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Friday, February 8, 2013

WHAT HAVE I BEEN DOING -- PART SEVEN


Who Gets the Surplus?  It is Marx's view, confirmed by even the most cursory review of human history, that in every era and on every continent, we find a relatively small group of people who appropriate the lion's share of the surplus.  Kings and their entourages, emperors, landed aristocrats and their hangers-on in the churches and the law courts, there is always a class that gets the surplus, whether that surplus is in the form of foodstuffs, artworks, weapons, buildings, and fine clothing, or bags of gold, ingots of silver, copper coins, bank notes, and shares of stock.

What Do the Surplus Getters Do With the Surplus After They Get it?   [If I may reverse the order of the questions.]  This was actually a subject of the most intense concern for Smith, Ricardo, and the other classical Political Economists.  Smith in particular devoted a good deal of attention to the contrast between the entrepreneurs, who, he said, used their share of the surplus productively, by reinvesting it in expanding the scope of their production, and the landed gentry, who, in his view, wasted their share of the surplus [which came to them in the form of rent on their land] by supporting clouds of unproductive servants whose labor contributed nothing to the wealth of the nation but was in fact a drain upon it.  The worst nightmare of the classical school was something they called the "steady state," in which increased demand for food resulting from increases in population drove rents up so high that all of the available capital was absorbed in unproductive uses and economic growth ground to a halt.

Marx's answer [which, as we shall see, actually has a rather important mathematical significance] is that in a capitalist economy, entrepreneurs are compelled by competition to reinvest the surplus, which they receive in the form of money profits.  "Accumulate! accumulate!  That is Moses and the prophets!"  [Capital, Chapter XXIV, "Conversion of Surplus Value Into Capital."]  See The Gospel According to Luke, Chapter 24, verse 27:  "And beginning at Moses and all the prophets, he expounded unto them in all the scriptures the things concerning himself."  It means going back to the foundation, the most basic texts.  It is characteristic that in writing about capitalist accumulation, Marx would invoke a catchphrase from biblical interpretation.

How Do the Surplus Getters Get the Surplus?  And so we come to the question that lies at the heart of Marx's economic theory.  In previous societies, it was not particularly difficult to figure out how the surplus getters got the surplus.  Sometimes they got it by naked force of arms, as for example was the technique of the Norsemen who, each Spring, would sail up the rivers of France and the Lowlands and simply steal the crops of the hard-working farmers along the river banks.  Military states like that of the Mongols got their share of the surplus by exacting taxes from those whom they conquered.  Feudal lords extracted a surplus from the serfs whose labor they could command on the lands they controlled.  And in slave economies, like that of ancient Rome or seventeenth, eighteenth, and nineteenth century America, the surplus getters got the surplus by compelling their slaves to work on their lands and in their shops and at their forges.

Now, anyone with eyes to see could tell that in mid-nineteenth century England, an enormous surplus was being generated on the land and in the factories, and it was obvious that most of that surplus was being regularly appropriated by entrepreneurs, capitalists, businessmen, call them what you will.  Every commentator on the passing scene was powerfully struck by the phenomenon of "new men," who began life as apprentices or small merchants and seemingly in no time became wealthy nabobs in fine houses, marrying their daughters off to impecunious young men sporting ancient titles.

But though it was clear that a surplus was being generated each year larger than any that had been seen in previous eras, and it was manifest who was getting the surplus, it was extremely unclear how these surplus getters were getting their share of the surplus.  Marx's recognition that capitalism mystifies the process of the appropriation of the surplus and his analysis of that mystified process is the theoretical heart of his entire theory.  Smith and Ricardo, despite their enormous theoretical contributions, did not even realize that there was a question to be answered.  Because Marx was convinced that the identification of this question and its answer was more important and more fundamental than the problem with which Ricardo had wrestled in his final years -- the problem of the deviation of prices from labor values -- he chose to set aside Ricardo's question in Volume I by writing the entire volume on the assumption of equal organic composition of capital, a condition in which the deviation does not take place.  Only after he had laid bare the complete dependence of capitalism upon exploitation would he complicate his story by taking up Ricardo's secondary puzzle.

The puzzle is this:  If equals truly exchange for equals in a marketplace free of the distortions either of law or custom, then the inputs that the capitalist purchases at their value at the beginning of the production process must pass their value on to the product that emerges at the end of that process, but no more.  When the capitalist sells his product, once more at its value, he will recoup every bit of money that he has laid out to his suppliers.  But how is it that he exits this cycle of purchase, production, and sale with more money than he had when he began?  How does the capitalist make a profit? 

6 comments:

Chris said...

Have you read Marx's Capital Notebooks of 1861-63? And where can one get their hands on these notebooks....

Robert Paul Wolff said...

Chris, you can find them [in English] in Volume 30 of the International Publishers' Complete Works of Marx and Engels. No, I have not read them.

Jerry Fresia said...

Is this to say that Smith and Recardo were unconcerned about the distribution/maldistribution of wealth?

I'm not sure how many parts to this you will do or what you intend to include, but I would love to hear your thoughts on the change in justification of surplus getting (or ideology?) which the surplus getters drummed up as the feudal economy transitions into capitalism. Divine right/moral order displaced by the embrace of some version of meritocracy?

Your concision and clarity/simplification is great.

Seth said...

Bob,

Profit is a holonomy effect. No surprise that it is a puzzle, since even contemporary mathematical physicists working with the most sophisticated mathematical tools in human history find it hard to think about. I think this idea can be made pretty rigorous in the context of pure trading (eg financial markets), but would be harder to pin down in the real economy.

http://en.wikipedia.org/wiki/Holonomy

I was puzzled by the time you spent explaining that "price indices reduce the multidimensional to the one dimensional" because I was forgetting that most people simply have not cultivated the mathematical intuition required for that bald statement to have much resonance. But for me, that single sentence contains multitudes. Perhaps most importantly the subjectivity inherent in the proces -- there is an entire 'dual space' of choices of index. The choice of index is as complicated as the original space you are trying to simplify!

Magpie said...

Prof.

I'm catching up! One question. From this:

"Marx's recognition that capitalism mystifies the process of the appropriation of the surplus and his analysis of that mystified process is the theoretical heart of his entire theory".

Would it be appropriate then to conclude that Marx's greatest contribution was to discover exploitation?

I mean, although Ricardo never used the E-word, he had already observed that the landed aristocracy was exploiting the farmers, via rent.

Magpie said...

I've just finished Part Eight. My question above seems much less pressing now. :-)