As part of its ‘Masters of Money’ series the BBC 2 programme, which looked at the ideas of John Maynard Keynes and Friedrich Hayek, finished by looking at the economic ideas of Karl Marx. The overall verdict? It could have been a lot worse.
There were of course huge simplifications that erased exactly what Marx was saying. These could have been avoided, and the dismissal of communism and what Marx had to say about it was on a par with cold war contempt, but despite this there was a coherent argument through the programme.
It was very much the creature of a mainstream bourgeois economist albeit one who thought there were important insights to be found in Marx, particularly his perspective on the inequality of capitalism and its instability. It avoided some cheap shots and pointed out that Marx appreciated the revolutionising of production achieved by capitalism and its dynamic development across the world. The presenter Stephanie Flanders repeated the often made observation that Marx’s description of capitalism is more true now than when it was first made. She also correctly observed that profit is the soul of capitalism and made some correct remarks about the compulsive nature of the drive for profit within the system.
There were some strange observations which tried to tie the relevance of Marx’s views to particular periods which excluded the post war boom and included the 19th century but excluded the great depression of the thirties. The whole point of the programme however was to assert the relevance of his views today and if it did no more than this then it must be judged positively.
There were some problems that, had they been addressed, would have made for a much better exposition of Marx’s ideas. The first is that the programme avoided what Marx thought was his greatest economic discovery – the nature of surplus value. This is the discovery that the economic value created by capitalism is the result of human labour and can be measured by the labour time necessary for its production. The source of capitalist profit is the result of the difference between what the capitalist pays for this capacity to labour and what this labour actually produces. This explains how a surplus can be produced and a profit arise when the exchange of commodities, including labour power, is the exchange of equivalents. It is not a question of workers being cheated when they receive a wage in return for their labour power or of unequal exchange of commodities.
This is not a particularly difficult concept to explain but it does very clearly reveal the exploitation of the working class and exposes all the hypocritical justifications of the system.
The second problem is not what was left out but what was included, that Marx held that the absolute level of wages would be held down under capitalism. This doesn’t sit well with the programme’s acknowledgment of Marx’s view that capitalism develops the forces of production. Who did Marx believe would buy the goods created by the development of these productive forces? This of course was the central tenet of the programme: that for Marx this was precisely the problem.
Marx’s argument was held to be that the tendency to lower wages reduced the ability of workers to buy the goods they produced. Increasing wages would only reduce profits, the objective of the system, so this is not a solution. As a temporary ‘fix’ the system expanded credit to make up the shortfall in wages and allow all the goods produced to be purchased. The explosion of credit therefore explains the current economic crisis emanating within the financial services industry. The programme was actually quite good when it cut to the right-wing talking heads who pooh-poohed the idea that low wages contributed in any way to the crisis. They looked neither comfortable nor convincing, or maybe that was just me.
The programme argued that Marx’s criticism went much deeper than any other but actually the programme didn’t go deep enough. Not altogether its fault since there is widespread debate among Marxists about the causes of the current crisis and even about the fundamental mechanisms of what might be called ‘classic’ capitalist crises.
What can be said however is that the description of the crisis given in the programme and the role of credit and wages is only how the crisis manifests itself, not how it is caused. To explain the latter would require one to start with the idea ignored – surplus value.
If low wages restricting the market were merely the problem the question would not be so acute. The capitalists who had diddled the workers could simply purchase what the workers did not. Everything would then be sold. The problem is worse because the workers create added value over and above what they are paid, over and above what is required to maintain production and also above the conspicuous consumption of the capitalists, and this additional value produced must find a market. Why can’t this too be solved by the capitalists buying the difference?
The answer is that it can but the question then is what is the result of this? Additional value appropriated by capitalists can expand their luxurious lifestyles but the driving force of the system is not this but profit. To increase this means expanding production both to garner extra profit and destroy competitors. This means the capitalist must employ the additional value produced by the workers to further invest in more workers and also machinery, raw materials etc to expand output. The problem is intensified as production increases, new markets are sought for the things that are produced and the amount of surplus value (unpaid labour) created is expanded.
In the longer term the rate of profit comes under pressure as the capitalists replace workers with machines in order to produce more cheaply or even to produce some goods at all (some high-tech ones for example). However because profit comes from workers the value of production comprised of workers labour declines and so does the proportion made up of surplus value, from which profit comes. Fewer workers will create proportionately less surplus value while the cost of machines and raw materials etc increases relatively, so reducing the rate of profit. The capitalists with the lowest productivity and lowest profitability can be forced into bankruptcy. Of course to some extent this too can be offset by lower wages but the increasing sophistication of production means that paying peanuts will not allow the ‘monkeys’ to engage in the skilled labour required. This is a long term tendency but one we can see in operation through the economic history of the west and in the rapid economic development of Asia. It implies that profit plays a smaller and smaller relative role in production which calls into question a system in which this is the whole purpose of its existence.
The regular periodic crisis, including the current crisis, is the route by which this longer term tendency operates. The compulsion to produce more and more surplus value also produces these more regular booms and busts. The drive to expand the creation of surplus value means increased accumulation of workers, machines and materials and the expansion of markets to purchase the additional production. In an economy dedicated to the needs of the population such increased production can be consciously planned and coordinated and its limits set by society as a whole. Under capitalism no such limits are acceptable.
The limits on production of surplus value are therefore not set by the needs of society or by the limits of the purchasing capacity of workers and capitalists. To break from these limits credit is expanded to bridge the limitations on consumption that are the result of the limits of production. Through credit capitalism seeks to satisfy the capitalist desire to expand production through the accumulation of more and more surplus value. Credit expands the market for increased surplus value production.
This can produce fantastic economic booms of the sort we have seen in the last decade or so in Ireland and across much of the globe, from China to Brazil. The attempt to expand real production and to create an even larger market for it must at some point necessarily collapse for the same reason that credit is originally introduced. Just as increased credit is an attempt to increase profit so the collapse of credit is the result of credit no longer being able to expand profitable production.
Workers must pay back debt at some level and beyond a certain point this becomes impossible because of the limits to their real incomes determined by real production. The same is true of the capitalists. Ever more convoluted attempts to expand credit beyond the capacity to pay it back – through creation of yet more credit – is doomed to collapse as the ever expanding amount of debt requires greater and greater repayments to keep it going. The fantastic expansion of the financial services industry is testament to how big such an exercise can become. A glance at the size of the balance sheets of the Irish banks in comparison to the size of the whole economy reveals the scale of the overproduction and credit expansion that can arise.
In Ireland and the US the limits were reached when workers could no longer pay for inflated housing or capitalists pay for inflated office and other building construction. A surplus of such properties is eventually created, overproduction appears, prices collapse, capitalists cannot sell except at a loss and those who built the houses and offices go bankrupt, workers in construction are made unemployed and the banks which financed it all go bust. At such points it can appear that the problem is that workers wages are not big enough to buy all that has been produced and that this is the problem. Solutions are proffered by Keynesians who say that what is need is yet more investment to take the place of that which has just collapsed. But as we see, these solutions do not address the underlying problem and provide a ‘solution’ only by postponing the collapse and stoking up a bigger tsunami when the boom busts later.
In these circumstances blame is also placed on the institutions which created the massive credit explosion – the banks – especially since such booms inevitably involve hugely speculative, criminal and stupid behaviour during a time when everyone thinks they should be getting rich quick. No one needs regulation during a boom when money is being made and afterwards the call is made that we have to have stricter regulation when again, but for opposite reasons, no one needs regulation. Regulation becomes the alibi for the systematic failures of the system. Left wing critiques which focus on the banks play into the hands of those who want to ignore or are simply ignorant of the system itself being responsible for the bust. That the bust is so spectacular is simply a result of earlier failure to burst the bubble. For a longer and bigger boom the price paid has been a longer and bigger bust but either way capitalismproduces booms and crashes. Keynesian solutions to extend the boom can simply create bigger crashes.