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The Paradox of the Two Knights

Published by Anonymous (not verified) on Mon, 07/12/2020 - 12:01am in

By Carlos García Hernández

Article originally published in Spanish by RedMMT here

Two knights chess pieces on a chess boardPhoto by Hassan Pasha on Unsplash

Marx argues that any economic system based on private ownership of the means of production is doomed to disappear, in order to give rise to a superior system without private ownership of the means of production. The reason for this collapse of capitalist society and the subsequent emergence of socialism is to be found in the Law of the Tendency of the Rate of Profit to Fall. According to this law, the contradictions among social classes within the capitalist system can only tend to increase, because in order to be able to compete against each other, the capitalists have to increase their rate of profit permanently. This is only possible through increased exploitation of the workers, which results in ever lower wages and ever longer working hours. However, this impoverishment of wage-earning labour comes up against a limit, “capital itself”. Below this limit, a crisis of demand occurs after which workers cannot subsist, as they cannot buy enough of the goods they produce. Moreover, the few capitalists who exist at this stage go out of business. This is how the edifice of capitalism collapses and a better, sustainable system without private ownership of the means of production, called socialism, emerges, whose higher phase is called communism. “Development of the productive forces of social labour is the historical task and justification of capital. This is just the way in which it unconsciously creates the material requirements of a higher mode of production”.

No one took Marx’s work more seriously than John Maynard Keynes. That is why he realised that history was faced with a fundamental question: Is what Marx says true? In order to answer this question, we have to pay attention to the logical form of the Law of the Tendency of the Rate of Profit to Fall. The logical form that this law takes is the modus tollens ((P→Q) ʌ ¬Q) → ¬P, if private property exists (P) then the system collapses (Q); if the system does not collapse (¬Q) then private property does not imply the collapse of the system (¬P).

Certainly, during the decades between the publication of Marx’s Capital and the time of Keynes, there had been dramatic developments. While capitalism did not seem to be on the verge of collapse in many places on the planet, the communist revolution had triumphed in the Soviet Union, in 1929 the US economy had entered a major recession following the analyses of the demand crises set out by Marx and Germany was being torn between Nazism and communism. In the eyes of an anti-socialist like Keynes, the situation was highly worrying. However, to prove the falsity of the premise P→Q it is enough that this premise is false in one single case. This led Keynes to study what, in his eyes, was Marx’s main contribution, his analysis of the monetary circuit. If there was any contradiction in Marx’s approaches, it had to be there.

To get to the monetary circuit, Keynes had to go first through Marx’s theory of labour. In fact, he accepted it as true and wrote: “It is my belief that much unnecessary perplexity can be avoided if we limit ourselves strictly to the two units, money and labour, when we are dealing with the behaviour of the economic system as a whole”. From an anthropological point of view, Keynes has no problem accepting that human labour is the only source of value and that commodities receive the value from human labour, just as cold water receives the heat from a hot object when the object is immersed in it. The contradiction is found in the next step, when Marx analyses the monetary circuit in a monetary economy of production in which there is a shift from having producers who exchange their commodities for money in order to buy other commodities (c – m – c) to having capitalists who accumulate money in order to buy commodities which they then sell for a larger amount of money thanks to the surplus value extracted from the workers (m – c – M). This step is explained by Marx as an extension of barter, he mentions Robinson Crusoe and takes a metallist stance with regard to money, this is where Keynes finds the contradiction he was looking for, in the exogenous commodity money presented by Marx, and it is from here that he builds his work.

First, he denies exogenous money and defends the endogenous character of fiat money. Thus, in his “Treatise on Money,” he presents the creation of money as an endogenous part of the economic cycle and denies the loanable funds theory. The money is mostly created by banks lending to their customers regardless of their money reserves, as they can always turn to the Central Bank as a lender of last resort. The rest of the money is created directly by the states through the coordination of the Central Bank and the Treasury to carry out public spending. In both cases, the money is denominated in national currency and comes from the Central Bank, which does not depend on its gold or silver reserves, tax collection or debt issuance to issue national currency.

This raises a political question, again not analysed by Marx. If in the “Treatise on Money” the creation of money is presented as a decision made by banks when they are faced with an opportunity to make profits, in the “General Theory”, the creation of money is also presented as a political decision by governments to create aggregate demand through public spending via deficits. Without this ability of governments to create aggregate demand through public deficits, not only would Marx’s prophecy about the collapse of capitalism be fulfilled, but it would also be impossible to explain the very birth of the monetary economies of production. The monetary circuit is not born of barter, neither of gold nor of silver, but of credit granted by governments as sovereign issuers of national currency, which in today’s societies passes through the existence of central banks.

Keynes’ recipe is simple: to avoid the demand crises described by Marx, states must create aggregate demand through public expenditure in order to maintain levels of full employment and levels of welfare that do not lead to the collapse of capitalism. This is the recipe that Franklin Delano Roosevelt applied, in contact with Keynes himself, to set in motion the New Deal that brought the US out of the Great Recession of 1929, and it is also the recipe that was applied in the West after the Second World War to build up welfare and social protection systems. Here are two cases in which P→Q is not fulfilled and therefore the premise enunciated by Marx is refuted.


Chess board showing the two knights endgame


In my opinion, it is essential for the left to draw lessons from all this accumulated experience. I like to pose the question as the end of a chess game in which only the two kings and two knights of the same colour are on the board. In these cases, the game is considered a draw. However, a paradox occurs. Theoretically, it is still possible to reach a checkmate position as the one shown in the diagram. However, the game is considered a draw because a checkmate position like the one shown in the diagram is only obtained if the player who only has his king collaborates with the player who has both knights. If the player with only the king on the board does not cooperate, checkmate is impossible. The same applies to the question at hand. The states that allow the existence of private ownership of the means of production collapse if they are incompetently governed. States with private ownership of the means of production do not collapse if they create sufficient aggregate demand through their spending policies via public deficits and if they intervene in the economy through a strong public sector presence that guarantees high levels of welfare for their citizens. The collapse of capitalism in Russia and the rise of National Socialism in Germany were only possible because of the manifest incompetence of Tsar Nicholas II and Kaiser Wilhelm II respectively; likewise, the collapse of capitalism in the USA due to the Great Recession of 1929 was only prevented by public intervention through the New Deal. We are currently witnessing a similar event in the European Union. To combat the COVID pandemic, the EU has decided to suspend its absurd and reactionary deficit limits. It has done so because the pandemic threatened the existence of capitalism itself in the EU. As soon as the pandemic passes, the EU will re-impose its deficit limits so that its model of mercantilist capitalism continues to guarantee the privileges of the export elites and continues to condemn the working majority to suboptimal living standards.

Does this mean that we should renounce socialism, that the attempt at a socialist transformation of the economy and society as a whole is a waste of time? Not at all. To renounce socialism is to renounce a better life. Keynes himself writes: “it is an outstanding characteristic of the economic system in which we live that, whilst it is subject to severe fluctuations in respect of output and employment, it is not violently unstable. Indeed, it seems capable of remaining in a chronic condition of subnormal activity for a considerable period without any marked tendency either towards recovery or towards complete collapse. Moreover, the evidence indicates that full, or even approximately full, employment is of rare and short-lived occurrence. Fluctuations may start briskly but seem to wear themselves out before they have proceeded to great extremes, and an intermediate situation which is neither desperate nor satisfactory is our normal lot”. We socialists cannot resign ourselves to living under this order of things. To conclude this article I would like to present very succinctly a proposal, which I have elsewhere called fiat socialism, as an alternative path towards the socialist transformation of society and which I hope will soon take the form of a book so that it can be presented more widely.

To begin with, the two opponents must shake hands and accept that the game is a draw. Socialists have to accept that there are no historical laws and capitalists have to accept that the most they can offer are unsatisfactory solutions to major social problems. Then the pieces have to be put in place to start a new game.

We have to start asking ourselves, what does it mean that there are no historical laws? Historical laws like the one expounded by Marx conceive history as the development of a law towards whose essence (idea) humanity flows over time. Therefore, the essence (the idea) is placed at the end of a process towards which humanity tends inexorably. This scheme followed by Marx was adopted first by Aristotle and then by Hegel as opposed to Plato and Kant respectively and must be abandoned by the left. This means that we must return to Kant and abandon Hegel. There are no inexorable historical laws governing the destiny of humanity; the human being is not an actor whose mission is to hasten the birth pangs of a new society predetermined from the beginning of history. On the contrary, we must start from a primaeval idea from which our political activity is derived. This entails establishing our goals as the premises of our politics. We believe that these premises are correct, but we cannot be sure of this and we do not even know if they will become a reality. The truth or falsity of our premises will have to be corroborated by free and democratic elections. In the specific case of socialism, we have to start from a definition that does not reflect any inexorable historical law but the ends we defend. I propose that those ends should be those set out by the American economist Stuart Chase, who in his 1942 book “The Road We Are Traveling” says that all economic policy must meet five fundamental objectives:

  • guaranteed and permanent full employment
  • full and prudent use of natural resources
  • a guarantee of food, shelter, clothing, health services and education to every citizen
  • social security in the form of pensions and subsidies
  • a guarantee of decent labour standards.

If we look at all but the second point, which has to do with the preservation of nature, these have been fundamental axes of socialism in all its forms, from the socialism of the Soviet Constitution as the first binding legal document that included guaranteed work, to the socialism of the welfare systems, which both in the former socialist bloc and in the advanced societies of the West guaranteed access to the services set out by Chase. In fact, it was the defence of these five points that enabled the left to survive the demise of the Soviet Union, and in terms of environmental protection, the left has already incorporated the Green New Deal to its ideas. Furthermore, these five points were fundamental in non-Soviet socialist experiences of great importance that we cannot forget, such as that of Mohammad Mosaddeq in Iran, the Arab socialism of Gamal Abdel Nasser and the Ba’ath Party, the experience of Olof Palme in Sweden, of Thomas Sankara in Burkina Faso, of Patrice Lumumba in Congo, of Salvador Allende in Chile, of Evo Morales in Bolivia, of Jaime Roldós Aguilera in Ecuador, of Maurice Bishop in Grenada or of Hugo Chávez in Venezuela, among others. It is, therefore, these five points and their achievement that we must call socialism, not a system in which, regardless of the achievement of these five points, but in accordance with a historical law, there is no private ownership of the means of production or in which the surplus value is equal to zero. Both the size of the private sector and the levels of surplus value must be decided by the citizenry democratically. There will be places where, in accordance with the different cultural traditions of their constituents, socialist organizations will advocate the achievement of these five points through greater or lesser involvement of the private sector. Likewise, workers, in return for guaranteed work, good wages, adequate social benefits and not having to take the risks involved in private entrepreneurship, will tolerate a greater or lesser degree of surplus value. What is important is that they have in their hands the democratic mechanisms necessary to control these levels. In my view, the best mechanism for this are the job guarantees based on employment buffer stocks advocated by modern monetary theory.

This leads us to the last section of this article, the one devoted to the method. In my view, the best method to achieve the five goals of socialism outlined above without creating runaway inflation is modern monetary theory. As its founder, the Australian economist Bill Mitchell, says, this economic school is not a political regime, but a lens through which economic science can be focused in the right way. Modern monetary theory tells us the method for employing all the real resources of the economy while maintaining price stability. The full employment of these resources can be directed towards the objectives that are decided politically. My proposal is to direct the full employment of real resources to the five objectives set out above and to give this employment the name of socialism.

I am therefore of the opinion that a new definition of socialism should be put forward. Currently, the Spanish Royal Academy of Language defines socialism as: “Social and economic system based on collective or state ownership and administration of the means of production and of distribution of goods”. This definition is filled with notions from historical laws, whose existence we have previously denied. I, therefore, propose that a new definition of socialism be: Social and economic system which, through modern monetary theory, provides guaranteed and permanent full employment, full and prudent use of natural resources, a guarantee of food, shelter, clothing, health services and education to every citizen, social security in the form of pensions and subsidies, and a guarantee of decent labour standards.

As I have said, I have called this in the past fiat socialism, but it could also be called flexible socialism, as it frees socialism from the rigidities imposed by historical law. This socialism will take different forms in different places, it accepts that socialist organizations are not exempt from making mistakes, it will involve different levels of participation by the private sector, as well as different levels in the gross operating surpluses, and it is open to processes of improvement in order to mobilize real resources in the best possible way to achieve the five ends of socialism. Only one rigidity is established: monetary sovereignty. Modern monetary theory is only valid in monetary systems where the state is the sovereign issuer of its currency and where there is an appropriate coordination between the Central Bank and the Treasury. If Archimedes in ancient Greece said give me a point of support and I will move the world, a socialist Archimedes would say give me monetary sovereignty and I will build you socialism. Without the point of support of monetary sovereignty, the proposal of socialism as explained above is not possible. In most parts of the world, this is not a problem because monetary sovereignty is already in place, but in the European Union this is the main stumbling block to any socialist transformation of the economy. Therefore, in Spain, the first step towards socialism would be to abandon the European Union and the euro.

Euro delendus est.

Carlos García Hernández – editor of Lola Books publishing house.











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The post The Paradox of the Two Knights appeared first on The Gower Initiative for Modern Money Studies.

Book Review: Karl Marx’s Life, Ideas, and Influences: A Critical Examination on the Bicentenary edited by Shaibal Gupta, Marcello Musto and Babak Amini

Published by Anonymous (not verified) on Tue, 01/12/2020 - 10:44pm in

In Karl Marx’s Life, Ideas, and Influences, editors Shaibal Gupta, Marcello Musto and Babak Amini bring together contributors to commemorate the 200th anniversary of Marx’s birth and to discuss the relevance of his theoretical and political legacy today. The book offers an open-minded, informative and thought-provoking collection of contributions that inspires in-depth discussions not only of past Marxian and Marxist legacies, but also of how we learn from them to act upon our present and future world, writes Janaína de Faria.

Karl Marx’s Life, Ideas, and Influences: A Critical Examination on the Bicentenary. Shaibal Gupta, Marcello Musto and Babak Amini (eds). Palgrave Macmillan. 2019.

Karl Marx’s Life, Ideas, and Influences, edited by Shaibal Gupta, Marcello Musto and Babak Amini, brings together a selection of high-quality papers that were presented at one of the largest international conferences organised in 2018 to commemorate the 200th anniversary of Marx’s birth and to discuss the relevance of his theoretical and political legacy to today’s world.

As a byproduct of the international diversity of the participants of the conference – held at the Asian Development Research Institute in Patna, India – the book contains sixteen chapters by scholars from and/or based in various parts of the globe and it includes four women among its contributors. This deliberately internationalist approach is undoubtedly welcome and necessary. More fundamentally, it is not a mere formality: the editors do justice to this internationalism in showcasing the heterogeneous nature of the revival of Marxism in the 21st century around the world. This heterogeneity concerns the wide range of complex topics and styles explored in the book as well as its openness to different and controversial (re)interpretations of Marx and Marxism. While the anti-dogmatic perspective can be considered the stamp mark of the book, readers should not expect it to be an easy read for complete beginners in the broad research field on Marx and Marxism.

The structure of the book was designed with consistency by the editors: the various themes are organised under the intertwined umbrellas of Part One, ‘On the Critique of Politics’, and Part Two, ‘On the Critique of Political Economy’. I found this organisation particularly clever because it directly alludes to Marx’s early project in 1844 to write a two-volume work on the Critique of Politics and Political Economy. For reasons explained in his famous 1859 ‘Preface’ to A Contribution to the Critique of Political Economy, Marx’s studies led him to instead begin with an in-depth study of Political Economy, which later culminated in his (unfinished) masterpiece Capital.

However, as Michael Krätke has pointed out elsewhere, Marx’s plan to develop a critique of politics was deferred, but never abandoned, throughout his lifetime. In my view, despite all the efforts and advances made in the past 150 years or so to unfold the mediating elements between the inner laws of capital accumulation and national and international politics, this articulation remains one of the core frontiers for categorical development within Marxism. The editors’ structuring of the book is thus not only appropriate when it comes to the content of its chapters, but also reminds us of the need to strengthen the theoretical nexus between the critique of politics and the critique of political economy.

It is in this sense that I share my reflections on the theory of fetishism and the theory of interest that were triggered by the seemingly unconnected chapters by Paula Rauhala and Jan Toporowski, respectively presented in Parts One and Two. Rauhala’s analysis brilliantly articulates different interpretations of Capital from West and East Germany by providing the historical context of each side of the country both in terms of the general living conditions of the working class as well as the (geo)political structure under which they lived. Rauhala is especially interested in counterposing West German readings of Capital that stress Marx’s theory of money and commodity fetishism but are dismissive of the underpinning role of the theory of surplus value in Marx’s more complex concept of capital fetishism. Toporowski, in turn, is spot on when he emphasises that Marx antagonised both classical political economy – mainly David Ricardo, who regarded ‘interest as determined by the current rate of profit’ (225) – as well as French socialist Pierre-Joseph Proudhon, who ‘attributed the evils of capitalism to excessive interest or usury’ (215). For Marx, they both held a fetishistic conception of money and interest.

Rauhala is thus absolutely right when she insists that: ‘fetishism is a crucial concept, and it is present in all three books of Capital. The fetishisms of commodities and money are just the beginning of the story, and after the fourth chapter of the first volume, the concept of fetishism is always related to surplus value and to the mechanisms of its production, circulation, and distribution’ (186). In Chapter Four of the first volume of Capital, one reads that:

capital is money, capital is commodities. In truth, however, value is here the subject of a process in which, while constantly assuming the form in terms of money and commodities, it changes its own magnitude, throws off surplus-value from itself considered as original value, and thus valorises itself independently. […] By virtue of being value, it has acquired the occult ability to add value to itself (Capital, vol. I, Penguin ed. 1990, 255).

Indeed, Marx further argues in the third volume that ‘in interest-bearing capital […] this automatic fetish is elaborated into its pure form, self-valorising value, money that makes (breeds) money, and in this form it no longer bears any marks of its origin. The social relation is consummated in the relationship of a thing (money) to itself’ (Economic Manuscripts of 1864-5 [vol. III], Brill ed. 2016, 492-93).

Toporowski particularly discusses Marx’s argument in Capital that capitalist industrial investments allow for the extraction of surplus value from workers, the source of profits, ‘out of which interest may be paid’ (225). It is thus class exploitation that underpins capitalist interest payment but, in contrast to Ricardo’s position, ‘not necessarily from the surplus value produced at the time of the interest payment’ (219). I do have reservations, nonetheless, about Toporowski’s claim that Marx’s theorisation was limited by his ‘time of ‘’classic capitalism’’’ (225), when productive and commercial capitalists depended primarily on past accumulated monetary hoards for loans, through the intermediation of banks. I find this view overlooks the fact that Marx sketched an analysis of the credit system in the third volume of Capital grounded on his concept of fictitious capital, with a particular focus on banking, share capital and public debt assets. Crucially, he was well aware that banks did not rely, in absolute terms, on accumulated deposits and reserves in order to provide credit money for those who demanded it – a feature of the banking system that is today reinforced by post-Keynesians.

In short, Rauhala’s and Toporowski’s chapters highlight that class exploitation and surplus-value extraction cannot be sidelined – they are at the heart of Marx’s critique of political economy’s trinity formula. Capital indeed culminates in revealing that the capitalist mode of production encompasses a particular mode of distribution that reproduces the illusion that revenues (rent, interest, profit, wages) emerge out of things themselves (land, money, machines, labour) instead of from underlying exploitative social relations. The deep political implications of this involve the predominant liberal fetishistic notions of equality, freedom and fairness, which many Marxists may also fall prey to up until today.

Regarding other notable contributions in the edited collection, Ramaa Vasudevan’s chapter on the state-credit standard particularly caught my attention and inspired me to search for her other works. Ajit Sinha’s chapter is very coherent and elaborates effectively on the discussion of the supposedly logical inconsistency in Marx’s exposition of the transformation of value into prices of production in Capital. He takes the standpoint of the Italian economist Piero Sraffa, but readers would have benefitted from a critical engagement with Fred Moseley’s counterarguments on the topic, developed in his latest book, Money and Totality. Kohei Saito’s chapter effectively clarifies the intertwined relation between the economic and political spheres in Marx’s works, and can be read alongside Musto’s and Amini’s contributions, as they complement each other.

I must also mention that I learnt a lot from Miguel Vedda’s discussion on the ‘elective affinity between dialectical materialism and the tradition of essayism’. Vedda convincingly argues that this affinity – ‘not only as a genre but also, and more importantly, as a method of enquiry and even as an ethical and political stance towards the world’ (4) – can be particularly helpful for grasping ‘the possibilities and the limits of Marxism in Latin America’ (5). Finally, it should be noted that Peter Beilharz’s chapter is very impressive, not only when it comes to its academic content, which focuses on the recent revival of interest in Marx’s works across the globe, but also regarding its creative ‘breakdance’ style.

All in all, the book offers an open-minded, informative and thought-provoking collection of contributions that inspires in-depth discussions not only of past Marxian and Marxist legacies, but also of how we learn from them to act upon our present and future world.

Note: This review gives the views of the author, and not the position of the LSE Review of Books blog, or of the London School of Economics.

Image Credit: Statue of Karl Marx, Berlin, Germany (David Merrett CC BY 2.0).


A Bit More on Marx and Cohen

Published by Anonymous (not verified) on Sun, 29/11/2020 - 11:37pm in

In the last post I questioned G.A. Cohen’s critique of the Labour Theory of Value, which comes in two parts: (1) the LTV involves a mistaken idea that labour creates value; (2) Marx’s theory of exploitation can be retained without the LTV.

These have been taken as established by some Analytic Marxists. And I was told by a very reliable source that Cohen saw this article as his best work. So I’m stepping carefully here and very willing to be corrected.

I didn’t say much about (1). Cohen’s argument is, roughly, that what determines value in Marx’s system is not the labour hours that went into a commodity when it was made, but rather the labour hours that it would take to make the commodity now. For this reason, he says, labour can’t create value. The labour that determines the value of the commodity is counterfactual labour — the labour it would take to make it now — not actual labour. And counterfactual labour is an abstract thing and can’t create anything.

I don’t dispute any of that. Cohen’s argument works. But I don’t think the LTV requires any reference to value-creation (although, as I said, Marx sometimes uses that term). Rather, the LTV holds that labour is a source of surplus value, and this means only that the exchange-value of labour-power— the hours it takes to produce subsistence for a worker — is less than the hours the worker can work on that subsistence. We can measure all this in terms of counterfactual labour and still get the crucial result.

I did take issue with (2). Without the LTV, I don’t see how you can make this vital distinction between the exchange-value of labour-power and the hours actually worked, since the measure there is labour: hours of socially necessary labour-time. Cohen argues that we could say that workers are exploited simply because they produce the whole product but they only receive some of the value of the product.

We can say that, but whether it is convincing is another story.

My point was that if value is to be read off exchange without an underlying theory of value, as Cohen proposes, then it’s very easy to argue that the workers receive the full value of the product, with time-discounting applied. So the capitalist reaps the reward of waiting, just like on the neoclassical theory. You can’t do that with the LTV precisely because of what Cohen sees as its weakness: the fact that it’s a synchronic measure — value is measured in terms of how much labour things would take now, so that there’s no question of time-discounting.

Beyond that, however, I don’t really see the power in Cohen’s argument. A capitalist apologist could argue that it’s exploitation if somebody who contributes to the production of something doesn’t receive any of its value. And the capitalist supplies capital; is that not a contribution? Should the capitalist get nothing at all for that contribution? Isn’t that a sort of exploitation? As Marx’s capitalist asks (in Chapter Seven of Capital Volume 1): “Can the labourer, merely with his arms and legs, produce commodities out of nothing? Did I not supply him with the materials, by means of which, and in which alone, his labour could be embodied”. And what about the rentiers, who supplied the land on which production took place? Haven’t they contributed too?

Marx, by the way, isn’t quoting the capitalist making a moral argument there. The capitalist is trying to explain the source of surplus value, obscuring its real source in labour-power. In Theories of Surplus Value, Marx accuses Smith of mistaking an explanation of why the capitalist should want to earn profit for an explanation of why the capitalist is able to earn profit. Likewise here. Marx is trying to explain the mechanics, not to make moral judgments. In fact bringing in moral judgments obscures the real issues.

My point , however, is that if the capitalist’s argument were made as a moral argument, it wouldn’t seem obviously inferior to Cohen’s argument. One says: “the workers did all the producing; they should get all the value”. The other says: “the capitalist did some of the contributing; they should get some of the value”. People will also argue that if the suppliers of capital and land receive nothing, they won’t supply capital and land, and then production won’t occur, or will be reduced to subsistence levels. Is that a consequentialist argument against Cohen? By taking the argument in this direction, Cohen is, I think, walking into a minefield.

With Marx it is much simpler. The issue isn’t a moral issue about just distribution of the value of the product. It is simply a matter of value-input versus value-output: less labour-value goes into the workforce than comes out of it.

Representing the extraction of surplus value in this way leads not so much to a moral question as to a sociological one. Why are capitalists able to extract more hours from the worker than they supply? Clearly this is not a relation of exchange — otherwise value would exchange for value. So it is some other sort of relation, and in this relation we find the specific historical conditions of capitalism. This is one thing that makes Capital a critique of political economy. Political economy derives economic outcomes from ahistorical relations that follow universal laws, such as the law of value. Capital finds at the heart of capitalism something that can’t be explained by such ahistorical and universal laws.

Cohen reduces Marx’s discussion of surplus value to a mere piece of moral insistence, based on the undefended and not all that powerful intuition, that only producers, and not other contributors to the production-process, are entitled to any share of the product’s value.

As it stands, by the way, I think the LTV is wrong. Marx makes some grave mistakes in arguing that fixed capital and even land can’t also be sources of surplus value. Why couldn’t, e.g., a machine work for more hours than it takes to build and maintain? Marx’s arguments against this possibility are unconvincing.

With that goes any support for the hypothesis of the falling rate of profit, or long-run tendency of the rate of profit to fall, though there is plenty else wrong with that hypothesis.

Still, the important result — that workers are exploited — remains in place even if you acknowledge other factors of production as sources of surplus value. Marx’s arguments that labour is a source of surplus value remain convincing.

So in a sense I agree with Cohen’s conclusions. The LTV is wrong. And the story of exploitation doesn’t require it to be true. But the meaning of both statements is different from that given by Cohen.

For one thing, I mean by “exploitation” what Marx meant by it: the extraction of surplus value from labour-power (perhaps also from other factors of production), rather than what Cohen means, a less than 100% wage-share of the value of production. The main point about exploitation is not, as Cohen suggests, that it violates some arbitrary moral intuition about who should get how much of the value of a product. It is that it depends on a contingent and fragile historical arrangement that workers might have a mind to change.

A Bit More on Marx and Cohen was originally published in Genus Specious on Medium, where people are continuing the conversation by highlighting and responding to this story.

G.A. Cohen on Marx on Exploitation

Published by Anonymous (not verified) on Sat, 28/11/2020 - 8:25am in

As I was writing on Marx on value, a few analytic political philosophers recommended this essay to me: G.A. Cohen’s “The Labor Theory of Value and the Concept of Exploitation”.

I puzzled over it for a while, but I think it must be wrong, at least on one central point. The article has many strengths, but here I want to share a criticism.

The introduction is nice and short; it reads:

This essay shows that the relationship between the labor theory of value and the concept of exploitation is one of mutual irrelevance. The labor theory of value is not a suitable basis for the charge of exploitation laid against capitalism by Marxists, and the real foundation of that charge is something much simpler which, for reasons to be stated, is widely confused with the labor theory of value.

I hope you know what the labour theory of value is. If not, you get this rough definition. The Labour Theory of Value (LTV) is:

the theory that the exchange value of a commodity is determined by the amount of labour that goes into it.

So if a fork exchanges on the market for two spoons, a fork must take twice as much labour to make as the spoon. (I’m thinking about making the little tines; I’m not a silversmith.) I’m going to shorten “exchange value” to “value”. The other sort, use value, I’ll call by its full name. This is what Marx did, and if it was good enough for him…

Marx liked the LTV, though he knew that in more complicated economies the relation between exchange-ratios and values is mitigated by other factors, though this isn’t such a serious problem as some people say. Cohen says that the LTV doesn’t help his theory of exploitation. In fact he thinks it ruins it. Cohen reads the theory of exploitation as holding, roughly, that while labour creates the full value of a commodity, capitalists keep some of that value for themselves, and that’s exploitation.

This is all pretty loose. By “keep some of that value for themselves”, I mean that capitalists make a profit. If the produced commodities sell for $1000, and they pay the workers that made them $900, they thereby exploit the workers to extract a profit of $100.

Anyway, the point is that the LTV is featuring here, in the notion that labour creates the full value of a commodity.

I won’t go through Cohen’s whole argument against this. He concludes:

Now Marxists allege that the labor theory of value is required to uncover the exploitation of the wage worker, but I disagree. What is needed is not the false and irrelevant labor theory, but the mere concept of value, as defined, independently of the labor theory, in our sentence (2) [Value determines equilibrium price]. It enables us to say that, whatever may be responsible for magnitudes of value, the worker does not receive all of the value of his product.

Cohen’s point is that whatever it is that determines the equilibrium price of a commodity, we can see the worker as being exploited if she doesn’t receive the full value of that. He thinks we can express the situation of exploitation like this:

The proletarian produces the whole product, but the capitalist appropriates part of the value of the product.

This seems wrong to me. The idea of “equilibrium” is brought in by Cohen; it’s not a Marxist idea. But taking this idea of “equilibrium price”, Cohen’s view seems to be that we can understand exploitation as meaning that labour doesn’t receive the full proceeds of the commodity’s sale at its equilibrium price.

But what is its equilibrium price? The price is whatever it exchanges for. So let’s say the workers were paid $900 for a commodity that sells for $1000. Have they been paid less than the value? Well, they were paid in the past, and the commodity is sold now. The workers accepted $900 to produce it. The capitalist gets $1000 by selling it. But she gets $1000 now; they got $900 then. Rather than say that the workers are exploited, why not say that they received the full discounted value of what they produced?

Think of it like this. The workers agreed to produce a $1000 commodity for $900. So it was worth it for them to agree to hand over the commodity, at the end of production, for the $900 now. That looks like an exchange, doesn’t it? And since equilibrium price is just what a thing exchanges at, it looks like $900 was the commodity’s value before it was produced. That’s what the workers were willing to exchange it for. We have here an intertemporal equilibrium, and a time-discounted equilibrium price.

Cohen says he wants to allow for “whatever may be responsible for magnitudes of value”. So time-preference might well be part of it. But who knows what determines it? The point is, we have an intertemporal exchange and thus an intertemporal price. There is nothing to stop us matching value to this, once the LTV is out of the way.

With the LTV in the way, we can’t have those sorts of shenanigans. This isn’t because time-discounting doesn’t occur in Marx’s world, but because even if it does it isn’t relevant; there are no intertemporal exchanges. The capitalist, on Marx’s theory, buys the worker’s labour-power on the spot (Marx specifies this explicitly), at its full value, which is the wage that provides subsistence to the worker for the given production period. The use-value of this labour-power is the work then done. The capitalist’s profit comes from the fact that less than a day’s labour is enough to produce the subsistence for a full day’s labour.

There is no danger here of valuing the commodity produced by what the workers will take in wages to produce it. The commodity they have exchanged is not the finished product but rather their labour-power. For that they have received the full value. But its use-value exceeds its value. That fact is really all there is to exploitation.

Marx calls “variable capital”, v, the amount spent paying wages to workers, and “surplus value”, s, the surplus extracted by capitalists — all this measured in labour-hours. Marx sometimes writes that v corresponds to the value of labour-power, whereas s+v corresponds to its use-value. Thus, again, the difference between the use-value and the value of labour just is exploitation (therefore the rate of surplus value, also called the degree of exploitation, is expressed as s/v).

But — here is the key — the use-value is never exchanged for anything (otherwise it would paradoxically become an exchange-value). Capitalists pay for labour-power, but they simply extract use-value. You could say that the extracting is the exploiting here. But on Cohen’s reckoning, where value is just equilibrium price, there is nothing by which to determine the difference between the value and the use-value of labour power. The use-value has no “equilibrium price” at all, since it is never exchanged. You need the LTV to count the labour-hours in one and the other, to see the difference between them [§ — note below].

Also, Cohen’s main criticism of the Labour Theory, at least as applied to exploitation, is that he thinks it depends on the notion of labour creating value. He seems to think that Marx wants us to reason that capitalists exploit workers because the workers create value and the capitalists take some of that value. Put that way, it sounds more like Adam Smith’s story: the capitalist (and the rentier) muscle in and claim their share, as Joan Robinson put it. Marx criticised this for implicitly violating the law of value — that things exchange according to their value.

Marx’s critique of political economy involved preserving the law of value, by showing how every exchange occurs according to value, even exchanges between workers and capitalists. Exploitation exists within that framework. Contrary to what Cohen suggests, we don’t need the notion of value-creation to explain it. Marx uses that phrase, but you could take it out without losing any of the story. What you can’t take out is the LTV itself, unless you can find a suitable replacement [§]. Value inferred from prices won’t do for measuring the differential between use-value and value, which determines exploitation.

So Cohen’s criticism of the LTV misses. It hits at the wrong part of the theory (the idea of value-creation, rather than the differential between the use-value and value of labour-power). Nor does his alternative framing, shorn of the LTV, provide a compelling story of exploitation. Rather, it opens the door to the neoclassical picture of an intertemporal exchange at an equilibrium price.

[§] Note: Strictly speaking, you don’t necessarily need the Labour Theory of Value. You just need some way to measure the difference between the value and the use-value of labour power that doesn’t change when relative prices change. It’s the last part that’s tricky. David Ricardo had originally tried to measure the rate of surplus value in corn: the proportion of corn consumed in the production of corn. The problem, which Thomas Malthus pointed out, is that workers consume more than just corn in producing corn, so that the relative prices of commodities will affect this proportion of consumption to production. This is a problem since relative prices are meant to depend on value, part of which is surplus value, so we end up in a circle. This may be why Ricardo switched to reckoning in labour-time. Notice also that this is different from Adam Smith’s idea that estimated labour time is what governs exchange.

G.A. Cohen on Marx on Exploitation was originally published in Genus Specious on Medium, where people are continuing the conversation by highlighting and responding to this story.

Capitalism Alone Against Itself: Liberal Democratic versus Political Capitalism

Published by Anonymous (not verified) on Thu, 19/11/2020 - 7:53am in


China, Marx

I finished Branko Milanovic's thought provoking Capitalism Alone this summer. But I haven't had much time to write on the blog, as you might have noticed. This is certainly not a review, and I would definitely suggest that you go and buy the book as soon as you can and read it. It is a serious discussion of the future of capitalism, that word that, as Heilbroner often reminded us, was at the center of the discipline, but seldom discussed openly by economists. He cited, if memory doesn't fail me that it didn't appear in Mankiw's Principles textbook, at least back then in the 1990s, when it was published. I always note that Allan Meltzer wrote a little book titled Why Capitalism? were he makes no explicit effort in defining it, even though a definition can be gleaned from it.*

The definition most economists use leans more on Max Weber than Karl Marx, or the materialist tradition of the surplus approach upon which he built on. Branko is a pluralistic economist, well read and influenced by several authors, not all of them conventional. The discussion of the definition of capitalism is complex, and he separates, in its modern version two archetypes of capitalism, that are in a mortal battle for global hegemonic power, namely: Liberal Meritocratic Capitalism, represented by the West, and particularly by the United States (perhaps more credibly now after the election), and Political Capitalism, represented by the rise of the rest, with China at the head.

When assessing whether China is capitalistic Branko does use the conventional Weberian definition (p. 87), but that seems to be a pragmatic approach to provide the basis for his argument that China (and Vietnam, Malaysia and Singapore too, p. 91) does conform to the Weberian notion of political capitalism, a term used by Weber to discuss ancient forms of capitalism. But there is a concern with how elites maintain control by non coercive forces in Liberal Capitalism, and about the need to create an indigenous capitalist class in Political Capitalism. Both point out to alternative issue of class conflict, of course, and how surplus is extracted from workers, and points to an alternative view of capitalism. There is, in somewhat Marxist tradition a preoccupation with the role of the bourgeoisie, and an nod to Wallerstein that suggested that there are no capitalists without state support, something I would like to have seen more in the book (p. 116).

In fact, the secondary role of the state, to some extent, the absence of a more thorough discussion of the developmental state in the case of the Chinese experience, is one of the problems with the book. Another would be an emphasis with issues of corruption, which seem to me to be of secondary importance, even if the problem might have increased with financial deregulation, and the rise of tax havens. The emphasis of the book is on the changes associated to the increasing mobility of labor and capital and the problems it poses for both systems. Branko thinks that the welfare state is vulnerable with free labor mobility (p.156), undermining the democratic process in liberal capitalism, and that capital mobility, which he sees more through the lens of Global Value Chains, rather than portfolio flows, and that would lead to higher growth in poorer countries, reducing the need for labor mobility. The book also debunks a few myths, like the notion that robots are coming for your job, or the idea that a Universal Basic Income (UBI) would be a panacea for the economic problems caused by globalization and technological change.

* Invariably it is based on notions of the profit motive (some form of rationalization) as required by markets, and private property, or Weber (plus North, if you prefer). For an alternative discussion see this old post on a view based on the surplus approach, including a critique of the Weberian naturalization of capitalism as something that existed in the past and that explains the golden ages of antiquity.

Time For Informed Change. Post Covid-19 Economics

Published by Anonymous (not verified) on Fri, 14/08/2020 - 5:34am in

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Solent University, Southampton, UK


Published online 13th August 2020


Full article




In these extraordinary times it might just be that heterodox economics gets a hearing; if only to justify government actions ruled impossible or, at least undesirable, by mainstream economics in normal times; it is back to the 2008 future all over again, big-time. So, if economics were to descend from its ‘theological heights’ (and preaching only that which suits elite vested interests), then what are we to say?  This article utilises alternative theoretical lenses to underpin views of fiscal and monetary policy and the case for state banking. It also expresses an opinion as to which capital is worth saving, post-crisis. More generally, we consider if advanced nations should aim to be more self-sufficient in the future and if so, how might developing countries fit into a new order? We are not prophets or salespeople, so we merely seek to provide some economic theory that can help us understand these issues.  The theories we apply are Modern Monetary Theory and the Temporal Single System Interpretation of Marx (which argues that his value theory is consistent and not redundant, in fact invaluable to understanding capitalism). Space will not permit us to drag up endless academic debates on the acceptability of the TSSI of Marx or MMT, and for once, in the face of crisis, we hope we may be spared from abiding by the rules of the club.


(218 words).


Keywords:  Covid crisis, Marx, MMT.











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Marx on the Corporation

Published by Anonymous (not verified) on Tue, 12/05/2020 - 3:18am in

(I wrote this post back in 2015, and for some reason never posted it. The inspiration was a column by Matt Levine, where he wondered what Marx would think of the modern corporation.)

Let’s begin at the beginning.

Capital, for Marx, is not a thing, it’s a social relation, a way of organizing human activity. Or from another point of view, it’s a process. It’s the conversion of a sum of money into a mass of commodities, which are transformed through a production process into a different mass of commodities, which are converted back into a (hopefully greater) sum of money, allowing the process to start again.  Capital is a sum of money yielding a return, and it is a mass of commodities used in production, and it is a form of authority over the production process, each in turn.

When we have a single representative enterprise, managed by its owner and financed out of its own retained profits, then there’s no need to worry about where the “capitalist” is in this process. They are the owner of the money, and they are the steward of the means of production, and they are master of the production process. Whatever happens in the circuit of capital, the capitalist is the one who makes it happen.

This is the framework of Volume 1 of Capital. There the capitalist is just the personification of capital. But once credit markets allow capitalists to use loaned funds rather than their own, and even more once we have joint-stock enterprises with salaried managers in charge of the production process, these roles are no longer played by the same individuals. And it is not at all obvious what the relationships are between them, or which of them should be considered the capitalist.  This is the subject of part V of Volume 3 of Capital Vol. 3, which explores the relation of ownership of money as such (“interest-bearing capital”) with ownership of capitalist enterprises.

For present purposes, the interesting part begins in chapter 23. There Marx introduces the distinction between the money-capitalist who owns money but does not manage the production process, and the industrial, functioning or productive capitalist who controls the enterprise but depends on money acquired from elsewhere. “The productive capitalist who operates on borrowed funds,” he writes, “represents capital only as functioning capital,” that is, only in the production process itself. “He is the personification of capital as long as … it is profitably invested in industry or commerce, and such operations are undertaken with it … as are prescribed by the branch of industry concerned.”

The possibility of carrying out a capitalist enterprise with borrowed funds implies a division of the surplus into two parts — one attributable to management of the enterprise, the other to ownership as such. “The specific social attribute of capital under capitalist production — that of being property commanding the labour-power of another” now appears as interest, the return simply on owning money. So “the other part of surplus-value — profit of enterprise — must necessarily appear as coming not from capital as such, but from the process of production… Therefore, the industrial capitalist, as distinct from the owner of capital [appears] … as a functionary irrespective of capital,… indeed as a wage-labourer.”

So now we have one set of individuals personifying capital at the M moment, when capital is in its most abstract form as money, and a different set of individuals personifying it in the C and P moments, when capital is crystallized in a particular productive activity. One effect of this separation is to obscure the link between profit and the labor process: The money-owners who receive profit in the form of interest (or dividends) are different from the actual managers of the production process. Not only that, the two often experience themselves as opposed. In this sense, the division between the money-capitalist and the industrial capitalist blurs the lines of social conflict.

Marx continues:

Interest as such expresses … the ownership of capital as a means of appropriating the products of the labour of others. But it represents this characteristic of capital as something which belongs to it outside the production process… Interest represents this characteristic not as directly counterposed to labour, but rather as unrelated to labour, and simply as a relationship of one capitalist to another. … In interest, therefore, in that specific form of profit in which the antithetical character of capital assumes an independent form, this is done in such a way that the antithesis is completely obliterated and abstracted. Interest is a relationship between two capitalists, not between capitalist and labourer.

We might read Marx here as warning against an easy opposition between “productive” and “financial” capital, in which we can with good conscience take the side of the former. On the contrary, these are just shares of the same surplus extracted from us in the labor process. It’s important to note in this context that Marx speaks of a “productive capitalist,” not of productive capital. The productive capitalist and the money capitalist are, so to speak, two human bodies that the same capital occupies in turn.

Once the pirates have burned your fields, seized your possessions and carried off your daughters, it shouldn’t matter to you how they divide up the booty: I think this is a valid reading of Marx’s argument here. Or as he puts it: “If the capitalist is the owner of the capital on which he operates, he pockets the whole surplus-value. It is absolutely immaterial to the labourer whether the capitalist does this, or whether he has to pay a part of it to a third person as its legal proprietor.”

But while the development of interest-bearing capital obscures the true relations of production in one sense, it clarifies them in another. It separates the claims exercised by ownership as such, from the claims due to the specific labor performed by the capitalist within the enterprise. With the owner-manager, these two are mixed together. (This is still a big problem for the national accounts.) Now, the part of apparent profit that was really payment for the labor of the capitalist appears in a distinct form as “wages of superintendence.”

Marx’s analysis here seems like a good starting point for discussions of the position of managers in modern economies.

The specific functions which the capitalist as such has to perform, … [with the development of credit] are presented as mere functions of labour. He creates surplus-value not because he works as a capitalist, but because he also works, regardless of his capacity of capitalist. This portion of surplus-value is thus no longer surplus-value, but its opposite, an equivalent for labour performed. … the process of exploitation itself appears as a simple labour-process in which the functioning capitalist merely performs a different kind of labour than the labourer.

As Marx later emphasizes, one consequence of the development of management as a distinct category of labor is that the profits still received by owners can no longer be justified as the compensation for organizing the production process. But what about the managers themselves, how should we think about them? Are they really laborers, or capitalists? Well, both — their position is ambiguous. On the one hand, they are performing a social coordination function, that any extended division of labor will require. But on the other hand, they are the representatives of the capitalist class in the coercive, adversarial labor process that is specific to capitalism.

The discussion is worth quoting at length:

The labour of supervision and management is naturally required wherever the direct process of production assumes the form of a combined social process, and not of the isolated labour of independent producers. However, it has a double nature. On the one hand, all labour in which many individuals co-operate necessarily requires a commanding will to co-ordinate and unify the process … much like that of an orchestra conductor. This is a productive job, which must be performed in every combined mode of production.

On the other hand … supervision work necessarily arises in all modes of production based on the antithesis between the labourer, as the direct producer, and the owner of the means of production. The greater this antagonism, the greater the role played by supervision. Hence it reaches its peak in the slave system. But it is indispensable also in the capitalist mode of production, since the production process in it is simultaneously a process by which the capitalist consumes labour-power. Just as in despotic states, supervision and all-round interference by the government involves both the performance of common activities arising from the nature of all communities, and the specific functions arising from the antithesis between the government and the mass of the people.

In one of those acid asides that makes him so bracing to read, Marx quotes an American defender of slavery explaining that since slaves were unwilling to do plantation labor on their own, it was only right to compensate the masters for the effort required to compel them to work. In this sense it doesn’t matter that the Bosses are performing productive labor. Their claims are just a version of the German nihilists’: It’s only fair that you give me what I want, since I’ve gone to such effort to take it from you. Or Dinesh D’Souza’s argument that equality of opportunity would be unfair to him, since he’s gone to great effort to give his kids an advantage over others.

But again, the industrial capitalist is not only a slave-driver. They do have an essential coordinating function, even if it is performed by the same people, and in the same activities, as the coercive labor-discipline that extracts greater effort from workers and deprives them of their autonomy. The ways these two sides of the labor process develop together is one of the major contributions of Marxist and Marx-influenced work, I think — Braverman, Noble, Marglin, Barbara Garson. It seems to me that, paradoxical as it might sound, it’s this positive role of managers that is ultimately the stronger argument against capitalism. Because the development of professional management fatally undermines the supposed connection between the economic function performed by capitalists, and the economic form of property ownership. 

Marx makes just this argument:

The capitalist mode of production has brought matters to a point where the work of supervision, entirely divorced from the ownership of capital, is always readily obtainable. It has, therefore, come to be useless for the capitalist to perform it himself. An orchestra conductor need not own the instruments of his orchestra, nor is it within the scope of his duties as conductor to have anything to do with the “wages” of the other musicians. Co-operative factories furnish proof that the capitalist has become no less redundant as a functionary in production… Inasmuch as the capitalist’s work does not …  confine itself solely to the function of exploiting the labour of others; inasmuch as it therefore originates from the social form of the labour-process, from combination and co-operation of many in pursuance of a common result, it is … independent of capital.

The connection Marx makes between joint-stock companies (what we would today call corporations) and cooperative enterprises is to me one of the most interesting parts of this whole section. In both, the critical thing is that the work of management, or coordintion, is just one kind of labor among others, and has no neceessary connection to ownership claims.

The wages of management both for the commercial and industrial manager are completely isolated from the profits of enterprise in the co-operative factories of labourers, as well as in capitalist stock companies. … Stock companies in general — developed with the credit system — have an increasing tendency to separate this work of management as a function from the ownership of capital… just as the development of bourgeois society witnessed a separation of the functions of judges and administrators from land-ownership, whose attributes they were in feudal times. Since, on the one hand, … money-capital itself assumes a social character with the advance of credit, being concentrated in banks and loaned out by them instead of its original owners, and since, on the other hand, the mere manager who has no title whatever to the capital, … performs all the real functions pertaining to the functioning capitalist as such, only the functionary remains and the capitalist disappears as superfluous from the production process.

This, to me, is one of the central ways in which we can see capitalism as a necessary step on the way to socialism. Only under capitalism has large scale industry developed; only the acid of  the market was able to break the bonds of small family productive units and free their constituent pieces for recombination on a much larger scale. So the only form in which the organization of large-scale enterprises is familiar to us is as capitalist enterprises. (At least, this is Marx’s argument. Arguably he understates the ability of states to organize production on a large scale.) But just because large industrial enterprises and capitalism have gone together historically, it doesn’t follow that that capitalism is the only institutional setting in which they can exist, or that the conditions required for their development are required for their continued existence.

In fact, as capitalist enterprises develop, their internal organization becomes progressively less market-like. Markets exist only at the surfaces, the external membranes, of enterprises, which internally are organized on quite different principles; and as the scale of enterprises grows, less and less economic life takes place on those surfaces. So while capital continues, nominally, to be privately owned, relations of ownership play less and less of a role in the concrete organization of production. The “mere manager” as Marx says, “has no title whatever to the capital”; nonetheless, he or she “performs all the real functions” of the capitalist.

When Marx was writing this in the 1870s, he thought the trend towards the separation of ownership from control was clearly established, even if most capitalist enterprises at the time were still directly managed by their owners.

With the development of co-operation on the part of the labourers, and of stock enterprises on the part of the bourgeoisie, even the last pretext for the confusion of profit of enterprise and wages of management was removed, and profit appeared also in practice as it undeniably appeared in theory, as mere surplus-value, a value for which no equivalent was paid.

That’s as far as the argument gets in chapter 23.

The next few chapters are focused on the other side of the question, interest-bearing capital — that is,capital that appears to its owners simply as money, without being embodied in any production process.  Chapter 24 is an attack on writers who reduce both to money capital, and imagine that the accumulation of capital is just an example of the power of compound interest. (Among other things, this chapter anticipates the essential points of left critiques of Piketty by people like Galbraith and Varoufakis, and by me.) Chapter 26 attacks the opposite conflation — the treatment of money as just capital in general, and of interest as simply a reflection of the physical productivity of capital rather than a specifically monetary phenomenon. This is today’s orthodoxy, represented for Marx by Lord Overstone. Chapter 25 anticipates Minsky on the elasticity of finance, and takes the side of the credit-money theorists like Thornton and banking-school writers like Tooke and Fullarton, against quantity theorists and the currency school. Marx’s debt to Ricardo is well known, but it’s less recognized how much he learned from this group of writers — the best discussion I know is by Arie Arnon. When Tooke died, Marx wrote to Engels that he had been “the last English economist of any value.”

Marx returns to the industrial or functioning capitalist in chapter 27, which is focused on joint-stock companies. Marx credits stock companies with “an enormous expansion of the scale of production and of enterprises, that was impossible for individual capitals.” And critically these new enterprises are public in both name and substance (the “public” in “publicly-traded corporations” is significant.)

The development of joint stock companies continues the sociological transformation that begins with the development of interest-bearing capital and the ability to operate on borrowed funds — that is, the 

transformation of the actually functioning capitalist into a mere manager, administrator of other people’s capital, and of the owner of capital into a mere owner, a mere money-capitalist. Even if the dividends which they receive include the interest and the profit of enterprise, … this total profit is henceforth received only in the form of interest, i.e., as mere compensation for owning capital that now is entirely divorced from the function in the actual process of reproduction, just as this function in the person of the manager is divorced from ownership of capital. … This result of the ultimate development of capitalist production is a necessary transitional phase towards the reconversion of capital into the property of producers, although no longer as the private property of the individual producers, but rather … as outright social property. … the stock company is a transition toward the conversion of all functions in the reproduction process which still remain linked with capitalist property, into mere functions of associated producers.

In short, the joint stock company “is the abolition of the capitalist mode of production within the capitalist mode of production itself.”

We actually read Capital!

Published by Anonymous (not verified) on Thu, 07/04/2016 - 8:30pm in



“So, what did you do over the summer”? Most students respond to this ubiquitous question with the familiar answers: “caught up with family”, “earned some money” or (perhaps more commonly) “lots of daytime drinking”.   For a small group of political economy students from the University of Sydney, however, they might respond: “I read Marx’s Capital, volume 1”.

Between November, 2015 and March, 2016 a small, dedicated group of students – undergraduate, postgraduate, or between degrees – met weekly to discuss that text which too-few Marxists have actually read: Capital. Meeting largely at the University of Sydney, the group persevered through the entire 682 pages, despite the oppressive heat of a Sydney summer (intensified by the contradiction of capitalism that is climate change).

Running through the weekly discussions were themes including the specificity of capitalism, the continued relevance of this historical text, and questions of Marxist strategy moving forward into the 21st century. Below are some of the thoughts and impressions of just some of these students.

Matthew Ryan – Postgraduate student

It’s quite a broad brief, “say something about your experience reading Capital”. Do I focus on a particular concept, something I never understood but now grasp a little better? Do I talk about the relevance of the text in the twenty-first century? Perhaps I can comment on an ongoing debate within Marxism, and offer my personal resolution through reference to the text? All valid options and it would be easy to write too many words on any of these topics. But instead, I’m going to talk about reading Capital.

David Harvey has taught a class on Capital every year for decades. Well, maybe he’s missed a few on leave and what not, but the point is he has read it many times! I always used to wonder why he read it again each year. Having now read it myself, I can understand why – different groups and different approaches to reading the text all result in a unique, contingent experience of the text. This can be seen even through our own short encounter with the text.

Some people would watch Harvey’s lectures on Capital before each week’s meeting, as well as the chapter. Some would watch the video then read the chapter, while others would do the opposite. Some read companions to Capital in parallel, whilst others supplemented their reading with online resources – glossaries of concepts, and the like. Some people read earnestly, taking notes, and bringing these as discussion points. Others had a more organic reading process, and a discussion style to match. The point is there are a lot of ways to read it. And if I’m honest, my own approach was a mix of almost all of these, resulting in different experiences with different chapters.

A further variable producing different, yet equally stimulating, readings were the backgrounds and interests of those in the group. Some came to the group with a wealth of knowledge of Marx and Marxism, while others (myself included) did not know their absolute from their relative surplus-values. Personal research interests varied from the role of technology in capitalism, to issues relating to profit rate, to colonisation and class formation, through to the historical specificity of capitalism and the agency of class actors in capitalist development. Each brought a different perspective, leading the conversation in suggestive and distinct directions. I’m sure no reading group would have the same experience.

Reading Capital was a wholly social experience – or, I should say, a socially contingent experience – and I’m sure I’ll be telling friends, family, and students about my reading of Capital in the summer of 2015-16 for many years to come.

Rhys Cohen – Tutor and Honours graduate

For me there were two really significant things that I got from the reading group – the first was to do with the content of the book and its modern context, and the second was to do with the social experience and practice of the exercise.

First, something that Llewelyn in particular was keen to draw our attention to, was the extent to which our engagement with more contemporary Marxian literature tended to cloud our reading of Capital. I know personally that many times I assumed Marx was making an argument that was much more sensitive, nuanced and, for want of a better word, acceptable for modern theorists than was actually the case.

It took conscious effort to read the book on its own terms and it was confronting to see some of the limitations that Marx is so often criticised for. But in many ways this was heartening because it reaffirmed to me the huge contributions that theorists since Marx have made to the understanding and critique of capitalism, and also the necessity for this project to continue.

Second, as young, Left students I think we had all become very familiar with the standard lamentations of the Left more broadly: how can we stop this constant infighting, factionalism etc. The absurdity of these divisions was something we had all discussed at length in the past. And going into the reading group, although we all respected each other as friends and colleagues, I felt some anxiety as to whether this would remain the case, or if we might find some fundamental rift emerging between us.

And some conflicts did emerge: we argued about determinism, structuralism and agency; the nature of class and intersectionality; technology, morality and communism. At times these arguments got quite heated. But what struck me was our capacity to stick with the project, to work through the arguments. And in the end I felt that not only were many of these divisions revealed to be largely semantic miscommunications, but that we had moved closer to each other’s understandings in a way that felt constructive as opposed to coercive.

Llewellyn Williams-Brooks – Honours student

Returning to the New Left critique of Australian History

It certainly is a strange to read Capital in the context of Australia: a country straddling the contradictions of core and peripheral development within global capitalism. This precariousness, in terms of the world market, has always made Australia something of a strange case in the scheme of things. After all, Australia in the 19th century was producing a third of the British gold-standard’s reserve while it was championing the 8-hour work day and birthing a major union movement and Labor party. There seems something of an uncertainty, perhaps, a contradiction, at the very heart of Australianess. This economic uncertainty was best expressed, in the language of political office, through Paul Keating’s ‘Banana Republic’. Conversely, the nationalist writers were quick to convert this ambiguity into a mythical treatment of egalitarianism, most famously addressed in Ward’s Australian Legend, and necessarily critiqued by McQueen in A New Britannia and Irving and Connell’s Class Structure in Australian History. This was the project of the old and the new left, but this is not our project.

Wakefield is seen to observe, in the final section of Capital, that social relations of production are not reducible to simply a cloned relocation of the economic and political apparatus in Britain.

As Marx comments: “[Wakefield] discovered that capital is not a thing, but a social relation between persons, established by the instrumentality of things”. Australian colonialism required the re-establishment of the old relationships within a complex set of new social relations.

This reading substantiates that by understanding the economic relations of capitalism, we have, in the most optimistic reading, only half the picture. We should also observe the necessity of positioning the agency of resistance in the centre of human social history. We must neither fall into the trap of accepting Australia as a ‘peripheral’ banana republic, or a mythical space of elite nationalism. Instead we should understand that resistance in Australia is a fact of our history: Indigenous resistance in the frontier-wars, the militant organising of the great strikes, and the women’s suffrage movement are all evidence of this fact. Marx’s Capital only gets us part of the way, we must take hold of our own social history in order to change it.

Joel Griggs – Honours student

Reading Capital in its entirety is like reading Marx for the first time. For a self-professed Marxist, the experience is both one of vindication and sobriety. On the one hand I feel the hubris that Marx inspired in me from the very outset. On the other, a deep trepidation begging an answer to the question: What if Marx was right?

Incidentally, as an undergraduate embarking upon my honours year, I am repeatedly reminded that Marxism is experiencing a kind of academic renaissance. What is driving this resurgence is anyone’s guess but as my comrades and I wade through the murky waters from commodity fetishism to Marx’s own theory of colonisation I am struck by the powerful clarity of a man whose perspicacity eclipses the moral dilemma evident on every page. Less than two years after a young American Union formally abolished slavery, Marx is alone in revealing a new kind of slavery emerging in the Old World. Waged-labour with its ‘freedom in the double sense’ replaced the stability of the indentured peasant with the precariousness of the proletariat; a class at once pitted against one another and unified in their wretched struggle.

It is this constant dialectical relationship present throughout Capital that exposes the structure and the structural weaknesses of our predicament. While the conditions have undeniably improved, the structural realities of the working class remain largely unchanged today. Likewise, even though the capitalism that so consumed Marx in the nineteenth-century may have traded in its ostentatious top hat for a less-assuming tie, it is nonetheless the same vampiric fiend that dogs every step of our collective existence.

Capital’s strength lies in its piercing internal critique of what defines capitalism. Twenty-first century capitalism is adaptable, mobile, and has a thousand faces. To assign capitalism homogeneity is to lose before we have even begun to unravel its web. The uneven development of capitalism, too, makes it equally difficult to analyse. There must be, however, an underlying logic that serves as a motor for capitalism. To this end, Marx’s unfinished project is no less mistaken today than it was one and a half centuries ago – though like most things in life, questions of right and wrong are seldom black and white. The answer for me lies within the explanatory scope of the theory. For an exploration into the insights of an exceptional dialectician, then, my hubris and trepidation seem entirely fitting. More relevant today than ever, reading Capital has been a wonderful and enlightening experience.