Productive Versus Unproductive Labor

Reader Mike Treen—who is a trade union leader in New Zealand—has some questions regarding what is and what is not productive labor. He gives specific examples, and asks whether the labor in question is productive or unproductive labor. I will examine his questions below.

First, I will begin with some general remarks.

The classical economists, Marx, and productive versus unproductive labor

The classical bourgeois political economists made a distinction between productive and unproductive labor. Marx’s greatly improved theory of value and surplus value brings into crystal-clear focus what is meant by unproductive and productive labor under the capitalist mode of production.

What is the aim of capitalist production? It is the production of an ever greater mass of profit. But profit is only the money form of surplus value. Therefore, as far as the capitalist system is concerned, labor is only productive if it creates a surplus value. It is not enough that labor creates value—that is, abstract labor embodied in a material commodity or service—but rather in addition it must create a surplus value.

Marx’s criticism of Adam Smith

The classical economists considered the labor of personal servants to be unproductive in the capitalist sense—the only sense they were interested in. They were quite correct in this. But this caused Adam Smith, in Marx’s view, to make an incorrect generalization. Smith held that only labor that makes material commodities, as opposed to services, is productive labor.

Suppose that I am a rich man—it doesn’t matter whether I am a capitalist or a landlord—who decides to hire workers to produce a piece of furniture that I will use only as an article of personal consumption. In this case, even though the workers who I hire produce a material use value and perform surplus labor (labor over and above the value of their labor power), their labor will not take the form of value because the furniture will not be exchanged. It will never be sold on the market. Since no value is produced, no surplus value can be produced either. Therefore, the fact that the labor of the workers produces a tangible material use value does not make their labor productive in the capitalist sense of the word.

But what about the opposite situation? What happens if I as a theatre owner who runs my theatre as a profit-making enterprise hire an opera singer with the intention of her giving live performances that I allow only money-paying customers to attend? Is the labor of the opera singer productive in the capitalist sense? Does it produce surplus value?

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Financialization and Marx — Pt 3. Class and Financialization

This is the concluding part of my reply to a question from a friend who wanted to know my opinion of a paper by Dick Bryan, Randy Martin and Mike Rafferty entitled “Financialization and Marx, Giving Labor and Capital a Financial Makeover,” published in the 2009 Review of Radical Political Economics.

“Households,” Bryan, Martin and Rafferty write, “live the contradiction of being both capitalist and non-capitalist at the same time. Economically, the household not only consumes commodities and reproduces labor power, it also engages finance, particularly through its exposure to credit, the demands of financial calculation, and requirements of self-funding non-wage work in old age.”

Bryan, Martin and Rafferty point to the enormous growth of consumer credit. An increasing number of people in the imperialist countries are being exploited not only as wage and salaried workers but as debtors. This is part of the phenomena called “financialization” that Bryan, Martin and Rafferty are trying to come to grips with. How does “financialization” affect class and relations among the classes?

However, Bryan, Martin and Rafferty appear to be confused, perhaps by their exposure to marginalist notions, about who is and who is not a capitalist. Without a clear understanding of what we mean by “capitalist” we cannot even begin properly to analyze class and class relationships.

To begin with, I don’t like how they use the term “households.” Bourgeois economists such as Keynes, for example, like to use the term “households” to hide class. There is a world of difference between a capitalist “household,” which lives off the profit obtained through its ownership of capital, and a working-class “household,” which lives off the income obtained from selling the labor power of one or more members of the “household” for wages.

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Financialization and Marx — Pt 2. Can the Capitalists Share Surplus Value with the Working Class?

In the last reply, I explained that skilled workers though they receive higher wages than unskilled workers do not appropriate any surplus value. On the contrary, their higher wages reflect the higher value of their labor power.

A single commodity labor power is actually an abstraction. In the real world, there are different types of labor powers—plumbers, carpenters, jewelers, assemblers, and so on with different values. However, from the viewpoint of the industrial capitalists, these different types of labor powers have the same use value, they all produce surplus value.

If one type of labor power, say that of carpenters, had a lower rate of surplus value than other types of labor power, the demand for the commodity carpenter labor power would drop causing the wages of carpenters to drop and raising the rate of surplus value.

Likewise, if the rate of surplus value was higher for carpenter labor power than average, the demand for the commodity carpenter labor power would rise. This would cause the wages of carpenters to rise, lowering the rate of surplus value on carpenter labor power. Therefore, over time—assuming the absence of monopolies—the rate of surplus value produced by each type of labor power tends towards equality with all other types of labor power.

It is extremely inconvenient to treat each type of the commodity labor power as a different type of commodity. So in order to simplify, we make an abstraction. We view each type of skilled commodity labor power as a collection of simple labor powers. Each individual member of the collection—simple labor power—produces on average in an hour an hour of abstract labor—the very substance of value once it becomes embodied in a commodity.

Similarly, a very unskilled type of labor power would represent a fraction of a simple labor power. It might take a number of these labor powers to add up a single simple labor power.

This situation doesn’t exist in reality—it is an abstraction. However, once we make this abstraction, which is made daily though unconsciously in the market place, we simplify the problem greatly. After all, practical businesspeople often talk about “labor” costs without making a distinction between the particular types of “labor.” When businesspeople talk about “labor,” they—and the vulgar economists as well—mean the costs of labor power, since they buy the workers’ ability to work and not “labor.”

Therefore, instead of using the term simple labor power, we simply have to refer to the commodity labor power. I believe that when Marx used the term labor power without qualification, that is what he meant.

Were the higher values of the labor powers of the skilled workers the underlying cause of the betrayal of August 4, 1914?

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Financialization and Marx — Pt 1. Do Skilled Workers Own ‘Human Capital’?

The 2009 Review of Radical Political Economics published a paper by Dick Bryan, Randy Martin and Mike Rafferty entitled “Financialization and Marx, Giving Labor and Capital a Financial Makeover.” A friend wants to know my opinion of the paper.

The paper raises many questions about the recent changes in the capitalist system, as well as the relationship between neoclassical marginalist economics and Marxist economic theory. Since the questions raised by Bryan, Martin and Rafferty are of extreme importance if we are to understand the evolution of present-day imperialism, I have decided to examine them here. However, these questions are too complex to deal with in a single reply. I have therefore decided to break my reply into a series of sub-replies that will focus on particular points.

Their paper shows that Bryan, Martin and Rafferty are familiar with Marxist economic theory but in my opinion have not fully understood it. The influence of marginalist ideas is pretty obvious as well. It seems that the marginalist ideas that they were undoubtedly exposed to in their own university studies are getting in the way of their achieving a full understanding of Marx’s economic discoveries. The positive thing is that they are wrestling with Marx and taking him seriously. Perhaps in time they will achieve a full understanding and put the false theories they learned in school completely behind them.

In this reply, I will examine the most important part of Marx’s theory: the sale at its value of the one commodity the workers have to sell—their labor power—to the industrial capitalists, and the consequent production of surplus value.

Their paper indicates that Bryan, Martin and Rafferty have not yet fully understood Marx’s discoveries in this area. Among the questions raised by Bryan, Martin and Rafferty are these: To what extent if at all can labor be considered a form of capital? Exactly what is the relationship between labor and labor power? What exactly did Marx mean by the term commodity capital? Is variable capital a form of commodity capital? And if not, why not?

In this reply, I will focus on these questions. I will also examine and critique the ideas of both marginalist and Marxist economists on the relationship between skilled and unskilled labor. Closely related to this question, though Bryan, Martin and Rafferty don’t directly raise it as such, I will deal with what the bourgeois economists and media call “human capital.” How does the concept of “human capital” relate to Marx’s theory of value and surplus value? Is the concept of human capital compatible with Marxist theory, and if not, why not?

I think that complete clarity is necessary on these questions before we can examine the main question that Bryan, Martin and Rafferty are examining: How does the “financialization” phenomena that has developed with such vigor since the “Volcker Shock” of a generation ago affect the relationships between the main social classes of capitalist society—the capitalist class, the working class and the intermediate class, what Marxists traditionally have called the “petty bourgeoisie.”

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Paul Volcker’s Banking Reform Proposals and Socialist Revolution

A reader wants to know what I think is behind Paul Volcker’s banking reform proposals.

Paul Volcker (1927- )—yes, the same Paul Volcker who was the chief architect of the “Volcker Shock” a generation ago, and a long-time Democrat—is currently head of President Obama’s Economic Recovery Advisory Board. On January 21, Obama with Volcker at his side proposed a series of reforms that Obama dubbed the “Volcker Rule.”

Volcker’s proposed new regulations would ban commercial banks from owning or investing in hedge funds and private equity firms. Essentially, Volcker’s proposed rule would ban, or at least limit, any firm engaged in commercial banking from owning and trading stocks, corporate bonds, commodities and derivatives for its own account.

Unlike his predecessor, Republican Alan Greenpan (1926- ), Volcker is highly dubious about so-called “financial innovation.” He has remarked that “the only useful banking innovation was the invention of the ATM.”

In August 1979, then U.S. Democratic President Jimmy Carter appointed Volcker to be chairman of the Federal Reserve Board—the government body that controls the U.S. Federal Reserve System. Volcker reversed the Keynesian policy of attempting to keep interest rates low by increasing the rate of growth in the quantity of token money that the Fed creates. Instead, he allowed interest rates to increase to a level never seen before—or since.

For example, at one point under Volcker, the federal funds rates—the rate of interest that commercial banks pay on overnight loans they make to one another—hit 20 percent, a far cry from the Fed’s current federal funds target of between 0 and 0.25 percent! These unprecedentedly high interest rates sent the U.S. economy into a tailspin pushing even the official unemployment figures into the double digits for the first time since the end of the 1930s Depression.

But the high interest rates—known as the “Volcker Shock”—did halt the depreciation against gold of the U.S. dollar and the other paper currencies linked to it under the dollar system, bringing the 1970s “stagflation” to an end.

The Volcker Shock marked the transition from the reformist “Keynesian” era of making concessions to the working class and to the oppressed countries to the period of “neo-liberalism” with its rising imperialist exploitation of the oppressed countries combined with the global offensive by the ruling capitalist class against the world working class aimed at raising the rate of surplus value. The abnormally high interest rates, which lingered for many years after the Volcker Shock, also witnessed the emergence of the phenomena now called “financialization.” I plan to examine financialization in a future reply.

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The Monthly Review School

One of our readers wants to know what is my opinion of the “Monthly Review School.” Before reading this reply, I strongly urge readers to read my reply on the “transformation problem” if you have not already done so. This reply depends in part on the arguments developed in that reply.

The Monthly Review School is a tendency in U.S. Marxism centered on the monthly socialist magazine Monthly Review, which has been published since 1949. Though it has never been organized in the form of a political party, it is held together by certain common ideas in both economics and politics.

The book “Monopoly Capital,” published in 1966 and co-authored by the Marxist economists Paul Sweezy (1910-2004) and Paul Baran (1910-1964), is considered by its members to be the leading work produced by the school. The central figure of the tendency was the remarkable Harvard-trained U.S. economist Paul Sweezy.

In addition to Paul Sweezy, the most important figures in the Monthly Review School included Paul Baran, who like Sweezy was a professional economist and author of the “Political Economy of Growth” (1955); Leo Huberman (1903-1968), a talented popularizer of Marxist ideas; Harry Braverman (1920-1976), who was an industrial worker and trade unionist before joining Monthly Review and whose main work is “Labor and Monopoly Capital”; and economist Harry Magdoff (1913-2006), author of the “Age of Imperialism” (1969) among other works.

The current editor of Monthly Review, is John Bellamy Foster (1953- ), a professor of sociology at the University of Oregon. He can be considered the school’s current leader. He is very knowledgeable in economics, and has written much about Marx’s views on ecology and agriculture.

The Monthly Review School bears the marks of the society that produced it, that of the United States. The United States not only had by far the highest degree of capitalist development in the last century. It was—and is—the center of world imperialism. Along with Great Britain, the United States by the beginning of the current century had become the leading example of the decay of capitalism in the imperialist countries.

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Value Theory, the Transformation Problem and Crisis Theory

This reply owes a lot to the work of Professor Anwar Shaikh of the New School, especially his 1978 essay “Marx’s Theory of Value and the Transformation Problem” and his 1982 article “Neo-Ricardian Economics: A Wealth of Algebra, A Poverty of Theory”

The transformation problem in classical political economy

The law of value as developed by classical political economy held that the value of a commodity is determined by the amount of labor that under the prevailing conditions of production is on average necessary to produce it.

According to the classical economists, the value of a commodity determines its natural price around which market prices fluctuate in response to changes in supply and demand. The fluctuations of market prices around values—or what comes to exactly the same thing, according to classical political economy, natural prices—regulate the distribution of capital among the various branches of production.

As far as the classics were concerned, natural price (to use Adam Smith’s terminology) or cost or price of production (to use Ricardo’s preferred terminology) was identical to the value of the commodity.

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Gold Bullion, Jewelry, and the Monetary and Non-Monetary Uses of Gold

A reader asked to what extent gold jewelry can be considered money. A second reader wants to know the implications of the crisis theory developed in my posts for the so-called transformation problem—the transformation of values into prices of production as a result of the equalization of the rate of profit.

Both are excellent questions, and they point to the method behind these posts.

When I first conceived the “Project” back in the 1970s, I imagined that I would write up a section on the nature of the law of value, surplus value, money and prices, and competition, and then finish it with a section on crises. Hadn’t that been Marx’s plan?

Well it proved too much for even Marx!

In fact, the basic work on value, surplus value and its division into profit (interest plus profit of enterprise) and rent, money and prices had, after all, been done by Marx. Marx based himself on his predecessors, the bourgeois classical political economists, especially David Ricardo. Therefore, the basic work of criticizing bourgeois political economy was already accomplished.

In order to cut the “Project” down to size, I assumed that readers would already have mastered Marx’s critique of political economy. Not only do we have the work of Marx, but we have many popularizations of that work, though in the nature of things some of these popularizations are better than others.

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Gibson’s Paradox, the Gold Standard and the Nature and Origin of Surplus Value

Charley in a comment on this post pointed out an article, “Gibson’s Paradox and the Gold Standard,” by U.S. marginalist economists Robert B. Barsky and Lawrence H. Summers, that appeared in the June 1988 edition of the Journal of Political Economy.

To tell the truth I played with the idea of working Gibson’s paradox into the main series of posts but ultimately couldn’t quite find an appropriate way to do it. I therefore am delighted that Charley raised the subject.

Gibson’s paradox—a term coined by Keynes in his 1930 book “A Treatise on Monetary Reform”—is named for British economist Alfred Herbert Gibson, who noted in a 1923 article for Banker’s Magazine that the rate of interest and the general level of prices appeared to be correlated.

The “paradox” involves a major contradiction between marginalist economic theory on one hand and the actual history of prices and interest rates under the gold standard on the other.

The question of “interest” involves the holiest of holies of economics, the nature and origin of surplus value. The marginalists confuse the rate of interest, which is only a fraction of the total profit, with the rate of profit. They falsely claim that if the economy is in equilibrium, there will be only interest and no profit. They therefore make their task of explaining away surplus value much easier by first reducing the total surplus value, or profit—which is divided into interest and profit of enterprise—plus rent, into interest alone.

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Why Prices Rise Above Labor Values During a Boom

Nikolas wants a clearer explanation of exactly what causes commodity prices to rise above their labor values during the upswing in the industrial cycle. In order to fully grasp the nature of the capitalist industrial cycle, it is important to understand why this is so.

In my answer to Nikolas, I want to emphasize that I am discussing changes in prices in terms of money material, or gold. I am not interested here in price changes that represent changes in the value of paper money in terms of real money—gold. I am also assuming for purposes of simplification a single ideal industrial cycle and ignore the question of long waves or long cycles in prices, since these do not affect the basic argument I am making.

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