The ‘Implications’ of Paul Baran, Pt 2

Today, as in the past, the marginalist supporters of the “free market” claim that only the market can rationally assign the labor available to society among the various branches of production. Why? Because only the market can price commodities of different use values according to their relative scarcities. They even have a term for it—“consumer sovereignty.” Under capitalism, these bourgeois economists proclaim, the consumer is king.

Among the supporters of this view was John Maynard Keynes. Not just the young economic liberal Keynes, but the Keynes of the “General Theory.”

He wrote in the last chapter:

“…I see no reason to suppose that the existing system seriously misemploys the factors of production which are in use. There are, of course, errors of foresight; but these would not be avoided by centralising decisions. When 9,000,000 men are employed out of 10,000,000 willing and able to work, there is no evidence that the labour of these 9,000,000 men is misdirected. The complaint against the present system is not that these 9,000,000 men ought to be employed on different tasks, but that tasks should be available for the remaining 1,000,000 men. It is in determining the volume, not the direction, of actual employment that the existing system has broken down.”

Paul Baran in the “Implications” strongly disagreed with Keynes on this point as far as monopoly capitalism was concerned, though he seemed to believe it was more or less true for competitive capitalism. According to Baran, even if monopoly capitalism could achieve, with the help of “Keynesian” government spending, something like “full employment” of workers and machines, it would not come close to meeting the rational needs of consumers. In contrast to Keynes, Baran believed that under monopoly capitalism whether nine million out of 10 million workers are employed or the full 10 million are employed, their labor will to a considerable extent be misdirected.

Why did Baran believe that this was so? During the epoch of “free competition”—according to Baran, corresponding to the time of Adam Smith through the time of Karl Marx—the wages of labor were close to biological subsistence, just enough to keep the workers alive and allow them to raise the next generation and little more. This meant that the workers’ consumption was extremely limited. What commodities the workers did get to consume had simple straightforward use values that met their needs to stay alive and raise a new generation. If they hadn’t, capitalism wouldn’t have been possible at all. To this extent, the market mechanism did its job.

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Reply to Comments by Andrew Kliman and Doug Henwood

Andrew’s comments to my extended review of the “The Failure of Capitalist Production” has clarified both the points of agreement and the differences that exist between us in the field of Marxist economics.

First, the agreements. We both agree that the Keynesian-Marxism of the Monthly Review school as it stands is inadequate both as an analysis of monopoly capitalism and as a response to the current historic crisis of the capitalist system that began with the onset of the “Great Recession” in 2007.

We also agree as against Sweezy and Monthly Review that Marx’s law of the tendency of the rate of profit to fall is necessary both to understand the laws of motion of the capitalist system and the problem of capitalist crisis. We agree that Marx and not Keynes provides the answers.

We also agree that the “neo-Ricardian” claim that there are basic inconsistencies in Marx’s theory is value is incorrect. We both uphold Marx’s law of labor value.

We have important differences, however, on our interpretation of Marx’s law of value. I believe that Marx’s law of labor value requires the existence of commodity money, notwithstanding the end of the gold standard at the end of the 1960s and early 1970s. Andrew disagrees. This difference of opinion affects both our interpretation of capitalist crises and our approach to the transformation problem.

In addition, I think there are some misunderstandings on Andrew’s part on what defines a capitalist that should be clarified. In addition, I need to say a little more on the evolution of the rate of surplus value since the end of the post-World II prosperity 40 years ago.

Despite my differences with Andrew, I want to stress what I said at the beginning of this extended review. I liked “The Failure of Capitalist Production” and recommend it to all serious students of the Marxist critique of political economy and students of the present extended economic crisis of capitalism, which is increasingly becoming a grave political crisis—as the recent elections in France and especially Greece reveal.

I also found Doug Henwood’s remarks to be useful as well, since it sheds light on my critique of the attempts to mix Marx and Keynes.

I must stress that the aim of this blog is not to destroy or crush other Marxists with whom I disagree on one and other point, but to advance Marxist economic science in order to get nearer to the truth.

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‘The Failure of Capitalist Production’ by Andrew Kliman — Part 2

Measuring the mass and rate of profit

As Andrew Kliman correctly emphasizes, the rate of profit is the most important economic variable under the capitalist mode of production. Capitalist production is production for profit and only for profit.

But exactly how do we define profit, and in what medium is profit measured? As we will see, there is no general agreement among present-day Marxists on exactly what profit is and how it should be measured. And if we lack a precise definition of profit, we will obviously have difficulties in understanding the significance of the law of the tendency of the rate of profit to fall and the role that this historical tendency plays in real-world capitalist economic crises.

Should we use historical or current prices in calculating the rate and mass of profit?

Kliman strongly supports the use of historical prices rather than current prices to measure the rate of profit. But other Marxists believe that profits are more meaningfully measured in terms of current prices, or what comes to the same thing, replacement costs.

Suppose after an industrial capitalist has purchased the means of production that are necessary for him to carry out the production of his commodity, a sharp fall in prices of the means of production occurs. If we measure profits in terms of historical prices, we may find that our industrial capitalist has not made a profit at all but rather a loss.

However, since the purchasing power of money has risen relative to the means of production used by our capitalist, he will be able to purchase a greater quantity of the means of production than before. Therefore, in real terms he will be able to carry out production on an expanded scale. In that case, hasn’t our capitalist made a profit after all?

Suppose the fall in the level of prices reflects a fall in labor values of the commodities that make up the means of production. In terms of value—abstract human labor embodied in commodities measured in terms of time—he will be in possession of less value than when he started. In value terms, he will have made a loss, but in terms of material use values he will have made a profit.

As we know, capitalists are forced under the pressure of competition among themselves to maximize their accumulation of capital and not means of personal consumption, nor in terms of means of production used to produce means of personal consumption. Instead, each individual capitalist, according to Marx, is forced to maximize the accumulation of capital in terms of value.

Therefore, if an industrial capitalist is losing wealth as measured in value terms, won’t he be losing capital, not accumulating it? And if this continues, won’t he lose all his capital? That is, at a certain point won’t he cease to be a capitalist? Kliman, if I understand him correctly, would strongly agree with this argument.

However, not all economists would agree. For example, the “neo-Ricardians”—or “physicalists” as Kliman likes to call them—claim that labor values have no relationship to prices. The physicalist economists therefore deny that labor value has any importance at all to the capitalist economy. According to these economists, the accumulation of capital cannot therefore be measured in terms of labor values; it must be measured in terms of the accumulation of material use values.

Our physicalists would argue—and the physicalists here include not only “neo-Ricardians” but economists of the neo-classical and Austrian persuasions—that once the effects of deflation—falling prices—have been taken into account, our industrial capitalist has indeed made a profit.

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‘The Failure of Capitalist Production’ by Andrew Kliman — Part 1

First, I must say I liked this book. I think it is a major contribution to the debate about the nature not only of the latest crisis but of cyclical capitalist crises in general.

This book is a continuation of Kliman’s earlier book “Reclaiming Marx’s Capital” (Lexington Books, 2006), which deals with the so-called “neo-Ricardian” critique of Marx. But “The Failure of Capitalist Production” (Pluto Press, 2012) is more than that. In this book, Kliman deals with crisis theory, the main subject of this blog. He therefore casts a far wider net than he did in the earlier work.

Though Kliman builds on his earlier book, the main target of his critique shifts from “neo-Ricardians” to the “underconsumptionist” school of crisis theory and its main contemporary representative, the Monthly Review school.

Two main schools of crisis theory

I have explained that there are two main theories of the origins of capitalist crises vying with one another among present-day Marxists, both in print and online. One is the theory of underconsumption. The underconsumptionists see the cause of the periodic economic crises under capitalism as lying in the “excessive” exploitation of the workers. In Marxist terms, underconsumptionism attributes crises and capitalist stagnation to a rate of surplus value that is too high.

That is, too high not only from the viewpoint of the workers but even from the standpoint of the interests of the capitalists themselves. According to the underconsumptionists, the capitalists are appropriating plenty of surplus value, but they cannot find enough buyers for the vast quantity of commodities they are capable of producing with the workers they are “excessively” exploiting.

The result is either acute economic crises at periodic intervals or long-term economic stagnation with many workers and machines lying idle, or some combination of both. The giant of underconsumption theory in the last century was the celebrated American Marxist economist Paul Sweezy. Sweezy founded and edited the socialist magazine Monthly Review, from which the Monthly Review school takes its name.

The underconsumptionist school’s main rival attributes periodic crises to Marx’s law of the tendency of the rate of profit to fall. This school sees the cause of crises as being the exact opposite of what the Monthly Review school and other underconsumptionists claim it is. The falling rate of profit school holds that it is an insufficient rate of surplus value that leads to acute capitalist economic crises and longer-term stagnation. Too little surplus value is produced, not too little from the viewpoint of the workers, of course, but too little relative to the needs of the capitalist system.

The best-known inspirer of the present-day “too little surplus value” school is the Marxist economist Henryk Grossman (1881-1950), who can be seen as the “anti-Sweezy.” The two men were opponents during their lifetimes, and they remain so after their deaths. Kliman does not mention Grossman in this book. However Kliman definitely belongs to the not-enough-surplus-value school of crisis theory.

As I have explained, these two schools of crisis theory are completely opposed to one another. That is, as stated they both can’t be true. I believe that Kliman very much shares this assessment.

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