Capital, Exploitation and Economic Crisis

John Weeks

• Publisher: Taylor & Francis
• Year: 2011
• Print ISBN: 9781138799622
• eBook ISBN: 9781136808012
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

In 2008 the capitalist world was swept by the severest crisis since the Great Depression of the 1930s. Mainstream economics neither anticipated nor could account for this disastrous financial crisis, which required massive state intervention throughout the capitalist world. Karl Marx did anticipate this type of financial collapse, arguing that it was derivative from the 'fetishism of commodities' inherent in the capitalist mode of production. This book substantiates the foregoing claim by a journey from Marx's analysis of commodities to the capitalist crisis of the twenty-first century.

The book demonstrates that Marx's framework (1) demonstrates that capitalism is but one historical form of class society among many; (2) explains the transition from pre-capitalist to capitalist society; (3) reveals the concrete operation of a capitalist economy; and (4) shows why others would explain the capitalist economy in alternative theoretical frameworks. The central element in his framework from which all else derives is 'the theory of value'. This book is not an exercise in the history of thought. It is an attempt to analyze the nature of contemporary capitalist society. While Marx's analysis of capitalism has implications for political action, these need not lead one to embrace revolution in place of reform, though it can and has provided the analytical foundation for both. Marx's analysis of capitalism is a coherent whole, and meaningful insights cannot be obtained by extracting elements from it.

Weeks starts out by looking at the nature of capitalism and an analysis circulation, money and credit unfold from the theory of value. The nature and inherent necessity of competition are demonstrated in chapter eight. A consequence of competition, expressed in the movement of capital, is technical change, the contradictory impact of which is explained in chapter nine. This is brought together with the other elements of value theory (money, credit and competition) in chapter ten, where economic crises are treated in detail. The final chapter applies the theory of crisis to the extreme financial disturbances of the 2000s.

This book should be of interest to students and researchers of economics, politics and sociology.

1 Value as embodied labor

Introduction

For almost all the people in the world, life is maintained through the purchase of commodities, products and services that feed, clothe, house and provide pleasure. The prices of commodities are their exchange values expressed in the money of the country or territory in which people live. The prices of commodities and, therefore, their exchange values, fluctuate through time. For at least 250 years, social theorists and commentators, as well as the public, have sought to determine whether exchange values fluctuate systematically and, if they do, what might be the underlying determinant of the exchange values observed in markets.

All theories of capitalist economies recognize the difference between the market price of a commodity and an underlying mechanism that determines price. Theorists, Marxist and non-Marxist use the word “value” to refer to that which determines market prices. How this value is determined, its composition and the units in which it can be measured define the major schools of economic and social thought. To state the theoretical issue succinctly, prices fluctuate with demand and supply. These fluctuations occur around some center of gravity. Theories differ in their analysis of that center of gravity.¹

A coherent theory of value is essential in a capitalist society because it is the first society characterized by the general circulation of commodities. In capitalist society, production results in circulation of outputs as commodities within a social division of labor that appears to have no conscious regulation. This mediating role of exchange in capitalist society requires the analysis of the quantitative aspect of exchange, since it is the exchange ratios among commodities which determine the social survival of buyers and sellers. For private producers the quantities in which their products exchange against other products determines the conditions for repeating the production and circulation process.

The quantities in which commodities exchange and the underlying social relations determining exchange correspond to what Marx, in his unique writing style, called “exoteric” and “esoteric” phenomena. Exoteric refers to the appearance of things, in the case of commodities their exchange value. Esoteric refers to what is not observed, what determines the appearance of things, the value of commodities. The role of theory is to explain the exoteric by revealing the esoteric.

Relating exchange value to its underlying value is a subtle and difficult intellectual process. To demonstrate the importance of understanding the essentially esoteric nature of Marx’s scientific investigation of value I first consider analytical attempts to move directly from exchange value to the nature and measurement of value. Considering such attempts reveals confusion and contradictions arising when a theory of value is developed at the level of appearances.

Engels’ formulation of the law of value

The analytical power of Marx’s theory of value derives from the form of value being the basis of his consideration of the magnitude of value (exchange value). In the terminology of Marx, “form of value” refers to the form taken by the social distribution of products, which can be summarized in a question that is the subject of the next chapter: why does the value of commodities take the form of exchange value, or, why do commodities exchange? Answering this question is the purpose of Marx’s theory of the form of value.

Consideration of magnitude without attention to why products are commodities, “form of value” in Marx’s sense, characterizes the value theory of David Ricardo, Sraffa and Sraffians.² Treatment of the labor theory of value³ primarily as theory of the magnitude of value is common among those who consider themselves Marxists, and they can find support for their approach in an authority no less illustrious than Friedrich Engels. Engels played a central role in both the socialist and communist movements in Europe, and by doing so earned the respect of subsequent generations of progressives and revolutionaries. He was not only Marx’s friend and benefactor but also a revolutionary theorist of great importance. Recognition of Engels’ contributions does not, however, make his work immune to criticism. The following discussion, which demonstrates his basic disagreements with Marx, does not deny his major contributions to the development of socialist thought and practice.

His role in the debate over the theory of value arises from a commentary he appended to the end of Volume III of Capital, “Law of Value and Rate of Profit”. In this annex he sought to provide a brief explanation of Marx’s value theory, partly in response to critics of Marx. Because of the close personal and professional association of Marx and Engels, this commentary came to have major influence on subsequent Marxists. In his defense of Marx, Engels begins by considering the interpretation of Marx’s theory of value by Werner Sombart, a nineteenth century German economist who argued that value is not an empirical category, but a mental construct (Marx 1971a: 817–18).⁴ Sombart argued that in a capitalist economy commodity value does not exist independently of one conceiving it; it is a concept created in order to explain reality. Engels agreed with this,⁵ but objected that “it by no means exhausts the entire significance of the law of value for the economic stages of society’s development dominated by the law” (ibid.: 894).

Engels went on to argue that the law of value ruled exchange for the entire history of the circulation of products as commodities:

The Marxian law of value holds generally, as far as economic laws are valid at all, for the whole period of simple commodity-production, that is, up to the time when the latter suffers a modification through the appearance of the capitalist form of production …. [T]hus the law of value has prevailed during a period of from five to seven thousand years.

(ibid.: 899–900)

This conclusion leaps off the page, especially since the upper limit of the estimate, 7000 years, reaches to the beginning of recorded society. The assertion has two closely related parts: first, that “the law of value holds generally” for all periods of commodity circulation; and second, that it holds up to the appearance of capitalism, when it undergoes a “modification”. More important than the particular time span is the view that the value form is not specific to capitalism. Engels suggests that it persists in modified form under capitalism, and in precapitalist society assumed its pure form. These two related aspects of Engels’ theory of value result from his method of analysis.

Engels develops his theory of why products are commodities (the form of value) on the basis of surplus of products arising in “more or less communistic communities” (ibid.: 895). It is unclear if this is a general surplus above subsistence production, or surpluses of specific products. The ambiguity is important, for the former implies a class society. A general surplus can exist as an objective phenomenon only if it is appropriated from the direct producer. In the absence of specific reference to classes, there can be no analysis of the appropriation of the surplus product from a producing class to a non-producing class. Without classes, no part of society’s production appears as a surplus. In such circumstances, a surplus product must be deduced on the basis of some physical (subsistence) definition of surplus, which an observer imposes analytically on the society. Thus, a general surplus product either is an objective phenomenon of exploitation, an observable, material aspect of society manifesting itself in the accumulation of wealth by a dominant group; or it is arbitrarily and subjectively defined by an external observer.

If Engels did not mean a general surplus, but surpluses of specific products, then he implies a division of labor, such that the surpluses reflect the anticipation of the producers to exchange one product for another. This presupposes a process by which individual producers or groups of producers decide to specialize. In either case, a general or specific surplus, we have the presupposition of social relations upon which exchange is predicated. The question, why is there exchange, the form of value, is not considered.

On the basis of these surpluses, exchange develops between communities first, Engels wrote, “but later also prevails within the community” (ibid.: 895). Exchange exists because individuals specialize and as a result of specialization produce more than they and their households can use. Exchange progressively provokes the dissolution of the primitive communities, so that the exchange of products becomes the motive force for changes in social relations among producers. The exchange is carried out by “family heads”, who have the ownership right to the product of their labor (ibid.: 895). As the argument develops, a picture of the society emerges, which endured for 5000 to 7000 years according to Engels: independent, exchanging producers (“working peasants … with … their own farmsteads”), specializing within a social division of labor, with property rights to what they produced. It is unclear how such a society would include the dominant classes that characterized most of human history, since the appropriation of the surplus product of the direct producers is the basis of a dominant class.

Engels considered exchange as marginal to the reproduction of the producing families, referring to “the little that such a family had to obtain by barter or buy” (ibid.: 897). Explicit is the presumption that the methods of manufacture of the products entering exchange are known by the exchanging parties, not just by the producer of each product. In this presumption Engels gives an explanation for the division of labor that the exchange process presupposes:

[Exchange] consisted principally of the objects of handicraft production, that is, such things the nature of whose manufacture was by no means unknown to the peasant, and which he did not produce only because he lacked the raw material or because the purchased article was much better or very much cheaper.

(ibid.: 897)

The argument by Engels implies that specialization, division of labor, derives from a process akin to what Ricardo and neoclassical economists call “comparative advantage”. The choice of what to produce is individually determined based on resource endowments and abilities. Explicit is the presumption that those in the exchange process meet each other in the marketplace as equals: “the peasants, as well as the people from whom they bought, were themselves workers; the exchanged products were each one’s own products” (ibid.: 897). This sentence makes clear that the exchange process is not in a class system in which the surplus products are appropriated by a ruling class, but a society of equals, exchanging the products of their labor.

From the logic of Engels one can infer a possible answer to the question, why is there exchange (the analysis of the form of value): at some point in history individual producers achieved a level of productivity such that their output exceeded their needs, which led to individual decisions to specialize, creating a social division of labor, and to exchange. The analysis of the magnitude of value, quantities at which products exchange, follows directly from this analysis of the form of value.

Hence the peasant of the Middle Ages knew fairly accurately the labor time required for the manufacture of the article obtained by him in barter. What had they expended in making these products? Labor and labor alone …. [H]ow then could they exchange these products of theirs for those of other laboring producers otherwise than in the ratio of the labor expended on them? Not only was the labor-time spent on these products the only suitable measure for the quantitative determination of the values to be exchanged; no other was possible.

(ibid.: 897)

Engels encapsulates his argument with a rhetorical question appealing to the native intelligence of the peasant and craftsman, “Or is it believed that the peasant and the artisan were so stupid as to give up the product of ten hours labor of one person for that of a single hour’s labor of another?”⁶

We can summarize Engels’ theory of value as follows: exchange occurs because of the production of a technologically available surplus, and specialization results from producers achieving quality or cost advantages based on access to raw materials or individual abilities. The magnitude of value is determined by the knowledge or perception that the exchanging parties have of the labor time required in production; and this knowledge is obtained from direct observation. Further, this system of exchange is based upon each independent producer possessing the right to the full product of her or his labor. Two aspects of this analysis require stress. First, the labor time it takes to produce a product is the underlying basis of value, and it is overtly manifested and known by individual observation. There is nothing esoteric about the role of value in determining exchange value. Second, members in society consider the working time of all producers to be equal. This is a society in which all producers are formally equal, what Marx called “bourgeois right” (treated in the next chapter).

Engels then argues that the law of value, defined as the law of exchange values, undergoes a major modification with the introduction of money (“metallic money” is Engels’ term). The exchange of products according to their labor content operates in its purest form when exchanges are barter.⁷ With the introduction of a money commodity, “value” in the sense of embodied labor becomes obscured. The obfuscation is of a particular type: that which before was directly observed can no longer be observed. With the introduction of money,

[T]he peasant and artisan were partly unable to estimate approximately the labor employed therein … From the practical point of view, money became the decisive measure of value …. [T]he more [commodities] came from distant countries, and the less, therefore, the labor-time necessary for their production could be checked.

(ibid.: 899)

It is not obvious why money should play an obfuscating role. By hypothesis peasants and artisans have direct knowledge of the concrete labor time expended in production of commodities, and exchange is based on this knowledge. The introduction of money only requires the seller to keep in mind how much of her/his labor time is exchanged against a given quantity of money when she/he becomes a buyer of a commodity whose embodied labor time he knows. In other words, if labor times are known, they are known whether or not exchanges involve money.⁸ Engels deals with this inconsistency by writing, “[C]onsciousness [on the part of peasants and artisans] of the value-measuring property of labor had been fairly well dimmed by the habit of reckoning with money; in the popular mind money began to represent absolute value” (ibid.: 899).

Whether or not one thinks that consciousness and habit play a decisive role in the quantitative determination of exchange, this position would seem to be inconsistent with Engels’ rhetorical question about the intelligence of peasants and artisans. One could ask, “is it believed that the peasant and artisan, having direct knowledge of embodied labor times, were so stupid as to forget this knowledge with the introduction of money?” Given that the theory is based on perception, the key to the obfuscation of embodied labor time would have to be that commodities begin to come “from distant countries”, so that embodied labor cannot be directly known. Money in such a theory plays no role except as a convenient unit of account; it is only a means of circulation.⁹ Its use in exchange does not affect Engels’ theory so long as exchange is between individual direct producers, his comments to the contrary notwithstanding (ibid.: 899).¹⁰

After presenting his theory of value, which is explicitly formulated for non-capitalist relations of productions, Engels considered the relevance of value to capitalism. Analysis of capitalism requires the introduction of a concept of profit. Engels begins with merchant’s capital, a form of capital that pre-dated industrial capital. Here his argument parallels his earlier one. Merchants, like artisans and peasants, know each other’s costs, and on the basis of these perceptions, “the merchant’s efforts are deliberately and consciously aimed at making this rate of profit equal for all participants” (ibid.: 901–2). Thus, in precapitalist times, products exchanged as commodities according to embodied labor time and rates of profit on merchant capital tended to equalize.¹¹ Both of these tendencies were the result of direct knowledge and perception of labor times and costs.

However, profit by merchants contradicts exchange at embodied labor time. By definition merchant’s capital operates only in circulation, not production (...

Table of contents

• Cover
• Title
• Copyright
• Contents
• Preface
• Introduction
• 1 Value as embodied labor
• 2 Value as a social relation
• 3 Exploitation and surplus value
• 4 Circuit of capital
• 5 Commodity money
• 6 Capital and money
• 7 Credit, crises and capital
• 8 Competition among capitals
• 9 Fixed capital and circulation
• 10 Accumulation and crises
• 11 First crisis of the twenty-first century
• Notes
• References
• Index