Mandel's Mistakes in Marxist Economic Theory

One of the functions of this blog is to try to stimulate discussion on various aspects of Marxist Theory, in particular in relation to my own specialism and interest in Economic Theory. Another reason for this is because, particularly in relation to Marx's Economics there has been a considerable lack of attention and development compared to other areas for example - Sociology - where key aspects of Marx's thought have even been incorporated into bourgeois science. Yet it is Marx's Economic theory which is the bedrock upon which the rest of Marxism rests.

I have recently started to read again Ernest Mandel's "Marxist Economic Theory" for the first time in a couple of decades. Mandel's book is a wonderfulsource of background data for arguing the Marxist conception of history, and for demonstrating by reference to a multitude of academic researches how Marx'stheory of history, and the historical development of economic categories retains its force today. My copy of Mandel's book is the 1974 edition, and the weakness in relation to some of this background data is that many of the studies in ethnology, and anthropolgy, and of course the economic statistics are now considerably out of date. A useful task for academic Marxists would be to do what Mandel himself at the beginning of the book hoped would happen - that is that even greater flesh could be put on the bones established in the form of up to date studies.

Mandel's Errors

But my task in this blog is to point to serious errors that Mandel makes in his elaboration. I am concentrating here on two related issues concerning Surplus Value, where I think Mandel makes serious errors.

Surplus Value or Profit on Alienation


In Chapter Three - "Money, Capital, Surplus Value" - Mandel looks at the historical material detailing the development of Money as a universal equivalent. He goes on to again look at how this development allows the creation of a class of people - Usurers and Merchants - who are able to use their ownership of Money to derive a "Surplus Value". In the case of the owner of Money Capital they can derive this "Surplus Value", directly in the form of interest paid on the money capital they loan out. Their Capital self expands M becomes M1. Where the owners of Commodities exchange these commodities for money only in order to use this money to buy other commodities they need, the Merchant Capitalist only buys Commodities in order to sell them. He begins not with a Commodity, but with a sum of Money, which he hopes to increase through a process of exchange. This is represented by M-C-M1. Mandel goes on to ask the important question here where does this "Surplus Value" - M1-M - come from? Mandel quite correctly explains that the source of this profit acquired by the Merchant is that they have been able to buy Commodities at one price in one market, and to sell them at a higher price in another - often distant - market. He gives us historical research showing in detail how this was the case, and that frequently it came down to buying goods in a market where economic development was backward and the producers did not realise the real value of the goods they were selling. Today we call this type of activity arbitrage, where traders take advantage of mispricing of goods in different markets. Its often applied to trading in foreign exchange markets.

But, as Mandel concedes the consequence of this trade is not to increase the wealth of society overall. It merely transfers values between different people. The Merchant's "Surplus Value" is equally offset by the losses suffered by those from whom they bought, and those to whom they sell. But, this is where I have a problem with Mandel's description of this Profit obtained by the Merchant Capitalist - and the same applies to the Interest received by the Money Capitalist - as Surplus Value. Marx describes the process by which Merchants and Money Capitalists share in the Surplus Value produced by the Industrial
Capitalists, but this presupposes that this Surplus Value has been created. If Mandel's Merchant Capitalists in Ancient society are really obtaining a Surplus Value then this too presupposes that this Surplus Value has already been produced in the sphere of production, and that implies Capitalist production. Of course, the same applies to Money Capitalists. In Theories of Surplus Value, Marx deals with this kind of relationship, and he quotes the work of Steuart, who describes this surplus as "Profit on Alienation".

See: Marx - Theories of Surplus Value Chapter 1

"This profit upon alienation therefore arises from the price of the goods being greater than their real value, or from the goods being sold above their value. Gain on the one side therefore always involves loss on the other. No addition to the general stock is created. Profit, that is, surplus-value, is relative and resolves itself into “a vibration of the balance of wealth between parties”. Steuart himself rejects the idea that surplus-value can be explained in this way. His theory of “vibration of the balance of wealth between parties”, however little it touches the nature and origin of surplus-value itself, remains important in considering the distribution of surplus-value among different classes and among different categories such as profit, interest and rent."

We can describe the Money possessed by these Capitalists as "Capital", provided that we understand by this a specific type of Capital. It is Capital insofar as it is self-expanding value. Yet, as Marx spends the whole of "Capital" demonstrating, Capital is more than simply self-expanding value, it is a social relationship that can only arise under certain social conditions i.e. generalised commodity production, based upon the employment of wage labour exchanged against Capital. Capital becomes congealed surplus value arising out of this relationship. But we cannot describe the profit mandel's merchants and usurers make as "Surplus Value", because it does not arise out of an exchange of wage labour with Capital. Surplus Value is the basis of economic expansion through the accumulation of Capital. But, this is clearly not the case with the "Surplus Value" Mandel speaks of here. Quite the opposite. To the extent that it impoverishes the producers through unequal exchange it acts not to stimulate but to restrict development. Mandel himself speaks of the effects of Mediterranean merchants who forced down the prices paid to their peasants suppliers to such a level that it was not only the suplus product of those peasants that was acquired, but also part of the necessary product, the basic subsistence of those peasants. In fact, it is this, plus the taxes placed on Capital by the Princes, which prevented Capitalism developing in these states in the 15th Century.

Mandel departs from Marx's Historical Materialist method here, and commits the same mistake he earlier accused the vulgar economists of. He takes economic categories out of their historicaal context. In fact, he might as well call feudal rent, "Surplus Value", because it too whether in commodity or money form has an exchange value once generalised commodity exchange commences. But feudal rent is quite clearly NOT Surplus Value it is a surplus product, which has an Exchange Value. It is not a share of a Surplus Value created in production as is Rent under Capitalism, because without the exchange of Capital with Wage Labour there can be no creation of Surplus Value, only the creation of Surplus Use Values. But, the same applies to Interest and Merchants Profit in pre-
capitalist societies. If Merchants' Capital and Money Capital cannot create Surplus Value, if trade/exchange does not create Surplus Value under Capitalism, it can even less achieve that function in pre-capitalist societies. It is simply not consistent with Marx's Historical Materialist method to take categories such as Interest, Rent or Merchant's Profit and equate these categories as they exist under Capitalism with categories that have the same names under previous modes of production. But, that is what Mandel does here.

But, the reality is as Marx sets out in the Grundrisse, Surplus Value is not possible without wage labour. It is dependent upon and comes into existence alongside wage labour. Indeed, and for related reasons, as Marx again sets out in the Grundrisse, Exchange Value itself does not achieve its true form untilthe advent of wage labour, and Exchange Value extends its scope in proportion as wage labour itself is extended.


Mandel's error here stems from a mistake I have referred to in previous blogs that I have seen other Marxists fall into, and which is so serious that it undermines the whole of Marx's economic theory. That error concerns the nature of Exchange Value and Surplus Value.

The Nature of Exchange value and Surplus Value

Exchange Value is determined by the average socially necessary labour-time required for production. In an economy such as those described by Mandel, where production takes place to meet the needs of the producers then no surplus value arises in the aggregate. Some producers if they are efficient may get back more labour-time equivalent than they have expended, but likewise others who are less efficient than the average will get back less. Because producers are not Capitalists, they do not seek to expand their productive Capital by the accumulation of surplus value, the peasant trades the surplus part of their food or other production, merely in order to obtain the other goods and tools required for their subsistence. Even the craftsmen who lives solely by the production of commodities does not seek to accumulate Capital in the form of a growing mass of means of production. If they did they would have to employ wage labourers, and would truly become capitalists. Surplus Value arises because the product sold by the Capitalist encompasses a greater quantity of labour-time, than the labour-time paid for by the Capitalist. The reason for that is that the worker works for a longer period of time than is required to replace the value of his Labour-power. But precisely, for that reason Surplus Value cannot arise where exchange is between producers themselves. A Baker who works for 10 hours baking loaves, and who sells those loaves at their exchange value of 10 hours, plus the labour time constituted in the constant Capital used up in them, can make no Surplus Value, because the Exchange Value received is equal to the Labour-time expended. Marx details this in the "Grundrisse".

We cannot here say that the Baker is his own Capitalist who appropriates his own Surplus Value. Its true that the Baker may sell more bread than is required to provide for his own subsistence, and so has a surplus over and above what is required for his own subsistence, but what distinguishes him from the Capitalist is precisley that the Capitalist obtains this surplus gratis. The baker does not he has paid for it by the expenditure of his own labour time.

It is prcisely this distinction which makes the surplus obtained by the Capitalist "Surplus Value" arising out of the social relationship of Capital with wage labour, whereas, for the reasons Marx sets out again in the Grundrisse Capital can only truly be Capital insofar as it is not Labour, and labour only Labour insofar as it is not Capital. In other words labour is only labour when it is completely separated from Capital, when the worker does not own his means of production. The baker cannot be a wage worker precisely because he DOES own his own means of production. His Labour is not a relation with
Capital, but merely with means of production. Again what the Baker produces is a Surplus of Use Values, which also have an Exchange Value. In a society made up entirely of such petty producers no "Surplus Value" can arise, precisely because those that Exchange there commodities do so at their Exchange Value, and these petty producers have all expended an equivalent amount of Labour-time in the production of their commodities, as they receive for them. Yet it it is clear that such societies could produce a social surplus, and that social surplus itself would have an Exchange Value. That does not make it "Surplus Value" in accordancee with Marx's definition. In reality this social surplus remains in essence a surplus of Use values, no different from the surplus of Use Values produced by every other pre-capitalist, class or caste based society.

But, it is not only Surplus Value that is dependent upon the existence of wage labour. As marx says in the Grundrisse Exchange Value itself can only take on its true aspect with the advent on a generalised scale of wage labour. Why is that? It is because a true evaluation of Exchange Value can only be madde by those that do not themselves own the means of production, and ultimately Exchange Value is nothing more nor less than an evaluation by consumers of what the average labour-time should be for the production of any given commodity i.e. what is its price of production. But, the reaality is that this evaluation is not the same for all consumers. It is different for those that own or are capable of owning means of production compared to those that do not.

Consider the following. I wish to buy a new coat. I go to the tailor who sells me such a coat. He sells me the coat at its Exchange Value. This exchange Value is made up of 10 hours Constant Capital in the form of material, and used up machinery, and 10 hours Variable Capital in the form of the labour of his workers. In evaluating this it does not matter to me that although the workers worked for 10 hours they were only paid for 5. The fact remains that the coat does contain 20 hours of labour-time. As I am a worker and not a capitalist that is the price I must pay if I want the coat. It is its Exchange Value. But, now suppose that I am not a worker, but a Capitalist. Now an alternative opens to me. Instead of going to the tailor, I could instead use my capital to buy the material myself, hire the necessary machinery, and employ the tailor's workers myself directly. Now I only have to pay these workers their wage of 5 hours. For me as a capitalist the Exchange Value of the coat is no longer 20 hours, but only 15. The surplus Value has disappeared. And this is precisely what happens according to Marx where Capital exchanges not with wage labour, but with Capital, or where labour exchanges directly with labour. If the only people who participate in the process of Exchange, and thereby the social determination of Exchange Values are the owners of the means of production, there can be no Surplus Value, and where that exchange is the exchange of goods produced by someone other than the owners of those means of production then these exchange Values will in fact always understate the actual amount of labour-time required for their production, because the only Labour-time that can be taken into consideration by the owners of the means of production is that Labour-time which they would have to lay out to achieve that production, and provided those that do the work work for longer than is required to reproduce themselves, that will always be less than the actual amount of time spent in production.

Slaves DO NOT produce surplus Value.

Mandel's error leads on to what is an even worse error. An error that completely undermines Marx's theory. He gives historical data relating to the hiring out of slaves in Athens in the Fourth and Fifth centuries B.C. He tells us that the net daily income from hiring out a slave was one Obolus, or 500 drachmas a year. He goes on to tell us about Greek slave owners who hired out as many as 1,000 slaves to work in the mines. In defining the profit made by the slave owner as "Surplus Value", Mandel says,

"buying a slave thus constututes a source of surplus value of a special kind. This surplus value is not the result of mere appropriation of existing values, a mere transfer of values from one pocket to another. It results from the production of new values ,the appropriation and sale of which are the source of surplus value."

This last statement is in fact false as I shall demonstrate, but there are many mistakes in Mandel's argument here. Let us begin by looking at things first from the standpoint of the slave owner. The basic tenet of Marx's analysis of generalised exchange is that commodities exchange at their exchange values. He goes out of his way to make this point partly in order to demonstrate that his theory of Surplus Value does not at all have anything to do with unequal exchange, or profit on alienation etc. But, the Exchange Value of a commodity is the average socially
necessary labour-time for its production. The slave owner has a commodity to sell/hire out - a slave. What is the Exchange Value of this slave? It is the average socially necessary labour-time required for his production, and that is his means of subsistence. If the slave as a commodity is sold/hired out at this Exchange Value then the slave owner, in fact CANNOT realise any Surplus Value, because the Exchange Value is equal to the cost of maintaining the slave!

So Mandel's statement above is false. If the slave owner hires out the slave for more than this cost of his subsistence he is in fact charging a price higher than the Exchange Value of the Slave, and the only way that is possible is if the slave owner like the Merchant or the Usurer makes a profit on alienation, or else is able to charge a monopoly price. In fact, Mandel has not only fallen into the same mistake he rightly criticised earlier the vulgar economists of - defining profit as simply price-minus costs - but he commits a worse error, because he not only defines here profit in that way, but Surplus Value too.

If we look at this from the perspective of the hirer of slaves it becomes more obvious. In fact, what we have is essentially the same kind of situation as that referred to above in relation to the tailor and the coat. For the Mine owner who hires the slaves from the slave owner there is an obvious saving to be made. Rather than hiring slaves from the slave owner he could instead buy slaves himself. In that event his cost will be not the price charged by the slave owner, but only the cost of maintaining the slaves! He can do this precisely because the slaves are not hired out at a price equal to their exchange value.

In fact, we can see a similar feature of current society. The fastest growing area of employment is domestic service. If you are rich why pay for some other Capitalist to employ a cook, and then pay for the whole of their expended labour-time when you can employ your own, and pay only for their necessary labour-time?

What is so dangerous in Mandel's argument here is what flows from it. Orthodox economists argue that Labour is not the only source of Exchange Value - and thereby of Surplus Exchange Value - but that all factors of production share in the creation of value, and thereby profit. Mandel's argument here implicitly accepts that even though earlier he argued against that concept. Why, does Mandel implicitly accept that argument? Because, using the example he gives we could substitute any factor of production, and arrive at the same conclusion. It could equally be argued that the slave-owner could hire out a horse to the Mine owner. Like the slave, he will have paid a price to buy it, and will pay out for its maintenance as he does for the slave. In fact, in arguing in the Grundrisse precisely this point that slaves do not produce Surplus Value, Marx says that in fact from an economic standpoint the slave stands in no different relation whatsoever than does the pack animal.

Marx says,

“IN production based on slavery, as well as in patriarchal agriculture…..the slave does not come into consideration as engaged in exchange at all.” (419)

and “in the relations of slavery and serfdom….The slave stands in no relation whatsoever to the objective conditions of his labour; rather, labour itself, both in the form of the slave and in that of the serf, is classified as an inorganic condition of production along with other natural beings, such as cattle, as an accessory of the earth.” (p489)

Alternatively, the slave owner could have bought a machine, which he has to spend a certain amount of money on for maintenance. Again using Mandel'sargument then if the Mine Owner pays him more to hire this machine than this cost it will have produced a Surplus Value, and given that Mandel has the slave owner hiring out the slave not at its Exchange Value, but at a price above that there is no reason not to follow him in making that assumption. But this is NOT Marx's theory of Surplus Value, nor his Labour Theory of Value. On the cntrary it is the orthodox theory of Marginal Physical Product. Just consider the actual work that each might do. Suppose the Mine Owner requires a wheel to be turned that pumps water from the mine. It makes no difference whether this this wheel is turned for 20 hours by a slave, by a mule, or by a machine. The actual physical output remains the same. This output has a value, so we can then attribute this value to the slave, the machine, or the mule. If we proceed on Mandel's basis if the cost of maintaining this machine or pack animal during this period is less than this Value then it has produced Surplus Value!!! But, as I have written previously Marx's Theory of Value that determines Exchange Value according to socially necessary labour-time is consistent with his historical materialist method. In other words the determination of what constitutes socially necessary labour-time is different for different types of society. The only labour-time that can be counted in respect of the calculation of new Exchange Value, is the Labour-time of those producers who themselves engage in the act of Exchange. Neither slaves, machines, nor pack animals engage in the process of exchange, and consequently as Marx says, their Labour-time cannot produce any new value, it can only ever transfer its own value into the product.

Marx makes clear again the specific role of wage labour in this regard. He says,

“In production based on slavery, as well as in patriarchal agricultural-industrial production, where the greatest part of the population directly satisfies the greatest part of its needs directly by its labour, the sphere of circulation and exchange is still very narrow; and more particularly in the former, the slave does not come into consideration as engaged in exchange at all. But in production based on capital, consumption is mediated at all points by exchange, and labour never has a direct use value for those who are working. Its entire basis is labour as exchange value and as the creation of exchange value.

Well. First of all the wage worker as distinct from the slave is himself an independent centre of circulation, someone who exchanges, posits exchange value, and maintains exchange value through exchange. Firstly: in the exchange between that part of capital which is specified as wages, and living labour capacity, the exchange
value of this part of capital is posited immediately, before capital again emerges from the production process to enter into circulation, or this can be conceived as itself still an act of circulation. Secondly: To each capitalist, the total mass of all workers, with the exception of his own workers, appear not as workers, but as consumers, possessors of exchange values (wages), money, which they exchange for his commodity. They are so many centres of circulation with whom the act of exchange begins and by whom the exchange value of capital is maintained. They form a proportionally very great part -- although not quite so great as is generally imagined, if one focuses on the industrial worker proper -- of all consumers. The greater their number -- the number of the industrial population -- and the mass of money at their disposal, the greater the sphere of exchange for capital. We have seen that it is the tendency of capital to increase the industrial population as much as possible.”

Marx – Grundrisse p 419.


See also:

Labour Power v Horse Power

and

Capital Consumes Itself