Marx's economic theory

*Marx's economic theory ("Capital")*

*Introduction*

*Economic theory of Marx I have started to study when I was super-senior at Columbia University, in autumn 1990. I have continued to work on my own on this book, after graduation from University, in February 1991.*

*I have chosen to join the "working class", and so I would get up at 5 a.m. to go to work as a carpenter. During my hour and a half ride on subway, I would try to climb the heights of "Capital". I have finished studying the third volume in autumn of 1992, in Ukraine.*

*Understanding "Capital" can be undertaken for two reasons. First, if a person is honest about studying Marxism, s/he can not avert studying central work of Marx. Second, understanding "Capital" is important today because we argue about class nature of states like the former USSR, and other similar countries. Many argue that these are "capitalist" or "state capitalist". However, often they don't know what capitalism means. So, the first step towards understanding modern politics has to be understanding the questions "What is capitalism?", and the best way to do it is through understanding "Capital".*

1) "Capital", vol. 1, ch.1-3, Commodity and value.

A) Defining value

1) A commodity is a thing, or relationship, which satisfies some one of our needs. In order to become "a value", a thing must possess a use-value for another person. Moreover, this other person obtains this thing through exchange.

2) Use-value is the usefulness of a thing, or a service, for a user. Use-value doesn't depend upon the amount of labor which a given thing contains. Thus, water may be obtained with very little labor, but is very useful for us.

3) Exchange-value is a relationship in which one use-value is exchanged for another. Also, exchange-value is the phenomenal form of value which is contained in a given commodity.

4) Value is a thing, or a service, seen as a product of abstract labor. The amount of value directly depends on the amount of abstract labor contained in the thing.

5) Abstract labor is the labor which produces value, or it's any useful work looked at from the abstract point of view as a uniform human labor. Skilled and unskilled labor can all be seen as "uniform human labor".

6) Useful work - work which produces use-value.

Thus we see that "value" is one of a set of fundamental concepts, each of which plays a role in defining the other. Thus, they mutually define each other. However, under capitalism, "value" is the basic concept, development of which leads us to understanding "capital". Under non-capitalist system, perhaps it is "use-value" which becomes dominant.

B) Developing the concept of value to the concept of money

7) Elementary form of value:

x\*A=y\*B

where "x" is the amount of commodity A, and "y" is the amount of commodity B.

This form of value corresponds to barter exchange which developed at the borders between two tribes. To this form of value we return when higher forms of value loose their meaning, e.g. when value of money is destroyed.

8) Enlarged form of value:

x\*A=y\*B=z\*C...

This form of value is a continuation of elementary form of value, when the number of surpluses which a given society possesses has increased (as a consequence of development of productive forces).

9) General form of value:

z\*C=y\*B... =x\*A

This form of value appears when one commodity is separated from all others and it becomes the commodity in which all other commodities represent their value. For example, in Homer's time herd of sheep were used as such a universal commodity. In the photo on the right, we see other early forms of money: rice and small tools in China, dog's teeth in Papua New Guinea, quartz pebbles from Ghana, shells in India, metal disks in Tibet, limestone disk in Yap Island.

10) Monetary form of value:

z\*C=y\*B...=x\*gold

The difference between #9 and #10 is that gold has firmly become the measure of value. Both "A" in #9 and "gold" in #10 play the role of money.

   Thus, we can say that first, there was simple barter (one object exchanged for another object), then there was complex barter (many different objects exchanged for each other, in various quantities), then there appeared money exchange, i.e. all objects exchanged for some object playing the role of a universal measure of value. Gradually, this has become gold.

(Here, we skip an important section dealing with commodity fetishism. This explains how relations among people appear as relations among commodities.)

C) Money

Marx's theory of money is fully based upon historical experience of development of function of money. However, Marx presents this in the form of a logical development of concept of money. Thus, it is possible to present a historical experience in a logical form.

The three sections dedicated to function of money ("Capital", vol. 1, ch.3) represent three basic stages in development of human society: the ancient world - the feudal world - the modern capitalist society.

11) The first function of money is to be a universal measure of value, i.e. to measure the amount of abstract uniform labor which has accumulated in the given thing. Price is the appearance of value in money.

12) The second function of money is to be the standard of prices. For example, there is an inflation in a country. The value of money declines. However, the values of commodities remain constant. Thus, only the prices change, while relationship between price of "A" and price of "B" remains steady. Thus, money play the role of a standard, in relationship to which the prices of all commodities are fixed.

13) The third function of money is to be count money. That means money is present only ideally, in some form which is separated from their physical being. E.g. the statement from a credit card vs. the actual cash.

14) The fourth function of money is to be means of circulation. For example, in exchange "Commodity - Money - Commodity", money plays the role of a medium which mediates the exchange.

15) The fifth function of money is to be the means of payment. This we see, for example, when a commodity is sold before it is paid for, or when a commodity is paid for before it is produced, as for example buying future harvests as commodity exchange.

16) The sixth function of money is "credit money", which is a development of money as a means of payment. When a commodity is bought, but is not paid for in physical money, a promissory note is written. This note says that a creditor "A" is supposed to get a certain sum from a debtor "B" by a certain date. The creditor "A" can use this promissory note to pay for other commodities, i.e. use it as money.

17) The seventh function of money is to be universal money. In Marx's time, this was money in form of gold and silver. With development of global economy, several currencies compete for the role of being universal money, the two leading contenders being the U.S. dollar and the European Union euro.

Inflation is the direct result of government's printing of money. Thus, inflation can be controlled very easily by slowing down the printing press, i.e. printing only as much money as is necessary to replace worn out bills, and to keep up with development of economy. That means a certain amount of commodities corresponds to a certain amount of means of circulation.

Addition in 2006: Encarta Encyclopedia sees 3 types of money: 1) commodity money; 2) credit money; 3) fiat money. In commodity money, the value of the money is equal to the value of the metal contained in it, e.g. the value of gold in the coin. In credit money, the value of a paper is backed by promises of the institution issuing the paper money to pay an equivalent value in gold, silver, diamonds, etc. In fiat money, government issues the money by edict, without any promises to back it up by previous metals or jewels. Most of the currency systems in the world today are fiat money.

2) "Capital", vol. 1, ch.4-11. Capital and surplus value.

1) What is capital? Money is the result of appearance of commodity relations. First type of exchange that takes place can be described as "C-M-C". The goal of such exchange is to obtain some thing whichhas a use-value in place of a surplus product. Thus, a peasant may exchange an extra sack of potatoes for a bicycle. However, later, the goal of exchange becomes not the use-value, but the exchange value. Such interaction can be described as "M-C-M' ". Let's note that exchange of "M" for "M" is meaningless; hence, "M" is exchanged for "M' ", i.e. M + m. This is the basic formula for capital. It shows clearly that capital is a self-increasing value. The small "m" is called "surplus value". It is the goal of movement of capital.

2) Where is the source of surplus value? It can not be in the sphere of circulation, i.e. trade, as in the sphere one value is exchanged for an equal value, only in another form. For example, if a sack of potatoes and a bike have an equal value, then a value in the form of a bike is exchanged for an equal value in the form of a sack of potatoes. On the other hand, appearance of surplus value can not take place outside sphere of circulation, as value contained in commodities can be transformed into money only in circulation sphere. Hence, appearance of surplus value takes place both in the sphere of circulation, and outside of it.

3) In addition to the sphere of circulation, there is the sphere of production. There we find the producer of the surplus value. It is the worker and his labor. However, the worker sells on the market not his labor, but his labor-power. Labor power is the aggregate of all the intellectual and physical forces which exist in a person and with the help of which s/he creates a use-value. Labor is the goal-oriented activity of a person. The worker sells a commodity - labor power. The price of this commodity is determined as the price of all other commodities, i.e. by the amount of abstract labor necessary for production and reproduction of this commodity.

4) The possibility of appearance of surplus value is in the fact that the value of labor power and the value which it produces are two different quantities. The second is greater than the first. Therefore, surplus value is the difference between the value of a finished product and the value of elements necessary for its production.

5) What are the elements involved in production? Assuming we're discussing capitalist mode of production, we can break these up into two kinds: 1) constant capital, "c", and variable capital, "v". Constant capital is represented by the means of production, raw materials, etc. In the process of production, part of value of this capital is transferred onto the commodities it helps to produce. Variable capital is represented by the labor power in command by capitalist. Variable capital produces new value. Variable capital is called "variable" because the value it helps to produce varies, i.e. increases. First, variable capital produces a value equal to the value of labor power, and then it produces surplus value, "s".

6) The rate of surplus value is the relationship of surplus value to variable capital, or "s/v". The rate of exploitation is the synonym for rate of surplus value. It much better expresses what takes place.

7) The length of a working day is determined through the struggle between the class of capitalists and the class of workers. The amount of surplus value depends upon the length of working day, its intensity, the cheapness of labor power, etc. Hence opposition of interests of workers and capitalists. For example, workers strive to shorten the length of the working day and increase the length of vacation; meanwhile, capitalists attempt to increase the working day and shorten the length of vacation. In the end, they struggle around the amount of surplus value.

The modern tendency to produce things in China is the outcome of desire of world capital to decrease the price it pays for labor power, and thus to increase the amount of surplus value.

3) "Capital", v. 1, ch.12-15, Development of productivity of labor.

1) Capitalist is interested in getting maximum surplus value. There are two ways of obtaining that. One is by increasing the length of the working day. Surplus value produced in such a way is called "absolute surplus value". The second way is by decreasing that part of the day which is necessary for reproducing the value of labor power. The part of the day necessary to reproduce the value of labor power is called "necessary labor time". The surplus value obtained through decreasing the necessary labor time is called "relative surplus value". In order to obtain the relative surplus value, the capitalist is forced to improve the technical aspects of production, as well as organization of labor process. Because of increased productivity, the value of the commodity produced declines.

2) Historically, the first method which was used for obtaining relative surplus value was cooperation. Cooperation is when several workers work on the same process, or on several related processes. Cooperation started in medieval artisans' shops, when the number of workers working for the same master would increase. The level of specialization was not high at this moment.

3) The second method for increasing productivity of labor was manufacturing. Manufacturing is early capitalist mode of production based upon division of labor and hand tools. Manufacturing was described by Adam Smith, ("The Wealth of Nations", 1776), when he talked about a pin factory. Division of labor makes us one-dimensional, mere appendages to production process without need for thought (see Charles Chaplin, "Modern Times"). On the other hand, division of labor creates conditions for automation of production through introduction of machines.

4) The third method for development of productivity is introduction of machines. Machine is a tool which with the help of its instrument produces the same effect which a worker obtains with his instrument. Difficulties on the way of mechanization lead to progress of science. Changes in one department of production lead to changes in other departments.

5) Modern experience shows that production in capitalist society is on a smaller scale than production in post-capitalist societies. This is because of private property on the means of production. Hence, a capitalist can not use the same number of machines as would be optimal in a given branch of industry. Hence, each commodity produced in such a fashion: 1. extracts manual labor which could be automated; 2. has a relatively higher cost than if the branch of industry was to be automated. Moreover, many processes, as for example those related to research and development (R&D), are repeated again and again, from one enterprise to the next, thus wasting engineering and scientific labor. For example, think of all the labor wasted when a notebook with similar characteristics is designed in Toshiba and Samsung and IBM, etc.

6) The immediate effects of machines on the workers are: 1. use of female labor, leading to women liberation. 2. Need for creating social institutions to look after children, while women are at work. 3. Machines allow to use the labor of adolescents. 4. Initially, machines increased in the length of the workday and introduced night work. 5. Machines endanger the health of workers. 6. Machines pollute the environment. 7. Machines lead to absolute decrease of population devoted to agricultural work. 8. Initially, machines decreased the skills necessary for a worker (in comparison with craftsmen of the Middle Ages). The worker became a mere appendage to a machine. However, as the production process became further automated, the worker became an engineer tending the machines. Thus, his/her educational level has increased. That means the price of modern labor power has a tendency to increase.

4) "Capital", v.1, ch.19, 22, 23, Accumulation.

1) Accumulation is transformation of surplus-value into capital. A part of surplus-value is used up by capitalists and part is accumulated.

2) Bourgeois economists have tried to argue that a capitalist accumulates capital by "abstaining from consumption" (so-called "abstinence theory"). In reality, capitalists live in luxury. The only thing which they like to abstain from is paying wages.

3) Value composition of capital is ratio of constant capital to variable. Technical composition of capital is the ratio of the means of production to labor power. Organic composition of capital is value composition of capital in so far as it is determined by its technical composition.

4) Law of development of production manifests itself in increase in constant capital and decrease in variable capital. Modern success in automation of production allows us to hope that with time production will not require any mechanical human labor.

5) Concentration is an increase in the size of a capital through accumulation. Centralization is expropriation of capitalists by capitalists, i.e. merger of several capitals. Hence appears "surplus" working population. It is a necessary condition for existence of capitalism, as it keeps down the wages and allows capital to increase production rapidly, during boom periods.

6) Three forms of "surplus" labor are: 1. transitional form - exists in centers of industry; these are periodically unemployed workers; 2. Latent form - village workers who don't find work in villages and hence come to big cities. For example, situation in many Latin American countries. 3. Stagnant form - this is part of population which never had steady work and gave up on its hopes of finding one. For example, paupers, thieves, etc.

7) The absolute law of capitalist accumulation - the greater is the wealth in a given capitalist society, the greater is the "surplus" population. Hence, the greater is the exploitation, and suffering of the working class, hence, the greater is the revolutionary energy of the workers.

This law, it seems to me, doesn't take into account the effects of imperialism on the workers of the wealthiest countries. True enough, separate explosions do take place in the most developed capitalist countries, e.g. the most recent explosion in France, November 2005. However, these explosions take place among the lowest strata of workers and unemployed, the "lumpen-proletariat". These workers would not be able to run the economy.

Here, I think, we touch upon basic flaw in direction of research presented in "Capital". This book treats the world as a single society in which capitalist production develops steadily. However, the world is only tending in direction of appearance of a single global state, and in the process tremendous battles are taking place. Such were the two World Wars, appearance of first non-capitalist states, the Cold War, and now the wars in Iraq and Afghanistan.

It seems to me that direction of research represented by "Capital" should have been supplemented by direction of research represented by such book as "Imperialism" by John Hobson (1902). In other words, one should develop both the abstract questions of theory (such as "what is capital?") and concrete questions of international affairs (e.g. economics, politics and effects of imperialism upon the workers of industrially developed countries). For a single person, such a task is impossible. Therefore, modern socialist thinking requires cooperation and division of labor.

5) "Capital", vol. 1, ch.24, So-called "primitive accumulation".

1) Main condition for capitalist production is that the means of production and means for life (e.g. food) must be in hands of capitalists, while the workers should have only their labor power. That's the meaning of "privatization" campaign in former USSR. It is not to give to the workers control over means of production, but rather to pass these from control of state corrupted bureaucracy into the hands of capitalists.

2) Second most important pre-condition for capitalist production is preparation of subjective factors for capitalist exploitation. Capitalist relations should appear "natural" and "eternal". Resurrection of religion in the former USSR is a part of the campaign.

3) The historical tendency of capitalist accumulation is that initially capitalists expropriated the peasants, then they expropriate the workers, then they expropriate each other, and finally they will be expropriated themselves by revolutionary subject.

(end of volume 1)

Marx's economic theory continued