[OPE] Entries on Kalecki & Marx in Palgrave Dictionary of Economics (2008)

>I saw this on another list and thought it would be of interest.
The entry on Marx, which follows Malcolm Sawyer's entry
on Kalecki, was written by (former OPE-L members)
Dunan Foley and Gerard Dumenil.

In solidarity, Jerry

> Kalecki, Michal (1899–1970)
>
>
> Malcolm Sawyer
>
>
>
> From The New Palgrave Dictionary of Economics, Second Edition, 2008
>
>
> Edited by
>
>
> Steven N. Durlauf and Lawrence E. Blume
>
>
> This article gives an outline of the life and work of Michał Kalecki,
> in particular his contributions on macroeconomics in capitalist
> economics, including his discoveries of the role of effective demand,
> the significance of investment, the interplay between profits and
> investment and the degree of monopoly. His writings on socialism and
> on development are also outlined.
> Back to top
> Keywords
> agriculture and economic development; budget deficits; business
> cycles; capitalism; circuitist approach; distribution of income;
> economic development; economic growth; effective demand; endogenous
> money; full employment; intermediate regime; investment expenditure;
> Kalecki, M.; Keynes. J. M.; limit cycles; market power; market
> socialism; mixed differential-difference equation; monopoly;
> oligopoly; perfect competition; planning; political business cycles;
> Post Keynesian economics; principle of increasing risk; profit; rate
> of interest; Robinson, J. V.; socialism; state capitalism;
> unemployment; wage determination; workers' councils
> Back to top
> Article
>
>
> Michal Kalecki was born on 22 June 1899 in Lodz, Poland, and died in
> Warsaw on 17 April 1970. His academic training was in engineering, and
> he was self-taught in economics, influenced by writers such as Marx
> and Rosa Luxemburg. He obtained his first quasi-academic employment in
> 1929 at the Research Institute of Business Cycles and Prices in
> Warsaw, where his work involved the study of business cycles and the
> preparation of reports on specific industries. A Rockefeller
> Foundation Fellowship allowed him in 1936 to study abroad in Sweden
> and then England, where he remained for the next ten years; during the
> Second World War he was employed at the Oxford University Institute of
> Statistics. After work for the International Labour Office in
> Montreal, Canada, in 1945 and 1946, Kalecki was appointed at the end
> of 1946 as deputy director of a section of the economics department of
> the United Nations secretariat in New York. In that job, a major task
> was the preparation of the World Economic Reports. When a board of
> directors was appointed to exercise control over that Report, which he
> and others viewed as McCarthyite American involvement in the work of
> the UN, he resigned in protest. Kalecki returned to Poland in 1955. He
> served as a consultant on economic planning with the government and
> then with the Planning Commission (1955 to 1964), and was heavily
> involved in the debates over the role of decentralization and of
> workers' councils, the speed of industrialization and the relative
> size of consumption and investment. He undertook research and teaching
> at the Polish Academy of Sciences between 1955 and 1961. The centre of
> his activities after 1961 was the Central School of Planning and
> Statistics.
>
> In his analysis of capitalist economies, Kalecki discovered a range of
> ideas on the importance of effective demand and the role of investment
> similar to those discovered by Keynes, but Kalecki can claim priority
> of publication (Kalecki, 1933; Keynes, 1936). While there are
> similarities there are also differences, for example over the
> determinants of investment, the perception of the economy as
> competitive or oligopolistic (on the relationship between Kalecki and
> Keynes, see Sawyer, 1985, ch. 9).
>
> A central element in Kalecki's work was the idea that the level of
> economic activity would be determined by the level of aggregate
> demand, and that investment decisions were a particularly significant
> element in the determination of the level of demand. Any decision to
> increase investment expenditure can come to fruition only if the
> finance is available, and the provision of additional finance comes
> through the banking system. Actual investment expenditure generates a
> corresponding amount of savings. Kalecki argued that savings were
> undertaken predominantly out of profits, and he often assumed as a
> first approximation that workers did not save, and hence investment
> expenditure in aggregate determined the volume of profits. As Kalecki
> wrote, 'capitalists as a class gain exactly as much as they invest or
> consume, and if – in a closed system – they ceased to construct and
> consume they could not make any money at all' (Kalecki, 1990–97, vol.
> 1, p. 79). If sp is the propensity to save out of profits, and if
> there are no savings out of wages, then in a closed economy sp P=I
> where P is profits and I investment, with the direction of causation
> here running from investment to profits. The assumption that wages are
> spent and the view that capitalists' expenditure determines their
> income was reflected in the aphorism that was ascribed by Joan
> Robinson to Kalecki – 'the workers spend what they get, and
> capitalists get what they spend' (Robinson, 1966, p. 341) – though it
> cannot be found in the writings of Kalecki. There is also a reverse
> direction of causation at the level of the enterprise, whereby the
> profitability of the enterprise will influence its investment
> decisions. Profits provide internal finance for investment, and the
> present level of profits influences expectation on future profits.
>
> Kalecki saw capitalism as oligopolistic and monopolistic and dismissed
> the notion of perfect competition as a 'dangerous myth'. His approach
> to pricing put forward the idea of the 'degree of monopoly' which
> expresses the notion that the market power which an enterprise possess
> will strongly influence the markup of its price over its (production)
> costs. The extent of market power depends on factors such as the
> dominance of the enterprise in its market, the barriers to entry into
> the industry and so forth. The degree of monopoly leads to a theory of
> the distribution of income and of the determination of real wages. At
> the level of the enterprise, the degree of monopoly sets the
> price–cost ratio; from this the ratio of profits to sales can be
> derived.
>
> p=λ(w+m)R=λ(W+M)Y=Π+WΠY=(R-W-M)(W+Π)
>
> Then the share of profits is (λ-1)(1+j)[1+(λ-1)(1+j)] and the share of
> wages 1[1+(λ-1)(1+j)], where j=M/W. The real product wage can be
> calculated as wp=1λ-mp.
>
> Further derivation and then aggregation indicates that the share of
> profits in national income depends on the average degree of monopoly
> and on the cost of imports. Since wages are a major component of
> costs, the degree of monopoly impacts of the real product wage.
> Kalecki thus advanced a distinctive theory of the distribution of
> income between wages and profits, and the view that firms' pricing
> behaviour, rather than events in the labour market, set the real wage.
>
> Kalecki's approach could be summarized by saying that the volume of
> profits depends on the level of investment, while the share of profits
> in national income depends on the degree of monopoly, that is, the
> market power possessed by firms.
>
> The phenomenon of the business cycle was central to Kalecki's economic
> analysis of capitalism, and his discovery of the importance of
> aggregate demand for the level of economic activity was undertaken in
> the context of cyclical fluctuations. Kalecki viewed 'the
> determination of investment decisions by, broadly speaking, the level
> and the rate of change of economic activity' as the pièce de
> résistance of economics (Kalecki, 1968, p. 263). The central feature
> of Kalecki's explanation of the business cycle is the influence of
> investment on economic activity, and hence the determinants of
> investment. He distinguished between on the one hand the decision to
> invest and the placing of orders for investment, and, on the other
> hand, the actual investment taking place (for example, because it
> takes time to build the factory, there is a lag between investment
> orders and actual investment). Investment orders depend on profits,
> and profits are generated by actual investment (as noted above). He
> also postulated that investment is negatively influenced by the size
> of the capital stock. Combining these elements, Kalecki arrived at a
> mixed differential-difference equation (see, for example, Kalecki,
> 1990, vol. 1, pp. 82–3), for which there may be many solutions.
> Kalecki sought to establish that there is one solution for which the
> amplitude remains constant. 'This case is especially important because
> it corresponds roughly to the real course of the business cycle'
> (Kalecki, 1990, p. 90). He then argued that, with that condition
> satisfied, the other parameters of the model are such that a regular
> cycle of around ten years would be generated, which conforms with the
> general pattern of the time of a cycle of the order of eight to twelve
> years in length. The mixed differential-difference equation was the
> basis of Kalecki's attempt to generate a self-perpetuating cycle,
> which was later to be resolved through the notion of limit cycles.
>
> The central feature of Kalecki's explanation of the business cycle is
> the influence of investment on economic activity, and hence the
> determinants of investment. Steindl (1981) identified three versions
> by Kalecki of the trade cycle, each with a different view of the
> determinants of investment, and he observed that there are differences
> in the ways through which profits influence investment and the impact
> of the size of the existing capital stock on investment (see also
> Sawyer, 1996).
>
> Kalecki argued that 'the long-run trend is but a slowly changing
> component of a chain of short-period situations; it has no independent
> entity' (Kalecki, 1968, p. 263). This can be interpreted as
> undermining the predominant equilibrium approach to economic analysis
> whereby there is a long-period equilibrium around which the economy
> fluctuates or towards which the economy tends and which is unaffected
> by the short-period movements of the economy.
>
> The expansion of investment (and other forms of spending) has to be
> financed, and that comes predominantly through the creation of bank
> credit. In one of his earliest papers (1933), Kalecki acknowledged the
> link between the cycle and money creation. He asked:
>
>
> how can capitalists invest more than remains from their current
> profits after spending part of them for personal consumption? This is
> made possible by the banking system in various forms of credit
> inflation. Hence … without credit inflation there would be no
> fluctuations in investment activity. Business fluctuations are
> strictly connected with credit inflation…. A similar type of inflation
> is the financing of investments from bank deposits, a process usually
> not classified as inflation but one which perhaps has the greatest
> importance in the inflationary financing of investments during an
> upswing in the business cycle. (1990, vol. 1, pp. 148 and 149;
> emphasis in original)
>
>
> Kalecki presented a number of ideas which now appear in the
> structuralist Post Keynesian analysis of endogenous money and in the
> circuitist approach, and he developed a substantial analysis of the
> workings of the monetary system (see Sawyer, 2001). Kalecki viewed the
> rate of interest as essentially a monetary phenomenon, and
> specifically not as a mechanism for bringing about the equality
> between savings and investment. He wrote that 'the rate of interest
> cannot be determined by the demand for and supply of capital because
> investment automatically brings into existence an equal amount of
> savings. Thus, investment "finances itself" whatever the level of the
> rate of interest. The rate of interest is, therefore, the result of
> the interplay of other factors' (Kalecki, 1997, vol. 7, p. 262).
>
> The cost of borrowing is influenced by the 'principle of increasing
> risk' (Kalecki, 1937). Simply put, this principle is the idea that the
> greater the volume of borrowing a company wishes to undertake,
> relative to its own size and profits, the greater is the risk that the
> company will be unable to repay the borrowing. Any investment venture
> is subject to risk and uncertainty and to the vagaries of the business
> cycle. There is then some chance that a business will not be able to
> meet its loan commitments when its profits turn down. The lender would
> charge a risk premium on the loan, which makes the loan more expensive
> and increases the chances that the loan repayments cannot be met. The
> 'principle of increasing risk' then forms an upper limit on a
> business's ability to borrow and then to expand and grow.
>
> The discoveries of Keynes and Kalecki in the 1930s on the principle of
> effective demand and the associated idea that governments could (and
> should) manipulate their budget stance to generate high levels of
> employment (rather than aim for a balanced budget) appeared to open up
> the way for the achievement of permanent full employment in capitalist
> economies. Kalecki (1943) raised many doubts on the possibilities of
> achieving prolonged full employment in a laissez-faire capitalist
> economy. Kalecki introduced an idea which was later interpreted in
> terms of the political business cycle. Economic activity and
> employment could be stimulated prior to elections to aid the chances
> of the governing party being re-elected. But the resulting high level
> of employment would not last, and at best full employment would be
> achieved only at the top of the cycle. There were a number of routes
> through which effective demand could be stimulated. Kalecki argued
> that the promotion of investment expenditure would be subject to
> important limits, namely that as investment rose, there would be a
> tendency for the output to capital ratio to fall (as investment adds
> to the capital stock) and for the rate of profit to fall. Instead,
> Kalecki favoured a redistribution of income towards the working class
> which would stimulate spending, and the acceptance, if necessary, of a
> budget deficit by the government.
>
> Socialism
>
> Almost all Kalecki's writings on the economics of socialism were
> undertaken after his return to Poland in December 1954. While much of
> his writing was of a theoretical nature, the questions tackled and the
> approach adopted were much influenced by his perceptions of the Polish
> situation. He was directly involved in many of the debates of the
> mid-1950s on the development and organization of the Polish economy.
> His general approach can be summarized by saying that, while he sought
> a departure from the system of bureaucratic centralism, he thought
> that the main parameters of development in an economy should be
> centrally planned, with the market mechanism used in a subordinate
> role. He advocated a substantial increase in self-management by
> workers under a system of workers' councils, though he acknowledged
> that there would be tensions between them and central planning.
>
> Soviet economic planning from the 1920s onwards and eastern European
> planning in the post-war period placed great weight on rapid
> industrialization and a heavy industry investment programme. The
> tendency towards overambitious plans often led to the sacrifice of
> consumption in favour of investment, when the overall plan could not
> be implemented but investment was safeguarded. Kalecki's criticisms of
> heavy industrialization and the sacrifice of consumption to investment
> brought him into conflict with the prevailing orthodoxy in Poland at
> the theoretical and at the practical levels.
>
> Kalecki's approach to growth under socialism can be illustrated by
> reference to the basic relationship in which the growth of output is
> equal to the impact on productive potential of new investment minus
> the loss of the production through depreciation plus the change in the
> utilization of productive capacity. Much of Kalecki's theoretical work
> stemmed from this equation for the growth of output, with
> modifications for foreign trade, limited labour supply and technical
> progress. The emphasis was on the identification, and then pushing
> back, of the effective constraints on economic growth.
>
> Kalecki viewed the market as involving the inefficient allocation of
> resources and the cause of insufficient aggregate demand. The
> socialist system was seen in terms of its ability to solve the problem
> of effective demand and to involve price–wage flexibility. Although he
> was critical of the decisions made under central planning, he was
> opposed to the market socialist alternative.
>
> Development
>
> Kalecki was heavily involved with teaching and research in the area of
> development planning from the late 1950s to the late 1960s. It is
> convenient to summarize his writings on development in terms of four
> themes. The first is that unemployment is seen to arise from a
> shortage of capital equipment, rather than from a deficiency of
> effective demand as in industrialized capitalist economies, so that
> constraints on employment and the pace of development arise more from
> the supply side than from the demand side. This led Kalecki to an
> identification of the binding constraints in any concrete situation:
> difficulties of expanding agricultural production, problems of
> achieving the desired rate of investment, and shortages of foreign
> exchange. These essentially economic constraints were generally
> compounded by the political resistance of powerful groups whose
> interests would be harmed by economic development.
>
> The second theme is the need for the expansion of agricultural
> production as a part of the development process, since development and
> increased incomes leads to an increased demand for food. If that
> increased demand for food is not satisfied, then the price of food is
> likely to rise, thereby reducing real wages. But the agricultural
> sector is likely to suffer from low productivity and outdated
> techniques. Since there are often powerful obstacles to the
> development of agriculture, such as feudal or semi-feudal relations in
> land tenure and the domination of the peasants by merchants and
> moneylenders, substantial institutional changes would be required to
> sustain agricultural and economic development.
>
> The third theme is that market mechanisms, left to themselves, are
> unlikely to produce outcomes that Kalecki would have regarded as
> acceptable or desirable. He saw a strong need for planning and direct
> government intervention, particularly in investment and foreign trade.
>
> The fourth theme is the distributional aspects of growth and
> development, and in particular a concern that the process of
> development should benefit the poor. This was combined with an
> awareness that prospective distributional consequences may block
> development.
>
> In his work on developing countries, Kalecki developed the concept of
> an 'intermediate regime'. Countries with intermediate regimes had
> generally achieved political independence after the Second World War
> and could not be considered as either socialist or laissez-faire
> capitalist economies though they sought economic development with
> government involvement. Kalecki argued that the governments of these
> intermediate regimes represented the interests of the lower-middle
> class, rich peasants and managers in the state sector. The poorest
> strata of society were still unorganized and lacked any political
> power. He further argued that in order to keep power these
> representatives of the middle class would have to achieve political
> and economic emancipation, carry out land reform and assure continuous
> economic growth. State capitalism develops at the expense of socialism
> in the economies of intermediate regimes because it helps the middle
> class to retain power by, for example, aiding faster growth and
> economic emancipation.
>
> See Also
>
> * Post Keynesian economics
>
> Selected works
>
>
>
> 1933. Proba teorii koniunktury. Warsaw: Institute of Research on
> Business Cycles and Prices. Repr. as Essays on the Business Cycle
> Theory, in Collected Works, vol. 1, 1990.
>
>
>
> 1937. Principle of increasing risk. Economica 4, 440–7.
>
>
>
> 1943. Political aspects of full employment. Political Quarterly 14,
> 322–31.
>
>
>
> 1968. Trend and the business cycle, Economic Journal 78, 263–76.
>
>
>
> 1990–97. Collected Works of Michal Kalecki, 7 vols, ed. J.
> Osiatynski. Oxford: Clarendon.
> Back to top
> Bibliography
>
>
>
> Keynes, J.M. 1936. General Theory of Employment, Money and Interest.
> London: Macmillan.
>
>
>
> Robinson, J. 1966. Kalecki and Keynes in Economic Dynamics and
> Planning: Essays in Honour of Michal Kalecki. Oxford: Pergamon.
>
>
>
> Sawyer, M. 1985. The Economics of Michal Kalecki. Basingstoke: Macmillan.
>
>
>
> Sawyer, M. 1996. Kalecki on the trade cycle and economic growth. In
> An Alternative Macroeconomic Theory: the Kaleckian Model and Post
> Keynesian Economics, ed. J. King. New York: Kluwer.
>
>
>
> Sawyer, M. 1999. The Legacy of Michal Kalecki, 2 vols. Aldershot:
> Edward Elgar.
>
>
>
> Sawyer, M. 2001. Kalecki on money and finance. European Journal of
> the History of Economic Though 8, 487–508.
>
>
>
> Steindl, J. 1981. Some comments on the three versions of Kalecki's
> theory of the trade cycle. In Studies in Economic Theory and Practice.
> Essays in Honour of Edward Lipinski, ed. J. Los et al. Amsterdam:
> North-Holland. Repr. in J. Steindl, Economic papers 1941–88. London:
> Macmillan, 1990.
>
>
> Marx's analysis of capitalist production
>
>
> Duncan Foley and Gérard Duménil
>
>
>
> From
> The New Palgrave Dictionary of Economics, Second Edition,
> 2008
>
>
> Edited by
>
>
> Steven N. Durlauf and Lawrence E. Blume
>
> Abstract
>
> This article discusses Marx's analysis of capitalism, including the
> concepts of historical materialism, class society, exploitation,
> commodity, value, money, capital, labour-power, value of labour-power,
> surplus-value, constant and variable capital, commodity law of
> exchange, capitalist law of exchange, equalization of the profit rate,
> prices of production, absolute and relative surplus value, the circuit
> of capital, simple and expanded reproduction, capital accumulation,
> centralization and concentration of capital, technical change, reserve
> armies of labour, rent, interest, commercial and bank profit, the
> falling rate of profit, viable technical change, and cyclical crises.
> Back to top
> Keywords
> absolute rent; abstract labour time; biased technical change; business
> cycles; capital accumulation; capitalism; capitalist law of exchange;
> circulating and fixed capital; circulation of capital; class;
> commercial, industrial and money-dealing capital; commodity; commodity
> law of exchange; commodity money; competition; composition of capital;
> concentration and centralization of capital; constant and variable
> capital; crises of overproduction; differential rent; division of
> labour; exchange value and use value; exploitation; fictitious
> capital; fixed capital; historical materialism; increasing returns;
> industrial capital; innovation; iron law of wages; labour power;
> labour theory of value; law of value; Marx's analysis of capitalist
> production; Marxian transformation problem; money; money-dealing
> capital; monopoly; organic composition of capital; over-accumulation
> of capital; population growth; primitive accumulation; private
> property; productive and unproductive labour; profit rate; rate of
> exploitation; rate of surplus value; Ricardo, D.; Say's Law; slavery;
> Smith, A.; socialism; surplus; surplus value; technical change;
> transformation problem; use value; value; variable capital; velocity
> of circulation
>
> Article
>
>
> Karl Marx's analysis of capitalist production is best understood in
> the context of his broad theory of human societies and their history,
> namely, historical materialism. This theory argues that, after passing
> through various stages in which societies are divided into classes and
> the exploitation of a majority of producers by a privileged minority
> prevails, humanity will finally eliminate classes and class domination
> by a revolutionary process conducted by the organized proletariat in
> capitalism. This revolutionary stand was based on a 'scientific'
> investigation of history in general and capitalism in particular, with
> a special emphasis on economics, always with a political perspective.
> Whether historical materialism has a scientific or ideological
> character obviously remains controversial between Marxists and
> non-Marxists: Marxist theory is considered a discredited doctrine of
> the past by non-Marxists, while Marxists consider mainstream social
> and economic thinking as a continuing apologetics of capitalism.
>
> After an introductory section devoted to locating the capitalist mode
> of production as a particular epoch in human history, the main focus
> below is on Marx's analysis of capitalist production. There are two
> facets to the theory of capital in the strict sense: surplus value
> (exploitation), and the circuit of capital (its 'circulation'). These
> are introduced separately, and then gradually combined in the analysis
> of more complex phenomena. Finally, we consider three broad sets of
> basic mechanisms directly related to the hold of capital on the
> functioning of the economy: (1) competition, (2) accumulation,
> technological and distributional changes, and (3) crises and the
> business cycle. We do not consider other important aspects of Marx's
> thinking such as his analysis of class struggle, and his theory of the
> state. The interpretation of even very fundamental aspects of Marx's
> thought remains contested among Marxist scholars. The bibliography
> contains a selective list of works that represent some of these
> different perspectives.
>
> The capitalist mode of production
>
> The historical materialist point of view starts from the observation
> that all human societies must produce in order to reproduce both
> individuals and society itself. Production in this general sense
> always involves the combination of human labour with previously
> produced means of production and the natural resources of the earth.
> With the emergence of settled agriculture a surplus product over and
> above what is necessary for reproduction becomes possible. In
> societies with a surplus product, class exploitation, an
> institutionalized form of inequality, arises. Societies divide into a
> small exploiting class which appropriates, controls, and distributes
> the surplus product created by the labour of a much larger exploited
> class of producers who receive on average only what is necessary for
> their reproduction. Marx and Engels distinguish two aspects of these
> class societies. The forces of production comprise the population,
> natural resources, and technology which make a surplus product
> possible; the social relations of production comprise the
> institutional framework (such as property relations) through which the
> exploiting class appropriates the surplus product. The forces and
> social relations of production together constitute a mode of
> production. For example, in the slave mode of production
> characteristic of ancient Greek and Roman civilizations, the
> institution of slavery sustained by military force and political power
> was the means through which slave-owners appropriated a surplus
> product created by the labour of slaves, who received a minimum
> subsistence. In the feudal mode of production, the institutions of
> serfdom sustained by military force and religious and political power
> were the means through which the lords of the manor appropriated a
> fraction of the labour time of serfs, who also laboured in their own
> fields to feed and reproduce themselves (or the serf had to pay a rent
> in kind or, later, in money, in addition to various taxes). This is
> what exploitation means in Marx's thought: to live on the product of
> the labour of other people.
>
> From the historical materialist point of view, capitalism is a class
> society in which the institutions of private property in the means of
> production and free wage labour are the means through which
> capitalists appropriate the surplus value created by workers producing
> commodities (or services), who receive wages. In feudalism, the
> exploitation of the serfs was transparent: the serfs worked a certain
> part of the week on their own plots for their own subsistence, and a
> certain part of the week on the lord's land to supply his consumption
> and armies. Marx's theory of capitalism demonstrates that, though the
> mechanism of capitalist exploitation through the social relation of
> wage labour based on the formal legal equality of workers and
> employers is less transparent, capitalists also appropriate the
> surplus labour time of the workers. Capitalism, therefore, defines a
> specific stage of the history of class societies. Capitalism's
> decentralized, highly competitive organization creates powerful
> incentives for the rapid development of the forces of production
> through population growth, technical innovation, and a widening
> division of labour, but it is unable to control the forces it has
> itself stimulated.
>
> Marx and Engels expected that the capitalist working class (the
> proletariat), once it had a clear understanding of capitalist
> exploitation and reached a high degree of organization, would
> overthrow the social relations of capitalism in a revolution to
> establish a classless society based on social control of the large
> surplus product made possible by the forces of production developed by
> capitalism. A violent transition was required, the dictatorship of the
> proletariat, to attain socialism and finally communism, marking the
> end of the 'prehistory' of humanity. Marx developed this analysis in
> collaboration with Friedrich Engels in The Communist Manifesto (1848).
>
> Marx's main work, Capital, is devoted to the analysis of capitalist
> production. The first volume was published, in 1867, while Marx
> (1818–83) was still alive. Volumes II and III were published later by
> Friedrich Engels, from extensive notebooks still in draft form at the
> time of Marx's death. In what follows, we refer to Capital by volumes
> and chapters; for example, 'III, 25' means Chapter 25 of Volume III.
> References and quotations can be found on Internet, for example in the
> Marx/Engels Library, http://www.marxists.org/archive/marx/works, or in
> Marx (1976; 1978; 1981). We have put square brackets around our own
> interpolations in quotes; everything else comes from the source.
>
> The definition of capital (I, 4)
>
> Marx defines capital as value (to be defined below) participating in a
> dynamic process of self-expansion. A capitalist spends money to hire
> workers and buy means of production, and then sells the resulting
> output for enough money to cover his initial outlay and secure a
> profit (the form taken by 'surplus value'). In this process value
> appears in various forms: first under the form of money; then as the
> value of productive inputs (labour power, raw materials, machinery,
> and buildings); then as the value of the commodities produced; and
> finally as money value again after the produced commodities have been
> sold. This process of capital is pointless unless, as is normally the
> case when capitalists make a profit, the money realized in the sale of
> commodities is greater than the money initially spent to start the
> process. Capital is not value as such, but value in movement:
>
>
> If we pin down the specific forms of appearance assumed in turn by
> self-valorising value, in the course of its life, we reach the
> following elucidation: capital is money, capital is commodities. In
> truth, however, value is here the subject of a process in which, while
> constantly assuming the form in turn of money and commodities, it
> changes its own magnitude, throwing off surplus-value from itself
> considered as original value. (I, 4)
>
>
> Two aspects of capital are present in this definition: (1) capital is
> expanding value; and (2) capital value changes its form. These two
> aspects of capital are also called the process of self-expansion
> (sometimes called valorization), and the process of circulation of
> capital (or circuit of capital). Marx means here that: (1) the
> capitalist invests a certain capital with the intent of making profits
> (expansion); (2) capital is invested in commodities and money, and
> constantly passes from one form to the other (for example, when an
> output is sold, value changes form from commodity to money).
>
> The first two volumes of Capital treat the processes of self-expansion
> and circulation of capital separately (with a few exceptions); the
> third volume considers the combination of these two elements. Before
> entering into the analysis of capital, it is necessary, however, to
> introduce two other preliminary concepts, commodity and money, and the
> related concepts of value (at the centre of the definition of capital)
> and price, to which Marx devotes the first three chapters of Volume I,
> prior to the analysis of capital. In Volumes I and II, the three
> concepts are considered successively: commodity (including value),
> money (including price), and capital (valorization and circulation).
> (This outline is logical, not historical: historically commodities and
> money reach their full development only with the capitalist mode of
> production.) We will follow this outline in our exposition here.
>
> Commodities, value, money, and prices
> Commodities and value (I, 1)
>
> A product is the result of human labour, working with produced means
> of production and the natural resources of the earth. Useful products
> become commodities when they are regularly exchanged rather than being
> consumed directly by their producers. 'Useful' must be taken in a very
> broad sense as something desired by someone, for whatever reason. A
> producer who exchanges his product receives social recognition for his
> own labour in the form of the other commodities he acquires. Marx
> denotes the labour time required for the production of a commodity
> under average conditions, as socially necessary labour time. As the
> outcome of a parcel of social labour time, the commodity has an
> exchange value, or more briefly a value. Thus, according to Marx (who
> here follows Adam Smith), a commodity has a dual character as: (1)
> object of utility, or equivalently a use value, and (2) an exchange
> value, or value. The value of the commodity is the sum of labour
> embodied in previously produced inputs, dead labour, and newly
> incorporated labour, living labour. Marx sometimes calls this
> definition the law of value, although he rarely uses the expression.
> Later economists often refer to this framework as the labour theory of
> value.
>
> The dual character of the commodity is reflected on labour itself. The
> concrete quality of labour (weaving, computer-programming) corresponds
> to the use-value aspect of the commodity it produces. But all
> categories of social labour materialized in the production of
> commodities have in common the ability to produce exchange values and,
> as such, are defined as abstract labour. There is no a priori rule
> accounting for this process of abstraction. Exchange dissolves the
> specific character of concrete labours, and the repetition of exchange
> establishes their quantitative equivalence. If one category of
> concrete labour is not adequately compensated, its supply will
> decline, and its wage will rise. In a similar manner, it is exchange
> which establishes the normal degree of intensity, skill, and technical
> efficiency in production.
>
> Abstracting from the capitalist character of production, commodities
> would 'normally' exchange in proportion to their values. For example,
> if the value of commodity A is twice that of commodity B, one unit of
> A will exchange for two of B. If the exchange ratio were only one B
> for one A, producers of A would switch to producing B; a shortage of A
> would ensue and the exchange value of A would rise. This is the
> commodity law of exchange, sometimes confused with the law of value.
> The distinction is important because the law of value is a fundamental
> characteristic of commodity production, whether commodities exchange
> in proportion to their values or not. (In competitive capitalist
> economies they typically do not, as we will see.)
>
> Money and prices (I, 3)
>
> We begin with the definition of money, and its first function as
> measure of value, and introduce the other functions of money, and the
> concept of the price form of value.
>
> The value of commodities cannot be expressed on the market directly in
> abstract labour time (which nobody can observe or measure). In the
> exchange of two commodities, such as linen for a coat, the value of
> one commodity is expressed in the body of the other (measured in units
> such as a length or weight) as its direct equivalent. With the
> repetition of exchange, some specific commodity, such as gold, will
> emerge as a socially accepted general equivalent, that is, as money.
> Thus for Marx the original function of money is as measure of value.
> In addition to its function as measure of value, money comes to serve
> as medium of circulation if purchases and sales are paid for directly,
> and as means of payment if payment is deferred. Value can be
> accumulated temporarily in money hoards. Another function of money is,
> therefore, as a store of value (though any durable, valuable commodity
> can serve as a store of value).
>
> Prices are values as expressed in monetary units. They are forms of
> value. When commodities exchange at prices proportional to their
> values, the price of a commodity expresses the socially necessary
> (abstract) labour time required for its production of this commodity,
> qualitatively and quantitatively in a straightforward manner. This is
> the framework of Volumes I and II. But the prices of commodities may
> deviate from their values, and we will later return to this issue. The
> State can establish a standard of price by defining a local currency
> unit such as the franc or dollar as a certain amount of gold or other
> money commodity. Valueless tokens, 'symbols or tokens of value' in
> Marx's words, such as paper currency, may also be circulated in place
> of commodity money:
>
>
> In the same way as the exchange-value of commodities is
> crystallised into gold money as a result of exchange, so gold money in
> circulation is sublimated into its own symbol, first in the shape of
> worn gold coin, then in the shape of subsidiary metal coin, and
> finally in the shape of worthless counters, scraps of paper, mere
> tokens of value. (Marx, 1859, 2.B.2.c)
>
>
> Money also takes the form of a stock of purchasing power in an account
> in a financial institution. In contemporary capitalism, there is no
> commodity money.
>
> The monetary expression of value and the quantity of money
>
> Inherent in Marx's theory is the relation between abstract labour time
> and its price form in money terms. There is a quantitative aspect to
> this relation. The ratio – for example, dollars per hour of abstract
> socially necessary labour time – can be called the monetary expression
> of labour time, or the monetary expression of value.
>
> The determination of this ratio, which is a way of looking at the
> general price level in an economy, is discussed by Marx in his
> critique of Ricardo's quantity of money theory of prices, under the
> assumption of the existence of a commodity money. Marx explains that
> the quantity of money required to circulate the mass of commodities
> produced in any period depends on the quantity of the commodities
> exchanged, their money prices, determined by their costs of
> production, and the velocity of money, the average number of
> transactions in which each unit of money participates in the period
> (an institutional characteristic). Money flows in and out of hoards
> (reserves) to accommodate the requirements of circulation. He
> interprets this principle as governing the quantity of money required
> for purchases and sales, in contrast to Ricardo's quantity of money
> theory of prices, which sees the prices of commodities adjusting to a
> given quantity of money. In Marx's theory the general level of prices
> is determined by the relative costs of production of the money
> commodity and other commodities when a commodity like gold is used as
> money. (The critique of Ricardo's theory is developed in Marx, 1859,
> 2.C.)
>
> The theory of surplus value
>
> The labour theory of value is the foundation of Marx's theory of
> exploitation, or surplus value. When a produced commodity is purchased
> or sold no new value is created. If a commodity sells at a price
> proportional to its value, given the monetary expression of value, the
> buyer and seller exchange money and commodity representing equal
> values. If the commodity sells above or below its value, the value
> gained by one party is just offset by the value lost by the other.
> Back to top
> Productive labour-power and surplus-value (I, 7–9)
>
> Marx explains surplus value in relation to the purchase of the labour
> power of waged workers. The capability to work, denoted as labour
> power, is a commodity, with a use-value and a value. The use value of
> labour power is labour itself, because a capitalist buys labour power
> to obtain the right to use the labour of the worker. The value of
> labour power is the value equivalent of the purchasing power of the
> wage on the commodities the worker can buy. (We will discuss later
> Marx's view of the actual purchasing power of workers.)
>
> Only 'productive workers', that is, workers involved directly in
> production within capitalist enterprises, produce new value in Marx's
> analysis, in contrast to 'unproductive workers', whose labour power is
> employed by capitalists to maximize their profit rate. If the value of
> the labour power of productive workers is less than the value they
> produce, capitalist production on average adds more value in the
> production of commodities than it expends in hiring workers. (One can,
> equivalently, say that the money wage must be smaller than the
> monetary expression of the labour time expended by the average
> worker.) Because capitalist production can produce a surplus over the
> subsistence of productive workers, typically the value of labour power
> is smaller than the value labour produces, and surplus value results.
>
> Thus, labour power has a property not shared by other commodities.
> While the purchase and sale of a produced commodity can only
> redistribute a given value between buyer and seller, the capitalist's
> purchase and use of labour-power, in contrast, results in the creation
> of surplus-value. The capitalist buys labour-power at a wage
> reflecting the necessary labour time required by the production of the
> consumption basket of the worker, say, four hours a day, but on
> average the worker can work longer, say, eight hours. Thus, the
> capitalist can appropriate surplus labour, here four hours, in the
> form of surplus value. (If the monetary expression of labour time is
> ten dollars per hour, the surplus value created by an average worker
> in a day under these assumptions would be 40 dollars.) Under the wage
> system, once a capitalist has paid a worker the agreed wage, the
> product of the worker's labour and its value belong to the capitalist.
> The production of surplus value is thus compatible with transactions
> at prices proportional to values, including the purchase of labour
> power at a wage proportional to the value of productive labour power.
> Marx argues that capitalist exploitation does not violate the
> commodity law of exchange, that is, it would take place even if all
> commodities exchanged at prices proportional to their values.
>
> The actual appearance of labour power available for hire historically
> depends on two preconditions. First, workers must be legally free to
> sell their labour power. This explains the historic hostility of
> capitalism to bound forms of labour such as serfdom and slavery.
> Second, workers cannot have access to their own means of production,
> such as the feudal commons, so that they have no choice but to sell
> their labour power to the owner of means of production to live. This
> explains the historic support of capitalism for the enclosure of
> common lands and their conversion into private property. Marx devotes
> the last part of Volume I to primitive accumulation, the actual
> historical process through which the capitalist mode of production
> came into being. There he shows how, in the first steps of
> accumulation in England, the availability of labour power was achieved
> by way of straightforward social violence. The enclosure of common
> lands deprived the rural population of its old conditions of
> reproduction, and subjected it to the dependency on capital. It is
> important to keep such mechanisms in mind in the investigation of the
> historical dynamics of capitalism. Marx emphasizes the crucial
> historical importance of the transformation of produced means of
> production and labour, which are universal aspects of human
> production, into the specific commodity forms of capital, including
> labour power.
>
> The value of the produced inputs the capitalist purchases to undertake
> production is recovered in the sales price unchanged, so that Marx
> calls it constant capital, denoted by the symbol c. The value of the
> labour power the capitalist buys as an input to production, on the
> other hand, is recovered in the sales price expanded by the addition
> of the surplus value, so that Marx calls it variable capital, denoted
> by the symbol v. The sum of constant capital, c, variable capital, v,
> and surplus value, s, is the total value of the product. The sum c+v
> is the total cost of the commodity. The sum v+s is the living labour,
> as opposed to dead labour, c, and measures the value added by the
> production process. The rate of surplus value, s/v, is the ratio of
> unpaid to paid labour time, so that Marx also calls it the rate of
> exploitation. The ratio c/v, which measures the ratio of dead to
> living labour in the cost of the commodity, is the value composition
> of capital.
>
> This decomposition of the value of a commodity is parallel to the
> income statement of a capitalist firm, which exhibits profit (Marx's
> surplus-value, s) as the difference between sales price (Marx's value
> of the commodity, c+v+s), and the cost of the means of production and
> wages required to produce the commodity (Marx's c+v).
>
> Absolute and relative surplus value, manufacture and industry (I, 12–16)
>
> Identifying surplus value as surplus labour time does not tell what
> determines its magnitude and variation. Many natural, social and
> political conditions are involved, and vary historically. Labour
> performed by members of the family at home, women in particular,
> crucially affects the level of exploitation compatible with the
> reproduction of the workers and their families. In his analysis of
> surplus value in Volume I, Marx introduces important developments
> concerning the historical transformation of technology and
> organization.
>
> Surplus value can be increased in two analytically distinct ways
> (which can be combined in real production): first, by lengthening the
> duration of labour time without increasing the value of labour power,
> absolute surplus value; second, by diminishing the value of labour
> power by cheapening worker's consumption through productivity gains
> holding the duration of labour time constant, relative surplus value.
> In Marx's view relative surplus value is the origin of the most
> important developments in the historical transformation of the
> organization of labour and technology by capitalism.
>
> Marx sees distinct periods in which this transformation of production
> took different forms. In 'manufacture', a large number of individual
> workers, each processing his or her own means of production, are
> brought together in one location primarily for the purpose of
> increasing the capitalist's surveillance and control of production
> (which Marx describes as the 'formal subsumption' of labour to
> capital). In 'large-scale industry', the capitalist takes the further
> step of imposing a detailed division of labour on the production
> process, transforming the workers' relation to the production process
> (which Marx describes as the 'real subsumption of labour to capital').
> Both technology and organization enter into these transformations. In
> manufacture, workers originally worked with the same tools they
> previously used in production at home; in large-scale industry, by
> contrast, capital has completely transformed technology and the
> organization of labour.
>
> We will return to Marx's theory of technical change in capitalism in
> the discussion of the falling rate of profit.
>
> The circulation of capital
>
> As defined earlier, capital is self-expanding value moving through
> various forms (money, commodity…). We now turn to the analysis of the
> circulation of capital. The emphasis is on the motion from one form to
> the other, and the coexistence of the various fractions of capital
> under the three forms at a given point in time.
> Back to top
> The circuit of capital (II, 1–4)
>
> A capitalist spends money to buy inputs (means of production and
> labour power); organizes production; stockpiles and sells the
> resulting product; and realizes a certain amount of money in sales
> revenue, normally larger than the original capital outlay. Each atom
> of capital goes through the various forms: money-capital, M, commodity
> capital in the form of inputs to production, C, productive capital, P,
> the value of partially finished commodities and plant and equipment in
> the workshop, and again commodity capital in the form of inventories
> of commodities awaiting sale, C′, and finally returning to money
> through the sale of the produced commodities, M′. Marx represents this
> sequence in a diagram of the circuit of capital:
> M—C…P…C′—M′
>
>
> Here M is the money the capitalist uses to buy inputs to production C,
> P represents the actual production process, and C′ are the produced
> commodities which are sold for money M′. The dashes represent purchase
> and sale of commodities on the market. The circuit is a chain, which
> can be viewed as beginning in M, C, or P, the circuits of money,
> commodity, and productive capital, three distinct formula of the same
> circuit.
>
> The speeds at which the values of the various components of capital go
> through the productive form of capital, P, can be quite different. The
> value of some components, like raw materials, returns quickly to the
> money form in the sale of the commodity, while others like the value
> of buildings and machinery (whose value is only transferred to the
> product along their service life) returns only after a long period of
> time. From these differences in turnover time follows the distinction
> between circulating and fixed capital.
>
> Capital is also a stock of value at any point in time. All the
> circuits overlap simultaneously: at the same moment new means of
> production and labour-power are being purchased while production is
> going on and finished output is being sold. The capital of a
> capitalist is the total value, tied up at any moment in these
> circuits. The total capital, K, is divided into three component
> stocks: money capital, M, commodity capital, C, and productive
> capital, P. The sum K=M+C+P parallels the total of the assets on the
> capitalist's balance sheet.
>
 and money-dealing capital (III, 16; III, 19)
>
> Industrial capital undergoes the complete circuit of capital as above,
> taking on the forms M, C, and P in turn. Some capitals, however, are
> specialized to limited segments of the circuit. The first is
> commercial capital, which buys finished commodities from industrial
> capitalists to sell them to final purchasers, in the reduced circuit
> M—C—M′: commercial capitalists buy in order to sell the same
> commodity. The second category, money-dealing capital, refers to the
> technical activity of banks in handling money payments into and out of
> accounts (and the exchange of currencies). Since no productive labour
> is expanded in these circuits, no surplus value is created. How
> industries engaged in such activities can make profits is part of the
> theory of competition considered below.
>
> Marx's schemes of reproduction (II, 18–21)
>
> Although Volume II of Capital is devoted to the circulation of
> capital, the analysis of the schemes of reproduction, combines
> valorization (c, v, s) and circulation (M, C and P).
>
> Three departments are distinguished which produce the physical
> commodities to satisfy the demand emanating from c, v, and s:
> Department I produces means of production, Department II commodities
> consumed by workers, and Department III commodities consumed by
> capitalists. If all of the surplus value is consumed, no accumulation
> takes place, and the size of the capitalist economy remains unchanged,
> the case of simple reproduction. If a fraction of the surplus value is
> accumulated, the corresponding purchasing power is spent on additional
> means of production, and the capitalist economy expands, the case of
> expanded reproduction.
>
> Marx assumes that all capital in the three industries accomplishes
> exactly one circuit: at the beginning and at the end of the period,
> all capital is assumed to be under the form C (the stocks of means of
> production and worker and capitalist consumption goods waiting to be
> sold). In this setting reproduction requires certain proportionalities
> to hold: for example, in simple reproduction the value added of
> Department I must equal the constant capital of Departments II and
> III.
>
> In this framework, Marx considers two types of issues. The first issue
> is the definition of output and its relation to income. The net
> product is the value of the final product, C′, minus the value of what
> is now denoted as intermediate inputs, either produced in the previous
> period, in C, or during the present period but purchased as inputs by
> firms. Marx shows that the value of this net product is equal to total
> income or value added, as in contemporary national accounting, the sum
> of wages and surplus value (including rent, interest and profit as we
> will see): v+s. Second, Marx investigates the circulation of money. He
> attempts to demonstrate how the money thrown into circulation by
> capitalists returns as sales revenue, taking into account the
> activities of a sector producing the money commodity if such a money
> commodity exists.
>
> The functions of the capitalist and their delegation to employees (II, 6)
>
> Being a capitalist is not a sinecure: both the appropriation of
> surplus value and the circuit of capital require active attention. In
> contemporary language: enterprises must be managed. Marx refers to
> these tasks as 'capitalist functions', in particular commercial
> transactions:
>
>
> The transformations of the forms of capital from commodities into
> money and from money into commodities are at the same time
> transactions of the capitalist, acts of purchase and sale. The time in
> which these transformations of forms take place constitutes
> subjectively, from the standpoint of the capitalist, the time of
> purchase and sale; … the time in which the capitalist buys and sells
> and scours the market is a necessary part of the time in which he
> functions as a capitalist, i.e., as personified capital. It is a part
> of his business hours. (II, 6)
>
>
> The tasks considered are variegated, from the overseeing of labour in
> the workshop to the acceleration of the circuit of capital (as in the
> market activities mentioned above). All these tasks are unproductive,
> though they are useful. Their purpose is the maximizing of the profit
> rate of the capitalist. (The profit rate is defined below in the
> treatment of competition.)
>
> The capitalist delegates some of these unproductive tasks to
> employees. They require means of production as well as labour power,
> like industrial capitalist production, though they produce no value.
> The wage and capital costs of these unproductive activities are a
> deduction from the surplus value. Marx denotes them as 'costs', in
> particular costs of circulation (the control and acceleration of the
> circuit of capital). As a consequence Marx categorizes some wage
> labour employed in capitalist production as unproductive, as in, for
> example, the case of overseers and employees in trade.
>
> The distribution of surplus value as income
>
> In Volume III, surplus value in its relation to both self-expansion
> and circulation is renamed profit. Profit is a form of surplus value.
> Once extracted, surplus value is at the origin of various categories
> of incomes, which appear as deductions from profit. The payment of
> such incomes to agents who employ no labour is thus consistent with
> the labour theories of value and surplus value. These channels of
> distribution of surplus value correspond to specific fractions of
> ruling classes in capitalism, such as active capitalists
> (entrepreneurs), money capitalists and landowners.
> Back to top
> Interest and profit of enterprise. interest-bearing capital (III, 21–3)
>
> Some capitalists do not engage directly in capitalist production, but
> put their capital at the disposal of another functioning industrial
> capitalist, the active capitalist (or entrepreneur). This transaction
> may take the form of a loan in exchange for a share of the surplus
> value as interest, or the purchase of shares of stock in the firm
> which pays dividends. Marx treats both cases as interest-bearing
> capital, and this category of capitalists as money capitalists
> (sometimes referred to as 'financial capitalists'). Marx explains
> interest as a portion of the surplus-value realized by active
> capitalists. The profit remaining after the active capitalist has paid
> dividends and interest is profit of enterprise. The existence of a
> developed loan market with a uniform rate of interest (for each
> maturity and risk of the loan) leads active capitalists to regard
> their own capital as loan capital, and to impute interest on it as an
> opportunity cost. Thus profit of enterprise appears as a kind of wage
> to the entrepreneurial activities of the active capitalist.
>
> Rent (III, 38, 45)
>
> Owners of scarce natural resources ('land' in the terminology of the
> classical political economists) also receive incomes in deduction from
> profits, in the form of rents. Due to their monopoly ownership of
> specific pieces of land, landowners can bargain with individual
> capitalists for a share of the surplus-value as rent (or royalties in
> other instances). How rents are quantitatively determined can only be
> examined in relation of the theory of competition.
>
> Finance
> Banking capital and money capitalists (II, 19; III, 29)
>
> The tasks of money-dealing capital are performed by banks. This
> represents their first source of income.
>
> Banks also concentrate and use available masses of capital. One source
> of funds for banks is the idle balances of money in the economy, which
> are deposited in bank accounts. Thus, the money capital of enterprises
> is pooled within banks together with the balances of money held by
> other agents, such as households. While individual balances fluctuate,
> the aggregate pools are much more stable. A second source of funds is
> the capital of money capitalists (interest-bearing capital, including
> stock shares), who, instead of dealing directly with entrepreneurs,
> use banks as intermediaries. (Marx is aware of the capability of banks
> to 'create' money, but his view of banking mechanisms remains
> dominated by intermediation.) The theory of banking capital unites
> these two facets of the theory of capital: money-dealing capital and
> the handling of the capital of money capitalists.
>
> Besides the management of accounts, the main function of banks is to
> make these funds available to agents seeking financing. Banks actually
> become the 'administrators' of the capital of money capitalists, and
> 'confront' capital as used by enterprises:
>
>
> Borrowing and lending money becomes their [banks'] particular
> business. They act as middlemen between the actual lender and the
> borrower of money capital. Generally speaking, this aspect of the
> banking business consists of concentrating large amounts of the
> loanable money capital in the bankers' hands, so that, in place of the
> individual money-lender, the bankers confront the industrial
> capitalists and commercial capitalists as representatives of all
> money-lenders. They become the general managers of money capital. On
> the other hand by borrowing for the entire world of commerce, they
> concentrate all the borrowers vis-à-vis all the lenders. A bank
> represents a centralisation of money capital of the lenders, on the
> one hand, and, on the other, a centralisation of the borrowers. (III,
> 25)
>
>
> It is in these pages of Volume III of Capital that Marx analyses the
> issuance of paper currency by private banks and the Bank of England.
>
> Fictitious capital and financial instability (III, 25)
>
> Marx's original definition of capital, as value in a movement of
> self-expansion, does not apply to securities like Treasury bills, or
> even to the stock shares of corporations. To refer to these
> securities, Marx uses the phrase fictitious capital. A public bond is
> in no way 'fictitious' for its holder, but it has no counterpart in
> the M, C and P of the circuit of capital. Once bonds or equities have
> been sold by a capitalist firm and are being traded on a secondary
> market, their values are also fictitious. The emergence of a market
> interest rate leads to the phenomenon of the capitalization of income
> flows such as the interest on government debt and dividends on equity:
> the market, where expectations concerning the future of these flows
> are taken into account, assigns a principal value to any flow of
> income. Thus, the accumulation of capital is paralleled in capitalism
> by that of such fictitious capital. Marx sees this capitalization of
> revenue flows as a source of instability.
>
> The institutional framework of modern capitalism (III, 21–3)
>
> As noted earlier, with the development of capitalism, the functions of
> the active capitalist are gradually delegated to managers and
> employees. This configuration, in which funding is provided by money
> capitalists with banks acting as intermediary, and the bulk of
> capitalist functions is delegated to a salaried personnel is that of
> modern capitalism:
>
>
> But since, on the one hand, the mere owner of capital, the money
> capitalist, has to face the functioning capitalist, while money
> capital itself assumes a social character with the advance of credit,
> being concentrated in banks and loaned out by them instead of its
> original owners, and since, on the other hand, the mere manager who
> has no title whatever to the capital, whether through borrowing it or
> otherwise, performs all the real functions pertaining to the
> functioning capitalist as such, only the functionary remains and the
> capitalist disappears as superfluous from the production process.
> (III, 23)
>
>
> The trinity formula of capital and classes in capitalism (III, 48; III,
> 52)
>
> A major objective of Capital is to establish surplus value as the
> source of all incomes in capitalist society except wages. But
> capitalist practice hides this origin of capitalist incomes in what
> Marx calls the 'trinity formula':
>
>
> Capital—profit (profit of enterprise plus interest),
> land—ground-rent, labour—wages, this is the trinity formula which
> comprises all the secrets of the social production process. (III, 48)
>
>
> Actually, this configuration is again altered in what we called above
> the institutions of modern capitalism:
>
>
> Furthermore, since as previously demonstrated interest appears as
> the specific characteristic product of capital and profit of
> enterprise on the contrary appears as wages independent of capital,
> the above trinity formula reduces itself more specifically to the
> following: Capital—interest, land—ground-rent, labour—wages, where
> profit, the specific characteristic form of surplus-value belonging to
> the capitalist mode of production, is fortunately eliminated. (III,
> 48)
>
>
> To Marx, this trinity formula is 'irrational', because it confuses the
> source of incomes in the distribution of surplus-value with the role
> of necessary inputs in the production of use-values.
>
> Volume III of Capital stops on a single-page chapter (obviously
> incomplete), entitled 'Classes'. There Marx establishes a
> straightforward relationship between his analysis of incomes and the
> fundamental class pattern of capitalism:
>
>
> The owners merely of labour-power, owners of capital, and
> land-owners, whose respective sources of income are wages, profit and
> ground-rent, in other words, wage-labourers, capitalists and
> land-owners, constitute the three big classes of modern society based
> upon the capitalist mode of production. (III, 52)
>
>
> To this one could add fractions of capitalist classes corresponding to
> the various circuits of capital and the division of surplus value as
> above: (1) industrial capitalists, commercial capitalists, bankers,
> and (2) entrepreneurs (active capitalists) and money capitalists.
>
> The distribution of surplus value through competition
>
> The analysis of capitalist production we have summarized so far, based
> on the idea that surplus value (and hence capitalist profit) arises
> from the exploitation of productive labour, runs counter to the
> apparent linkage of profit to the value of capital invested,
> regardless of the amount of labour it employs, or indeed whether or
> not that labour produces commodities at all. Marx offers a systematic
> account of the way in which competition among capitals gives rise to
> this linkage of profit with total capital invested by redistributing
> the surplus value created by productive labour.
> Back to top
> Prices and the collective character of exploitation (III, 9)
>
> Because prices are not necessarily proportional to values, surplus
> value is not necessarily realized by the capitalists who hired the
> labour-power that created it. Exploitation is thus a 'collective'
> mechanism for the capitalist class. It is as if surplus labour was
> collected in a single pool, and then distributed among capitalists in
> proportion to their invested capital (though the division of the
> surplus value among the individual capitals is actually the result of
> a fierce competitive struggle):
>
>
> Thus, although in selling their commodities the capitalists of the
> various spheres of production recover the value of the capital
> consumed in their production, they do not secure the surplus-value,
> and consequently the profit, created in their own sphere by the
> production of these commodities. What they secure is only as much
> surplus-value, and hence profit, as falls, when uniformly distributed,
> to the share of every aliquot part of the total social capital from
> the total social surplus-value, or profit, produced in a given time by
> the social capital in all spheres of production. … So far as profits
> are concerned, the various capitalists are just so many [100]
> stockholders in a stock company in which the shares of profit are
> uniformly divided per 100, so that profits differ in the case of the
> individual capitalists only in accordance with the amount of capital
> invested by each in the aggregate enterprise, i.e., according to his
> investment in social production as a whole, according to the number of
> his shares. (III, 9)
>
>
> It is, consequently, necessary to distinguish between the mechanisms
> which govern the overall appropriation of surplus-value and its
> realization by particular capitalists:
>
>
> 1. 1. The total surplus value depends on the value of labour power
> and the total number of workers capitalists employ.
>
> 2. 2. Any system of commodity prices 'distributes' this total
> surplus value to individual producers (and landowners).
>
>
> Marx describes this process of redistribution of surplus value as a
> 'metabolism' of value. Note that prices remain 'forms of value', as
> stated in the analysis of money and prices, but the hours of social
> abstract labour are reshuffled. At issue is no longer the labour
> actually expended to produce each commodity individually, but value as
> socially 'distributed' by prices (purchasing power as a fraction of
> social value 'conveyed' by the price of each commodity).
>
> The transformation problem (III, 9)
>
> At the beginning of Volume III, Marx pursues two objectives
> simultaneously. On the one hand, he analyses the basic mechanisms of
> competition in capitalism, in which the determination of a particular
> set of prices is implied, with equalized profit rates among
> industries, and, on the other hand, he uses this particular case to
> discuss the metabolism of value introduced above. This exposition
> obscures the fact that the underlying mechanism of exploitation
> operates whatever the prevailing system of prices; the theory of
> exploitation does not depend on the particular properties of commodity
> prices and, in particular, not on the attainment of a market
> equilibrium at which profit rates are equalized. The failure to
> separate the two projects, and to appreciate the restricted context of
> the discussion of the metabolism of value in this particular case, has
> created much confusion in the history of Marxist economic theory.
>
> In the later literature the two problems, those of the metabolism of
> value and the prevalence of a particular set of prices in capitalist
> competition, are usually treated jointly as the transformation
> problem. Because of its importance in the history of Marxism, a
> specific entry is devoted to this controversial issue (see Marxian
> transformation problem).
>
> The classical Marxian long-period equilibrium. prices of production (III,
> 10)
>
> The analysis of this process of redistribution of surplus value
> through competition marks an important break in the present account of
> Marx's analysis in Capital. Beginning with the definition of capital
> (and the corresponding requirement of the analysis of commodity and
> money, actually a preliminary to the exposition of capital), we first
> followed Marx in his investigation of the two components of the theory
> of capital: the extraction of surplus value and the circuit of
> capital. These two aspects were then combined in analyses such as the
> reproduction schemes or capitalist functions. Finally, attention
> turned to the division of surplus value: (1) its distribution as
> interest and dividends to money capitalists, and as rents to
> landowners; (2) its realization by various categories of capitals,
> such as commercial capital and banking capital, in which no surplus
> value is produced; and (3), in the present section, its reallocation
> to capitalists of various industries independently of the extraction
> by individual capitalists, as in competition. We now enter a new
> category of developments, in which dynamic processes are involved: the
> mechanisms of competition, accumulation and employment, technical and
> distributional changes, and crises and the business cycle.
>
> The basic idea in the analysis of capitalist competition is
> straightforward. If capital is free to move from one line of
> production to another in search of profit, the competitive movement of
> capitals will tend to move prices of specific commodities up or down
> until the rate of profit is equalized in all sectors. The equalization
> of the rate of profit, clearly stated by Adam Smith and David Ricardo,
> represents competition at the most fundamental level of analysis. The
> appropriation and realization of surplus value, as stated above, is
> thus specified quantitatively: one industry where little labour is
> used proportionally to total capital, in comparison to another
> industry, realizes more surplus value as profit than its workers
> actually contribute to the total surplus value (and conversely).
>
> The profit rate is central in this analysis of competition. The profit
> rate is defined as the ratio of profit, s, to total capital, K=M+C+P,
> that is r=s/K. The ratio of the value of the average total capital
> invested during one unit of time (for example, a year) to the flow of
> value corresponding to the cost of production engaged during this unit
> of time, T=K/(c+v), is the turnover time of capital measured in units
> of time such as months or years. In the Marxist literature, the
> turnover time is often implicitly or explicitly assumed to be unity,
> in which case the profit rate r=s/K is equal to the profit margin, the
> ratio of profit to costs of production, s/(c+v).
>
> The movement of capital in the pursuit of profit results in a tendency
> toward the equalization of profit rates among industries. Marx calls
> commodity prices which are consistent with an equalized profit rate
> prices of production:
>
>
> But capital withdraws from a sphere with a low rate of profit and
> invades others, which yield a higher profit. Through this incessant
> outflow and influx, or, briefly, through its distribution among the
> various spheres, which depends on how the rate of profit falls here
> and rises there, it creates such a ratio of supply to demand that the
> average profit in the various spheres of production becomes the same,
> and values are, therefore, converted into prices of production. (III,
> 10)
>
>
> Actual market prices tend to gravitate around prices of production,
> and this property defines the capitalist law of exchange (which
> supersedes the commodity law of exchange when production is organized
> by capital). As stated earlier, Marx calls the substitution of one law
> of exchange for the other a 'transformation', the transformation of
> values (actually prices proportional to individual values) into prices
> of production.
>
> The profit of commercial and money-dealing capital (III, 16; III, 19)
>
> Although commercial and money-dealing capitals do not contribute to
> the extraction of surplus value, they do participate in its
> realization, along the lines indicated above, like any other capital.
> Commercial capital, for example, must secure a profit by buying
> commodities from industrial capitalists at prices below the prices at
> which those commodities will be sold to final purchasers. In this way
> commercial capital appropriates part of the surplus value actually
> created in the circuit of industrial capital. Similarly, the fees
> charged by money-dealing capital transfer surplus value created in the
> circuit of other capitals (abstracting from interest paid by other
> agents such as households or the state). Thus, the profit of
> commercial and money-dealing capital is part of the surplus value
> produced by labour employed by industrial capital.
>
> Differential and absolute rent (III, 38; III, 45)
>
> The level at which rents can be established is directly related to the
> level of the average and tendentially uniform profit rate in the
> overall economy. The condition for the cultivation of a land of lesser
> fertility or for a more intensive investment is that the marginal
> investment must yield the average profit rate. All capitalists
> (including capitalist farmers) expect to realize the average profit
> rate prevailing throughout the economy. This condition is assured if
> landowners bargain for rents just high enough to assure capitalists
> the average rate of profit on their land. This defines differential
> rent. Marx also assumes that landowners as a class may withhold their
> lands until a minimum rent is paid, which defines absolute rent.
>
> The centralization and concentration of capital, monopoly (I, 25)
>
> The Classical–Marxian analysis, which assumes equalized profit rates
> among industries (not firms, because of differences in their
> productive efficiency), does not seem to match the features of
> competition in modern capitalism. Followers of Marx, from Hilferding
> and Lenin in the early 20th century to contemporary Marxist economics,
> point to the historical transformation of competition through the
> emergence of monopolies and oligopolies. The notion of the interplay
> of large firms is already part of Marx's analysis. In the process of
> accumulation the size of individual capitalist firms is altered by the
> concentration and centralization of capital. In Marx's account,
> concentration refers to the rise of the size of firms which parallels
> accumulation, while centralization denotes the outcome of merger or
> acquisition (and the process of competitive elimination of smaller and
> less efficient firms in an industry). Monopoly capital is not,
> however, part of Marx's analysis of capitalism, and Marx does not
> question the classical analysis of competition on such grounds. Rather
> than the view that the size of firms could hamper the process of
> equalization of profit rates among industries, Marx repeatedly asserts
> that credit mechanisms, including banks, are a crucial factor in the
> ability of capital to migrate among industries and, therefore, in the
> formation of prices of production.
>
> Accumulation, and technological and distributional change
>
> The accumulation of capital refers to the situation where a fraction
> of surplus value is saved and devoted to increasing the value of
> capital. While the analysis of expanded reproduction considers a
> steady growth path of the economy (on which the key ratios, the rate
> of surplus value, the organic composition of capital, the value of
> labour power, and the composition of demand, are assumed to remain
> constant), Marx's theory of accumulation incorporates the qualitative
> change in capitalist production that actually accompanies its
> expansion.
>
> Capital accumulation and employment (I, 25)
>
> For accumulation to succeed, a number of conditions must be met. In
> particular, an expanded supply of labour power must be made available
> to permit the expansion of production, an issue which Marx addresses
> at the end of Volume I. Marx rejects the conclusions of classical
> economists such as Thomas Malthus, who proposed universal laws
> governing population growth and a 'natural' path of accumulation of
> capital, and blamed low wages on the fecundity of workers and the
> limits of natural resources. Marx argues that each mode of production
> evolves its own characteristic laws of population, and that capitalism
> in particular gives rise to a number of mechanisms that ensure a rough
> proportionality between population growth and the accumulation of
> capital.
>
> How much labour is necessary to meet the demands of capital
> accumulation? How is the supply of labour roughly adapted to
> accumulation? Marx explains, in his law of capitalist accumulation,
> that the amount of labour required depends on (1) the pace of
> accumulation and (2) technical change as manifested in the variation
> of the composition of capital – that is, the ratio of capital outlays
> on means of production (constant capital) to capital outlays on wages
> (variable capital). If accumulation is rapid, and the composition of
> capital unaltered, the demand for labour power grows in proportion to
> accumulation and real wages tend to increase. This is the most
> favourable situation for workers. Technical change may moderate this
> tendency through an increase in the composition of capital, as the
> same accumulation requires less additional labour, and the demand for
> labour power grows more slowly than capital as a whole. A priori, any
> relation between the pace of accumulation and the change in the
> composition of capital may occur. Marx points, however, to the fact
> that the composition of capital tends historically to rise and, thus,
> the pressure on employment is regularly relaxed.
>
> Two mechanisms contribute to remedy any potential lack of available
> labour power. First, technical change leading to increases in the
> composition of capital makes some employed labour redundant. Second,
> recurrent crises periodically restore what Marx calls the floating
> reserve army of labour, with the decline of output. Thus, the process
> of accumulation is uneven. Accumulation first proceeds during phases
> of more or less balanced growth; gradually the reserve army of
> unemployed workers is reabsorbed and wages rises. This is an
> inducement towards technical change increasing the composition of
> capital. If, however, the demand for labour grows too rapidly, a
> crisis occurs, the demand for labour is relaxed. Finally, a new wave
> of accumulation resumes after the crisis, during which a fraction of
> capital is devalued or destroyed. We will return below to these
> episodes in which a rise of wages provokes crises, which Marx calls
> situations of 'over-accumulation'.
>
> In addition to this recurring fluctuation of unemployment, capitalism
> historically has drawn workers from the latent reserve army, through
> the destruction of traditional agricultural modes of production, and
> the consequent migration of displaced workers to the capitalist labour
> market. The potential competition of the latent reserve army puts a
> long-term downward pressure on wages as well.
>
> The overall interaction of these factors is complex, because technical
> change and the income distribution cannot be treated as independent
> mechanisms. Marx considers that rising wages, and a correspondingly
> diminished rate of surplus value, increase the incentives for
> capitalists to seek labour-saving technical changes. This leads to a
> rise in the composition of capital, as more machinery is employed,
> precisely in order to avoid increased wage costs. This analysis must
> be supplemented by the consideration of fundamental political
> conditions, in particular, the strength of workers' class struggle,
> since Marx believed that, over and above the mechanisms involved in
> the law of capitalist accumulation, organized labour struggles could
> influence both wages and the length of the working day.
>
> One of Marx's main goals in presenting his theory of accumulation, at
> the end of Volume I of Capital, is to show that the scarcity of labour
> power is not an absolute barrier to capital accumulation. The main
> thesis there is that, in the race between capital accumulation and the
> supply of labour power that governs the evolution of real wages,
> employment, and the rate of surplus value, capital has the edge over
> labour as a result of the capability of capital to substitute fixed
> capital (machinery) for labour:
>
>
> The same causes which develop the expansive power of capital,
> develop also the labour-power at its disposal. The relative mass of
> the industrial reserve army increases therefore with the potential
> energy of wealth. But the greater this reserve army in proportion to
> the active labour-army, the greater is the mass of a consolidated
> surplus-population, whose misery is in inverse ratio to its torment of
> labour. The more extensive, finally, the Lazarus-layers of the
> working-class, and the industrial reserve army, the greater is
> official pauperism. This is the absolute general law of capitalist
> accumulation. Like all other laws it is modified in its working by
> many circumstances, the analysis of which does not concern us here.
> (I, 25-4)
>
>
> Besides the resistance of organized workers, this capability of
> capitalism to perpetuate an available reserve army by technical change
> is limited by the cost of the addition of capital which is required to
> displace labour, as Marx will contend in his analysis of technical
> change and the tendency for the profit rate to fall.
>
> Technical change (III, 13–15)
>
> The social and technical conditions of production and their historical
> transformation are central to Marx's analysis of capitalist
> production. The term 'technology' is convenient but somewhat
> misleading. Marx always describes conditions of production in a
> perspective which combines technology in the strict sense and
> organization, that is, the institutional framework in which production
> is performed; the notion of social relations cannot be neglected in
> this context. This is the case, for example, in the analysis of
> relative surplus value, as discussed earlier in reference to
> manufacture and large-scale industry.
>
> Although Marx often discussed specific historical determinants of
> technical innovations, his main theory of technical change in
> capitalism sees it as an endogenous response to pressures from
> competitors and workers. Each capitalist has a strong motivation to
> find cost-reducing technical innovations (or profit-increasing product
> innovations) because the firm which first successfully exploits such
> innovations is in a position to capture higher-than-average profit
> rates ('super-profits') as a result of its temporary monopoly on the
> innovation. Innovating capitalists may also use their cost advantage
> aggressively to increase their market share. (In this respect Marx
> develops the theory of technical change Ricardo, 1817, presents in his
> chapter on machinery.) Over time, competitors will find equivalent
> innovations and the advantage of the innovating capitalist will erode.
>
> Capitalist technical innovation in Marx's framework begins with the
> discovery of a range of potential new productive techniques and forms
> of labour organization. The accumulated store of technical knowledge
> available to capitalist society at any moment is the result of this
> historical process of innovation: there is no set of predetermined
> techniques as is assumed in the neoclassical production function.
> Marx's theory of induced technical change is basically evolutionary.
> The capitalist evaluates the cost of these alternatives at prevailing
> prices and wages, and forms expectations concerning profit rates. Only
> those technologies that promise to reduce costs or increase profits at
> prevailing prices and wages are viable candidates for adoption. The
> criterion is an increased profit rate.
>
> Marx emphasizes that, because capitalism places both strong incentives
> for technical change and the power to implement in the hands of
> competing capitalist firms, it is a technically progressive mode of
> production, in contrast to slavery and feudalism. In this respect Marx
> resembles Smith, who emphasizes increasing returns inherent in the
> division of labour, rather than Ricardo, who emphasizes diminishing
> returns due to limited natural resources (land).
>
> The tendency for the profit rate to fall (III, 13–15)
>
> In Volume III of Capital, Marx describes trajectories of technical and
> distributional changes that he denotes as historical tendencies. They
> are unbalanced (nonhomothetic) growth trajectories, which Marx
> considered typical of the dynamics of capitalism, which we will
> describe as trajectories à la Marx. Along such very long-term paths,
> the growth rates of capital, output, and employment gradually fall,
> labour productivity and the composition of capital rise, the share of
> wages in total income is constant or diminishing, and the profit rate
> declines. In the speaking of historical tendencies, 'historical'
> refers to a very long-term time frame; 'tendency' means that though
> accumulation in capitalism tends to follow such trajectories, the
> trajectory does not necessarily prevail due to the action of what Marx
> labels counteracting factors. It is in this framework that Marx
> defines the tendential fall in the rate of profit. This 'law'
> expresses sophisticated insights into the historical dynamics of
> capitalist economic growth. It is one of the major disputed issues in
> contemporary Marxist economics (along with the transformation
> problem).
>
> In Volume III, the profit rate is written as a ratio of two flows or,
> equivalently, the turnover time of capital is assumed to be unity:
> r=s/K=s/(c+v). Dividing by v, Marx obtains: r=(s/v)/(c/v+1). The
> numerator is the rate of surplus value, and the denominator is the
> value composition of capital, the ratio of constant to variable
> capital, plus 1. Marx calls this value composition the organic
> composition of capital. In this simple presentation, the conflicting
> impacts of the rate of exploitation and the organic composition of
> capital are clearly evident.
>
> Although labour productivity does not appear in this formal setting,
> it is explicitly a key variable in Marx's analysis. Without altering
> the basic framework, it is possible to write:
> r=(s/(v+s))/((c+v)/(v+s)). Here, s/(v+s) is the share of profit in
> total income, and (c+v)/(v+s) is total capital per hour worked, which
> is another measure of the organic composition of capital. (This ratio
> can also be read as the ratio of capital to output, since output is
> equal to total income, or equivalently the inverse of what is
> frequently loosely called 'capital productivity'.) The numerator, the
> share of profit, can be written 1−(v/(v+s)), that is, 1 minus the
> share of wages. The share of wages is equal to real wages divided by
> labour productivity. Thus, the profit rate can be expressed as the
> ratio of the profit share to the total capital per hour worked, which
> we call simply the composition of capital:
> profitrate=1-realwagelaborproductivitycompositionofcapital
>
>
> Marx's fundamental insight can be sketched as follows. To maintain or
> increase profits (which appear in the numerator of the profit rate),
> when there is no fall in the real wage, capitalists must increase the
> productivity of labour, which is the mechanism of relative surplus
> value. Marx contends, however, that this increase has a considerable
> cost for capitalists because increases in labour productivity
> typically require the investment of more capital per hour worked:
> productivity gains are realized by way of an increased mechanization
> of production. Thus, the composition of capital rises, and the rate of
> profit may fall. The actual evolution of the rate of profit also
> depends on what happens to the real wage and, consequently, to the
> rate of surplus value as labour productivity increases, which depends
> on labour market factors and class struggle, which are beyond the
> control of any individual capitalist.
>
> Marx considers the case where the rate of surplus value remains
> constant to refute the argument that the falling profit rate is the
> result of an excessive growth in the cost of labour to the
> capitalists. When the productivity of labour rises, a constant rate of
> surplus value implies a rising real wage. Thus in making this
> argument, Marx does not assume a constant real wage. His thesis is
> rather that it is difficult for capitalists to counteract rising wages
> by technical change, since a more efficient technique in terms of
> labour productivity typically requires a rising composition of
> capital. The linchpin of Marx's thesis is, therefore, a hypothesis on
> the features of available techniques, that is, the profile of
> innovation: it is comparatively easy to find labour-saving devices if
> the cost of mechanization is not considered, but opportunities to
> reduce labour costs without inflating capital costs are rare.
>
> Thus, on trajectories à la Marx the productivity of labour rises,
> while the productivity of capital (the inverse of the composition of
> capital) falls, a pattern of technical change sometimes called
> Marx-biased:
>
>
> The law of the falling rate of profit, which expresses the same,
> or even a higher, rate of surplus-value, states, in other words, that
> any quantity of the average social capital, say, a capital of 100,
> comprises an ever larger portion of means of production, and an ever
> smaller portion of living labour. Therefore, since the aggregate mass
> of living labour operating the means of production decreases in
> relation to the value of these means of production, it follows that
> the unpaid labour and the portion of value in which it is expressed
> must decline as compared to the value of the advanced total capital. …
> The relative decrease of the variable and increase of the constant
> capital, however much both parts may grow in absolute magnitude, is,
> as we have said, but another expression for greater productivity of
> labour. (III, 13)
>
>
> Though Marx never articulated the entire framework, this analysis of
> the biased pattern of technical change supplements the mechanisms at
> work in the law of capitalist accumulation. Accumulation recurrently
> pushes employment to the limits of the supply of labour power
> available and drives real wages upward. Technical change and recurrent
> crises allow for the partial relaxation of this pressure (as we have
> seen), but, in typical periods, the new techniques available are such
> that technical change can only partially offset the rise in real
> wages, and the profit rate falls. Accumulation is pursued in spite of
> the diminished profit rate, which will only be apparent after the
> fact, when a major crisis occurs.
>
> The analysis Engels published from Marx's notes in Volume III of
> Capital is incomplete, and was not intended for publication in the
> form in which we read it. Consequently, it is not too surprising that
> Marx's analysis of the tendency for the profit rate to fall remains
> controversial among Marxists. A central issue is the assumption made
> concerning real wages, and its relationship to the profitability
> criterion in the adoption of new techniques. Marx is clear that the
> innovating capitalist initially makes a surplus profit, while his
> competitors gradually adopt the new technique and prices fall through
> competition towards the prices of production corresponding to the new
> technology. Marx contends that the new uniform average profit rate
> tends to be lower than the original one. Nobuo Okishio (1972) has
> demonstrated that if the real wage remains unchanged during this
> process the new average profit rate can never fall. But along a
> trajectory à la Marx real wages do increase, as we have explained,
> although the possibility of a tendency for the rate of profit to fall
> is consistent with Marx's assumption that the rate of surplus value is
> constant or even rising.
>
> The problem of the evolution of real wages, the value of labour power,
> and the rate of surplus value over time as labour productivity rises
> is controversial among Marxists, due to a change of Marx's view on
> this subject during his lifetime. Engels explained that Marx
> originally accepted the so-called iron law of wages, which assumes
> that real wages are constantly driven downward to a minimum compatible
> with the reproduction of the labour force, but later abandoned it.
> Marx sometimes refers to a 'socially and historically determined' cost
> of reproduction of labour power, as an external constraint on the
> evolution of the real wage. But this 'exogenous' variable is
> explicitly subject to a number of economic and social determinations:
> (i) class struggle impacts on wages and the duration of labour; and
> (ii) the outcome of struggles crucially depends on the conditions of
> accumulation and the population available to work (as in the law of
> accumulation). Marx's understanding of the determination of wages is
> similar to his view of technical change: the path of real wages is the
> result of the interaction of extra-economic factors with economic
> mechanisms such as accumulation and crises.
>
> Crises and the business cycle (III, 15)
>
> There is no systematic treatment of crises and of the business cycle
> in Marx's work, although the issue plays a prominent role in his
> analysis of capitalism. In early works, like the Communist Manifesto,
> even prior to Marx's serious study of political economy, the idea that
> crises will prove more violent with the evolution of capitalism is
> central. Recurrent crises became a feature of capitalism during the
> first half of the 19th century. This link between economic mechanisms
> and class struggle had a considerable impact on Marx's view of the
> historical dynamics of capitalism. Then, Marx became gradually better
> aware of the complexity of the phenomenon of crises, in particular the
> relationship between real and financial mechanisms and crises.
> Back to top
> Partial crises and crises of general overproduction
>
> Before capitalism, poor crops and the devastation of war and disease
> were the major causes of disruptions of production. David Ricardo
> (1817) observed the existence of recurring crises more directly
> related to the nature of capitalism, which he called states of
> distress. These crises struck specific industries, like textiles.
> Consequently, Ricardo interpreted these situations as the effect of
> disproportions, that is, the outcome of the excessive accumulation of
> capital in one industry. Ricardo did not believe in the possibility of
> a general glut of the market. Marx devoted much energy to the
> refutation of Ricardo's interpretation. He contended that the
> existence of a delay between the sale of a commodity and the spending
> of its money price on another commodity invalidates 'Say's Law', the
> principle that the sale of a commodity constitutes a direct demand for
> another commodity. Monetary exchange thus implies the possibility of
> crises, because, by functioning as intermediary in exchanges, money
> allows for the interruption of the chain of exchanges. Only the
> 'possibility' of crises is, however, implied, not their actual
> mechanisms in capitalism.
>
> Marx identified a new category of crises, crises of general
> overproduction, where all industries were simultaneously affected.
> Marx did not deny the existence of crises specific to particular
> industries, that he called partial crises, but contrasted the two
> types of situations, partial and general, and was specifically
> concerned with the latter.
>
> The ultimate ground of crisis. profitability and social needs
>
> Marx described general crises of overproduction as typical of
> capitalism. In capitalism, the purpose of production is not the
> satisfaction of the needs of the population, but the appropriation of
> profits. The 'ultimate ground' of crisis in capitalism is this
> disconnection between production and social needs:
>
>
> The ultimate reason [ground] for all real crises always remains
> the poverty and restricted consumption of the masses as opposed to the
> drive of capitalist production to develop the productive forces as
> though only the absolute consuming power of society constituted their
> limit. (III, 30)
>
>
> This quotation is often misunderstood. Marx did not believe that
> higher wages would solve the problem of crises in capitalism. The
> cause of crises, proper to capitalism, is the recurrent inability to
> pursue production at a certain rate of profit. Therefore,
> profitability is always the crucial variable in Marx's explanation of
> crises:
>
>
> Over-production of capital is never anything more than
> overproduction of means of production – of means of labour and
> necessities of life – which may serve as capital, i.e., may serve to
> exploit labour at a given degree of exploitation; … too many means of
> labour and necessities of life are produced at times to permit of
> their serving as means for the exploitation of labourers at a certain
> rate of profit. (III, 15-3)
>
>
> The business cycle and its determinants
>
> Marx described the fluctuating pattern of production in capitalism as
> 'the cycles in which modern industry moves – state of inactivity,
> mounting revival, prosperity, over-production, crisis, stagnation,
> state of inactivity, etc.' (III, 22).
>
> Production is recurrently destabilized by mechanisms which affect the
> profitability of capital in the short run (a sudden decline rather
> than a steady downward trend). The first mechanism is
> over-accumulation. Periodically, employment gets closer to the limits
> of the population available to work (the reserve army is reabsorbed,
> as in the law of capitalist accumulation). Wages tend to rise, and
> profitability is diminished. A second mechanism is the rise of
> interest rates. During the phase of rapid accumulation, the mass of
> credits increases and, at a certain point, interest rates rise. Again,
> profitability is affected and the economy destabilized. Marx is well
> aware of the relationship between real and financial mechanism, and he
> interprets the direction of causation as reciprocal.
>
> As stated above, Marx did not explain crises by the deficient level of
> wages (except in his very early work), and refuted this explanation in
> the manuscripts of Volume II:
>
>
> It is sheer tautology to say that crises are caused by the
> scarcity of effective consumption, or of effective consumers. The
> capitalist system does not know any other modes of consumption than
> effective ones, except that of sub forma pauperis or of the swindler.
> That commodities are unsalable means only that no effective purchasers
> have been found for them, i.e., consumers (since commodities are
> bought in the final analysis for productive or individual
> consumption). But if one were to attempt to give this tautology the
> semblance of a profounder justification by saying that the
> working-class receives too small a portion of its own product and the
> evil would be remedied as soon as it receives a larger share of it and
> its wages increase in consequence, one could only remark that crises
> are always prepared by precisely a period in which wages rise
> generally [over-accumulation] and the working-class actually gets a
> larger share of that part of the annual product which is intended for
> consumption. From the point of view of these advocates of sound and
> 'simple' (!) common sense, such a period should rather remove the
> crisis. (II, 20)
>
>
> Structural crises and the falling profit rate
>
> Since the profitability of capital is central in Marx analysis of
> crises, there is a link between the tendency for the profit rate to
> fall and crises. Marx's view is that actual phases of decline of the
> profit rate make crises more likely, more frequent and deeper. He
> points to the existence of periods of sustained instability, which,
> although Marx does not use the term, can be called structural crises.
> A declining and depressed profit rate (both the tendency and levels
> are at issue) disturbs capitalist accumulation:
>
>
> …in view of the fact that the rate at which the total capital is
> valorised, i.e. the rate of profit, is the spur to capitalist
> production …, a fall in this rate slows down the formation of new,
> independent capitals and thus appears as a threat to the development
> of the capitalist production process; it promotes overproduction,
> speculation and crises, and leads to the existence of excess capital
> alongside a surplus population. (III, 15)
>
>
> This insight concerning the link between the profit rate and the
> occurrence of periods of historical perturbation in the course of
> accumulation provides a powerful framework for understanding the real
> history of capitalist economies.
>
> See Also
>
>
> * British classical economics
>
> * capitalism
>
> * class
>
> * classical distribution theories
>
> * classical growth model
>
> * commodity fetishism
>
> * commodity money
>
> * exploitation
>
> * labour theory of value
>
> * labour's share of income
>
> * Marx, Karl Heinrich
>
> * Marxian transformation problem
>
> * Marxian value analysis
>
> * 'political economy'
>
> * profit and profit theory
>
>
> Bibliography
>
>
>
> Arthur, C.J. 2004. New Dialectic and Marx's Capital. Leiden, Boston:
> Brill.
>
>
>
> Brewer, A. 1984. Guide to Marx's Capital. Cambridge: Cambridge
> University Press.
>
>
>
> Cleaver, H. 2000. Reading Capital Politically. Edinburgh: AK Press.
>
>
>
> Duménil, G. and Lévy, D. 1993. Economics of the Profit Rate...
>
> [Message clipped]

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Received on Sun Nov 9 15:06:40 2008