Michael Heinrich’s ‘New Reading’ of Marx—A Critique, Pt 3

In this month’s post, I will take a look at Heinrich’s views on value, money and price. As regular readers of this blog should realize by now, the theory of value, money and price has big implications for crisis theory.

As we have seen, present-day crisis theory is divided into two main camps. One camp emphasizes the production of surplus value. This school—largely inspired by the work of Polish-born economist Henryk Grossman, and whose most distinguished present-day leader is Professor Andrew Kliman of Pace University—holds that the basic cause of crises is that periodically an insufficient amount of surplus value is produced. The result is a rate of profit too low for the capitalists to maintain a level of investment sufficient to prevent a crisis.

From the viewpoint of this school, a lack of demand is a secondary effect of the crisis but by no means the cause. If the capitalists find a way to increase the production of surplus value sufficiently, investment will rise and demand problems will go away. Heinrich, who claims there is no tendency of the rate of profit to fall, is therefore anathema to this tendency of Marxist thought.

The other main school of crisis theory puts the emphasis on the problem of the realization of surplus value. This tendency is dominated by the Monthly Review school, named after the magazine founded by U.S. Marxist economist Paul Sweezy and now led by Monthly Review editor John Bellamy Foster.

The Monthly Review school roots the tendency toward crises/stagnation not in the production of surplus value like the Grossman-Kliman school but rather in the realization of surplus value. The analysis of this school is based largely on the work of the purely bourgeois English economist John Maynard Keynes, the moderate Polish-born socialist economist Michael Kalecki, and the radical U.S. Marxist economist Paul Sweezy.

Kalecki’s views on markets were similar to those of Keynes. Indeed, it is often said that Kalecki invented “Keynesian theory” independently and prior to Keynes himself—with one exception. Kalecki, like the rest of the Monthly Review school, puts great emphasis on what he called the “degree of monopoly.” In contrast, Keynes completely ignored the problem of monopoly.

Needed, a Marxist law of markets

A real theory of the market is necessary, in my opinion, for a complete theory of crises. Engels indicated in his work “Socialism, Utopian and Scientific” that under capitalism the growth of the market is governed by “quite different laws” than govern the growth of production, and that the laws governing the growth of the market operate “far less energetically” than the laws that govern the growth of production. The result is the crises of overproduction that in the long run keep the growth of production within the limits of the market.

This, however, is not a complete crisis theory, because Engels did not explain exactly what the laws are that govern the growth of the market. Unfortunately, leaving aside hints found in Marx’s writings, Marxists—with the exception of Paul Sweezy—have largely ignored the laws that govern the growth of the market. This, I think, would be a legitimate criticism of what Heinrich calls “world view Marxism.” As a result, the theory of what does govern the growth of the market has been left to the anti-Marxist Keynes, the questionably Marxist Kalecki and the strongly Keynes- and Kalecki-influenced Sweezy.

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3 thoughts on “Michael Heinrich’s ‘New Reading’ of Marx—A Critique, Pt 3

  1. “If the capitalists find a way to increase the production of surplus value sufficiently, investment will rise and demand problems will go away.”

    The problem with this, of course, for a Marxist is that it is essentially a repetition of the Ricardian argument, criticised by Marx in his analysis of crises in Part II of Theories of Surplus Value, and which Ricardo himself simply took from Mill and Say, i.e. Say’s Law that supply creates its own demand.

    But, most of Marx’s analysis of crisis in TOSV2, is to demonstrate the falsity of that argument. So, for example Marx quotes Ricardo,

    “… No man produces, but with a view to consume or sell, and he never sells, but with an intention to purchase some other commodity, which may be immediately useful to him, or which may contribute to future production. By producing, then, he necessarily becomes either the consumer of his own goods, or the purchaser and consumer of the goods of some other person. It is not to be supposed that he should, for any length of time, be ill-informed of the commodities which he can most advantageously produce, to attain the object which he has in view, namely, the possession of other goods; and, therefore, it is not probable that he will continually” (the point in question here is not eternal life) “produce a commodity for which there is no demand.” ([David Ricardo, On the Principles of Political Economy, and Taxation, London, 1821,] pp. 339-40.)” (TOSV2 p 493-4)


    ““Productions are always bought by productions, or by services; money is only the medium by which the exchange is effected” (l.c., p. 341).” (TOSV2 p 501)

    The problem being, of course, that under capitalist production the purpose is not to produce commodities to exchange for other commodities, but to obtain exchange value, and in particular surplus exchange value. Having obtained that exchange value, money, there is Marx says no reason why it should then be spent – supply does not lead to demand. Moreover, if demand in the economy is low and/or declining, there is even less reason why having obtained that surplus value the capitalist would invest it rather than consume it unproductively, or hoard it to use for accumulation at some future time when demand in the economy might offer them some prospect of being able to sell the additional output more easily, and thereby obtain more surplus value.

    If the increase in surplus value is the result of a growing economy, then there is a reason for surplus value to be invested, but there is no obvious reason why higher rates of profit in depressed markets will do so.

    And in, fact, Marx in setting out the potential for crisis and at the same time attacking this notion of supply creating demand – which is what the notion of the reinvestment of the higher rate of profit is really about, says,

    ““Here, therefore, firstly commodity, in which the contradiction between exchange-value and use-value exists, becomes mere product (use-value) and therefore the exchange of commodities is transformed into mere barter of products, of simple use-values. This is a return not only to the time before capitalist production, but even to the time before there was simple commodity production; and the most complicated phenomenon of capitalist production—the world market crisis—is flatly denied, by denying the first condition of capitalist production, namely, that the product must be a commodity and therefore express itself as money and undergo the process of metamorphosis.” (TOSV2 p 501)

    Marx sets out the basic condition for such crises arising from the separation of production and consumption in such condiitons.

    “At a given moment, the supply of all commodities can be greater than the demand for all commodities, since the demand for the general commodity, money, exchange-value, is greater than the demand for all particular commodities, in other words the motive to turn the commodity into money, to realise its exchange-value, prevails over the motive to transform the commodity again into use-value.” (TOSV2 p 505)

  2. I agree entirely with what you say about the need for a theory of the market. Most Marxist theory is in fact one sided, precisely because it is only a theory of supply, which simply assumes that demand will follow automatically. In other words, so long as the value relations add up, its assumed that the necessary demand for each commodity thrown into the market will follow. Marx knew this was bunk. Its clear, for example that he understood the principle of price and income elasticity of demand.

    In order to defend the idea of the LTV as a theory of “objective” value, no thought has been given to the question of a theory of demand, and understandably, because any such theory has to recognise the subjective nature of that demand based upon personal preferences.

    But, of course, as Marx points out, at the level of total production for any commodity, demand itself has a vital role, because if the level of demand is less than the level of supply, this means that some of the labour-time expended was not socially necessary. It means that the market prices of this commodity will fall below the price of production, and that the value of this output will be likewise adjusted.

    Depending upon the extent to which market prices fall below the value of the commodity-capital, and consequently the ability for it to be metamorphosed into productive-capital, there may result a fall in the amount of surplus value, or even destruction of capital-value.

    But, Marx in TOSV2 also makes clear that what is true here for a single commodity is also true for a large number of commodities, and what is said in relation to demand for this one commodity is also true for the level of aggregate demand in the economy.

  3. Andrew Kliman’s position in relation to demand seems to be contradictory. For example, he says,

    “Companies’ decisions about how much output to produce are based on projections of demand for the output. Since technical progress does not affect demand – buyers care about the characteristics of products, not the processes used to produce them – it will not cause companies to increase their levels of output, all else being equal.” (Note 4, Page 16, The Failure Of Capitalist Production)

    That is right, if those projections demonstrate that there is no likely additional demand to soak up additional supply, there is no reason why these large firms that now plan their production and their investment over long periods, will respond to the good fortune of higher profits, by increasing their investment. But, likewise, if those firms calculate that their profits might be increased by investment in some new machine, technique, factory etc. they are likely to make such an investment whether or not in the period before it profits have been rising or falling.

    As Marx put it,

    “No capitalist ever voluntarily introduces a new method of production, no matter how much more productive it may be, and how much it may increase the rate of surplus-value, so long as it reduces the rate of profit.”

    and as he also said,

    ““The rate of profit, i.e., the relative increment of capital, is above all important to all new offshoots of capital seeking to find an independent place for themselves. And as soon as formation of capital were to fall into the hands of a few established big capitals, for which the mass of profit compensates for the falling rate of profit, the vital flame of production would be altogether extinguished.”

    But, of course, the formation of capital by very large companies became a reality a century ago.

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