The Cooking the Books column from the June 2011 issue of the Socialist Standard
In an article in the Times (2 May) headlined “This belief in making things is make-believe” and subtitled “It is pure fantasy to argue that the solution to Britain’s economic problems lies in boosting manufacturing”, David Wighton argued:
“The idea of the primacy of manufacturing makes little economic sense. It is the modern equivalent of the 18th-century French physiocrats’ argument that all wealth derived from agriculture and everything else was unproductive. Wealth is created by providing insurance on ships, just as much as by making the vessels.”
The Physiocrats did indeed claim that only agricultural work produced a value, in the form of rent, greater than that of the producers’ subsistence. Marx discussed their views in Part I of Theories of Surplus Value where he credited them with transferring “the inquiry into the origin of surplus-value from the sphere of circulation into the sphere of direct production, and thereby laid the foundation for the analysis of capitalist production.”
Their mistake was to conclude that, as the material basis of all wealth came from nature, only the work of those directly interacting with Nature was productive. But manufacturing as well as agriculture transforms materials that originally come from nature – the definition, in fact, of production – and both are capable of producing a surplus (value) over and above the cost of maintaining the producers.
But what about services? Those providing them certainly produce a service but do they also add a value over and above its cost? Marx answered, no. But it was not as simple as that. He accepted that providing these services could bring a profit to a capitalist who invested in them, but the origin of this lay elsewhere, not in surplus value produced by those they employed but in the sector of the economy producing goods for profit. It was the result of a sort of division of labour amongst the capitalist class to ensure that services essential to capital accumulation were carried out as cheaply as possible.
The example Marx gave (in part IV of Volume 3 Capital) was merchants. He explained that if there were no merchants specialising in selling goods then the capitalist firms producing them would have to tie up some of their capital to do this themselves instead of investing it in their core business. There was a price to pay. The industrialists sold their commodities to the merchants at below their market price, i. e. not to realise themselves all the surplus value embodied in them so as to allow the merchants a share in it. The same applies to other services provided for profit such as banking and Wighton’s shipping insurance. The capital invested in providing them does return a profit but from realising a part of the surplus value created in material production.
So, while Wighton is wrong to claim that “wealth is created by providing insurance on ships, just as much as by making the vessels”, he is right to argue that it does not necessarily make sense for a capitalist country to concentrate just on manufacturing. Profits can be made by selling financial services to outside capitalists, so providing an income which can be taxed to help defray the costs of maintaining the state. This has in fact been the strategy of successive governments, whether Tory, Labour or ConDem, since the 1980s. But the origin of these profits is not new value added by those working in these services, but surplus value produced by the industrial workers of the world.
The “many people” Wighton criticises for almost seeing financial services as “a great Ponzi scheme in which money generated from making things is passed around with everyone else taking a cut” are not all that far off the mark.