imagine if you would that the economics and capitalist sphere was non existent

Why I Am A Socialist - Part 3: Because Marx Was Right

This one is for anyone curious about what Marx was actually on about (as opposed to the caricatures of his thought that abound), and for those who know already but could do with a bit of a recap/consolidation.

All Marxists are socialists, but not all socialists are Marxists. There are really two definitions of what it means to call yourself a Marxist. On the one hand, you may be affiliated with an orthodox Marxist-Leninist communist party such as are still active in most European countries, and which preach Bolshevik-style armed revolution by the working class. More commonly today, people who call themselves Marxists are socialists who find much of their philosophical inspiration in the political economy of Karl Marx. I am a Marxist of this kind. I think Marx was right about most of the essentials, and that he remains the most important socialist writer, his work being the best theoretical tool available to anyone trying to understand capitalism and move beyond it.

Marx was, above all, a theorist of capitalism, not of socialism. What differentiates Marx from the vast majority of economic writers after him is that he actually took the time to develop a theory of how capitalism itself works. As the economist Yanis Varoufakis (now the Greek Finance Minister) points out, the economics profession after Marx became obsessed with developing ‘scientific’, physics-based mathematical models that became increasingly divorced from the day-to-day reality of capitalism and the social relations which undergird it. For the post-Marxian economic intellectuals, market exchange, free labour markets and ownership of productive assets were not the defining features of a specific economic model called ‘capitalism’, but were instead what define economies per se; the study of anything outside of the basic economic coordinates of capitalism was no longer considered properly economic study. ‘Once we got into that framework of thinking about the economy’ says Varoufakis, ‘capitalism became invisible.’ Marx, of course, did not think capitalism was synonymous with ‘economy’. The theory of capitalism Marx espoused treated it as a very specific constellation of social relations and historical forces which could and should be subject to scrutiny and critique; in insisting upon the necessity of critique, in fact, he was far more loyal to the scientific method than the economists who sought to make of economics a natural science.

Marx’s analysis of capitalism begins with a question: what does it mean to be a capitalist? Capitalist activity is the making of profit; if you are not making profit, you are not a capitalist. Profit is what is left over after you have paid all of the costs associated with producing whatever it is that you sell. If I began a business and only recovered my costs, I would cease my economic activity very quickly, since what is left over after costs are covered must at least cover my own living. This is the absolute lower limit of profit required for a capitalist to continue production; he must be able fund his own consumption from it. It the market, of course, capitalists compete with one another for profits; the real lower limit is the average rate of profit, the rate beneath which one starts to become less competitive, and above which an advantage is gained against one’s competitors. The law that a good chunk of profits must be reinvested productively in order to grow the business and remain competetive (and avoid sinking beneath the average rate of profit), is the iron law of capitalism; it acts upon the capitalist themselves without mercy. Reinvestment, rapid growth and perpetual accumulation are the conditions of economic life upon which capitalism cannot budge, upon which it can make no compromise.

The above explains why profit must be produced, but what does Marx say about how it is produced? Much of mainstream or marginalist pro-capitalist (bourgeoise) economics says that profit is produced in the act of exchange; the seller produces or buys at a particular monetary cost (m) and sells at a larger monetary value (M). The difference between the two is profit, and it is gained in the act of exchange. The intuitive appeal of this construction requires a bit of critical scrutiny to see through. Imagine you decide to build a kitchen table and sell it at a profit. You will incur a number of costs in making the table: timber, tools, nails, perhaps glue, polish and so on. Let’s say these cost you £50 in total. You spend two days making the table and sell it for £100. You now hold in your hand £100 instead of the £50 you had before; where did this additional £50 come from? The question may seem wrong-headed since it is obvious that it came from the wallet of the person who bought the table. But the additional £100 which has made its way from the buyer’s wallet into your hands has been given in exchange for something of equal value, the table, so the buyer does not make a monetary gain. The table itself is the ‘more’ in this equation; it is the thing which did not exist before but which does exist now. All of the money involved already existed. Nothing in the world is ‘increased’ in the movement of banknotes, or even in the ‘movement’ of the table from your workshop to the buyer’s house. What has changed is that there is now a table in the world that wasn’t there before. Exchange did not produce that table, you did, with your labour. Labour, says Marx, is the source of profit.

Marx’s basic point is that profit, and in fact all new wealth and value, is created in the sphere of production, not exchange. This is in many ways staggeringly obvious; production is literally the sphere in which things are made, after all. But in stating that labour is the source of profit, Marx is making the more precise and contentious claim that profit originates with labour and is then expropriated from it by capitalists.

Here is Marx’s version of events: a capitalist begins production by purchasing tools, raw materials and machinery, and then hires workers to use those productive elements to produce a commodity. The combined cost of the non-human and human elements of production is the initial outlay of capital; it is what the capitalist must spend in order to make more money. If the capitalist were simply to re-sell the tools, raw materials and machinery (what Marx calls constant capital) he just bought, he would probably get exactly what he paid for them, maybe a bit less. The only way for him to get more money is for him to employ labour in creating something new. The production of a commodity by labour permits the transmission of the value of the constant capital (tools/machinery etc) into a new commodity, thus preserving their value. But if this was all that labour did, the commodities produced would have no more value than the tools and machinery themselves, leaving the capitalist without profit. Labour, says Marx, produces additional value in the course of production and transmits this value to the commodity on top of the value of the constant capital used up in the process. It is labour which causes a car to be worth more than the sum of the components that comprise it. It is labour which brings a car into existence where before there were only parts.

But what about wages? Sure, labour adds to the value of the constant capital by transforming it into something else, but doesn’t the capitalist repay this in full in the form of wages? He couldn’t even if he wanted to. If the capitalist did indeed repay this debt in full, he would again be bereft of profit. The capitalist is bound by the necessity of making a living and by the iron law of competetive reivestment to pay the worker some fraction of the value of what the worker has produced. This fraction may be small or large, but it can never be as much of the full value gained in the sale of the commodity. This process of employing labour to produce value and then paying them some fraction of it is what Marx called exploitation. Exploitation is not just ‘bad treatment’ of workers, it is the specific manner in which, in the capitalist mode of production, the necessary work of making profits is accomplished. The value which the workers produce above and beyond the value of their own wages is called the surplus, and it is the surplus which the capitalist appropriates, both to fund his own conspicuous consumption and to reinvest towards engagement in the competetive market.

Once we recognise that this is how profits, i.e., the surplus, are produced, we might well ask how things came to be this way, and whether they must be so. Marx’s theory of how capitalism came about is part of his larger theory of history, which is called historical materialism. Historical materialism states that history moves through a series of epochs defined by two basic sets of circumstances. The first is the level of technological, scientific and organisational progress attained at any given moment; Marx calls these accumulated social competencies the forces of production. The second is the basic manner in which social life, and in particular work, is organised throughout society. This includes the question of who works and who does not, who rules or controls the monopoly of violent force known as the state, how work is divided up into different tasks and dispersed throughout the population, and how the fruits of that work are divided up and consumed. All of these different social connections between people Marx calls the relations of production. At any given historical juncture, a given interaction between the forces and relations of production will be predominant. In feudal times, for example, the forces of production had not progressed past the stage of medium-scale collaborative agriculture, and the relations of production involved the yeoman peasantry working half the week on their own land and half the week on the land of the feudal lord.

So, how does one historical moment give way to the next? Marx says that history lurches forward into new epochs when a tension emerges between the forces and the relations of production that eventually becomes too much for the system to bear. As technology and scientific progress marches forward, it becomes ever more difficult, and indeed more economically irrational, for society to hold on to the old relations of production. How, for example, could feudalism have possibly survived the industrial revolution? The revolution in economic life which that era portended was simply incompatible with the social relations of feudalism, based as they were on inferior forces of production and the social relations suitable to those forces. The social relations of capitalism could not possibly have come about without the development of the productive forces to the point at which those relations were capable of becoming generalised, that is, more or less ubiquitous throughout society. What this meant in practice was the large-scale migration of labour from the country to the city, from the farmlands of feudalism to the urban centres of industrial production. Economic and social life was completely transformed in this messy, uneven and violent process, a process which began to establish as ‘normal’ the social relations of contemporary capitalism.

What are the social relations of capitalism, that is, its relations of production? When Marx uses the word capital, also the title of his most famous work, he does not use it in the modern sense of ‘wealth’ or ‘productive assets’. For Marx, capital is itself a social relation, the relation upon which the economic system of capitalism depends. This relation is the relation between the working class and the capitalist class; in a very literal sense, Marx argues that this relation is capitalism. The difference between workers and capitalists, this difference being the essence of their relation, is that capitalists own the means of production, whereas workers do not. The means of production are factories, farms, power plants, mines, oil derricks, tools, machinery and even intellectual property, basically everything which facilitates the production and reproduction of our material lives. In feudalism, workers owned their own means of production (farmland, cattle, tools etc) and were able to reproduce themselves by their use. While they were forced by the feudal relations of production to work part of the week for the consumption of the feudal lord rather than for their own, they could in theory have provided for themselves using nothing but their own property.

In capitalism, workers do not own any means of production, and are therefore utterly reliant upon capitalists to be able to engage in the kind of productive activity that ensures that the supermarket shelves are full, that clothes are made, cars manufactured and so on. The movement from feudalism to capitalism thus entailed the separation of the working class from their means of production, because it is only once labour becomes ‘free’ labour, that is, labour ‘unburdened’ of all productive property, that capitalist social relations may be generalised. After all, who would bother working for a capitalist for a fraction of the value that he produces if he could provide for himself using his own productive property and keep the surplus for a rainy day? The very existence of capitalism is predicated upon the separation of society into two distinct classes, one that owns productive assets and one that does not. The class that does own is always a tiny fraction of the size of the class that does not; if this were not so then capitalist production could not begin, since each capitalist needs a plentiful supply of ‘free’ labour to employ. Since the minority capitalist class appropriates the full surplus, it makes sure to provide itself with a far greater power of consumption than is permitted for the majority of workers. The result is enormous inequality of wealth under capitalism, a circumstance which contributes to the always-brewing crises that plague capitalist production, and well as the resentment of the working class.

Crisis, says Marx, is of a piece with capitalism. Capitalism as a system is exceptionally fragile because it relies for its existence upon a constant circulation of capital through a number of different stages and forms. Marx’s explanation of this circulation process is clunky and long-winded (newcomers to Marx can do no better than reading David Harvey’s A Companion to Marx’s Capital, vol 2 for an insight into how this all works), but suffice it to say that there are innumerable opportunities for the circulation of capital to become blocked, slowed down, redirected and choked off outright. The result is the kind of crisis that we saw in 2007/08 when an increasingly financialised and deregulated flow of capital found itself crippled in its capacity to do its one and only job: to move. Only under capitalism is it possible for there to be such a thing as ‘surplus liquidity’, when banks and rich individuals have so much money that they cannot find enough profitable ways to spend it. Money sits in bank accounts contributing nothing to society even as wages plummet, government budgets are cut leaving the weakest among us without support, and a million useful jobs in our cities and towns go undone. It is hardly an exaggeration to call such an irrational system, so stubbornly insistent on repeating its mistakes, pathological.

Marx’s view was that capitalism’s tendency to fall into crisis meant that it would only be a matter of time before the whole edifice crumbled under the weight of its own contradictions. The ‘death’ of capitalism is predicted by historical materialism in its most simple form since, like every other system, it cannot indefinitely resist being forced to adapt to the tension between its forces and relations of production. Marx’s specific formulation of this inevitable shift towards a post-capitalist society is called, unpoetically, the law of the tendency of the rate of profit to fall. Capital, that being the initial outlay of productive elements the capitalist puts into production, consists of two parts: non-human elements (tools, buildings, energy, machinery etc) called constant capital and human elements (labour) called variable capital. The commodities which these elements produce when combined thus ‘contain’ a certain proportion of constant to variable capital, of value contributed by non-human and by human elements. A hand-crafted chair, for example, contains a greater proportion of human to non-human input than a chair produced on an assembly line with a minimum of human labour. As capitalist competition intensifies, the need for individual capitalists to invest in labour-saving technologies increases, with the result that commodities are increasingly produced with less and less input from human labour.

The dimunation of the human contribution to the final product has a number of effects, some good, some bad. Workers are laid off from increasingly automated jobs, destroying whole communities and ways of life, but at the same time prices generally decrease as the amount of labour embodied in commodities gradually declines. The most dangerous effect however, argues Marx, is that as the human component of production declines, so too does the capacity for capitalists to make a profit. At first glance this seems highly counter-intuitive; how can better, faster, cheaper production result in less profits? Recall that, for Marx, profit is the difference between what the capitalist pays out for constant and variable capital, and the final price that the commodity fetches. This difference is what the capitalist does not pay to workers; it is the difference between the value the workers produce and what they are paid in wages. In the absence of workers to exploit, the capitalist loses his capacity to stretch open a gap between his costs and his revenues. This is precisely what happened to the Japanese manufacturing industry in the late 1980’s. The tremendous economic boom Japan had been enjoying from the fruits of robotizing car manufacture backfired as the profit margin began, almost inexplicably, to decline. The Japanese car manufacturers had not been reading their Marx, and had displaced human labour, the source of profit, from the production equation.

It is a difficult concept to get one’s head around. We are so entranced by the disarmingly obvious fact that automisation means more wealth and productivity with less effort, that we fail to detatch the idea of the creation of wealth from the realisation of profits. In a society in which automisation steadily increased but in which the economy was not run on the basis of profit-making, the increased resulting increases in productivity would be an unambiguous good. Under capitalism, however, such innovations can also beget crises. The last few decades have seen the incredibly destructive growth of ‘outsourcing’ in the developed nations, whereby capital moves overseas to take advantage of cheaper labour than can be aquired in the home market. Outsourcing is not carried out by unscrupulous capitalists who could just as easily remain in their countries of origin; they are suffering real crises of profitability that can only be assuaged by moving to where the costs are lower. Outsourcing reveals an important contradiction within capitalist production; at a certain point it becomes more profitable for a company to go to where labour can be more eggregiously exploited than to invest in further labour-saving technology at home. What this means is that it has become impossible for capital to profitably employ human labour without dramatically reducing wages. What happens when the developing world catches up with the developed and wages level out globally? Capital, Marx’s theory suggests, will have nowhere left to run.

But isn’t it still a bit of a mystery why labour is the sole source of profit, and why increasing labour productivity by investing in labour saving machinery, while profitable for the individual capitalist in the short term, ultimately stymies profitability for capitalism as a whole?

Recall the example of car manufacture; labour is literally responsible for the transformation of the various parts into a finished product that can be sold at a higher price that that fetched by the sum of the parts. But what if robots build the car with a bare minimum of human maintainance and supervision? A robot is just a more complex version of any mechanism or tool which helps to get a job done; it increases the productivity of human labour by decreasing the amount of labour required to produce each unit of a good or service. Robots do not ‘labour’ any more than cogs or steam pistons do. But the real reason why robots do not in themselves create profit is that robots have no control over what they cost; the previous owner or manufacturer of the robot sells it at a price dictated by the market. This price will never exceed the value which the robot is capable of transmitting to the final product without the help of human labour. If you have a robot that can produce £100 worth of car parts per hour without any human input, you would not sell it for anything less than the value of those car parts over the lifetime of the robot; if you did, you would take a loss by not keeping the robot and selling the car parts yourself. Nobody would ever sell the goose that lays the golden eggs. Capitalists do not buy elements of constant capital such as robots, tools and raw materials in the hope that these elements will magically create additional value; they buy them in the knowledge that they will need to use human labour to furnish them with the additional value required to turn a profit.

Labour is utterly unique as a commodity, to the point where many commentators do not think it is correct to call it a commodity at all. What makes labour unique is that it has some measure of conscious control over its own price. Labour unions, for example, are extremely effective at pushing wages up, or at least preventing them from declining. Conversely, in times of economic hardship when capitalists refuse to hire workers to do useful work because profits are too low (another sign of a pathological system), desperate workers may agree to work for less than they need to survive or than is considered a dignified social minimum. No other commodity can impact its price by its own volition because no other commodity has meaningful volition. It is this volition which paves the way for exploitation, and thus profit; workers can decide to accept payment in wages (the ‘price’ of labour) lower than the value which they produce. It is only because labour is capable of acting in this way that capitalists are able to procure more in revenues than they incur in costs. The closer society gets to removing labour entirely from the equation, the closer we get to entirely robotised economy in which all inputs to production simply reproduce or transmit the value inherent in them, the cost of which the capitalist will have already incurred prior to the commencement of production (making profit impossible).

This kind of crisis tendency in capitalism is generally known as overproduction, in that the productivity of human labour is so rapidly accelerated that the very wellspring of profit is cut off at its source. But the notion of a fully robotised economy points towards an parallel model of crisis developed by certain Marxist thinkers (and broadly accepted by non-laissez-faire bourgoise economists like John Maynard Keynes) known as underconsumption. Consider an economy in which robots do all the work. Human beings who do not work are not paid wages, and human beings with no wages cannot purchase any of the goods and services produced by the robotised economy. In such a circumstance, it is blidingly clear that there can be no profit, since there is no circulation of money. A fully robotised economy will resemble the de facto communism of Star Trek, wherein the invention of the ‘replicator’ makes human labour in the production of the necessities of daily life unnecessary. When human beings can produce everything they need for free, they do not work for capitalists, and capitalism comes to end. In a fully robotised economy in which workers no longer earn wages, goods and services will have to be distributed throughout the population by some alternative means than the market, and production itself will have to be directed by signals other than market prices. Production would have to be planned, ideally on a democratic model, such that use-values, the useful attributes of goods and services, were directly distributed to a population who no longer had to work for their survival (and whose survival was not dependent on their work).

We are a long way off a fully robotised economy, of course, but with every displacement of labour from production we edge closer to it. As we do, we see portents of an inevitable future in which human beings, no longer profitably employable and thus no longer being paid wages, cannot afford to purchase the goods which the economy produces. Economists call this the problem of effective demand, wherein workers who have been subject to unemployment and wage repression in the name of increasing productivity find themselves unable to purchase sufficient quantities of goods and services to keep the economy healthy (in Marxian terms: to keep capital moving and evading its contradictions). Eventually, this will reach a point at which we have to move beyond capitalism and embrace a system in which production is carried out not for profit and the circulation of capital but directly in order to meet people’s needs and desires. In recent decades the gaping chasm of effective demand as been plugged up with credit, creating demand out of thin air by bringing consumption forward in time. The result, inevitably, has been the sharpening rather than the alleviation of the problem of effective demand, as the distorted, ponzi-like bubbles that easy credit creates burst and the ‘real’ economy, with its tendencies towards overproduction and underconsumption, asserts itself with a vengeance.

What does all this mean for the average person under capitalism? What is the experience of capitalism like for the vast majority of us who work for a living? Marx uses a specific term for the negative psyhcological and spiritual effects which labouring under a capitalist system have on people: alienation. Alienation is the disquieting sense we have, often subconsciously, that we are not the authors of our own actions under capitalism, and that we are not working under the direction of our own autonomy, in our own interests, or under our own self-management.

We have an ultimate boss, the capitalist, who grows very rich off our labour, and we are given directions in our daily work by managers who are also paid more than us. We have very little, if any, opportunity to self-manage under normal capitalist relations of production; we feel the stark difference between how it feels to be given orders and how it feels to direct our own work in a useful and self-fulfilling way when we pursue our hobbies, work towards realising our passions and engage in voluntary collaborative projects. It cannot escape our attention that the former kind of work, alienated and top-down, is by far the more prevalent in our lives. It also cannot escape our attention that the products we produce in our capitalist jobs are not products that we have chosen to produce, and that we have no say in what happens to them once we have produced them. We are encouraged to think only of doing an acceptable job and receiving our wage, which may or may not be enough for us to live on, and to do our best not to think about how degrading, unsatisfying, boring or even socially harmful the work we are doing is. This contributes to a widespread sense of meaninglessness in people’s lives which, systematically repressed by the ideological forces amassed in support of capitalism (which forever police our psychological lives), often erupt in anti-social and, at moments of great economic pressure, subversive or revolutionary outbursts.

Historically, what has prevented revolutionary upheavals from occuring more regularly or systematically have been two major forces. The first is rising wages, which until the last few decades have occurred in the capitalist mode of production. In order to submit to a social order in which a tiny elite siphon off most of a rapidly growing pile of wealth, people have to see their own incomes increasing, at least insofar as they can see an improvement in their own standards of living over their parents and grandparents. In the developed world this is no longer always the case, and in many regions of the U.S. and Europe young people are struggling to attain even the standards of living of their parents. In the countries worst hit by the global recession, standards of material well-being have been significantly reduced, something relatively new to capitalism that is in danger of becoming the norm. The people of Greece have just elected a party made up primarily of Marxists to try and escape the ill-effects that capitalism is having on their lives. If people do not see their incomes rising, it will become increasingly difficult for the capitalist class to justify the economic system, based upon the exploitation of labour, which currently permits their class to exist.

The second force which keeps people in their place under capitalism Marx called commodity fetishism. Commodity fetishism is a constellation of ubiquitous illusions thrown up by the structure of capitalist production itself. These illusions include the fetishisation of paper and digital money, which appears to have value in and of itself, the obscuring of the source of profits in the exploitation of human labour, the apparent transformation of human labour power into a commodity itself, the commodification of all parts of social life, including those things which were once considered consummate public goods, the ‘spectacle’ of modern life, in which all things are reduced to mere images, fragmented and distracting, the dislocation of all positive meaning into the act of consumption and the resulting degradation of social life, the confusion of utility or use value with monetary or exchange value, and all manner of ideological sleights of hand used to justify the privalege, power, wealth and social status of the capitalist class. All of these illusions begin to unravel at their weakest links during crises. It becomes far more difficult for commodity fetishism to function properly when wages are stagnant or declining, or when the real productive economy reasserts itself in the face of fictional capital and credit, or when that lurking sense of alienation reaches a fever pitch among the dispossesed, discontented and disenchanted of the world.

For Marx, capitalism is cannot be sustained forever. It is difficult beast to slay, but at some point the right mixture of internal contradictions and external agitation will force it to give way to something else. Marx said very little about what socialism or communism would be like, other than that it would not be capitalism. It is for the rest of us, clearly, to discover what a post-capitalist global order is to be like. I will try to explore some of the most compelling visions of a socialist political and economic system in the next entry to this series of posts. The important thing is that if, as I do, you agree with Marx, then you agree that we have no option but to imagine the alternative to capitalism, and this means an alternative to to the market, to fetishism and to the exploitation and alienation of human life and labour.