Marxist Economics, by Liam McNulty

Marxist Economics

In the midst of one of history’s most severe crises of capitalism, there is no more apt time than the present to briefly survey the basics of Marxist economics.  It would be beyond the scope of this short article to trace the development of the theory from the works of Marx up until the present day so hopefully it should suffice to lay out the basics of the Marxist analysis of capitalism and its approach to economic crises.

To start, all Marxists take the position that capitalism is inherently crises-prone, and that these crises are the realisation of fundamental contradictions within the capitalist system.  This is not to say that we can glean much satisfaction from merely pointing to a contemporary crisis and saying ‘We told you so’.  All crises are the products of different historical factors and the accumulation of varying contradictions.  However, there are a number of basic contradictions in capitalism which come to the fore in varying degrees during a time of crises.  It is vital that we understand them to get beneath the surface and unearth the true mechanisms of capitalism.

The nature of capitalist accumulation:

Unlike in the past, the purpose of commodity production under capitalism is not in the first instance for the creation of use-values.  That is to say, the major stimulus for capitalists wishing to produce goods is not that they or other people need to use them, but that in selling those goods they will make a profit.  It follows, therefore, that goods which are useful may not be manufactured because they are unprofitable to produce.  It also follows that when production becomes unprofitable it will stop and the economy will enter a period of crisis.  This can be demonstrated in abstract terms by the following schema, as done in a similar manner by Paul Sweezy in his work The Theory of Capitalist Development:

In simple (non-capitalist) production, the producer sells his product in order to purchase other products which satisfy specific needs or wants.  He starts with Commodities, turns them into Money and then back into a different Commodity.  In other words, C-M-C.

Under capitalism, the capitalist starts with Money, uses this money to purchase Commodities (labour power and means of production), and then after the process of production he sells the commodities for more Money:  M-C-M.

However, if the value of M at the beginning and the end of production is the same then the whole process was pointless from the point of view of a capitalist.  For production to take place, therefore, the value of M must be made larger.  In other words, M-C-M1 where the value of M1 is greater than that of M.

Surplus value and the rate of profit:

In order to understand where this added or ‘surplus’ value comes from we must look closer at the process of production.  In essence, it involves two elements: means of production (or constant capital, C) and labour power (or variable capital, V).  However, as we have seen, if the value of the inputs (C+V) is equal to that of the output, then there is no point to production.  There must, therefore, be another element involved.

For Marx, the importance of labour (V) as a commodity is that it produces value.  A capitalist pays a worker a fixed wage for his labour power yet the commodities produced by labour exceed that value.  In other words, the sum total of production in a fixed period is not merely C+V but C+S+V and from this surplus (S) derives profit.

When we factor in the costs of labour and of means of production in generating profit, we can simplistically express the rate of profit as S/(C+V).  However, in Capital, Marx assumed that the whole stock of capital is used up in the production of a commodity.  While this kept the calculations simple, it has led to some misunderstandings.  When calculating the rate of profit, it must be remembered that the total constant capital (C) is not all used up because its composite elements have different lifespans.  For example, a factory may last fifty years, a machine ten years and raw materials just a week.  Furthermore, this formulation excludes rent.  Nevertheless, it is necessary to accept such simplifications for the purposes of an overview.

The organic composition of capital

As we have seen, V is the element which produces surplus value (S) when it interacts with C in the process of production.  Therefore, if the proportion of C to V is altered, with values remaining constant, so is the amount of S.  This proportion is known as the organic composition of capital, expressed as S/(C+V).  In concrete terms, a change in this ratio manifests itself as a growth of machinery over that of labour.  This occurs due to technological advancements, which necessarily spread throughout industries in the process of capitalist accumulation due to the pressures on firms to remain competitive.

The tendency for the rate of profit to fall pt.1

As labour is the value-producing commodity in the process of capitalist production, it follows that its decline relative to that of constant capital leads to a gradual reduction in the amount of surplus value produced.  This simple observation Marx called the tendency for the rate of profit to fall.

However, it must be stressed that it is only a tendency which logically follows from Marx’s labour theory of value.  Due to the vast number of counter-acting tendencies which can flow both from the increase in machinery and from elsewhere, what is often misunderstood as a law can only accurately be described as a tendency.  These counter-acting causes include raising the rate of exploitation (S/V), known in bourgeois economics as the productivity of labour, which allows labour to produce more surplus value than it would be able to do with lesser means of production.  If the productivity gains of the new machinery outweigh their cost, the rate of profit will clearly fall slower or not at all.

Another counter-acting tendency is the fact that elements of constant capital (say, raw materials or new machinery), may become more numerous as production expands in certain industries, causing them to fall in cost.  This drop may be substantial and cancel out any losses in profitability.

Most obvious to ordinary workers are attempts by capitalists to lengthen the working-day, introducing ‘scientific management’ or ‘Taylorism’, or to depress wages.  The latter of which can occur, to give some examples, due to an influx of new labour into the labour market (through the reserve army of the unemployed or liberalisation of the labour market within a body such as the European Union) or through government policies such as income controls.

The tendency for the rate of profit to fall pt.2

With these numerous counter-acting forces in play it is by no means determined that the rate of profit will continue to fall indefinitely in all cases.  As Sweezy points out, a deterministic view of the tendency for the rate of profit to fall on account of a rising organic composition of capital assumes a constant rate of surplus value (ie. the changes in technology will not affect how much surplus value is produced by the workers).  Thus, it is better to consider the rate of profit as a rate which can be altered by the movements of both variables (the organic composition of capital and the rate of surplus value), plus the other counter-acting tendencies at work.  Of course, this qualification in no denies the existence of such a tendency.

Finally, as Sweezy argues, the very process of capitalist expansion contains within it forces which will squeeze the rate of profit.  We speak here of a growing economy’s increasing demand for labour which will raise wages and reduce the rate of surplus value.  We might also mention the growth of the trade union movement or legal protection (however limited) for workers.  Factors which resist this encroachment of profits might be the formation of employers’ organisations, monopolies to maintain high prices or state action designed to attack the living standards of the working class.

The effect of falling profits in crises.

We mentioned at the beginning the nature of production under a capitalist system.  Very simply put, production is contingent on profitability.  Furthermore, the capitalist (in general rather than personal terms) does not value wealth in the same way as a feudal aristocrat.  For a capitalist, wealth begets more wealth as the increased value of M1 is thrown back into production to grow and expand his enterprise.  This makes capitalism especially susceptible to crises.

The capitalist measures the success of a venture according to the difference between the wealth at the start (M) and that at the end (M1).  Unless this difference (lets call it ΔM) is positive the capitalist will have made a loss.  Therefore, he is concerned with the fraction of ΔM/M, or the rate of profit.  Thus, a falling rate of profit removes the incentive to invest and expand and causes a crisis in one part of the system.  Given the inter-relatedness of capitalist economies, it is possible for this crisis to become widespread, just as we have seen in recent years.  If profit rates fall in all industries then nothing will be gained from moving capital from one to another and the result will be a crisis.

Finally, because individual capitalists are driven by the profit motive they will take only secondary account of what everyone else is doing.  If the rate of profit drops in one industry, it is perfectly likely for a flood of capital to flow into another one leading to overproduction in that industry.  If commodities become subject to overproduction their price will fall and this will cut further into the rate of profit.  This is known as a ‘realisation crisis’ because the surplus value in commodities will not become fully ‘realised’ in the act of selling. This is because their new price will not reflect the old cost of production; this crisis stems from the fact that in capitalism sale and purchase are separated both in space and time.  If a capitalist buys raw materials but is later unable to sell his commodities he will have ‘overproduced’.

Conclusion

It is clear from the range of forces operating in the capitalist system that crisis can stem from any one or any combination of elements and it is the job of the economic historian and not of the abstract theorist to determine the root causes of a crisis.  However, a clear theoretical perspective is necessary to avoid superficial analyses like the sort prevalent in the current bourgeois press.  Of course, anything short of book-length cannot hope to cover all the necessary ground but hopefully this overview will serve as an elucidation and explanation of some of the most important concepts in Marxian political economy.

The Relevance of Marxism Today, by Adam Booth

Last October, I helped out at the Freshers’ Fair on the stand for the Marxist Discussion Group. This was the fourth year that I have been at the FF for a left-wing organisation of some kind. In previous years it has always been a tiring affair, involving apathetic responses at best, along with a fairly constant stream of arguments with Tories. This year, however, it was different. Our leaflets flew off the table; our signup sheets were filled; and our copies of The Communist Manifesto sold like hot-cakes.
The current recession has given people a thirst for knowledge; a desire to understand what is happening. People no longer need to be convinced of the failure of Capitalism – they can see and experience it for themselves. The public look to the bourgeois economists and reformist politicians for answers and they get no explanation other than some muttering about “greedy bankers”. Paul Krugman, the 2008 winner of the Nobel Prize for Economics even went so far as to say that, “most work in macroeconomics in the past 30 years has been useless at best and harmful at worst”.
With no answers from traditional sources, intrigued and inquisitive people are turning to the readings of Marx. Publishers in Germany claimed that their sales of Das Kapital increased by over 300% in the autumn of 2008 as the severity of the recession became apparent. This is no surprise; Marx (and Engels) explained the nature of Capitalism, with its tendency to go through periodic crises, over 160 years ago in The Communist Manifesto: “It is enough to mention the commercial crises that by their periodical return put the existence of the entire bourgeois society on its trial, each time more threateningly…In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity — the epidemic of over-production. Society suddenly finds itself put back into a state of momentary barbarism…and why? Because there is too much civilisation, too much means of subsistence, too much industry, too much commerce”.
The point of Marxist theory, however, is not to be able to say “I told you so” every time a recession comes about. It is not a dogma that should be learnt and recited in a religious manner. There are no rigid rules to Marxism that must be blindly followed in a mechanical manner, like the assembling of some piece of Ikea furniture. Rather, Marxism is a set of ideas and theory that aims to provide people with the necessary analytical tools to assess each situation and understand what processes are at play. It is all very well-and-good wanting to change the world, but how can you do this without first understanding what it is you are trying to change? Marxist ideas are like the map and compass for an explorer in the mist: they give you an idea of where you currently stand, show you the destination, and provide a process of working out how to get there. This intrepid traveller may lose his bearings a few times, and perhaps become disorientated, confused, and disillusioned at points along the way, but ultimately his tools can get him there. There are many ways of getting from A to B and there are no specific set of directions that one must follow.
Now more than ever, a clear perspective is needed of how to change society. For example, at the time of writing, huge movements are taking place in all the cities of Iran. These protests currently lack any focus or direction; reformist leaders such as Mousavi are afraid of encouraging any movement, and are constantly urging the masses to stop the protests. Iran has been in a similar position before: in 1979, when a mass movement toppled the Shah, a power vacuum was created that was filled by a theocratic leader, Ayatollah Khomeini, who was no kinder to the workers than the previous monarchy. Fast-forward 31 years, and it is clear that a revolutionary leadership is needed to overthrow the current “Supreme Leader”, Ayatollah Khamenei, and President Ahmadinejad. A workers-led movement, using tactics such as a general strike, with the support of the youth, could bring the current unstable, corrupt, pro-Capitalist regime down in a matter of days.
On an even larger scale, the global issue of climate change is the ultimate example of a problem that will never be solved under Capitalism, or by any NGO-led movement. The failures of the Copenhagen talks have shown that right-wing and reformist political leaders around the world are impotent, and are not able or willing to break free of the shackles of big-business or overcome the contradictions of the bourgeois nation-state. Like all inequality created by Capitalism, climate change is a problem that is caused by a rich minority, but that overwhelmingly affects the poor majority. Climate change is an international problem, and International Socialism is the only solution.
The most important thing to remember is that Marxism is not just a theory to be discussed by intellectuals and academics. Education without activity is pointless; however, activism without education is equally useless. The key is to discuss the ideas of Marx, and other Marxist thinkers such as Engels, Lenin, Trotsky, and Luxemburg, in order to develop an understanding of the world, and to apply this perspective in practice by intervening in the real movements and mass organisations that exist within society. As Marx himself stated, “The philosophers have only interpreted the world, in various ways; the point is to change it”.
The Cambridge Marxist Discussion Group meets on Wednesdays at 7pm in the Munby Room, Kings College. The first discussion of Lent term is on the 27th January 2010, and is entitled “Iran: 1979 and 2010”. For more information, e-mail marxdisgroup@cusu.cam.ac.uk or visit the Facebook group at http://tinyurl.com/CamUniMDG

Socialist Feminism/ Page Three Girl, by Annie Hankshaw.

When confronted with the question of the relationship between feminism and the Left, it is common amongst socialists in Britain today to argue that socialism is the fight for total social equality. The women’s struggle is implicit within that, and therefore does not need to be given undue weighting within the workers’ movement. The idea is that, after the revolution, total equality must ensue.

This argument must be opposed on two fundamental grounds: first of all, it is a passive argument, and one that looks forward to revolution as something that is inevitable. This is simply lazy; a revolution can only be what the driving forces behind it make it. If we do not agitate for women’s equality as workers, it will not simply appear. Secondly, it ignores the history of the socialist movement. If it had always been the case that in revolutionary situations total equality of the sexes had ensued, then this argument could be given more credence. As it stands, every major revolution that has taken place in the name of socialism, whether we agree in that particular brand of socialism or not, has resulted in patriarchy and a society that not only divides the ruling and the working castes but again subjugates women within that framework.

Capitalist society is a patriarchal society; its lines are not as clearly drawn as they once were, but we are, nevertheless, emerging from a history in which men have been taught to rule. The case with upper class and bourgeois males is straightforward; they are educated in private schools and they go into politics or business. They assume leadership. Historically, working class men have been educated, or socialised, into a position that makes them the breadwinners for the family unit and, therefore, the lynch pin and controller of that unit. The role of women on both sides of the divide has traditionally been one of domestic subservience. It is this that has allowed bourgeois women to dominate feminist history, whilst working-class women have often remained in constrained gender-roles, while simultaneously fighting to establish their own place as workers.
There is no belief in the socialist movement in an inherent gender binary, a qualitative difference in the roles played by men and women as workers, but there remains a culture that is dominated by a constructed masculine confidence. The fault lies not with the men but with the fact that, in our society, verbal and political confidence is construed as a masculine trait. Furthermore, perceptions of the Left in many other sectors of society have not changed since the Great Miners’ Strike and the trade union struggle of the nineteen-eighties. This is owing to the fact that today, working-class confidence has been shattered, and the workers’ movement had still not recovered from Thatcher’s sledgehammer tactics in 1984. The result of this is that when many people think of the left the image that comes to mind is of the miners’ on the front line, or scenes of boredom in working men’s clubs, or a dole-queue overstuffed with unemployed miners. The crucial roles played by Women Against Pit Closures and the Miners’ Wives have essentially been written out of the history of this struggle, at least as it is conceived by the public.
Socialists today must fight to write that history back in. Feminism must be used to critique the workers’ movement so that inherent cultural structures and learned social behaviours can be re-written. Until women can be seen simply as workers, we must be Socialist-Feminists. Perhaps one day we will be permitted to lose that modifier; and it will suffice to say that we are socialists, safe in the knowledge that feminism and commitment to the women’s movement is implicated in that statement. Until then, we must keep the modifier, to remind ourselves of what we are fighting for.

Page Three Girl: Elizabeth Gurley-Flynn

Elizabeth Gurley Flynn was involved in almost every large Socialist group in America from the age of fifteen, when she gave her first speech, entitled “What can Socialism do for women?” She was expelled from school for her activism; she joined the Industrial Workers of the World (IWW) and was a founding member of the American Civil Liberties Union, from which she was later expelled for her association with the American Communist Party. She died in 1964 on a visit to the Soviet Union, where she was given a state funeral.

Flynn built bridges between the IWW and the Suffragettes, but her activism was more militant than the bourgeois feminist movement. She organised men as well as women, and she was one of the very first activists to identify the women’s struggle with the class struggle. During the 1913 textile workers’ strike in Paterson, New Jersey, Flynn held an assembly for female workers only. She agitated and motivated them on the line that they should have all that their boss’s daughters had; it was they, after all, who were producing the fine silks that bourgeois women were wearing. She spoke on the “bread and roses” principle: she argued that women should not have to surrender their right to femininity in order to stand alongside men in the workplace. Flynn’s battle was a fundamental one and one that both the left and the women’s movement forget today: being female does not impinge upon one’s status as a worker, and being a worker does not take away one’s status as a woman.