Rate of profit: up or down? (2014)

Book Review from the December 2014 issue of the Socialist Standard

‘The Failure of Capitalist Production: Underlying Causes of the Great Recession’. By Andrew Kliman. Pluto Press. 2012.

What happened to the rate of profit in the decades leading up to the crash of 2008 and the slump that followed? Some say it went up. Others say it didn’t.

Those who say that it went up say it did so as a result of the ‘neo-liberal’ policies implemented from the 1980s onwards as typified by Reagan and Thatcher but continued by their successors. They argue that this reduced consumer demand and would have led to a slump earlier had demand not been sustained by workers borrowing to spend. Eventually the burden of debt proved too much and the bubble burst in 2008. This, essentially, is an underconsumptionist theory of the crisis.

Kliman denies that there was a rise in the rate of profit or that there was a fall in workers’ standard of living in this period. His explanation of what happened is that when the post-war boom came to an end in the 1970s governments were afraid to let the economic laws of capitalism take their course and devalue existing capital as a way of restoring the rate of profit and capital accumulation. Instead, they resorted to borrowing. The result was that the rate of profit did not recover enough. Eventually, as in the other explanation, the debt-fuelled bubble burst. This is a falling (or not rising) rate of profit explanation of the crisis.

How come that theorists using the same data (US government statistics) can reach different conclusions as to how the rate of profit moved?

Most of Kliman’s book is taken up with defending his method of calculating the rate of profit. The rate of profit is profit as a percentage of capital invested. The two sides more or less agree on how to calculate profit. The disagreement is over how to calculate capital. Kliman argues for using the original value (‘historic cost’) rather than the current replacement cost used by the others. As the latter is generally less than the former it gives a higher rate of profit.

The same argument has gone on between capitalist accountants and it’s a highly technical argument that won’t be easy to follow for those not interested in this sort of thing.

The book’s last two chapters, on the other hand – on the implications of the rising rate of profit theory – are clear. Kliman writes as someone who favours a ‘communal economy’ oriented to the satisfaction of people’s needs which, he says, means that ‘finance, money, exchange, and value would have to be eliminated’, i.e. as a socialist. He points out that the rival theory leads to the view that capitalism can be reformed to work in the interests of the workers.

As its proponents blame ‘neo-liberalism’ rather than capitalism as such the implication is that if this policy was abandoned and state intervention resorted to on a wide scale again then things would get better for workers. And if working class underconsumption caused the problem this can be rectified by increasing wages and benefits. This in fact is what they do advocate on the ground in their reformist campaigns (one of those Kliman criticises is the French Trotskyist Michel Husson).

But let Kliman put it in his own words:

  ‘ … the notion of state-controlled capital is an oxymoron, like jumbo shrimp. As long as there is capital, what are actually in control are the economic laws of capitalism. Individual capitalists, including individual state capitals and worker-run enterprises, must submit to these laws.’
  ‘When all is said and done, accumulation and economic growth under capitalism depend upon the extraction of ever-greater amounts of unpaid labor, not reforms that limit that extraction.’

In fact, such reforms could make things worse:

   ‘… under capitalism, a new economic boom requires the restoration of profitability, but downward redistribution of income will reduce profitability … [B]y causing investment to fall, downward redistribution could lead to a deep recession, even a depression.’

Nothing to add.

Adam Buick

The Transformation Problem (2017)

Book Review from the May 2017 issue of the Socialist Standard

'Money and Totality'. By Fred Moseley. (Haymarket Books, 2017. 400 pages)

The subtitle sums up what the book is about: A Macro-Monetary Interpretation of Marx's Logic in Capital and the End of the 'Transformation Problem'.

We sometimes say that universities neglect Marx on economics. This is not strictly true as there is a sub-section which does look at Marx's views here, from an academic point of view. One of their fields of study is the so-called 'transformation problem'.

In Volume I of Capital Marx assumes, for explanatory purposes, that 'commodities', as items of wealth produced for sale, exchange at their 'value', determined by the amount of necessary labour expended to produce them from start to finish. In Volume III, published after Marx's death by Engels in 1894, he has commodities selling at their 'price of production', defined as their monetary cost + the average rate of monetary profit; which is what tends to happen in practice.

Marx-critics immediately cried 'contradiction' and one of the more mathematically-minded of them used algebra to try to demonstrate that it was impossible to 'transform' values into prices of production without dropping the assumption that total profit = total surplus value; in which case, the labour theory of value was wrong, or at least useless and irrelevant. This became what Moseley calls the 'standard' interpretation and criticism of Marx. Over the years it has provided academics, both those who consider themselves Marxists and those who don't, with plenty to argue about.

Moseley's argument is that, if you understand properly what Marx meant by 'capital', there is no such problem. Marx, he says, meant 'money capital' as 'money that becomes more money', i.e., as Moseley puts it, 'money advanced into circulation in order to extract more money from circulation'.

Capital is not something physical, not 'capital goods' (machinery, buildings, raw materials) but also not labour time. In both Volumes I and III, argues Moseley, capital is assumed to be the same given sum (any sum) of money used to buy physical goods and labour power, whose use leads to the creation of a given amount of surplus value. Volume I explains where this comes from (the unpaid labour of the working class). Volume III explains how this same amount is distributed amongst the various competing capitals (in proportion to size). There is no period of time during which values need to be 'transformed' into prices of production. The basic assumptions in both volumes are the same. There is no 'transformation problem.'

Moseley identifies the false problem as having arisen from a misunderstanding of what Marx meant by 'value' and 'capital'. Capital is a sum of values but value (the amount of necessary labour embodied in a commodity) cannot be measured directly but only via the market as price, i.e. only as money. So capital is in practice a sum of money, one that seeks to grow larger. Like value, capital is a social relation rather than a thing. Contradictions only arise if you assume that it is something physical.

Another valid point made by Moseley (Andrew Kliman disagrees) is that by 'price of production' Marx meant the same as Adam Smith and David Ricardo meant by 'natural price', ie a long-run price around which market prices oscillate (Moseley calls it the 'long-run centre of gravity price') consisting of cost + a mark-up for profit.  Smith and Ricardo just accepted the mark-up as a fact of life. Marx provided an explanation of where it came from and that it wasn't just an arbitrary addition to costs.

Moseley's book, although clearly written, is rather technical, but it does provide a comprehensive guide to all the arguments, for and against, the so-called 'transformation problem'

Adam Buick

The Relevance of Marxian Economics Today (2014)

From the April 2014 issue of the Socialist Standard

Interview with Andrew Kliman, author of a number of books on Marx’s ideas.

How did you come to be interested in Marxian economics and socialism?

I was 12 years old in 1968, a moment of tremendous radical ferment, and I immediately identified with all of the forces struggling for freedom. I don’t remember whether I immediately identified with socialism, too – in the environment of the time, immediately linking the two would have been rather natural – or whether that took a bit of reading and thinking.

I used to argue with people about capitalism, and I’d be told, ‘you don’t understand supply and demand.’ I realized that was true, and a main reason why I decided to major in economics in college was to see if my views would survive confrontation with ‘the law of supply and demand.’ Eventually, I decided to go to graduate school in economics and focus on radical economics. My knowledge of Marx’s writings, on economics and in general, was still rather limited. I had tried to read Capital, but my eyes kept glazing over and I kept dozing off. But in my first year of graduate school, I took a year-long course that consisted of a close reading of the three volumes of Capital. It was quite a struggle, but slowly I began to understand and to be convinced. The irrationality and corrupt nature of the resistance to Marx’s ideas, even among ‘Marxist economists,’ and the sterile and non-revolutionary alternatives they offer, have strengthened my conviction. So have the Great Recession and its ‘new normal’ aftermath.

I don’t think of myself as a ‘Marxist economist.’ The people who trash Marx or cannibalize his work to further their own ideas and careers have appropriated the term for themselves, and they can have it, as far as I’m concerned.

In ‘The Failure of Capitalist Production’ you claim that the underlying cause of the last global economic downturn was a persistent fall in the average rate of profit which had never fully recovered since the late 1970s. Do you think the falling rate of profit is always the deciding factor in regard to economic crisis or can it be explained by other features of capitalism such as the disproportionate growth between different sectors of the economy?

I say that the fall in the rate of profit was a, not the, key underlying cause. That’s not the same thing as a ‘deciding factor.’ I think a variety of conditions need to be present in order to produce an economic downturn and financial crisis, especially ones as severe as those we’ve experienced. That was Marx’s view as well. In particular, as I stress in the book,

‘Marx’s theory holds precisely that a fall in the rate of profit leads to crises only indirectly and in a delayed manner. The fall leads first to increased speculation and the build-up of debt that cannot be repaid, and these are the immediate causes of crises. Thus, the timing of the current crisis and the sequence of events leading to it do not contradict the theory, but are fully consonant with it and lend support to it.’

Clearly, the main immediate causes of the Great Recession were the bursting of the bubble in the US housing sector and the financial crisis that resulted. But pointing to these events isn’t adequate. If they were the only problems, the economy would have rebounded smartly once the US government quelled the panic; but that was five years ago, and the malaise persists. The recession, and to some extent the financial crisis, were also the product of several other, underlying conditions. A persistent fall in the rate of profit led to sluggish investment in production, which in turn led to a rising burden of debt; and the US government responded to these conditions by throwing even more debt at them. The government policies delayed the day of reckoning, but also made the crisis worse when it finally did erupt. These underlying conditions still persist for the most part, and the future of the Euro area and Chinese economies is quite uncertain, so the malaise persists as well.

During the housing-sector bubble, home prices and financial activity grew faster than the rest of the economy. One can, if one wishes, call this ‘disproportionate growth between different sectors of the economy.’ In this specific sense, the financial crisis and recession can be characterized as a ‘disproportionality crisis’ (but only with regard to immediate causes, not longer-term, underlying ones). But since ‘disproportionality’ generally refers to something different – an imbalance between production of means of production and production of consumer goods and services– use of the term is liable to cause confusion.

What is your attitude towards those that claim government spending and/or increasing working class consumption is a way out of the crisis?

Of course, the government could borrow more, and thus provide more of a temporary boost, but there’s a definite limit to the amount by which governments, even the US government, can run up their debt before the credit market gets spooked and lenders demand so much interest in compensation that running up the debt becomes counterproductive. Even more importantly, running up the debt provides only a temporary fix. It doesn’t set off a perpetual-motion machine of economic growth. Once the stimulus money ends, the stimulus it provides ends as well – and let me emphasize that this is what standard Keynesian theory itself says.

Although underconsumptionists claim that redistribution of income from wages to profits was an underlying cause of the Great Recession, that isn’t true, at least not in the US case. Between 1970 and 2007, employees’ share of net output was stable in the corporate and total-business sectors. So was the share of output that the working class could buy with its income, ie. without going deeper into debt. (Please see my pamphlet ‘Can Income Redistribution Rescue Capitalism?’ which you reviewed in January Socialist Standard, for data and sources).  Since upward redistribution didn’t cause the crisis, it’s not plausible that downward redistribution would solve it. Moreover, any serious downward redistribution would reduce profit and thereby tend to destabilize capitalism even further. After all, profit is the fuel on which the system runs. The underconsumptionist theory of crisis denies this, it tells us that the problem is too much profit, but I think there are fatal logical flaws in that theory. I can’t go into them here, but I do so in the pamphlet and in my book.

Similarly, what is your attitude towards those that claim that banking/monetary reform can improve conditions for the working class as well as preventing future crisis?

Financial regulation, like regulation in general, has a very weak track record. Businesses and investors are always able to find ways around the regulations, and the new regulations that are drawn up are always designed to ‘fight the last war.’ Also, regulation itself can be a cause of financial crisis. One of the biggest financial crises to date, the collapse of the savings and loan (building society) industry in the 1970s and 1980s, was caused by very strict regulations on the interest that the savings and loans could pay and charge, together with the inability of ‘Keynesian’ policies to stem the spiraling inflation problem of the time.

It’s possible to set up a government-handout agency that one calls a bank, funnel borrowed  money through it, and improve conditions for the working-class in that way – temporarily and within strict limits, of course. But if we’re talking about genuine banking functions – attracting funds and lending them out –it’s not possible to turn banks into institutions that operate for the benefit of working people or that pursue public-policy objectives. The capitalist system has its own laws, economic laws that are independent of the intentions of the people who happen to be running it. State-regulated banks, and even state-run and worker-run banks, are still banks. They have to try to maximize profits, just like every other capitalist firm. If they don’t, they won’t be able to provide investors and lenders with a decent return, so the investors and lenders will go elsewhere, and the banks won’t get the funds they need to operate. They’ll fail or, at best, remain tiny, insignificant islands in the sea of profit-maximizing finance.

You have made criticisms of the view expressed by Richard D Wolff (and others) that workers co-operatives are the way to socialism (or even are socialism). Could you briefly outline your position on this issue?

This issue here is really the same one I just discussed. It doesn’t matter whether we’re talking about banking or some other industry. Indeed, Wolff has applied his general view to the case of banking, calling for worker-run banks which, he claims, would operate for the benefit of working people. Why? Merely because workers have different interests than regular bankers, so they would supposedly make different decisions.

    

But the road to bankruptcy is paved with good intentions. Worker-run banks, and cooperatives within capitalism generally, would fail or remain tiny islands if they decided to sacrifice profit in order to enhance the well-being of their members or the majority of the population. Wolff just fails to deal with this problem. The only co-operatives that can survive are the ones that operate in accordance with the laws that govern capitalism. The result, as Marx put it, is that the workers in these cooperatives become ‘their own capitalist’; they end up exploiting themselves. In order to keep the prices of their products low and remain competitive, they have to keep their pay low, speed-up production, ignore workplace safety and health issues, and so on, just like every other capitalist.

Let me emphasize that the above comments are just about co-operatives within capitalism and as a ‘way to socialism.’ I’m not objecting to co-operatives as a form or even the dominant form of organization of production within socialism.

The assumptions of neo-classical economics have increasingly come under a lot of criticism since the financial crash of 2008. This criticism seems to have made significant inroads into the main stream yet the bulk of it comes from a behavioural economics or Keynesian /post-Keynesian viewpoint. Do you think this development can be harnessed by those seeking to promote a Marxian perspective and if so in what ways?

I’ve devoted a lot of effort to fighting the suppression of Marx’s body of ideas, including the suppression of them by the Marxist and radical economists. But fighting to allow Marx’s ideas to be heard is one thing; promoting a Marxian perspective in the academic-careerist turf-battle sense is another. I’m not interested in that. I’m interested in understanding and transforming reality, and for this, openness to dialogue and to new findings and ideas – from wherever they come – is essential.

I think Hyman Minsky, a post-Keynesian, had some insightful things to say about speculative and Ponzi finance. Irving Fisher’s debt-deflation theory of business cycles is also interesting. He was a neo-classicist, but some post-Keynesians have returned to his theory. And Vernon Smith and his colleagues have done what I regard as tremendously important work in behavioral economics, on the causes of asset-price bubbles. They’ve demonstrated conclusively that misinformation and lack of information isn’t the problem.

I agree with you that mainstream economists are engaged in some genuine rethinking. I also agree that Marx’s ideas don’t play any real role in that rethinking. This lack of interest in Marx isn’t due to dogmatism, but to the fact that these economists are agents of capitalism. Their job is to try to figure out how to solve the economic crisis and how to prevent future crises or at least make them less severe. So I can’t think of a thing that Marx has to offer them. His theory of capitalist crisis isn’t about the defects of any particular set of institutions or any particular form of capitalism. It’s about defects that are inherent in every form of capitalism and are inextricable from it. So I don’t think it offers anything to people trying to alter the system while keeping it intact.

Many groups that have shared the Socialist Party’s definition of socialism as a classless, stateless and non-market society have insisted that the working class should abstain from parliamentary activity. The Socialist Party has always maintained that as the state only exists to preserve the position of the property owning minority and that as socialism can only come about through majority understanding and participation, the democratic process should be used in order to win control of parliament for the purposes of preventing the state machine from being used against the socialist majority and to ensure the transition from capitalism to socialism can proceed in as ordered a manner as possible. In what ways would you agree or disagree with this position?

I wouldn’t insist that the working class abstain from parliamentary activity. As a Marxist-Humanist, I support (sometimes critically) all genuine freedom struggles, whatever the form they happen to take at a particular moment. But in the US, where I live, they’ve taken an electoral form only rarely, for instance in the Mississippi Freedom Democratic Party 50 years ago. I think that’s largely true elsewhere, too. The institutionalized labor and left electoral parties, even in the best cases, have rarely been vehicles of mass self-activity; and that’s one thing I do insist on, as did the First International: ‘the emancipation of the working classes must be conquered by the working classes themselves.’   

‘Property owning minority’ is too narrow – the top bureaucrats in the USSR, China, etc. haven’t been owners in the usual sense. I do agree that the state exists to preserve the capitalist system and that socialism can only come about through majority understanding and participation. However, I simply don’t see how the rest of the sentence follows from that.

Questions of logic aside, I don’t think anything can prevent the state machine from being used against the socialist majority. Governments can and will suspend our rights and ignore laws passed by parliament when push comes to shove, and they often have constitutional authority to do so. I think that what would offer the most protection against this, and the best chance for a revolution without mass bloodshed, is, first, a large majority in favor of socialism. Second, clarity about who its allies and who its enemies are – this is something that has been lacking far too often. Third, serious work to bring draftees and enlisted members of the armed forces over to the side of the people. If they decide to point their weapons in the opposite direction, that will do far more to enforce the will of the majority than parliamentary decrees can.

But getting rid of the old order is only one aspect of social transformation; the other is the creation of new social relations, rooted in a new mode of production that’s not subject to the economic laws that govern capitalism. No amount of political will, whether expressed by parliamentary or extra-parliamentary means, can bring this about. It’s not a matter of issuing directives, passing laws, or whatever. Unless and until a new mode of production is established that uproots the economic laws that govern capitalism, these laws will continue to nullify parliamentary laws, decisions of workers’ councils, and what have you.

Capitalist crises (2015)

Book Review from the August 2015 issue of the Socialist Standard

'Capitalism’s Crises: A Debate'. Contributions by Andrew Kliman, David Harvey, and Doug Lain. Marxist-Humanist Initiative. 54 pages.

Andrew Kliman wins this debate hands down.  David Harvey has tried to argue that Marx didn’t really hold or didn’t stick to the theory of ‘the law of the tendency of the rate of profit to fall’.  He did suggest that, as labour is the only source of profit and as capital accumulation tended to be labour-saving, there was a tendency for the amount of profit to grow more slowly than the amount of capital invested. So Harvey’s view is easy enough to rebut. The real debate, which Harvey does not enter into, is how this tendency might be related to financial crises and economic downturns.

Some argue that there is a direct link between the falling rate of profit theory and crises, in that, as a result of the introduction of more and more labour-saving machinery over a period, the rate of profit eventually falls so low that there is no longer an incentive to invest so much and so there’s a slump in production.

Kliman’s argument is that the link is only indirect:

‘Marx did not regard the tendency of the rate of profit to fall as an immediate cause of commercial or financial crises. He argued that a decline in the rate of profit leads to a crisis indirectly and after some delay. It promotes overproduction (by, e.g., depressing productive investment demand). It also promotes financial speculation and swindling (…) it is only when debt finally cannot be repaid that a crisis – that is, a financial crisis – erupts, and the crisis then leads to stagnation’  [Kliman’s emphasis].

He also writes of ‘the existence of many intermediate links between the fall in the rate of profit and the outbreak of crisis.’  But with all these intermediate links is this really a falling rate of profit theory of crises? Doesn’t it amount in the end to saying in effect that capitalism causes crises?

No such questions arise over the complementary view that during a slump the rate of profit rises through the devaluation of capital (capital is not a thing but a sum of values), so creating the condition for a resumption of capital accumulation. Kliman explains this well, underlining a very useful distinction between a financial crash (the actual ‘crisis’ point) and the drop in production that follows, useful because those in the Marxist tradition (including ourselves on occasion) sometimes use the word ‘crisis’ to cover both.

Adam Buick

Against ‘Redistributionism’ (2014)

The Cooking the Books column from the February 2014 issue of the Socialist Standard

On 5 December there was an interesting meeting in New York organised by the Marxist-Humanist Initiative (MHI) and Internationalist Perspective (IP). It’s on YouTube at http://tinyurl.ms/yvwx Like us, the four speakers all argued that the populist policy advocated by trade unions and leftwing demagogues of redistributing income from the rich to the working class was not a way out of the crisis.

Anne Jaclard (MHI) pointed out that this was a typical example of trying to reform capitalism to make it work in the interest of the working class, but this could not be done. Pursuing it was not just futile but a diversion from acting to get rid of capitalism. Redistributive politics, or ‘redistributionism’, was a view that needed to be combatted. This was not to say that workers should not try to get more under capitalism; that was part of the class struggle.

Sander (IP) said that the mistake of the ‘redistributionists’ was the common one of assuming that the aim of production today was consumption whereas it was the production of goods not as such but as value with the aim of accumulating more and more of it. Diverting value which otherwise would be invested by capitalist firms in production would lead to inflation as the goods on which to spend it would not get produced.

Andrew Kliman (MHI) presented the classic case against ‘underconsumptionist’ theories of capitalism, pointing out that what the workers could not buy could be bought by capitalists whether to consume or to invest in production. That workers could not buy back all they produced could not be the explanation of capitalist crises as this was the case also in boom times; in fact, if this was the case capitalism ought to be in a permanent slump and should have collapsed long ago. The mistake was to see ‘consumption’ as just what the workers and capitalists bought to consume, whereas ‘effective demand’ also included what the capitalists invested in production. It was changes in this, as the rate of profit went up or down, that determined capitalism’s boom/slump cycle. He denied that there had been a shift of income from workers to capitalists in the period leading up to the outbreak of the slump in 2008 and that this was its cause. He claimed that working class living standards had not fallen during this period. The only way out of a slump, he said, was a devaluation of existing capital that would restore the rate of profit.

McIntosh (IP) disagreed that working class living standards hadn’t fallen in the decades up to 2008 but agreed that the only way out of a slump was a devaluation of capital. It was not the redistributive policies of the New Deal that had ended the slump of the 1930s. According to him, it was the Second World War and the massive devaluation of capital through its destruction that did this. The way-out for the working class was not an attempted redistribution of income in their favour (as now being proposed by the new Mayor of New York De Blasio as well as unions and the Left), but an end to production as value. He was in favour of workers struggling for higher wages but whether wages were high or low, they still involved exploitation. What was needed was production directly to meet human needs and so the end of value, money and wage-labour altogether.

No, it can't (2014)

Book Review from the January 2014 issue of the Socialist Standard

Can Income Redistribution Rescue Capitalism? By Andrew Kliman, Marxist-Humanist Initiative, 2013, $8 plus postage from mhi@marxisthumanistinititiative.org

Subtitled ‘Monthly Review’s Factual & Theoretical Myths’ most of this pamphlet deals with the theoretical and statistical errors used by the USA's dominant left-wing journal in explaining the latest capitalist economic crisis. The Monthly Review attributes the crisis to rising income inequality, with the clear implication that income redistribution can rescue capitalism, though it is doubtful that Monthly Review would admit to that implication. Underpinning Monthly Review’s explanation is an underconsumptionist theory of capitalist economic crisis, and this is Kliman's main target. Underconsumption theory argues, basically, that crises are caused by a lack of effective demand.

Kliman shows that in Marx’s crisis theory crises result from the normal functioning of capitalism and are inevitable under it. Underconsumption theory, on the other hand, typically implies that something has gone wrong and can be remedied. Kliman also challenges the popular notion of the alleged success of the ‘neoliberal’ assault on the working class, the supposed decline in workers’ share of output, and their allegedly stagnating wages. He provides evidence that this notion ignores the substantial growth in the incomes of older, female, and more highly-educated working people. The evidence Kliman cites is mainly drawn from the USA but the point generally still stands. The history of capitalism shows that it is not inconsistent with rising living standards for the working class, and the 100 years prior to the 1970s saw consistently rising real wages in the USA and elsewhere but still with regular crises.

Kliman maintains that undue concern over inequality can divert attention from major economic problems like mass unemployment, people losing their homes, and poverty. And what about the fact, he says, which dominates most people’s lives, that they are forced to do what bosses tell them to do, day after day, year after year––or else starve? 'Why is there so little outrage about this', writes Kliman, 'or even concern about it?' The criticism here is mainly directed at the 2011 Occupy movement which generally focused less on these concrete problems and more on the abstraction 'rising inequality'. Some may find this line of argument controversial, while for others it will be a breath of fresh air. It should be noted that, contrary to popular belief, Marx did not condemn capitalism for its inequality (rising or not), nor did he frame his arguments for socialism in terms of material equality. For revolutionary socialists, claims Kliman, the interests of the working class and the interests of the system are fundamentally opposed and 'this is the primary reason why they maintain that revolutionary transformation of society is needed' (Kliman's emphasis).

Included in this pamphlet are selections from Kliman's book The Failure of Capitalist Production (2011) where underconsumptionist theory is examined in detail. It is sometimes suggested that Marx held to an underconsumptionist position with this statement: 'The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses'. However, capitalist production is production for the market with a view to sale and profit, not directly for human needs. It is profitability, or the lack of it, which creates the possibility of an economic crisis. And this possibility, argues Marx, is 'no more than the possibility. For the development of this possibility into a reality a whole series of conditions is required' (emphasis added). As Kliman points out, there is no suggestion here that crises are the result of persistently inadequate demand. Kliman is worried about the political implications of underconsumptionist theory because 'underconsumptionism implies that a more equitable distribution of income will make capitalism work better'. This is a fallacy all socialists oppose.

LEW

Reclaiming Marx's Capital (2008)

Book review from the August 2008 issue of the Socialist Standard

Reclaiming Marx's “Capital.” By Andrew Kliman. Lexington Books, 2007

After Karl Marx's Capital was published it has come in for criticism from a particular direction. In Volume One of Capital (1867), Marx argued that the value of commodities (goods and services produced for sale and profit) are determined by socially necessary labour-time. Profit comes from unpaid surplus labour appropriated as surplus value. In Volume Three of Capital (1894), Marx explained that commodities tend to sell at prices of production, which is the price sufficient to yield the average rate of profit on capital advanced, and commodities actually sell at market prices which fluctuate around prices of production (assuming no monopolies). Marx indicated in Volume One that in a later book he would show the difference between value and price, as his analysis moved from the abstract to the determinate. And we now know, though Kliman does not mention this, that the notes which comprise Volume Three and edited for publication by Engels after Marx's death were written before the manuscript of Volume One.

However, many economists (including some who claim to be Marxist) maintain that prices cannot be derived from values in the way Marx described. In economics this is known as “the transformation problem”, but it has implications for other aspects of Marx's theory of value. What are the objections? The critics start by making a couple of assumptions about Marx's theory. Firstly, it is assumed that value and price must be two separate systems. Secondly, it is assumed that inputs into production and the outputs that subsequently emerge must be valued simultaneously, and the input and output prices must be equal. When these assumptions are made, so the critics claim, Marx's theory of value becomes “internally inconsistent” and breaks down.

However, these assumptions are mistaken. In Marx's theory, value and price are interdependent; profit exists when, but only when, surplus labour has been performed. The assumption that value and price must be two separate systems implies that there can be profit without surplus labour, which is a major misinterpretation of Marx's theory. And the assumption concerning simultaneous valuation and the equal prices of inputs and outputs flatly contradicts the main principle upon which Marx's value theory is founded, that value is determined by labour-time. It is because valuation necessarily involves labour-time that input and output prices can differ. Kliman shows that the “internal inconsistencies” appear when the theory is viewed as a simultaneous valuation and disappear when not viewed as a simultaneous valuation. In short, the critics have badly misunderstood Marx's theory of value.

Lew