The socialist society envisaged by Karl Marx can only be built on the achievements of capitalism and what has been called its civilising mission. This progress rests on an enormously increased productivity of labour, which has reached such a level that the productive forces of society now realistically promise a society that more and more meets the needs of all its members, with inequality and insecurity vastly reduced and material poverty eliminated.
Within capitalism, progress inevitably involves increased exploitation since exploitation of labour is how this society increases productivity. But progress there has undoubtedly been and without it socialism would not be possible.
Capitalism has created this possibility but capitalism now stands in its way.
When I first became interested in socialist politics in the mid-seventies I used to visit the Communist Party bookshop on High Street in Glasgow. I remember picking up a CP pamphlet extolling the virtues of the ‘socialist’ countries of Eastern Europe and the USSR. It set out the daily calorific intake of the average citizen in a number of these countries with East Germany the top performer.
Even at the time this jarred and seemed somewhat disappointing. I was by no means rich. I lived in a tenement with an outside toilet and shared a bedroom with my sister, while my mother slept in the living room. But I never once thought that I was going to suffer from a lack of calories; in fact I barely thought about food and was too busy running around to worry about it.
Now of course, in the space of less than a lifetime, a problem in the most developed capitalist societies is not a lack of calories for the average working class person, which I knew from my Scottish granny had been a problem in the past, but too many calories!
Reading some material on inequality and its effects, as argued in the book ‘The Spirit Level’, I came across some quotes that illustrated how very different the problem is now. Now the stereotypical poor person is overweight or obese, or rather the latter are nearly always working class or poor, while the equivalent rich person is slim and healthy. The capitalist food and drink industry specialises in feeding fatburgers and sugar-filled drinks to the poor while offering exotic sounding pulses, vegetables and bottled water in delicatessens for the discerning middle class.
I exaggerate of course; this is a distorted caricature albeit with a grain of truth, but the most important truth is that in many countries, for the vast majority of the population, an adequate food supply is not a problem. Problems with its supply lie elsewhere, including in the exploitation of the humanity and nature that ensures its production.
While the productive forces of society more and more are capable of offering increased economic security, freedom from social stress and worry, and a promise of a fulfilling life, capitalism is more and more demanding that this promise can be offered for only some and on more and more unacceptable terms. These terms include zero hour contracts, massive increases in debt, an absence of rights in the workplace and increasing threats to political rights outside it. Working into your seventies is now the prospect for those in their youth and young adulthood.
Nevertheless, despite all this, it is unquestionable that progress has been made. Had it not, then on what grounds could we claim that all these impositions and threats are unnecessary? That an alternative is eminently possible?
A second aspect of this progress is that because it is capitalist progress it is accompanied by repeated crises, which can lead to sometimes dramatic falls in living standards for some, and constant insecurity and increased exploitation for many others; who are required to work longer and harder and with relatively less remuneration while having less and less security over their employment.
The financial crisis has come and many think it has also gone, with the answer to it being austerity and the bankers going back to business as usual. Severe world-wide recession threatened after 2008, followed by crisis in the Eurozone and crises in developing countries as commodity prices fell. This was only partially offset by continued growth in China, which is now also threatened by a similar credit boom and overcapacity
From being the fastest growing country in the west, the UK is now slowing dramatically while the Irish State, although it crashed, is now supposedly booming. These booms and busts make crisis appear a constant threat, the boom period demonstrating the legitimacy of capitalism and the bust demonstrating the difficulty of, and for, an alternative.
For many these crises are proof that the contradictions of capitalism are insurmountable, are intrinsic to the system and cannot be escaped. Just as progress under capitalism is built upon exploitation, so it is also achieved through crises. It is crises that most violently reorganises production and ensures its further development. Crises therefore not only express the irrationality of capitalism but also its rationality, its ability to achieve further development through destruction.
The most common alternative understanding is one that proposes that the system can be cleansed of its most irrational aspects while also ensuring that the growth that characterises capitalism can continue, and even increase. The private greed that disfigures the system can be ameliorated by the state, which can be regarded as the representative of society as a whole and can act on its behalf. Freeing this state from direct and indirect control of the 1% is therefore the most important task.
Marxists question this alternative and point out that inequality is not primarily a feature of market outcomes, of inequality of income, of working conditions, employment, housing and general welfare. It is a question of utter and complete inequality in the conditions of production that generates income inequality and all the other inequalities that condition the general welfare of the majority of society. What is distributed, and is considered fair distribution, is determined by how the wealth of society is produced in the first place.
Marx put it like this – “before distribution can be the distribution of products; it is (1) the distribution of the instruments of production, and (2), which is a further specification of the same relation, the distribution of the members of society among the different kinds of production. (Subsumption of the individuals under specific relations of production). The distribution of products is evidently only a result of this distribution, which is comprised within the process of production itself and determines the structure of production.”
If the means by which the wealth in society is produced is not owned in common, by everyone, but by a small number so becoming a separate class, then the distribution of income and wealth that flows from this production will primarily benefit this class.
This is why we have massive increases in productivity and material wealth but it is accompanied by increased exploitation and inequality. Why it is accompanied by crises, in which private appropriation of the fruits of production, and of the means of production itself, conflict with the greater and greater cooperation required to make this production possible.
Nor do Marxists believe that the state is the true representative of society as a whole. It is not ‘captured’ by the 1%, its functions are determined by the structure of society as a whole, by the fact that the means of production belong to a separate tiny class. The state can adjust, within limits, inequality of income, housing and working conditions but it cannot fundamentally adjust the ownership of production that is the guarantee of general inequality. In acting to defend the regular and ordered functioning of society, it must by this fact alone defend society’s fundamental structure, lest any radical change threaten its stability or the stability of the state itself.
And even if this were not the case, the argument for a socialism based on ownership of production by the state has floundered on the experience of the ‘socialist’ states in Eastern Europe and the USSR, which, before their collapse, could boast that their system fed their people.
Marx’s alternative is not based on the state, which is the instrument of capitalist rule, but is based on the progress that capitalism has created, it development of the productivity of labour and most importantly on the labour itself that performs this productive work. Marx’s alternative is therefore based on the working class and its potential to control society.
Crises demonstrate the necessity of an alternative but in themselves do not create that alternative. They can demonstrate what is wrong, but it is what it is possible to replace this system with that is the question. Only if the contradictions which give rise to crises contain within themselves their progressive resolution is it possible for there to be a progressive alternative to capitalism. So, what is the nature of the contradiction that Marx identified that promises that a fundamentally different society is possible?
Back to part 13
Forward to part 14
Sráid Marx 
Okay, I’m back. The other thing that Marx notes, following Ricardo, is that what is significant under capitalism is not the maximisation of the gross product, but of the net product. It is, in fact, this which is the real basis of Marx’s analysis of the limitations of capital, and the need to go beyond it.
Adam Smith concentrates on the gross product, just as much of today’s economic focus rests on growth of GDP. But, Ricardo notes that it is better to have a society where there are 200 workers producing enough to sustain a population of 300, than it is to have a society where there are 300 workers who produce enough to sustain a population of 400. The amount of surplus product is the same in each case, and in the latter case, the gross output is equal to 1.33 times what it is in the former. But, in the former, the level of productivity is higher. The net product of 100 is equal to 50% of the necessary product in the former case, but only 33.3% in the latter.
Ricardo focussed on everything that would increase this net product, and its this, Marx says, that is the really progressive historical role that Ricardo plays, because it lays the basis for precisely that development of the productive forces, required for Socialism that you have elaborated. The contradiction between the development of the net product and of the gross product, however, is essentially the contradiction that leads to crises, and that points to the need to go beyond capitalism to socialism. If the aim of society and of production was to maximise the gross product, crises of overproduction could never occur. Overproduction would indeed occur, as a normal aspect of production, but it could not be a basis of crisis.
“If the means by which the wealth in society is produced is not owned in common, by everyone, but by a small number so becoming a separate class, then the distribution of income and wealth that flows from this production will primarily benefit this class.”
What has become even more obscene since Marx’s time, and which he and Engels could only part theorise, is the extent to which it is not even in terms of ownership of the means of production that this inequality of incomes is now based. Marx himself analysed the transition from the fetter of the monopoly of privately owned capital, to the bursting asunder of that fetter with the development of socialised capital, in the form of the joint stock company and co-operative. Engels, in his Critique of the Erfurt Programme noted that private capitalist production was even by then the exception,a nd with the development of the large corporations so too even “planlessness”, the fundamental basis of repeated crises had been ended.
As Simon Clarke pointed out nearly 30 years ago, the level of planning of a large supermarket chain in Britain was greater and more sophisticated than that undertaken by Gosplan for the whole of the USSR. If the actual productive-capital in these giant companies was under the democratic control of the workers in those companies, and if it was more coordinated, then the repeated crises could be ended. The aim of production would not be a maximisation of the net product, but of the gross product, and raising productivity would only be a means of achieving that end. Any overproduction could simply raise real living standards, or be used as a reserve etc. It is only the requirement to sell such output at prices that reproduce the consumed capital that currently results in crises.
The distortion that exists currently is not one that arises from the ownership of productive-capital, but of different forms of capital and landed property. The landlords were able to continue to exercise political power for a long time even after capitalism became the dominant form of production. As Marx says, right up to the latter part of the 19th century, the extent of that power was reflected in the statement in Parliament by Palmerston opposing the Irish Tenants Rights Bill, that the House of Commons was a house of landed proprietors. The landlords revenues and power came not from the ownership of capital, but of land, and the ability thereby to extract rent from the productive-capitalists, which is why some Ricardians were led to advocate the nationalisation of land.
But, today, we have a similar situation. It is not the ownership of productive-capital which gives the dominant section of capitalists their huge incomes and power, but their ownership of loanable money-capital, and from it to derive interest be it interest on bonds, or dividends on shares. And it is this latter which because of their political power, which has resulted in a particular set of laws on corporate governance to exercise control over property they do not own. As shareholders, they own shares, not productive-capital, and yet via the ownership of those shares they dominate the election of Boards of Directors and appointment of executives to companies, which enables them to exercise control over the socialised capital. And, that control enables them to take decisions not in the longer term interests of the socialised capital, but of their own short term financial interests, and that has been a characteristic feature in the exercise of monetary policy by the capitalist state in the last two decades or so, and of the actions of company boards, not to accumulate real capital, but to maximise the payments of interest, and to push asset prices to ever higher levels, thereby creating the conditions for financial bubbles to burst as witnessed several times in the last few decades.
The basis already exists in large part to eliminate economic crises. The very largest companies plan their production so as only to accumulate additional capital, when they know that the additional output can be sold profitably, as opposed to the competition of millions of small capitals in Marx’s day, that increased their production without any regard as to whether the output could be sold. It is the remnants of those small companies – today in Britain still running to around 5 million companies – that are the continued basis for economic crises. Many of these are too small to have any great overall economic impact,a nd many of the rest are increasingly tied into the business and investment plans of the larger companies on which they rely for their existence.
If the laws of corporate governance were changed to prevent shareholders from having any more rights than other lenders of money-capital, and making company boards wholly elected by a firm’s workers and managers, as in the case of a worker-owned co-operative, and if increasingly the provision of loanable money-capital was centralised in the hands of a worker-owned co-operative bank, economic crises could be ended tomorrow, and attention could be focussed on maximising the gross product, as society made a gradual transition from capitalism to socialism.
“Within capitalism, progress inevitably involves increased exploitation since exploitation of labour is how this society increases productivity. But progress there has undoubtedly been and without it socialism would not be possible.”
Its not just capitalism, of course, that relies on exploitation of labour. Every society relies upon increased exploitation of labour to raise its level of productivity, the two things are really tautological. Increased productivity means that a given quantity of labour, produces a greater quantity of output, and if the value of labour-power, amount of necessary labour required is held more or less constant, then that means that any given quantity of labour, not only produces more value, but thereby more surplus value/labour. As Marx says in Capital III, in discussing pre-capitalist forms of rent, what characterises each mode of production is the way this surplus labour is pumped from the producer.
What specifically characterises capitalism is that, in these pre-capitalist societies, the surplus labour is pumped from the producers in the form of a surplus product, surplus use values, whereas under capitalism it is pumped out in the form of surplus exchange value. What also characterises capitalism, is the fact that unlike pre-capitalist modes of production, it does this not by relying upon absolute surplus value – the extension or intensification of the working-day – but by relative surplus value, in other words, by continually reducing the length of the necessary working-day, by reducing the time required to produce the workers’ necessaries – hence the cheapening of food, and other basic items . It does this not, therefore, by making workers work harder, or longer – though it does this too, particularly at different stages – but by utilising the surplus increasingly to invest in new methods of production and technology, that raises the workers productivity, and hence the time required to produce these basic items of the workers consumption.
And, indeed, a basic element of the civilising mission of capital, is that because a fundamental contradiction exists between capital’s drive to raise productivity and thereby produce additional surplus value, and its ability, then to be able to realise this surplus value, it is forced to continually extend the range of commodities that are included in the workers necessary consumption. It thereby also raises workers living standards far more effectively than any previous mode of production.
I have to go out now, but I will come back to this later today.
“and if the value of labour-power, amount of necessary labour required is held more or less constant, then that means that any given quantity of labour, not only produces more value, but thereby more surplus value/labour.”
Actually, what I said here is bollocks. Any “given quantity of labour”, of course, produces the same amount of value, not matter how productive – unless its in the context that Marx cites of it acting like complex labour, for example in international comparisons. What it produces is more use values! But, because it does so, the amount of necessary labour-time/value of labour-power falls, and so surplus product/value rises.
As yet a further qualification, what I initially said was not totally bollocks. A given quantity of labour, e.g. 1 day of abstract labour always produces the same amount of NEW value, but varying amounts of use values, and so varying amounts of surplus product and surplus value. However, also because of this latter, rising productivity also means that because a larger quantity of use values are produced, a greater mass of value is also produced. Here is why, as Marx sets out in Theories of Surplus Value.
One day of abstract labour may produce say 100 metres of linen. In terms of immediate labour, the 100 metres of linen has a value equal to 1 day of labour (say 10 hours, and so each metre equals 0.10 hours). If productivity doubles, 200 metres are produced, but still has a value, in terms of immediate labour of 10 hours, so that the value per metre falls to 0.05 hours).
However, as Marx points out in relation to Ricardo and others, the linen does not just consist of the value newly created by the immediate labour. If productivity has doubled, 10 hours of labour now also processes twice as much yarn as was previously the case, in order to produce the 200 metres of linen. Unless we are to believe that the value of the yarn has fallen by at least the same proportion, then the value of yarn incorporated in the linen must have risen.
If 100 metres of linen contains 100 kg of yarn, with a value equal to 5 hours labour, then ignoring any other constant capital, the value produced by the day’s labour is equal to 10 hours immediate labour, and 5 hours of yarn = 15 hours. If productivity doubles, the value for immediate labour is still equal to 10 hours, but now 200 kg of yarn are consumed in the production process, with a value of 10 hours. So, now the value produced by the day’s labour is equal to 10 hours immediate labour, and 10 hours of congealed labour in the yarn = 20 hours.
The consequence then is that rising productivity leads to more value being produced in a day, although the amount of new value created remains the same, it means that the mass of congealed labour contained in the value of the production rises relative to the immediate labour – assuming no reduction in the value of the materials, and no other savings in their use. And that, of course, is also the basis of Marx’s theory of the tendency for the rate of profit to fall, as opposed to the theories of Smith, Malthus and Ricardo.
The importance of that in relation to the original theme is this. Adam Smith understood the basis of surplus value. He understood from the Physiocrats that it is produced in the act of production by labour. Smith recognised that value is labour, but he argues the law of value breaks down as soon as landed property and capital appear. There is a relative shortage of capital compared to labour. So the price of capital is high, and labour is low. This he argues is the basis of surplus value, the surplus being purloined by capital.
However, Smith goes on, capital accumulation proceeds faster than the growth of the working population. Result, the relative surplus of labour declines, wages rise, profits get squeezed. As he sees this as a continuous process, hence the law of falling profits, until profits are competed away. A similar line can be seen in the writings of some neoclassical economists like Walras and Baumol. Marx, in setting out his theory of crises, in TOSV Chapter 17, rejects Smith’s argument, saying,
“A distinction must he made here. When Adam Smith explains the fall in the rate of profit from an over-abundance of capital, an accumulation of capital, he is speaking of a permanent effect and this is wrong. As against this, the transitory over-abundance of capital, over-production and crises are something different. Permanent crises do not exist.”
However, the fact that Marx says that “permanent crises” do not exist, which is the implication of such catastrophist explanations of the Law of Falling Profits, is not the same as saying that this explanation of a profits squeeze set out by Smith does not occur. And Marx is quite clear that it is such periods where capital accumulation has proceeded to such a level that labour reserves have been used up, so as to push up wages, and squeeze profits that characterises overproduction of capital, so that the employment of additional capital/labour does not expand the mass of profit, and may even contract it. It is this which leads to a crisis of overproduction, not the long run tendency for the rate of profit to fall.
In Capital III, Chapter 15, for example, Marx writes,
“There would be absolute over-production of capital as soon as additional capital for purposes of capitalist production = 0. The purpose of capitalist production, however, is self-expansion of capital, i.e., appropriation of surplus-labour, production of surplus-value, of profit. As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population, nor the relative surplus working-time, could be expanded any further (this last would not be feasible at any rate in the case when the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over-production of capital; i.e., the increased capital C + ΔC would produce no more, or even less, profit than capital C before its expansion by ΔC. In both cases there would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour.”
This is the squeeze on profits that Adam Smith describes, as labour supplies are used up pushing up wages. It is NOT the basis of the law of falling profits as outlined by Marx in opposition to the theories of Smith, Ricardo and Malthus.
As Marx notes, Ricardo did not accept Smith’s view that capital must continually expand faster than the working population leading to this result. And, part of the reason is that Ricardo noted, as does Marx that these periodic shortages of labour that squeeze profits, can be resolved by the introduction of labour saving technology. As marx says, earlier in Chapter 15,
“Given the necessary means of production, i.e. , a sufficient accumulation of capital, the creation of surplus-value is only limited by the labouring population if the rate of surplus-value, i.e. , the intensity of exploitation, is given; and no other limit but the intensity of exploitation if the labouring population is given.”
The response to a Smithian squeeze on profits, which leads to a crisis of overproduction, is then a drive to introduce labour saving technologies that create a relative surplus population, and thereby drive wages down again, increasing the rate of exploitation, and increasing the mass of profits. This, in fact, is the basis for Marx’s Law of the Tendency for the Rate of Profit to Fall, as opposed to that of his predecessors. It is why, unlike the reduction in the mass of profits that these previous theories involve, Marx’s theory involves an increase in the mass of profit! Marx’s explanation of the law of falling profits is as a solution to periodic crises of overproduction, not the cause of such crises!
As Marx puts it, his law of falling profits is based upon an INCREASE in the rate of surplus value, and mass of profit, whereas that of his predecessors was based upon a fall in the rate of surplus value (as wages rise), and a consequent fall in the mass of profit.
So, Ricardo, in opposing Smith, argues that productivity rises faster in industry than agriculture. The consequence is that capital can continue to accumulate apace, but this rising productivity does not lead to a shortage of labour as Smith believes. However, Ricardo continues, this continual growth of industry, and of the working population leads to an increasing pressure on agriculture pace Malthus, to provide food and raw materials. The value of labour(power) is continually reduced as industrial productivity cheapens industrial wage goods, and periodic improvements cheapen food, but not at a pace that matches the rise in demand. In line with Ricardo’s theory of rent, therefore, agricultural production (and mineral extraction) moves to less fertile lands, so the prices of food and raw materials rise.
As food prices rise, this causes the value of labour(power) to rise despite the fall in the prices of industrial wage goods. Its not a shortage of labour for Ricardo that causes wages to rise to squeeze profits, but this rise in the value of labour(power) caused by rising food prices. So, rising wages then squeeze profits, and because the divergence between agricultural and industrial production he believes must continue to widen as less and less fertile lands are brought into use, profits must be continually squeezed, and this squeeze will become more noticeable at some times than others, as the rise in food prices increases faster than the fall in industrial wage goods prices falls.
In addition, the rise in agricultural and mineral prices also leads to higher rents for landowners, and because rents are a deduction from profits, this squeezes the rate of profit further. It was on this faulty basis that Ricardo also arrives with a theory of the falling rate of profit that leads to catastrophist conclusions whereby the mass of profit falls rather than rises as the basis of the fall in the rate, and thereby ultimately leads to the collapse of the system.
Marx demonstrated why this catastrophist theory is also wrong, as well as demonstrating the fallacy of Ricardo’s theory of rent. Even a relative fall in agricultural production, i.e. relative to industrial production, is an absolute increasing in agricultural production, which leads to lower not higher agricultural and mineral prices. Increased production does not lead necessarily to less fertile lands being brought into operation. The US prairies brought into cultivation were more fertile than European agriculture, for example, and we see the same today with capitalist agriculture developing in Africa raising productivity way above, the level of the former peasant and subsistence farming.
Instead of labour shortages increasing, they are temporary phenomenon associated with periods of extensive capital accumulation, when the conditions for the law of falling profits do not apply.
“Growth of capital, hence accumulation of capital, does not imply a fall in the rate of profit, unless it is accompanied by the aforementioned changes in the proportion of the organic constituents of capital. Now it so happens that in spite of the constant daily revolutions in the mode of production, now this and now that larger or smaller portion of the total capital continues to accumulate for certain periods on the basis of a given average proportion of those constituents, so that there is no organic change with its growth, and consequently no cause for a fall in the rate of profit. This constant expansion of capital, hence also an expansion of production, on the basis of the old method of production which goes quietly on while new methods are already being introduced at its side, is another reason, why the rate of profit does not decline as much as the total capital of society grows.” (Chapter 15)
Its only during such periods – like the 1960’s/70’s – when wages rise and profits are squeezed that the potential for crises of overproduction arise. The shift to intensive accumulation, new labour-saving technologies that cause a rise in productivity, increase in the organic composition of capital are the method of resolving these crises of overproduction, not the cause of such crises!
Wages have remained low – whilst living standards have risen – precisely because of the huge increase in productivity that has happened in the last thirty years.