce a vital socialist economic concept back into our discussion of micro/macroeconomics: class. A central part of microeconomic choices is scarcity, analyzing how we make choices within our budget constraints. This holds true for the working class, often so impoverished that we must choose between food, bills, paying off debts, etc.
On the other hand, the capitalist class, and to a lesser extent their wealthy ‘running dogs,’ are not constrained by the scarcity and budgetary constraints of the working class. Their immense wealth means they never lack for life’s necessities. They make categorically different consumption choices than workers, and can waste money without feeling material consequences. The capitalist’s problem is not scarcity but overabundance. Rather than forgoing one good for another, there is no end to the amount of real estate, number of planes and yachts, or height of wasteful luxury on which capitalists can spend their gains from exploitation.
Workers are constantly scolded for the brutal compromises of poverty that we make everyday. Going into debt for a smartphone to participate in the modern world. Choosing cheap processed foods rather than allowing our children to starve. Using student loans to study what interests us rather than only what capitalism rewards. Capitalist waste means workers live in an environment of artificial scarcity, where there’s never enough money for even basic human rights like healthy food, safe housing, and worthwhile education.
So we can see from these circumstances that workers generally spend all of our wages. This is just one more economic reason that capitalism’s hoarding nature stunts real economic growth and mass living standards. Increasing a worker’s income always leads to increased demand that addresses real material and cultural needs. Increasing a capitalist’s income often lowers demand by freezing this money, which could go towards production for worker’s needs, in savings or wasteful luxurious consumption.
How can we translate our analysis of these unequal class dynamics to a more socialist understanding of macroeconomic health? By recognizing that real macroeconomic health depends equally on a society’s overall wealth, and how equitably it’s distributed. GDP per capita is usually the leading overall macroeconomic indicator for discussing economic health. By combining GDP with population, it’s claimed that GDP per capita objectively accounts for all extremes: Big, rich countries (i.e. the USA); big, poor countries (i.e. India); small, rich countries (i.e. Luxembourg); and small, poor countries (i.e. Palau).
However, GDP per capita doesn’t account for inequality within these countries. The dynamics of capitalist production and private property cause wealth to concentrate in top-heavy class societies, dividing a small and rich capitalist class from an increasingly large and impoverished working class. We can quantify these inequalities by using better measurements like mean income (the middle income instead of the average), the Gini coefficient for inequality, or purchasing power parity (which incorporates how much a currency can purchase within its own country).
If we look to history, what GDP per capita shows us clearly is the ongoing perpetuation of imperialism. This is the international equivalent (between countries) of class inequality (within countries). Using GDP per capita broken down by continent, we can see how the imperialist countries remain rich at the expense of their former colonies. The wealth of imperialists and settler colonies (North America ($67k), Australia/New Zealand ($64k), and Europe ($38k but with a very interesting divide between Western ($53k) and Eastern ($17k)) remains multiples or magnitudes higher than their former colonies (South America ($10k), Asia/Pacific ($9k), Africa ($2k). This vast global inequality can also be seen by how much closer the global GDP per capita ($14k) is to that of the ~85% of the world’s population that was colonized by Europeans, than to the ~15% of the colonizers and their descendants.
In our next post, we will continue looking at microeconomics and macroeconomics from a socialist economics perspective.
If you're interested in these ideas, don't hesitate to reach out. This project is a conversation, not a lecture, so all good faith feedback is encouraged, especially from trained economists.