Understanding Capitalism and where it is going: Marx at 200 Part 1
Understanding Capitalism
A Marxian understanding of the economy could not be more different from capitalist economics taught in university departments. Marx did not offer a text book on economics for governments to run the economy better than other competing theories. Quite the reverse.
Marx's critique of political economy, its practitioners, and its economic categories like the commodity, capital and money, should be viewed as a study of a social system in motion. Capitalism is dynamic not static. And within this system are two major and antagonistic forces, the capitalist class and the working class. Fundamentally, for Marx, capitalism is not a harmonious social system but brittle, insecure, contradictory, irrational and prone to abnormal movements leading to "so many possibilities of crises" (CAPITAL, VOLUME II, Chapter XXI, Accumulation and Reproduction on an Extended Scale, p. 499).
Capitalism, for Marx, is anarchic and un-planned. The profit system can never be run in the interest of all society let alone generate economic policies to iron out its contradictions. Adam Smith's "invisible hand" representing a "spontaneous market order", was waved through the economic air by a market anarchist standing adrift a world of market destruction, bankruptcy and unemployment.
Unlike economists, who look at capitalism as a "natural" institution with no history and historical movement, the profit system, for Marx, is a mode of production; a class system like Feudalism and chattel slavery which preceded it. Capitalism is located within human history with a beginning and an end in class struggle.
Capitalism: Beginnings
In his study of capitalism, Marx applied an interrelated theory of history, known as the materialist conception of history, a political concept of class struggle and theory of value to his study of capitalism. Capitalism had an origin in the class struggle between Feudal monarchs and an emerging capitalist class. Capitalism took time to establish itself as a world economic system. And it did so through a series of revolutions from the 17th century in England, right up to the 20th century, with revolutions in Russia and China.
Capitalism is a world economy but it is split into competing nation states, each with a coercive state and machinery of government, including the armed forces. Conflict and war is a natural outcome of competitive capitalist trade; the protection of trade routes, establishing points of strategic importance and ensuring the supply of oil, gas and minerals. Marx emphasised the importance within the economy of class, class relations, opposing class interests and class conflict. Class was defined in an objective way, with respect to the ownership or non-ownership of the means of production and distribution.
Capitalism's emergence from Feudalism took place through the forcible enclosure of commons, the eviction of peasants off the land into new cities like Manchester, slavery, imperialism, use of child labour, piracy, pillage, colonialism and war. This violence was necessary in order to accumulate capital.
The accumulation of primitive capital, working with new forms of technology like the steam engine, and political representation through revolution, allowed the capitalist class to exercise itself as a class in its own right. Capitalism stood on its own two feet, once productive capital dominated the economy and had access to the pool of labour power which takes the form of a commodity. Divorced from the means of production and distribution, workers had to sell their ability to work on the labour market in exchange for a wage; they were then exploited by the capitalist class to produce surplus value. Workers were free in a double sense; free from the means to life and free to find an employer.
Marx's Theory of Value and Surplus Value
Marx thought that his theory of surplus-value was his most important contribution to the progress of an economic analysis of capitalism. He wrote:
"The best points in my book are: 1. (this is fundamental to all understanding of the facts) the two-fold character of labour according to whether it is expressed in use-value or exchange-value, which is brought out in the very First Chapter; 2. the treatment of surplus-value regardless of its particular forms as profit, interest, ground rent, etc. This will be made clear in the second volume especially. The treatment of the particular forms in classical political economy, where they are forever being jumbled up together with the general form, is an olla potrida (rotten pot of stew)" (Marx, Letter to Engels, 24 August 1867 in COLLECTED CORRESPONDENCE, p.180).
The Classical School of Adam Smith and David Ricardo, like Marx, used a theory of value. However, unlike David Ricardo (ON THE PRINCIPLES OF ECONOMY AND TAXATION, 1817), Marx applied a theory of value to labour itself. And this holds true whether the worker sells their labour power to an individual capitalist, corporation, the state or the papacy. Workers are exploited when there is little or no nationalisation or when there is nationalisation of "the commanding heights of the economy", as the capitalist left like to say.
Labour was exploited because the worker was paid the value of his labour power and the employer gets the use value of this labour power. Employers use this labour power with machinery and materials to produce commodities for sale on the market for profit.
Marx showed the origin and nature of profits resulted from production, not circulation. Circulation could not explain the origin of profits, but simply its distribution.
In a capitalist economy, a minority capitalist class owned the means of production to the exclusion of the working class majority. Workers were forced onto the labour market and rationed by the wages system. Workers did not control what was produced and for whom. Workers were denied direct access to what they and their families needed to live worthwhile lives and to flourish as human beings. Central to the capitalist economy was class exploitation and the class struggle over the intensity and extent of class exploitation.
Most of Volume 1 of CAPITAL looks at the extraction of surplus value from the working class. The origin, nature and distribution of surplus value play an important role in Marx's analysis of capitalism.
Capitalists and workers meet on apparent equal terms on the labour market in which the workers sell their labour power or ability to work as a commodity.
The capitalists pay the workers according to the value of their labour power. The value of labour power is determined by the amount of socially necessary labour embodied in the commodity, labour power.
The value of labour power is the amount of socially necessary labour embodied in the commodities the working class and their families must consume to produce and reproduce themselves as an exploited class.
The capitalists pay according to the exchange value but obtain the use value of the labour power.
Marx showed in great detail, that the exploitation of the commodity labour power created value - a surplus value - in excess of its own value.
Marx's Three Volumes of Capital and Surplus Value
From developing "surplus value", Marx captured, in his three volume of CAPITAL, theoretically, the capitalist economy as a whole. With an understanding of "surplus value", Marx was able to analyse capital accumulation and the expansion of value as well as to determine the source of the unearned income of rent, interest and profit.
In book one of CAPITAL; Marx looks at Commodity Production as a basis for revealing "the economic law of motion of modern society" (Preface to the first edition, p.93).
The first volume of CAPITAL was published on 14 September 1867. The volume is broken up into eight parts; The Process of Production of Capital, The Transformation of Capital into Money, The Production of Absolute Surplus-Value, The Production of Relative Surplus-Value, The Production of Absolute and Relative Surplus Value, Wages, The Process of Accumulation of Capital, and so-Called Primitive Accumulation.
The source of surplus value exploited from the exploitation of the working class, explained the dynamic movement of capital accumulation as well as the contradictions leading to crises and economic depressions.
Marx died before completing all three volumes of CAPITAL. It was left to his friend, Frederich Engels to finish volumes 2 and 3 for publication. Volume 2 was published in 1885 and Volume 3 was published in 1894.
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Engels was faced with many editorial problems. As he wrote on editing the third volume of CAPITAL:
"In the case of the third volume there was nothing to go by outside a first extremely incomplete draft. The beginnings of the various parts were, as a rule, pretty carefully done and even stylistically polished. But the farther one went, the more sketchy and incomplete was the manuscript, the more excursions it contained into arising side-issues whose proper place in the argument was left for later decision, and the longer and more complex the sentences, in which thoughts were recorded in statu nascendi (just as they arose). In some places handwriting and presentation betrayed all too clearly the outbreak and gradual progress of the attacks of ill health, caused by overwork, which at the outset rendered the author’s work increasingly difficult and finally compelled him periodically to stop work altogether".
https://www.marxists.org/archive/marx/works/1894-c3/pref.htm
In book 2 of CAPITAL, Marx studied the Process of Circulation of Capital
Volume 2 was divided into three parts:
The Metamorphoses of Capital and Their Circuits
The Turnover of Capital
The Reproduction and Circulation of the Aggregate Social Capital
In this book, the main discussion was how value and surplus-value were realized.
Two important points were raised by Marx:
First, Marx explicitly rejected underconsumption as a cause of crisis. He wrote that crises were not caused by inadequate demand. He said:
"It is a sheer tautology to say that crises are caused by the scarcity of effective consumption, or effective consumers. The capitalist system does not know [of] any other modes of consumption than effective ones. That commodities are unsaleable means only that no effective purchasers have been found for them, i.e., consumers (since commodities are bought in the final analysis for productive or individual consumption)."
Marx continued:
"But if one were to attempt to give this tautology the semblance of a profounder justification by saying that the working class receives too small a portion of its own product and the evil would be remedied as soon as it receives a larger share of it and its wages increase in consequence, one could only remark that crises are always prepared by precisely a period in which wages rise generally and the working class actually gets a larger share of that part of the annual product which is intended for consumption. From the point of view of these advocates of sound and 'simple' (!) common sense, such a period should rather remove the crisis." (CAPITAL Volume 2, Chapter XX, Simple Reproduction, pp.441 -415)
Second, Marx showed how insecure the reproduction process of capital was. How capitalism was unstable and always prone to crises. He wrote:
"the production of commodities is the general form of capitalist production implies the role which money is playing in it not only as a medium of circulation, but also as money-capital, and engenders certain conditions of normal exchange peculiar to this mode of production and therefore of the normal course of reproduction,...-conditions which change into so many conditions of abnormal movement, into so many possibilities of crises, since a balance is itself an accident owing to the spontaneous nature of this production" (CAPITAL Vol. 2, Accumulation and Reproduction on an extended scale (Ch. XXI, p.499).
And in book 3 of Capital Marx laid out the process of capitalist production as a whole.
Volume 3 was subtitled The process of capitalist production as a whole and was concerned primarily with the internal differentiation into rentiers, bankers and industrialists of the capitalist class.
The first three parts of the volume were concerned with the division of surplus value amongst individual capitals, where it takes the form of profit. Marx introduced three chapters on the falling rate of profit which he described as a tendency, and gave 5 countervailing forces. He also showed how values were transformed into prices of production in the economy as a whole concluding that the sum of values equals the sum of prices of production and total profits equals total surplus value. These two aggregate equalities confirmed both the law of value and all profits in the economy has its origin in the exploitation of the working class.
The later parts of the volume were concerned with merchants' capital, interest-bearing capita, fictitious capital and landed capital. The last part of the volume, "The revenues and their Sources" drew the whole account of "capital in motion" together. Sadly, and disappointingly, the manuscript then breaks off. It is like listening to Beethoven's Fifth Symphony only to find the coda at the end of the fourth movement is missing.
The aim of the volume was to show how capitalism looked to those who were engaged in the exploitation and generation of surplus value. This was dealt with in the seventh section under the heading of The Revenues and Their Sources.
Finally there was the so-called fourth volume of CAPITAL known as THEORIES OF SURPLUS VALUE, edited after Engels's death by Karl Kautsky between 1905 and 1910. THEORIES OF SURPLUS VALUE was a draft manuscript written by Marx between January 1862 and July 1863. And English translation did not appear until 1963 through the Lawrence and Wishart publishing house.
The three volumes were mainly concerned with the theories of surplus value found in the works of political economists from about 1750 onwards. Marx critically examined the ideas of British, French and German political economists about wealth creation and the profitability of industries. There was a very useful chapter on the second volume on David Ricardo, capital accumulation and economic crises in the second volume (Chapter XVII).
Marx also asserted that there was no such thing as a "permanent crisis". He wrote:
"When Adam Smith explains the fall in the rate of profit [as stemming] from the superabundance of capital, he is speaking of a permanent effect and this is wrong. As against this, the transitory superabundance of capital, overproduction and crises are something different. Permanent crisis do not exist" (THEORY OF SURPLUS VALUE, Ch. XVII, Ricardo's Theory of Accumulation and a Critique of it, Volume 2, note to the bottom of the text, page 497)
Marx explained, in the third volume of THEORIES OF SURPLUS VALUE, how, after failing to solve basic contradictions in its labour theory of value, the classical school of political economy eventually broke up, leaving only "vulgar political economy" (Addenda pp 453 -540).
Vulgar political economists, - "vulgar" because they only dealt with the appearance of things - from the 1830s up to today no longer tried to understand capitalism but were content to justify the anarchy of the market economy. Economists were merely hired gun-slingers and apologists.
The Ultimate Aim in Writing Capital
What was Marx's ultimate aim in writing CAPITAL? In the Preface to the first edition of CAPITAL, Marx said that his ultimate aim was - "to reveal the economic law of motion of modern society" (p. 92).
Marx revealed the economic law of motion once he had developed his theory of surplus value, but where was this motion going towards? Is "modern society" going on and on forever into the future from one circuit of class exploitation to the next, from one crisis to the next, from one war to the next? This is a very pessimistic reading. We do not want to live our lives in the southeast corner of the Hundred Acre Wood, in an area labelled "Eeyore's Gloomy Place: Rather Boggy and Sad".
A more optimistic reading of CAPITAL, with a glass half-full, would recognise that Capitalism's economic law of motion was based upon the exploitation of the working class. The law of motion continually generating surplus value was not all powerful.
Consider the law of the falling rate of profit in the third volume of CAPITAL. The falling rate of profit is due to the competitive nature of capitalism: each capitalist in attempting to maximise their profits leads to a collective result which is unwanted. However there are various counteracting influences that convert the law into a "tendency". The same unwanted outcome applies to the law of motion of society - the self-expansion of capital. And that is the powerful and historical counteracting tendency of the working class to become socialists.
Capitalism is based on the extraction of surplus value and its continual reinvestment to produce more and more surplus value. Remove the working class from the production and circulation of commodities and there is no longer an "economic law of motion". Capitalism can only move and expand if there is wage-labour to exploit.
Without the exploitation of the working class, capitalism cannot exist. In a post-capitalist society there are only workers, free from capital and class relations; a society in which there is the common ownership and democratic control of the means of production and distribution by all of society. Workers, in a socialist society, will be free to organise society democratically to meet human need not in the making of profit and capital accumulation. There is an alternative to capitalism. There is a socialist alternative.
The writing of CAPITAL was not an academic exercise. It was a revolutionary and political attempt to explain the workings of the capitalist economy to the working class as a whole, not just to students in university seminars. Marx wanted to examine and explain the forces within capitalism which would lead to socialism. Here is a positive and optimistic passage:
"Along with the constantly diminishing number of the magnates of capital, who usurp and monopolise all advantages of this process of transformation, grows the mass of misery, oppression, slavery, degradation, exploitation; but with this too grows the revolt of the working class, a class always increasing in numbers, and disciplined, united, organised by the very mechanism of the process of capitalist production itself".
And Marx went on to conclude:
"The monopoly of capital becomes a fetter upon the mode of production, which has sprung up and flourished along with, and under it. Centralisation of the means of production and socialisation of labour at last reach a point where they become incompatible with their capitalist integument. This integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated" (CAPITAL volume 1, Chapter 32 Historical Tendency of Capitalist Accumulation p.929).
Capitalist accumulation moves towards socialism, not in a mechanical way but as a tendency. There might be forces acting against this historic tendency but the working class is a powerful force, more so when it increasingly becomes a political and socialist force. And it is a historic tendency that will see workers acting in their own class interest, not as an outcome formed by economic determinism or fate, but by human agency.
The historical tendency depends upon the working class themselves. It depends upon a working class taking democratic and political action without leaders and the led. The historical movement might be painfully slow but the movement, nevertheless, exists. And in the footnote to the end of the chapter, Marx recalled what he and Engels had first said in the COMMUNIST MANIFESTO, some 19 years earlier.
"Of all the classes which confront the bourgeoisie today, the proletariat alone is a really revolutionary class".
This lecture was given on 14th October 2016 at the Lord John Russell, Marchmont Street.