MARX BOOK DAY TWO

Marx called his great work simply Das Kapital, which is to say Capital (leading his mother, who was rather disappointed in her son, to remark "if only Karl had made Capital, instead of just writing about it.")  The subtitle of Marx’s work is “Critique of Political Economy.”  It is thus, in the first instance, a critique not of capitalist society but rather of what had been written about economics before Marx.  The three great theorists preceding Marx who established the discipline that was known as Political Economy were the 18^th-century French theorist François Quesney, the 18^th-century Scottish theorist Adam Smith, and the 19^th century English theorist David Ricardo.

 

The late medieval reestablishment of Mediterranean trade and the influx of precious metals from the new world together produced a centuries-long inflation in European prices, which in turn led to the widespread belief that wealth consisted primarily in stores of gold and silver. Quesnay, examining the success of the 18^th-century French economy, advanced the radically new theory that national wealth consisted not in stores of gold but in the products of a nation’s agriculture. In defending this view, Quesnay made central to his analysis a concept on which all economic theory came to depend: the concept of reproduction.

 

Reproduction is a very simple idea, but it is so important that we must spend a little time talking about it to make it absolutely clear. Agriculture in the Northern hemisphere produces a single crop each year.  As soon as the snows melt and the ground softens, seeds are planted. They are tended during the spring and summer until, in the fall, the crops are harvested. A portion of the crop is set aside to serve as seed in the next season.  Thus, the output of one season serves as an input into the next season and this cyclical process of reproduction continues, year after year. The same fundamental cycle of reproduction is exhibited in the production of the tools with which the peasants work. The shovels and axes used in one season of agriculture are made from the wood and metal produced in the previous season.

 

A cyclical structure of the process of reproduction is of course exhibited also in the population as well. This generation’s parents are the last generation’s children who are themselves the product of the previous generation’s parents.

 

This elementary idea is, as we shall see, the foundation on which are built the elaborate mathematical models of the 20^th century re-examination of the classical traditional political economy.

 

The foundational work of classical political economy is a large book written by the Scottish philosopher, Adam Smith, and published in 1776, the year in which his friend David Hume died. Smith called his work An Inquiry into the Nature and Causes of the Wealth of Nations.  In his work, Smith presents four powerful ideas which, taken together with the Physiocratic concept of reproduction, constitute the theoretical foundation of classical political economy.

 

The first idea is the division of labor. As they transform nature to satisfy their needs and desires, men and women divide their activities.  Some grow wheat, others tend sheep; some spin wool into thread and weave cloth, others cut the cloth and sew it into coats. This division of labor, as Smith notes, vastly increases the efficiency of production.  But in order for the farmers, shepherds, weavers, and tailors to live, they must exchange what they have produced with one another so that each can consume a portion of what others have produced.

 

The farmers, the shepherds, the weavers, and the tailors meet periodically to exchange their goods with one another. Smith observed that the ratios in which they exchanged their goods varied from day to day.  On one day, the weather might be good and many farmers and shepherds would bring their wheat and their wool to market.  Since there were no laws regulating the prices of these goods – the ratios in which they exchanged with one another – on such a day the farmers and shepherds might be compelled to exchange their wheat and wool for less cloth or fewer coats.  On another day, the weather might be bad and so the farmers might bring less wheat to the market.  On such a day, the price they could get for their wheat might go up.

 

However, Smith noted that experienced farmers, shepherds, weavers, and tailors came to learn in general that the proportions in which their goods exchanged with one another were stable and predictable.  This led Smith to introduce his second great idea: the distinction between the fluctuating market prices of goods and what he called the natural prices for those goods, which is to say the predictable prices that in general governed the exchange of goods in the marketplace.  Invoking the physical theories of Isaac Newton, which in the 17^th and 18^th centuries had so powerful an effect on philosophical thinking, Smith described the natural prices as “centers of gravity” drawing toward them the fluctuating market prices.

 

Having drawn the distinction between market prices and natural prices, Smith asks the question that would dominate all of classical political economy: what determines the predictable, stable, “natural” prices of goods in the marketplace?  At this point, bizarre though it may seem, we must take a detour through the Book of Genesis. What I have in mind will become clear shortly.  Let me remind you of chapter 3, verses 16 to 19 of Genesis (to those of you who feel that I have somehow tricked you into Bible study, let me just note that this passage is the key to understanding the famous 1844 manuscript on the Alienated Labor, of which more later.)   

 

After God creates the Garden of Eden, He places in it a tree whose fruits give one knowledge of good and evil. He commands Adam and Eve not to eat the fruit of that tree but, seduced by the serpent, they do, whereupon God drives them out of the garden and lays upon each of them a curse.  Adam, God says, will henceforth be compelled to get his bread by the sweat of his brow, which is to say, to labor.  Eve is condemned to bear children in sorrow, which will be her labor.  The stain of this Original Sin shall be passed by Adam to all of his descendents. In short, God’s curse is that man shall be compelled to labor.

 

Because labor is a curse laid upon us for our sin, we view labor as an evil, not as a fulfillment, as something to be shunned, not something to be embraced.  Note that it is labor that is viewed as an evil, not activity. Activity was considered a good, it was something that upper-class people did, that philosophers did, that rulers and warriors and athletes did. But labor is a curse, something to be shunned and avoided if possible and engaged in only as much as necessary. Labor is, speaking economically, a cost, not a benefit. Thus Adam Smith concludes that insofar as we are free to exchange goods in the market without the constraint of laws or the compulsion of force, we will value the goods we bring to the market by measuring the amount of labor they have cost us to produce and we shall only be willing to exchange them for goods the production of which would cost us at least an equal amount of labor. In short, Smith offers as an explanation for the ratios in which goods exchange naturally in the market his third great idea, a Labor Theory of Natural Price.  And since in the 18^th century the term “value” was used as a synonym for the term “price,” what Smith puts forward for the first time is a Labor Theory of Value.  This is Adam Smith’s third great idea.

 

At one point, Smith offers as an example an economic exchange between two persons, one of whom hunts deer and the other of whom hunts beaver.   (A personal aside: I have never hunted either, and I am afraid I assumed that it was harder to catch deer than beaver. Hence, when Smith said that it took the deer hunter one day to catch a deer and the beaver hunter two days to catch a beaver, and hence that the only rational basis for exchange would be two deer for one beaver, I kept getting all of this backwards and had to correct the manuscript of my book on Marx’s economic theory when it came from Princeton University Press because I had screwed up the ratios.)  

 

But there is a problem. The deer hunter and the beaver hunter, or the wheat grower and the tailor, use tools in their production processes, and these tools require different amounts of time to produce, last for different amounts of time before they wear out, and so forth. And there is another problem. The deer hunter hunts in forests which, in England in the 18^th century, were the private property of lords and princes. The wheat grower grows wheat on land, which in England in the 18^th century was owned by the landed gentry, who will charge a rent for those who wished to grow wheat on their land.

 

In short, Smith observes, a simple Labor Theory of Value does not explain proportions in which goods exchange in the market once the “appropriation of land and accumulation of stock” have taken effect.

 

Smith struggles in The Wealth of Nations to deal with these problems but is quite unsuccessful. It would not be until 41 years later that David Ricardo would offer solutions to both problems and by doing so put forward a full-scale theoretically developed Labor Theory of Value.

 

But Adam Smith had one more great idea, and this is in many ways his most controversial and important idea. Let me introduce it with a little personal story from 1978, the year in which I began my serious study of these subjects. While I was on sabbatical, I attended lectures given in the UMass economics department by a young scholar visiting from Cambridge University in England named John Eatwell.  Eatwell was then a 32-year-old hotshot, one of the brilliant young economists around Joan Robinson. He had earned a doctorate in Economics at Harvard and was visiting the exciting Marxist economics department at UMass. (He is now Baron Eatwell, a labor member of the House of Lords – the English are weird.)  Eatwell gave a course on what is called in economics “value theory,” in which he presented some of the mathematical reinterpretations of the work of Smith and Ricardo. Early in the semester, he started lecturing about the theoretical determination of price. At this point I knew absolutely nothing about standard economics and I was puzzled by the fact that he would spend so much time talking about what determines the price of wheat or coal or woolen cloth. So I raise my hand and asked why it was important to know what determines the price of wheat and coal and cloth. Everybody looked at me as though I were crazy and Eatwell was so stunned by the question that he did not give me a coherent answer.  I was in my 40s at the time and I think he could not imagine somebody my age who is that dumb. It took me a while to figure out what was actually going on.

 

Why did Smith want to know what determines the price of wheat and coal and cloth? Because Smith was convinced that the proper way to understand a society is to divide it into the classes of human beings bearing different relations to the economic activities of the society, which in his day meant the workers, the landowners, and the capitalists.  The share of the annual product going to each class was determined for the workers by the wage rate, for the landowners by the rental rate for land, and for the capitalists by the profit rate for capital.  And because what was being divided up in any given year was a fixed total of wealth, the interests of these classes were fundamentally in conflict with one another. What went to the landowners in rent came out of the pockets of the capitalists and diminished their profits. What went to the workers as their wage reduced the profit of the capitalists as well. 

 

This was the fourth great idea of Smith: The Economic Class Structure of Society and the Foundation of Class Struggle.