A REPONSE TO MANY COMMENTS

I have found the series of comments on the Israeli situation interesting and helpful. I have not responded to them because I am so upset by what is happening that I can barely watch the news reports of it anymore. Let me make one small observation. There has been talk by Israeli officials and others about how this is an existential threat to the state of Israel. Let us just keep in mind that Israel is the only nation in the region with nuclear weapons and more generally is far and away the most powerful militarily. The attack on October 7, horrific and ugly and sadistic as it was, was no more a threat to Israel's existence then was the attack on the twin towers on September 11 a threat to the existence of the United States.

NIGHT THOUGHTS

I have never felt more keenly the contrast between my ability to articulate grand conceptual schemata and my utter powerlessness to change the world in any but the smallest and least important  fashion.  I sit here safely in my chair, confined by my Parkinson’s, and watch on television as Israel responds to a brutal and sadistic attack by killing more than 8000 Palestinians as it seeks to find and kill those who perpetrated the original attack.

 

I know next to nothing about the Mideast. From this distance, it appears that Hamas has deliberately and soullessly provoked Israel in order to frustrate a prospective rapprochement between Saudi Arabia and Israel.

 

Every time I returned to my meditations on Marx, the world interrupts me with another horror.  And I do not even have the consolations of religion.

WORK FOR THE NEXT GENERATION

In the world of Karl Marx, capital mostly took the form of companies privately owned, companies that were in many cases managed by the individuals who owned them. It was relatively easy to see that the world was divided into landowners, entrepreneurs, capitalists, and workers. And as Marx argued quite persuasively, over a long period of time stretching across several centuries, workers had systematically been deprived of the tools of their labor and also of their skills, which more and more were built into the machines they tended. The wealth of the capitalist class was rapidly expanding as they appropriated the surplus of the productive activities of their workers in the form of money profits.

 

By the early 20^th century, the situation had changed dramatically.  As Berle and Means argued in their classic 1932 work The Modern Corporation and Private Property, ownership of private corporations in America has been substantially divorced from control and management of those corporations. Although technically the owners of shares of stock in a publicly traded corporation are partial owners of that corporation, in reality owning a share of stock in a corporation confers no control at all over its operation.

 

The management of a large publicly traded corporation are in fact employees of the Corporation, and their compensation appears in the accounting of the Corporation along with the other costs, such as raw materials, electricity, and such. To be sure, the managers of America’s great publicly traded corporations tend to be quite rich and frequently own large chunks of stock in the Corporation, but their ownership of stock in the Corporation is a consequence, not a cause, of their role as managers. Rex Tillerson, for example, Trump’s first Secretary of State, ended his private career as the head of Exxon Mobil. He held something like $600 million in Exxon Mobil shares, but that was a result of his career with the oil company, not a condition of his elevation to the presidency of it.

 

The enormous inflation in the compensation of corporate executives in the United States over the past 40 years can I think best be portrayed as systematic theft by the corporate managers from the faceless real owners of the corporations, the shareholders. When the United Auto Workers go toe to toe with the management of the automobile industry, it is not labor confronting capital, it is low-paid workers confronting high paid workers.

 

As the statistical studies of Thomas Picketty and others demonstrate, the enormous inequality in the distribution of income in modern capitalist societies is dwarfed by the vastly more unequal distribution of wealth.

 

In my paper “The Future of Socialism” I presented a little hypothetical example designed to demonstrate that in the modern Corporation it is impossible, according to the canons of cost accounting, to allocate unambiguously the costs of the Corporation to the several divisions producing different commodities. The implication of this fact, I argued, is that decision-making within the Corporation has become, in its logical structure, increasingly like the political decision-making engaged in by government representatives and can no longer be portrayed simply as determined by market forces. My point was, rather simple mindedly, that something akin to socialism was developing within the womb of capitalism.

 

That was simply a thought experiment, a first attempt to get my hands around the peculiar character of modern capitalism. If we are to think our way to a form of economic organization beyond capitalism, it is these sorts of investigations rather than celebration of “Occupy Wall Street” that is required. 

TACTICS

Far be it from me to offer tactical advice about the House of Representatives to Hakiem Jeffries or Nancy Pelosi, but it occurred to me that if the Democrats can live with the candidate who emerges from the Republican caucus meetings as the majority choice of the Republicans, they can put him over the top in the House vote simply by all choosing to vote present. The Republicans would then be in the uncomfortable position of having elected as Speaker the person that a majority of them chose, with no votes from the Democrats.

Just a thought.

FORWARD

The session with the Harvard students was a great success, at least for me. I enjoyed it enormously and out of it came the possibility of an informal study group next semester of faculty and students under my direction to read the entire volume 1 of Capital.    That is the ideal situation for me – spend the semester with bright people talking about Marx and no papers to grade😀.

Meanwhile, the world is falling apart and I am so disturbed by it that I cannot sleep well at night.

A COMMENT WHILE I WAIT

Later this morning, I shall do a one hour zoom meeting with two dozen Social Studies students at Harvard.  The session was originally called “Bagels with Bob Wolff” but I have just been told that it has been switched to quiche and pastries. I shall not make the obvious comment.

 

While waiting, I should like to make one small observation about something that Joe Biden has said several times. In urging the Israelis to exercise restraint, Biden has said that after 9/11 Americans were so upset that they made “certain mistakes.” He appears to be referring to the war in Iraq.

 

I do not think that was a “mistake.” I think it was one of the most successful bait–and–switch operations in recent American political history. Sixteen Saudls hijacked four planes and flew them into into the Twin Towers and the Pentagon and tried unsuccessfully to fly one into Congress or the White House. In response, the Bush administration temporarily closed all commercial air travel in the United States, save for one plane that was permitted to carry Saudi diplomats back to Saudi Arabia. Bush and Cheney then used the deliberately misleading notion of WMD to launch an unprovoked attack on Iraq. The war did not turn out in quite the way they hoped, but getting into it was no “mistake.”

ROLLING MY TUB

 

My favorite short passage in the entire corpus of philosophical writings is the two and a half page preface to Kierkegaard’s Philosophical Fragments. At one point Kierkegaard writes, “when Philip threatened to lay siege to the city of Corinth, and all its inhabitants hastily bestirred themselves in defense, some polishing weapons, some gathering stones, some repairing the walls, Diogenes seeing all this hurriedly folded his mantle about him and began to roll his tub zealously back and forth through the streets. When he was asked why he did this he replied that he wished to be busy like all the rest, and rolled his tub lest he should be the only idler among so many industrious citizens.”

 

I am so disturbed by the blowing up of a hospital in Gaza and so utterly unable to do anything at all about that or all the other terrible things happening, that I decided to fold my mantle about me and write something more about the modern re-examination of classical economic theories.  I am under no illusion that the world needs these words at this terrible time, but perhaps at the very least you will not consider me an idler.

 

Early in his writing, Ricardo explored the idea of a corn sector in which corn is the only input in addition to labor – no tools, no implements of any sort from others sectors. He observed that if this were the case, the analysis of labor values and prices would be elementary and no theoretical problems would arise. The profit rate would be identical the rate of growth in the amount of corn produced in each cycle, and so forth.

 

Now consider an economy with only one sector producing not corn but traditional men’s suits – each suit of clothes consisting of a jacket, a vest, and two pairs of pants. Since economic theory bears no relation to reality, we may suppose that the workers in this sector consume suits of clothes, use suits of clothes as tools, work on suits of clothes as input, and produce suits of clothes as output. Clearly, Ricardo’s analysis of a corn sector producing only corn as output will apply equally to the fanciful case of an economy with a single sector producing men’s suits.

 

Now suppose that in the suits economy, there are three sectors, not one: a jacket sector that uses jackets, pants, and vests as input and produces jackets; a vest sector that uses jackets, pants, and vests as input and produces vests; and a pants sector that uses jackets, vests, and pants as input and produces pants as output. So long as the pants sector produces twice as many pairs of pants as the jackets and vests sectors produce jackets and vests, the economy should function in exactly the same fashion as the economy with a single suits sector, assuming that by the higgling and jiggling of the marketplace the appropriate balance of sector sizes comes into existence and can be maintained.

 

Now imagine a real economy producing hundreds of different kinds of goods, in which all of the output is reinvested to expand the level of production cycle by cycle. If there were some way in which the size of the various sectors could be balanced so that there was no excess output from any sector, then presumably we could define an imaginary complex commodity – what Piero Sraffa called the Standard Commodity – whose components were all of the inputs into the various sectors in precisely the proportions required for the economy to grow at a steady rate without wastage or shortages or any other inefficiencies.

 

The great Hungarian-American economist and mathematician John Von Neumann, in an elegant theorem in neoclassical growth theory, demonstrated that in an economy with no luxury sector growing at the maximum rate possible, there would always be a balanced growth path with the various sectors in just the required proportions, and that the economy would find its way to this balanced growth path through the natural seeking of maximum profits by entrepreneurs in the various sectors.

 

This theorem has no more applicability to the real world than any of neoclassical economics’ other elegant theorems, but it is a really lovely elaboration and confirmation of Ricardo’s early intuitions.

A RESPONSE

I fear LFC was being rather gentle in saying that my efforts to communicate the substance of my paper were “not entirely successful.” I think this entire enterprise has not been entirely successful. Indeed, it has been something of a mess and I shall stop doing it now. I have a great deal more that I want to say about Marx, particularly about his applicability to capitalism as it now exists, but I shall have to find a better way to say it.

 

With regard to the particular matter he raises concerning the “human capital” that some workers succeed in acquiring, that is a very important part of what I was intending to talk about. 40 years or more ago, Sam Bowles and Herb Gintes wrote a nice paper on the relative exploitation that exists in the contemporary capitalist world. Their point was that while capitalists exploit workers, those workers who required educational credentials relatively exploit those workers who have not so that there is a structure of relative exploitation, one of the consequences of which is that it is much more difficult for workers as a whole to achieve class consciousness and to work as a class against capital.

 

This is part of a much larger series of things I wanted to say about the way in which capitalism has developed. Some of that can be found in my paper, “The Future of Socialism,” and if anybody is interested, you will find it archive with the rest of my materials.

 

Meanwhile, I am so depressed by world events that I find it very difficult to concentrate on theoretical questions.

MARX BOOK DAY FIFTEEN

The central mystification of capitalism, Marx argued, is the representation of propertyless workers as legally free commodity producers exchanging their “product,” their labor, with the producers of corn and iron and wheat and cloth in a market free of all traditional constraints, both legal and customary. In order to capture this mystification formally in the equations representing a capitalist system, I had to find a way to treat labor both as a commodity like any other and also as not really a commodity at all, and I had to do this in such a way as to explain quantitatively as well as qualitatively the origin of the profit gained by the capitalists.

 

Let us recall the assumptions underlying the systems of equations by means of which the modern mathematical economists formalized the arguments of the classical political economists.  They made a series of behavioral and knowledge assumptions about the capitalists that allowed them to posit the existence of a single profit rate throughout the economy. Capitalists sought a maximum return on their invested capital, and they knew what rate was being gained by capitalists in all sectors of the economy, they were unconstrained by law, by tradition, or by sentiment as they moved their capital from sector to sector, seeking the greatest possible return.

 

A woolen cloth producer gaining 4% on his invested capital who saw that the producers of carriage wheels were making 7% would shift his capital from woolen cloth to carriage wheels.  This took some time, of course, because some of his capital was frozen in looms and spinning jennys which were no use in making carriage wheels.  But in time he would make the shift. This would reduce the quantity of woolen cloth being brought to market, and drive up the price. The carriage wheels he started to make would be added to those already in the market and drive down their price. By the “higgling and jiggling of the marketplace,” in Adam Smith’s felicitous phrase, a single economy wide profit rate would emerge.

 

But the workers were unable to respond in this way to market signals. By a metaphysical misfortune, which could of course in no way be blamed on capitalism, their fixed capital was their bodies. In order to cash in their fixed capital and switch it to a more profitable line of production, they would have to – cash it in, which is to say, die.

 

To capture this situation in the equations in such a way as to represent both the reality and the illusion of capitalism, I decided to introduce a new variable, standing for the rate of return in the labor sector. The Greek letter π was already being used for the profit rate gained by the capitalists, so I chose the Greek letter ρ to represent the profit earned, if there was any, in the labor industry.

 

Marx, observing the situation in mid-19^th century England, saw that there were a large number of displaced peasants who had streamed into the big cities looking for work. He described them in a famous phrase as “the reserve army of the unemployed.” Their desperation kept ρ at zero – which is to say, the workers were barely making enough to stay alive.

 

From an analytical point of view, it was now easy to see that the workers were compelled to buy their food, clothing, and shelter at inflated prices. I was able to demonstrate mathematically that the sum total of these inflated portion of those prices was exactly equal to the total profit gained in the other sectors of the economy. Since the workers were the great mass of the population, and since capitalists were driven endlessly to increase their profits – “accumulate, accumulate, that is Moses and the prophets to the capitalists” as Marx put it – the workers were the final consumers of most of the output of the system.

 

Thus, without introducing the faulty distinction between labor-power and labor, I could answer the question that Marx had posed to the classical political economists – whence profit? – In such a way as both to give a correct mathematically precise answer and also to capture the mystification that underlies all capitalist systems.

 

I wrote this all up complete with the mathematical demonstrations and in 1981 published it in Philosophy and Public Affairs. I was, as you can imagine, rather pleased with myself. I had identified for the very first time a fundamental problem in Marx’s account of capitalism – the fact that all of the propositions he asserted about labor value could be demonstrated for corn value, iron value, or wool value. 

 

AND THEN DISASTER STRUCK.

 

John Roemer, the most mathematically sophisticated Marxist in America, pointed out in a comment to the Journal that Josep Vegara, a Professor of Economics at Barcelona, had published essentially the same theorem in 1979 in a book entitled economía política y modelos multisectoriales.  I was heartbroken.  Such things do not happen in Philosophy [because we so rarely prove anything].  Still and all, the theoretical elaboration that followed the statement and proof of the theorem is quite original, but I doubt that anyone has ever taken note of it.  A word of advice to my readers;  If you prove an exciting theorem in theoretical economics, do not publish it in a Philosophy journal.

 

A PAUSE

I will finish the line of argument that I began in my last post and then I will take a break for a bit from this Marx book. Even though I am safely ensconced here in my retirement community, I am simply too disturbed by the world to concentrate on anything else.

MARX BOOK DAY FOURTEEN

As we have seen, Smith, Ricardo, Mill, and Marx and their many lesser compatriots wrote their works of political economy with little or no mathematical elaboration. The sophisticated mathematical economists who returned to that tradition in the 1960s, 1970s, and 1980s brought to bear on it the powerful tools of linear algebra and associated branches of mathematics. For a while in the late 1970s and early 1980s I was content simply to read book after book, following the arguments given by the authors and deepening my own understanding of the classical tradition of political economy. But after I had plowed through two or three thousand pages of mathematical economics, several things began to dawn on me.

 

First of all, as I have struggled very hard to make clear, the central theme of Marx’s analysis of capitalism is that it is thoroughgoingly mystified. It portrays the marketplace as a realm, in Marx’s wonderful phrase, of Freedom, Equality, Property, and Bentham, whereas the truth is that is a thoroughly mystified misrepresentation of the reality of capitalism, which is a realm of exploitation and domination. But in the formal reconstructions of the arguments of the classical political economists, none of this mystification appears. The equations are precise, transparent, and – as one author after another demonstrates – essentially correct. The labor value of the physical surplus in each system is in fact equal precisely, mathematically, to the surplus labor extracted from the labor inputs. What is more – and this will be gone into in considerable detail later on – it is even possible to demonstrate that in an extremely important subset of all the possible cases, the money profit appropriated by all of the capitalists in the system can be derived from that surplus labor value.

 

In my attempt to make the modern formal reconstructions of classical political economy available to an audience not familiar with linear algebra, I constructed little corn – iron models like System C with variables for the amount of corn, the amount of iron, the labor value of corn, the labor value of iron, the price of corn, the price of iron, the wage rate and the profit rate. But in the books I was reading, the authors did not bother with such elementary examples. It was page after page of matrices with variables like a₁, a₂, … a_n and such.

 

One day, as I was working my way through a page of mathematics, a thought occurred to me. “I have been asking how much labor is required, directly or indirectly, to produce a unit of iron. That is the labor value of a unit of iron. I wonder how much corn is required, directly or indirectly, to produce a unit of iron.  What is the corn value of a unit of iron?”

 

“THE CORN VALUE OF A UNIT OF IRON!  What on earth are you talking about! There is no such thing as the corn value of a unit of iron. This is the LABOR theory of value, for God sake!”  But then I thought to myself, “Why can’t I calculate the corn value of a unit of iron?”

 

“Well,” I asked myself, “is that question even meaningful? How do I know that the amount of corn required directly or indirectly to produce a unit of iron is always a positive number? And since there is nothing special about corn in relation to iron, the question I am really asking is whether any input into production can serve as the basis for such a question."

 

Nobody in all of the books I had read had ever even hinted at such a question, but by this point I had acquired sufficient familiarity with the mathematics so that, with very little difficulty, I was able to prove the following proposition: So long as there is a physical surplus anywhere in the system of any of the inputs into the system (restricting myself, of course, to inputs that are required directly or indirectly in all lines of production, which excludes luxury products like theology books), all of the a_i values in the system will be positive quantities of the input a_i.

 

Fairly quickly, with very little difficulty, I was able to demonstrate that all the propositions Marx and his predecessors had asserted regarding labor values could be demonstrated equally well for corn values, iron values, or a–values, indeed for any input a required directly or indirectly in all lines of production.

 

But this, I reflected, striking though it might be, was irrelevant to Marx’s argument, because that argument dependent on the distinction between labor-power and labor, and there was certainly no distinction to be drawn between corn–power and corn, or iron–power and iron, or, in the general case, a_i–power and a_i.

 

And then I realized something enormously important, something that, so far as I could tell, no one else had ever thought before me. The distinction between labor–power and labor seemed to be an essential part of Marx’s argument in Capital but there was no symbol in the formal mathematical reconstructions of Marx’s argument in Capital that corresponded to the concept of labor–power!

 

Let me say that again. In the formal mathematical reconstructions of Marx’s argument, there were symbols for corn, iron, and all the other inputs into production, there was a symbol for labor with units of hours, weeks, years, or whatever, there were symbols for the prices of the inputs into production, for the labor values of the inputs into production, there were symbols for the wage and for the profit-rate.  But there was no symbol for labor–power. That term played a central role in Marx’s argument in Capital but played no role at all in the formal reconstruction of his argument.

 

My first thought was, So, Marx was wrong.  But then I thought, He wasn’t wrong.  He understood, in a way that nobody before him really had, that capitalism depended on the existence of a large mass of propertyless men and women who were compelled, if they wanted to live, to sell their labor as though it were a commodity.  As Marx said in chapter 6, “For the conversion of his money into capital, therefore, the owner of money must meet in the market with the free labourer, free in the double sense, that as a free man he can dispose of his labour-power as his own commodity, and that on the other hand he has no other commodity for sale, is short of everything necessary for the realisation of his labour-power.”

 

The question I faced was precisely this: How could I represent formally in the equations both the reality of exploitation and the appearance of free equality? How could I introduce the mystification into the equations, as it were?  The labor/labor–power distinction was Marx’s unsuccessful effort to solve this problem, but his fundamental insight into what was happening in capitalism was, I was convinced, absolutely correct.

 

Tomorrow I will explain the solution I came up with, a solution which I published forty-two years ago.

 

 

BACK TO WORK

I have decided to return to my Marx writing.  There is nothing I can do about what is happening in the world, and simply sitting and stewing is not much fun.

SOMBER REFLECTIONS

Yesterday afternoon, the 35 or 36 people who live in my building gathered to celebrate the 95^th birthday of one of our residents, Mary McNulty. Mary is a lively, cheerful, energetic Catholic lady who has seven children, 17 grandchildren, and 24 or 25 great-grandchildren. She is also one of the three or four Republicans in the building, a fact which I joked with her about at the party. Although Mary is only six years older than I am, she seems to me from another age. As I sat there, looking at all the other old folks with whom I live, I reflected on the fact that although I will almost certainly live long enough to see the results of the 2024 election, at which point I will be a month short of my 91^st birthday, I am unlikely to see the results of the 2028 election.

 

I am now 10 years older than my father was when he died, and yet it seems like such a short time from childhood to old age. Two days ago I received six copies of the new Spanish translation of In Defense of Anarchism, a book I wrote 58 years ago and published 53 years ago. Sometime soon I will receive my copies of the Arabic translation of the same little book.

 

Two weeks from now, I will spend an hour chatting with a group of Harvard students who are majoring in Social Studies, an undergraduate program of which I was the first head tutor back in 1960 – 61. It occurred to me that if I had met an 89-year-old Harvard graduate in 1950, when I began my undergraduate education, he would have been born at the start of the Civil War!

 

And now I sit safe in my apartment here in North Carolina, watching the endless news reports of the terrible events in Israel. Those events have affected me more deeply than I would have imagined. I was, for example, not much affected at all by the events of September 11, 2001, but as I watch the reports from the Middle East I feel as though my world is falling apart.

 

I can remember clearly every one of the 32 courses I took as an undergraduate at Harvard between 1950 and 1953, and yet relentlessly, inexorably I have grown older and older each year until now I am two months from my 90^th birthday. When I was 12, my mother offered me a choice between a big bar mitzvah party with lots of presents or hundred dollars to buy something for myself. I took the hundred dollars and bought Natie Gold’s Lionel train set, which I coveted. It seemed like a good deal of the time. Perhaps I should have gone for immortality.

I HAVE MY LIMITS

 I have been steadfastly working on this book on Marx, ignoring my Covid, my Parkinson's, the chaos in the House of Representatives, the various trials of Trump, but I have my limits. This godawful \business in Israel is too much. I will try to return to the book but the world keeps interfering.  I find this Al Jazeera news website a useful corrective, by the way.

MARX BOOK DAY THIRTEEN

At last, Marx is able to solve the problem that his predecessors scarcely even perceived and for which they had no satisfactory answer, namely whence profit?  An individual entrepreneur may succeed in striking a good bargain with those from whom he buys his inputs or to whom he sells his output, but every such gain is balanced by another entrepreneur’s loss.  The profit in the economy as a whole cannot therefore come from the consumption in production of the non-labor inputs, for by the assumptions of this discussion, they are purchased at their labor value. The profit realized by the entrepreneur must instead come from the consumption of this one peculiar commodity, labor – power, whose consumption does not merely transmit to the product the labor embodied in it but at the same time creates new labor value.

 

Marx notes one oddity of this peculiar commodity, labor – power.  “In every country in which the capitalist mode of production reigns, it is the custom not to pay for labour-power before it has been exercised for the period fixed by the contract, as for example, the end of each week. In all cases, therefore, the use-value of the labour-power is advanced to the capitalist: the labourer allows the buyer to consume it before he receives payment of the price; he everywhere gives credit to the capitalist.”

 

Marx concludes his analysis of the origin of profit thus: “The money-owner buys everything necessary for this purpose, such as raw material, in the market, and pays for it at its full value. The consumption of labour-power is at one and the same time the production of commodities and of surplus-value. The consumption of labour-power is completed, as in the case of every other commodity, outside the limits of the market or of the sphere of circulation.”

 

For the first 140 pages of Capital, Marx has been deploying his considerable literary talents in an effort to persuade the reader that the realm of the marketplace is mystified, not filled with plain, unproblematic bushels of wheat and yards of cloth, but populated by fetishes, by mysterious beings who systematically misrepresent their true nature. This effort is organized by Marx around the attempt to solve a problem that the classical political economists scarcely realized existed, the problem of the source of profit. By turns mocking, mystifying, and didactic, he has finally located the source of profit in the distinction, introduced by him, between labor-power and labor. “Coquetting with Hegel,” as he put it in the preface to the French edition of his book, Marx has striven to undermine the unquestioned assumption of the classical political economists that they were examining a world free of the mystery and miracle of the medieval church. Now, as he concludes this portion of the text, Marx reaches back to the works of Plato for the most powerful and enduring literary representation of the distinction between appearance and reality, The Allegory of the Cave, and in a brilliant inversion of that iconic image, finally reveals the truth about capitalism.

 

Let us take just a moment to remind ourselves of Plato’s Allegory.  In Book 7 of the Republic, Socrates asks Glaucon and Adeimantus to imagine a people chained to the floor of a cave in such a way that they can only look forward to one wall of that cave. Behind them burns a fire which casts flickering images on the wall. Between the fire and the chained men is a parapet, behind which servants walk back and forth holding little models of objects – tables, chairs, and the like – whose shadows are then visible on the wall of the cave. Having lived their entire lives thus chained, the individuals imagine that these images are reality.   One individual is freed from his chains and dragged out of the cave, where he is at first blinded by the light. But as his eyes adjust to the brightness, he finally sees real objects, tables and chairs, whereas before he had seen only shadows of little models of these objects. Eventually, he turns his eyes to the sun itself and recognizes it as the source of all light and truth.

 

This dramatic image, of the brightly lit reality above and the dark, shadowy appearances in the cave below, had for 2000 years been the ruling metaphor in Western philosophy for the distinction between Reality and Appearance.  Now Marx inverts that metaphor to complete his argument.

 

“Accompanied by Mr. Moneybags and by the possessor of labour-power, we therefore take leave for a time of this noisy sphere, where everything takes place on the surface and in view of all men, and follow them both into the hidden abode of production, on whose threshold there stares us in the face “No admittance except on business.” Here we shall see, not only how capital produces, but how capital is produced. We shall at last force the secret of profit making.”

 

“No admittance except on business” is of course Marx’s brilliant rendition of the sign that greets the damned in Dante’s Inferno:  lasciate ogni speranza, voi ch'entrate,  relinquish all hope, ye who enter.

 

“This sphere that we are deserting,” writes Marx, “within whose boundaries the sale and purchase of labour-power goes on, is in fact a very Eden of the innate rights of man. There alone rule Freedom, Equality, Property and Bentham. Freedom, because both buyer and seller of a commodity, say of labour-power, are constrained only by their own free will. They contract as free agents, and the agreement they come to, is but the form in which they give legal expression to their common will. Equality, because each enters into relation with the other, as with a simple owner of commodities, and they exchange equivalent for equivalent. Property, because each disposes only of what is his own. And Bentham, because each looks only to himself. The only force that brings them together and puts them in relation with each other, is the selfishness, the gain and the private interests of each. Each looks to himself only, and no one troubles himself about the rest, and just because they do so, do they all, in accordance with the pre-established harmony of things, or under the auspices of an all-shrewd providence, work together to their mutual advantage, for the common weal and in the interest of all.”

 

This realm, where rule Freedom, Equality, Property, and Bentham, was for Adam Smith, for John Stuart Mill, for David Ricardo, and is for all the neoclassical economists who have followed them, the realm of reality, transparent, rational, un-mystified.  Marx, and Marx alone, recognizes it as nothing more than the flickering of images on the wall of Plato’s cave.

 

Marx now leaves the realm of Appearance and accompanies the capitalist and his employee into the realm of capitalist Reality. 

 

“On leaving this sphere of simple circulation or of exchange of commodities, which furnishes the “Free-trader Vulgaris” with his views and ideas, and with the standard by which he judges a society based on capital and wages,” Marx says, “we think we can perceive a change in the physiognomy of our dramatis personae. He, who before was the money-owner, now strides in front as capitalist; the possessor of labour-power follows as his labourer. The one with an air of importance, smirking, intent on business; the other, timid and holding back, like one who is bringing his own hide to market and has nothing to expect but — a hiding.”

 

There now follow a series of chapters in which Marx expands upon his analysis, leading finally to the great chapter 10, The Working Day, the final page of which brings to a conclusion this dramatic inversion of the ancient distinction between appearance and reality. I shall return to Chapter 10 and discuss it at some length, but now I wish to make an unexpected detour into some rather gnarly mathematical matters. This will take a while, so settle down, get yourself something to drink, cleanse your mind of the metaphors and images that Marx has conjured, and let us return to the formal analysis of Ricardian labor value theory.

MARX BOOK DAY TWELVE

And now, after 130 pages of mocking and mystification, the truth about capitalist production is revealed. Chapter 6, “the Buying and Selling of Labour-Power,” is only 10 pages long but it is, to my way of thinking, the most important 10 pages in the history of economic theory.  Marx has posed a problem, a problem that none of his predecessors fully appreciated or understood.  Only later, after he has revealed his solution to this problem, will he answer the question that Ricardo struggled with and failed to answer.

  

“The change of value that occurs in the case of money intended to be converted into capital, cannot take place in the money itself, since in its function of means of purchase and of payment, it does no more than realise the price of the commodity it buys or pays for; and, as hard cash, it is value petrified, never varying. Just as little can it originate in the second act of circulation, the re-sale of the commodity, which does no more than transform the article from its bodily form back again into its money-form. The change must, therefore, take place in the commodity bought by the first act, M—C, but not in its value, for equivalents are exchanged, and the commodity is paid for at its full value. We are, therefore, forced to the conclusion that the change originates in the use[1]value, as such, of the commodity, i.e., in its consumption. In order to be able to extract value from the consumption of a commodity, our friend, Moneybags, must be so lucky as to find, within the sphere of circulation, in the market, a commodity, whose use-value possesses the peculiar property of being a source of value, whose actual consumption, therefore, is itself an embodiment of labour, and, consequently, a creation of value. The possessor of money does find on the market such a special commodity in capacity for labour or labour-power.”

 

Marx begins in a characteristically mocking way. We are to imagine that for some time now the possessor of money, Moneybags, who wishes to expand his pocketbook, has been making commodities and bringing them to market, selling them in the hope that when he exits the market he will have more in his pocket than when he began the production process. But alas, it is not so. He buys his inputs at a price proportional to the labor value, he combines them in his workplace, he takes the finished products to market and he sells them at a price proportional to the labor embodied in them. Since he is an averagely efficient producer of commodities, he does not lose in the process, but neither does he gain anything thereby. 

 

Puzzled by this, he thinks to himself, perhaps there is some input into production that I have not been using, an input that will enable me to exit the market richer than when I entered this process. He tries copper rather than iron, he tries linen rather than wool, he tries steam rather than waterpower. Nothing seems to work.

 

But then Moneybags gets lucky.  Off in one corner of the market he notices a man standing with a sign that says “will work for wages.” Having tried everything else, the would-be capitalist decides to give this unlikely commodity producer a try. And lo and behold, after he has paid the man a price proportional to the labor value of the food, clothing, and shelter that the man needs to produce his labor power for another day, and has combined this man’s labor power with his other inputs, he finds when he goes back into the market to sell what he has produced, he ends up with more money than he had in his pocket when he began! He has solved the problem.

 

It seems that labor-power is the secret ingredient that expands the value of products made by entrepreneurs. But, Marx notes, there are some conditions that must be met in order for this special commodity to appear in the market and be available for combination with the other inputs into the productive process. Here, in this extended passage, Marx lays out those conditions:

 

“[L]abour-power can appear upon the market as a commodity, only if, and so far as, its possessor, the individual whose labour-power it is, offers it for sale, or sells it, as a commodity. In order that he may be able to do this, he must have it at his disposal, must be the untrammelled owner of his capacity for labour, i.e., of his person. He and the owner of money meet in the market, and deal with each other as on the basis of equal rights, with this difference alone, that one is buyer, the other seller; both, therefore, equal in the eyes of the law. The continuance of this relation demands that the owner of the labour-power should sell it only for a definite period, for if he were to sell it rump and stump, once for all, he would be selling himself, converting himself from a free man into a slave, from an owner of a commodity into a commodity. He must constantly look upon his labour-power as his own property, his own commodity, and this he can only do by placing it at the disposal of the buyer temporarily, for a definite period of time. By this means alone can he avoid renouncing his rights of ownership over it. 

 

“The second essential condition to the owner of money finding labour-power in the market as a commodity is this — that the labourer instead of being in the position to sell commodities in which his labour is incorporated, must be obliged to offer for sale as a commodity that very labour-power, which exists only in his living self.

 

“In order that a man may be able to sell commodities other than labour-power, he must of course have the means of production, as raw material, implements, &c. No boots can be made without leather. He requires also the means of subsistence. Nobody — not even “a musician of the future” — can live upon future products, or upon use-values in an unfinished state; and ever since the first moment of his appearance on the world’s stage, man always has been, and must still be a consumer, both before and while he is producing. In a society where all products assume the form of commodities, these commodities must be sold after they have been produced, it is only after their sale that they can serve in satisfying the requirements of their producer. The time necessary for their sale is superadded to that necessary for their production.

 

“For the conversion of his money into capital, therefore, the owner of money must meet in the market with the free labourer, free in the double sense, that as a free man he can dispose of his labour-power as his own commodity, and that on the other hand he has no other commodity for sale, is short of everything necessary for the realisation of his labour-power.”

 

We may wonder how it comes about that this extraordinary value creating commodity should be available in the market for purchase by clever entrepreneurs, but that is no concern of theirs, and, Marx says, for the time being it will be no concern of ours either. (In the later chapters of Capital, Marx will have a good deal to say about the conditions under which legally free labor power appears as a commodity, but at this point he has other matters to discuss.)  Nevertheless, he does observe that “Nature does not produce on the one side owners of money or commodities, and on the other men possessing nothing but their own labour-power. This relation has no natural basis, neither is its social basis one that is common to all historical periods. It is clearly the result of a past historical development, the product of many economic revolutions, of the extinction of a whole series of older forms of social production.”

 

(Let me simply note that this observation by Marx seems to us today is so obvious as to be a truism, and yet no one before Marx had ever really said anything quite like it. This is one of the many ways in which what Marx has taught us has so completely entered into our understanding of the world that even those who consider themselves immunized against his thought have absorbed his insights.)

 

Before we can incorporate into our theoretical analysis what Moneybags has so fortuitously discovered, we must ascertain how the value, and therefore the market price, of this very special commodity is determined. The answer is simple and straightforward. As with every other commodity in the market, the labor value and therefore the price of labor power is determined by its cost of production. The worker produces this commodity by working, which is to say by exerting his or her own physical and intellectual activity, and since in order to work the worker must eat and wear clothes and have somewhere to live, the price of labor-power is determined by the price of the food clothing and shelter that the worker consumes.  And since this is, we must recall, a Ricardian world in which every commodity exchanges in proportion to the quantity of labor required directly or indirectly for its production, the price of labor-power, the money wage, is proportional to the quantity of labor directly or indirectly required for the production of that food, clothing, and shelter and hence is embodied in it.. 

 

Marx adds a qualification that comes directly from Ricardo’s Principles, without however giving him credit, which is unusual for Marx. He writes:  “The number and extent of his so-called necessary wants, as also the modes of satisfying them, are themselves the product of historical development, and depend therefore to a great extent on the degree of civilisation of a country, more particularly on the conditions under which, and consequently on the habits and degree of comfort in which, the class of free labourers has been formed.” 

 

And, of course, like any prudent commodity producer, the worker must make allowance for depreciation.  “The owner of labour-power is mortal. If then his appearance in the market is to be continuous, and the continuous conversion of money into capital assumes this, the seller of labour-power must perpetuate himself, 'in the way that every living individual perpetuates himself, by procreation.'  The labour-power withdrawn from the market by wear and tear and death, must be continually replaced by, at the very least, an equal amount of fresh labour-power. Hence the sum of the means of subsistence necessary for the production of labour-power must include the means necessary for the labourer’s substitutes, i.e., his children, in order that this race of peculiar commodity-owners may perpetuate its appearance in the market.”

 

A PAUSE TO REFRESH

Before I attempt to write the next segment of this serial book, let me just make a few comments and responses.  First, I was very pleased to see LFC refer to Robert Heilbroner.  I got to know Bob while I was teaching at Columbia and liked him enormously. I think because he wrote in a clear, mostly non-technical style, he was not taken as seriously as he ought to have been by his fellow economists. I have some nice memories and stories about Bob, but I will let those pass for the moment.

I have spent much of the morning thus far watching the launch of the penalty phase in the civil suit against the Trump organization. That followed a good many hours on C-SPAN last week watching the House tie itself up into knots.  Since I am now, in the aftermath of my bout of Covid, significantly diminished in my ability to get about, I spend even more time than usual sitting in front of my computer or watching television in the kitchen while perched on my electric scooter. I vacillate between being convinced that the Republicans will be wiped out in the election next year and terrified that we shall see the end of such democracy as we have known it in the United States.

Here is an odd fact. For the entire month of September, Google tells me that the daily visits to this blog were between three times and seven times as numerous as usual.  Suddenly, starting I believe yesterday, the number dropped from between 5000 and 10,000 to roughly 900. I have no idea what this means, but it seems obvious to me that it has nothing at all to do with the number of actual human beings who visit the blog each day.

Finally, am I the only one who had no idea who Taylor Swift was before all the fuss began?

MARX BOOK DAY ELEVEN

Let us now return to where things had been left 50 years earlier by Ricardo in the formal development of the labor theory of value. Ricardo has dealt with Smith’s problem of the appropriation of land by adopting the theory put forward by Malthus and others that rent was actually a diversion of profits from the entrepreneurs to the land of aristocrats. He then made a dramatic advance on Smith’s problem of the accumulation of stock by arguing that commodities in a capitalist marketplace exchange in proportion to the quantities of labor directly and indirectly required for their production. But Ricardo knew that this proposition was true only in the special case in which every line of production exhibited the same capital intensity, or what Marx would call the same organic composition of capital, which is to say the same ratio of labor directly required to labor indirectly required.  As I have remarked, Ricardo could not solve the problem of explaining the relationship of labor embodied in the general case and spent the last few years of his life unsuccessfully searching for an answer.

 

Marx believed he had solved Ricardo’s problem, but he put off until volume 3 his statement of the solution because he believed there was a deeper and more important problem that neither Ricardo nor any of the political economists in the intervening 50 years had recognized and satisfactorily dealt with. Marx chose to write all of volume 1 as though Ricardo’s original labor theory of value was universally true because he believed that the deeper problem could be more clearly articulated in that special case.

 

The problem, to put the point is simply as possible, was that neither Ricardo nor anyone else was able to explain why capitalists got steadily richer year after year. That they did get richer was obviously true. Men who began as young relatively modestly endowed entrepreneurs were ending up, 30 or 40 years later as incredibly rich capitalists. But if a capitalist bought the inputs into his production process at prices proportional to the labor embodied in them and then, after having them combined in his factory, sold the output once again at a price proportional to the amount of labor embodied in them, how on earth did he get any richer?

 

In chapter 5, entitled “Contradictions I\in the General Formula of Capital,” Marx has some fun with the foolish explanations given by his predecessors.  Some writers, like Condillac for example, mixed up the notions of use value and exchange value, pointing out that since the tailor could only wear one coat at a time and the farmer could not eat all of the wheat he had grown, both benefited from exchange.  That was no doubt true, Marx agreed, but did not explain how they both grew richer, merely how they both were happier than before the exchange.

 

The following passage captures Marx’s mocking tone nicely:  “Suppose then, that by some inexplicable privilege, the seller is enabled to sell his commodities above their value, what is worth 100 for 110, in which case the price is nominally raised 10%. The seller therefore pockets a surplus-value of 10. But after he has sold he becomes a buyer. A third owner of commodities comes to him now as seller, who in this capacity also enjoys the privilege of selling his commodities 10% too dear. Our friend gained 10 as a seller only to lose it again as a buyer.  The net result is, that all owners of commodities sell their goods to one another at 10% above their value, which comes precisely to the same as if they sold them at their true value. Such a general and nominal rise of prices has the same effect as if the values had been expressed in weight of silver instead of in weight of gold. The nominal prices of commodities would rise, but the real relation between their values would remain unchanged.

Let us make the opposite assumption, that the buyer has the privilege of purchasing commodities under their value. In this case it is no longer necessary to bear in mind that he in his turn will become a seller. He was so before he became buyer; he had already lost 10% in selling before he gained 10% as buyer.  Everything is just as it was.

The creation of surplus-value, and therefore the conversion of money into capital, can consequently be explained neither on the assumption that commodities are sold above their value, nor that they are bought below their value.”

Because in the early stages of capitalist development, the factory owner was frequently also its manager, it was easy for those searching for a rationale for the wealth of the owners to attribute it to their compensation for the extraordinarily valuable service they provided managing their own shops. Some years ago, when I was teaching a course at the University of North Carolina Chapel Hill on the thought of Karl Marx, I illustrated this confusion by a little story that I invented.  

In 1967, when I was a professor at Columbia University, my first wife and I bought a summer home in the Berkshire Hill town of Worthington, Massachusetts. To get there from New York City, one drove north to Northampton and then turned west on route 9. For a while, when going through the town of Haydenville, the road ran alongside the Mill River. The river, as the name suggests, was in the 18^th and 19^th centuries the location for a number of mills powered by waterwheels turned by the fast-moving waters of the river. One of the mills sat just across the road from two large impressive looking homes, each one with white pillars in a faux Greco-Roman style.  Here is a picture of the mill and the two homes, courtesy of Google Maps.

Somebody told me that the owner of the mill had built one of the homes for himself and then the other for his daughter. With that to go on, I constructed the following little fable.

 

The owner, I imagined, having every day of his life walked across the road to the mill to manage his business, married off his daughter to the wellborn but impecunious son of an upper-class Boston family, building a second impressive home for them next to his own. After he died, his son-in-law and daughter inherited the business.  The son-in-law was delighted with the wealth his wife had inherited but had absolutely no intention of actually running the business, so he hired a manager at the going rate for such persons and took off with his wife on a grand tour of Europe. When he returned a year later, he called inthe manager to ask how much profit the company had made. The manager looked at him in astonishment and said, “Profit? There is no profit. When the old man ran the firm, he paid himself the wages of management, which sufficed to support him in a very comfortable style of life, but since you chose not to run the factory yourself, you hired me and paid to me the money that would have come to you had you done that labor of management yourself.” The young man was very taken aback, and thought he had perhaps made a terrible mistake in agreeing to the marriage, until the manager broke into a broad smile and said to him, ‘I was just teasing, of course there is a substantial profit, just as there was for the old man in addition to his wages of management.’”

 

Marx concludes his discussion by saying, “It is therefore impossible for capital to be produced by circulation, and it is equally impossible for it to originate apart from circulation. It must have its origin both in circulation and yet not in circulation.  We have, therefore, got a double result.  The conversion of money into capital has to be explained on the basis of the laws that regulate the exchange of commodities, in such a way that the starting-point is the exchange of equivalents. Our friend, Moneybags, who as yet is only an embryo capitalist, must buy his commodities at their value, must sell them at their value, and yet at the end of the process must withdraw more value from circulation than he threw into it at starting. His development into a full-grown capitalist must take place, both within the sphere of circulation and without it. These are the conditions of the problem. Hic Rhodus, hic salta!”

A word about translation yet again. The term that Aveling and Moore translate as “Moneybags” is in German “Geldbesitzer,” which simply means “possessor of money.” But Moneybags is a simply wonderful translation of the term. As soon as I read it, I thought of two things: the little get out of jail free card in the old Monopoly game and the political cartoons of the great 19^th century cartoonist Thomas Nast.  The Latin tag at the end of the passage comes from an old Greek story of a braggart who never ceased to boast to his friends about a wonderful broad jump that he had made at some games in the city of Rhodes. His friends finally grew tired with his boasting and said to him, “Enough already. This is Rhodes. Let us see you jump here – Hic Rhodus, hic salta!”