Tuesday, February 1, 2011

THE THOUGHT OF KARL MARX PART ELEVEN

And so, after sixteen thousand words of preliminary remarks, I come finally to the centerpiece of Marx's lifework, his analysis and critique of capitalism. Although, as I have remarked, Marx wrote at least 5000 pages of economic analysis [and maybe more, as one commentator noted], everyone, I think, will agree that the central text is Volume One of CAPITAL. When we open the pages of this extraordinary book, we are immediately confronted by a problem of great complexity and difficulty. Marx purports to be writing in the tradition of Smith, Ricardo, and dozens of lesser lights, but his language bears almost no relation to theirs. It is complex, convoluted, rife with metaphors, ironies, literary allusions, and metaphysical crochets. Ricardo's language is recognizably like that of Smith, and Smith's language looks not very different from that of Quesney [although it is, of course, English, not French], but Marx's language is absolutely nothing like that of any of his predecessors. What on earth is going on?

In my opinion, this question is of such importance that it needs, and deserves, an entire book devoted to it. So I wrote one. MONEYBAGS MUST BE SO LUCKY is my attempt to confront, engage with, and answer the question. Each writer must choose a language whose syntactic and literary possibilities are adequate to the complexity of the object of his or her discourse. The classical political economists were children of the Enlightenment, and believed that when the fog of superstition was blown away, what would remain was a simple, clear transparent world whose structure could successfully be captured by a plain, non-metaphorical prose. To them, the marketplace was a transparent world of rational calculation and exchange.

But Marx believed that capitalist economy and society is deeply mystified, presenting itself as transparent when it is in fact opaque, as rational when it is in fact irrational, as the end of history when it is in fact just one more stage in the unfolding of history. What is more -- this is really difficult and important -- he is convinced that although we can, by great effort, see through the opacity and the irrationality, we and he as inhabitants of that world can never entirely rid ourselves of the effects of the mystifications. To express the full subtlety of this insight, he needs a language that can, at one and the same time, reproduce that surface opacity and irrationality, analyze and explicate it, and yet acknowledge our bondage to it, with full and appropriate intensity of emotional articulation of each level. His solution, unique among social scientists of any discipline or persuasion, is a complexly ironic discourse, rich with cultural allusions and resonant with overtones and implications. No one had ever written social science like this before, and no one has since, or perhaps ever will again.

This is not the customary view of Marx's language, of course. The reaction of the British, as exemplified by Joan Robinson, has been to subscribe to what I elsewhere call the childhood polio view of Marx's writing style. This is the notion that when he was young, he contracted a nearly fatal case of Hegelism, which nearly destroyed his ability to move gracefully from the beginning to the end of a sentence. Long years in England facilitated a partial recovery, but the effects lingered, with the result that he never succeeded in achieving the limpid clarity of a David Ricardo. Never mind that this view is offered with respect to the man who wrote THE COMMUNIST MANIFESTO, arguably the most powerful piece of political prose ever penned. We know for a certainty that the theory is wrong because while Marx was preparing Volume One of CAPITAL for publication, he wrote, in ENGLISH, an exposition of his views, published as the pamphlet VALUE, PRICE, AND PROFIT, which is as transparent a piece of Ricardian prose as one could ask for. Clearly, Marx chose to write as he did because he believed that only thus could he communicate his richly complex ironic vision of capitalist society and economy. And, I am quite convinced, he was correct.

[After writing these last lines, I re-read portions of MONEYBAGS MUST BE SO LUCKY, to keep some of its phrases and arguments fresh in my mind. That little book, I believe, is, sentence for sentence and page for page, the best thing I have ever written, although it has languished for years now, having, in David Hume's poignant phrase, fallen "stillborn from the presses." I cannot reproduce it here, though I should like to, but perhaps some of you will be moved to take a look at it.]

In the opening pages of CAPITAL, Marx begins his analysis of the mystifications of capitalism, but I am going to postpone my discussion of this aspect of Marx's theory because it would interrupt the story I have been telling about the Labor Theory of Value. I shall have to return to this theme of mystification, however, because it is impossible to understand the full complexity of Marx's economic theory without it.

Recall the point at which we had arrived when we concluded our look at Ricardo. Ricardo solved Smith's problem of the "accumulation of stock" by revising the Labor Theory of Value to take account of labor indirectly required for production -- or as Ricardo puts it, "embodied labor." This embodied labor is thought of as residing in the capital inputs and being transferred, but by bit, to the output in the process of production. [Marx will have a wonderful time both ridiculing and embracing this bizarre notion of bits of labor being passed from the spindle to the wool as the wool is spun into thread. He calls the notion absurd, crack-brained, "verruckt," and yet, despite that fact, correct. We shall have to see later on what that is all about.] But brilliant though Ricardo's revision was, it turned out to hold true only in the very special case of economies like the little corn/iron-books model we were looking it. As I told you [without proof, though that is easily supplied if you know a little linear algebra], prices are in fact proportional to labor values only in the case in which each line of production exhibits the same ratio of labor directly required to labor indirectly required -- a situation which Marx equivalently describes as "equal organic composition of capital." [Marx also rather vividly describes this as a situation in which each line of production uses the same proportions of "living labor and dead labor."]

Since Marx believes that he can salvage the Labor Theory of Value despite this problematic limitation, and in doing so reveal some very deep truths about capitalism, we might expect him to begin Volume One of CAPITAL by posing the problem for the general case, in which we do not have the convenient and rather unusual situation of equal organic composition of capital. But to our surprise, Marx does not follow this strategy of exposition. Instead, all of Volume One is written about the special case of equal organic composition, and it is not until Volume Three that Marx completes his defense of the [now considerably revised and elaborated] Labor Theory of Value. Why?

The reason is that Marx sees in the writings of his classical predecessors an even deeper problem than that of the determinants of natural price, a problem of which Smith, Ricardo, and Mill were not even aware. The problem goes so deep into the real nature of capitalism that it takes Marx virtually an entire volume to solve it and explore the historical, ideological, social, and economic implications of the solution. Eventually, he will use his solution to this little understood problem as the clue to the final defense of the Labor Theory of Value. I shall argue that it is his solution of the problem posed in Volume One, rather than his resolution of the difficulties with the Labor Theory of Value, that is the real heart of Marx's entire critique of capitalism. It is also the central truth of Marx's lifework, unrefuted to this day, a truth that stays with us after history and mathematics and politics and time have tarnished Marx's reputation. It is because of this truth that I call myself a Marxist.

If I may be facetious for a moment and make a little philosophical joke, the problem Marx sees is the economic version of a more general problem that Martin Heidegger would later pose: Warum gibt es uberhaput etwas, und nicht nichts? [Why is there is general something and not nothing?] Marx asks, why, in a capitalist economy, are there any profits at all?

We know that in virtually every economy, there is a physical surplus each year that is appropriated by someone in the society. And we know for a fact that there are enormous profits in capitalist economies, because we can see the capitalists getting rich, year after year. It certainly looks as though the capitalists are appropriating the surplus, and indeed, with a little calculation, we can demonstrate that in our corn/iron/books model, the natural price of the annual physical surplus exactly equals the profits garnered by the capitalists. [To demonstrate this, we would first have to specify the wage, and this, as we shall see, is a profoundly important step in the process of analyzing what is going on in the economy.] But why are there any profits at all? Why do capitalists get rich under capitalism?

We know why slave masters get rich. They force their slaves to perform productive labor whose product the masters appropriate. We know why feudal lords get rich. They compel their serfs to labor several days a week on the lord's land, and the lords then appropriate what is grown on that land. But in a capitalist economy, there are no slaves, there are no serfs. There are only legally free men and women who voluntarily accept jobs working in the factories of their employers, the entrepreneurs. These workers are paid wages determined by the forces of the free market. How, in this situation, can it be that the workers merely survive, and the capitalists grow fat on profits?

The apologists for capitalism on the eighteenth and nineteenth centuries had a number of answers to this question, all of them, needless to say, very flattering to the capitalists, and these answers have stayed with us. One can still find them in modern mainstream economics textbooks.

The first answer, and my favorite, is the abstinence, or, as I like to think of it, the cheese-paring, theory of profits. According to this explanation, most people improvidently and wantonly spend every bit of money they can lay their hands on, buying fine clothes and hard liquors and expensive delicacies for their dinner table, and so they never grow any wealthier. But a few sternly religious upstanding Protestant men live simply, pare their cheese, scrimp on their clothing, eschew hard liquor, and set aside every bit of money they can squeeze out of their daily budgets until they have amassed enough to start a small business. "Many a mickle makes a muckle," as George Washington said, misquoting the old Scots proverb. Profit is then the reward in this life for the virtue that will be even more lavishly rewarded in the next. Modern economics jettisons the religious trappings and simply calls profit the reward for waiting [i.e., waiting to consume.]

This explanation of profit, spiritually uplifting though it may be, is unfortunately not terribly plausible analytically. In fact, it confuses the rate of interest with the rate of profit. To see that this is indeed a confusion, perform the following little thought experiment. Imagine two would-be entrepreneurs, each of whom decides to launch a business. We may suppose that both businesses, once started, will have gross annual receipts of five million dollars and annual expenses [including raw materials, machinery, labor, utilities, and so forth] amounting to $4,840,000. The going rate of interest, let us assume, obtainable at the local bank, is 6%. The first entrepreneur, a fine upstanding Puritan, has saved for years and managed finally to assemble a fund of one million dollars, which he decides to invest in his start-up. By doing so, of course, he chooses to forego the sixty thousand dollars in interest that he could earn simply by putting his money in the bank. At the end of the year, when it comes times for him to do his books and figure out whether he has made a profit, he will have to subtract, from his gross revenues, not only the cost of his labor, raw materials, machinery, and so forth, but also that lost sixty thousand dollars. That is, as they say these days, the opportunity cost to him of using his million dollars to start the business. His calculations yield a happy result. Against his five million in gross revenues, he writes the $4,840,000 he has spent for all those inputs, adds to this the $60,000 in foregone bank interest, and finds that he still has $100,000 left over, for a healthy 10% profit on his invested one million. In short, he has made a profit. The second entrepreneur, who has until now led a rather profligate life, has no sevaings at all, but he is a fast talker, and manages to persuade a banker to lend him one million dollars, in order to launch his business. His end of the year calculations yield exactly the same result. He has five million in revenues, four million eight hundred and forty thousand in production costs, and sixty thousand in bank interest, all of which, when deducted from his gross revenues, leaves him with the same 10% profit. So it seems that profit is not the reward for abstinence, upstanding living, and frugality.

[This is growing rather long. I shall continue tomorrow.]

8 comments:

  1. A Minor thing: Presumably the rate the bank pays its depositors and the rate the bank charges to borrowers are not identical, hence the hard worker does get more than the smooth talker?

    More importantly: What reason do we have to believe there that there is any deep question (to be answered by privation-theory or by Marx) about the existence of profits? On the surface we have a story about the existence of private property, supply and demand. What question about profit does this not resolve?

    Marx gives us nothing beyond the claim that there is something 'deep' at play: "Let us take two commodities, e.g., corn and iron. The proportions in which they are exchangeable, whatever those proportions may be, can always be represented by an equation in which a given quantity of corn is equated to some quantity of iron: e.g., 1 quarter corn = x cwt. iron. What does this equation tell us? It tells us that in two different things – in 1 quarter of corn and x cwt. of iron, there exists in equal quantities something common to both. The two things must therefore be equal to a third, which in itself is neither the one nor the other. Each of them, so far as it is exchange value, must therefore be reducible to this third."

    Marx does proceed to give an analogy to illustrate the idea, but does not argue for it.

    My problem is with the claim that, in the two commodities (under certain idealisations) "there exists in equal quantities something common to both". Why believe this?

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  2. Tomorrow I will explain what the deep problem is. It is really very hard doing this inpieces, especially when I have already written two complete books about it, but this is a long story, and we must all be patient.

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  3. Thanks. I actually ordered one of your books (I think it was 'Moneybags') for our library, but it either hasn't arrived or the librarians are holding out on me.

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  4. I'm enjoying this series very much. When it's done, I think I'll read your two books on Marx to get the complete story. Then, I may finally be emboldened to tackle Capital itself.

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  5. By all means read CAPITAL. It is one of the great books of the western canon.

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  6. The waiting theory of profit is one of those things I struggle to understand why anybody would ever believe -- our world is certainly not one where the most prominent capitalists started life on an equal footing with their lowest-earning employees! There are two facts which scupper the waiting theory's plausibility, both perfectly obvious once you give the matter some thought: the more you have, the more the rewards (meaning that people who already have money in the bank, or access to it, have an enormous advantage to ones who don't) and that there is a certain amount of money everybody has to spend simply to keep themselves alive (and for the median earner, this takes up the vast majority of income, whereas the richer you are the less significant a portion this is, meaning the more money you have available for capitalist venture). Once you have people starting their productive lives at different levels of income (like we have, and have in spades), the waiting theory is no explanation at all of why rich people tend to earn far more than poor people.

    I tell myself and my students that if you look at an interesting philosophical problem and think that one side of the issue is obviously mistaken, then almost certainly you haven't properly grasped the problem. But here I am, where a major premise of much of what I am told about economics is, as far as I can tell, simply nonsense. It causes me unease. I comfort myself by the fact that economists aren't philosophers, but I still worry about it. Am I missing something?

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  7. Do you have a recommended English translation, Professor Wolff?

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  8. BTW when Heidegger asked "why are there things that are rather than nothing at all?", he was just re-quoting Leibniz, since that was the negative form of his "principle of sufficient reason", the positive form of which states that "all things that are have a ground". I.e. the question is the perennial philosophical one of how existence is at all intelligible. So, applied to Marx, the question is how the existence of profits is at all intelligible, which, remarkably, hadn't be asked, let alone answered, by his predecessors.

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