Friday, July 31, 2015

Marx’s Capital, Volume 1, Chapter 7: A Critical Summary

Chapter 7 of volume 1 of Capital is called “The Labour Process and the Valorization Process” (Marx 1990: 283), and it discusses the process of labour and surplus value.

It is divided into two sections:
(1) The Labour-Process or the Production of Use-Values.

(2) The Production of Surplus-Value (also called “The Valorization Process” in Marx 1990: 293).
A critical summary of these two sections follows.

(1) The Labour-Process or the Production of Use-Values
Capitalists buy labour-power from workers and “consume” labour-power by making workers produce commodities as use values (Marx 1990: 283). In this sense, labour-power is a commodity. Human labour has a purposeful nature and aims at certain ends which human beings plan and realise through labour (Marx 1990: 284; Brewer 1984: 40).

The elements of the process of labour are as follows:
(1) purposeful activity;

(2) objects on which work is performed, and

(3) instruments by which work is done (Marx 1990: 284).
For Marx, (2) and (3) are means of production (Brewer 1984: 40).

Instruments of labour include fixed or durable capital goods (Marx 1990: 286). But Marx’s category (3) refers to much more than capital goods and includes the earth and its elements and produce used in production.

The aim of the process of labour is a use-value (Marx 1990: 287, 290), and is explained by Marx in these terms:
“In the labour-process, therefore, man’s activity, with the help of the instruments of labour, effects an alteration, designed from the commencement, in the material worked upon. The process disappears in the product; the latter is a use-value, Nature’s material adapted by a change of form to the wants of man. Labour has incorporated itself with its subject: the former is materialised, the latter transformed. That which in the labourer appeared as movement, now appears in the product as a fixed quality without motion. The blacksmith forges and the product is a forging.

If we examine the whole process from the point of view of its result, the product, it is plain that both the instruments and the subject of labour, are means of production, and that the labour itself is productive labour.” (Marx 1906: 201).
Marx specifies two aspects of the labour process, as follows:
“The labour-process, turned into the process by which the capitalist consumes labour-power, exhibits two characteristic phenomena. First, the labourer works under the control of the capitalist to whom his labour belongs; the capitalist taking good care that the work is done in a proper manner, and that the means of production are used with intelligence, so that there is no unnecessary waste of raw material, and no wear and tear of the implements beyond what is necessarily caused by the work.

Secondly, the product is the property of the capitalist and not that of the labourer, its immediate producer. Suppose that a capitalist pays for a day’s labour-power at its value; then the right to use that power for a day belongs to him, just as much as the right to use any other commodity, such as a horse that he has hired for the day. To the purchaser of a commodity belongs its use, and the seller of labour-power, by giving his labour, does no more, in reality, than part with the use-value that he has sold. From the instant he steps into the workshop, the use-value of his labour-power, and therefore also its use, which is labour, belongs to the capitalist. By the purchase of labour-power, the capitalist incorporates labour, as a living ferment, with the lifeless constituents of the product. From his point of view, the labour-process is nothing more than the consumption of the commodity purchased, i.e., of labour-power; but this consumption cannot be effected except by supplying the labour-power with the means of production. The labour-process is a process between things that the capitalist has purchased, things that have become his property. The product of this process also belongs, therefore, to him, just as much as does the wine which is the product of a process of fermentation completed in his cellar.” (Marx 1906: 206).
So in capitalism the process of production and process of labour are under the control of the capitalist, who owns the output commodity.

(2) The Production of Surplus-Value
Capitalists desire commodities not as use values but as exchange values to obtain more value (Marx 1990: 293).

A production process is a process of creating value (Marx 1990: 293). Socially-necessary non-labour factor inputs transfer their value to the output product, but socially-necessary labour adds new value to the output product (Marx 1990: 296–297).

If workers were paid the full value of their labour, then capitalists would receive no profit, so that capitalists must pay labourers for less than their total daily labour (Brewer 1984: 41).

This origin of capitalist profit through surplus value is explained by Marx as follows:
“The fact that half a day’s labour is necessary to keep the labourer alive during 24 hours, does not in any way prevent him from working a whole day. Therefore, the value of labour-power, and the value which that labour-power creates in the labour process, are two entirely different magnitudes; and this difference of the two values was what the capitalist had in view, when he was purchasing the labour-power. The useful qualities that labour-power possesses, and by virtue of which it makes yarn or boots, were to him nothing more than a conditio sine qua non; for in order to create value, labour must be expended in a useful manner. What really influenced him was the specific use-value which this commodity possesses of being a source not only of value, but of more value than it has itself. This is the special service that the capitalist expects from labour-power, and in this transaction he acts in accordance with the ‘eternal laws’ of the exchange of commodities. The seller of labour-power, like the seller of any other commodity, realises its exchange-value, and parts with its use-value. He cannot take the one without giving the other. The use-value of labour-power, or in other words, labour, belongs just as little to its seller, as the use-value of oil after it has been sold belongs to the dealer who has sold it. The owner of the money has paid the value of a day’s labour-power; his, therefore, is the use of it for a day; a day’s labour belongs to him. The circumstance, that on the one hand the daily sustenance of labour-power costs only half a day's labour, while on the other hand the very same labour-power can work during a whole day, that consequently the value which its use during one day creates, is double what he pays for that use, this circumstance is, without doubt, a piece of good luck for the buyer, but by no means an injury to the seller.” (Marx 1906: 215–216).
The value of labour-power is determined by the value needed to sustain and reproduce that labour, and Marx thinks that this is the anchor for the wages labourers receive. But the labourers tend to work for more time than the value of their subsistence wage, so that capitalists can extract surplus value and hence money profits.

For a capitalist, the use-value of labour-power is that it is the only commodity that creates surplus value (Harvey 2010: 124).

Finally, all skilled or complicated labour can be measured with the same homogeneous unit used to measure simple labour (Marx 1990: 305).

Brewer, Anthony. 1984. A Guide to Marx’s Capital. Cambridge University Press, Cambridge.

Harvey, David. 2010. A Companion to Marx’s Capital. Verso, London and New York.

Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York.

Marx, Karl. 1990. Capital. A Critique of Political Economy. Volume One (trans. Ben Fowkes). Penguin Books, London.

Sunday, July 19, 2015

David Harvey on Reading Marx’s Capital, Volume 1, Class 04

David Harvey is a Professor of Anthropology and Geography at the Graduate Center of the City University of New York.

Class 4 of his video series on Reading Marx’s Capital, Volume 1 is below. This video deals with Chapters 4, 5 and 6 of volume 1 of Capital.

My own critical analysis of these chapters in Capital is here:
“Marx’s Capital, Volume 1, Chapter 4: A Critical Summary,” July 4, 2015.

“Marx’s Capital, Volume 1, Chapter 5: A Critical Summary,” July 6, 2015.

“Marx’s Capital, Volume 1, Chapter 6: A Critical Summary,” July 13, 2015.

Saturday, July 18, 2015

Marx on Slave-based Plantation Systems

From volume 3 of Capital in Marx’s discussion of ground rent:
“We need not dwell upon actual slave economy (which likewise passes through a development from the patriarchal system, working pre-eminently for home use, to the plantation system, working for the world market) nor upon that management of estates, under which the landlords carry on agriculture for their own account, own all the instruments of production, and exploit the labor of free or unfree servants, who are paid in kind or in money. In this case, the landlord and the owner of the instruments of production, and thus the direct exploiter of the laborers counted among these instruments of production, are one and the same person. Rent and profit likewise coincide then, there being no separation of the different forms of surplus-value. The entire surplus labor of the workers, which is here represented by the surplus product, is extracted from them directly by the owner of all the instruments of production, to which the land and, under the original form of slavery, the producers themselves, belong. Where capitalist conceptions predominate, as they did upon the American plantations, this entire surplus-value is regarded as profit. In places where the capitalist mode of production does not exist, nor the conceptions corresponding to it have been transferred from capitalist countries, it appears as rent. At any rate, this form does not present any difficulties. The income of the landlord, whatever may be the name given to it, the available surplus product appropriated by him, is here the normal and predominating form, under which the entire unpaid labor is directly appropriated, and the property in land forms the basis of this appropriation.” (Marx 1909: 934).
So here Marx says that slave-owners extract rent and profit which “coincide” since there is “no separation of the different forms of surplus-value” here.

The crucial passage is here:
“The entire surplus labor of the workers, which is here represented by the surplus product, is extracted from them directly by the owner of all the instruments of production, to which the land and, under the original form of slavery, the producers themselves, belong. Where capitalist conceptions predominate, as they did upon the American plantations, this entire surplus-value is regarded as profit. In places where the capitalist mode of production does not exist, nor the conceptions corresponding to it have been transferred from capitalist countries, it appears as rent.” (Marx 1909: 934).
If it is the case that Marx here thinks that slaves on a plantation in an economy where “capitalist conceptions predominate” produce surplus value of the same type as free wage labourers, then Marx’s labour theory of value as presented elsewhere in volume 1 is severely undermined in two respects as follows:
(1) in Chapter 6 of volume 1 Marx states explicitly that only free people – and not slaves – can sell the labour-power that creates surplus-value (Marx 1906: 186–187). Marx contradicts himself.

(2) Marx is adamant in other passages that slaves are fixed capital and thus constant capital (see here). But constant capital cannot create surplus value, and to be internally consistent Marx would have to admit that slaves on plantations within capitalist modes of production must count as variable capital. Marx has badly contradicted himself.
If Marx really thought that slaves can produce surplus value, it is but a short step to the whole labour theory of value unravelling as the nonsense it is.

Piero Sraffa hit the nail on the head over eighty years in his private note on Marxism:
“There appears to be no objective difference between the labour of a wage earner and that of a slave; of a slave and of a horse; of a horse and of a machine, of a machine and of an element of nature (?this does not eat). It is a purely mystical conception that attributes to human labour a special gift of determining value. Does the capitalist entrepreneur, who is the real ‘subject’ of valuation and exchange, make a great difference whether he employs men or animals? Does the slave-owner?” (Sraffa, unpublished note, D3/12/9: 89, quoted in Kurz and Salvadori 2010: 199).
If slaves produce surplus value, then why not animal labour? Why not machines? (more details here).

In short, the more one delves into Marx’s Capital the more and more we can see his theory is contradictory and incoherent.

Kurz, Heinz D. and Neri Salvadori. 2010. “Sraffa and the Labour Theory of Value: A Few Observations,” in John Vint et al. (eds.), Economic Theory and Economic Thought: Essays in Honour of Ian Steedman. Routledge, London and New York. 189–215.

Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York.

Marx, Karl. 1909. Capital. A Critique of Political Economy (vol. 3; trans. Ernst Untermann from 1st German edn.). Charles H. Kerr & Co., Chicago.

Thursday, July 16, 2015

Marx on Slaves as Fixed Capital

There is a crucial passage in volume 2 of Capital as follows:
In a slave system, the money-capital invested in the purchase of slaves plays the role of the fixed capital in money-form, which is but gradually replaced after the expiration of the active life period of the slaves. Among the Athenians, therefore, the gain realized by a slave owner through the industrial employment of his slaves, or indirectly by hiring them out to other industrial employers (for instance mine owners), was regarded merely as an interest (with sinking fund) on the advanced money-capital, just as the industrial capitalist under capitalist production places a portion of the surplus-value plus the depreciation of his fixed capital to the account of interest and renewal of his fixed capital. This is also the rule in the case of capitalists offering fixed capital, such as houses, machinery, etc., for rent. Mere household slaves, who perform the necessary services or are kept as luxuries are not considered here. They correspond to the modern servant class. But the slave system—so long as it is the dominant form of productive labor in agriculture, manufacture, navigation, etc., as it was in the advanced states of Greece and Rome—preserves an element of natural economy. The slave market maintains its supply of labor-power by war, piracy, etc., and this rape is not promoted by a process of circulation, but by the natural appropriation of the labor-power of others by physical force. Even in the United States, after the conversion of the neutral territory between the wage labor states of the North and the slave labor states of the South into a slave breeding region for the South, where the slave thus raised for the market had become an element of annual reproduction, this method did not suffice for a long time, so that the African slave trade was continued as long as possible for the purpose of supplying the market.” (Marx 1907: 558–559).
Here Marx seems to be saying that slaves are fixed capital, and since Marx regarded fixed capital as a type of constant capital, it would follow that – if he was not confused or his theory incoherent – he must have thought that slaves were a form of constant capital too.

Furthermore, in this quotation Marx states that the return that the slave owner gets “through the industrial employment of his slaves” or “indirectly by hiring them out to other industrial employers” was merely “interest” (along with a sinking fund for the replacement of the slaves) on his fixed capital. This appears to rule out that slaves produce surplus value.

However, as I pointed out in the previous post, in ancient Rome there was the practice called the peculium in which a slave master could allow his slave to run and effectively own a business which produced commodities for sale or even work as a labourer and earn wages which he kept, and later even buy his freedom (Plessis 2015: 96; Berger 1953: 624). So did slaves in such circumstances produce surplus value? Marx never seems to have thought of this problem, or answered it.

Even worse, how do slave-owners using slaves to produce commodities regularly get money profits from the sale of these commodities if profits are caused by surplus value and slaves cannot produce surplus value?

That Marx sees slaves as fixed capital is confirmed in volume 1 of Capital where Marx describes slaves in these terms:
“The slave-owner buys his labourer as he buys his horse. If he loses his slave, he loses capital that can only be restored by new outlay in the slave-mart.” (Marx 1906: 292).
Since Marx regards working animals used in production as a kind of fixed capital (Brewer 1984: 98), this is consistent with Marx regarding slaves as fixed capital, and hence as a form of constant capital.

In addition, we have this from volume 3 of Capital in Chapter 37 where Marx says:
“The same reason would, in that case, serve also to justify slavery, since the returns from the labor of the slave, whom the slave holder has bought, represent merely the interest on the capital invested in this purchase.” (Marx 1909: 732).
That is, the return from slaves as fixed capital is only interest on money capital invested in them.

But in volume 3 of Capital in Chapter 47, we also have this cryptic passage:
Take, for instance, the slavery system. The price paid for a slave is nothing but the anticipated and capitalized surplus-value or profit, which is to be ground out of him. But the capital paid for the purchase of a slave does not belong to the capital, by which profit, surplus labor, is extracted from him. On the contrary. It is capital, which the slave holder gives away, it is a deduction from the capital, which he has available for actual production. It has ceased to exist for him, just as the capital invested in the purchase of land has ceased to exist for agriculture. The best proof of this is the fact, that it does not come back into existence for the slave holder or the land owner, until he sells the slave or the land once more. Then the same condition of things holds good for the buyer. The fact that he has bought the slave does not enable him to exploit the slave without further ceremony. He is not able to do so until he invests some other capital in production by means of the slave.” (Marx 1909: 940).
It is difficult to make sense of this. The crucial three sentences are as follows:
“Take, for instance, the slavery system. The price paid for a slave is nothing but the anticipated and capitalized surplus-value or profit, which is to be ground out of him. But the capital paid for the purchase of a slave does not belong to the capital, by which profit, surplus labor, is extracted from him.” (Marx 1909: 940).
First, Marx seems to be saying that surplus value can be “ground” out of slaves, but then immediately seems to deny that.

Elsewhere Marx says that slaves are fixed capital, and that only variable capital as the labour-power of free workers creates surplus value, which seems to rule out that slaves can create it.

In short, even if Marx thinks that slaves can and do produce surplus labour value in this quotation (which is questionable), then that radically contradicts what he wrote elsewhere: that labour-power is the sole source of surplus value, but a person needs to be free (not a slave) to sell labour-power (Marx 1906: 186). Moreover, interpreters of Marx like Brewer (1984: 36) and Harvey (2010: 98) agree that this is what Marx said and thought: you cannot be a slave and produce surplus labour value.

Berger, A. 1953. Encyclopedic Dictionary of Roman Law. American Philosophical Society, Philadelphia.

Brewer, Anthony. 1984. A Guide to Marx’s Capital. Cambridge University Press, Cambridge.

Harvey, David. 2010. A Companion to Marx’s Capital. Verso, London and New York.

Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York.

Marx, Karl. 1907. Capital. A Critique of Political Economy. The Process of the Circulation of Capital (vol. 2; trans. by Ernst Untermann from 2nd German edn.). Charles H. Kerr & Co., Chicago, and Swan Sonnenschein & Co., London.

Marx, Karl. 1909. Capital. A Critique of Political Economy (vol. 3; trans. Ernst Untermann from 1st German edn.). Charles H. Kerr & Co., Chicago.

Plessis, Paul du. 2015. Borkowski’s Textbook on Roman Law (5th edn.). Oxford University Press, Oxford.

Wednesday, July 15, 2015

The British Left, the EU and some Ruminations on British Politics

Finally, some on the mainstream British Left are starting to get that the EU is a disastrous anti-democratic enterprise inimical to the Left, as reported here:
Owen Jones, “The Left must put Britain’s EU withdrawal on the Agenda,” Guardian, 15 July, 2015.
It is about time too.

Owen Jones hits the nail on the head when he points out in this article that the EU Fiscal Compact (or the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union) of 2012 effectively imposed a ban on stimulative Keynesian economic policy in many Eurozone countries.

I wouldn’t get my hopes up, however, given how incompetent New Labour and many on the mainstream Left are about economics. Many of them endorse some slightly less offensive version of neoliberalism, which is only marginally better than what is offered by Conservatives.

It is obvious now that those on the heterodox economic Left (without going to the extremes of Marxism) who really were, or have been, prescient about the disaster of the EU and the Eurozone have been certain Post Keynesians (e.g., the late Wynne Godley here and here) and, above all, the Modern Monetary Theorists (MMTers). On reflection, some of best criticism of the outrageous stupidity of the EU and the Eurozone has come from the MMT economist Bill Mitchell on his Billy Blog.

Bill Mitchell has another fine analysis of the EU mess today here.

In Britain, the most eloquent and respected left-wing opponent of the economic follies of the EU in British politics was the late Tony Benn. Here he is below speaking out against the EU in the video below.

As we can see, Tony Benn’s strongest argument against the EU (which is absolutely right) is that it is fundamentally anti-democratic. Alas, the towering figure of Tony Benn is long gone from British politics.

Who has the British left got now? A lot of useless New Labour politicians who don’t inspire much confidence, who are the heirs of the New Labour war criminals of the last decade. One rather amusing analysis of the moral bankruptcy of New Labour on its war criminality I have seen recently comes from the idiosyncratic Conservative Peter Hitchens, in the video below.

It is also a scandal beyond words that the only really effective person in British politics who expresses the type of views that Tony Benn expressed above in opposition to the EU is Nigel Farage, leader of the UKIP party, as we see in the video below which is now many years old.

One has to give credit where credit is due to Farage on some issues. But on economics UKIP is strangely schizophrenic. Farage speaks of leaving the EU and of the benefits of stimulus but at the same time UKIP appears to support its own harsh version of neoliberalism and privatisation.

UKIP is essentially the re-emergence of the old Conservative Thatcherite anti-EU mentality, and if the British Left cannot provide an alternative anti-EU political platform with Keynesian and social democratic economics it risks becoming even more bankrupt than it already is. It also risks having more of its votes stolen from it by UKIP, as happened to some extent in the last election.

Tuesday, July 14, 2015

Nigel Farage on the EU and Greek Crisis

Some very good points here, but Farage goes wrong when he fails to see that Greece can protect its banks by just converting domestic deposits into drachmas from Euros. Bill Mitchell has a better analysis of the need for a “Grexit” here.

Another minor point: real GDP collapse in the US in the Great Depression was about 25%, not 16% (as Farage says). A nice graph comparing Greece from 2008 to 2015 and the US in the Great Depression can be seen here.

Monday, July 13, 2015

Marx’s Capital, Volume 1, Chapter 6: A Critical Summary

Chapter 6 of volume 1 of Capital is called “Sale and Purchase of Labour-Power,” and it discusses the nature and value of labour-power. This chapter ends section 2 of volume 1 of Capital.

Surplus value is not created by the transactions M–C or C–M in the circuit of capital (Marx 1990: 270). Marx argues that it is the special commodity called labour-power that is the source of surplus value (Marx 1990: 270).

Marx explains:
“In order to be able to extract value from the consumption of a commodity, our friend, Moneybags, must be so lucky as to find, within the sphere of circulation, in the market, a commodity, whose use-value possesses the peculiar property of being a source of value, whose actual consumption, therefore, is itself an embodiment of labour, and, consequently, a creation of value. The possessor of money does find on the market such a special commodity in capacity for labour or labour-power.” (Marx 1906: 186).
Marx defines what he means by labour-power and what conditions are necessary for labour power to exist as a commodity, as follows:
“By labour-power or capacity for labour is to be understood the aggregate of those mental and physical capabilities existing in a human being, which he exercises whenever he produces a use-value of any description.

But in order that our owner of money may be able to find labour-power offered for sale as a commodity, various conditions must first be fulfilled. The exchange of commodities of itself implies no other relations of dependence than those which result from its own nature. On this assumption, labour-power can appear upon the market as a commodity only if, and so far as, its possessor, the individual whose labour-power it is, offers it for sale, or sells it, as a commodity. In order that he may be able to do this, he must have it at his disposal, must be the untrammelled owner of his capacity for labour, i.e., of his person. 1 He and the owner of money meet in the market, and deal with each other as on the basis of equal rights, with this difference alone, that one is buyer, the other seller; both, therefore, equal in the eyes of the law. The continuance of this relation demands that the owner of the labour-power should sell it only for a definite period, for if he were to sell it rump and stump, once for all, he would be selling himself, converting himself from a free man into a slave, from an owner of a commodity into a commodity. He must constantly look upon his labour-power as his own property, his own commodity, and this he can only do by placing it at the disposal of the buyer temporarily, for a definite period of time. By this means alone can he avoid renouncing his rights of ownership over it.

The second essential condition to the owner of money finding labour-power in the market as a commodity is this—that the labourer instead of being in the position to sell commodities in which his labour is incorporated, must be obliged to offer for sale as a commodity that very labour-power, which exists only in his living self.” (Marx 1906: 186–187).
For Marx, labour is an activity and cannot be sold but labour-power is what the worker actually sells on the market as a commodity (Brewer 1984: 36).

For Marx, two conditions are necessary for labour-power to be a commodity, as follows:
(1) that the person offers his labour-power himself and is a free person (not a slave) and only sells his labour power for a limited period, and

(2) that the person is not an owner of means of production or capital (understood as money or commodities used to increase value) and thus needs to sell his labour-power to survive (Marx 1990: 271–272; Harvey 2010: 98–99).
The person who sells his labour-power alienates it but does not renounce his rights of ownership to it (Marx 1990: 271). Capitalism is that system where not only commodity production takes place but where the owners of the means of production buy the labour-power of free workers, and a large class of workers selling their labour-power is a precondition of advanced capitalism (Marx 1990: 274).

But there is a severe problem in Marx’s definition of labour-power as a commodity. It is this: it is perfectly possible for an unfree person or slave to sell his labour-power for a limited period to produce a commodity, even though he is enslaved and spends most of his time working as a slave (see also Roth and van der Linden 2014: 468–470).

There are real historical examples of this. In ancient Rome, for instance, there was the practice called the peculium in which a slave master could allow his slave to run a business which produced commodities for sale or even work as a labourer and earn wages, and later even buy his freedom (Plessis 2015: 96; Berger 1953: 624).

In the American south in the 19th century, slaves could sometimes work for wages: e.g., a New Orleans merchant John McDonogh gave permission for his slaves to undertake wage labour on Sundays and at night and keep their wages (Schafer 1997: 366). Such slaves were clearly selling labour-power to create commodities for sale to fetch a money profit. Yet Marx’s theory denies that a slave can sell labour-power that creates surplus value.

If Marx denied that slaves produced any surplus labour value in such instances, then his theory is logically incoherent and empirically dubious. Alternatively, if Marx were to admit that slaves in these circumstances did create embodied surplus labour value in the commodities they created, then his theory would still be logically incoherent as it stands.

Yet another problem is that some people can and do have considerable money savings (which they could use as capital) or even their own business, but still sell their labour-power for a money wage. But Marx says that the seller of labour-power cannot have these things. Marx seems to think of workers as “men possessing nothing but their own labour-power” (Marx 1906: 188), which is contrary to the reality of many middle class people working for a money wage today in businesses that produce commodities (especially in service industries or professions).

Marx is clear that societies with capitalist modes of production are contingent products of history, and not some product of nature:
“One thing, however, is clear—nature does not produce on the one side owners of money or commodities, and on the other men possessing nothing but their own labour-power. This relation has no natural basis, neither is its social basis one that is common to all historical periods. It is clearly the result of a past historical development, the product of many economical revolutions, of the extinction of a whole series of older forms of social production.

So, too, the economical categories, already discussed by us, bear the stamp of history. Definite historical conditions are necessary that a product may become a commodity. It must
not be produced as the immediate means of subsistence of the producer himself. Had we gone further, and inquired under what circumstances all, or even the majority of products take the form of commodities, we should have found that this can only happen with production of a very specific kind, capitalist production. Such an inquiry, however, would have been foreign to the analysis of commodities. Production and circulation of commodities can take place, although the great mass of the objects produced are intended for the immediate requirements of their producers, are not turned into commodities, and consequently social production is not yet by a long way dominated in its length and breadth by exchange-value, the appearance of products as commodities presupposed such a development of the social division of labour, that the separation of use-value from exchange-value, a separation which first begins with barter, must already have been completed.” (Marx 1906: 188).
It is no doubt true that economic systems are the result of a complex historical and social process and that we have seen many down through human history, and Marx deserves credit for this view.

How does labour-power have value?

Marx explains:
“The value of labour-power is determined, as in the case of every other commodity, by the labour-time necessary for the production, and consequently also the reproduction, of this special article. So far as it has value, it represents no more than a definite quantity of the average labour of society incorporated in it. Labour-power exists only as a capacity, or power of the living individual. Its production consequently presupposes his existence. Given the individual, the production of labour-power consists in his reproduction of himself or his maintenance. For his maintenance he requires a given quantity of the means of subsistence. Therefore the labour-time requisite for the production of labour-power reduces itself to that necessary for the production of those means of subsistence; in other words, the value of labour-power is the value of the means of subsistence necessary for the maintenance of the labourer. Labour-power, however, becomes a reality only by its exercise; it sets itself in action only by working. But thereby a definite quantity of human muscle, nerve, brain, &c, is wasted, and these require to be restored. This increased expenditure demands a larger income. If the owner of labour-power works to-day, to-morrow he must again be able to repeat the same process in the same conditions as regards health and strength. His means of subsistence must therefore be sufficient to maintain him in his normal state as a labouring individual. His natural wants, such as food, clothing, fuel, and housing, vary according to the climatic and other physical conditions of his country. On the other hand, the number and extent of his so-called necessary wants, as also the modes of satisfying them, are themselves the product of historical development, and depend therefore to a great extent on the degree of civilisation of a country, more particularly on the conditions under which, and consequently on the habits and degree of comfort in which, the class of free labourers has been formed. In contradistinction therefore to the case of other commodities, there enters into the determination of the value of labour-power a historical and moral element. Nevertheless, in a given country, at a given period, the average quantity of the means of subsistence necessary for the labourer is practically known.

The owner of labour-power is mortal. If then his appearance in the market is to be continuous, and the continuous conversion of money into capital assumes this, the seller of labour-power must perpetuate himself, ‘in the way that every living individual perpetuates himself, by procreation.’ The labour-power withdrawn from the market by wear and tear and death, must be continually replaced by, at the very least, an equal amount of fresh labour-power. Hence the sum of the means of subsistence necessary for the production of labour-power must include the means necessary for the labourer’s substitutes, i.e., his children, in order that this race of peculiar commodity-owners may perpetuate its appearance in the market.

In order to modify the human organism, so that it may acquire skill and handiness in a given branch of industry, and become labour-power of a special kind, a special education or training is requisite, and this, on its part, costs an equivalent in commodities of a greater or less amount. This amount varies according to the more or less complicated character of the labour-power. The expenses of this education (excessively small in the case of ordinary labour-power), enter pro tanto into the total value spent in its production.” (Marx 1906: 189–191).
So the value of labour-power is determined by the abstract labour necessary for the maintenance and reproduction of workers, so that this includes:
(1) the commodities needed for the worker’s subsistence;

(2) the commodities needed for the workforce to have families and reproduce itself and

(3) the cost of education and training of the skilled forms of labour. (Brewer 1984: 37).
But there is a serious and problematic aspect to Marx’s definition of the value of labour-power. Marx asserts that
On the other hand, the number and extent of his so-called necessary wants, as also the modes of satisfying them, are themselves the product of historical development, and depend therefore to a great extent on the degree of civilisation of a country, more particularly on the conditions under which, and consequently on the habits and degree of comfort in which, the class of free labourers has been formed. In contradistinction therefore to the case of other commodities, there enters into the determination of the value of labour-power a historical and moral element. (Marx 1906: 190).
Brewer puts his finger on the problem here:
“Marx’s introduction of … [sc. the] historical and moral element [sc. determining the value of labour power] is open to criticism as question begging; it comes close to saying that the value of labour-power is whatever it happens to be. It may be above physiological subsistence, since any discrepancy can be described as due to the ‘historical and moral element.’” (Brewer 1984: 37).
Since a capitalist economy with a very productive and rich economy could afford a generous minimum standard of “so-called necessary wants” (a base rate) and other more skilled workers would have a higher standard than this, the question arises why anyone should think that capitalism has an inherent tendency to keep workers poor, as Marx suggests in other chapters of Capital.

Unlike other commodities that are factor inputs which are paid for immediately, capitalists pay workers who sell their labour-power after they have given it: usually workers are paid weekly, fortnightly or even monthly (Marx 1990: 277–279).

Marx ends by noting the differences between labour power in the sphere of circulation and the sphere of production. In the former, theoretically speaking, buyers and sellers of labour-power confront one another as equals, but in the sphere of production labour power is subordinated to capitalist control (Brewer 1984: 38).

To the extent that labour-power is a special commodity very different from other commodities, Post Keynesianism would agree with Marxism. However, Marx’s view of labour-power via the labour theory of value only obscures his analysis and renders it problematic.

Berger, A. 1953. Encyclopedic Dictionary of Roman Law. American Philosophical Society, Philadelphia.

Brewer, Anthony. 1984. A Guide to Marx’s Capital. Cambridge University Press, Cambridge.

Harvey, David. 2010. A Companion to Marx’s Capital. Verso, London and New York.

Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York.

Marx, Karl. 1990. Capital. A Critique of Political Economy. Volume One (trans. Ben Fowkes). Penguin Books, London.

Plessis, Paul du. 2015. Borkowski’s Textbook on Roman Law (5th edn.). Oxford University Press, Oxford.

Roth, Karl Heinz and Marcel van der Linden. 2014. “Results and Prospects,” in Marcel van der Linden and Karl Heinz Roth (eds.), Beyond Marx: Theorising the Global Labour Relations of the Twenty-First Century. Brill, Leiden. 445–486.

Schafer, Judith Kelleher. 1997. “Roman Roots of the Louisiana Law of Slavery: Emancipation in American Louisiana, 1803–1857,” in Warren M. Billings and Judith Kelleher Schafer (eds.), An Uncommon Experience: Law and Judicial Institutions in Louisiana, 1803–2003. University of Southwestern Louisiana, Lafayette.

Sunday, July 12, 2015

Chomsky on Marxism

I don’t always agree with Chomsky, but what he says here about Marxism is spot on. The interesting and insightful individual concepts in Marx’s Capital – say, the idea of the monetary production economy, endogenous money,* the rudiments of aggregate demand theory, etc. – should be taken up in contemporary economy theory and developed. The other absurd, dogmatic and untenable aspects of Marxism – the labour theory of value, falling rate of profit idea, etc. – should be utterly rejected. Marx should be read as part of the history of economic theory, and his whole theory was essentially a failed theory of 19th-century capitalism, nothing else.

* I hasten to add that endogenous money theory was known well before Marx and he did not originate the theory.

Friday, July 10, 2015

You Know the Mainstream European Left is Bankrupt when their Leaders can’t make Speeches like this

This is the British UKIP leader Nigel Farage speaking in the European Parliament a few days ago when the Greek Prime Minister Alexis Tsipras was present.

And, no, I haven’t gone conservative, nor would I endorse UKIP’s domestic economic policies – which would involve a nasty dose of neoliberal poison, probably worse than the conventional neoliberalism. And, yes, we all know well that some people who vote for UKIP are xenophobic and bigoted. They also have an unhinged libertarian wing, which makes me hold my nose in disgust.

Nevertheless, Farage has it right here, and the mainstream Left in Europe seems utterly bankrupt, impotent, confused and all at sea. Most of them would defend the EU and even the Euro even if it meant utter catastrophe for their own national electorates – and all from a misguided and utopian obsession with the European Union and utter incompetence when it comes to economics. However, the issue with the EU and the Eurozone is not just about economics, it is also about democracy. Democracy is becoming a farce in Europe and anyone rational on the Left should be able to see this.

Take the case of Greece: it would now appear that Syriza – despite its stunning win in the recent referendum – might actually accept more austerity, as is suggested in a fine analysis by Bill Mitchell of the whole Greek debacle here.

Thursday, July 9, 2015

Steve Keen’s Talk “Will We Crash Again?”

Below is the video of Steve Keen’s recent talk at the FT/Alphaville conference in London, where he discusses why the world economy crashed in 2008, and why private-debt-induced stagnation is likely to be the fate of many Western countries for the foreseeable future. More details here.

One of his more interesting predictions is an economic crisis in China in the next 1 to 2 years, given China’s own sharply rising private debt to GDP ratio. Steve Keen also recommends Richard Vague’s book The Next Economic Disaster: Why It’s Coming and How to Avoid It (2014).

Monday, July 6, 2015

Marx’s Capital, Volume 1, Chapter 5: A Critical Summary

Chapter 5 of volume 1 of Capital is called “Contradictions in the General Formula for Capital,” and is a brief chapter that describes what Marx sees as problems with the general formula M–C–M′. The primary problem is: where does surplus value come from and how is it created? (Brewer 1984: 35; Harvey 2010: 92). In essence, Marx in this chapter argues that it does not originate within the process of circulation (that is, the sphere of exchange of commodities through money).

The circuit of capital M–C–M′ contradicts Marx’s earlier laws, because the C–M′ exchange is not one of equivalent value (Marx 1990: 258). Marx also notes that the circuit of capital M–C–M′ is experienced properly only by the capitalist himself who engages in it (Marx 1990: 258).

For Marx, a “pure” commodity exchange is one where a commodity exchanges for another of equal labour value, so that the exchange is one of equivalent embodied socially-necessary labour time. If neither side gets more embodied labour value in exchange for the thing given up, then the circuit of capital M–C–M′ would be reduced to M–C–M (where all are equivalent) (Brewer 1984: 36).

Now, in terms of use values, both parties can get more in return for what they give up:
“So far as regards use-values, it is clear that both parties may gain some advantage. Both part with goods that, as use-values, are of no service to them, and receive others that they can make use of. And there may also be a further gain. A, who sells wine and buys corn, possibly produces more wine, with given labour time, than farmer B could, and B, on the other hand, more corn than wine-grower A could. A, therefore, may get, for the same exchange value, more corn, and B more wine, than each would respectively get without any exchange by producing his own corn and wine. With reference, therefore, to use-value, there is good ground for saying that ‘exchange is a transaction by which both sides gain.’ It is otherwise with exchange value.” (Marx 1906: 175).
Marx invokes the idea of comparative advantage in trade here too.

But, as we have seen, in the “pure” simple circulation of commodities C–M–C, there is no change in the quantitative labour values in each step:
“Abstractedly considered, that is, apart from circumstances not immediately flowing from the laws of the simple circulation of commodities, there is in an exchange nothing (if we except the replacing of one use-value by another) but a metamorphosis, a mere change in the form of the commodity. The same exchange value, i.e., the same quantity of incorporated social labour, remains throughout in the hands of the owner of the commodity first in the shape of his own commodity, then in the form of the money for which he exchanged it, and lastly, in the shape of the commodity he buys with that money. This change of form does not imply a change in the magnitude of the value. But the change, which the value of the commodity undergoes in this process, is limited to a change in its money form. This form exists first as the price of the commodity offered for sale, then as an actual sum of money, which, however, was already expressed in the price, and lastly, as the price of an equivalent commodity. This change of form no more implies, taken alone, a change in the quantity of value, than does the change of a £5 note into sovereigns, half sovereigns and shillings. So far therefore as the circulation of commodities effects a change in the form alone of their values, and is free from disturbing influences, it must be the exchange of equivalents. Little as Vulgar-Economy knows about the nature of value, yet whenever it wishes to consider the phenomena of circulation in their purity, it assumes that supply and demand are equal, which amounts to this, that their effect is nil. If therefore, as regards the use-values exchanged, both buyer and seller may possibly gain something, this is not the case as regards the exchange values. Here we must rather say, ‘Where equality exists there can be no gain.’ It is true, commodities may be sold at prices deviating from their values, but these deviations are to be considered as infractions of the laws of the exchange of commodities, which, in its normal state is an exchange of equivalents, consequently, no method for increasing value.” (Marx 1906: 176–177).
It is important to note here how Marx refers to “law of the exchange of commodities” that is defined as “in its normal state ... an exchange of equivalents.”

So here Marx recognises that if commodity exchanges occur at a deviation from the labour values, then one party will receive more embodied labour value in return for that embodied in the commodity he sells. Marx elaborates on this issue later in the chapter.

What follows is one of Marx’s confused polemics, when he refers to √Čtienne Bonnot de Condillac’s subjective utility theory. Using subjective value theory, Condillac had observed that when two individuals engage in a trade, each person will generally trade something which for him has a lower subjective value than the thing he receives (which will have a higher subjective value for him).

Marx attacks Condillac. Marx denies that in the pure exchange of commodities one party will receive a value greater than that of the commodity given up (Marx 1990: 261). But, since Marx never makes clear that subjective value is the proper concept used by Condillac, the whole passage is little more than a fallacy of equivocation. Marx cites Condillac, refuses to engage with Condillac’s own concept of subjective utility, and then simply invokes his own definition of value as “labour value” in his critique. Marx also accuses Condillac of confusing use value with exchange value (Marx 1990: 261), but Condillac was not confused. Condillac was thinking of subjective utility, not objective use values (an error made by Harvey 2010: 93 as well). Marx has not refuted Condillac, and his own economic theory is grossly deficient by not acknowledging the reality of subjective value.

Marx goes on and denies that simple commerce can produce surplus value (Marx 1990: 262).

He has an extended discussion of this:
“If commodities, or commodities and money, of equal exchange-value, and consequently equivalents, are exchanged, it is plain that no one abstracts more value from, than he throws into, circulation. There is no creation of surplus-value. And, in its normal form, the circulation of commodities demands the exchange of equivalents. But in actual practice, the process does not retain its normal form. Let us, therefore, assume an exchange of non-equivalents.

In any case the market for commodities is only frequented by owners of commodities, and the power which these persons exercise over each other, is no other than the power of their commodities. The material variety of these commodities is the material incentive to the act of exchange, and makes buyers and sellers mutually dependent, because none of them possesses
the object of his own wants, and each holds in his hand the object of another’s wants. Besides these material differences of their use-values, there is only one other difference between commodities, namely, that between their bodily form and the form into which they are converted by sale, the difference between commodities and money. And consequently the owners of commodities are distinguishable only as sellers, those who own commodities, and buyers, those who own money.

Suppose then, that by some inexplicable privilege, the seller is enabled to sell his commodities above their value, what is worth 100 for 110, in which case the price is nominally raised 10%. The seller therefore pockets a surplus value of 10. But after he has sold he becomes a buyer. A third owner of commodities comes to him now as seller, who in this capacity also enjoys the privilege of selling his commodities 10% too dear. Our friend gained 10 as a seller only to lose it again as a buyer. The net result is, that all owners of commodities sell their goods to one another at 10% above their value, which comes precisely to the same as if they sold them at their true value. Such a general and nominal rise of prices has the same effect as if the values had been expressed in weight of silver instead of in weight of gold. The nominal prices of commodities would rise, but the real relation between their values would remain unchanged.

Let us make the opposite assumption, that the buyer has the privilege of purchasing commodities under their value. In this case it is no longer necessary to bear in mind that he in his turn will become a seller. He was so before he became buyer; he had already lost 10% in selling before he gained 10% as buyer. Everything is just as it was.

The creation of surplus-value, and therefore the conversion of money into capital, can consequently be explained neither on the assumption that commodities are sold above their value, nor that they are bought below their value.” (Marx 1906: 178–179).
There are two important points here. Frist, Marx’s explanation of how nominal prices of commodities supposedly rise to correct the real relation between commodity labour values is deeply unclear and problematic.

Secondly, the upshot of this passage is that, even when a commodity exchanges for a price above its labour value, this process does not create surplus value, but merely redistributes it:
“A may be clever enough to get the advantage of B or C without their being able to retaliate. A sells wine worth £40 to B, and obtains from him in exchange corn to the value of £50. A has converted his £40 into £50, has made more money out of less, and has converted his commodities into capital. Let us examine this a little more closely. Before the exchange we had £40 worth of wine in the hands of A, and £50 worth of corn in those of B, a total value of £90. After the exchange we have still the same total value of £90. The value in circulation has not increased by one iota, it is only distributed differently between A and B. What is a loss of value to B is surplus-value to A; what is ‘minus’ to one is ‘plus’ to the other. The same change would have taken place, if A, without the formality of an exchange, had directly stolen the £10 from B. The sum of the values in circulation can clearly not be augmented by any change in their distribution, any more than the quantity of the precious metals in a country by a Jew selling a Queen Ann’s farthing for a guinea. The capitalist class, as a whole, in any country, cannot over-reach themselves.

Turn and twist then as we may, the fact remains unaltered. If equivalents are exchanged, no surplus-value results, and if non-equivalents are exchanged, still no surplus-value. Circulation, or the exchange of commodities, begets no value.” (Marx 1906: 181).
Marx even refers to this process when sellers sell commodities above their labour values as “swindling” (Marx 1990: 264). For Marx, as we have seen in Chapter 3, the market has a tendency to make individual commodities, via money as a produced commodity, exchange for their true labour values, since the socially necessary labour time embodied in them is an anchor for their exchange value.

Marx is now aware of a problem: if the formula M–C–M′ describes the activities of merchants/commodity speculators and moneylenders, then they can create no real surplus value if their exchanges are of equivalents. That is, they cannot be using capital in Marx’s sense of the term, which is value embodied in the capital circuit M–C–M′ increasing itself (Marx 1990: 266).

For Marx, advanced capitalism has at its heart an industrial mode of production (Harvey 2010: 97). Marx now poses a puzzle: how can merchant capital and moneylenders’ capital be derivative but at the same time appear before the “primary” industrial form of capital? (Marx 1990: 267).

Surplus value cannot be created in circulation, but happens in some process beyond circulation. A commodity owner might have created labour value embodied in the commodity but he cannot add surplus value to the commodity simply by selling above its true value (Marx 1990: 268).

Marx ends the chapter with his paradox:
“The commodity owner can, by his labour, create value, but not self-expanding value. He can increase the value of his commodity, by adding fresh labour, and therefore more value to the value in hand, by making, for instance, leather into boots. The same material has now more value, because it contains a greater quantity of labour. The boots have therefore more value than the leather, but the value of the leather remains what it was; it has not expanded itself, has not, during the making of the boots, annexed surplus value. It is therefore impossible that outside the sphere of circulation, a producer of commodities can, without coming into contact with other commodity owners, expand value, and consequently convert money or commodities into capital.

It is therefore impossible for capital to be produced by circulation, and it is equally impossible for it to originate apart from circulation. It must have its origin both in circulation and yet not in circulation.

We have, therefore, got a double result.” (Marx 1906: 184).
This paradox is resolved in Chapter 6, and the answer lies in the sphere of production.

However, since the labour theory of value on which Marx founds his economic theory is wrong, we can now see how Marx’s Capital quickly degenerates into pseudo-problems derived from the initial foundational error.

Brewer, Anthony. 1984. A Guide to Marx’s Capital. Cambridge University Press, Cambridge.

Harvey, David. 2010. A Companion to Marx’s Capital. Verso, London and New York.

Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York.

Marx, Karl. 1990. Capital. A Critique of Political Economy. Volume One (trans. Ben Fowkes). Penguin Books, London.

Saturday, July 4, 2015

Marx’s Capital, Volume 1, Chapter 4: A Critical Summary

Chapter 4 of volume 1 of Capital is called “The General Formula for Capital,” and begins Part 2 of that work (which consists of Chapters 4, 5, and 6). Chapter 4 presents Marx’s theory of the essence of commodity production under capitalism: the desire for money as expressed in the formula money–commodity–money (M–C–M), which is the circuit of capital (Brewer 1984: 34).

Capitalism involves the production and circulation of commodities, and these are its “starting-point” and historical foundations (Marx 1990: 247). World trade, according to Marx, dates from the 16th century and this is when the modern history of capitalism commences (Marx 1990: 247).

Next, Marx comes to a point which is one of his genuinely important and profound insights into capitalism, and which anticipated Keynes. The object of capitalism, Marx rightly argues, is monetary profit:
“If we abstract from the material substance of the circulation of commodities, that is, from the exchange of the various use-values, and consider only the economic forms produced by this process of circulation, we find its final result to be money: this final product of the circulation of commodities is the first form in which capital appears.

As a matter of history, capital, as opposed to landed property, invariably takes the form at first of money; it appears as moneyed wealth, as the capital of the merchant and of the usurer. But we have no need to refer to the origin of capital in order to discover that the first form of appearance of capital is money. We can see it daily under our very eyes. All new capital, to commence with, comes on the stage, that is, on the market, whether of commodities, labour, or money, even in our days, in the shape of money that by a definite process has to be transformed into capital.

The first distinction we notice between money that is money only, and money that is capital, is nothing more than a difference in their form of circulation.

The simplest form of the circulation of commodities is C–M–C, the transformation of commodities into money, and the change of the money back again into commodities; or selling in order to buy. But alongside of this form we find another specifically different form: M–C–M, the transformation of money into commodities, and the change of commodities back again into money; or buying in order to sell. Money that circulates in the latter manner is thereby transformed into, becomes capital, and is already potentially capital.” (Marx 1906: 163–164).
Capital in the form of money buys a commodity in the first stage M–C (the advance of capital) and realises a profit in C–M (the realisation of capital) (Brewer 1984: 34).

Ultimately, the capitalist starts with money and desires to earn more money at the end of his enterprise (whether simple commodity speculation or production, as Marx later makes clear):
“Now it is evident that the circuit M–C–M would be absurd and without meaning if the intention were to exchange by this means two equal sums of money, £100 for £100. The miser’s plan would be far simpler and surer; he sticks to his £100 instead of exposing it to the dangers of circulation.” (Marx 1906: 164–165).
So there is a distinction between the two circular paths C–M–C and M–C–M (Marx 1990: 248):
“In the circulation C–M–C, the money is in the end converted into a commodity, that serves as a use-value; it is spent once for all. In the inverted form, M–C–M, on the contrary, the buyer lays out money in order that, as a seller, he may recover money. By the purchase of his commodity he throws money into circulation, in order to withdraw it again by the sale of the same commodity. He lets the money go, but only with the sly intention of getting it back again. The money, therefore, is not spent, it is merely advanced.” (Marx 1906: 165–166).
This idea that modern capitalism is a monetary production economy where capitalists’ main aim is to earn more money was also held by Keynes (Rogers 1989: 165–167; see also Torr 1980 and Dillard 1984). Thus both Keynes and Marx rejected the Classical “real” analysis that attempted to model capitalism as if it were a barter economy (Rogers 1989: 165).

There is also another very important point here: for Marx money (M) in the formula M–C–M, describing the capitalist mode of production, is defined as capital (Marx 1990: 250). As Marx says, there is “a palpable difference between the circulation of money as capital, and its circulation as mere money” (Marx 1906: 166). Capital is a type of “value in motion” that is used by capitalists to create more value, but the “value in motion” can appear in the form of either money or commodities (Harvey 2010: 90).

To return to Marx’s analysis, the circuit M–C–M has a different goal from C–M–C:
“The circuit C–M–C starts with one commodity, and finishes with another, which falls out of circulation and into consumption. Consumption, the satisfaction of wants, in one word, use-value, is its end and aim. The circuit M–C–M, on the contrary, commences with money and ends with money. Its leading motive, and the goal that attracts it, is therefore mere exchange value.” (Marx 1906: 167).
That is, the point of the circuit C–M–C is a use value, or consumption or satisfaction of needs as a final goal (Marx 1990: 250; Harvey 2010: 85). But the goal of M–C–M is more money and so it should properly be written M–C–M′ (where M′ = money plus an increment) (Marx 1990: 251). The increment in the money is the surplus value (Marx 1990: 251). So surplus value is M′ minus M.

The circuit of capital M–C–M is the process that generates surplus value (Brewer 1984: 34). It is the desire for quantitative expansion of monetary value and may have no limits (Brewer 1984: 35). Marx describes what he thinks is the mentality of the capitalist:
“The simple circulation of commodities—selling in order to buy—is a means of carrying out a purpose unconnected with circulation, namely, the appropriation of use-values, the satisfaction of wants. The circulation of money as capital is, on the contrary, an end in itself, for the expansion of value takes place only within this constantly renewed movement. The circulation of capital has therefore no limits. Thus the conscious representative of this movement, the possessor of money becomes a capitalist. His person, or rather his pocket, is the point from which the money starts and to which it returns. The expansion of value, which is the objective basis or main-spring of the circulation M–C–M, becomes his subjective aim, and it is only in so far as the appropriation of ever more and more wealth in the abstract becomes the sole motive of his operations, that he functions as a capitalist, that is, as capital personified and endowed with consciousness and a will. Use-values must therefore never be looked upon as the real aim of the capitalist; neither must the profit on any single transaction. The restless never-ending process of profit-making alone is what he aims at. This boundless greed after riches, this passionate chase after exchange-value, is common to the capitalist and the miser; but while the miser is merely a capitalist gone mad, the capitalist is a rational miser. The never-ending augmentation of exchange-value, which the miser strives after, by seeking to save his money from circulation, is attained by the more acute capitalist, by constantly throwing it afresh into circulation.” (Marx 1906: 169–171).
According to Marx, the “restless never-ending process of profit-making alone is what he [sc. the capitalist] aims at” (Marx 1906: 170).

Also, as we have seen above, for Marx, money or commodities can function as capital or, in other words, as value in motion to produce more value (Marx 1990: 255). It is very important to note that Marx’s definition of capital is quite different from that of neoclassical economics, as noted by Brewer (1984: 35). For Marx, capital is a certain sum of value repeatedly “being transformed from money to commodities and back again” to produce more value (Brewer 1984: 35).

Marx describes this as follows:
“The independent form, i. e., the money-form, which the value of commodities assumes in the case of simple circulation, serves only one purpose, namely, their exchange, and vanishes in the final result of the movement. On the other hand, in the circulation M–C–M, both the money and the commodity represent only different modes of existence of value itself, the money its general mode, and the commodity its particular, or, so to say, disguised mode. It is constantly changing from one form to the other without thereby becoming lost, and thus assumes an automatically active character. If now we take in turn each of the two different forms which self-expanding value successively assumes in the course of its life, we then arrive at these two propositions: Capital is money: Capital is commodities. In truth, however, value is here the active factor in a process, in which, while constantly assuming the form in turn of money and commodities, it at the same time changes in magnitude, differentiates itself by throwing off surplus-value from itself; the original value, in other words, expands spontaneously. For the movement, in the course of which it adds surplus value, is its own movement, its expansion, therefore, is automatic expansion. Because it is value, it has acquired the occult quality of being able to add value to itself. It brings forth living offspring, or, at the least, lays golden eggs.

Value, therefore, being the active factor in such a process, and assuming at one time the form of money, at another that of commodities, but through all these changes preserving itself and expanding, it requires some independent form, by means of which its identity may at any time be established. And this form it possesses only in the shape of money. It is under the form of money that value begins and ends, and begins again, every act of its own spontaneous generation. It began by being £100, it is now £110, and so on. But the money itself is only one of the two forms of value. Unless it takes the form of some commodity, it does not become capital.” (Marx 1906: 171–172).
The whole process is summed up Marx:
“Value therefore now becomes value in process, money in process, and, as such, capital. It comes out of circulation, enters into it again, preserves and multiplies itself within its circuit, comes back out of it with expanded bulk, and begins the same round ever afresh. M–M′, money which begets money, such is the description of Capital from the mouths of its first interpreters, the Mercantilists.

Buying in order to sell, or, more accurately, buying in order to sell dearer, M–C–M′, appears certainly to be a form peculiar to one kind of capital alone, namely, merchants’ capital. But industrial capital too is money, that is changed into commodities, and by the sale of these commodities, is reconverted into more money. The events that take place outside the sphere of circulation, in the interval between the buying and selling, do not affect the form of this movement. Lastly, in the case of interest-bearing capital, the circulation M–C–M′ appears abridged. We have its result without the intermediate stage, in the form M–M′, ‘en style lapidaire’ so to say, money that is worth more money, value that is greater than itself.

M–C–M′ is therefore in reality the general formula of capital as it appears prima facie within the sphere of circulation.” (Marx 1906: 173).
So whether the capitalist is an industrialist, merchant or usurer who lends money at interest, his activity can be summed up by the “general formula” M–C–M′ which describes his ceaseless search for surplus value in the sphere of circulation.

Now there are two problematic aspects of this chapter, as follows:
(1) does mere speculation (buying commodities cheap and selling dear) count as capitalist production and can value arise in circulation of commodities? How does speculation produce labour value?

(2) does Marx think that capitalists really aim at increasing labour value?
First, there is the interesting problem about the nature of speculation. If a capitalist buys commodities for $100 and sells them for $110 has he created surplus value by his labour? It would seem that Marx merely thinks that the initial $100 is only “circulating money capital” and any surplus obtained in this way is done so “by trickery, or by speculation on the oscillation of commodity prices” (letter, Marx to Engels, London, 30 April 1868; elsewhere Marx sees gambling in a comparable way). Though the transaction can be explained as M–C–M′, the surplus value is not created by the labour power of the speculator.

To illustrate the second problem: Marx says that the point of M–C–M′ is to increase value:
“The value originally advanced, therefore, not only remains intact while in circulation, but adds to itself a surplus-value or expands itself. It is this movement that converts it into capital.” (Marx 1906: 168).
But “value” usually means labour value for Marx, so that Marx can be interpreted as saying that capitalists’ real aim is to increase the labour value embodied in the money they receive from production. This is absurd and empirically false. Capitalists and business people are interested in money profits, not Marx’s labour value concept.

In conclusion, there are interesting insights in Chapter 4, but they are quickly contaminated by Marx’s dogmatic and untenable labour theory of value. None of the good insights about the monetary nature of production taken up by Keynes should blind us to the fact that Marx’s Capital is a deeply flawed work and his overall theory is wrong, since it is founded and the erroneous and untenable labour theory of value.

Brewer, Anthony. 1984. A Guide to Marx’s Capital. Cambridge University Press, Cambridge.

Dillard, Dudley. 1984. “Keynes and Marx: A Centennial Appraisal,” Journal of Post Keynesian Economics 6.3: 421–432.

Harvey, David. 2010. A Companion to Marx’s Capital. Verso, London and New York.

Marx, Karl. 1868. Letter, Marx to Engels, London, 30 April

Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York.

Marx, Karl. 1990. Capital. A Critique of Political Economy. Volume One (trans. Ben Fowkes). Penguin Books, London.

Rogers, C. 1989. Money, Interest and Capital: A Study in the Foundations of Monetary Theory. Cambridge University Press, Cambridge.

Torr, C. 1980. “The Distinction Between an Entrepreneur Economy and a Co-operative Economy,” South African Journal of Economics 48.4: 429–434.

Friday, July 3, 2015

David Harvey on Reading Marx’s Capital Volume 1, Class 03

David Harvey is a Professor of Anthropology and Geography at the Graduate Center of the City University of New York.

Class 3 of his video series on Reading Marx’s Capital Volume 1 is below.

This video deals with Chapter 3 of volume 1 of Capital.

My critical comments:
(1) at 8.25 onwards and later at 20.30 Harvey notes that money is no longer a commodity or is convertible into a commodity like gold at fixed rate. But this is quickly dismissed, and glosses over a severe problem with Marx’s theory of money: that Marx thought money must ultimately be a commodity or represent a commodity, and modern fiat money has shown that this is wrong. At 1.36.15 onwards, we can even see that Marxists are still pushing the absurd metallist view of Marx and that they refuse to accept that fiat money really is a viable and successful form of money.

(2) Harvey draws attention to this passage where Marx states that labour value and price can diverge:
Magnitude of value expresses a relation of social production, it expresses the connection that necessarily exists between a certain article and the portion of the total labour-time of society required to produce it. As soon as magnitude of value is converted into price, the above necessary relation takes the shape of a more or less accidental exchange-ratio between a single commodity and another, the money-commodity. But this exchange-ratio may express either the real magnitude of that commodity’s value, or the quantity of gold deviating from that value, for which, according to circumstances, it may be parted with. The possibility, therefore, of quantitative incongruity between price and magnitude of value, or the deviation of the former from the latter, is inherent in the price-form itself. This is no defect, but, on the contrary, admirably adapts the price-form to a mode of production whose inherent laws impose themselves only as the mean of apparently lawless irregularities that compensate one another.” (Marx 1906: 114).
So, according to Marx, as labour values are converted into prices, we find “the shape of a more or less accidental exchange-ratio between a single commodity and another.” Astonishingly, we find no further analysis of how prices diverge from labour values in Chapter 3. Harvey (2010: 58–59) interprets this passage as a recognition by Marx that supply and demand conditions govern the prices of commodities on everyday markets. But Harvey also argues that Marx thinks that the long-run Classical equilibrium price (or natural price) is the centre of gravitation for market prices, and that this natural price is a “representation of socially necessary labor-time that generates the value crystallized in money” (Harvey 2010: 61, 59). This is utterly unsatisfactory, since the Classical natural price includes a uniform profit rate and Marx denies that this natural price directly equals or corresponds to labour value.

(3) Marx’s ideas on the origin of money are grossly inadequate in light of modern anthropology and history, as we can see here, here, here, and here.

(4) Marx’s critique of Say’s law is underdeveloped and the concept of aggregate demand in Marx is pretty feeble. Hence Harvey’s attempts to claim that Keynes owed some great debt to Marx on this is unconvincing. In reality, Malthus was a better critic of Say’s law than Marx.
Further Reading
“Marx’s Capital, Volume 1, Chapter 1: A Critical Summary, Part 1 (Updated),” June 21, 2015.

“Marx’s Capital, Volume 1, Chapter 1: A Critical Summary, Part 2,” June 26, 2015.

“Marx’s Capital, Volume 1, Chapter 2: A Critical Summary,” June 4, 2015.

“Marx’s Capital, Volume 1, Chapter 3: A Critical Summary,” June 12, 2015.

“David Graeber on the Origins of Money,” January 23, 2012.

“Quiggin on the Origin of Money,” February 10, 2012.

“Observations on Non-Commercial Money,” February 18, 2012.

“Philip Grierson on the Origin of Money,” March 21, 2012.

Harvey, David. 2010. A Companion to Marx’s Capital. Verso, London and New York.