August 19, 2009

PART ONE: The Transformation of Surplus-Value into Profit, and of the Rate of Surplus-Value into the Rate of Profit

Key for this section:
“An increase in the rate of profit always stems form a relative or absolute increase in the surplus value in relation to its cost of production, i.e. to the total capital advanced, or from a reduction in the difference between the rate of profit and the rate of surplus value. (237)”

CHAPTER ONE: Cost Price and Profit

It should be noted that as with Vol. I we return to (begin from) the commodity form as the essential form from which to extrapolate the more general dynamics of capitalism (or, at least how Engels had arranged the text). Here, the task is to develop the distinction between value and cost price – and the unfolding relational dynamic that Marx derives his theory of the tendency towards equalization of the rate of profits (and the tendency for the rate of profit to fall). Verifying Mandel’s succinct summary in the introduction, Marx takes up the issue of cost price in the production process:

“This old value [value of capital advanced] reappears therefore as a component of the product’s value, though it does not originate in the production process of this commodity. It exists only as a component of the commodity’s value because it existed previously as a component of the capital advanced….This element of the cost price has therefore a dual significance. On the one hand it enters into the cost price of the commodity because it is a component of commodity value, and replaces the capital used up; on the other hand it forms a component of this commodity value only because it is the value of capital that has been used up, or because the means of production cost such and such an amount. (119)”

This distinction, both at the analytical-logical and economic levels, is necessary in order to isolate cost price and value (in relation to production, capital advanced and commodity capital), tying this into the discussion of Vol. II between fixed/circulating and constant/variable capital. But most importantly, we arrive to profit and its relation to surplus value:

“Profit, as we are originally faced with it, is thus the same thing as surplus-value, save in a mystified form, through one that necessarily arises form the capitalist mode of production. (127)”

This then establishes the problem – the relation between surplus-value and profit, and their relation to market prices (both in terms of input prices and the creation of commodity capital). In this regard, Marx argues that the:
“basic law of capitalist competition…the law that governs the general rate of profit and the so-called prices of production determined by it, depends…on this difference between the value and the cost price of commodities, and the possibility from this of selling commodities below their value at a profit. (128)”

Cost price thus acts as the obvious “minimum limit” to the sale price. On the flip-side, profit is not magnitude that appears out of “nothing” in the market place, as Torrens and other classical economists imagine, but has to be located in the production of surplus value (thus again, the stakes of this distinction). With this general distinction established, Marx then sets out to development this dynamic more fully….

CHAPTER TWO: The Rate of Profit

Simply put:
1) Rate of Surplus Value = s/v (surplus over variable capital)
2) Rate of Profit – s/C (surplus over total capital); or, in other words s/c+v (surplus over constant and variable)

Note that although these are seemingly ratios only of capital advanced and productive capital (i.e. the composition of capital in relation to production – variable, constant and the surplus value produced), these ratios carry into the field of circulation due to the value embodied in the commodity (for sale) itself. Thus we are dealing with ratios that operate (or express value ratios) in both fields (production/circulation), which open into the intertwining of circuits, and most importantly, not derived from the accounting delimited to a singular capital.

These are measuring the SAME magnitude (quantity), though Marx notes that the rate of profit is the appearance (“the historical starting point”) while the rate of surplus-value is the “invisible essence. (134)” Again this signals to the social character of surplus value, that the rate of surplus-value is not derived directly from the extraction of surplus-labour employed in an individual capital but derives from social necessary labor and the variations in the composition(s) of capital. Thus when we enter into the realm of circulation, though it is imperative that the capitalist realizes his value (both advanced, but also of surplus) via the act of selling, Marx reminds us that “if a commodity is sold above or below its value, there is simply a different distribution of the surplus-value, and that this distribution, the altered ratio in which various individuals partake of the surplus-value, in no way affects wither the magnitude or the character of the surplus-value itself….[Via competition], as far as the individual capitalist is concerned, the surplus-value that he realizes depends just as much on this mutual cheating as on the direct exploitation of labour. (134)”

The relation between these two rates, expressed in the commodity form, necessarily entails the mutually constituting spheres of production and circulation, and this is where Marx begins to draw the connections between the various levels/circuits. Employing the metaphor of the organic, Marx writes:

“Capital runs through the cycle of its transformations, and finally steps as it were from its inner organic life into its external relations, relations where it is not capital and labour that confront one another, but on the one hand capital and capital, and on the other hand individuals as simple buyers and sellers once again….The original form in which capital and wage-labour confront one another is disguised by the intervention of relations that seem to be independent of this; value-value itself does not appear as having been produced by the appropriation of labour-time, but as the excess of the sale price of commodities over their cost price…(135)”

We find a certain homology here: essence/internal/production/confrontation of labour-power and capital vs. appearance/external/market place/confrontation of capital and capital (competition) and buyers/sellers. “Mystification” emerges from the very dynamic/practices of the system itself, not from any kind of veil of metaphysical confusion. Additionally, the essential dynamics, through systemic imperative, move towards appearances at times, as Marx states that the “nature of surplus-value persistently impresses itself on the capitalist’s consciousness in the course of the immediate production process…by his greed for the labour-time of others. (135)” In other words, the greed for profit is the appearance of a more fundamental systemic dynamic that the capitalist himself is not necessarily conscious of. On the other hand, this systemic mystification does, however, serve an ‘interest,’ albeit structurally inscribed rather than consciously formulated, that “it is actually in his [capitalist] interest to disguise these particular ratios and inner connections” (134) between surplus value, price and profit. Marx then posits two short comments on why, systematically, production does not appear in the understanding of the creation of extra-value (profit) – both of which are reminiscent of Vol. I:

(1) “The Immediate process of production is itself simply an evanescent moment…so that any inkling of the source of his profit…appears at the most as an equally valid moment alongside the notion that the excess that is realized stems from a movement that is independent of the production process itself and derives from the sphere of circulation, a movement therefore that capital possesses independently of its relation to labour. (135)”

(2) “Under the heading of costs…the extortion of unpaid labour appears simply as an economy in the payment for one of the articles that comprise these costs…(136)”

This is a sort of theory of social-knowledge, wherein the system itself imparts the limits in which its own forms emerge on the level of appearance. This “inversion of subject and object” (136) is replicated at the level of price and value – and their different ratios:

“This inverted relationship necessarily gives rise, even in the simple relation of production itself, to a correspondingly inverted conception of the situation, a transposed consciousness, which is further developed by the transformations and modifications of the circulation process proper. (136)”

With these restatements of the forms of appearance of the system, wherein the excess value, inscribed in the commodity during production, appears as a sale price in excess of cost price…which is ultimately to say that:

“even if the rate of profit is numerically different from the rate of surplus-value, while surplus-value and profit are in fact the same and even numerically identical, profit is still for all that a transformed form of surplus-value, a form in which its origin and the secret of its existence are veiled and obliterated. In point in fact, profit is the form of appearance of surplus-value, and the latter can be sifted out from the former only by analysis. (139)”

The task for Marx then is to tease out this relationship, one masked by the very forms it takes, through an analysis of the differential ratios between rate of profit and rate of surplus-value; not since one is real and the other fantasy – both have their real effects – but in order to show the dynamic that emerges from between these two tendencies – both limits, (falling rate of profit) and possibilities of adjustments, once the necessary assumptions that delimit Marx’s initial theorization are discarded (think Mandel’s discussion of long-waves, or Harvey’s discussion both in the lectures and Limits.)

CHAPTER THREE: The Relationship between Rate of Profit and Rate of Surplus Value

As I got a little lost in the equations of this chapter, let me try to tease out what I think are the main points:

One, note that, right from the outset, in order to formulate the relational logic between these two different rates, that Marx necessarily assumes “that the sum of profit that accrues to a given capital is the same as the total sum of surplus-value which this capital produces in a given period of circulation” and that he necessarily has to ignore that “surplus-value by no means coincides in the majority of cases with profit. (141)” This obviously is not how the system actually works, but to establish a base-line understanding of these two rates in relation to each other. He also has to ignore value of money, turnover, the differential rates of labor productivity, and the effects of the length of the working day, intensity of labour and wage (see 142-43). This is a massive delimitation of variables, so it should be noted that what follows are not formulas to be applied, but rather is an attempt to get to fundamental tendency that underlies phenomenal forms and their multiple variations.

Rate of Profit:
p’ = s/C = s/c+v
p’ = s’v/C = s’v/c+v

(wherein s’v is the ratio between surplus-value and the variable capital advanced, i.e. the rate of surplus value)
This then get us to:
p’:s’ = v:C
Which is to say: “rate of profit is to rate of surplus-value as variable capital is to total capital.”

This is all to set up a series of examples wherein different rates of profit are shown to be derived from various compositions of capital (organic composition), none of which in direct correlation to rate of . These can only be relational (i.e., social, not internal to individual circuits of capital). From these, Marx summarizes his finding by arguing that:

“The rate of profit is thus determined by two major factors: the rate of surplus-value and the value composition of the capital.” (161) He goes on to summarize his findings:

“The rates of profit of two different capitals, or of one and the same capital in two successive different states…are equal: 1) given the same percentage composition and the same rate of surplus-value; 2) given unequal percentage compositions and unequal rates of surplus-value, if the [mathematical] product of the rate of surplus-value and the percentage of the variable part of capital (s' by v) is the same in each case, i.e., the mass of surplus-value reckoned as a percentage of the total capital (s = s'v)…” and reversely, are unequal if “given the same percentage composition, if the rates of surplus-value are unequal….(2) given the same rate of surplus-value are different percentage compositions…[and finally] (3) given different rates o f surplus-value and different percentage compositions…(p. 162).”

CHAPTER FOUR: The Effect of the Turnover on the Rate of Profit
Remember that Marx necessarily had to delimit the multiple variables that could affect the related profit ratios described in Chapter Four – here, Engels takes it upon himself to discuss the effect of turnover. Engels notes that as Vol. II found that turnover affected the rate of surplus-value, then it necessarily follows that it affects profit rate as well. He reminds us that the “mass of surplus-value appropriated in the course of a year is therefore equal to the mass of surplus-value appropriated in one turnover period of the variable capital, multiplied by the number of such turnovers in a year. (167)”As with surplus-value, then, an annual rate of profit can be noted as well, P’ = s’n /c.

What has been emphasized in these last few chapters is the central importance of the organic composition of individual capitals in relation to a general social average. While Vol. I isolated and emphasized labour-time, and more importantly, the portion of labour that is unpaid and thus the site of surplus-value creation, Vol. III expands this into a general social relation – a relation of proportionality – which then allows for larger systemic tendencies to be ascertained. Chapter Five is important because it emphasizes the role that constant capital plays in this general relation, a component that has been somewhat de-emphasized in the general literature. What is interesting that here is that Marx accounts for the fetishistic character of constant capital within capitalist accounting; i.e., though expressed at the level of appearance as an obsession with constant capital, this is expresses (maybe not the correct word) a very real role and tendency that constant capital plays within the organic composition of capital. This chapter ends with some very interesting categories such as the “combined worker”, “universal labour”, and “communal labour” though these are not fully developed. I will note Marx’s discussion of them below…but first….

Marx notes that there is systematically derived “need to increase fixed capital in the modern industrial system” and that this “was…a major stimulus for profit-mad capitalists to prolong the working day. (170)” But even in the case of the extraction of relative surplus value (vs. absolute), in other words, in the case of increasing productivity and labour intensity, a capitalist has to increase the amount of the circulating component of constant capital (i.e. raw materials) as well as increased outlay on fixed capital (machinery, buildings, etc). Thus a general tendency to build up constant capital outlays, something that was noted in Vol. I when Marx discussed technological innovation as well.

Building off of the social character of production, and specifically its character in industrial production (i.e. the mass concentration of labor in one site), Marx also notes the economical use of industrial refuge (the re-use or re-cycling of by-products of the production process). Why is this important? Marx hints that “if surplus-value is a given factor, the profit rate can be increased only by reducing the value of the constant capital required for the production of the commodities in question.” (173) Thus economizing constant capital outlays.

The most interesting aspect that I found in this section was where Marx talks about the general effects of innovation in one sector of production and its necessary, general affect on other sectors of industry:

“the development of the productive power of labour in one branch of production...appears as the condition for a reduction in the value and hence the costs of means of production in other branches of industry…This is evident enough, for the commodity that emerges from one branch of industry as a product enters another branch as means of production. (174)”

This then leads to a condition wherein:

“the rise in the profit rate for one branch of industry depends on the development of labour productivity in another. The benefit that accrues here to the capitalist is once more an advantage produced by social labour, even though not by the workers whom he direct exploits. (175)”

This helps explain the capitalist’s class obsession with rates of constant capital (i.e., cost of machinery, buildings, infrastructure, etc) – e.g. from this important tendency/factor that constant capital plays in the organic composition of capital (see 176). And yet, to the capitalist, the “economical use of constant capital still appears…as a requirement completely alien to the worker and absolutely independent of him” (177) which means not only that the development of this innovation was a product of social labor, but that this is one component in a ratio that involves variable capital. This is yet another side of fetishism, wherein “the capital relation actually does conceal the inner connection in the state of complete indifference, externality and alienation in which it places the worker vis-à-vis the conditions of realization of his own labour. (178)” The necessary connection between labour productivity and the economical use of constant capital is thus concealed.

Marx moves through factory reports that describe the detrimental effects of capitalists cutting corners on constant capital outlays (i.e., not fixing machinery, unhealthy factory environments, etc) - reminiscent of the more social-history elements of Volume One. We are being shown the real human effects of this system. Again, this all of derives from the social character of production. In this regard, Marx finishes the chapter by deploying three, somewhat under-theorized, terms:

-Combined worker: “it is only the experience of the combined work that discovers and demonstrates how inventions already made can most simply be developed, how to overcome the practical frictions that arise in putting the theory into practice…[etc.]” (198-199). This then gets divided into two elements….
-Universal Labour: “is all scientific work, all discovery and invention. It is brought about partly by the cooperation of men now living, but partly also by building on earlier work.”
-Communal Labour: “simply involves the direct cooperation of individuals. (199)”

We have to assume that this distinction is historically-specific, though, assumedly, they have a certain omni-historical or possibly ontological quality to them. It is reminiscent of the more anthropological sections that Marx used to begin certain sections concerning human history and labor in Vol. I. Here, however, we need to ask, how should we understand these terms? Are these terms that cut through history? At what point does the ‘combined’ or ‘universal’ character (though distinct terms) arise? And what is the analytical value of these terms – what do they allow us to ask, or what do they automatically assume?

CHAPTER SIX: The Effect of Changes in Price

Beginning from the assumption that “everything that gives rise to a change in the magnitude of c [constant capital], and therefore of C [total capital], also brings about a change in the profit rate (201)” Marx runs through the effects of changes in prices; noting the imperative for a reduction of import tariffs in order to acquire cheap, raw materials for production. This opens into a short discussion of foreign trade – but mainly concerning import/export politics and its relationship to this tendency within the proportionality between various capital’s organic compositions.

One section that I think clearly expresses what Marx is trying to tie together here is when he discusses productivity, machine cost, market contraction/expansion and the fluctuation of input prices all in relation to each other:

“the size and value of the machines employed grows as the productivity of labour develops, but not in the same proportion as this productivity itself, i.e. the proportion to which these machines supply an increased product. Thus in any branch of industry that uses raw materials, i.e. wherever the object of labour is already the product of earlier labour, the increasing productivity of labour is expressed precisely in the proportion in which a greater quantity of raw material absorbs a certain amount of labour, i.e. in the increasing mass of raw material that is transformed into products, worked up into commodities, in an hour, for example. In proportion therefore as the productivity of labour develops, the value of the raw material forms an ever-growing component of the value of the commodity produced, not only because it enters into it as a whole, but because in each aliquot part of the total product, the part formed by the depreciation of the machines and the part formed by newly added labour both constantly decline. As a result of this falling movement, a relative growth takes place in the other component of value, that formed by the raw material, provided that this growth is not cancelled out by a corresponding decline in the raw material’s value arising from the increasing productivity of the labour applied in its own creation. (204)”

I thought that this paragraph sums up nicely what is at stake, and how many variables Marx is trying to highlight in the relation of capital outlays that go into a commodity’s value and which expresses general social differentials of profit and surplus-value ratios (see p. 201-204).

In the section entitled “Revaluation and Devaluation of Capital; Release and Tying-Up of Capital” Marx notes that he needs to account for how is appears that the rate of profit and it mass can fluctuate independently of the “movements of surplus-value”, but actually derive from this movement. Again, its both to show the connections, as well as account for the fetishistic character of an ‘independent’ movement.

But first a clarification of terms:

Revaluation/Devaluation: “capital present increases or decreases in value as the result of certain general economic conditions…that the value of the capital advanced to production rises or falls independently of its valorization by the surplus value it employs. (206)” Note that here, we are working specifically with the general social determination of value that then affects individual capitals.

Release/Tying-Up of Capital: The latter means that “out of the total value of the product, a certain additional proportion must be transformed back into the elements of constant or variable capital, if production is to continue on its old scale” while “release” means that “a part of the product’s total vale which previously had to be transformed back into either constant or variable capital becomes superfluous for the continuation of production on the old scale and is now available for other purposes. (206)”

I wonder if we can connect the notion of “release” with Marx’s notion of “set-free” from Volume II – a term that Marx used to talk about the source of the funds that went into the credit pool that then could return to lubricate production during periods of capital shortages and crises?

Anyhow, release and tying up can be related to both constant capital – in the case of constant for example, value depreciation over time of machinery, technical innovation, etc., or, in the case of variable capital, the rise of the necessary commodities for labour reproduction (what Harvey called the “commodity basket”), a fall in wages (i.e., reserve army, etc). These aspects then are the “result of the devaluation and revaluation” of the elements of capital. Its important at this point to recall the Mandel introduction when Mandel pointed to a debate in Marxian economics concerning what he called the ‘feedback’ effect – i.e., how to determine the affects of fluctuating prices on already purchased inputs. While Marx notes “if [raw material] prices [rise], it may be impossible to replace it completely after deducting wages from the value of the commodity. Violent fluctuations in price thus lead to interruptions, major upsets and even catastrophes in the reproduction process. (213)” Here we can think of this in a general process of production circuits and the intervals of capital turnovers, but as this is a process constantly in motion, with multiple circuits (money, production and commodity), involving both the sphere of production and circulation, the exact effects become difficult to work out.

Also, we return to the question of crises and cycles here. The rest of this chapter is Marx both theorizing and then tracing specific examples (specifically the cotton crisis of 1861-65) of crises. Here, this is not systemic crises, but capital cycles emerging from specific crises in valuation and turnover. Here are some of the more important points:

1) That the “more capitalist production is developed…and the more rapid the accumulation…the greater is the relative overproduction of machinery and other fixed capital, the more frequent the relative overproduction of plant and animal raw materials, and the more marked the previously described rise in their price and the corresponding reaction. (214)”

2) With the increasing high prices of materials/machinery that comprise constant outlays, these necessarily collapse (due to a decline in demand and an expansion of production elsewhere). This then effects the reproduction of the raw materials themselves, and re-establishes the monopolies of the already established/developed areas of their production which can withstand this crash.

I am going to skip Marx’s discussion of the Cotton Crisis of the 1860s, and rather end this with a discussion of regulation/market cycles. In Vol. I, Marx noted the contradiction in industrial capitalism wherein, at the very site of production, the factory, regulation, control, management of all aspects was the order of the day. But when anyone discussed regulation of the market (including, most importantly, the labour-market) that this was anathema to the very system. Here, in regards to raw material inputs, Marx notes the same, though momentary, contradiction:

“All ideas of a common, all-embracing and far-sighted control over the production of raw-materials – a control that is in fact incompatible, by and large, with the laws of capitalist production, and hence remains forever a pious wish, or is at most confined to exceptional common steps in moments of great and pressing danger and perplexity – all such ideas give way to the belief that supply and demand will mutually regulate one another. (215)”

Thus cycles/crises are recognized as the unfortunate, though inevitable, consequences of the supply/demand market faith (e.g., Smith) – with the only recourse taken as national import/export tariffs.

For those particularly interested in questions of agriculture – check out the bottom of 216. Following the same line of argumentation – the incompatibility of regulation of raw material with capitalist production – Marx writes “The moral of the tale….is that the capitalist system runs counter to a rational agriculture, or that a rational agriculture is incompatible with the capitalist system (even if the latter promotes technical development in agriculture) and needs either small farmers working for themselves or the control of the associated producers. (216)” Andy? Robert?

Chapter Seven: Supplementary Remarks
These were disparate notes that Engels collected that pertained to aspects discussed thus far in Part One. These notes reiterate that Marx’s main task is to establish a mediated connection between surplus-value and profit (which is to say, to establish surplus-value, and thus his labour theory of value, as an operative economic category), and to account why political economy has failed to make the connection. Thus the chapter is a general statement of this position, and then a direct analysis of Rodbertus’s economic theory (see 236-237). Marx ends with restating that an “increase in the rate of profit always stems form a relative or absolute increase in the surplus value in relation to its cost of production, i.e. to the total capital advanced, or from a reduction in the difference between the rate of profit and the rate of surplus value. (237)”

Lastly, and importantly, Marx explicitly states that “The value of any commodity – and thus also of the commodities which capital consists of – is determined not by the necessary labour-time that it itself contains, but by the socially necessary labour-time required for its reproduction. This reproduction may differ from the conditions of its original production by taking place under easier or more difficult circumstances. (238)” Recall Mandel’s comments in the introduction in relation to the feedback/transformation debate (56-58).

Onto Part Two…..

August 15, 2009

Mandel's Intro to Volume Three

Let me begin with a summary of Mandel’s introduction. Mandel is a master at synthesizing and clarifying arguments, if only pointing to the existing literature and adding his own argument to the debates (after this reading is completed we should move onto his two volume work in order to better understand his own ‘reading’ of Marxian economic theory). Mandel reminds us that, whereas Volume I dealt with production – i.e., in ‘the factory’, and Volume II moves out into the question of how production is related with circulation – i.e., market, Volume III then moves to the level of the over-all dynamics of capitalism in their totality. It should be stated, though, that this is a collection of disparate notes assembled and published posthumously by Engels – thus there is a quality of incompleteness to the work which how Mandel explains the reason for so many controversies arising from this specific Volume.

Throughout the earlier texts we saw how Marx highlighted various points of contradiction that, though deprived of full theoretical/analytical explication due to the necessary assumptions that underlie the analysis, reveal or open into larger systemic contradictions. For example, in Vol. I, Marx showed that if one followed classical political economy, that within their own terms a gigantic social contradiction of increasing wealth and increasing proletarianization would occur. In Vol. II we saw cycles that were interwoven with turnover cycles (the infamous passage where Marx switched between the terms “cycle” and “crisis” – see page 284 of Vol II), or problems in the reproduction process of capital (e.g., Vol II, p. 157). Vol. III’s central problematic, according to Mandel anyway, is showing “that [the] inherent mechanisms [of capitalism], which cannot be overcome without abolishing private property, competition, profit and commodity prodction (the market economy), must lead to a final collapse. (11)” Marx embarks on this project by, following classical political economy, theorizing the forms into which the social surplus-value (value) is distributed and the corresponding social relations.

Marx wants to show how the ruling class “participate[s] in the distribution of the total mass of surplus-value produced by productive wage-labour, and how these specific economic categories are regulated (12)." The main divisions line up as:
o Ruling class (4): Industrial capitalists / Commercial Capitalists / Bankers / and Capitalist Landowners
o Revenue (5): wages / individual profits / commercial (and banking) profits / interest / and land rent
o Which can be reduced to (3) basic categories: wages / profits / land rent

What brings this together, seemingly mediating this process, is the rate of profit and more specifically a tendency in which the rate of profit tends to equalize between all capitals. From this Marx posits his infamous theory of the tendency of the average rate of profit to decline.

One distinction that will be important to keep in mind as we move through the text is the difference between profit and surplus value – the social surplus value which is redistributed to capitalists, thus not deriving directly from the exploitation of the labor-power that they themselves have put directly to work, and; surplus profit, which does not participate in the “general movement of equalization of the rate of profit. (12)” The former clarifies the socio-economic implications of the organic composition of capital in regards to this average and percentage redistribution (15-16). Mandel expands on this category of surplus-profit later in his introduction as well (see 56-63, see in particular Mandel’s own controversial position on this, footnote 89 on p. 61). Generally speaking, this distinction thus brings to light three important points that Mandel discusses:

- 1) value is social and not individual in character, and thus those with lower/higher organic compositions of capital compared to the social average waste or economize (respectively) socially necessary labour.
- 2) equalization is a tendency, not a permanent reality – which opens into a matrix of flux/reflux between capitals and thus introduces the issue of unevenness as a general process (uneven in growth, in technical innovation, etc
- 3) And most complicated of all, the transformation problem (relation between profit and its tendencies, with surplus-value and its socially mediating function). This gets dividing into two classes of posthumous responses to Vol III:

a) What Mandel calls the ‘feedback’ problem: wherein economists have faulted Marx for supposing (implying) that only produced commodities are being ‘transformed’ by the equalization tendency, and not the input ‘prices’ of the commodities necessary for production. Mandel responds to this by saying that Marx has been read incorrectly: “prices of production of raw materials, like all other inputs bought by capitalists currently occupied in production, are unchangeable data. They cannot vary though ups or down of current production…The capitalists have to pay a given price for thme, which does not change a posteriorir as a function of what is occurring during a given year in the field of final surplus-value redistribution. (24)” Furthermore, “The formation of prices of production, i.e., the calculation of the average rate of profit, is not a constantly moving process. It is linked to the overall realization of surplus-value of all (most) of the commodities currently produced. That is why a minimum time-span must be assumed before one may speak of a new average rate of profit replacing a previous one. (24)”

b) The infamous transformation problem: wherein people have tried to solve the issue of how values become prices (i.e., creating a Marxian model of a functioning capitalist economy). Mandel responds that “Values are quantities of labour, and have nothing to do with money prices as such. The equalization of the rate of profit between different branches of production occurs through the transfer of quantities of surplus value from one branch to another. Again, quantitites of surplus-value are quantities of labour (surplus labour) and not quantities of money. (27)” Mandel, in his characteristic clarity, sums up the problem as such: “What is really involved in this controversy is whterh the ‘transformation problem’ concerns the immediate move from essence to appearance, in other words to the process of production and circulation in day-to-day reality, or whther – as I would strongly maintain – it is only a mediating link in the process of cognition, which does not yet deal with immediately verifiable, empirical data, i.e. market prices. (28-29)” This last statement not only clarifies the issue, but also expresses Mandel’s ability to engage with debates of Marxian economics while not losing sight of the distinction between Marx’s conceptual/theoretical project and the somewhat reified project of trying to turn this into an economic system as such.

I’m trying not to get bogged down too much in this intro, so to wrap this up, the last section of the Mandel intro that I found really helpful was his discussion of crisis-theories, including the theory of the declining rate of profit (and subsequent debates emerging from it). It is worth quoting Mandel’s summary of Marx’s theory wherein he summarizes its three components:

“Since that [1] part of capital which alone leads to the production of surplus-value (variable capital, used to buy labour-power) tends to become a smaller and smaller part of total capital, because of the [2] fundamentally labour-saving tendency of technical progress – the gradual substitution of dead labour (machinery) for living labour – and [3] because of the gradual increase of the value of raw materials in that of total output: since, in other words, the organic composition of capital in its value expression tends to increase, there is an inbuilt tendency for the average rate of profit to decline in the capitalist system. (29-31)”

I found this to be a succinct summary of the aspects of the theory. Additionally, Mandel links this to general crisis theories emerging out of Marxian theory – in particular that this tendency for the rate of profit to decline is the general crisis – understood via the notion of overproduction – which Mandel rejects, at least as a singular causal explanation. He then describes his own reading:

“In the framework of Marxist economic theory, crises of overproduction are simultaneously crises of over-accumulation of capital and crises of overproduction of commodities. The former cannot be explained without pointing to the latter; the latter cannot be understood without referring to the former. This means that the crisis can be overcome only if there occurs simultaneously a rise in the rate of profit and an expansion of the market…(42)”

His summation of the (1) disproportionality theory of crisis (Hilferding), the (2) under-consumption by the masses theory (Moszkowska) and (3) over-accumulation theories of crisis is great. For Mandel – crisis is the integration of all these aspects – not one singular causal origin that then sets the system into crisis, and shows how dynamic the system is – thus emphasizing his infamous long-wave theory of capitalism, summarizing:

“It follows that the law of the tendency for the average rate of profit to decline is less a direct explanation for crises of overproduction properly speaking, than a revelation of the basic mechanism of the industrial cycle as such: in other words, an uncovering of the specifically capitalist, i.e. uneven, disharmonious, mode of economic growth, which unavoidably leads to successive phases of declining rates of profit, and recuperation of the rate of profit as a result, precisely, of the consequences of the previous decline. (51)”

Ok, off to the text (and skipping over the Engel’s Preface).

July 30, 2009

Real and Formal, again

Randomly found this old NLR article from Ben Fine:

New Left Review I/109, May-June 1978

Ben Fine
"On the Origins of Capitalist Development Remarks"

Eventually he reaches a discussion of relative and absolute surplus-value in the history of capital and makes a claim that takes some fucking guts:
In short, whilst the production of relative surplus-value can develop as soon as capitalist relations are established, it can only fully flower aftereffective legislation to limit the length of the working day. In Britain, only by 1870, fully one hundred years after the industrial revolution associated with the textile industry, can it be argued that socially the real subsumption of capital to labour had been accomplished.
This is what I want to see more of. More guts to actually talk about history and Marxian theory together.

July 21, 2009

Vol II, Part Three via Secondary Literature

Since I had a hard time trying to tease out the main points from these last two sections, I’ve decided to turn to secondary literature in order to assist in contextualizing or highlighting what is at stake in Part Three. As Andy’s post below does an excellent job of working through both chapters, I will focus more on the secondary literature here – pointing to themes that intersect with issues raised by Andy. Now, the main point of contention in the secondary literature can be reduced to, I believe, a debate over if the principle of “equilibrium” drives Marx’s division of the total social capital in to two departments. At a superficial level it appears that Marx is developing his own specific reproduction schema from which to counter the fallacies of political economy - in other words, we are looking at one level (though not comprehensive) of how the capitalist economy reproduces itself and what necessary conditions need to be met for accumulation/expansion to occur – i.e., a balance between the use-values AND exchange-values between one sector that produces means of production and another sector that produces consumption goods (Dept I and II). The schema, embedded with what Harvey calls ‘restrictive assumptions’, does indicate a balance, and thus the question becomes how we situate this within the larger conceptual apparatus and analytical dynamic of Capital? Some will extrapolate and extend the modular form of these chapters into quantifiable, algebraic formulas, and temporarily side step the question of contradiction or crises (or even a dialectic) by displacing these outside of the operations of the balance between departments. In other words, these two chapters are taken up as providing a schematic model upon which to develop a fuller economic model of the capitalist economy.

Now, on one level, I think this is in fact what is going on here: that Marx had to necessarily deal with circulation and exchange at the level of social capital, and that within capitalism’s dynamic an internal basis of reproduction (equilibrium) had to be necessarily presumed within the total social capital in order to theorize accumulation/expansion. But if we fetishize these last two chapters, we are led into the realm of pure economic theory (of circulation only) – endlessly trying to quantify reproduction and locate the co-efficient that indicates a systemic crisis at the level of exchange. Harvey provides a corrective to this tendency, as he both (1) notes the ‘restrictive assumptions’ in order for balance to be posited within the moment of circulation, and; (2) how these chapters sit within Marx’s larger project. I will finish this post with a discussion of some of the points Harvey raises, but first, let me start with Moseley, since his discussion of money capital is important (tying this to Andy’s discussion below of hoards) – and more importantly it opens into a larger question of where one locates crisis in regards to the Dept. I/II schema.

Fred Moseley – Schemes of the reproduction of Money Capital
In his chapter “Marx’s Reproduction Schemes and Smith’s Dogma” in The Circulation of Capital: Essays on Volume Two of Marx’s Capital, (New York:1998) Moseley argues that Part III of Vol. II is specifically targeted to debunking the fallacy that Smith posits – that the “ price of the total social product is entirely resolved into revenue” – i.e., wages plus profit and rent. Moseley works through this by arguing that Marx’s schema between Dept. I and II is not of physical quantities of inputs and outputs (resources, means of production, etc) but rather are concerned with the “reproduction of quantities of money capital. (Moseley, p. 160)” This moves beyond any material or technological conditions of production and returns the total operation of multiple industrial cycles to the question of the accumulation (augmentation) of capital itself (and the money form of capital – Vol. I). The historically specific concept of money (i.e., within the categorical matrix and dynamics of capitalism) – as M-C-M’ – is contrasted to revenue which is used to purchase commodities for individual consumption; i.e., ‘revenue’ – categorically – does not entail a specific function (prior, operative, anticipated) of augmentation that is specific to capitalist accumulation.

At first I thought Moseley was pushing the money emphasis too far, but upon reflection this section – more than any other – emphasizes the necessary function of money; as potential capital in a hoard, of capital advanced (indicating capital ‘set-free’ into credit and other financial services), consolidated (joint-stock), as well as the continual lubrication of the process as variations in turnover times do not all converge on one reflux point (think Part II, Vol. II). In essence, the difficulty of reproduction, a collective process of multiple turnover rates internal and between a wide-variety of capitals, is assisted by the function of money and its fluid forms. Moseley highlights that one of the main assumptions of this section – one that is fundamental for this schema to operate – is that the difficulties in the discontinuous reinvestment in the replacement of means of production (Dept I) is answered by hoards built up by capitals in other sectors. Following Andy’s emphasis below, for Moseley, Marx is not emphasizing equilibrium per se, but rather is locating the methods through which the system overcomes its own inherent tendencies towards disequilibria.

One aspect that Moseley does not cover in this chapter (though one that necessarily under-girds his analysis of the magnitude of money) is the functions specific to the money form (emphasis on form – returning to Vol. I). In this regard I want to point to one section from Part III that makes the distinction clear and what it then allows to be understood. Marx argues that:

“the variable capital functions as capital in the hands of the capitalist and as revenue in the hands of the wage-labourer…The variable capital first exists in the hands of the capitalist as money capital; it functions as money capital in so far as he buys labour-power with it. As long as it persists in his hands in the money form, it is nothing more than given value existing in that form….(Vol. II, p. 514)”

Further down on the same page Marx argues that:

the money that functions firstly as the money form of variable capital for the capitalist now functions in the hands of the worker as the money form of his wage which he converts into means of subsistence; i.e. as the money form of the revenue that he receives from the ever repeated sale of his labour-power….We have here the simple fact that the money of the buyer, here the capitalist, passes from his hands into those of the seller, in this case the seller of labour-power, the worker. It is not the variable capital that functions twice over, as capital for the capitalist and as revenue for the worker, but simply the same money, which exists first in the hands of the capitalist as the money form of his variable capital, hence as potential variable capital, and which, once the capitalist has converted it into labour-power, serves in the hands of the worker as the equivalent for the labour-power he has sold. However, the fact that the same money serves one purpose in the hands of the seller and another in the hands of the buyer is simply a phenomenon inherent in all purchases and sales of commodities. (Vol II, p. 515)”

Returning to Moseley’s main theme – that Marx’s intention is a critique of Smith – Moseley argues that to Marx, “if Smith’s dogma were true and the total price of the total commodity product were resolved entirely into revenue, then the constant-capital consumed could not be recovered, from which it follows that the physical means of production could not be repurchased and production could not continue on the same scale. (Moseley, p. 172)” In other words, each cycle would be starting from scratch – non-accumulation (remember Marx’s critique of Smith wherein Smith had to sneak in the ‘fourth’ category of ‘capital’ in order to set his three-forms of revenue into motion). Thus, as Moseley argues, Marx’s model provides a standpoint (a counter-economic model) to flesh out the inconsistencies of the-then contemporary political economy. But has this schema proven useful in locating a more general systemic or social contradiction?

This all hinges on whether this is a schema of equilibrium – since taken in isolation, it does appear to be so (even in the chapter of accumulation). All secondary literature that I read were in unison, arguing that this is most definitely not positing equilibrium (such as how the later Neo-Keynesians would see these models as indicating equilibrium – via effective or aggregate demand). However, with the exception of Harvey, most did not try to think through social contradiction into, or along with, the Dept I/II model. Duncan Foley (1986), in his chapter on these schema, excuses social reproduction and focuses solely on the intricacies of Marx’s Dept I/II model, wherein the mathematical equations he produces seems to suggest that capitalism, though faced with crises of aggregate demand, appears to be able to sustain itself and expand. In other words, crisis needs to be found elsewhere. Fine and Saad-Filho (1988) mark a division between social reproduction and capitalist reproduction – noting contradictions in both. In the latter, they note that there are “uncertainties” that seem to point to disequilibrium in capitalist reproduction/accumulation – (1) uncertainty about the ability to extract surplus value from labour (this uncertainty obviously falls outside of the scope of Part III as we are concerned here with circulation/exchange between departments), (2) how much surplus value can be realized (actualized in the market), (3) competition leads to ever-increasing technical changes of production, (4) finance/credit allows for the overexpansion of accumulation, and (5) trading in money leading to speculation, etc. But we don’t find a direct engagement with what the balance between Dept I/II tells us about a more general crisis, one that ostensibly would be visible primarily in social contradictions.

David Harvey, Limits to Capital:
Harvey (1982), however, is much more sensitive to the how the Dept I/II schema sits within Marx’s overall project as well as the necessary assumptions that automatically foreclose a much more complicated approach to the overall social capital. In regards to the latter, the main assumption is that commodities are exchanged at their values, which entails ignoring the effects of capitalist competition (leading to innovation, higher rate of exploitation, technological innovation, etc) and that commodities are sold at prices of production and not their value (this also includes labour-power). Additionally, fluctuations in the money/credit market are also set aside. More importantly however, is that Harvey emphasizes that this schema points to crises that obtain from the SOCIAL relations of capitalism:

[Marx] wants to disentangle the contradictions embodied in such a process [of aggregate social capital]. So he fashions a device that allows him to identify the proportionate growth rates in the different departments, in production quantities, in value exchanges and in employment which, if they are not fulfilled, will result in crises. The reason for taking so much trouble to define equilibrium is, as always, to be better able to understand why departures from that condition are inevitable under the social relations of capitalism. (Harvey, p.169-170)”

Thus the necessary assumptions (what Harvey calls ‘restrictive’) in the economic models displaces the contradictions that appear in the social – in other words, Harvey emphasizes the social relations of production in relation (or delimitation) to this schema. He notes multiple discrepancies between what this schema indicates and Marx’s more general project:

1) The necessary balances (reproduction) of inputs/outputs run counter to seeing capital as a continuous process in motion. Harvey argues:
By modeling accumulation in highly simplified stock terms, Marx gains greatly in analytical tractability. But the price he pays is a departure from the very basic but much more difficult flow conception which he sought to hammer out in preceding chapters, particularly those dealing with circulation of variable capital and surplus value. (Harvey, p. 170)”

2) That Marx failed to stay true to his purpose of understanding circulation between departments as an inseparable dynamic-dialectic of use value and exchange value. In other words, exchange values (circulation) have to be balanced out with use values (the basis of the disaggregation of social capital into two sectors of production). This lines up with both Moseley, who wanted to emphasize this was not a balance of material inputs/outputs but rather one of magnitudes of money, as well as Andy’s discomfort with the seeming arbitrariness of the two department distinction (see below). This then opens into a more extended discussion of the important concept of “viable technology” and a contradiction that emerges between its function (to balance use and value exchanges between departments) and technologies role in accumulation in general (see p. 170-171).
This is where Harvey’s work really answers a lacunae in most of the economic literature that I read on Part III of Vol II. Here Harvey emphasizes that this model of reproduction has to be read along with the model of social reproduction from Vol I., wherein the capitalist production process produces the capitalist social relations (wages laborers need to sell their labour power and purchase commodities on the market; capitalists require others’ labour power, accrue more potential capital for reinvestment and are driven by competition into innovation and higher rates of exploitation). Thus we should not isolate this model of economic reproduction (a tendency that many Marxian economists have followed to a greater or lesser degree) but try to see how it intersects with the process of social reproduction and the reproduction of social classes. Thus we can examine class relationships through these exchange-schema:

Capital circulates, as it were, through the body of the labourer as variable capital and thereby turns the labourer into a mere appendage of the circulation of capital itself. The capitalist is likewise imprisoned within the rules of circulation of capital, because it is only through the observance of these rules that the reproduction and expansion of constant capital and the production of further surplus value is ensured. We are, in short, looking at the rules that govern the reproduction on a progressive scale of whole social classes. (175)”

Obviously this is not some type of circulation-centered emphasis (where the contradictions and thus political possibility is located merely in the realm of exchange and distribution); I think that Harvey is merely showing that though one can locate and analyze class dynamics at the level of exchange, that exchange is inseparable from (though as we will see below, in contradiction with) production – the primary site within which the social relations are reproduced. One interesting issue that Harvey points to in this regard is that the reproduction of classes glossed at the level of circulation (here through the schema) seems to posit a balance much like the economic-models of many Marxian economists. But Harvey, after pointing to Rosa Luxemburg’s critical departure from the incompleteness of the Dept I/II schema, notes that what Marx forces us to do is:

“to consider the stark contrast between the rules regulating accumulation in the realm of production and those that regulate balanced accumulation in the realm of exchange. Read in the context of Marx’s overall project, the reproduction schemas yield most of the theoretical insights we need. Balanced accumulation through exchange is indeed possible in perpetuity, provided that technological change is confined within strict limits, provided that there is an infinite surplus of labour power which always trades at its value….[etc.] Put simply, the conditions that permit equilibrium to be achieved in the realm of production contradict the conditions that permit equilibrium to be achieved in the realm of exchange….(Harvey, p. 176)”

And this contradiction between the twin-equilibrium required within the realm of production and exchange opens into a much more complex social dimension - one that is foreclosed when a circulation balance between departments is reified into algebraic equations. With his attempt to read social relations, social crisis, relations of production, within and through the level of circulation (accumulation schema), Harvey, I think, provides the most fruitful way to situate these last chapters into a larger Marxian framework, one that does not reproduce the fetishistic quality of some of the Marxian economic models glossed from the Dept I/II model.

Other points that emerge from this section:

1) Logic at the individual circuit is generalized and/or contrasted at the general societal level:
“The product of an individual capital, i.e. each independently functioning fraction of the social capital endowed with its own life, may have any natural form whatsoever. The only condition is that it really should have a use form, a use-value, that stamps it as a member of the commodity world capable of circulation.” “It is different with the product of the total social capital. All material elements of the reproduction must be parts of this product in their natural form…On the assumption of simple reproduction, therefore, the value of the portion of the product that consists of means of production must be equal to the [consumed] constant portion of the value of the social capital. (Marx, 508)”

2) Notes on Crises and their relation to a Rise in Wages (Andy also notes this):
“It is a pure tautology to say that crises are provoked by a lack of effective demand or effective consumption. The capitalist system does not recognize any forms of consumer other than those who can pay, if we exclude the consumption of paupers and swindlers. The fact that commodities are un-sellable means no more than that no effective buyers have been found for them, i.e. no consumers (no matter whether the commodities are ultimately sold to meet the needs of productive or individual consumption). If the attempt is made to give this tautology the semblance of greater profundity, by the statement that the working class receives too small a portion of its own product, and that the evil would be remedied if it received a bigger share, i.e., if its wages rose, we need only note that crisis are always prepared by a period in which wages generally rise, and the working class actually does receive a greater share in the part of the annual product destined for consumption. From the standpoint of these advocates of sound and ‘simple’ (!) common sense, such periods should rather avert the crisis. It thus appears that capitalist production involves certain conditions independent of people’s good or bad intentions, which permit the relative prosperity of the working class only temporarily, and moreover always as a harbinger of crisis. (p. 487)”

3) Overproduction and the possibility of Planning:
“Once we dispense with the capitalist form of reproduction, then the whole problem boils down to the fact that the magnitude of the part of fixed capital that becomes defunct and has therefore to be replaced in kind varies in successive years (here we are dealing simply with the fixed capital functioning in the production of means of consumption). If it is a very large one year (if the mortality is above the average, just as with human beings), then in the following years it will certainly be so much the less. The mass of raw materials, work in process, and ancillaries needed for the annual production of means of consumption – assuming that other circumstances remain the same – does not diminish on this account; and so the total production of the means of production would have to increase in one case, and decrease in the other. This can only be remedied by perpetual relative over-production; on the one hand a greater quantity of fixed capital is produced than is directly needed; on the other hand, and this is particularly important, a stock of raw materials etc. is produced that surpasses the immediate annual need….Over-production of this kind is equivalent to control by the society over the objective means of its own reproduction. Within capitalist society, however, it is an anarchic element. (544-545)”

Ok, onto Volume III……..

July 15, 2009

A brief note during the interlude

I'm not sure when we'll start Volume III, but we're definitely going to get there. In the meantime, I thought I'd take some time to review some notes and ideas that have forced me to revisit Volume I.

The basic concern is the distinction between Formal and Real Subsumption. This can be broken down in the following way:

Absolute : Relative ::
Labor-extensive : Labor-intensive ::
Formal subsumption : Real Subsumption ::
pre-capitalist production : capitalist production

The basic narrative arc is: capital encounters pre-existing modes of production and subsumes those workers to the demands of capital but without changing the nature of work itself. Any extra surplus-value is generated by working harder, or longer (what some economists call an "industrious revolution," see Kenneth Pomeranz). Once capital becomes the central, organizing motor of economic production, however, it begins to repeatedly revolutionize production by introducing techniques such as enlarged scale, machinery, overseer systems, etc. This is capitalist production proper.

And so a few things to consider:

1) This demonstrates that within Marx's conception, a set of producers can belong to capitalist competition and circulation without technically operating under terms of capitalist production. We saw this many times in Volume II: an individual, non-capitalist producer that belonged to a total social capital marked by a mode of production that was capitalist in the proper form. E.g. slavery in the American south competing with cotton produced by wage laborers elsewhere around the world.

2) What does it mean to be subordinated to capital? One could always say that merchants have always existed, middlemen have always existed. What marks them as specifically capital at any one moment, if the rest of the features of capitalist production are missing? This is what I'm trying to figure out. Marx will occassionally reference how even family production that owns the means of production still can produce for merchant capitalists. This is in fact the premise of Kautsky's The Agrarian Question. Still, the majority of "formal subsumption" passages assume a separation of wage laborer from means of production.

3) The most thorough explanation is in the Appendix to the Penguin edition of Volume I, entitled "Results of the Direct Production Process." It's also part of the 1861-1863 Manuscripts, which is where most Marxist scholars attribute the concept to. So I didn't read this section the first time around reading Volume I, but I re-read it recently.

4) There are hints of history here. Besides the modular nature of Marx's descriptions, there are references to encounters between capital and pre-capital:

Despite all this, the change indicated does not mean that an essential change takes place from the outset in the real way in which the labour process is carried on, in the real production process. On the contrary, it is in the nature of the matter that where a subsumption of the labour process under capital takes place it occurs on the basis of an existing labour process, which was there before its subsumption under capital, and was formed on the basis of various earlier processes of production and other conditions of production. Capital thus subsumes under itself a given, existing labour process, such as handicraft labour, the mode of agriculture corresponding to small-scale independent peasant farming. If changes take place in these traditional labour processes which have been brought under the command of capital, these modifications can only be the gradual consequences of the subsumption of given, traditional labour processes under capital, which has already occurred. The fact that the labour becomes more intensive, or the duration of the labour process is prolonged, that the labour becomes more continuous and more systematic under the eyes of the interested capitalist, etc., none of these things changes the character of the real labour process itself, the real mode of labour. This therefore forms a great contrast to the specifically capitalist mode of production (labour on a large scale, etc.) which, as has been shown, takes shape as capitalist production progresses, and which revolutionises the kind of labour done and the real mode of the entire labour process, simultaneously with the relations between the various agents of production. It is in order to mark the contrast with the latter mode of the labour process that we call the subsumption of the labour process under capital examined so far[230] — which is the subsumption under capital of a mode of labour already developed before the emergence of the capital-relation — the formal subsumption of labour under capital. The capital-relation is a relation of compulsion, the aim of which is to extract surplus labour by prolonging labour time — it is a relation of compulsion which does not rest on any personal relations of domination and dependence, but simply arises out of the difference in economic functions. This capital-relation as a relation of compulsion is common to both modes of production, but the specifically capitalist mode of production also possesses other ways of extracting surplus value. If, in contrast to this, the basis is an existing mode of labour, hence a given level of development of the productive power of labour and a mode of labour which corresponds to this productive power, surplus value can only be created by prolonging labour time, hence in the manner of absolute surplus value. Therefore, where this is the sole form of production of surplus value, we have the formal subsumption of labour under capital.
5) Despite that, there are reasons to believe that even if real subsumption occurs, as Antonio Negri emphasizes, one should hold out the possibility that it is incomplete, that formal subsumption and precapitalist production ("survivals" as anthropologists term it) survive. Here I think it is important to reference the only section that really discusses formal and real subsumption in the actual text of Volume I. The Chapter is number sixteen, entitled "Absolute and Relative Surplus-Value." In it, Marx describes the distinction then goes on to say that hybrid forms persist:

The prolongation of the working-day beyond the point at which the labourer would have produced just an equivalent for the value of his labour-power, and the appropriation of that surplus-labour by capital, this is production of absolute surplus-value. It forms the general groundwork of the capitalist system, and the starting-point for the production of relative surplus-value. The latter pre-supposes that the working-day is already divided into two parts, necessary labour, and surplus-labour. In order to prolong the surplus-labour, the necessary labour is shortened by methods whereby the equivalent for the wages is produced in less time. The production of absolute surplus-value turns exclusively upon the length of the working-day; the production of relative surplus-value, revolutionises out and out the technical processes of labour, and the composition of society. It therefore pre-supposes a specific mode, the capitalist mode of production, a mode which, along with its methods, means, and conditions, arises and develops itself spontaneously on the foundation afforded by the formal subjection of labour to capital. In the course of this development, the formal subjection [subsumption] is replaced by the real subjection [subsumption] of labour to capital.

It will suffice merely to refer to certain intermediate [hybrid] forms, in which surplus-labour is not extorted by direct compulsion from the producer, nor the producer himself yet formally subjected to capital. In such forms capital has not yet acquired the direct control of the labour-process. By the side of independent producers who carry on their handicrafts and agriculture in the traditional old-fashioned way, there stands the usurer or the merchant, with his usurer’s capital or merchant’s capital, feeding on them like a parasite. The predominance, in a society, of this form of exploitation excludes the capitalist mode of production; to which mode, however, this form may serve as a transition, as it did towards the close of the Middle Ages. Finally, as is shown by modern “domestic industry,” some intermediate forms are here and there reproduced in the background of Modern Industry, though their physiognomy is totally changed.

6) Finally, as noted elsewhere by Daniel Buck, the discussion of formal and real subsumption earlier appears under the heading of original accumulation in the Grundrisse, written before Marx had coined these new phrases. In that sense formal/real subsumption together with original accumulation occupy the heart of the problem of history and capital, pre-capital and transition. Here is where one should start in order to think through the problem of the gap between capital's history and capital's logic:
Marx apparently understood primitive accumulation and subsumption to be intimately related: he discusses the incorporation of weaver labor into the circuits of capital in the context of primitive accumulation in the Grundrisse (1973:510), but in the context of formal and real subsumption in Volume I of Capital (1976: see “Results of the immediate process of production”, especially pp 1019–1038).

July 13, 2009

Mr. Capitalist

Marx begins the final chapter of Volume II with two assumptions:
It is assumed in this case: 1) that this amount is sufficient under the given technical conditions either to expand the functioning constant capital or to establish a new industrial business. But it may also happen that surplus-value must be converted into money and this money hoarded for a much longer time before this process, i.e., before real accumulation, expansion of production, can take place; 2) that production on an extended scale has actually been in process previously.
Thus, we again see the problem of hoards, except this time they are definitely voluntary interruptions to circulation: money is withdrawn so that eventually it can be spent on more means of production, more means of labor. We also see a reference to the logic of expanded reproduction itself. Specifically, each act of reproduction presupposes previous acts of reproduction and hence also subsequent acts. Expanded reproduction cannot occur ex nihilo, nor should it be seen as a one-shot deal.

Marx discusses the hoard as a precondition for expanded reproduction but also notes that in itself, withdrawn money is neither productive nor circulating capital. It is idle, only potential capital (566). The same problem with simple reproduction and fixed capital arises once more: if money is withdrawn, then the perfect equilibrium is disrupted, and eventually you wind up with capitalists who have too many unsold commodities existing alongside capitalists with money that is not being used. This will be resolved below.

In the meantime, we should note that Marx conceives of hoards as an immanent moment to capital (569). These are unavoidable problems which must be overcome through more advanced forms of capital. Part of the problem it seems, is that the abstract models Marx has been working with have oversimplified the actuality of production and circulation's totality. On 570 and 571, Marx describes the total social capital not as a well-oiled, smoothly-functioning metabolizing machine with inputs and outputs more or less running automatically. Instead, total social capital is described as a series of "one-sided purchases" by departments I and II, purchases that may, the capitalist hopes, in the end return capital to its pockets but is by no means guaranteed.

Throughout the process of value traveling from the constant capital of department I through to the realization of commodities produced by department II, a one-sided purchase is always needed before the next step can be taken: "But inasmuch as only one-sided exchanges are made, a number of mere purchases on the one hand, a number of mere sales on the other — and we have seen that the normal exchange of the annual product on the basis of capitalism necessitates such one-sided metamorphoses — the balance can be maintained only on the assumption that in amount the value of the one-sided purchases and that of the one-sided sales tally."

Here perhaps we can think about the significance of the section on bookkeeping earlier: to the individual capitalist and producer, the entire process is invisible. Its trading partners, far away in time and space, are indifferent to the actual exchange at hand. There is no mental conception, except in the form of bookkeeping, that can account for all of this. Which is to say, there is no guiding agency or subject who oversees the encounter between commodity, money and productive capital:
The constant supply of labour-power on the part of working-class I, the reconversion of a portion of commodity-capital I into the money-form of variable capital, the replacement of a portion of commodity-capital II by natural elements of constant capital II c — all these necessary premises demand one another, but they are brought about by a very complicated process, including three processes of circulation which occur independently of one another but intermingle. This process is so complicated that it offers ever so many occasions for running abnormally.
And hence Marx's famous line
The fact that the production of commodities is the general form of capitalist production implies the role which money is playing in it not only as a medium of circulation, but also as money-capital, and en-genders certain conditions of normal exchange peculiar to this mode of production and therefore of the normal course of reproduction, whether it be on a simple or on an extended scale — conditions which change into so many conditions of abnormal movement, into so many possibilities of crises, since a balance is itself an accident owing to the spontaneous nature of this production.
In my mind, this is the argument about political economy Marx wants to make. Sure, there are tendencies and laws and determinate relationships, but those change and are mutable over time with changes in the development of capitalist production. What remains stubborn, however, is the randomness of it all. The fact that, rather than asking why there are imbalances of production and circulation, we should be asking why aren't there more? At this point one can introduce correctives. The state immediately comes to mind. But Marx has something else in mind: credit.

Just as the circulation process entails a series of segmented, one-sided purchases that somehow add up to a complicated totality, it can be supplemented by credit, which will make withdrawn money productive, which will give loans to capitalists who have too many commodities and not enough money capital, in short, will facilitate an easier and smoother flow of goods. And this is done not by compiling the capital of many different capitalists and re-segmenting it into smaller amounts:
The successive transformation of this virtually additional productive capital into virtual money-capital (hoard) .... is accomplished by a repeated withdrawal of money from circulation and a corresponding formation of a hoard.

The surplus-product converted into virtual money-capital will grow so much more in volume, the greater was the total amount of already functioning capital whose functioning brought it into being. With the absolute increase of the volume of the annually reproduced virtual money-capital its segmentation also becomes easier, so that it is more rapidly invested in any particular business, either in the hands of the same capitalist or in those of others (for instance members of the family, in the case of a partition of inherited property, etc.). By segmentation of money-capital is meant here that it is wholly detached from the parent stock in order to be invested as a new money-capital in a new and independent business.
Finally, I'll end the analytical part of this post by drawing attention to pages 577 to 579 and then on 584. Here Marx confronts the problem that the capitalists of department II face: because less money is being circulated, withdrawn from circulation by department I, department II now faces hoards of unsold commodities. How does it get rid of them? Marx's suggestion is that it is sold to its own workers, who pay for their products with their wages. But he then goes on to show why, mathematically, that is not the case. I draw attention to this section because, I believe, Marx never actually answers his own question in the course of the chapter. It is as good an indicator as any that the status of these reproduction schemes are interesting experiments but ultimately unfinished. I wish I had the mathematical credentials to play around with them more, but for now I'm putting this book down.

Other thoughts
  • (572-573): Marx shows tat the process of expansion, at its initial stages, requires nothing more than the parts of simple reproduction. The only difference is that the money capital that would usually be circulated is instead withdrawn into hoards. Those hoards will be put to use when invested in expanded means of production and labor. In the meantime, those hoards must be overcome, possibly through credit.
  • (581): Marx argues that the problem of stocks and hoards and maintaining a smooth flow of commodities and money is unique to reproduction schemas that account for both department I and II. But without department I, expanded reproduction could not occur. So really, they are immanent problems in the actual functioning of individual capitals which thus far have been described only in isolation.
  • (592): Mention of companies that provide boarding to their own workers. Interesting, relevant for studies of plantations and the textile mills of early capital.
  • (596): Marx reiterates that simple reproduction is "incompatible with capitalist production" from the start. He also argues that because of the rate of population, simple reproduction is impossible to maintain, since more and more unemployed workers will put pressure on capitalists to expand.

Anybody's guess

This chapter is huge and difficult to summarize and organize coherently.

One must first recognize the relationship between this chapter and the next. As Marx notes early, simple reproduction is a mental exercise alone, more fiction than any capitalist economy in historical reality. So why study simple reproduction? As a building block of analysis for understanding the real object of analysis: expanded reproduction.
Simple reproduction, reproduction on the same scale, appears as an abstraction, inasmuch as on the one hand the absence of all accumulation or reproduction on an extended scale is a strange assumption in capitalist conditions, and on the other hand conditions of production do not remain exactly the same in different years (and this is assumed). The assumption is that a social capital of a given magnitude produces the same quantity of commodity-value this year as last, and supplies the same quantum of wants, although the forms of the commodities may change in the process of reproduction. However, as far as accumulation does take place, simple reproduction is always a part of it, and can therefore be studied by itself, and is an actual factor of accumulation (470).
So what is Marx's approach to simple reproduction?

He writes: "But this purely formal manner of presentation is no longer sufficient once we consider the total social capital and the value of its product." What changes when one shifts from abstract individual capital to the actual circulation of all capitals? "[T] movement is not only a replacement of values, but a replacement of materials, and is therefore conditioned not just by the mutual relations of the value componenets of the social product but equally bu their use-values, their material shape" (470).

With this line, Marx forces us to think hard about why individual capital + individual capital is not enough to represent the complexity of total social capital. In other words, why is the sum more than just the sum?

The most obvious answer is that individual capitals play specific roles in relation to each other, as elements in the total social circulation. Given this, we have to subdivide into department I and department II. It should be a given that these divisions are arbitrary and could further be divided into numberless smaller divisions. The point has been made, though: a break with individual capitals towards a consideration of social capital. However, one thing I'm a little uneasy with in this analysis is the fact that Marx wants us to think about use-value, that is, the difference between a business making machines for other businesses versus machines that make Christmas toys. This is all well and good. But all sorts of other specificities are arbitrarily elided by Marx when he makes statements indicating that all Department Is can be combined together in analysis, that the parts being made by one company can be grouped together with those of another. Other considerations of the historical record of capital are also suspended: revolutions in prices, technological changes that require abandoning old machines for new ones, the price differences between parts, spatial differences in supplies and populations, etc. (469-483).

It seems to me that this exercise indicates that for all sorts of reasons (all sorts of use-value-related reasons), the total equilibrium of simple (and expanded) reproduction is impossible to achieve. It is "an accident," as he indicates in the next chapter. But the point of Marx's analysis at this point is, rather than indicating why the regular imbalances occur is to understand under what perfect conditions an irregular equilibrium could be achieved. Or can it even be achieved at all?

What analytical value is there in allowing in one element of use-value while suspending all others? I believe the point is that it can help us parse out all the chaotic elements that can go wrong, to show that, even under near-perfect conditions, the very facticity of an element like the distinction in departments is enough to throw a wrench into the gears.

As far as I understand it, the heart of the matter is that the division of production into two departments, along with the attendant assumptions of wear and tear, replacement of parts creates uneven timing of investment and production which inevitably leads to hoards (see the voluntary and involuntary stock formation section in chapter six) and contradictions that must be displaced somehow through the expansion of the market.

Below I will include the more interesting quotes from the rest of the chapter. But for now, let's examine the temporal irregularity of normal production to examine how crises are immanent to it.

First, Marx points out that while the total quantity one must spend on replacing the wear and tear of machines or dealing with the comings and goings of a seasonal labor force remain mathematically the same, the periodicity of these factors means that at certain moments, surplus-value is building and accumulating with nowhere to go, and sometimes a lot of surplus-value is needed at hand in order to be converted into constant and variable capital (526).

Second, Marx states almost as an ontological condition that the whole collection of machines and means of production are all "of different ages, and just as each year people functioning in these branches of production die, so each year do quantities of fixed capital reach the end of their life" (528).

Third, unless the cycle of means of production can be completed in a year, which is highly unlikely, then the year to year expenditures of an individual capitalist will look different.

Finally, we have the hypothesis that if Deparment II needs to save up money for a new machine in the future, and if it therefore withholds a certain amount each year, spending less on constant capital (since it can keep using the machines from the last time), then Department I would have 200 extra value that it could not sell. Further, if Department II produces as many commodities as it needs to stay in business but Department I has 200 less to spend than before, then Department II has 200 worth of commodities left unsold. Hence, a simultaneous problem of overproduction on both sides(!).

How can this be resolved? Marx spend the rest of this section trying to work it out. You can read all the prosaic math formulas on pages 530 onward, but the conclusion is basically that this scenario is impossible to resolve within the limits of simple reproduction:
The law that when reproduction proceeds normally (whether it be on a simple or on an extended scale) the money advanced by the capitalist producer to the circulation must return to its point of departure (whether the money is his own or borrowed) excludes once and for all the hypothesis that 200 IIc(d) is converted into money by means of money advanced by I (533).
Finally, we have the goods on page 542, where Marx indicates that the lack of inputs for the commodity and monetary surplus requires a foreign market to provide things commodities and customers. Such a solution is, of course, still imperfect and only defers an internal contradiction. From here, Luxemburg and Lenin . . . :

If IIc (1) is greater than IIc (2), foreign commodities must be imported to realise the money-surplus in Is. If, conversely, IIc (1) is smaller than IIc (2), commodities II (articles of consumption) will have to be exported to realise the depreciation part of IIc in means of production. Consequently in either case foreign trade is necessary.

Foreign trade could help out in either case: in the first case in order to convert commodities I held in the form of money into articles of consumption, and in the second case to dispose of the commodity surplus. But since foreign trade does not merely replace certain elements (also with regard to value), it only transfers the contradictions to a wider sphere and gives them greater latitude (544).

The summary of Marx's conclusions are on pages 542 to 545. They are the highlight of the chapter. He describes how hoards in precapitalist times are necessary to ensure the welfare of a population, but "in capitalist production however, they are an evil." This reminds us again of Marx's discussion about involuntary and voluntary stock earlier. Simple reproduction, mathematically, must become expanded reproduction. There is no other. Simple reproduction is like a square triangle.

Okay, other thoughts . . .

  • (487): Marx argues against the thesis of underconsumption, showing that it is a logical tautology (since the function of consumers is to spend money, then the problem must be that the consumers do not have money, but that money must come from the capitalist class, which in no way helps them exit the crisis) and that historically, all crises are precipitated by higher wages and attempts to increase consumption. Take that, Keynes.
  • (488): In the midst of his long section working out the contours of money capital, Marx makes his point very clear: money may change hands between capitalists and workers, but in each exchange, the worker will always have to give the money back as part of their consumption fund. So ultimately, money is just bait that reels in the value (labour-power) of the workers, who must use their wages to exchange for the commodities that they themselves made: The "general law that money advanced to the circulation by producers of commodities returns to them in the normal course of commodity circulation. From this it incidentally follows that if any money-capitalist at all stands behind the producer of commodities and advances to the industrial capitalist money-capital (in the strictest meaning of the word, i.e., capital-value in the form of money), the real point of reflux for this money is the pocket of this money-capitalist."
  • (490): Marx introduces the concept of the worker who lives hand-to-mouth and hence must be paid in advances and wages frequently but in small amounts. Here, the analytical significance is that the workers' necessity for small and frequent distribution of money places a strain on the limited money supply. The amount of money in circulation, remember, is in no way determined by the total amount of value in circulation but rather by factors such as how much is paid each time and how frequently. Therefore, one can find phrases like "£1,500 are needed to circulate the equivalent value of £5,000."
  • (497): Finally, Marx ends the money section by spelling out the role of merchant capital. That is, the capitalist must spend money in order to make back surplus-value. Merchant capitalists are seen as parasites because they seem totally unproductive, but all capitalists are parasites insofar as the expenditure of money in business is ultimately the same princpiple of casting out money in order to receive it back, with surplus-value added.
  • (498): With the advent of Department I, Marx indicates that one can no longer assume that constant capital is converted into money, which is spent on the next cycle's means of production. Instead it must be understood as the machines themselves remain, and they can be used again as new means of production. Hence, we must understand the role of Department I in total social capital as distinct from an individual capital in isolation, who draws its means of production out of thin air.
  • (502): Marx shows that Adam Smith's reified brain was only able to see commodities as revenue split into v + s (wages and profit) because he did not see department one.
And it is this circumstance which induced Adam Smith to maintain that the value of the annual product resolves itself into v + s. This is true 1) only for that part of the annual product which consists of articles of consumption; and 2) it is not true in the sense that this total value is produced in II and that the value of its product is equal to the value of the variable capital advanced in II plus the surplus-value produced in II. It is true only in the sense that II(c + v + s) is equal to II(v + s) + I(v + s), or because II is equal to I(v + s).
Regarding point 2) above, Marx shows that the value of labour-power and constant capital in Department I is carried over to the means of production (dead labour as constant capital) in Department II. So it appears as though all value is produced in Department II when in actuality Department II is only the last step in a longer process.
  • (508): Marx poses the difference between Volume I and Volume II nicely as the difference between individual and total social capital: the product of an individual capital can take any form and it could go anywhere. Volume I was entirely indifferent to what commodities were used for after the point of sale. With total social capital, all elements of reproduction must balance out such that the products eventually replace the original constant capital. Hence, Volume II tracks the path of consumed constant capital from Department I to II and back again to Department I.
  • (516-519): A very interesting explanation that examines the same exchange from the standpoint of capitalist and standpoint of worker. For a capitalist selling his product, it is realizing the surplus-value of a commodity. For the worker, it is merely exchanging money for equivalent capital. In each exchange, the positioning of each subject as either commodity-owner and money-owner resolves in such a way that the capitalist ultimately possesses all of the capital and the worker can only exchange at fixed rates. This leads Marx to next discuss (520) the social reproduction of classes. Not in terms of anything like ideology or politics; merely in terms of why the working class continually makes so little money compared to the capitalist. An antagonistic relationship is thus preserved.
  • (545-556): The section on the reproduction of Money Capital demonstrates the problems of hoards and the necessity for money to circulate as productive capital. Several problems are raised from 549 onwards. All this concludes on page 556 when Marx writes that the irregularity of the money supply explain the rise of the merchant capital class:
all these different aspects of spontaneous movement had only to be noted, and made conspicuous, through experience, in order to give rise to a methodical use of the mechanical appliances of the credit system and to a real fishing out of available loanable capitals.

(556-564): Marx refutes Destutt de Tracy's theories of accruing profit by selling dear to demonstrate that it is logically impossible. Ultimately, the point is that in a logical system built to explain simple reproduction, one cannot simply account for profits and gains without explaining how to resolve deficits and hoards. Only expanded reproduction can do so. Onto the next chapter . . .