"The argument between SA and Workers' Liberty is in part: what is most important - workers' self-activity and independent organisation, or nationalised property relations?
Why did Stalinist Eastern Europe collapse?"
This is a strange counter-position surely. If the question is "What was the class nature of x state" then this can only be determined by looking at the relations of production for a Marxist. Certainly bouregois and subjectivist sociologists and political scientists might look at the more superficial features of a state such as the formal levels of democracy and so on, but for a Marxist these features are just that superficial, and subjective. There is formally more democracy, and more self-activity in say Britain than there was in the USSR does this mean that Britain was in some sense a Workers State. In the 18th century Britain's natural economy gave great freedom to peasants to arrange their own economic affairs, and to workers as artisans precisely because such workers and peasants DID own their own means of production, but could this self-activity tell us anything about the class nature of the state? Of course not.
Nor can the fact of nationalised or non-nationalised property be determinate, because it depends on class relations. A society in which all means of production were owned by workers and managed co-operatively would tend to create a workers state, yet there is no requirement that the workers should give up their own ownership in favour of nationalised property. Property could be nationalised, and yet have been nationalised by a Capitalist class. What was distinctive in the USSR was precisely the fact that the exploiting classes had been liquidated prior to the transformation of property relations, and that in Eastern Europe a similar liquidation of these exploiting classes took place.
It might not fit the ideal picture of what a Workers State should look like, but reality often does not turn out to look that way we hoped. The job for a Marxist is not to turn their face against the ugliness of reality, but to analyse the nature of the disfigurement, to understand its causes the better to treat it, and to avoid the causes in future.
“Socialist Action (no 6, Feb-March 1990): "The creation by Gorbachev of conditions for Germany's reunification into a single united imperialist state sets the seal on the catastrophic course on which he has led the international working class movement." Talking of Gorbachev in this way, as if he is a leader of the international working class, is as sensible as describing Margaret Thatcher as a leader of the international workers' movement. SA take Gorbachev at his word: that he is a socialist leader. SA's problem with Gorbachev is: "from the beginning [Gorbachev worked for a] turn to a closer collaboration with imperialism."
However, "any accommodation to [imperialism], or weakness, leads not to peace, stability and advance for the left but to greater aggression by imperialism". This is a simple prescription to turn the socialists into advocates for the most aggressive, hawkish Stalinists.
The first part of this is correct though not absolutely correct. The Soviet bureuacracy held a position essentially the same as Trotsky pointed out as do the Trade Union bureuacracy in the Labour Movement. Trotsky’s attitude in that regard followed on from Lenin’s when Trotsky submitted his resolution to the Politburo over the Anglo-Russian Committee. Trotsky argued that Marxists support such leaders in so far as they are being pushed forward by the mass of the working class. We cannot deny the reality that such leaders ARE the leaders of the mass of workers despite often being the hangmen of workers struggles, unreliable, self-serving and so on. It is that latter point that marxists have to always point up to the mass of workers even at those times when they form a bloc with the leaders. But these leaders are the leaders of organisations and structures to which the mass of workers remain tied, and in order to make a United Front with the workers Marxists have to sometimes make blocs with those organisations DESPITE the leaders, in the case of Trade Unions and parties even of the most reactionary kind have even to work as members of them.
Trotsky’s works up to his last are replete with such criticisms of Stalin’s policy for not being adequate in revolutionary proletarian terms because however much certain Ultra-Left elements in his own organisation might have felt that because THEY recognised the bankruptcy of the Stalinists it was sufficient to simply write them off, many workers still did not do so, still had not written them off, still saw the Stalinists as the actual leaders. It is ultra-Left lunacy then in 1989 to pretend that a few thousand Trotskyists worldwide represent the world working class leadership as opposed to the fact that millions of workers around the world in so far as they look for a workers leadership looked to the Soviet leaders. Yet, of course it is right to criticise SA for writing as though Gorbachev the bureuacrat would do any different than a TU bureuacrat that at every opportunity looks to do a sweetheart deal with the class enemy in order to gain a quiet life.
And it is for this latter reason that the last sentence of the AWL’s makes no sense. Every militant DOES know that trying to do such deals only encourages the bosses to make greater demands, sees it as a sign of weakness, and that was precisely the way Reagan and Thatcher saw Gorbachev’s weakness. To recognise that does not commit you to supporting “Stalinist Hawks” in the sense of supporting “Workers Bomb” type theories, or greater ruthlessness against workers, anymore than opposing doing sweetheart deals with bosses commits you to supporting the hotheads that might want to burn down the factory or smash equipment during a strike, or support those that would want to curtail democracy in the union in order that the views of the leadership went unchallenged under cover of showing a United Front.
“Yes, and the crushing of the Soviet workers by Stalinism led to the emergence of Stalinist imperialism and the over-running of Eastern Europe - but imperialism for SA is something only capitalist states are capable of.”
But as Trotsky pointed out to Burnham and Shachtman the term “Imperialism” means something specific to Marxists. There have been many “Imperialisms” thoughout history, but to treat them all the same is to make the same mistake that Marx accuses the bouregois economists of making – in fact not a mistake in some cases but a deliberate effort to blur distinctions – in relation to Capital by defining all types of machinery throughout history as “Capital” irrespective of the relations of production at the time. That a Workers State might invade another country is not impossible – Lenin argued strongly in favour of the invasion of Poland – and might arise for many reasons, but the reasons will not be the same as those which drive Capitalist imperialism inexorably in that direction, even for a Deformed Workers State. This blurring of Marxist distinctions is a very worrying facet of the AWL’s politics visible in many of its writings in relation to the State, and soemthing it is clearly driven to as were Burnham and Shactman beforehand in order to make their theory fit reality. But as I have pointed out elsewhere it is a strange kind of imperialism which rather than draining resources from its colonies actually pumps its own lifeblood into them as the USSR did into Eastern Europe, Vietnam, China (initially), Angola, Cuba and into the many national liberation movements around the world it supported.
”SA make their support for democratic change in the USSR conditional and they judge Gorbachev's policy by a ridiculous yardstick: "Any shift in the Soviet Union in a leftwards direction would involve a rapid expansion of democracy. But it is absurd to believe such democratisation is itself a left wing shift because it can occur for quite different reasons. If, say, Gorbachev had accompanied democratisation in the USSR with stepped up aid to Cuba and Nicaragua, or the launching of a deeper international campaign against apartheid we would have been dealing with a left wing development."
I agree this is confused. The first part is undoubtedly correct. An extension of democracy is not of itself left-wing. It depends upon the nature of this democracy, and what is driving it. An extension of bourgeois forms of democracy pushed forward by the middle-class or sections of the bureaucracy seeking a capitalist restoration would not be left-wing, and would tend to marginalise workers. An extension of factory and workplace democracy introduced as a result of direct activity by workers for such demands, and feeding through the ordinary worker members of the Party would have been a left-wing development, however, and would have strengthened workers against the former tendencies. Why such democratisation can only be viewed as left-wing if it coupled with increased support for Nicaragua or Cuba is not at all clear other than for the fact that these two were SA’s pet Stalinist States.
”What a mess. Gorbachev was a reforming Stalinist leader - but a reformer whose 'reforms' aimed to aid the ruling class he was the leading representative of. He was not capable of a 'left' policy of any type - because, fundamentally, 'left' and 'right' are judged by an attitude towards the working class (for SA 'left' and 'right' are mainly functions of more or less aggressive policy towards the US and 'imperialism'). Gorbachev's relationship to the Russian workers was that of a reforming Tsar trying to sort out the mess the ruling elite found itself in. His aim was to make the workers pay for the crisis through speed-ups, unemployment, factory closures; 'democratisation' was limited and was intended as a mechanism which could help Gorbachev's system work better - for Gorbachev and the Russian bureaucrats and against the workers. If 'left' and 'right' have any meaning here Gorbachev's policy is another variant of a right-wing policy.”
But this is a worse mess. Why could Gorbachev not have been seen to be following a Left or Right course any more than Trotsky described the zig-zags of Stalin as following a Right or left course??? This makes no sense. Even a Tory Governemtn can be said to be following a course which veers to either the Right or the left so why, other than their pathological rather than Marxist approach to Stalinism, could such descriptions not be applied to Gorbachev?
And yes of course Gorbachev was trying to sort out the mess, but just as in the 1920’s the mess could be sorted out by a Left or a Right course. It is surely legitimate for Marxists to point out that the leader of a huge country that is looked to by millions of workers around the world for leadership is heading down a course which is in the wrong direction! And repeating the mantras about the idea was to make the workers pay, and so on because this was a new ruling class merely betray a lack of detailed knowledge. Firstly, the idea that some new ruling class existed in the USSR is clearly nonsense as I have demonstrated many times previously. Every previous ruling class in history has been centuries in the making. It has had to accrue ownership of themeans of production beneath it, and on that basis over generations develop the class solidarity, and class conscioussness necessary to take, and then hold power. The more dynamic such a class, the more cohesive it is socially the more facility with which it is able to achieve this. That is why as Marx points out the Peasantry although it owned its own means of production, was a massive social class with great potential power could never become the ruling class because it lacked the social cohesion, and the dynamism of say the bourgeoisie to achieve it. The main candidate for such a new class in the USSR – though the proponents of these theories ever specify exactly who this class was because any attempt to actaully name it falls apart like dust in the wind on contact with reality – the bureuacracy were none of these things. They neither owned the means of production – nor were even capable of passing CONTROL from one generation to the next, they were far from dynamic, and they were not only lacjing in any kind of social cohesion, but suffered considerable necessary antagonisms between different sections. Yet we are asked to believe that this new class emerged from nowhere overnight – just by coincidence at the time Lenin dies – and in just two years take power for themselves!!!! Now for a Marxist such a miraculous feat unknown previously in human history would have to signify that the social force acghieving this was something truly remarkable, something truly dynamic and progressive. But no we are told that this force is in fact less dynamic, less progressive even than the bouregoisie.
But anyone that has actually studied the USSR in detail knows that the picture painted does not meet the reality anyway. Like any Trade Union bureuacrat the Stalinists looked to their own interests, but also like any TU burueacrat they had to look to the social base on which they rested. The various schemes in the post-war period particularly Khruschev’s so called Hare Brained schemes had nothing to do with screwing the workers. They were genuine if half baked schemes designed to generally improve productivity – in Khrushev’s case agricultural productivity because he was udner pressure from the peasantry – the consequence of whch would have been to increase the output of consumer goods the major beneficiary of which would have been the working class. And Soviet Planners attempted all kinds of schemes to ensure that production met the needs of workers, including the establishment of Committees of workers to act as Consumer Panels etc. who tested western consumer products in an attempt to match the latest fads and fashions. There was no mechanism within the Soviet economy that drove the bureuacrats to exploit workers more intensely to drive up Surplus Value as there is under capitalism because there was no production of Surplus Value. Like every other state burueacracy in history the Stalinist burueacracy lived not from Capital, not from the extraction of Surplus Value, but from Revenue. And like every social group that lives off revenue there is a desire to see the total product the total quantity of Use Values produced increased, because it is that increase which enables a more lavish lifestyle to be enjoyed. To that extent the interests of the burueaucracy and the interests of the workers were the same, the contradiction between them arises not from the necessary contradiction of exploiter and exploited as is the case under Capitalism, but from the desire to maintain control, and thereby maximise the share of the Use Values being distributed. It is a subjective not an objective contradiction.
The next section of the AWL’s critique rightly rips apart SA’s cringeing in support of the Romanian Stalinists, but it says,
“This last sentence is particularly revealing: SA assume the role of advisor to the 'liberal' wing of the ruling elite - helpfully suggesting a policy for the Front; SA tell their readers that the "guiding light" of a workers' state's policy is to make "concessions" to the workers! Isn't the "guiding light" of a workers' state to be a state of the workers? And how much sense does it make to talk of a workers' state making concessions to the workers?!”
Well of course that is true of a healthy workers state, but no one would claim that Stalinists states WERE healthy workers states, and anyone wanting to cure the sickness would obviously want to do so by moving them in the right direction. But the AWL’s criticism would have more grip were they themselves not still in thrall to Leninism. Perhaps they could have given their advice to Lenin and Trotsky at Kronstadt for instance, or in response to Lenin’s statement to Kollontai and the Workers Opposition that if they really believed in their criticisms they should be voicing them guns in hand.
And in relation to much of the other discussion in this section it is important to acknowledge that we now know – because the CIA have admitted it – that huge amounts of money and resources was pumped into Eastern Europe to support petit-bourgeois organisations, to help print leaflets and newspapers and so on. True such activity can only really take off if there is some tinder for it to light, but the nature of mass movements is not necessarily rational – just look at the way angry mobs gather when they get a rumour of a paedophile on an estate – and in the absence of organised socialist forces to direct the class it is not difficult for some organised force to put itself at the head of a mob. That they were able to do this is not the sad thing, the sad thing is that in 80 years the Marxist movement throughout the world had through its sectarianism so divorced istelf from the working class that it was unable to provide any kind of pole of attraction for the workers of Eastern Europe when they needed it.
On Imperialism
I broadly agree with the AWL’s criticism of SA and the other idiot-anti-imperialists. I disagree with the way the AWL increasingly have moved away from that correct position to one of “Idiot Imperialism” a class neutral view of the state in which they make calls upon imperialism to act progressively in the same manner that they above criticised SA for doing the same thing in relation to Stalinism.
In a conflict such as that between the US and Saddam Hussein Marxists must oppose their own imperialism and work for its defeat, but that does not at all mean they have to side with a Saddam Hussein, any more than they had to side with Galtieri as a concomitant to opposing Thatcher and working for the defeat of her forces in the Falklands. The job of Marxists, particularly those inside the country being invaded is to oppose the invasion by mobilising the truly revolutionary forces as the most ardent fighters, and by pointing out why the forces of other classes cannot be relied upon to wage such a fight, why they will always seek to make some kind of deal with imperialism, and so on.
In Kuwait the background seems fairly clear. The US had sought to weaken its main rival in the area – Iran – by promoting Iraq as its client. In the Iran-Iraq war Iraq showed itself incapable of being a reliable agent for US imperialism. Faced with a growing threat to its main ally in the region – Saudi Arabia – from Al Qaeda, the US needed to ensure its own military domination of the region, and with the USSR now not in the equation to prevent the US exercising its imperialist power unrestrained it set about doing so. It required a pretext. Iraq had already been complaining to the Arab league for some time about Kuwait stealing Iraqi oil by tapping into Iraqi oil deposits from inside Kuwait. The complaints were going nowhere in resolving the situation. Iraq called in the US Ambassador to outline their intention to take military action if the issue was not resolved and sought the US blessing. What proceeded was typical US policy. In the 1950’s the dominant imperialist powers in the Middle East were still Britain and France. When Britain asked the US unofficially to give them the nod for the invasion of Suez the US gave them the wink to a blind horse. As soon as the Suez crisis erupted France and Britain’s position in the Middle East was undermined, and the US was able to step in as the good anti-imperialist. When the US Ambassador was called in by Iraq they simply stated that the matter was a local affair of no concern to the US. Of course, once the invasion took place the US obtained the pretext it required for its own invasion. And we know that the US sought a similar pretext this time round for establishing its long term presence in Iraq, a pretext obtained through nine-eleven and the conscious misrepresentation of information.
”This is disgusting stuff - SA fade out the question of Saddam, the "murdering butcher", as 'historically insignificant' and back Iraq simply because it is a smaller power than the US. Moreover, the US and Britain have installed regimes in Arab countries before - e.g. the Jordanian monarchy - and it is difficult to imagine that such a regime, or any other government they might replace Saddam's rule with, could possibly be as bad as the current regime - for "the Arab people" or anyone else.”
Yes it is, but unfortunately for the AWL, which now equally disgustingly for Marxists, looks to a progressive imperialism, to carry out the progressive tasks, they have lost faith in the working class being able to accomplish, the reality of Iraq is that they HAVE created a regime far worse than Saddam Hussein’s. A regime that rests upon the Imperialist Occupation whose actions the AWL tell us they deplore, but don’t deplore enough to call for it to end.
”However these are different wars. Japan had invaded China with the intention of occupying large parts; the Chinese nationalists' war aimed to kick Japan out of Chinese territory. Iraq, on the other hand had not been invaded and was not seeking to expel a powerful neighbour. SA get it wrong because their parallel is not a parallel.”
But Iraq was occupied by imperialism, and no fly zones were imposed in the North and South. The whole country was not occupied reportedly on the request of the Saudis who feared further unrest should it happen, a fear which the current colonial policy has unleashed.
“SA see the Gulf war as "the first of a new wave of North-South wars, wars conducted by imperialism against the consequences of its economic destruction of the semi-colonial world...[the] period could be dubbed a new era of direct colonialism." (SA no. 8, pg. 4). This prediction, like virtually every prediction made by SA, has been proved wrong. There has been no return to "direct colonialism".
But in actual fact that prediction has turned out not to be so far out. The US has established a colonial regime in Iraq. The US now has three huge bases in Iraq which are clearly there for the long-term, and are intended to constitute the US means of controlling Iraq. These bases are so big that the largest one has an airport only exceeded by Heathrow, and which furnishes what is effectively a US City on Iraqi soil.
That is not to say that imperialism is going to adopt colonialisim as its modus operandi as SA suggest, I don’t think it is. The preferred method of operation is still via bouregois democracies because that has much lower overheads. But increasingly, as economic growth accelerates, and new dynamic economic powers like China, India Russia and Brazil develop with a huge hunger for resources, the US will be led to move from its current move towards Protectionism towards outright grabs for resources where it cannot outbid its rivals. The current US outposts established in the Stans are the front runners of that policy as is the current arming of its main client Saudi Arabia with the latest equipment.
”1. "The regime of capital accumulation in the third world is thoroughly disrupted. Under these conditions local ruling classes cannot be counted upon to be stable enough to guarantee imperialist interests for a prolonged period. With no stable regime of accumulation in the third world the imperialist economies [economies?] are forced once more in the direction of substituting their own direct military intervention...
"The result is a massive reinforcement of direct imperialist military force in the third world. A process of 'recolonisation' of the third world has begun."
2. The next state to receive the same treatment as Iraq is likely to be Cuba, "the Pentagon must be reconsidering the possibilities of a successful military strike against Cuba."
3. No Israeli-Palestinian deal is possible, "of even the most token kind."
"Israel has no intention of making such a deal and the US will not compel it. Confronted with this situation the Israeli regime is likely to start gearing itself up for another war to try to weaken its enemies - this time almost certainly with Syria." And, (SA no. 9, Winter 1990), "Syria's present course of allying with imperialism is strategically suicidal."
4. "There will be a political crisis in the US" due to America's inability to fund the war, and "a US heading into recession has been struck a further blow." (Can the imperialist economies take the strain?, SA no. 7, Summer 1990).
All four of these predictions have been proved utterly wrong. There has been no process of recolonisation of the third world. Regimes in the third world have been, on the whole, more stable than in previous decades. Cuba has not been invaded. Israel has struck a deal, and there has been no Israeli-Syrian war. The US has not gone into political crisis and its economy has not slumped, it has boomed in the 90s. All rubbish.”
Really?
So if we take point 1) the invasion of Iraq and its direct rule by US imperialism didn’t happen then? On 2) well no attack on Cuba yet, but despite increasing moves by European and Canadian Capital towards Cuba the US has, and probably partly because of the above relations of Europe and Canada, tightened its sanctions, and supports terrorist acts against Cuba. On 3) no deal has been reached as far as I am aware, and in fact a two states deal looks more a dead duck now than it ever has. On the back of the US invasion of Iraq, and with the USSR out of the picture Israel did provoke the Intifada, and did invade Lebanon. Finally, on 4)The US economy certainly did go into another recession in 1991, and the increase in oil prices made it worse, and the consequence was that George H. Bush lost the election because in the words of Bill Clinton “It was the economy stupid.”
So without in anyway wanting to support SA in what way were these predictions all proved wrong? In what way were they all rubbish??? If you are going to criticise someone’s position at least have the Marxist honesty to do it on the basis of the facts.
“Of course a colonial people, even led by reactionaries, should be supported in a struggle for self-determination and freedom. That is a basic duty of socialists.”
Unless of course the people are in Iraq where you have tied your fortune to the hope that the imperialist occupation might act progressively, in which case you have to cover your arse by arguing that the people’s struggle against the Occupying power is not really a struggle for national liberation precisely because it is led by “reactionaries” who have to then somehow be passed off as not being part of “the people” at all. In that case self-determination apparently runs through opposing the removal of the colonial power.
“1. "Open a period of the most extreme international reaction, pose a new, qualitative, threat to a large part of the historical gains of the world working class, and that of the peoples oppressed by imperialism."
2. "Unleash a wave of racism that would engulf Europe and probably shatter the framework of liberal politics."
3. "[The imperialists] would attempt to eliminate the welfare state."
4. "In Eastern Europe a new wave of capitalist dictatorship would set in... which would pose a long-term threat to democracy in Western Europe."
5. And if the "Russian Revolution" is "defeated" the consequence would be imperialism re-spreading like a cancer through the world. Moreover, say SA, imperialism would have a new weapon, nuclear weapons, to impose its rule.
The "destruction of the Russian Revolution would re-ignite the open contest of the imperialist powers for the division of the world... [and] a nuclear arms race between the US, Europe and Japan."
Now, in 1999, we can easily draw up a balance sheet of SA's 'perspectives'. And we can conclude that SA's comment was hysterical, babbling nonsense.”
But in 2008 we can draw up another and conclude that perhaps it was not.
1) We have seen the election of a Bush government as the most right-wing government in the US for many years perhaps even more right-wing than that of Reagan. We have seen the growth throughout Europe of outright fascist organisations and even the participation in Austria and Holland of fascist and racist parties in Government. We have seen the development by the US Neo-cons of the theory of the New American Century Project whose goal is to achieve multi spectral dominance of the globe. We have seen increasing tendencies to genocidal warfare around trhe globe. We have seen the US with British support launch an illegal war in contravention of the United Nations,a nd the acceptance as a result of the principal of pre-emption in warfare.
2) We have indeed seen racism and anti-semitism rise dramatically throughout Europe as stated above, including the development of ultra nationalist parties throughout Eastern Europe sometimes even parties achieving governmental power on the basis of nationalistic and racist rhetoric for example in Poland and Hungary.
3) Well the imperialists might not yet have succeeded in eliminating the welfare state, but I would be interested to know if the AWL no longer believe their own propaganda to the effect that they are having a bloody good go at it.
4) Well some of the dictatorships (including those that pass themselves off as democratic) are capitalist, certainly many of those in the Gold Rush region of Central Asia appear to fit that description. I wouldn’t describe Putin’s Dictatorship as capitalist it is pretty much straight forward Stalinist, but its actions certainly do seem to be a threat to other European democracies.
5) I’m not sure what SA mean by “Imperialism” here they seem to confuse it with Colonialism to which I have spoken above. As for “Imperialism” proper their seems little doubt that globalisation represents the spread of Capitalism in a much deeper and wider context thatn previously, and part of the reason for this is that in the absence of backing for nationalist movements, and given the weakness of the working class internationally domestic bouregoisies in developing countries have been able to introduce bouregois democracy more widely,and thereby create the basic conditions required for efficient capital accumulation.
“It is not true … or that there is a new "open contest" for the redivision of the world, or that there is a nuclear arms race between Japan, Europe and the US.”
Really? There are calls in Japan for the Constitution to be changed so that its military can be used in warfare, and even for the ban on possessing nuclear weapons to be lifted. Central Asia, Latin America, and the Middle East and increasingly Africa are the focus of huge battles between particularly China and the US over access to resources. Despite its dire economic position the US continues to devote huge sums to armaments including development of Star Wars 2 including its provocative deployment on the borders of Russia.
“Although racism continues in Europe, the form it takes - currently focused on asylum seekers - is internal to Europe”
No its not there is increasing racism in the US against Latin immigrants. There is increasing anti-semitism both in Europe and the US.
”and as if the Chinese market reforms had not led to great misery for millions of Chinese people and are not bound up with a great increase in unemployment, the creation of gigantic special economic zones where even the minimal workers' rights which exist elsewhere in China are scrapped, the closure of factories, the creation of a new very rich capitalist elite.”
Its certainly true that there was considerable unemployment caused by the privatisation of some of the Chinese SOE’s, but far less than occurred as a result of the privatisations and economic chaos brought about by Yeltsin’s counter-revolution that the AWL supported. But unlike the aftermath of Yeltsin’s counter-revolution the reality in China is that employment grew massively with millions of new workers being drawn into employment with real wages rising at around 10% per year! And its on the back of that that Chinese workers have gained in strength and confidence for some of the recent battles they have undertaken.
The last sentence also seems to give us a glimpse at the kind of contradiction the AWL find themselves in. In the “Capitalist” sector of the economy we are told workers do not have any rights yet in the “State Capitalist”/Bureuacratic Collectivist” sector they do, though minimal. Yet we are told that Capitalism is progressive compared to the new class mode of production introduced by the Stalinists!
”SA advocate a policy for Russia which has been tried in China, by the Chinese bureaucrats, in the interests of the Chinese bureaucrats, which has been a disaster for many millions of Chinese workers.”
I doubt the many millions of Chinese workers and former peasants who now for the first time in their lives find themselves owning houses, driving cars, owning TV’s, computers and all the gizmos western consumers enjoy, and for many even looking at the possibility of foreign holidays would agree that ist been such a disaster. I was talking to someone a while ago whose Mother in Law lives in China. Despite being on a fairly low wage she still manages to save 20% of her income.
”Of course a real workers' government in a former Stalinist state might well introduce some market relations - as part of the process of clearing up the mess left by the bureaucrats. But this would be under the direction of the working class as a whole, in the interests of the workers, with the rights and living standards of the workers protected.”
This is moralistic nonsense of the type Marx argued against in the Critique of the Gotha Programme. Market relations by their nature cannot be under the control of anyone or they are not market relations. Its possible to take some areas of the economy out of the market sector – as for example capitalism does where its efficient to do so as with healthcare – but other commodities are either marketised or they are not. If you try to introduce controls then you end up with all the kinds of contradictions and distortions that the USSR faced in the 1920’s,a nd that capitalist economies have faced under wage and price controls. It is a recipe for disaster. Workers can through their own direct ownership of the means of production in co-operative enterprises gradually integrate their activities and forward plans in order to slowly replace the market with democratic planning as and when the technique and ability to do so arises, but to suggest that its possible to simply plan democratically or otherwise (in fact doing it democratically would technically be even more difficult because of the problems of the tyranny of democracy in planning) most of a complex economy from scratch is cloud cuckoo land. And to suggest that this could be done whilst at the same time protecting “the rights and living standards of the workers” is fantasy. Every new mode of production goes through a period during which living standards fall, and where the level of production itself falls. As Marx says in the CGP “Right can never be higher than the economic structure of society”, and to suggest that you can in a Stalinist state – all of which were economically backward – guarantee socialist rights to workers is to write a cheque that is destined to bounce.
”Rather than arguing for international workers' unity across national frontiers, in opposition to the managers, remnants of the old Soviet ruling class and international capitalists, SA propose popular front class collaboration in defence of "Russia" and "Russian industry".
This is exactly the sort of nonsense that we often have to combat in the British labour movement - that British workers have an interest in uniting with their managers and bosses in defence of British industry against foreign competition.”
But the AWL assume what has to be proved here that what exists is a new ruling class. The more appropriate analogy is that given by Trotsky that of the TU bureuaucracy, and the fact is that Marxists would form a common front even with a reactionary TU bureaucracy to the extent that it fought alongside workers and was pushed on by them. That was Trotsky’s critique against the ultra-lefts that rejected such an approach. But of course, yes the TU bureuacrats too would fight in their own way, which is why the Marxists advise the workers even whilst marching alongside them to watch their backs to keep their political independence, and be ready to strike out on their own.
The rest of the article which continues to ramble on is a justification for the AWL’s collapse into Shachtmanite petit-bouregois socialism, and a critique of orthodox Trotskyism. The lack of Marxism is indicated by statements such as,
”Of course state ownership simply begs the question: who 'owns' the state?
For a Marxist, the concept "workers' state" can only be meaningful if the working class holds state power, consciously, through its own organisations.
SA have come to believe that workers' states can be created by militarised Stalinist parties, which are simultaneously anti-capitalist and anti-working class - totalitarian workers' states where the workers have far fewer rights and less control over the state than do the workers in capitalist Britain.”
But for a Marxist this is wrong from start to finish. A Marxist does not look first at the ideological and political superstructure but at the material base on which that superstructure arises i.e. looks at the economic and social relations, at what classes exist in society, and which through its economic and social position is the dominant class. It is that which determines which is the ruling class even if that class does not at the particular moment exercise political power in its own name. The working class whatever the AWL might want to claim is no different than any other class in history. Leninist theory portrays it that way because on the back of such a theory Leninism justifies the need for a revolutionary party that wins political power on behalf of the working class PRIOR to such a social transformation, thereby relegating the working class to the role of foot-soldier in its political revolution, and humble recipient of the Party’s favours after the completion of that revolution. It is a thoroughly unMarxist and elitist theory that has no foundation in the writings of Marx himself who argued instead for the working class to make itself the dominat economic and social class through the establishment by its own hand of workers co-operatives, spread throughout the economy, and the development on the back of that material foundation of socialist class conscioussness, and an alternative workers power and democracy. IN this Marxist perspective there is no room at any point for the development of any burueacracy or elite holding state power separate from the workers as a class that can develop into the abscess that Leninism became in the form of Stalinism.
The AWL do not explain why the concept “Workers State” can only be meaningful if the workers hold power themselves consciously through their own organisations any less than can a bouregois state be a bourgeois state without the bouregoisie themselves necessarily holding power in that way – of which history knows many examples – nor do they explain how they can then define the USSR in its early years under Lenin as being such a Workers State, when in fact none of the conditions they outline as a requirement existed either!!!
Nor do they explain why a Workers State cannot be established by means of an armed intervention – that after all was Lenin’s intention in invading Poland! As Lenin himself pointed out history has known many forms of social transformation, why the AWL believe they alone understand the sole means by which a Workers State can be created is a mystery. As Trotsky pointed out in relation to the Stalinist invasion of Poland Marxists may well oppose such an invasion as being reactionary because it strengthens the idea of bureuacratic revolution, and weakens the principle of independent workers action, but that does not prevent the consequences of such an action having a progressive result. Imperialism’s action in colonising India was reactionary, yet the consequence of that action, the destruction of old moribund economic and social forms, and the introduction of capitalism was historically progressive.
The facts come down to these both the orthodox, post-Trotsky Trotskysist and the Shachtmanite anti-Trotsky Trotskyists had to find a way of squaring an awkward circle. Both had to explain the degeneration into Stalinism whilst retaining their support of Leninism. The Orthodox Trotskyists squared the circle by increasingly turning Stalinism into something that could be reformed. The anti-Trotsky Trotskyists simply wished the problem away, wanting to hide the Stalinist regimes away like a mad auntie in the attic. They simply redefined the problem by declaring the workers states that had been created as not being workers states at all. The AWL apply the same method elsewhere, for example when they define workers in Venezuela as being “careerists” because they do not fit their criteria of what those workers should be like, what they should do, or when they describe workers in the LP as middle class, or when they say they are in favour of self-determination for a people, but not self-determination for an actual people as in Iraq, only their concept of what that people should be. It is the typical castle building of the petit-bourgeois, castles free from any earthly impurity because they are so far up in the air.
See Also:The Nature of the Soviet State
Thursday, 24 January 2008
Joe Stiglitz, The Crisis, Stalinism and Socialism
In an interview this morning on CNBC Joe Stiglitz the Nobel Award Winning Economist of Colombia University said the greatest threat to the world economy was not the current crisis in the US, but the mishandling of that crisis. He said that the heads of financial institutions had made a serious mistake in udnerstanding risk, and had made it twice. First, they had assumed in giving out millions of sub-prime mortgages that they would not all default at the same time. Yet when house prices drop they drop for everyone, and as the sub-prime mortgages were predicated on continually rising house prices this was clearly an unreasonable assumption. But they had compounded the mistake by essentially repeating it. They attempted to take out insurance against any losses on the bonds and CDO's and other SIV's (Special Investment Vehicles) used to spread the risk of these sub-primes by bundling them and selling them in a merry-go-round of financial institutions, through the Monoline insurers. Again insurance is fine provided that not everyone wants to claim at the same time, but in a situation where large numbers at least of these sub-primes were going to default at the same time, causing in turn the SIV's to turn bad then everyone would be making losses at the same time, and calling on the insurance they had taken out.
Its been known that there was a potential problem with these Monolines since last year, but it was the particular problems of one company AMBAC which brought it to the fore last week. Now - again shattering the myth of neo-liberalism - the bosses Nanny state comes to their rescue with yet another bail out proposal, to add to the billions pumped into the economy as cheap financing for the capitalists, the astronomical sums pumped into Northern Rock, the interest rate cuts, the Keynesian Demand Management proposal from the supposedly neo-liberal, laissez-fair Bush regime for a $200 billion fiscal stimulus, and so on. Even then according to Stiglitz the huge sums pumped into the US Economy over the last 20 years mean that any fiscal stimulus would have to be much bigger than that already proposed. In reply to a question from Brian Shachtman of US CNBC Stiglitz said that any package would need to be around $600 billion equal to what has been taken out by homeowners Equity releases, and that Bush's proposals for tax cuts for the rich had been part of the problem, any stimulus needed to go into increased Unemployment Benefits and other payments to the poor.
Capitalism certainly is a chaotic system, though not perhaps as chaotic as it used to be as the Capitalists have been forced to adopt socialistic measures to sustain it. Major capitalist enterprises now operate on the basis of long-term Business plans. Their decisions are determined in advance on the basis of such plans, market research etc. and the use of advertising and marketing to shape the market. But they are only able to operate on this basis because their state has also adopted long-term planning methods which give these firms some environment of certainty and stability in which they can formulate their plans. The firms which dominate the economy are large monopolistic enterprises of the type a socialist economy would develop, inextricably tied to and controlled through the Stock exchanges which operate like a massive State Clearing House for the Capitalist class, moving Capital at an instant to where the highest profit can be made through the adjustment of the Capital Value of firms shares. But it remains capitalism even if it is now effectively State Capitalism.
In this piece Capitalism is Crazy the AWL argue that Capitalism defeated Stalinism but has not defeated Socialism. That is partly true. Certainly Stalinism in Eastern Europe collapsed. But the Chinese Stalinists, the Cuban Stalinists, the Vietnamese Stalinists learned lessons from that. The Chinese Stalinists witnessed the disenfranchisement of Soviet and east European citizens with their increasingly poor living standards, and taking a leaf out of lenin's books introduced a New Economic Policy on steroids, and again taking a leaf out of lenin's book invited foreign Capitalists in to exploit Chinese workers in return for modern technology and techniques. Yet the Stalinists retain control over the economy. In China 70% of Capital and Labour is still employed in the State Owned Enterprises, many private enterprises have the state as partner, and the State retains control over all the financial levers. In Russia Putin as a Stalinist leader in all but name despite the fact that he is opposed in elections by another faction of Stalinists in the ofical Communist Party. The same Stalinist state officials are in place, and the new Capitalist class represented by the oligarchs has been firmly slapped down. In Russia too the majority of the means of production remained in the hands of the State, and now that State enriched by oil and gas revenues, and increasingly by the foreign earnings of other Russian State industries is reigning control of privatised companies back under its control. Price controls have been imposed on other private companies, and so on.
In the Critique of the Gotha Programme Marx says that "Right can never be higher than the economic structure of society". Feudal society could not grant bourgeois Rights, and Capitalism cannot grant the Rights appropriate to a socialist society. Part of the problem for the Stalinist states was that they were in such terribly backward economies to begin with. No amount of democratic planning, or even the brains of the best economists could have overcome the backwardness of Russia compared to the surrounding Capitalist powers. As Trotsky put it in the 1920's a Lion can easily beat a pack of hounds, but if the hounds catch the lion when it is only a cub its a different matter. Add to that the enormous destruction inflicted on the Soviet Economy during the Civil War and WWII - in WWII alone the USSR lost 25% of its most productive agricultural and industrial areas, and 30 million people, compared to the US which lost just 300,000 soldiers, and had no damage to its productive capacity whatsoever - then the fact that the USSR could go from being a medieval society to the World's second super power in just 30 years is truly remarkable, and an indidcation of the strength of nationalised and planned economy even udner adverse conditions. But one of the major problems of the USSR and other Stalinist states was that they needed in order to retain the notion that they were workers states still in some way udner the control of workers to establish some of the attributes of Socialism. Yet this was providing "Rights" which economically they were not capable of providing. They were huge Social Welfare schemes with Health Services and education Services better than in the US, but without the productive capacity to fund them, they were hugely subsidised Public Transport systems, and huge Make Work schemes with workers in their millions kept on at work in enterprises that had nothing for them to do.
The advantage for the Eastern European Stalinists of the Yeltsin bouregois counter-revolution was that it swept away this charade.
The implication of the AWL's article is that Socialism will provide a much less riskier, much more sane and productive society than Capitalism. Well we hope so, but as Marx points out we have no way of knowing that Socialism or at least the higher stages of Communism are even possible. As marxists we are not crystal ball gazers we analyse society and see where logically it goes next. Much more than that we cannot say, and a Marxist should leave the moral judgement of what will turn out to be better up to the moral philosophers. We certainly know that companies that have been established under workers ownership as Co-operatives have advantages over privately owned companies, we know that the set of ideas that naturally spring up on the back of such co-operation offer the hope of a better society, but whether such a system can be developed throughout the economy as a whole let alone throughout the world as a whole we have yet to see, and yet to see what the implications of that will be. Certainly the spreading of such a system by the workers own hands through an organic process holds out better hope than the kind of model of socialist transformation the AWL clings to of a top-down revolution to seize state power by an elite revolutionary Party.
Its been known that there was a potential problem with these Monolines since last year, but it was the particular problems of one company AMBAC which brought it to the fore last week. Now - again shattering the myth of neo-liberalism - the bosses Nanny state comes to their rescue with yet another bail out proposal, to add to the billions pumped into the economy as cheap financing for the capitalists, the astronomical sums pumped into Northern Rock, the interest rate cuts, the Keynesian Demand Management proposal from the supposedly neo-liberal, laissez-fair Bush regime for a $200 billion fiscal stimulus, and so on. Even then according to Stiglitz the huge sums pumped into the US Economy over the last 20 years mean that any fiscal stimulus would have to be much bigger than that already proposed. In reply to a question from Brian Shachtman of US CNBC Stiglitz said that any package would need to be around $600 billion equal to what has been taken out by homeowners Equity releases, and that Bush's proposals for tax cuts for the rich had been part of the problem, any stimulus needed to go into increased Unemployment Benefits and other payments to the poor.
Capitalism certainly is a chaotic system, though not perhaps as chaotic as it used to be as the Capitalists have been forced to adopt socialistic measures to sustain it. Major capitalist enterprises now operate on the basis of long-term Business plans. Their decisions are determined in advance on the basis of such plans, market research etc. and the use of advertising and marketing to shape the market. But they are only able to operate on this basis because their state has also adopted long-term planning methods which give these firms some environment of certainty and stability in which they can formulate their plans. The firms which dominate the economy are large monopolistic enterprises of the type a socialist economy would develop, inextricably tied to and controlled through the Stock exchanges which operate like a massive State Clearing House for the Capitalist class, moving Capital at an instant to where the highest profit can be made through the adjustment of the Capital Value of firms shares. But it remains capitalism even if it is now effectively State Capitalism.
In this piece Capitalism is Crazy the AWL argue that Capitalism defeated Stalinism but has not defeated Socialism. That is partly true. Certainly Stalinism in Eastern Europe collapsed. But the Chinese Stalinists, the Cuban Stalinists, the Vietnamese Stalinists learned lessons from that. The Chinese Stalinists witnessed the disenfranchisement of Soviet and east European citizens with their increasingly poor living standards, and taking a leaf out of lenin's books introduced a New Economic Policy on steroids, and again taking a leaf out of lenin's book invited foreign Capitalists in to exploit Chinese workers in return for modern technology and techniques. Yet the Stalinists retain control over the economy. In China 70% of Capital and Labour is still employed in the State Owned Enterprises, many private enterprises have the state as partner, and the State retains control over all the financial levers. In Russia Putin as a Stalinist leader in all but name despite the fact that he is opposed in elections by another faction of Stalinists in the ofical Communist Party. The same Stalinist state officials are in place, and the new Capitalist class represented by the oligarchs has been firmly slapped down. In Russia too the majority of the means of production remained in the hands of the State, and now that State enriched by oil and gas revenues, and increasingly by the foreign earnings of other Russian State industries is reigning control of privatised companies back under its control. Price controls have been imposed on other private companies, and so on.
In the Critique of the Gotha Programme Marx says that "Right can never be higher than the economic structure of society". Feudal society could not grant bourgeois Rights, and Capitalism cannot grant the Rights appropriate to a socialist society. Part of the problem for the Stalinist states was that they were in such terribly backward economies to begin with. No amount of democratic planning, or even the brains of the best economists could have overcome the backwardness of Russia compared to the surrounding Capitalist powers. As Trotsky put it in the 1920's a Lion can easily beat a pack of hounds, but if the hounds catch the lion when it is only a cub its a different matter. Add to that the enormous destruction inflicted on the Soviet Economy during the Civil War and WWII - in WWII alone the USSR lost 25% of its most productive agricultural and industrial areas, and 30 million people, compared to the US which lost just 300,000 soldiers, and had no damage to its productive capacity whatsoever - then the fact that the USSR could go from being a medieval society to the World's second super power in just 30 years is truly remarkable, and an indidcation of the strength of nationalised and planned economy even udner adverse conditions. But one of the major problems of the USSR and other Stalinist states was that they needed in order to retain the notion that they were workers states still in some way udner the control of workers to establish some of the attributes of Socialism. Yet this was providing "Rights" which economically they were not capable of providing. They were huge Social Welfare schemes with Health Services and education Services better than in the US, but without the productive capacity to fund them, they were hugely subsidised Public Transport systems, and huge Make Work schemes with workers in their millions kept on at work in enterprises that had nothing for them to do.
The advantage for the Eastern European Stalinists of the Yeltsin bouregois counter-revolution was that it swept away this charade.
The implication of the AWL's article is that Socialism will provide a much less riskier, much more sane and productive society than Capitalism. Well we hope so, but as Marx points out we have no way of knowing that Socialism or at least the higher stages of Communism are even possible. As marxists we are not crystal ball gazers we analyse society and see where logically it goes next. Much more than that we cannot say, and a Marxist should leave the moral judgement of what will turn out to be better up to the moral philosophers. We certainly know that companies that have been established under workers ownership as Co-operatives have advantages over privately owned companies, we know that the set of ideas that naturally spring up on the back of such co-operation offer the hope of a better society, but whether such a system can be developed throughout the economy as a whole let alone throughout the world as a whole we have yet to see, and yet to see what the implications of that will be. Certainly the spreading of such a system by the workers own hands through an organic process holds out better hope than the kind of model of socialist transformation the AWL clings to of a top-down revolution to seize state power by an elite revolutionary Party.
Sunday, 6 January 2008
Capital Consumes Itself
No Surplus Value Created in Department I
The proposition developed above See: Labour Power v Horse Power based on Marx’s analysis that slave labour cannot produce Surplus Value, any more than machine labour or animal labour – all can produce a surplus of Use Values i.e. they consume a certain amount of use values, but through their activity produce a greater volume of use values – says that in determining Exchange Value what is being measured is not simply average socially necessary labour-time – the average labour-time taken to produce something by a slave is “socially necessary” if society is taken as being all humans – but the average labour-time that must be taken by those that participate in the process of exchange. If some group does not participate in the process of exchange then their labour-time cannot be taken into account in the calculation. This is the importance that the introduction of wage labour has for Exchange Value obtaining its mature form under capitalism. Marx 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.
The question arrived at then from this is what about those goods that workers do not participate in the Exchange of – Producer Goods. The conclusion we should draw from the above analysis is that NO SURPLUS VALUE CAN BE CREATED IN THIS DEPARTMENT. The reason. Only capitalists buy Producer goods, and Capitalists can always acquire such goods at a cost less than the labour-time actually required for their production. They can do this by themselves producing them, and employing labour for this purpose that is paid less in wages than the value of its output.
Yet, this is counter-intuitive. We know that Capital producing these goods DOES make a profit. But we have come across this earlier. The slave owner produces no surplus value, yet the Capital of the slave owner receives its share of total profit. It is nothing more than the averaging out of the rate of profit. But a look at the actual relations shows that the proposition is valid, counter-intuitive or not.
Enterprises are in reality composites. Different departments of an enterprise undertake different pieces of work. A large enterprise might require the labour of solicitors for instance. The enterprise might employ a firm of solicitors to do this work. If it does so this firm of solicitors will seek to make an average rate of profit on the Capital they employ. The enterprise buying these services will have to meet the cost of this profit in the cost it pays for these services. If the enterprise is big enough, it might then decide to employ its own solicitors. It will then employ the same Labour Power as the firm of solicitors, but when it processes its accounts it will not add a profit figure for these services when it charges them to the business. The same is true say of engineering services that a firm needs for maintenance of its plant etc. A look at Marx’s Grundrisse explains what is happening. Marx goes into some length to describe the process whereby Capital is objectified Surplus Value. The enterprise that buys in these services from another enterprise has to objectify the Surplus Value created by the first enterprise in its own Capital. By taking over this operation the firm reduces its Capital requirements by reducing its costs, and by an equal amount to the Surplus Value no longer produced.
The consequences are significant.
Take two firms one in Department I, the other in Department II.
Department I
C = 100, V = 100, S = 100 Total 300, R = 50%
Department II buys the output = 300.
C = 300, V = 100, S = 200 Total 600, R = 50%
I am assuming price formation through transformation here to equalise R at 50%.
If either firm takes over the other we would instead have.
C = 200 (Made up of 100C + 100V in Department I), V = 100, S = 200 Total 500, R = 66.6%.
What has happened? Department II now acquires its Constant Capital without having to cover the profit of the firm in Department I, i.e. for 200 rather than 300. Its outlay on living labour for the transformation of these use values into their final form remains the same, and the surplus created by this labour also remains the same. However, this same level of Surplus Value is now related to a smaller outlay of Capital in total – 300 as opposed to 400 – and so the RATE of Profit rises from 50% to 66.6%. The consequence is that although the total amount of Exchange Value (Capital) circulating in the economy has fallen, although in correspondence the total volume of Surplus Value has fallen the rate of profit has risen.
Why? The conclusion can only be that previously the enterprise in Department I obtained its share of Surplus Value (its average rate of profit) by draining surplus value away from Department II – just as in fact an enterprise using slave labour drains surplus value from enterprises employing wage labour. The higher Rate of Profit now enjoyed should encourage other enterprises to enter this sphere of production, but the higher rate can ONLY be achieved if they too subsume production of their inputs into their own operations.
The clear conclusion is that Capitalism generates a powerful impetus towards vertical integration of enterprises, precisely because the calculation of Exchange Value for Producer goods by Capitalists alone (Capitalists who can always produce these goods at Cost themselves by entering production of them), means that competition amongst them will drive Exchange Value down to a level where Surplus Value disappears. If Capital continues to operate as a separate entity in this sphere and thereby receives average profit, it can only do so by draining Surplus Value from Department II.
But, as with other aspects of Capitalism there are countervailing tendencies to this law. Marx sets out how Capital which begins as a combination of Money Capital, Productive Capital and Commercial Capital, divides up into these three elements as separate spheres of activity. The reason is quite simple – specialisation. The whole basis of the Division of Labour is that specialisation on one aspect of the production process allows savings to be effective. If we go back to our original examples of solicitors and engineers it is quite possible that a large firm of solicitors or of engineers can even including its profits provide a service to our firm in Department II at a lower cost than the firm could do itself at cost. The reason is again simple. A specialist law firm can service the needs of many companies, and can thereby be of a size that enables it to enjoy economies of scale that a legal department within a single enterprise could not obtain. Yet it is clear that in many spheres where large amounts of Capital are involved, where the minimum size of operation is large there are good incentives for such vertical integration, and we can think of the oil companies as a good example, where this applies both backwards and forwards – backwards into the exploration, and drilling of the oil itself by the oil refiners, and forwards to the actual distribution and resale of the finished product.
There seems to be a contradiction here though. We have said earlier that what is significant is the calculation of necessary labour-time by those participating in the Exchange process, and it is the fact that wage workers as opposed to slaves participate in this process determining Exchange Value in accordance with the Labour-time required for production. Yet were a worker to be able to produce the finished product they would – unlike the capitalist – have to lay out the actual labour-time for the production of the Constant Capital that is used up in the finished product. This figure would be greater than the Exchange Value now calculated, because this Value now does not include the Surplus Labour-time of the workers in Department I – surplus only in the sense that it was provided over and above what they were paid for, not surplus in terms of the amount of labour-time required to produce the given amount of use-values.
This is true, but Capitalism is full of such contradictions. The reality of this contradiction has been explained earlier. The calculation of “Socially Necessary” can only be from the standpoint of those participating in the calculation. The reality is that those participating in this calculation are not homogenous – they divide into workers and Capitalists – we could also include Landlords – and the basis of calculation as we have seen of the two groups is different. The calculation of capitalists MUST always result in them having a LOWER calculation of Exchange Value than does the worker, for the reasons previously outlined i.e. they can always obtain a commodity at its cost, precisely because they can employ means of production, including the Labour Power of the worker. The worker cannot.
As Marx points out above the more production is production for the needs of workers, because workers form a larger component of demand “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” and as Marx sets out in the Grundrisse Capital IS Exchange Value in its mature form. It is for this reason that Marx sets out the situation were Capitalists able to do without workers, if they could organise all production to be by machines. In that eventuality there would be no surplus value. There would however, be an awful lot of surplus use values.
Capital Consumes Itself
But this is important too for the conclusions to be drawn from the above. In addition to the drive towards vertical integration outlined above, Marx also outlines the necessary drive of Capital not only towards concentration in general, but also towards the increase in the Organic Composition of Capital, towards the increase in the proportion of total output that is accounted for by Constant Capital in relation to Variable Capital i.e. to those commodities bought solely by Capitalists as opposed to workers. The conclusion we would have to draw from the above is that this process means that Capital increasingly devours itself, because an increasing proportion of production becomes a production not of Capital qua Exchange Value, but of Means of Production simply as Use Value. Consequently, society must drive towards the production of the social surplus not as a surplus of Exchange Value, but of Use Value. If we look at previous societies where this was the case we can get some idea of the type of production we would then expect to see as a consequence. A society which produces its social surplus in the form of use values will tend as the surplus rises to see this surplus increasingly in the form of luxury goods, precisely because those that have control over the social surplus will be driven to exchange their proportion of this surplus with others from within the same group, and there is no purpose to simply producing a Surplus of Means of Production. The surplus must take the form of products, which those that own the Surplus can consume. There is a limit to how much this can be simply more of the same, it must become a wider range of luxury goods. In short we would expect to see an increase in conspicuous consumption at the expense of productive consumption, mirroring the fact that use values without Exchange Value cannot be converted into Capital, and so have to be converted into consumption. The alternative is that USE Values in the form of wage goods which lack an Exchange Value lie unsold, and a crisis of overproduction arises, with Capital being destroyed in proportion – and often beyond. Such was the basis in the past for the Pharaohs to build the pyramids or the excesses of the Roman Patricians. Its not necessary to look far today to see the extent to which Capitalists increasingly put their wealth into such conspicuous consumption in the form of yachts costing hundreds of millions of pounds, or private jet airliners etc rather than into productive investment to see a similar picture.
The question then is to analyse this other Department of Production that meets the consumption needs of Capitalists, what is sometimes called Department III, the production of Luxury Goods.
Dept III
In short we can make the same comments about the products in Department III as for those in Department I. But with an important difference. In general Producer goods can only ever be Producer Goods – there is the obvious overlap in the sense of say hand tools which can be used in Production or which form a portion of end consumption, or materials that can be consumed productively or unproductively. But in general say a steel mill is a Producer Good. But the same is not necessarily true of “Luxury” goods. What were once considered such e.g. motor cars are now considered ordinary consumption goods, wage goods. To the extent that such a good moves from being a Luxury Good only bought by Capitalists to becoming a wage good, the basis of the calculation of its Exchange Value must change. The more workers buy this good the more must its Exchange Value be determined by actual socially necessary labour-time. Its Price of Production moves further towards this pole, and away from its mere cost of production. That is to follow Marx’s statement above the more such goods are drawn into “the sphere of exchange for capital”, as opposed to the sphere of exchange for revenue.
The concept used above that workers "Value" the commodities they buy in accord with some calculation of how much Labour-time they would expnd to produce them themselves is clearly unrealistic. A Capitalist can look at the books of some other sphere of production (say of an input) and fairly easily decide whether they can save money by producing this good for themselves rather than buy it. A worker cannot other than in the cases for example where say you calculate how long it would take to paint your house, how much you could earn in that time, and compare it against the price asked by a professional decorator for the work. But no worker can calculate how much labour time it would take for them to produce say a car (nor could a capitalist for their own consumption for that matter) in order to compare this with the market price i.e. to calculate an Exchange Value based on required Labour time. This is as unrealistic as the claims of Neo-classical theory that the consumer in deciding to buy a Mars Bar in reality calculates how much utility could be derived from spending the 30p in each of the billions of other ways possible in order to determine that they are maximising this utility!!!!! In the final section, therefore, I will look at the application of these ideas in relation to demand and supply.
See also: The Tendeency of the Rate of Profit to Rise
The proposition developed above See: Labour Power v Horse Power based on Marx’s analysis that slave labour cannot produce Surplus Value, any more than machine labour or animal labour – all can produce a surplus of Use Values i.e. they consume a certain amount of use values, but through their activity produce a greater volume of use values – says that in determining Exchange Value what is being measured is not simply average socially necessary labour-time – the average labour-time taken to produce something by a slave is “socially necessary” if society is taken as being all humans – but the average labour-time that must be taken by those that participate in the process of exchange. If some group does not participate in the process of exchange then their labour-time cannot be taken into account in the calculation. This is the importance that the introduction of wage labour has for Exchange Value obtaining its mature form under capitalism. Marx 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.
The question arrived at then from this is what about those goods that workers do not participate in the Exchange of – Producer Goods. The conclusion we should draw from the above analysis is that NO SURPLUS VALUE CAN BE CREATED IN THIS DEPARTMENT. The reason. Only capitalists buy Producer goods, and Capitalists can always acquire such goods at a cost less than the labour-time actually required for their production. They can do this by themselves producing them, and employing labour for this purpose that is paid less in wages than the value of its output.
Yet, this is counter-intuitive. We know that Capital producing these goods DOES make a profit. But we have come across this earlier. The slave owner produces no surplus value, yet the Capital of the slave owner receives its share of total profit. It is nothing more than the averaging out of the rate of profit. But a look at the actual relations shows that the proposition is valid, counter-intuitive or not.
Enterprises are in reality composites. Different departments of an enterprise undertake different pieces of work. A large enterprise might require the labour of solicitors for instance. The enterprise might employ a firm of solicitors to do this work. If it does so this firm of solicitors will seek to make an average rate of profit on the Capital they employ. The enterprise buying these services will have to meet the cost of this profit in the cost it pays for these services. If the enterprise is big enough, it might then decide to employ its own solicitors. It will then employ the same Labour Power as the firm of solicitors, but when it processes its accounts it will not add a profit figure for these services when it charges them to the business. The same is true say of engineering services that a firm needs for maintenance of its plant etc. A look at Marx’s Grundrisse explains what is happening. Marx goes into some length to describe the process whereby Capital is objectified Surplus Value. The enterprise that buys in these services from another enterprise has to objectify the Surplus Value created by the first enterprise in its own Capital. By taking over this operation the firm reduces its Capital requirements by reducing its costs, and by an equal amount to the Surplus Value no longer produced.
The consequences are significant.
Take two firms one in Department I, the other in Department II.
Department I
C = 100, V = 100, S = 100 Total 300, R = 50%
Department II buys the output = 300.
C = 300, V = 100, S = 200 Total 600, R = 50%
I am assuming price formation through transformation here to equalise R at 50%.
If either firm takes over the other we would instead have.
C = 200 (Made up of 100C + 100V in Department I), V = 100, S = 200 Total 500, R = 66.6%.
What has happened? Department II now acquires its Constant Capital without having to cover the profit of the firm in Department I, i.e. for 200 rather than 300. Its outlay on living labour for the transformation of these use values into their final form remains the same, and the surplus created by this labour also remains the same. However, this same level of Surplus Value is now related to a smaller outlay of Capital in total – 300 as opposed to 400 – and so the RATE of Profit rises from 50% to 66.6%. The consequence is that although the total amount of Exchange Value (Capital) circulating in the economy has fallen, although in correspondence the total volume of Surplus Value has fallen the rate of profit has risen.
Why? The conclusion can only be that previously the enterprise in Department I obtained its share of Surplus Value (its average rate of profit) by draining surplus value away from Department II – just as in fact an enterprise using slave labour drains surplus value from enterprises employing wage labour. The higher Rate of Profit now enjoyed should encourage other enterprises to enter this sphere of production, but the higher rate can ONLY be achieved if they too subsume production of their inputs into their own operations.
The clear conclusion is that Capitalism generates a powerful impetus towards vertical integration of enterprises, precisely because the calculation of Exchange Value for Producer goods by Capitalists alone (Capitalists who can always produce these goods at Cost themselves by entering production of them), means that competition amongst them will drive Exchange Value down to a level where Surplus Value disappears. If Capital continues to operate as a separate entity in this sphere and thereby receives average profit, it can only do so by draining Surplus Value from Department II.
But, as with other aspects of Capitalism there are countervailing tendencies to this law. Marx sets out how Capital which begins as a combination of Money Capital, Productive Capital and Commercial Capital, divides up into these three elements as separate spheres of activity. The reason is quite simple – specialisation. The whole basis of the Division of Labour is that specialisation on one aspect of the production process allows savings to be effective. If we go back to our original examples of solicitors and engineers it is quite possible that a large firm of solicitors or of engineers can even including its profits provide a service to our firm in Department II at a lower cost than the firm could do itself at cost. The reason is again simple. A specialist law firm can service the needs of many companies, and can thereby be of a size that enables it to enjoy economies of scale that a legal department within a single enterprise could not obtain. Yet it is clear that in many spheres where large amounts of Capital are involved, where the minimum size of operation is large there are good incentives for such vertical integration, and we can think of the oil companies as a good example, where this applies both backwards and forwards – backwards into the exploration, and drilling of the oil itself by the oil refiners, and forwards to the actual distribution and resale of the finished product.
There seems to be a contradiction here though. We have said earlier that what is significant is the calculation of necessary labour-time by those participating in the Exchange process, and it is the fact that wage workers as opposed to slaves participate in this process determining Exchange Value in accordance with the Labour-time required for production. Yet were a worker to be able to produce the finished product they would – unlike the capitalist – have to lay out the actual labour-time for the production of the Constant Capital that is used up in the finished product. This figure would be greater than the Exchange Value now calculated, because this Value now does not include the Surplus Labour-time of the workers in Department I – surplus only in the sense that it was provided over and above what they were paid for, not surplus in terms of the amount of labour-time required to produce the given amount of use-values.
This is true, but Capitalism is full of such contradictions. The reality of this contradiction has been explained earlier. The calculation of “Socially Necessary” can only be from the standpoint of those participating in the calculation. The reality is that those participating in this calculation are not homogenous – they divide into workers and Capitalists – we could also include Landlords – and the basis of calculation as we have seen of the two groups is different. The calculation of capitalists MUST always result in them having a LOWER calculation of Exchange Value than does the worker, for the reasons previously outlined i.e. they can always obtain a commodity at its cost, precisely because they can employ means of production, including the Labour Power of the worker. The worker cannot.
As Marx points out above the more production is production for the needs of workers, because workers form a larger component of demand “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” and as Marx sets out in the Grundrisse Capital IS Exchange Value in its mature form. It is for this reason that Marx sets out the situation were Capitalists able to do without workers, if they could organise all production to be by machines. In that eventuality there would be no surplus value. There would however, be an awful lot of surplus use values.
Capital Consumes Itself
But this is important too for the conclusions to be drawn from the above. In addition to the drive towards vertical integration outlined above, Marx also outlines the necessary drive of Capital not only towards concentration in general, but also towards the increase in the Organic Composition of Capital, towards the increase in the proportion of total output that is accounted for by Constant Capital in relation to Variable Capital i.e. to those commodities bought solely by Capitalists as opposed to workers. The conclusion we would have to draw from the above is that this process means that Capital increasingly devours itself, because an increasing proportion of production becomes a production not of Capital qua Exchange Value, but of Means of Production simply as Use Value. Consequently, society must drive towards the production of the social surplus not as a surplus of Exchange Value, but of Use Value. If we look at previous societies where this was the case we can get some idea of the type of production we would then expect to see as a consequence. A society which produces its social surplus in the form of use values will tend as the surplus rises to see this surplus increasingly in the form of luxury goods, precisely because those that have control over the social surplus will be driven to exchange their proportion of this surplus with others from within the same group, and there is no purpose to simply producing a Surplus of Means of Production. The surplus must take the form of products, which those that own the Surplus can consume. There is a limit to how much this can be simply more of the same, it must become a wider range of luxury goods. In short we would expect to see an increase in conspicuous consumption at the expense of productive consumption, mirroring the fact that use values without Exchange Value cannot be converted into Capital, and so have to be converted into consumption. The alternative is that USE Values in the form of wage goods which lack an Exchange Value lie unsold, and a crisis of overproduction arises, with Capital being destroyed in proportion – and often beyond. Such was the basis in the past for the Pharaohs to build the pyramids or the excesses of the Roman Patricians. Its not necessary to look far today to see the extent to which Capitalists increasingly put their wealth into such conspicuous consumption in the form of yachts costing hundreds of millions of pounds, or private jet airliners etc rather than into productive investment to see a similar picture.
The question then is to analyse this other Department of Production that meets the consumption needs of Capitalists, what is sometimes called Department III, the production of Luxury Goods.
Dept III
In short we can make the same comments about the products in Department III as for those in Department I. But with an important difference. In general Producer goods can only ever be Producer Goods – there is the obvious overlap in the sense of say hand tools which can be used in Production or which form a portion of end consumption, or materials that can be consumed productively or unproductively. But in general say a steel mill is a Producer Good. But the same is not necessarily true of “Luxury” goods. What were once considered such e.g. motor cars are now considered ordinary consumption goods, wage goods. To the extent that such a good moves from being a Luxury Good only bought by Capitalists to becoming a wage good, the basis of the calculation of its Exchange Value must change. The more workers buy this good the more must its Exchange Value be determined by actual socially necessary labour-time. Its Price of Production moves further towards this pole, and away from its mere cost of production. That is to follow Marx’s statement above the more such goods are drawn into “the sphere of exchange for capital”, as opposed to the sphere of exchange for revenue.
The concept used above that workers "Value" the commodities they buy in accord with some calculation of how much Labour-time they would expnd to produce them themselves is clearly unrealistic. A Capitalist can look at the books of some other sphere of production (say of an input) and fairly easily decide whether they can save money by producing this good for themselves rather than buy it. A worker cannot other than in the cases for example where say you calculate how long it would take to paint your house, how much you could earn in that time, and compare it against the price asked by a professional decorator for the work. But no worker can calculate how much labour time it would take for them to produce say a car (nor could a capitalist for their own consumption for that matter) in order to compare this with the market price i.e. to calculate an Exchange Value based on required Labour time. This is as unrealistic as the claims of Neo-classical theory that the consumer in deciding to buy a Mars Bar in reality calculates how much utility could be derived from spending the 30p in each of the billions of other ways possible in order to determine that they are maximising this utility!!!!! In the final section, therefore, I will look at the application of these ideas in relation to demand and supply.
See also: The Tendeency of the Rate of Profit to Rise
Thursday, 3 January 2008
Why Animal and Machine Labour Does Not Produce New Exchange Value
As a starter perhaps for a discussion on this below is a brief discussion I produced a couple of years ago on this question. However, I don't feel it deals with all of the questions raised above in relation, particularly to slave labour.
Why Human Labour Creates Exchange Value and Animal Labour Does Not
Why is human activity value creating labour whilst the activity of say a horse not? Why is human ploughing a field productive of value, whereas a horse ploughing a field is not? Animal labour is productive of value. Cows naturally produce manure in the fields in which they pasture. The manure acts as a fertiliser for the grass, and in doing so it is clearly valuable. But what animals do by such self-activity is produce not exchange-values, but use-values. For economic study what we are interested in is what gives these use values an exchange value. That is the key to the question. It is only humans that engage in conscious exchange. A horse exchanges his activity with its owner in return for food and shelter, but that exchange is not undertaken consciously by the horse on the basis of I will only perform this work if you give me x amount of food and shelter.
Take a situation of a horse in one field and a man in another. The horse is not self-aware. It acts to satisfy basic needs e.g. eating. When it eats grass it does so to meet its need for food. For the horse the grass is value, but it is use-value not exchange value i.e. the horse derives utility, usefulness from the food just as a man does, but the horse does not consider the food something it can exchange. The horse does not think, “If I pull this apple from this tree I can exchange it for a bundle of hay, that I would prefer to have, with someone who prefers the apple.” In short the horse does not consider its actions in respect of the time they take and the benefits they confer. Even less does the horse consider how it can increase its productive capacity. If we go a step further and consider the actions of a machine then even less can its actions be considered equivalent to labour as creating exchange value because there is a complete absence of neurological activity.
Why is this important? Because at root the determination of exchange value by labour-time resolves itself as the individual considering the amount of time they have to give up in order to achieve a given end. If it takes 6 months labour to produce 1cwt. of potatoes, but 2cwt. of carrots and I choose to produce potatoes that reflects the fact I prefer potatoes. If someone wishes to get me to exchange my potatoes for carrots they would have to offer me at least 2cwt. of carrots i.e. equal to the carrots I could have produced for myself in the time it took me to produce the potatoes. At a period in time when the vast majority of production is at this kind of individual level i.e. peasant families producing to meet their own needs, then concern for exact exchange relations may not be important. I might decide if I have an accidental surplus to exchange it for something I want whatever the exchange rate. But this situation changes as soon as trade begins to develop, and merchants arise whose sole business is to know the true values of goods in order to make a profit. A merchant is the perfect person to arbitrage the labour of one individual against another, one village with another etc. If two villages produce cloth and flour but at different levels of efficiency a merchant can make a profit by trading off these variations. If A produces 1 cwt. of flour in 100 hours, and 100 yds. of linen in 120 hours, whilst B produces 1cwt. of flour in 120 hours, and 100 yds. of linen in 100 hours then a merchant can buy 1 cwt of flour from A and exchange it with B for cloth that would take it up to 120 hours to produce (the equivalent amount of time it would need to give up to produce the flour). If the merchant then takes the 120 yds of linen acquired from B he can then exchange it for 1.44 cwts. of flour with A (the equivalent of the 144 hours it would have taken them to produce 120 yds of linen. In short it is this calculation of how much time those doing the exchanging would have to have given up to produce what is acquired which is the basis of the exchange value they place on the goods exchanged. A horse or cow or donkey makes no such calculation and therefore its activity can never be a source of exchange-value, only of use-value.
Once more than two producers enter the equation then A is no longer constrained to exchange with B, and vice versa. Competition between the various parties thereby ensures that the actual rates of exchange between all parties are forced down to the average time required for production of each commodity, so that the comparative advantage situation above out of which the merchant is able to make a profit by arbitrage disappears.
See Also: Labour Power v Horse Power
Why Human Labour Creates Exchange Value and Animal Labour Does Not
Why is human activity value creating labour whilst the activity of say a horse not? Why is human ploughing a field productive of value, whereas a horse ploughing a field is not? Animal labour is productive of value. Cows naturally produce manure in the fields in which they pasture. The manure acts as a fertiliser for the grass, and in doing so it is clearly valuable. But what animals do by such self-activity is produce not exchange-values, but use-values. For economic study what we are interested in is what gives these use values an exchange value. That is the key to the question. It is only humans that engage in conscious exchange. A horse exchanges his activity with its owner in return for food and shelter, but that exchange is not undertaken consciously by the horse on the basis of I will only perform this work if you give me x amount of food and shelter.
Take a situation of a horse in one field and a man in another. The horse is not self-aware. It acts to satisfy basic needs e.g. eating. When it eats grass it does so to meet its need for food. For the horse the grass is value, but it is use-value not exchange value i.e. the horse derives utility, usefulness from the food just as a man does, but the horse does not consider the food something it can exchange. The horse does not think, “If I pull this apple from this tree I can exchange it for a bundle of hay, that I would prefer to have, with someone who prefers the apple.” In short the horse does not consider its actions in respect of the time they take and the benefits they confer. Even less does the horse consider how it can increase its productive capacity. If we go a step further and consider the actions of a machine then even less can its actions be considered equivalent to labour as creating exchange value because there is a complete absence of neurological activity.
Why is this important? Because at root the determination of exchange value by labour-time resolves itself as the individual considering the amount of time they have to give up in order to achieve a given end. If it takes 6 months labour to produce 1cwt. of potatoes, but 2cwt. of carrots and I choose to produce potatoes that reflects the fact I prefer potatoes. If someone wishes to get me to exchange my potatoes for carrots they would have to offer me at least 2cwt. of carrots i.e. equal to the carrots I could have produced for myself in the time it took me to produce the potatoes. At a period in time when the vast majority of production is at this kind of individual level i.e. peasant families producing to meet their own needs, then concern for exact exchange relations may not be important. I might decide if I have an accidental surplus to exchange it for something I want whatever the exchange rate. But this situation changes as soon as trade begins to develop, and merchants arise whose sole business is to know the true values of goods in order to make a profit. A merchant is the perfect person to arbitrage the labour of one individual against another, one village with another etc. If two villages produce cloth and flour but at different levels of efficiency a merchant can make a profit by trading off these variations. If A produces 1 cwt. of flour in 100 hours, and 100 yds. of linen in 120 hours, whilst B produces 1cwt. of flour in 120 hours, and 100 yds. of linen in 100 hours then a merchant can buy 1 cwt of flour from A and exchange it with B for cloth that would take it up to 120 hours to produce (the equivalent amount of time it would need to give up to produce the flour). If the merchant then takes the 120 yds of linen acquired from B he can then exchange it for 1.44 cwts. of flour with A (the equivalent of the 144 hours it would have taken them to produce 120 yds of linen. In short it is this calculation of how much time those doing the exchanging would have to have given up to produce what is acquired which is the basis of the exchange value they place on the goods exchanged. A horse or cow or donkey makes no such calculation and therefore its activity can never be a source of exchange-value, only of use-value.
Once more than two producers enter the equation then A is no longer constrained to exchange with B, and vice versa. Competition between the various parties thereby ensures that the actual rates of exchange between all parties are forced down to the average time required for production of each commodity, so that the comparative advantage situation above out of which the merchant is able to make a profit by arbitrage disappears.
See Also: Labour Power v Horse Power
Labour Power v Horse Power
I am in the process of undertaking a Review of Theories of Value. In this section I am looking at the Labour Theory of Value, and asking various questions, which I am trying to answer through an iterative process of discussion with myself. Feel free to join that discussion.
Some Questions
1) Why is Labour time the measure of Value only the time worked by the human, rather than the time worked by say a horse, or following that a machine?
2) What is the function in answering this of the part played in exchange? That is a free human takes part in exchange i.e. it is a SOCIAL relationship. A horse does not it acts merely as a means of production as does a machine. The horse is simply employed and receives means of subsistence.
3) But what then of the slave? The slave does not take part in exchange, but in effect plays no different role than the horse being merely provided with means of subsistence! Does this mean that slave labour does not count in determining exchange value, that it can like the horse or machine only transfer its own production cost (value in labour time) to the commodity?
4) If so then what about surplus value? Does a slave not produce surplus value for the slave-owner? In a slave mode of production this can be overcome because what the slave produces is a surplus product not a surplus value. However, what about the slave in a commodity based economy? Did the slaves in the US South not produce surplus value in the cotton??
5) The slave like the worker is able to work longer during the day than is required to produce their own means of subsistence. Whether the surplus produced over this minimum is described as a surplus product or a surplus value surely depends on the mode of production within which it is produced. But by the same token a horse is able to work longer during the day – during which time it is producing an output (say energy by turning a turbine) whose value may be greater than the value of the horse’s subsistence. So surely this is a surplus product too. But can’t the same be said for a machine? It has a cost of production and costs for maintenance, but it too can continue producing – indeed more so than a human – values that exceed this cost! The question here though is how is this value of output determined???
6) The horse and the machine are set in motion by human labour. They are an adjunct of that labour. A dangerous argument surely. The worker is set in motion by the entrepreneur on that basis value added is added by the entrepreneur whose productivity is increased by the use of labour-power. On that basis the entrepreneur is put in the place of the worker, and the worker in the place of the machine!!!
7) What would be the situation if there were more than one sentient species? Suppose Neanderthals or aliens walked, worked and traded amongst us. Would human labour power STILL only be the source of new value, and human labour-time the only measure of exchange-value??? How does the widely different ability of such species affect the determination of Vale if the labour of all is counted, via the averaging out of all labour-time? What about the rise of sentient machines?
Some answers and some further questions.
Part of the answer is given above – that is the calculation of exchange values requires participation in the process of calculation, requires participation in exchange, therefore. See: here
This means that only free participants in exchange, and therefore in the process of calculation can assess exchange values, and therefore it is only their Labour time that can be a measure of value. If I capture a horse to use for powering a mill to grind wheat I only take into consideration the labour time needed to capture the horse, sustain the horse, not the time the horse actually spends grinding. The same is true if instead of a horse I capture a slave. Marx says in the Grundrisse:
“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)
So the condition set out by Marx for determining exchange value appears to be that the economic agents participating in exchange must base their calculation of how much of one commodity to exchange for another based upon THEIR OWN expenditure of labour. This is the basis of Value as opposed to Exchange Value. It is the generalisation of this calculation within the context of SOCIAL Labour which produces Exchange Value. That is the calculation becomes not how much labour would I have to expend to obtain this commodity, but how much would other similar owners of commodities, who participate in exchange freely, have to expend in order to produce this or that commodity. If a society is one which has generalised commodity exchange, yet retains labour in the form only or mostly of slave labour – which Marx explains would be contrary to the way capitalism functions - then the labour time of this slave labour cannot be treated any different than the labour of an animal or a machine i.e. it can only pass on its value, and not create new value, not produce surplus value. In that case we have the peculiar situation in which the Exchange Value of the product of the slave is determined under such conditions only by the labour-time of the slave owner in procuring and maintaining the slave, and only the labour-time of the slave owner (or other free participants in exchange such as slave supervisors) then counts as living labour, and therefore productive of surplus value.
The slave does not participate in this process according to Marx because they are neither free to make the necessary calculation of how much Labour Power to exchange for a given quantity of means of subsistence, and also – and in this case amounts effectively to the same thing – not the owner of a commodity which they bring to market to be measured against other commodities.
How then to deal with the question of valuing the product of slaves in the US South? Presumably, if all producers use slave labour then only the labour-time used in procuring and maintaining the slave can enter the Exchange Value of the product. No Surplus Value is created by the slave, only the labour-power of the slave owner and his free workers create new and Surplus Value. The consequence must be that the Exchange Value of the product, and the quantity of Surplus Value produced must be considerably reduced. This appears a valid conclusion, because according to Marx the slave is no different here to the animal or machine used in production, and we would expect the exchange values of products produced by machines to fall compared to those produced by free manual labour. But the Southern slave owners sold their cotton on a world market where the exchange Value is determined not by this slave labour, but by the labour of free workers. The same is true for the capitalist that employs a machine. The exchange Value of his product is determined not by his particular production, but production in general. If the machine means that the Value of his particular output is lower than the Exchange Value of his output then he obtains a competitive advantage is able to capture a larger market share or make a bigger profit. If the employment of a slave allows the same advantage then the slave owner benefits in the same way as the machine owner.
It is only the existence of this large liquid market where Exchange Values are determined by the labour-time of free workers that allows this calculation to be undertaken. Yet there seems logically something wrong here.
Marx would accept that in slave society the slave produces a surplus product. The slave consumes a certain quantity of the product of society, but through his labour produces a greater quantity of products. To consider the situation otherwise has to be to consider the slave merely as a tool, to put the social surplus down entirely to the slave owners use of the slave as a tool. But this social surplus is a surplus of USE Values, and the slave’s labour is certainly productive of USE Values just as is Nature itself. See Marx’s Critique of the Gotha Programme where he chastises Lassalle for the argument that only Labour creates Value. This surplus produced by the slave cannot be considered, however, a Surplus Value for the simple reason that in a slave society there is no general commodity exchange. If products are exchanged it is only of the surplus, and exchange is generally conducted not within society, but between societies. No real calculation of exchange Values takes place, and therefore no Surplus Value can be produced, because Surplus Value is specific to capitalist production.
Yet to some extent this appears a semantic difference. In both slave society and capitalist society – indeed in all civilised society – a social surplus is produced. In each type of society the means by which this social surplus is produced is different, and the differences create the specific dynamics of each type of society, the classes on which arise out of the different forms of property that develop etc. Capitalist society differs from all previous forms of society precisely because the social surplus takes the form of Surplus (Exchange)Value not Surplus USE Values, the ultimate expression of which is the accumulation of Capital as objectified Surplus Value. Yet as Marx outlines the source of the Social Surplus is effectively the same in each type of Society. Society produces more than it consumes output exceeds what has to be used to simply replenish what has been used up in production. But in all class society the real act of production is always at least in its vast majority the production undertaken by the exploited class. The social surplus arises because this class or classes produce more than they consume. In the case of the worker s/he is paid a wage (the exchange Value of their Labour-Power) which ensures his/her reproduction through the transformation of this exchange Value into Use-Values, but is less than the Exchange Value of the output (Use-Values) of their Labour, and hence produces a social surplus in the form of Surplus (Exchange) Value, whereas the slave similarly receives use values as means of subsistence to ensure their reproduction, and produces a greater volume of use-values as a consequence of their labour thereby creating a social surplus of Use-Values. In both instances one set of Use Values is negated in the act of production, and the process is completed via the negation of this negation in the resultant use values which form the beginning of the new cycle. The difference being that under capitalist production the process is mediated by Exchange Value, which inserts itself into what was previously a process of direct transformation.
It is, of course, entirely conceivable that a wage worker might receive in Use Value no greater share of society’s output than does a slave, indeed no greater absolute amount. At the beginning of the 19th century when the working class was created in Britain as a result of the driving off the land of the peasants through the general Enclosure Act of 1801 the condition of these workers was certainly much lower than had been the condition of workers, peasants and serfs in the previous 500 years, manifest in the halving of their life expectancy. Yet the development of production meant that 50 years later living standards for workers had almost recovered to previous levels – though they were now working twice as many hours per day, at far greater intensity, and in far worse conditions to achieve it. Subsequent increases in production, together with the organisation of workers have seen a further rise in living standards.
But two questions then arise. If the worker like the slave receives means of subsistence, and by their labour produces a greater output in what real sense can the one be described as unproductive (of surplus value), and yet the other productive of surplus value – apart from the terminological difference that one produces a surplus of use values, and the other a surplus of Exchange Values. Secondly, if the requirement for labour-time to count towards the calculation of Exchange Value is that those undertaking the calculation are owners of commodities free to exchange them in a liquid market then how does this really apply to wage workers. The definition of the working class as a slave class derives precisely from the fact that it can only sell its labour-power to a monopsonist buyer – the capitalist class – and under conditions, thereby in which it provides some of its commodity for free! If there were as many buyers of labour-power as there are sellers, or alternatively to say the same thing if each worker owned the means of production and bought their own Labour-Power then this monopoly power over Labour could not exist. In Capital Marx relates that even up to the last third of the 18th century - i.e. even after the Industrial revolution had begun – capitalists could not make substantial if any profits out of workers for the simple reason that their was such a shortage of Labour-Power due to the fact that the majority of people were still peasants, and even landless labourers were able to make a living from the Common Land.
Yet whereas according to Marx the Labour-time of the slave does not enter the calculation of Exchange Value it is precisely the labour-time of the wage-slave that is determinant of Exchange Values.
Slave Labour and Wage Labour
If we take two firms.
A has £100 in machinery and materials, plus a wage worker.
B has £100 in machinery and materials plus a slave.
Both the slave and wage worker receive the same use-values for subsistence, and work the same number of hours, and intensity, producing the same use-values.
The worker in A, and the slave owner B both have to by the use-values for means of subsistence in a large liquid market, therefore, both have to pay the same exchange Value for them. However, in order to buy these USE-Values the wage worker has to sell his Labour Power to A, and forms A’s variable as opposed to Constant Capital. It not only reproduces this exchange Value, but produces a Surplus Value in addition, contained in a certain quantity of use-values.
We have say:
For A
C (Machines and materials) £100, plus V = £100, and S = £100 – Total Exchange Value = £300.
For B
C(Machines, material and slave) = £200, V = 0, S = 0. Total exchange Value = £200.
This £200 forms the particular Value of B’s output. However, as exchange Values are determined by the market then if we take A as representative of producers of these Use-Values then the market Value of each will be £300. B will make £100 profit the same as A. How? If B were to sell his product at its particular value then the purchases would obtain these goods at £100 less than the market price, an additional £100 profit would be thrown into the pool of profit for distribution. But every sphere of capitalist enterprise shares out the profit in accordance with the proportion of total capital which they form, this is how the rate of profit is averaged. If the rate of profit is low in one sphere Capital moves to another where the rate is higher, and vice versa. Supply falls in one and rises in another. Prices and profits move accordingly. Capitalist B employs the same quantity of Capital as A, and will demand the same share of the loot.
Capitalist B appropriates Surplus Value of £100 not as a result of surplus value created by the slave, but as a consequence of his ownership of Capital, and the right this gives them to a share of the total Surplus Value created by society.
Is there a contradiction here? No. All capitalists obtain their right to a share of total surplus value from their ownership of Capital. This merely tells us something about the sphere of Distribution. It tells us nothing about the source of Surplus Value which resides in Production.
There are consequences, though, for new class theories, resulting from this, where they posit on the one-hand Capital, and on the other Labour as effectively “slave” labour in the USSR. Marx is clear “Capital” cannot exist in situations where production is undertaken solely or mostly by slave labour, precisely because such slave labour can convey only its own value to the commodity, and NOT Surplus value. Such a society can only produce a surplus of Use-Values, not exchange Values. As Capital is objectified Surplus Value, and Surplus Value is a surplus of Exchange Value the social relationship cannot be Capitalistic. If, for example, it is assumed that a State Capitalism exists but employing workers not as wage workers, but as slaves, and if we want to posit the accumulation of capital as objectified Surplus Value, we then have to enquire as to the source of this Surplus Value if it can no longer be considered to be the slave worker who like the machine or animal only transfers their own exchange Value to the product. We arrive at the surprising conclusion that this surplus value could only derive from the labour of the State Capitalist slave owner, the productivity of whom is enhanced by the setting in motion of the machinery, animals and slaves!!!!! As with our previous example the surplus value could stem from the world market, but for that to be the case we would have to demonstrate that all commodities within the economy circulated at world as opposed to domestic prices etc.
The reality is as Marx demonstrates Exchange Value can ONLY assume its complete form with the establishment of free wage workers, precisely because every other market participant can always acquire goods at a cost lower than the actual amount of labour-time used in their production. If the market is only THESE participants then the relevant calculation is not the amount of time that some human spends working to produce them, but the time/cost that they have to expend to acquire them. It is only free wage workers who having no-one beneath them to exploit have to pay the Exchange Value as actual labour-time expended, who can force the calculation to be on this basis – which also requires that wage workers form the bulk of consumers. Engels makes a similar comparison in one of his Prefaces to Capital where in response to the idea that Profit is merely an addition to costs, he argues that this amounts to the same as Marx’s theory of Surplus value, PROVIDED THAT it is understood that the only Market participant that cannot put such an uplift on the commodity they sell is the worker. The last thing that any new class theorist wants to admit is that workers in any way participated in the calculation of exchange values/prices.
If A and B are slave owners then in determining values they are only concerned at the Labour time THEY must expend. That means they are only concerned with the cost(labour-time) required to acquire the given materials, and a given amount of work. The fact that the slave doing the work might spend all day working is of no more concern to the slave owner in making this calculation than were it an animal or machine doing the work. If all labour is slave labour there can be no Surplus Value because the exchange Value of all output is equal to the value of the inputs. This does not mean there is no social surplus, but this is a surplus of use values not exchange values.
The key to the problem lies with the wage workers. The slave does not come to market as a participant – merely as a commodity to be bought and sold – the wage worker does. The slave owner and the capitalist both ask, “how much labour-time must I give up for this commodity. For both the answer is enough to buy the Use values required for production. Were capitalists the only commodity owners that come to market then again no surplus value could be created because they would compete it away, reducing prices down just to cost, because they would value the things they buy in the same way i.e. what would it cost me to acquire this? I.e. just its cost of production, and that cost is always LESS than the actual Labour-time precisely because the worker gives some of his labour time for free.
Unlike slave production, however, the owners of finished products are not the only buyers and sellers, NOT the only ones participating in this evaluation of labour-time and values. The worker has to buy commodities in order to live – whereas the slave is provided with them. If the worker owns his means of production he can undertake this calculation. What he brings to market is the product of his labour, and exchanges this on equal terms with other commodities brought there by the capitalists. They can evaluate a certain commodity they wish to buy in terms of the labour-time required for its production, and exchange it for some commodity they have produced which requires the same amount of labour-time. Say a worker produces by such means some commodity that requires 10 hours work. The capitalist might acquire this product for say 5 hours work, because they are able to buy the labour-power of a worker for this amount, and then obtain 10 hours work from the worker – 5 hours replace the cost of his wages, and 5 create a surplus value for the capitalist. Yet this capitalistically produced item would exchange on equal terms with the item produced by the worker using their own means of production. This is why peasants and artisans were not originally keen to give up their own means of production. It is why early settlers in America and Australia quickly saved money to buy land so that they could transform themselves back from wage-workers to peasants, and why the freed slaves in the Caribbean mentioned by Marx did the same.
But it is the time required by the worker to acquire these means of subsistence which then determines their Exchange Value on the market, not the cost to the Capitalist. Surplus Value arises precisely because the worker can only acquire commodities at their full cost, whereas the capitalist can acquire them at a cost lower than this.
However, this raises further questions. Is the calculation of Exchange Value only partial because the calculation is done BOTH by capitalists and workers? Marx makes clear the importance of the fact that workers form the majority of consumers i.e. for that process of calculation. But:
1) What consequence does this have for commodities NOT bought by workers – luxury goods, Capital goods
2) What level does workers consumption have to fall to until it is qualitatively not decisive in the calculation of exchange Value i.e. that Exchange is predominantly between Capitalists
3) What consequence for this is the growing Organic Composition of Capital i.e. that Constant Capital and the purchase and replacement of it dominates the purchase of Variable Capital, and the purchase of Wage Goods.
See also Why Animals and Machines Do Not Create Surplus Value
Some Questions
1) Why is Labour time the measure of Value only the time worked by the human, rather than the time worked by say a horse, or following that a machine?
2) What is the function in answering this of the part played in exchange? That is a free human takes part in exchange i.e. it is a SOCIAL relationship. A horse does not it acts merely as a means of production as does a machine. The horse is simply employed and receives means of subsistence.
3) But what then of the slave? The slave does not take part in exchange, but in effect plays no different role than the horse being merely provided with means of subsistence! Does this mean that slave labour does not count in determining exchange value, that it can like the horse or machine only transfer its own production cost (value in labour time) to the commodity?
4) If so then what about surplus value? Does a slave not produce surplus value for the slave-owner? In a slave mode of production this can be overcome because what the slave produces is a surplus product not a surplus value. However, what about the slave in a commodity based economy? Did the slaves in the US South not produce surplus value in the cotton??
5) The slave like the worker is able to work longer during the day than is required to produce their own means of subsistence. Whether the surplus produced over this minimum is described as a surplus product or a surplus value surely depends on the mode of production within which it is produced. But by the same token a horse is able to work longer during the day – during which time it is producing an output (say energy by turning a turbine) whose value may be greater than the value of the horse’s subsistence. So surely this is a surplus product too. But can’t the same be said for a machine? It has a cost of production and costs for maintenance, but it too can continue producing – indeed more so than a human – values that exceed this cost! The question here though is how is this value of output determined???
6) The horse and the machine are set in motion by human labour. They are an adjunct of that labour. A dangerous argument surely. The worker is set in motion by the entrepreneur on that basis value added is added by the entrepreneur whose productivity is increased by the use of labour-power. On that basis the entrepreneur is put in the place of the worker, and the worker in the place of the machine!!!
7) What would be the situation if there were more than one sentient species? Suppose Neanderthals or aliens walked, worked and traded amongst us. Would human labour power STILL only be the source of new value, and human labour-time the only measure of exchange-value??? How does the widely different ability of such species affect the determination of Vale if the labour of all is counted, via the averaging out of all labour-time? What about the rise of sentient machines?
Some answers and some further questions.
Part of the answer is given above – that is the calculation of exchange values requires participation in the process of calculation, requires participation in exchange, therefore. See: here
This means that only free participants in exchange, and therefore in the process of calculation can assess exchange values, and therefore it is only their Labour time that can be a measure of value. If I capture a horse to use for powering a mill to grind wheat I only take into consideration the labour time needed to capture the horse, sustain the horse, not the time the horse actually spends grinding. The same is true if instead of a horse I capture a slave. Marx says in the Grundrisse:
“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)
So the condition set out by Marx for determining exchange value appears to be that the economic agents participating in exchange must base their calculation of how much of one commodity to exchange for another based upon THEIR OWN expenditure of labour. This is the basis of Value as opposed to Exchange Value. It is the generalisation of this calculation within the context of SOCIAL Labour which produces Exchange Value. That is the calculation becomes not how much labour would I have to expend to obtain this commodity, but how much would other similar owners of commodities, who participate in exchange freely, have to expend in order to produce this or that commodity. If a society is one which has generalised commodity exchange, yet retains labour in the form only or mostly of slave labour – which Marx explains would be contrary to the way capitalism functions - then the labour time of this slave labour cannot be treated any different than the labour of an animal or a machine i.e. it can only pass on its value, and not create new value, not produce surplus value. In that case we have the peculiar situation in which the Exchange Value of the product of the slave is determined under such conditions only by the labour-time of the slave owner in procuring and maintaining the slave, and only the labour-time of the slave owner (or other free participants in exchange such as slave supervisors) then counts as living labour, and therefore productive of surplus value.
The slave does not participate in this process according to Marx because they are neither free to make the necessary calculation of how much Labour Power to exchange for a given quantity of means of subsistence, and also – and in this case amounts effectively to the same thing – not the owner of a commodity which they bring to market to be measured against other commodities.
How then to deal with the question of valuing the product of slaves in the US South? Presumably, if all producers use slave labour then only the labour-time used in procuring and maintaining the slave can enter the Exchange Value of the product. No Surplus Value is created by the slave, only the labour-power of the slave owner and his free workers create new and Surplus Value. The consequence must be that the Exchange Value of the product, and the quantity of Surplus Value produced must be considerably reduced. This appears a valid conclusion, because according to Marx the slave is no different here to the animal or machine used in production, and we would expect the exchange values of products produced by machines to fall compared to those produced by free manual labour. But the Southern slave owners sold their cotton on a world market where the exchange Value is determined not by this slave labour, but by the labour of free workers. The same is true for the capitalist that employs a machine. The exchange Value of his product is determined not by his particular production, but production in general. If the machine means that the Value of his particular output is lower than the Exchange Value of his output then he obtains a competitive advantage is able to capture a larger market share or make a bigger profit. If the employment of a slave allows the same advantage then the slave owner benefits in the same way as the machine owner.
It is only the existence of this large liquid market where Exchange Values are determined by the labour-time of free workers that allows this calculation to be undertaken. Yet there seems logically something wrong here.
Marx would accept that in slave society the slave produces a surplus product. The slave consumes a certain quantity of the product of society, but through his labour produces a greater quantity of products. To consider the situation otherwise has to be to consider the slave merely as a tool, to put the social surplus down entirely to the slave owners use of the slave as a tool. But this social surplus is a surplus of USE Values, and the slave’s labour is certainly productive of USE Values just as is Nature itself. See Marx’s Critique of the Gotha Programme where he chastises Lassalle for the argument that only Labour creates Value. This surplus produced by the slave cannot be considered, however, a Surplus Value for the simple reason that in a slave society there is no general commodity exchange. If products are exchanged it is only of the surplus, and exchange is generally conducted not within society, but between societies. No real calculation of exchange Values takes place, and therefore no Surplus Value can be produced, because Surplus Value is specific to capitalist production.
Yet to some extent this appears a semantic difference. In both slave society and capitalist society – indeed in all civilised society – a social surplus is produced. In each type of society the means by which this social surplus is produced is different, and the differences create the specific dynamics of each type of society, the classes on which arise out of the different forms of property that develop etc. Capitalist society differs from all previous forms of society precisely because the social surplus takes the form of Surplus (Exchange)Value not Surplus USE Values, the ultimate expression of which is the accumulation of Capital as objectified Surplus Value. Yet as Marx outlines the source of the Social Surplus is effectively the same in each type of Society. Society produces more than it consumes output exceeds what has to be used to simply replenish what has been used up in production. But in all class society the real act of production is always at least in its vast majority the production undertaken by the exploited class. The social surplus arises because this class or classes produce more than they consume. In the case of the worker s/he is paid a wage (the exchange Value of their Labour-Power) which ensures his/her reproduction through the transformation of this exchange Value into Use-Values, but is less than the Exchange Value of the output (Use-Values) of their Labour, and hence produces a social surplus in the form of Surplus (Exchange) Value, whereas the slave similarly receives use values as means of subsistence to ensure their reproduction, and produces a greater volume of use-values as a consequence of their labour thereby creating a social surplus of Use-Values. In both instances one set of Use Values is negated in the act of production, and the process is completed via the negation of this negation in the resultant use values which form the beginning of the new cycle. The difference being that under capitalist production the process is mediated by Exchange Value, which inserts itself into what was previously a process of direct transformation.
It is, of course, entirely conceivable that a wage worker might receive in Use Value no greater share of society’s output than does a slave, indeed no greater absolute amount. At the beginning of the 19th century when the working class was created in Britain as a result of the driving off the land of the peasants through the general Enclosure Act of 1801 the condition of these workers was certainly much lower than had been the condition of workers, peasants and serfs in the previous 500 years, manifest in the halving of their life expectancy. Yet the development of production meant that 50 years later living standards for workers had almost recovered to previous levels – though they were now working twice as many hours per day, at far greater intensity, and in far worse conditions to achieve it. Subsequent increases in production, together with the organisation of workers have seen a further rise in living standards.
But two questions then arise. If the worker like the slave receives means of subsistence, and by their labour produces a greater output in what real sense can the one be described as unproductive (of surplus value), and yet the other productive of surplus value – apart from the terminological difference that one produces a surplus of use values, and the other a surplus of Exchange Values. Secondly, if the requirement for labour-time to count towards the calculation of Exchange Value is that those undertaking the calculation are owners of commodities free to exchange them in a liquid market then how does this really apply to wage workers. The definition of the working class as a slave class derives precisely from the fact that it can only sell its labour-power to a monopsonist buyer – the capitalist class – and under conditions, thereby in which it provides some of its commodity for free! If there were as many buyers of labour-power as there are sellers, or alternatively to say the same thing if each worker owned the means of production and bought their own Labour-Power then this monopoly power over Labour could not exist. In Capital Marx relates that even up to the last third of the 18th century - i.e. even after the Industrial revolution had begun – capitalists could not make substantial if any profits out of workers for the simple reason that their was such a shortage of Labour-Power due to the fact that the majority of people were still peasants, and even landless labourers were able to make a living from the Common Land.
Yet whereas according to Marx the Labour-time of the slave does not enter the calculation of Exchange Value it is precisely the labour-time of the wage-slave that is determinant of Exchange Values.
Slave Labour and Wage Labour
If we take two firms.
A has £100 in machinery and materials, plus a wage worker.
B has £100 in machinery and materials plus a slave.
Both the slave and wage worker receive the same use-values for subsistence, and work the same number of hours, and intensity, producing the same use-values.
The worker in A, and the slave owner B both have to by the use-values for means of subsistence in a large liquid market, therefore, both have to pay the same exchange Value for them. However, in order to buy these USE-Values the wage worker has to sell his Labour Power to A, and forms A’s variable as opposed to Constant Capital. It not only reproduces this exchange Value, but produces a Surplus Value in addition, contained in a certain quantity of use-values.
We have say:
For A
C (Machines and materials) £100, plus V = £100, and S = £100 – Total Exchange Value = £300.
For B
C(Machines, material and slave) = £200, V = 0, S = 0. Total exchange Value = £200.
This £200 forms the particular Value of B’s output. However, as exchange Values are determined by the market then if we take A as representative of producers of these Use-Values then the market Value of each will be £300. B will make £100 profit the same as A. How? If B were to sell his product at its particular value then the purchases would obtain these goods at £100 less than the market price, an additional £100 profit would be thrown into the pool of profit for distribution. But every sphere of capitalist enterprise shares out the profit in accordance with the proportion of total capital which they form, this is how the rate of profit is averaged. If the rate of profit is low in one sphere Capital moves to another where the rate is higher, and vice versa. Supply falls in one and rises in another. Prices and profits move accordingly. Capitalist B employs the same quantity of Capital as A, and will demand the same share of the loot.
Capitalist B appropriates Surplus Value of £100 not as a result of surplus value created by the slave, but as a consequence of his ownership of Capital, and the right this gives them to a share of the total Surplus Value created by society.
Is there a contradiction here? No. All capitalists obtain their right to a share of total surplus value from their ownership of Capital. This merely tells us something about the sphere of Distribution. It tells us nothing about the source of Surplus Value which resides in Production.
There are consequences, though, for new class theories, resulting from this, where they posit on the one-hand Capital, and on the other Labour as effectively “slave” labour in the USSR. Marx is clear “Capital” cannot exist in situations where production is undertaken solely or mostly by slave labour, precisely because such slave labour can convey only its own value to the commodity, and NOT Surplus value. Such a society can only produce a surplus of Use-Values, not exchange Values. As Capital is objectified Surplus Value, and Surplus Value is a surplus of Exchange Value the social relationship cannot be Capitalistic. If, for example, it is assumed that a State Capitalism exists but employing workers not as wage workers, but as slaves, and if we want to posit the accumulation of capital as objectified Surplus Value, we then have to enquire as to the source of this Surplus Value if it can no longer be considered to be the slave worker who like the machine or animal only transfers their own exchange Value to the product. We arrive at the surprising conclusion that this surplus value could only derive from the labour of the State Capitalist slave owner, the productivity of whom is enhanced by the setting in motion of the machinery, animals and slaves!!!!! As with our previous example the surplus value could stem from the world market, but for that to be the case we would have to demonstrate that all commodities within the economy circulated at world as opposed to domestic prices etc.
The reality is as Marx demonstrates Exchange Value can ONLY assume its complete form with the establishment of free wage workers, precisely because every other market participant can always acquire goods at a cost lower than the actual amount of labour-time used in their production. If the market is only THESE participants then the relevant calculation is not the amount of time that some human spends working to produce them, but the time/cost that they have to expend to acquire them. It is only free wage workers who having no-one beneath them to exploit have to pay the Exchange Value as actual labour-time expended, who can force the calculation to be on this basis – which also requires that wage workers form the bulk of consumers. Engels makes a similar comparison in one of his Prefaces to Capital where in response to the idea that Profit is merely an addition to costs, he argues that this amounts to the same as Marx’s theory of Surplus value, PROVIDED THAT it is understood that the only Market participant that cannot put such an uplift on the commodity they sell is the worker. The last thing that any new class theorist wants to admit is that workers in any way participated in the calculation of exchange values/prices.
If A and B are slave owners then in determining values they are only concerned at the Labour time THEY must expend. That means they are only concerned with the cost(labour-time) required to acquire the given materials, and a given amount of work. The fact that the slave doing the work might spend all day working is of no more concern to the slave owner in making this calculation than were it an animal or machine doing the work. If all labour is slave labour there can be no Surplus Value because the exchange Value of all output is equal to the value of the inputs. This does not mean there is no social surplus, but this is a surplus of use values not exchange values.
The key to the problem lies with the wage workers. The slave does not come to market as a participant – merely as a commodity to be bought and sold – the wage worker does. The slave owner and the capitalist both ask, “how much labour-time must I give up for this commodity. For both the answer is enough to buy the Use values required for production. Were capitalists the only commodity owners that come to market then again no surplus value could be created because they would compete it away, reducing prices down just to cost, because they would value the things they buy in the same way i.e. what would it cost me to acquire this? I.e. just its cost of production, and that cost is always LESS than the actual Labour-time precisely because the worker gives some of his labour time for free.
Unlike slave production, however, the owners of finished products are not the only buyers and sellers, NOT the only ones participating in this evaluation of labour-time and values. The worker has to buy commodities in order to live – whereas the slave is provided with them. If the worker owns his means of production he can undertake this calculation. What he brings to market is the product of his labour, and exchanges this on equal terms with other commodities brought there by the capitalists. They can evaluate a certain commodity they wish to buy in terms of the labour-time required for its production, and exchange it for some commodity they have produced which requires the same amount of labour-time. Say a worker produces by such means some commodity that requires 10 hours work. The capitalist might acquire this product for say 5 hours work, because they are able to buy the labour-power of a worker for this amount, and then obtain 10 hours work from the worker – 5 hours replace the cost of his wages, and 5 create a surplus value for the capitalist. Yet this capitalistically produced item would exchange on equal terms with the item produced by the worker using their own means of production. This is why peasants and artisans were not originally keen to give up their own means of production. It is why early settlers in America and Australia quickly saved money to buy land so that they could transform themselves back from wage-workers to peasants, and why the freed slaves in the Caribbean mentioned by Marx did the same.
But it is the time required by the worker to acquire these means of subsistence which then determines their Exchange Value on the market, not the cost to the Capitalist. Surplus Value arises precisely because the worker can only acquire commodities at their full cost, whereas the capitalist can acquire them at a cost lower than this.
However, this raises further questions. Is the calculation of Exchange Value only partial because the calculation is done BOTH by capitalists and workers? Marx makes clear the importance of the fact that workers form the majority of consumers i.e. for that process of calculation. But:
1) What consequence does this have for commodities NOT bought by workers – luxury goods, Capital goods
2) What level does workers consumption have to fall to until it is qualitatively not decisive in the calculation of exchange Value i.e. that Exchange is predominantly between Capitalists
3) What consequence for this is the growing Organic Composition of Capital i.e. that Constant Capital and the purchase and replacement of it dominates the purchase of Variable Capital, and the purchase of Wage Goods.
See also Why Animals and Machines Do Not Create Surplus Value
Sunday, 2 December 2007
The Tendency For the Rate of Profit to Rise
In Capital Vol III Part III, Marx sets out his theory on “The Law of the Tendency of the Rate of Profit to Fall.” See: Capital Vol III.
Right at the beginning Marx shows how the same quantity of Variable Capital (Labour Power), and the same rate of surplus value creates varying rates of profit depending upon the division between Constant Capital (machinery, buildings, raw materials) and Variable Capital, or as Marx calls it the Organic Composition of Capital. So:
If c = 50, and v = 100, then p' = 100/150 = 66⅔%;
c = 100, and v = 100, then p' = 100/200 = 50%;
c = 200, and v = 100, then p' = 100/300 = 33⅓%;
c = 300, and v = 100, then p' = 100/400 = 25%;
c = 400, and v = 100, then p' = 100/500 = 20%.
Marx demonstrates that as a result of progress this Organic Composition naturally increases, and so there is a tendency over time for the Rate of profit to fall. As with many other parts of Marx’s Capital, this part has caused some controversy over the years. For some Marxists the “Tendency” bit of Marx’s description of his theory has been ignored turning it simply into a “Law” that the rate of profit must fall, and this has been placed at the heart often of these Marxists explanations of Capitalist crises, and also of the need for imperialism i.e. for Capital to seek out new sources of Labour Power to consume. What such writers tend to minimise is the other parts of Marx’s theory here where he outlines why the Theory is only a tendency, why there are countervailing effects which mitigate this tendency. I intend to demonstrate here why not only does modern capitalism have features which mitigate the tendency for the Rate of profit to fall, but why the very nature of modern capitalism means that these countervailing effects result not in a tendency for he rate to fall, but for it to rise.
First, let us consider why it is that the Organic Composition of Capital rises. Marx sets out a number of causes I intend to concentrate on just some, the reader can investigate all of them via the link above. Firstly, Capital needs to create a Reserve Army of labour. It needs this for several reasons. IN the first place capitalism is a dynamic system. Capital moves from one area of production to another in search of higher rates of profit, which in part are a function of changes in consumer demand. Not only Capital as Constant Capital has to move, but Capital in the form of Labour Power has to move too. But, there must arise necessary frictions. Labour will not be in the right place, will not be of the right type etc. Moreover, Capital expands as economic growth takes place, and this expansion will continually mean that more labour power is required. The movement of Capital from one area to another, and the expansion of Capital can only take place if there is available Labour Power to be employed i.e. if there is always a reserve of Labour. Secondly, if wages are to be kept down to the Value of Labour Power then the demand of Labour Power must not exceed its supply, and preferably if workers are to be forced sellers of their Labour Power – and they must be so if they can be persuaded to remain wage slaves i.e. to provide part of their Labour Power gratis to the Capitalist – Supply must be greater than demand. For example, Marx sets out that even as late as the last third of the 18th century, even landless labourers still had the ability through the utilisation of the Common Land etc. to provide enough of their daily requirements for themselves that Capitalists could only persuade them to work 3 days a week to cover their additional needs. The result was that the supply of Labour Power remained low, and the conditions upon which it was sold were so favourable to the workers that Marx says Capitalists found they were unable to make any sizeable profit. The early industrial Capitalists were forced to accumulate Capital not as they do today through the appropriation of Surplus Value from many workers, but by keeping their own consumption to a minimum, often below that of their workers. This was despite Laws remaining on the Statute book from the 15th century setting a Minimum length of Working Day etc.
One means by which Capitalists can create this Reserve Army of Labour is by utilising where possible machinery instead of Labour Power. Provided the cost of the machinery (which ultimately means the amount of Labour Time needed for its production) is less than the cost of the Labour Power it displaces there is an incentive for the Capitalist to make this substitution. Consequently, there is a natural tendency for the amount of machinery used in production to rise, and for Labour Power to fall. As Marx sets out above, the consequence must be that the Rate of profit declines.
Secondly, technological developments mean that improved machinery can hugely increase the productivity of labour. Even if we assume that this technological development causes the cost of the machinery to remain constant, the same amount of Labour Power will now consume a much larger quantity of raw materials etc. Suppose the Capital of a firm is made up of £100 of machinery, £100 of Materials and £100 of Labour Power. With a 100% rate of Surplus value the Surplus Value will be £100. The Rate of Profit will be 100/300 or 33.3%. Now assume a new machine is developed which costs the same as the previous machine, but which doubles the productivity of the Labour Power consumed. The same amount of Labour Power now requires twice the materials previously used up. The situation now is £100 in machinery, £200 in Materials, and £100 in Labour Power. With the rate of Surplus Value remaining the same the Rate of Profit is now 100/400 or 25%.
This is the basis for the Tendency of the rate of Profit to fall, and there are strong empirical grounds for believing that over a long period Marx’s theory here is valid. But Marx also sets out the reasons why this theory is no “Iron Law”. One of the first reasons that can be cited is that outlined above. The process of utilising machinery is not merely a matter of utilising more machinery of the same type. This will tend to be true for particular periods, but due to innovation there will be entire periods when the Value of Constant Capital in the form of machinery is depreciated. The very process of development reduces the Value of Constant Capital, and with this falling Value comes also a fall in the Organic Composition of Capital. If we take the example above, but with a slight modification we might have:
£50 Machinery, £100 Materials, £100 Labour power, £100 Surplus value. Rate of profit 100/250 = 40%.
Here the new machine does not enhance the productivity of Labour and so the same quantity of labour does not set in motion more materials, it is simply that the cost of the machine has fallen, causing a fall in the Organic Composition of Capital and a consequent rise in the rate of profit. But, the same can be said of the other inputs too. Increasing productivity can also reduce the amount of Labour Power required to produce not just the machinery, but also the materials consumed. Increasing productivity can result in the wage goods bought by the worker becoming much cheaper, and so the Value of Labour Power falls meaning that in a given working day the worker reproduces their wages in a shorter period, and so more of the working day is appropriated by the Capitalist as Surplus Value. So we have.
1)
Machinery £50, Materials £50, Labour Power £100, Surplus Value £100 – Rate of profit 100/200 = 50%.
2)
Machinery £50, Materials £50, Labour Power £50, Surplus Value £150 – Rate of profit 150/150 = 100%.
Here if we assume a working day of 8 hours then formerly the worker worked for 4 hours to reproduce their Labour power, and provided the remaining 4 hours gratis to the Capitalist. If rising productivity means that the Value of Labour Power is halved, the worker now reproduces their wages in just 2 hours, the remaining 6 hours now being appropriated by the Capitalist i.e. the rate of Surplus Value rises from 100% to 300%.
Over a long period as Kondratieff demonstrates there is clear evidence of this countervailing tendency to operate too. At the end of the periods of Long Wave expansion when demand for Labour Power has reached a peak, when the cost of all inputs including machinery and materials are at their highest, and consequently when the Rate of profit is lowest, there is a strong incentive for innovation, for means to build a better mousetrap, to find cheaper materials, cheaper labour power, or to be able to use less labour Power etc. But innovation does not happen to order. The innovation cycle tends then to correspond more to periods of downturn, and the base technologies developed during this period are taken up only sporadically. It is the new Long Wave upswing which sees them incorporated into new products and new methods of production – just as the base technologies of IT and biotechnology developed over the last 20-30 years, are only now beginning to revolutionise production, and to be incorporated into ever new items of consumption. As Kondratieff also shows the position in respect of materials is more complex. During the Long downswing demand for materials necessarily falls at least relatively. But, the producers of these materials having invested huge amounts of Capital in new mines etc. need to operate this Capital at pretty much a constant level. Supply remains constant or slightly increases at least for part of the time, whilst demand falls. Prices fall. The response is for raw material producers to abandon the search for new materials, to stretch out existing machinery to the end of its life etc. By the end of the Long downswing Capital investment in these industries is low, and exploration is almost non-existent. Existing mines are becoming exhausted, and marginal production costs rising. When the new long upswing arrives then Supply cannot increase rapidly enough to meet demand. Prices rise – just look at the rise in the price of Copper, Lead and other metals over the last 7 or 8 years corresponding to the beginning of the new K cycle. As the demand for Labour Power rises and new reserves of labour are employed the demand for wage goods such as food increases – again look at the rise in soft commodity prices over that period as demand from the millions of new workers in India and China raises demand – the current rise in the price of wheat is a special case caused not just by the above, but the additional effect of the demand for alternatives to oil through bio-fuel causing a switch of production from food to ethanol. It is only the more than compensating effect of the rising productivity caused by the introduction of new production methods developed in the Innovation cycle which prevents these rising prices from choking off the new upswing, together with the fact that at the beginning of the upswing not only is Labour Power still in abundance – because the existing workers now form a bigger reserve - but also because new sources of Labour Power – for example China, India – now provide a new source of Labour power where the Value of labour power is lower, and consequently the Rate of Surplus Value – particularly as the latest techniques can still be employed to gain the highest productivity from this labour – is much greater.
Marx, however, also sets out limits to the compensating effects. The simplest example is in relation to the degree to which Labour Power can be exploited. Machinery can replace Labour Power in the Production process, and in so doing raise the productivity of Labour Power. The result is that the Rate of Surplus Value rises, thereby causing the rate of profit to rise. But as Marx, explains there are limits to this. The working day cannot be longer than 24 hours. Even if the productivity of Labour rises so that the amount of time out of this 24 that a worker requires to meet their own needs falls to just 1 hour, leaving 23 hours to be appropriated by the capitalist, the amount of surplus value appropriated will still be less than from 24 workers who provide just 1 hour of surplus value for the Capitalist.
This then in brief – as I said above the reader should read Marx’s theory in detail at the link to Capital provided above – is Marx’s theory. I now intend to set out why modern Capitalism rather than having a tendency for the rate of Profit to fall, has trhe opposite a tendency for the rate of profit to rise.
1) The cost of Capital. In the last 20 years the rate of technological change has speeded up considerably. In the last 10 years it has speeded up even faster, and in the last 5 faster still. The reason for this is quite simple – the development of cheap computing power, whose power doubles every 18 months. This cheap computing power now means that its application to a whole range of other technologies has revolutionised them too, in a way that a reliance purely on human brain power could never have done. The unravelling of the human genome is a striking example with the actual task accomplished ultimately within about 18 months, when it was first considered when the task began that it would be either impossible or a lifetime’s work. Yet during the time from the beginning of the project, just a few years, computing power had increased so exponentially that in the end the sequencing became quite easy. The ability then to use this power in relation to other technologies, bio-technology for instance, or in relation to nano-technology, has revolutionised production already, and is revolutionising consumption too. The consequence is that the cost of Capital is being reduced dramatically, whilst the effectiveness of that Capital is rising exponentially.
2) The Nature of Production and Consumption. A recent survey reported by CNN stated that by 2012 30% of Britons would be dollar millionaires. A look around any estate other than the most deprived shows a working class that can no longer be described meaningfully as a slave class, other than in Marx’s restricted meaning of that term as having to give part of its labour away free to the capitalist as a condition of employment. Marx’s working class spent most of its wages on the basics of living, food, shelter and clothing. That is no longer the case. Although the recent rise in house prices – itself a function of the fact that an increasing number of single people who in previous generations would have lived with their parents now demand a home of their own, along with the increasing number of people with two or more homes – means that a large portion of workers income is spent on shelter, the proportion spent on food has continued to decline, and even here at least some is spent not on food itself, but on eating out i.e. entertainment really. Similarly with clothing an increasing amount is spent not just for the necessity of clothing but on paying for a designer label, or the latest fashion etc. On top of that is an increasing amount spent on things such as mobile phones and other electronic gizmos, on entertainment, and other services.
The nature of this consumption is completely different from the type of consumption theorised by Marx, and the nature of the production of these items of consumption is different too. Marx looked at the consumption of luxury goods by the rich. In general he concluded the organic composition of Capital in these industries was lower than in the production of wage goods. The reason was that the nature of the production required a higher degree of skilled labour power. One of the reasons a luxury good is a luxury good is because it is more unique than something mass produced. An expensive piece of jewellery cannot simply be reproduced over and over again by a machine, cannot be churned out by unskilled labourers. It requires the labour power of a skilled artisan. Such workers do not abound, their labour power is not simple labour but complex labour valued at several multiples that of an unskilled worker. An 8 hour day of such a worker might then be equal to 72 or 144 hours of an unskilled worker. The Surplus Value appropriated in a single day might amount to 36 or 72 hours, even allowing for the higher wages of the artisan.
In the BBC’s Money programme last week an example of this in relation to consumption under modern capitalism was given. It looked at the phenomena of the new super rich celebrity. Take one example, David Beckham. 50 years ago the equivalent was say Stanley Matthews. Yet Stanley Matthews made nothing like the money of David Beckham, nor did the companies – football teams – to whom he sold his Labour Power make the kind of profits that modern football clubs make. Why? Fifty years ago, the income that a football club made was derived from the fans coming through the turnstiles. Even allowing for average gates twice the size of today that was a limited source of income. But today, the rapid development of technology means that via the Internet, via satellite TV around 3 million Chinese workers alone watch English Premier League football every week – why is another matter. Yet there are a limited number of David Beckham’s and Premier League matches to watch. Marx said that it was only possible to determine the multiple of complex labour to simple labour a posteriori by what the market was prepared to pay for the complex labour in relation to simple labour. The vast expansion of the market due to new technology means that this multiple has expanded hugely. Or more correctly, it might be that the Value of David Beckham’s labour power is no greater than that of Stanley Matthews other than for the natural rise in the value of labour power over time, but were Beckham to be paid at the same rate then the Football Companies would make much bigger profits still. The limited availability of the Labour power needed enables the suppliers of the labour power to negotiate a higher wage out of those much larger profits. The Programme gave many other similar examples. Vanessa may, for instance who demonstrated that the Internet means that where she would have been able to sell her albums much less widely had she had to tour the world to promote them the global village removes that necessity. Or the celebrity chefs, or the celebrity fund managers looking after the wealth of that increasing number of super rich or British dollar millionaires, and so on. In short the nature of consumption for these types of goods on a much larger scale is more like the kind of Luxury consumption described by Marx, where the most important aspect of the cost is not the Constant Capital or materials employed, but is the complex labour of the worker. As this type of consumption takes up a larger and larger proportion of consumption overall then this must because of the lower organic composition of Capital in these industries result in an increasing rate of profit.
But this tendency can be seen in many other forms of consumption. The designer label clothes consume no more material, require no more and no more expensive machinery to produce than some non-designer clothing. The higher price comes from no other reason than that some consumers can be conned into paying over the odds for the label, and the designer’s labour likewise becomes more valuable. A Jaguar S type consumes no more materials than a Ford Mondeo, and probably no more expensive materials either. The higher price arises from the label, and the higher price with effectively no greater employment of Constant Capital means a higher rate of profit. Whereas at one time the Jaguar was once a luxury brand, consumed only by a few, now it is fairly commonplace.
Similarly, if we look at other items of consumption we find that in fact the materials used are negligible. A mobile phone, a PC, an LCD TV, the various services we use such as cinema, theatre etc. In fact a mobile phone probably uses far less materials than did the old type of land line, the LCD certainly less than a CRT screen. Again the largest component in the value of these products is not the Capital or material used in the production, but the intellectual labour that went into their development etc. Look at the huge amounts now spent on Computer games, yet a CD or DVD takes very few material resources to produce, very little in the way of Constant Capital. But it does take the labour of skilled games programmers. Or music. When I was first collecting records 40 years ago to amass 1,000 records consumed a fair amount of vinyl. Now 20 times that amount can be stored on a tiny stick, instead of the cost of transporting all the vinyl etc to record shops the music can be downloaded all over the world instantaneously over the Internet.
In short the nature of consumption has changed naturally as a result of rising living standards. The basic requirements for existence that once composed the majority of consumption are almost taken for granted by workers in developed economies, increasingly by workers in developing economies, and probably in 50 years time by workers everywhere as economic growth speeds up, and Africa is industrialised. As Marx predicted when he criticised Lassalle’s Iron Law of wages the natural tendency of capitalism to raise living standards means that expenditure on these previous types of consumption increasingly diminishes. An increasing proportion is spent on other goods and services whose nature is more akin to the luxury goods formerly only consumed by the rich, and the nature of these goods and services is that they have a higher component of complex labour, and a lower component of Constant Capital. In addition the exponential development of technology has revolutionised production techniques massively reducing the cost of Capital – I have previously referred to the Media for instance, where the cost of Media Production equipment has fallen so much that rather than this being an industry where the normal process of concentration of Capital occurs, almost anyone can set up their own Media Production company, and sell their product to the TV or Internet. According to one recent TV series – “Visions of the Future – the development of nano-technology, means that in the not too distant future every home will be able to have their own fabricator like that on Star Trek, which will simply manipulate individual atoms to produce whatever you want. We are seeing bio-technology used to produce alterntive to fuels, and bio-technology and nano-technology will long before domestic fabricators are available produce for Capitalist enterprises cheap alternatives for any materials they require.
For all these reasons modern capitalism is characterised increasingly not for a Tendency for the rate of profit to Fall, but for it to rise.
Right at the beginning Marx shows how the same quantity of Variable Capital (Labour Power), and the same rate of surplus value creates varying rates of profit depending upon the division between Constant Capital (machinery, buildings, raw materials) and Variable Capital, or as Marx calls it the Organic Composition of Capital. So:
If c = 50, and v = 100, then p' = 100/150 = 66⅔%;
c = 100, and v = 100, then p' = 100/200 = 50%;
c = 200, and v = 100, then p' = 100/300 = 33⅓%;
c = 300, and v = 100, then p' = 100/400 = 25%;
c = 400, and v = 100, then p' = 100/500 = 20%.
Marx demonstrates that as a result of progress this Organic Composition naturally increases, and so there is a tendency over time for the Rate of profit to fall. As with many other parts of Marx’s Capital, this part has caused some controversy over the years. For some Marxists the “Tendency” bit of Marx’s description of his theory has been ignored turning it simply into a “Law” that the rate of profit must fall, and this has been placed at the heart often of these Marxists explanations of Capitalist crises, and also of the need for imperialism i.e. for Capital to seek out new sources of Labour Power to consume. What such writers tend to minimise is the other parts of Marx’s theory here where he outlines why the Theory is only a tendency, why there are countervailing effects which mitigate this tendency. I intend to demonstrate here why not only does modern capitalism have features which mitigate the tendency for the Rate of profit to fall, but why the very nature of modern capitalism means that these countervailing effects result not in a tendency for he rate to fall, but for it to rise.
First, let us consider why it is that the Organic Composition of Capital rises. Marx sets out a number of causes I intend to concentrate on just some, the reader can investigate all of them via the link above. Firstly, Capital needs to create a Reserve Army of labour. It needs this for several reasons. IN the first place capitalism is a dynamic system. Capital moves from one area of production to another in search of higher rates of profit, which in part are a function of changes in consumer demand. Not only Capital as Constant Capital has to move, but Capital in the form of Labour Power has to move too. But, there must arise necessary frictions. Labour will not be in the right place, will not be of the right type etc. Moreover, Capital expands as economic growth takes place, and this expansion will continually mean that more labour power is required. The movement of Capital from one area to another, and the expansion of Capital can only take place if there is available Labour Power to be employed i.e. if there is always a reserve of Labour. Secondly, if wages are to be kept down to the Value of Labour Power then the demand of Labour Power must not exceed its supply, and preferably if workers are to be forced sellers of their Labour Power – and they must be so if they can be persuaded to remain wage slaves i.e. to provide part of their Labour Power gratis to the Capitalist – Supply must be greater than demand. For example, Marx sets out that even as late as the last third of the 18th century, even landless labourers still had the ability through the utilisation of the Common Land etc. to provide enough of their daily requirements for themselves that Capitalists could only persuade them to work 3 days a week to cover their additional needs. The result was that the supply of Labour Power remained low, and the conditions upon which it was sold were so favourable to the workers that Marx says Capitalists found they were unable to make any sizeable profit. The early industrial Capitalists were forced to accumulate Capital not as they do today through the appropriation of Surplus Value from many workers, but by keeping their own consumption to a minimum, often below that of their workers. This was despite Laws remaining on the Statute book from the 15th century setting a Minimum length of Working Day etc.
One means by which Capitalists can create this Reserve Army of Labour is by utilising where possible machinery instead of Labour Power. Provided the cost of the machinery (which ultimately means the amount of Labour Time needed for its production) is less than the cost of the Labour Power it displaces there is an incentive for the Capitalist to make this substitution. Consequently, there is a natural tendency for the amount of machinery used in production to rise, and for Labour Power to fall. As Marx sets out above, the consequence must be that the Rate of profit declines.
Secondly, technological developments mean that improved machinery can hugely increase the productivity of labour. Even if we assume that this technological development causes the cost of the machinery to remain constant, the same amount of Labour Power will now consume a much larger quantity of raw materials etc. Suppose the Capital of a firm is made up of £100 of machinery, £100 of Materials and £100 of Labour Power. With a 100% rate of Surplus value the Surplus Value will be £100. The Rate of Profit will be 100/300 or 33.3%. Now assume a new machine is developed which costs the same as the previous machine, but which doubles the productivity of the Labour Power consumed. The same amount of Labour Power now requires twice the materials previously used up. The situation now is £100 in machinery, £200 in Materials, and £100 in Labour Power. With the rate of Surplus Value remaining the same the Rate of Profit is now 100/400 or 25%.
This is the basis for the Tendency of the rate of Profit to fall, and there are strong empirical grounds for believing that over a long period Marx’s theory here is valid. But Marx also sets out the reasons why this theory is no “Iron Law”. One of the first reasons that can be cited is that outlined above. The process of utilising machinery is not merely a matter of utilising more machinery of the same type. This will tend to be true for particular periods, but due to innovation there will be entire periods when the Value of Constant Capital in the form of machinery is depreciated. The very process of development reduces the Value of Constant Capital, and with this falling Value comes also a fall in the Organic Composition of Capital. If we take the example above, but with a slight modification we might have:
£50 Machinery, £100 Materials, £100 Labour power, £100 Surplus value. Rate of profit 100/250 = 40%.
Here the new machine does not enhance the productivity of Labour and so the same quantity of labour does not set in motion more materials, it is simply that the cost of the machine has fallen, causing a fall in the Organic Composition of Capital and a consequent rise in the rate of profit. But, the same can be said of the other inputs too. Increasing productivity can also reduce the amount of Labour Power required to produce not just the machinery, but also the materials consumed. Increasing productivity can result in the wage goods bought by the worker becoming much cheaper, and so the Value of Labour Power falls meaning that in a given working day the worker reproduces their wages in a shorter period, and so more of the working day is appropriated by the Capitalist as Surplus Value. So we have.
1)
Machinery £50, Materials £50, Labour Power £100, Surplus Value £100 – Rate of profit 100/200 = 50%.
2)
Machinery £50, Materials £50, Labour Power £50, Surplus Value £150 – Rate of profit 150/150 = 100%.
Here if we assume a working day of 8 hours then formerly the worker worked for 4 hours to reproduce their Labour power, and provided the remaining 4 hours gratis to the Capitalist. If rising productivity means that the Value of Labour Power is halved, the worker now reproduces their wages in just 2 hours, the remaining 6 hours now being appropriated by the Capitalist i.e. the rate of Surplus Value rises from 100% to 300%.
Over a long period as Kondratieff demonstrates there is clear evidence of this countervailing tendency to operate too. At the end of the periods of Long Wave expansion when demand for Labour Power has reached a peak, when the cost of all inputs including machinery and materials are at their highest, and consequently when the Rate of profit is lowest, there is a strong incentive for innovation, for means to build a better mousetrap, to find cheaper materials, cheaper labour power, or to be able to use less labour Power etc. But innovation does not happen to order. The innovation cycle tends then to correspond more to periods of downturn, and the base technologies developed during this period are taken up only sporadically. It is the new Long Wave upswing which sees them incorporated into new products and new methods of production – just as the base technologies of IT and biotechnology developed over the last 20-30 years, are only now beginning to revolutionise production, and to be incorporated into ever new items of consumption. As Kondratieff also shows the position in respect of materials is more complex. During the Long downswing demand for materials necessarily falls at least relatively. But, the producers of these materials having invested huge amounts of Capital in new mines etc. need to operate this Capital at pretty much a constant level. Supply remains constant or slightly increases at least for part of the time, whilst demand falls. Prices fall. The response is for raw material producers to abandon the search for new materials, to stretch out existing machinery to the end of its life etc. By the end of the Long downswing Capital investment in these industries is low, and exploration is almost non-existent. Existing mines are becoming exhausted, and marginal production costs rising. When the new long upswing arrives then Supply cannot increase rapidly enough to meet demand. Prices rise – just look at the rise in the price of Copper, Lead and other metals over the last 7 or 8 years corresponding to the beginning of the new K cycle. As the demand for Labour Power rises and new reserves of labour are employed the demand for wage goods such as food increases – again look at the rise in soft commodity prices over that period as demand from the millions of new workers in India and China raises demand – the current rise in the price of wheat is a special case caused not just by the above, but the additional effect of the demand for alternatives to oil through bio-fuel causing a switch of production from food to ethanol. It is only the more than compensating effect of the rising productivity caused by the introduction of new production methods developed in the Innovation cycle which prevents these rising prices from choking off the new upswing, together with the fact that at the beginning of the upswing not only is Labour Power still in abundance – because the existing workers now form a bigger reserve - but also because new sources of Labour Power – for example China, India – now provide a new source of Labour power where the Value of labour power is lower, and consequently the Rate of Surplus Value – particularly as the latest techniques can still be employed to gain the highest productivity from this labour – is much greater.
Marx, however, also sets out limits to the compensating effects. The simplest example is in relation to the degree to which Labour Power can be exploited. Machinery can replace Labour Power in the Production process, and in so doing raise the productivity of Labour Power. The result is that the Rate of Surplus Value rises, thereby causing the rate of profit to rise. But as Marx, explains there are limits to this. The working day cannot be longer than 24 hours. Even if the productivity of Labour rises so that the amount of time out of this 24 that a worker requires to meet their own needs falls to just 1 hour, leaving 23 hours to be appropriated by the capitalist, the amount of surplus value appropriated will still be less than from 24 workers who provide just 1 hour of surplus value for the Capitalist.
This then in brief – as I said above the reader should read Marx’s theory in detail at the link to Capital provided above – is Marx’s theory. I now intend to set out why modern Capitalism rather than having a tendency for the rate of Profit to fall, has trhe opposite a tendency for the rate of profit to rise.
1) The cost of Capital. In the last 20 years the rate of technological change has speeded up considerably. In the last 10 years it has speeded up even faster, and in the last 5 faster still. The reason for this is quite simple – the development of cheap computing power, whose power doubles every 18 months. This cheap computing power now means that its application to a whole range of other technologies has revolutionised them too, in a way that a reliance purely on human brain power could never have done. The unravelling of the human genome is a striking example with the actual task accomplished ultimately within about 18 months, when it was first considered when the task began that it would be either impossible or a lifetime’s work. Yet during the time from the beginning of the project, just a few years, computing power had increased so exponentially that in the end the sequencing became quite easy. The ability then to use this power in relation to other technologies, bio-technology for instance, or in relation to nano-technology, has revolutionised production already, and is revolutionising consumption too. The consequence is that the cost of Capital is being reduced dramatically, whilst the effectiveness of that Capital is rising exponentially.
2) The Nature of Production and Consumption. A recent survey reported by CNN stated that by 2012 30% of Britons would be dollar millionaires. A look around any estate other than the most deprived shows a working class that can no longer be described meaningfully as a slave class, other than in Marx’s restricted meaning of that term as having to give part of its labour away free to the capitalist as a condition of employment. Marx’s working class spent most of its wages on the basics of living, food, shelter and clothing. That is no longer the case. Although the recent rise in house prices – itself a function of the fact that an increasing number of single people who in previous generations would have lived with their parents now demand a home of their own, along with the increasing number of people with two or more homes – means that a large portion of workers income is spent on shelter, the proportion spent on food has continued to decline, and even here at least some is spent not on food itself, but on eating out i.e. entertainment really. Similarly with clothing an increasing amount is spent not just for the necessity of clothing but on paying for a designer label, or the latest fashion etc. On top of that is an increasing amount spent on things such as mobile phones and other electronic gizmos, on entertainment, and other services.
The nature of this consumption is completely different from the type of consumption theorised by Marx, and the nature of the production of these items of consumption is different too. Marx looked at the consumption of luxury goods by the rich. In general he concluded the organic composition of Capital in these industries was lower than in the production of wage goods. The reason was that the nature of the production required a higher degree of skilled labour power. One of the reasons a luxury good is a luxury good is because it is more unique than something mass produced. An expensive piece of jewellery cannot simply be reproduced over and over again by a machine, cannot be churned out by unskilled labourers. It requires the labour power of a skilled artisan. Such workers do not abound, their labour power is not simple labour but complex labour valued at several multiples that of an unskilled worker. An 8 hour day of such a worker might then be equal to 72 or 144 hours of an unskilled worker. The Surplus Value appropriated in a single day might amount to 36 or 72 hours, even allowing for the higher wages of the artisan.
In the BBC’s Money programme last week an example of this in relation to consumption under modern capitalism was given. It looked at the phenomena of the new super rich celebrity. Take one example, David Beckham. 50 years ago the equivalent was say Stanley Matthews. Yet Stanley Matthews made nothing like the money of David Beckham, nor did the companies – football teams – to whom he sold his Labour Power make the kind of profits that modern football clubs make. Why? Fifty years ago, the income that a football club made was derived from the fans coming through the turnstiles. Even allowing for average gates twice the size of today that was a limited source of income. But today, the rapid development of technology means that via the Internet, via satellite TV around 3 million Chinese workers alone watch English Premier League football every week – why is another matter. Yet there are a limited number of David Beckham’s and Premier League matches to watch. Marx said that it was only possible to determine the multiple of complex labour to simple labour a posteriori by what the market was prepared to pay for the complex labour in relation to simple labour. The vast expansion of the market due to new technology means that this multiple has expanded hugely. Or more correctly, it might be that the Value of David Beckham’s labour power is no greater than that of Stanley Matthews other than for the natural rise in the value of labour power over time, but were Beckham to be paid at the same rate then the Football Companies would make much bigger profits still. The limited availability of the Labour power needed enables the suppliers of the labour power to negotiate a higher wage out of those much larger profits. The Programme gave many other similar examples. Vanessa may, for instance who demonstrated that the Internet means that where she would have been able to sell her albums much less widely had she had to tour the world to promote them the global village removes that necessity. Or the celebrity chefs, or the celebrity fund managers looking after the wealth of that increasing number of super rich or British dollar millionaires, and so on. In short the nature of consumption for these types of goods on a much larger scale is more like the kind of Luxury consumption described by Marx, where the most important aspect of the cost is not the Constant Capital or materials employed, but is the complex labour of the worker. As this type of consumption takes up a larger and larger proportion of consumption overall then this must because of the lower organic composition of Capital in these industries result in an increasing rate of profit.
But this tendency can be seen in many other forms of consumption. The designer label clothes consume no more material, require no more and no more expensive machinery to produce than some non-designer clothing. The higher price comes from no other reason than that some consumers can be conned into paying over the odds for the label, and the designer’s labour likewise becomes more valuable. A Jaguar S type consumes no more materials than a Ford Mondeo, and probably no more expensive materials either. The higher price arises from the label, and the higher price with effectively no greater employment of Constant Capital means a higher rate of profit. Whereas at one time the Jaguar was once a luxury brand, consumed only by a few, now it is fairly commonplace.
Similarly, if we look at other items of consumption we find that in fact the materials used are negligible. A mobile phone, a PC, an LCD TV, the various services we use such as cinema, theatre etc. In fact a mobile phone probably uses far less materials than did the old type of land line, the LCD certainly less than a CRT screen. Again the largest component in the value of these products is not the Capital or material used in the production, but the intellectual labour that went into their development etc. Look at the huge amounts now spent on Computer games, yet a CD or DVD takes very few material resources to produce, very little in the way of Constant Capital. But it does take the labour of skilled games programmers. Or music. When I was first collecting records 40 years ago to amass 1,000 records consumed a fair amount of vinyl. Now 20 times that amount can be stored on a tiny stick, instead of the cost of transporting all the vinyl etc to record shops the music can be downloaded all over the world instantaneously over the Internet.
In short the nature of consumption has changed naturally as a result of rising living standards. The basic requirements for existence that once composed the majority of consumption are almost taken for granted by workers in developed economies, increasingly by workers in developing economies, and probably in 50 years time by workers everywhere as economic growth speeds up, and Africa is industrialised. As Marx predicted when he criticised Lassalle’s Iron Law of wages the natural tendency of capitalism to raise living standards means that expenditure on these previous types of consumption increasingly diminishes. An increasing proportion is spent on other goods and services whose nature is more akin to the luxury goods formerly only consumed by the rich, and the nature of these goods and services is that they have a higher component of complex labour, and a lower component of Constant Capital. In addition the exponential development of technology has revolutionised production techniques massively reducing the cost of Capital – I have previously referred to the Media for instance, where the cost of Media Production equipment has fallen so much that rather than this being an industry where the normal process of concentration of Capital occurs, almost anyone can set up their own Media Production company, and sell their product to the TV or Internet. According to one recent TV series – “Visions of the Future – the development of nano-technology, means that in the not too distant future every home will be able to have their own fabricator like that on Star Trek, which will simply manipulate individual atoms to produce whatever you want. We are seeing bio-technology used to produce alterntive to fuels, and bio-technology and nano-technology will long before domestic fabricators are available produce for Capitalist enterprises cheap alternatives for any materials they require.
For all these reasons modern capitalism is characterised increasingly not for a Tendency for the rate of profit to Fall, but for it to rise.
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