Wednesday, January 31, 2007
Notes for our discussion on pages 743-882
In these pages, Marx's notes become much scrappier, and sometimes for many pages on end are little more than strings of copied-out excerpts from previous economists. I saw five main themes worth discussion, some of them returns to ideas previously sketched in earlier pages of the Grundrisse; and a few other interesting remarks.
First, the more bitty interesting remarks, and then the more solid (but also "heavier") themes.
*1. Dr Price and Jesus's shilling
The notion of capital as a self-reproducing being - as a value perenniating and increasing by virtue of an innate quality - has led to the marvellous inventions of Dr Price, which leaves the fantasies of the alchemists far behind, and which Pitt earnestly believed and made into the pillars of his financial sagacity in his sinking fund laws... The following, a few striking excerpts from the man:
'Money bearing compound interest increases at first slowly. But, the rate of increase being continually accelerated, it becomes in some time so rapid, as to mock all the powers of the imagination. One penny, put out at our Saviour's birth to 5% compound interest, would, before this time, have increased to a greater sum than would be obtained in a 150 millions of Earths, all solid gold...
'A state need never, therefore, be under any difficulties; for, with the smallest savings, it may, in as little time as its interest can require, pay off the largest debts.'
His secret: the government should borrow at simple interest, and lend out the borrowed money at compound interest. [p.842].
No less a figure than John Maynard Keynes offered a similar scenario - based on the idea that capital's appropriation of new wealth is based only on the arithmetic of compound interest, not on the exploitation of labour - with tongue only partly in cheek:
I trace the beginnings of British foreign investment to the treasure which Drake stole from Spain in 1580. In that year he returned to England bringing with him the prodigious spoils of the Golden Hind. Queen Elizabeth was a considerable shareholder in the syndicate which had financed the expedition.
Out of her share she paid off the whole of England’s foreign debt, balanced her Budget, and found herself with about £40,000 in hand. This she invested in the Levant Company --which prospered. Out of the profits of the Levant Company, the East India Company was founded; and the profits of this great enterprise were the foundation of England’s subsequent foreign investment. Now it happens that £40,000 accumulating at 3.5 per cent compound interest approximately corresponds to the actual volume of England’s foreign investments at various dates, and would actually amount to-day to the total of £4,000,000,000 which I have already quoted as being what our foreign investments now are. Thus, every £1 which Drake brought home in 1580 has now become £100,000. Such is the power of compound interest! [Economic Possibilities for our Grandchildren, 1930].
*2. Alienation and its overthrow
Social wealth confronts labour in more powerful portions as an alien and dominant power. The emphasis comes to be placed not on the state of being objectified, but on the state of being alienated, dispossessed, sold; on the condition that the monstrous objective power which social labour itself erected opposite itself as one of its moments belongs not to the worker, but to the personified conditions of production, i.e. to capital...
But obviously this process of inversion is a merely historical necessity, a necessity 832 for the development of the forces of production solely from a specific historic point of departure, or basis, but in no way an absolute necessity of production...
With the suspension of the immediate character of living labour, as merely individual, or as general merely internally or merely externally, with the positing of the activity of individuals as immediately general or social activity, the objective moments of production are stripped of this form of alienation...
The worker's propertylessness, and the ownership of living labour by objectified labour, or the appropriation of alien labour by capital - both merely expressions of the same relation from opposite poles - are fundamental conditions of the bourgeois mode of production, in no way accidents irrelevant to it...
Where... wage labour... is the point of departure, there machines can only arise in antithesis to living labour, as property alien to it, and as power hostile to it; i.e. that they must confront it as capital. But it is just as easy to perceive that machines will not cease to be agencies of social production when they become e.g. property of the associated workers.
In the first case, however, their distribution, i.e. that they do not belong to the worker, is... a condition of the mode of production founded on wage labour. In the second case the changed distribution would start from a changed foundation of production, a new foundation first created by the process of history. [p.831-3].
*3. Training for labour in general
We discussed before the idea that capitalist development simultaneously drives to "de-skill" every particular job and to require a higher level of general education and training of the whole working class. Marx seems, rather cryptically, to point to this idea in one passage.
Capitalist growth, he writes, requires growth of the population and [its] training for labour (including thereby also a certain amount of free time for non-labouring, not directly labouring population, hence development of mental capacities etc... [p.774].
*4. "Exploitation by capital without the mode of production of capital"
As regards "backward branches of industry" on the margins of modern bourgeois economy, Marx writes:
The most odious exploitation of labour still takes place in them, without the relation of capital and labour here carrying within itself any basis whatever for the development of new forces of production, and the germ of newer historic forms... What takes place is exploitation by capital without the mode of production of capital. [p.853].
And earlier, he writes that in the development of English capitalism, wage-labour only became fully "free" at the end of the 18th century.
Absolute surplus value... appears determined by the absolute lengthening of the working day above and beyond necessary labour time. Necessary labour time works for mere use value, for subsistence. Surplus labour time is work for exchange value, for wealth...
At this stage the difference between the production of capital and earlier stages of production is still merely formal. With kidnapping, slavery, the slave trade and forced labour, the increase of these labouring machines, machines producing surplus product, is posited directly by force; with capital, it is mediated through exchange...
This form of surplus labour appears in the slave and serf modes of production etc., where use value is the chief and predominant concern, as well as in the mode of production of capital, which is oriented directly towards exchange value...
In... relative surplus value, which appears as the development of the workers' productive power, as the reduction of necessary labour time relative to the working day, and as the reduction of the necessary labouring population relative to the population (this is the antithetical form), in this form there directly appears the industrial and the distinguishing historic character of the mode of production founded on capital.
The forcible transformation of the greater part of the population into wage labourers, and the discipline which transforms their existence into that of mere labourers, correspond to the first form.... coercive measures employed to transform the mass of the population, after they had become propertyless and free, into free wage labourers... This is repeated in a similar fashion with the introduction of large industry, of factories operating with machines...
Only at a certain stage of the development of capital does the exchange of capital and labour become in fact formally free. One can say that wage labour is completely realized in form in England only at the end of the eighteenth century, with the repeal of the law of apprenticeship. [p.769-770].
In my view, these passages shed some light on Stalinist state capitalism as a system heavily oriented to "absolute surplus value".
1. "Capital as fructiferous"
Commodities are products of labour. But they are sold as products of capital. They are sold under conditions governed by the competition of capitals. The active agents of the process, i.e. the capitalists, measure that price in relation to their costs (all their costs), and their gain (excess of sale prices over costs) in relation to the capital employed, i.e. as profit, gain divided by stock of capital, not as surplus value divided by wages.
Capital relates to itself as self-increasing value; i.e. it relates to surplus value as something posited and founded by it; it relates as well-spring of production, to itself as product; it relates as producing value to itself as produced value. It therefore no longer measures the newly produced value by its real measure, the relation of surplus labour to necessary labour, but rather by itself as its presupposition... Surplus value thus measured by the value of the presupposed capital, capital thus posited as self-realizing value—is profit... The product of capital is profit. [p.746].
From this follows (but Marx expands on this nowhere in the Grundrisse) that prices diverge systematically from value (the so-called "transformation problem").
2. The tendency of the rate of profit to fall
This famous "law" was first expounded (first at any length, anyway) in the Grundrisse. It is in the Grundrisse, too, that we find Marx's most extravagant claim for this "law".
This is in every respect the most important law of modern political economy, and the most essential for understanding the most difficult relations. It is the most important law from the historical standpoint. [p.748].
Here, I think, we have to take the term "political economy" in the sense in which Marx subtitled Capital "a critique of political economy". Remember that both Adam Smith and David Ricardo believed (for different reasons) that there was a "law" inexorably pushing down profit rates. Almost a century later, John Maynard Keynes believed the same thing. Marx, rather understandably, seizes on this conclusion of the bourgeois economists as showing, out of the mouths of its own advocates, that capitalist economy was bound to undermine itself. And he thinks he has found a different (sounder) explanation for it.
When Marx came to expound the "law" with a bit more care, in Capital volume 3, he put quite a lot of emphasis on the countervailing factors, and presented it as much more a general tendency, and less an iron law, than Smith or Ricardo did. It remains a fact, I think, that Marx's reasoning on this question was fundamentally wrong.
The main value of the exposition in the Grundrisse is that Marx presents the argument in fresh, straightforward form, without the complications and qualifications which he would add in Capital volume 3, and thus shows the fallacy more clearly.
Marx argues that increasing labour productivity must mean that workers work with a greater mass of machines and raw materials, and therefore the ratio of capital advanced to living labour must rise. Since the surplus value derives from living labour, and the proportion of living labour which can produce surplus value rather than covering wages can only rise in a limited way, the ratio of surplus value to capital advanced, i.e. the gross profit rate, must fall.
The growth of the productive power of labour is identical in meaning with (a) the growth of relative surplus value or of the relative surplus labour time which the worker gives to capital; (b) the decline of the labour time necessary for the reproduction of labour capacity; (c) the decline of the part of capital which exchanges at all for living labour relative to the parts of it which participate in the production process as objectified labour and as presupposed value. The profit rate is therefore inversely related to the growth of relative surplus value or of relative surplus labour, to the development of the powers of production, and to the magnitude of the capital employed as [constant] capital within production. In other words, the... law is the tendency of the profit rate to decline with the development of capital... [p.763].
The fact that in the development of the productive powers of labour the objective conditions of labour, objectified labour, must grow relative to living labour -- this is actually a tautological statement, for what else does growing productive power of labour mean than that less immediate labour is required to create a greater product, and that therefore social wealth expresses itself more and more in the conditions of labour created by labour itself? [p.831].
The capital can grow and the rate of profit can grow in the same relation if the relation of the part of capital presupposed as value and existing in the form of raw materials and fixed capital rises at an equal rate relative to the part of the capital exchanged for living labour. But this equality of rates presupposes growth of the capital without growth and development of the productive power of labour. One presupposition suspends the other. This contradicts the law of the development of capital, and especially of the development of fixed capital. [p.747].
The fallacy: the growth of the mass, or the complexity, of the machinery and the raw materials, does not necessarily mean a growth in their value. If the productive power of labour increases, so also does the productive power of the labour which extracts raw materials or builds machinery.
Marx himself notes that fixed capital is employed only to the extent that its value is smaller than the value it posits [p.766].
Think that through. A capitalist introduces a technical innovation. He will do that only if it raises his profit. If he is the first to introduce that technical innovation, he gets a windfall profit, because he can sell at a price set by his competitors, who produce with higher costs.
Eventually the innovation diffuses. The pioneer capitalist has to cut his selling price. That means that the costs for other capitalists will fall (exception: if the pioneer capitalist produces only luxuries, bought neither as inputs for production nor as wage-goods. In that case, the costs for other capitalists stay the same).
As adjustment proceeds, the pioneer capitalist's profit rate falls from his initial windfall rate - but other capitalists' rate rises. When adjustment is complete, the new general rate is still higher than (or in the exceptional case, no lower than) the old one.
In real life, of course, any number of disturbances could have reduced the profit rate in the meantime. But the profit rate can fall as a pure result of technical innovation only if (somehow) the innovation increases not only real but also money wages.
Or think through the relation between fixed capital and surplus value from another angle. The fixed capital at any point in time is an "objectified" form of the proportion of the surplus value accumulated over a number of previous years, that number being set by the lifespan of fixed capital.
Fixed capital simply cannot spiral into hugeness while surplus value remains limited, for otherwise there would not be sufficient surplus value to supply the required annual increments in fixed capital. There can be a long-term, general tendency for the ratio of fixed capital to surplus value to rise only if there are long-term tendency either for the proportion of surplus-value accumulated (rather than consumed) to rise (there is no such tendency), or for the lifespan of fixed capital to increase (the general trend is rather the opposite).
2.1. Rate and mass of profit
In Capital volume 3 Marx argues that the long-term tendency is for the rate of profit to fall but the mass of profit to rise.
That could be so, of course, without necessarily posing any big problem for capital. There is nothing "natural" about a 15%, or 10%, or 5% rate of profit. Why shouldn't capital gradually, as the decades pass, become accustomed to an always-slightly-decreasing "normal" rate of profit, given that the actual mass of loot increases (and, even more so, the use-values in which that loot is embodied)?
Even if the tendency of the rate of profit to fall were a fact, it does not, contrary to Marx, follow that it would mean that the development of the productive forces brought about by the historical development of capital itself, when it reaches a certain point, suspends the self-realisation of capital.." [p.749].
Bastiat seems to have argued that point. If so, I can't see but that Bastiat was right, on that particular point. Marx denounces Bastiat with great sarcasm, drawing on Ricardo [p.755-6]; but all Ricardo seems to have done is pointed out, arithmetically, that a certain level of decline in the percentage profit rate could produce a reduced mass of profit even if the stock of capital rose (six per cent of 1.1. million is less than seven per cent of one million).
The arithmetic proves nothing at all about real economic trends; if the fall in the rate of profit is supposed to be due to the increase in the stock of capital relative to living labour (as it is in Marx's argument), then an increase from one million to 1.1 million in that stock cannot produce a fall in the rate of profit from 7% to 6%.
2.2. Comment on Ricardo
In passing, however, on these pages, Marx makes two comments on Ricardo which have critical edge against many over-hasty generalisations in the social sciences, including some propounded by Marxists.
Ricardo, so Marx argues, elevates a historical relation holding for a period of 50 years and reversed in the following 50 years to the level of a general law; and constructed general and eternal laws about physiological chemistry at a time where the latter hardly existed... flees from economics to seek refuge in organic chemistry [p.752, 754].
(Ricardo's version of the tendency of the rate of profit to fall was based on a supposed law of increasing costs in agriculture as population increased and agriculture had to spread out to worse and worse land; those increasing costs would drive up wages, because it would cost the workers more to eat, and thus cut into profits. The gainers would be the landlords, drawing increased rents on the better land).
2.3. The growth of the unproductive "middle class"
Marx is commonly held to have predicted the extinction of all middle layers of the population in capitalist society, and a stark polarisation between working class and capitalists. In the Communist Manifesto there is indeed a prediction of that sort.
Marx's settled view was different. In the notebooks published as Theories of Surplus Value he wrote:
What [Ricardo] forgets to emphasise is the constantly growing numbers of the middle classes, those who stand between the workman on the one hand and the capitalist and landlord on the other. The middle classes maintain themselves to an ever increasing extent directly out of revenue, they are a burden weighing heavily on the working base and increase the social security and power of the upper ten thousand. [TSV 2, p573].
Here in the Grundrisse he writes:
A mass of parasitic bodies come to cluster around capital, and, under one or another title, they lay hands on so much of the total production as to leave little danger of the workers being overwhelmed by abundance. [p.757].
In Capital volume 3 Marx argues that interest arises from the phenomenon of "capital as fructiferous": because an industrial capitalist can expect to make x% per year profit from an advance of capital, he can and will borrow the money from a money-capitalist, giving the money-capitalist y% per year interest and keeping (x-y)% as what bourgeois economists call "profit of enterprise". The relative value of x and y is an empirical question determined by the balance of forces between the two groups of capitalists, active industrial capitalists and money-capitalists.
The beginnings of this theory are explained here.
The form of interest is older than that of profit. The level of interest in India for communal agriculturists... indicates.... that profit as well as part of wages itself is appropriated in the form of interest by the usurer... Historically, the form of industrial profit arises only after capital no longer appears alongside the independent worker. Profit thus appears originally determined by interest. But in the bourgeois economy, interest determined by profit, and only one of the latter's parts. Hence profit must be large enough to allow of a part of it branching off as interest. Historically, the inverse. Interest must have become so depressed that a part of the surplus gain could achieve independence as profit. [p.851-2].
Marx devotes many pages to excerpts from other economists on money, collecting facts about money systems at various times and commenting critically on bourgeois theories.
Unfortunately the two main propositions of Marx's comments do not hold up today.
First: that money must be based on gold, or some similar actual money-commodity, actual embodiment of actual labour. For some purposes money can be replaced by tokens, but never for all.
Commodities, as values, are objectified labour; the adequate value must therefore itself appear in the form of a specific thing, as a specific form of objectified labour. [p.795].
As mere numerical magnitudes, as amounts of any unit of the same name, [commodities] only become comparable to one another, and only express proportions towards one another, when each individual commodity is measured with the one which serves as unit, as measure. But I can only measure them against one another, only make them commensurable, if they have a unit - the latter is the labour time contained in both. The measuring unit must therefore [be] a certain quantity of a commodity in which a quantity of labour is objectified. [p.793].
In these pages, Marx refers to the "assignats" currency of revolutionary France, not even professing to represent any specified thing [p.807]. But only in passing: he makes no comment on whether this exception demolishes his rule that only precious-metal-based money is possible.
There is room for argument about when that rule became untrue, but it is certainly untrue now. No central bank holds any quantity of gold remotely adequate to support its currency, or guarantees any gold-equivalent for its currency. For some time now, central banks have been systematically selling gold (slowly, so as not to collapse the market); instead, they hold dollars, yen, or euros as their reserves.
The dollar is not a title to a given quantity of gold. It is a title to a quantum of average US labour. The exact size of that quantum varies somewhat, and is even difficult to determine; but then, it was always difficult to determine the exact amount of labour-time embodied in a quantum of gold.
The new things are evidently, on one side, the growth of the world market beyond the scale that the quantities of gold existing in nature could possibly serve as adequate reserves; and, on the other, the greater strength of the capitalist state, and the greater confidence of the capitalists that the state will, within limits, preserve the ratio of the dollar to US labour-time.
This is, of course, unstable. A collapse of the dollar would wreck world trade without even the option of returning to "specie payments" (settling outstanding bills in gold) except on a small scale. But it is how the world is now.
The best explanation of this that I know comes from the French Regulation School economist (and now Green politician) Alain Lipietz, in The Enchanted World and Mirages and miracles.
Marx's second proposition is a radical inversion of the "quantity theory" of money and prices.
Prices regulate the quantity of currency and not the quantity of currency prices, or in other words... trade regulates currency (the quantity of the medium of circulation), and currency does not regulate trade.... [p.814].
This is true only if the money is based on gold or another precious metal. It is not true for pure paper money. (The inverse, the "quantity theory", is not true either, but that is another matter).
Marx does add, rather cryptically, that this law is not equally applicable to the fluctuations of prices in all epochs. His example of it not applying is e.g. in antiquity, e.g. in Rome, where the circulating medium does not itself arise from circulation, from exchange, but from pillage, plunder etc.
5. Value and capital
Right at the end of this section of the Grundrisse, on pages 881-2, is a fragment which is plainly a first draft of the opening pages of Capital volume 1.
The interesting thing here is the final sentences, which present the whole of economic history as a process, first of the break-up of diverse pre-historic communal systems by exchange, then of the apotheosis of exchange (in capitalism), then of the replacement of capitalism by a new communism.
The system of modern private exchange not the spontaneous economy of societies. Exchange begins not between the individuals within a community, but rather at the point where the communities end -- at their boundary, at the point of contact between different communities... India offers us a sample chart of the most diverse forms of such economic communities, more or less dissolved, but still completely recognizable; and a more thorough research into history uncovers it as the point of departure of all cultured peoples.
The system of production founded on private exchange is, to begin with, the historic dissolution of this naturally arisen communism... A whole series of economic systems lies in turn between the modern world, where exchange value dominates production to its whole depth and extent, and the social formations whose foundation is already formed by the dissolution of communal property....
Earlier, Marx once again makes it very plain that when he starts Capital volume 1 by analysing value, he considers value as formed and shaped by fully capitalist society.
Value, which appeared as an abstraction, is possible only as such an abstraction, as soon as money is posited; this circulation of money in turn leads to capital, hence can be fully developed only on the foundation of capital, just as, generally, only on this foundation can circulation seize hold of all moments of production... Categories such as value, which appear as purely abstract, show the historic foundation from which they are abstracted, and on whose basis alone they can appear, therefore, in this abstraction... The concept of value is entirely peculiar to the most modern economy, since it is the most abstract expression of capital itself and of the production resting on it. In the concept of value, its secret betrayed. [p.776].
Marx cannot quite have meant the last-but-one sentence literally, that value is entirely peculiar to modern capitalism (and does not exist at all in any of the various previous societies with extensive exchange?) More in line with the argument, and more plausible, is the proposition that the full development of value occurs only in modern capitalism.
These pages also include a succinct restatement of why price not only is, but has to be, different from value.
Why is labour time, the substance and measure of value, not at the same time the measure of prices, or, in other words, why are price and value different at all? Proudhon's school believe it a great deed to demand that this identity be posited and that the price of commodities be expressed in labour time. The coincidence of price and value presupposes the equality of demand and supply, exchange solely of equivalents (hence not of capital for labour) etc.; in short, formulated economically, it reveals at once that this demand is the negation of the entire foundation of the relations of production based on exchange value. But if we suppose this basis suspended [i.e. capitalism abolished], then on the other side the problem disappears again... [p.794-5].
This section heading heading shows the problem with describing the Stalinist USSR as "Stalinist state capitalism". Surely this description, even with the qualification "state", implies that the capitalist mode of production not only existed, but was dominant, in the USSR.
Marx makes a distinction between "free labour", i.e. propertyless non-bonded labour, and "wage labour", which is also "formally free" in its exchange with capital. Of course wage labour is ultimately compulsory labour, but the compulsion is not direct, as it was in earlier modes of production.
"Only at a certain stage of the development of capital does the exchange of capital and labour become in fact formally free. One can say that Wage labour is completely realized in form in England only at the end of The eighteenth century, with the repeal of the law of apprenticeship. [p.769-770]."
Thus Tudor England was "a stage in the development of capital", but was not yet capitalism. Nor does it make much sense to describe Tudor England as "still feudal", when the defining relationships of feudalism were already in an advanced state of dissolution. Yet I do not know of any serious attempt to define a "Tudor" mode of production. There are periods in history, which may last for centuries, where the concept of a definite mode of production is not useful. More light is cast on the Tudor period by looking back at the feudal system in dissolution and forward to the capitalist system yet to be developed than by attributing the events of this period to the dynamics of the "Tudor" mode.
I think something like this is the rational core of Ticktin's "no mode of production" view of the USSR. Unfortunately he spiced it up with cute "paradoxical" formulations - "the mode of no mode" etc. My friend in NZ propose instead to explore the idea that, although the Stalinist system was relatively short-lived, there was a distinct "Stalinist" mode that was constructed in the 1929-34 period. Of course the world capitalist system exerted a profound influence on the USSR, but it does not follow that the USSR was just a cork bobbing on the capitalist sea. Did the USSR also have its own inner spring and does it make sense to describe this inner spring as "capitalist"? Despite the use of railways, factory production and other "capitalist" technology, there were huge differences between the relations of production in the USSR in 1934, and anything that Marx would have described as capitalism.