30 Oct 2008

Marxist economics: The utter basics

Marx's work was unfinished and nobody can point to a page of Das Kapital for exact information on the present crisis. I do think Marx's analysis that capitalism is exploitative, yet paradoxically leads to economic expansion, that capitalism is innately crisis ridden...is all a vital antidote to the conventional economic analysis. This is from Babylon and Beyond, my Pluto book that looks at different anti-capitalist forms of economics. I am very open to have my ideas shredded by both trolls and the more informative but getting a bit of discussion on Marxist economics going seems essential to me.

Incidentally my book looks at ecosocialism in more detail, Marx's views on ecology, Caroline Lucas/Mike Woodin on globalisation, Hardt and Negri and even Major Douglas...the stuff below is very sketcy but hopefully provides a start, even if it is disgusted of Hackney commenting on the vulgarity of my account of the exploitation of labour power according to the man with the big beard.

Marx is pretty entertaining to read, very rude and but with a touch of literature but starting with Das Kapital is usually a bit much...so have a look at some guide books first from people like Ben Fine or Rius.

Virtually all of Marx and Engels, lots of other writers from the left including that Peruvian genius Mariategui are on Marxist Internet Archive

History is the history of class struggle declare Marx and Engels in the Communist Manifesto, later arguing that capitalists exploit the labour power of workers. A worker produces ten mopeds or DVD players in a day and the capitalist takes seven of these. We have, according to simplify a little, a system of economic theft. Workers can go on strike and use various means to achieve a ‘fair day’s pay for a fair day’s work’, but will always be exploited in a capitalist system because the capitalist will take some of what they produce and control how they work:
People overwhelmingly prefer to cling to precarious conditions as farmers, fishers, hunters and the like rather than sell their human capacities to a buyer. It is only when there is literally no other way to survive - when, in short, all other economic options have been taken away from them - that people reluctantly accept a life as wage-labourers. (McNally 2002: 65).
Individuals have to be forced to work for capitalists by separating them from their own means of production. If people have their own land to grow food or their own tools to produce goods, they will be reluctant to work for the capitalist. We have to be forced to work through violent processes that generally involve taking away communal land and other shared resources. This process is discussed in more detail in the next chapter and has been noted by the subsistence greens examined in chapter four.
Goods (and services) have both use value and exchange value. Use value is determined by the usefulness of a product, yet capitalists are not primarily motivated by use. Instead, they seek to increase exchange value. Exchange value is the amount of money (or goods/services) a product can be exchanged for. The market is based on 'inherently unequal relations of exchange between large property owners and those who are propertyless. If the latter risk hunger and deprivation in the event that they cannot find a buyer for their labour, they are at a structural disadvantage' (McNally 2002: 61). Capitalists are compelled to maximise profit by exploiting labour power to multiple exchange values. Workers can be made to work harder or longer. Exchange values have to be ‘realised’ by selling goods and services so ‘use’ values cannot be entirely ignored, since consumers will be unwilling to buy useless objects. However, capitalism puts enormous energy into marketing, to make us find the ‘useless’ ‘useful’ in order to keep consumption levels up. The problem of how ‘use’ relates to ‘exchange’ is examined in chapter eight.
The surplus value which capitalists extract from workers in exchange for wages is the basis of profit and such profit is extracted from the workers. Profit is reinvested in capital i.e. machines and other means of production to raise productivity. Capitalists may or may not be 'bad' people but are forced by competition to increase profit levels by exploiting workers. This is because a company that does not invest in the most efficient machinery will find that its costs tend to be higher than rival firms. A firm must invest in order to survive turning money into capital and back again into money. The lazy or humane capitalist fails in the race and is put out of business, 'A benevolent capitalist who paid his workers wages that broadly corresponded to the amount of value they created would soon find himself (sic) out of business' (Callinicos 2003: 37).
The capitalist firm must keep on growing or it will die because it will be overtaken by other businesses. While competition is unlikely to be eliminated, the advantage given by economies of scale mean that smaller companies are likely to be replaced by larger. The development of global markets and the emergence of giant multinationals, which Schumacher condemns, are clearly explained by Marxist analysis:
Constant efforts to cut costs are forced on capitalists by competition, the primary driving force in capitalism. Any new method of production which reduces costs (a technical improvement, or an 'improvement' in labour discipline) will bring extra profits to those who introduce it quickly, before the general price level has been forced down. Once it is generally adopted, competition forces prices down in line with costs, wiping out any remaining high cost producers. Marx assumed (in general rightly) that large scale-production is more efficient than small-scale. Competition, therefore forces capitalists to accumulate and reinvest as much as possible in order to produce on a large scale. Marx called growth through reinvestment of profits, concentration of capital. Bigger firms will be better able to survive, especially in slumps, and will be able to buy out smaller firms. The growth of the scale of production by amalgamation of capitals is called centralization of capital. (Brewer 1990: 33)
Although Marx, like most economists of his day, thought in terms of private ownership by entrepreneurs, public ownership by shareowners will encourage even a monopoly to keep growing. Shareholders will demand high share values and/or higher dividends and will dump firms that do not grow. Marx, as Callinicos notes, provides a structural theory of accumulation, capitalists exploit the creativity of workers, skim off profits and reinvest in new capital not because they believe in a particular set of values, as David Korten and many Greens suggest, but just to survive in business (Callinicos 2003: 37).
Economics is a field of conflict with workers fighting to improve pay and conditions and firms attempting to maximise profit. Technological, cultural and social changes are the only constants of capitalism. Capitalism is like a bicycle. A bicycle tends to fall over if one ceases peddling; capitalism tends to collapse if it fails to grow. Although it might be said that capitalism demands, unlike a bicycle, that we peddle faster and faster forever and ever. It can be distinguished from other forms of society 'by dynamism and by instability' (Callinicos 2003: 37). Thus capitalism is crisis ridden. Marx argued that labour power is the source of exchange value and profit. Machines gradually replace workers and as the proportion of labour in the production process falls, so, other things being equal, does profit. In Marx’s analysis if all value comes from labour, if less labour is used to produce goods, less value will be generated when such goods are sold. While this may seem a little obscure, simple supply and demand analysis gives us the same result. As workers are replaced by machines over supply pushes up the quantity of goods produced and leads to falling profit. Crisis is not fatal, at least, not immediately. Marx identified a whole host of processes from selling more goods (small profit margins multiplied by greater sales maintain profit) to exploiting workers more intensively, which tend to conserve the capitalist 'mode of production'. While Marx, in several passages, stated that crises would intensify, careful study of his work suggests that this is not necessarily the case (Desai 2004).
Marxists have long argued as to the exact nature of the tendency for profit to fall and the crisis identified by Marx (Went 2000: 65). Many Marxists have argued for an underconsumptionist view, suggesting that consumption will fail to keep up with production, leading to falling prices, negative profits and killer slumps. Others stress over accumulation, noting that supply will rise too fast to sustain profit. These two views are essentially one. Other contradictions include the possible mismatch between different ‘departments’ (more or less 'consumption' and 'investment' in machinery) of the economy, thus capital may increase faster than demand for goods and services again feeding into slump. Autonomist Marxists stress the essential conflict between workers, who want to hold on to more of their labour power and capitalists who wish to steal it away (Cleaver 2000). For ecosocialists the basic contradiction between use values and exchange values is the mother of all other contradictions and crises (Kovel 2002).
As capitalism develops, ways around contradictions tend to be found but they tend to lead to new contradictions. For example, the growth of vast financial markets producing credit, which horrify social creditors, allow consumption to expand to maintain profitable demand. Accelerating debt expands consumption and allows exchange values to be realized. The mismatches in the economy can be bridged by borrowing (Harvey 1999) however this leads to new contradictions. While the problems of capitalism cannot be blamed on the banks, debt creation certainly leads to new problems.
Contradictions and conflicts, whether class based, environmental or economic, to the extent that can be separated, lead to change. Marx argued that capitalism by massively increasing the means of production and forging working class opposition tends to create communism. Marxist politics tries to activate these tendencies. Ultimately, accelerating change may lead to a communist society, where the market is replaced by conscious human planning. Abstract economic ‘laws’ and the ‘needs’ of an elite are replaced by a society based on human need. This process is a revolution both because it is likely to demand violent change and because it leads to a break between one kind of society and another. Capitalism in its search for profits is the force that promotes globalisation but will mutate into communism.
Marx drew upon a rich heritage of thought, which is often forgotten by anti-capitalist activists today. Hegel, Kant and Spinoza inform his thought. From Feuerbach he gained the notion of 'fetishism’, a process where we give something invented by the human imagination, artificial but effective power over us. Gods and goddesses invented by human beings rule over us. Objects are given sexual power and return to shape our desires. Commodities, goods we make, are given energy and become our masters. Capitalism is a process of 'fetishism' where by an economic system constructed collectively by the actions of millions of human beings, comes to dominate human beings (Kolakowski 1988: 276). Desai notes how Marx's 'training in Hegelian philosophy equipped him [to deal with economic questions] at a level of depth and generality which was totally alien to the British way of doing political economy. He used the method of immanent criticism. This meant mastering the classical political economy completely, accepting its logic but then proposing a better political economy as a critique from within which to point up and resolve the internal contradictions' (Desai 2004: 55). Hegel specifically equipped Marx with the dialectic. The dialectic comes from the Greeks and is akin to dialogue, the interplay between two forces that transforms both...like conversation or cooking or sex.
Reality is a process of constant revolution. Identity is relational; we have identity in relation to that which is different. Change occurs when relationships are rearranged. Phenomenon is a product of self-contradiction and such contradiction leads to change. Contradiction is all; Marx characteristically notes the contradiction between 'progress' and exploitation. Concepts enslave workers, machines crush their individuality in the pursuit of surplus value:

all means for the development of production undergo a dialectical inversion so that they become means of domination and exploitation of the producers; they distort the worker into a fragment of a man, they degrade him to the level of an appendage of a machine, they destroy the actual content of his labour by turning it into a torment; they alienate from him the intellectual potentialities of the labour process in the same proportion as science is incorporated in it as an independent power; they deform the conditions under which he works, subject him during the labour process to a despotism the more hateful for its meanness; they transform his life-time into working-time, and drag his wife and child beneath the wheels of the juggernaut of capital. (Marx 1979: 799)


Dave Riley said...

Brendan Cooney has developed a brillint video introduction at Kapitalism 101 and at Links there's a range of resources and commentary: Economics - Capitalism -Marxist Theory -
Marxist Economics: a handbook of basic definitions

Derek Wall said...

thanks Dave, I will take a look, as you know one of my moans is greens don't look at ecology and Marxists don't look at Marx...good to hear from you!

Anonymous said...

Derek - your text reads: "Marx argued that capitalism by massively increasing the means of production and forging working class opposition tends to create communism. Marxist politics tries to activate these tendencies. Ultimately, accelerating change may lead to a communist society, where the market is replaced by conscious human planning. Abstract economic ‘laws’ and the ‘needs’ of an elite are replaced by a society based on human need. This process is a revolution both because it is likely to demand violent change and because it leads to a break between one kind of society and another. Capitalism in its search for profits is the force that promotes globalisation but will mutate into communism."
Do you buy that yourself? I've read Babylon and Beyond - it's a good read - but I note you don't really cover 'socal democracy' as an alternative to what we've got now, nor theories of market socialism. In fact, one of your conclusions is that we have to transcend the market - any solution that includes a market aspect appears to be ruled out, if I understood you correctly. I'm not sure I buy that, Derek. At least not in the medium to fairly foreseeable term.

There's an interesting debate on this on the Red Pepper Green Socialism forum at the moment - perhaps you'd like to contribute?


Derek Wall said...

Laurence thanks t for your comments, yes I think the big thinking is in the direction of commons regimes and social sharing, which to me is a Marxist approach but one that does not require an economy which is centralised.

I think you can to some extent embedd markets and you can democratise states but the interesting stuff is non state and non market.

There have been lots of books on market socialism and social democracy, there have been very few on commons, etc. I am not a social democrat or a market socialist cos I think there are other more useful directions to move towards...

Sounds utopian...well we are in cyber space here, which is to some extent a commons and commons have been the successful institution on this planet for managing ecology.

As to Marx, well I am broadly a Marxist but to cut through some big debates, a lot of what is seen as Marxism is not fit for human consumption....incidentally as I make clear in Babylon, Marx noted plenty of counter tendencies to the falling rate of profit, also the sociological aspect of Marxism has not quite gone to plan...thanks for the Red Pepper tip I may take a look, although I have a book chapter on 'greed' which is keeping me busy today.

Do look at some of the links Dave has flagged up there are really useful...

Anonymous said...

I'm not sure what a commons-based economy would look like. Before and during the enclosure process peasants were able to graze their goats on the commons and collect firewood - that kind of thing. In terms of intellectual property, today, I can get Firefox for nowt. Our friend Gorz, in Paths to Paradise imagines neighbourhoods sharing tools, and if I remember correctly plots of land, but are supported by a basic income and are of course free to participate in other wage-earning activities in addition to sharing, bartering and doing their 'self/own' work as I think Gorz called it.

I wonder what kind of model of citizenship would inform a commons-based economy? Pericles' funeral oratation celebrated the ancient Athenian model - 'others call those who do not participate in such things 'private' men - only we call them useless ones'. Presumably a commons-based system would effectively create a right to recieve or take (I can recieve my firewood or Firefox for free - its my right under the rules of the commons). At the same time, in order for the system to work, there must be implicit obligations - not to take more than is sustainable, not to take so much that my neighbour will go without. But how are such obligations to be enforced?

My view is that there are implicit 'contracts' at work in societies, contracts which encode an expectation that all who can, should contribute in some way to the economy. Through this kind of participation, our fellow citizens recognise our rights to receive goods, services, etc. Hannah Arendt traced this kind of argument in her analysis of pre-war Germany - the perception of a group as being non-contributing (however false that perception may actually be) facilitates the stripping of that group of fundamental rights of citizenship.

I'm no fan of the capitalist model of market relations and property rights. However, if we aim to replace these with better models, there still needs to be some theory of justice informing who can use/enjoy which resources/services, where, when and for how long.

Can you clarify how a commons-based economic system would do that?


Derek Wall said...

Start with the word usufrucht and have a look at Ostrom's work and Whose Common Future from the corner house....I think this is moving off of Marxist economics and on to a discussion of alternative forms of property rights, Benkler is also worth a look with his notion of social sharing and unlike me is I think a legal theorist...must blog on Marx and the law of the woods what with this being under attack here in Britain.

lots on open source/commons/social sharing on the web, very nice to get anyone to consider as an alternative to the market and the state...

Derek Wall said...


is another essay on commons, however, I am sticking here to Marxist economics...while commons is part of Marxist economics, 'commons the utter basics' would require another blog entry

Anonymous said...

OK, I'll check it out