Thursday, February 11, 2016

Marx’s Capital, Volume 1, Chapter 12: A Critical Summary

Chapter 12 of volume 1 of Capital is called “The Concept of Relative Surplus Value” and it deals with yet further aspects of surplus value.

Marx points to another way of increasing surplus value. He considers this representation of the working day:
Working Day 1: A-----------B--C

Working Day 2: A-----B′---B--C
AB represents the necessary labour-time equivalent to the value of maintaining and reproducing workers. BC therefore represents surplus labour.

In Working Day 2, the total length of the working day stays the same but a business can lower the amount of time in AB to AB′ (Marx 1990: 429), which is the necessary labour-time equivalent to the value of maintaining and reproducing workers.

We must remember here how Marx defines the value of labour-power:
“We have seen that the labourer, during one portion of the labour-process, produces only the value of his labour-power, that is, the value of his means of subsistence.” (Marx 1906: 239).

“The value of labour-power resolves itself into the value of a definite quantity of the means of subsistence. It therefore varies with the value of these means or with the quantity of labour requisite for their production.” (Marx 1906: 191).
Although a capitalist can lower his money wages to workers, if the wage is lowered below the value of maintaining and reproducing workers, then the very reproduction of workers is impaired (Marx 1990: 431). Self-sustaining capitalism and capitalist accumulation therefore cannot reduce wages below subsistence level on an economy-wide scale, though individual capitalists may attempt to do so (Marx 1990: 431). That is, Marx states that some real-world capitalists do sometimes lower wages below the value of labour-power (which is another cause of the downward pressure on wages), but Marx implies that it cannot be a viable and consistent method of increasing surplus labour, because it would destroy the labour force (Marx 1990: 431).

We see this point in the passage below as well as Marx’s assumption that all commodities exchange at their true labour values:
“Despite the important part which this method plays in actual practice [that is, lowering wages below subsistence], we are excluded from considering it in this place, by our assumption, that all commodities, including labour-power, are bought and sold at their full value. Granted this, it follows that the labour-time necessary for the production of labour-power, or for the reproduction of its value, cannot be lessened by a fall in the labourer’s wages below the value of his labour-power, but only by a fall in this value itself. Given the length of the working day, the prolongation of the surplus-labour must of necessity originate in the curtailment of the necessary labour-time; the latter cannot arise from the former. …

Such a fall in the value of labour-power implies, however, that the same necessaries of life which were formerly produced in ten hours, can now be produced in nine hours. But this is impossible without an increase in the productiveness of labour. For example, suppose a shoemaker, with given tools, makes in one working day of twelve hours, one pair of boots. If he must make two pairs in the same time, the productiveness of his labour must be doubled; and this cannot be done, except by an alteration in his tools or in his mode of working, or in both. Hence, the conditions of production, i.e., his mode of production, and the labour-process itself, must be revolutionised. By increase in the productiveness of labour, we mean, generally, an alteration in the labour-process, of such a kind as to shorten the labour-time socially necessary for the production of a commodity, and to endow a given quantity of labour with the power of producing a greater quantity of use-value.” (Marx 1906: 344–345).
We must remember that in volume 1 Marx’s “law of value” is that commodities tend to exchange at true labour values, and that the labour values are the equilibrium points around which prices fluctuate, not that commodities always and everywhere exchange at true labour values. But here in this chapter Marx is assuming that all commodities and labour-power exchange only at true labour values.

It follows that the only viable method by which a capitalist can reduce the value of AB to AB′ is by
(1) increases in productivity of labour;

(2) falls in the value and price of basic commodities needed for maintaining and reproducing workers, and

(3) a resulting fall in money wages.
Note well that if (3) money wages are not eventually reduced, then capitalists cannot obtain the money value of their increased relative surplus value.

Marx now introduces a distinction between (1) absolute surplus-value and (2) relative surplus-value:
“The surplus-value produced by prolongation of the working day, I call absolute surplus-value. On the other hand, the surplus-value arising from the curtailment of the necessary labour-time, and from the corresponding alteration in the respective lengths of the two components of the working day, I call relative surplus-value.

In order to effect a fall in the value of labour-power, the increase in the productiveness of labour must seize upon those branches of industry, whose products determine the value of labour-power, and consequently either belong to the class of customary means of subsistence, or are capable of supplying the place of those means. But the value of a commodity is determined, not only by the quantity of labour which the labourer directly bestows upon that commodity, but also by the labour contained in the means of production. For instance, the value of a pair of boots depends, not only on the cobbler’s labour, but also on the value of the leather, wax, thread, &c. Hence, a fall in the value of labour-power is also brought about by an increase in the productiveness of labour, and by a corresponding cheapening of commodities in those industries which supply the instruments of labour and the raw material, that form the material elements of the constant capital required for producing the necessaries of life. But an increase in the productiveness of labour in those branches of industry which supply neither the necessaries of life, nor the means of production for such necessaries, leaves the value of labour-power undisturbed.

The cheapened commodity, of course, causes only a pro tanto fall in the value of labour-power, a fall proportional to the extent of that commodity’s employment in the reproduction of labour-power. Shirts, for instance, are a necessary means of subsistence, but are only one out of many. The totality of the necessaries of life consists, however, of various commodities, each the product of a distinct industry; and the value of each of those commodities enters as a component part into the value of labour-power. This latter value decreases with the decrease of the labour-time necessary for its reproduction; the total decrease being the sum of all the different curtailments of labour-time effected in those various and distinct industries. This general result is treated, here, as if it were the immediate result directly aimed at in each individual case. Whenever an individual capitalist cheapens shirts, for instance, by increasing the productiveness of labour, he by no means necessarily aims at reducing the value of labour-power and shortening, pro tanto, the necessary labour-time. But it is only in so far as he ultimately contributes to this result, that he assists in raising the general rate of surplus-value. The general and necessary tendencies of capital must be distinguished from their forms of manifestation.

It is not our intention to consider, here, the way in which the laws, immanent in capitalist production, manifest themselves in the movements of individual masses of capital, where they assert themselves as coercive laws of competition, and are brought home to the mind and consciousness of the individual capitalist as the directing motives of his operations. But this much is clear; a scientific analysis of competition is not possible, before we have a conception of the inner nature of capital, just as the apparent motions of the heavenly bodies are not intelligible to any but him, who is acquainted with their real motions, motions which are not directly perceptible by the senses.” (Marx 1906: 345–347).
But there is a fundamental additional point: if the productivity of labour decreases the value of commodities so that the value of maintaining and reproducing workers also decreases, then it follows that in the long run money wages should fall, because the prices of fundamental commodities necessary for the maintaining and reproducing of workers will also be falling.

As productivity and new technology used in production cheapens commodities in these innovative industries, these production methods spread to the whole sector and the price of commodities falls, so that these latter prices reflect the new abstract, socially necessary labour time (or “social labour”) required to produce these commodities.

This point is made clear by Marx as follows:
“The real value of a commodity is, however, not its individual value but its social value; that is to say, the real value is not measured by the labour-time that the article in each individual case costs the producer, but by the labour-time socially required for its production. If therefore, the capitalist who applies the new method, sells his commodity at its social value of one shilling, he sells it for threepence above its individual value, and thus realises an extra surplus-value of threepence. On the other hand, the working day of 12 hours is, as regards him, now represented by 24 articles instead of 12. Hence, in order to get rid of the product of one working day, the demand must be double what it was, i.e., the market must become twice as extensive. Other things being equal, his commodities can command a more extended market only by a diminution of their prices. He will therefore sell them above their individual but under their social value, say at tenpence each. By this means he still squeezes an extra surplus-value of one penny out of each. This augmentation of surplus-value is pocketed by him, whether his commodities belong or not to the class of necessary means of subsistence that participate in determining the general value of labour-power. Hence, independently of this latter circumstance, there is a motive for each individual capitalist to cheapen his commodities, by increasing the productiveness of labour.” (Marx 1906: 348).

“Hence, the capitalist who applies the improved method of production appropriates to surplus-labour a greater portion of the working day, than the other capitalists in the same trade. He does individually, what the whole body of capitalists engaged in producing relative surplus-value, do collectively. On the other hand, however, this extra surplus-value vanishes, so soon as the new method of production has become general and has consequently caused the difference between the individual value of the cheapened commodity and its social value to vanish. The law of the determination of value by labour-time, a law which brings under its sway the individual capitalist who applies the new method of production, by compelling him to sell his goods under their social value, this same law, acting as a coercive law of competition, forces his competitors to adopt the new method. The general rate of surplus-value is, therefore, ultimately affected by the whole process, only when the increase in the productiveness of labour, has seized upon those branches of production that are connected with, and has cheapened those commodities that form part of, the necessary means of subsistence, and are therefore elements of the value of labour-power.

The value of commodities is in inverse ratio to the productiveness of labour. And so, too, is the value of labour-power, because it depends on the values of commodities. Relative surplus-value is, on the contrary, directly proportional to that productiveness. It rises with rising and falls with falling productiveness. The value of money being assumed to be constant, an average social working day of 12 hours always produces the same new value, six shillings, no matter how this sum may be apportioned between surplus-value and wages. But if, in consequence of increased productiveness, the value of the necessaries of life fall, and the value of a day’s labour-power be thereby reduced from five shillings to three, the surplus-value increases from one shilling to three. Ten hours were necessary for the reproduction of the value of the labour-power; now only six are required. Four hours have been set free, and can be annexed to the domain of surplus-labour. Hence there is immanent in capital an inclination and constant tendency, to heighten the productiveness of labour, in order to cheapen commodities, and by such cheapening to cheapen the labourer himself.

The value of a commodity is, in itself, of no interest to the capitalist. What alone interests him, is the surplus-value that dwells in it, and is realisable by sale. Realisation of the surplus-value necessarily carries with it the refunding of the value that was advanced. … relative surplus-value increases in direct proportion to the development of the productiveness of labour, while, on the other hand, the value of commodities diminishes in the same proportion; since one and the same process cheapens commodities, and augments the surplus-value contained in them; … .”(Marx 1906: 350–351).
So when a new, more productive technique is introduced by an individual capitalist, for a while he can continue to sell the commodity at the older price reflecting the average social labour embodied in the commodity and so obtain higher profits, but eventually the new method will spread and social value and prices will fall (Brewer 1984: 49–50; Harvey 2010: 168). Note well that this theory is dependent on the view that commodities tend to exchange at true labour values. Once the alternative theory of price determination Marx that used in volume 3 of Capital is applied, then it falls apart, for virtually all prices deviate from true labour values when prices of production are the anchors for the price system.

There is also another point: Marx seems to think that the capitalist who sells his commodity at the older price reflecting the average social labour even when his individual business has a lower labour value for the commodity gains additional surplus value (Marx 1906: 348), but it is unclear where this surplus value comes from, since his individual business cannot be producing it.

But to return to Marx’s argument: what Marx is saying is that capitalism has a “constant tendency” to cheapen the commodities necessary for the value of maintaining and reproducing workers (that is, the value of labour-power) and so to decrease the wages of workers, because for Marx wages tend towards the value of labour-power (Brewer 1984: 50). By this development, capitalists gain greater relative surplus value, and it follows that wages must tend towards the value of maintaining and reproducing workers.

Therefore machines – while not a source of surplus value – nevertheless can be used to extract more relative surplus value from labour (Harvey 2010: 169).

That Marx is thinking of wages being reduced as the value of commodities necessary for maintaining and reproducing workers falls is clear from his footnote:
“‘In whatever proportion the expenses of a labourer are diminished, in the same proportion will his wages be diminished, if the restraints upon industry are at the same time taken off.’ (‘Considerations concerning taking off of the Bounty on Corn Exported,’ &c, Lond., 1753, p. 7.) ‘The interest of trade requires, that corn and all provisions should be as cheap as possible; for whatever makes them dear, must make labour dear also ... in all countries where industry is not restrained the price of provisions must affect the price of labour. This will always be diminished when the necessaries of life grow cheaper.’ (1. c. p. 3.) ‘Wages are decreased in the same proportion as the powers of production increase. Machinery, it is true, cheapens the necessaries of life, but it also cheapens the labourer.’ (‘A Prize Essay on the Comparative Merits of Competition and Co-operation.’ London, 1834, p. 27.)” (Marx 1906: 351, n. 1).
But there is a gaping and devastating hole in Marx’s analysis: the real world tendency in capitalism of downward nominal wage rigidity. This was apparent even by the late 19th century, as I have demonstrated here, here, here, and here.

In Britain, even as prices were falling spectacularly (especially of basic commodities) in the 1873 to 1896 period, money wages were becoming sticky, and the real wage was soaring.

We can see this in the graphs below. The first shows an index of average British money wages from 1850 to 1902 (with data from Wood 1909: 102–103).

As we can see, money wages had become relatively inflexible downwards by about 1878, even as the deflation continued until 1896. And the long-run trend was of rising money wages. This is the opposite of what we would expect if Marx’s theories were true, for then money wages would tend to consistently fall if general price deflation was in progress. Wages would tend towards the value of maintaining and reproducing labour-power, but this has been spectacularly contradicted by the reality of capitalism which has seen living standards for workers soar in the long run.

In the second graph below Wood’s data (Wood 1909: 102–103, Appendix) on UK real wages from 1850 to 1902 (constructed from the wage data for working people in a whole range of industries) shows us that the real wage soared.

Marx’s theory of wages in capitalism and the idea that the worker is constantly “cheapened” have been refuted by history: moreover, they were refuted even by the end of the 19th century.

Finally, Marx sees this as the inherent tendency of capitalism:
“The shortening of the working day is, therefore, by no means what is aimed at, in capitalist production, when labour is economised by increasing its productiveness. …. The object of all development of the productiveness of labour, within the limits of capitalist production, is to shorten that part of the working day, during which the workman must labour for his own benefit, and by that very shortening, to lengthen the other part of the day, during which he is at liberty to work gratis for the capitalist.” (Marx 1906: 352).
So, according to this, machines only increase the surplus labour extracted from the workers, and the aim of productivity gains is not to shorten the working day, but to reduce the money wage (from reducing the value of labour-power) so that capitalists gain more surplus value.

This is nonsense, since capitalists are not in search of some mystical surplus value and the very concept of socially necessary labour time is incoherent and cannot even be properly defined (e.g., it is subject to a host of problems and a devastating aggregation problem as noted here).

Capitalists seek money profits and market share, but, as many have discovered, this can be achieved by raising money wages in line with productivity growth and actively creating their profit level by means of a profit mark-up on average unit costs.

That Marx badly missed the real world trajectory of capitalism can be seen in his doomsday predictions at the end of volume 1 of Capital in the “Historical Tendency of Capitalist Accumulation” chapter about the plight of the working class and the inevitability of socialism:
“Along with the constantly diminishing number of the magnates of capital, who usurp and monopolise all advantages of this process of transformation, grows the mass of misery, oppression, slavery, degradation, exploitation; but with this too grows the revolt of the working-class, a class always increasing in numbers, and disciplined, united, organised by the very mechanism of the process of capitalist production itself. The monopoly of capital becomes a fetter upon the mode of production, which has sprung up and flourished along with, and under it. Centralisation of the means of production and socialisation of labour at last reach a point where they become incompatible with their capitalist integument. This integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated.” (Marx 1906: 836–837).
But if capitalism can provide soaring living standards even for workers (as it did even in the 19th century), then how can the “mass of misery, oppression, slavery, degradation, [sc. and] exploitation” be constantly growing? Why would socialism be inevitable if workers see their living standards soar and the real wage soars above subsistence level?

Brewer, Anthony. 1984. A Guide to Marx’s Capital. Cambridge University Press, Cambridge.

Harvey, David. 2010. A Companion to Marx’s Capital. Verso, London and New York.

Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York.

Marx, Karl. 1990. Capital. A Critique of Political Economy. Volume One (trans. Ben Fowkes). Penguin Books, London.

Wood, George H. 1909. “Real Wages and the Standard of Comfort since 1850,” Journal of the Royal Statistical Society 72: 91–103.

Wednesday, February 10, 2016

Louis Boudin on the Contradiction between Volumes 1 and 3 of Marx’s Capital

From Louis Boudin’s book The Theoretical System of Karl Marx in the Light of Recent Criticism (1920):
“The appearance in 1894 of the third volume of Capital created a sensation in interested circles. While it does not stand in any direct relation to the Revisionist movement, it can hardly be denied that it made its formal argumentation more plausible. The solution of the Great Contradiction contained in the third volume, and the rest of the matter therein contained and intimately connected with this solution, opened the door to no end of discussion as to the relation between the first and third volumes of Capital. So that the problem to many has turned into the question how to reconcile the supposedly opposed doctrines taught in these two volumes of Marx’s life work. The Great Contradiction, in the opinion of many, was not solved, but extended so as to embrace the whole Marxian theory. This was confidently asserted by all the opponents of Marxism, who drew breath. It was heralded from one end of their camp to the other, and it took its classic form in Bohm-Bawerk’s, ‘Karl Marx and the Close of his System.’ The opponents of Marx were not, however, alone in this opinion. The discussion which has continued until the present day has shown that a good many Marxists, of different shades of orthodoxy, shared in this view. So much so, that a Russian Marxist of some prominence and of strict orthodox profession of faith, being unable to reconcile the doctrines laid down in the two volumes, respectively, denied, in his desperation, the genuineness of the ‘unfortunate’ third volume! He claimed that because the third volume was published long after his death, and was compiled from unfinished manuscripts and random notes, Marx appears therein as saying things which he really never intended to say and which are in crass contradiction to his real views, which are contained only in the first volume. Engels’ preface to the third volume is sufficient to show the absurdity of this last assertion. So that there was the great contradiction, which made plausible the assertion that Marx completely abandoned his own theory of value, laid down by him in the first volume, and returned to the theory of the cost of production, of the economists dubbed by him ‘vulgar.’ The half-and-half Marxists, a la Bernstein, would not go so far (timidity and eclecticism being their specialty), and they tried to minimize the discrepancies between the first and third volumes, claiming that Marx did not abandon his theory of value as laid down in the first volume, but merely modified it, on second thought, in the natural course of the evolution of his theory. Modification by evolution, or evolution in modification became their favorite theme.” (Boudin 1920: 131–132).

“Professor Werner Sombart, the noted German economist, best known to English readers through his graceful study ‘Socialism in the 19th Century,’ opened the discussion on the subject soon after the appearance of the third volume in an essay entitled, ‘Some Criticism of the Economic System of Karl Marx.’ ....

According to Sombart, the theory laid down in the third volume of Capital is not much different from the traditional theory of the cost of production. This does not conflict, however, with the theory of value expounded in the first volume, for the simple reason that the labor theory of value was never intended by Marx to represent the actual facts, or, as he puts it, ‘the (Marxian) value does not reveal itself in the exchange relation of the capitalistically-produced commodities.’ Nor does it play any part in the distribution of the yearly product of society. It has no place in real life. Its office is merely that of an aid to our thinking, by means of which we can understand the economic phenomena, and its place is in the mental operations of the economic theorist. In short, ‘it is not an empirical but a mental fact.’ Value, thus banished from economic life into the realms of pure thought, can no longer come into conflict with the gross facts of this life. Its existence is none the less real, at least to the mind of the German scholar who must have been educated on the writings of the great German idealist philosophers.” (Boudin 1920: 133–134).

“Slonimski says: ‘Contrary to all expectations the theory of surplus-value is repeatedly asserted (in the third volume); in reality, however, it is denied by its author and replaced by the old theory with all the familiar elaborations on the cost of production as the only regulators of value. The equality of profits is derived from the phantastic assumption that the capitalists amicably divide among themselves the incomes of the different undertakings, by equalizing the sums of surplus-value which they separately drew from wage-labor, and that this is accomplished either by way of brotherly arrangement or through competition. As to the special surplus-value for which the rival capitalists fight so mercilessly, why that is lost sight of and plays no part either in the income of the individual capitalist, or in the establishment of the rate of profits or in the formation of prices. ….” (Boudin 1920: 136–137).
So Boudin is quite clear that the contradiction between volume 1 and volume 3 of Capital in the law of value was admitted by “a good many Marxists” who “shared in this view.”

Boudin also makes it very clear that the contradiction was as follows:
“In what does this abandonment consist according to the Marx-critics? Stripped of their verbiage the statements of these critics amount to this: In the first volume Marx said (1) that the value of a commodity depends on the amount of labor necessary for its (re)production, and that such value was the point about which its price will oscillate; (2) that the profits of the capitalist, therefore, come from the amount of surplus-value created by his workingmen; and (3) that the cost of production has nothing to do with the value or price of a commodity or the profits of the capitalists. In the third volume, on the other hand, he admits that (i) the price of a commodity may be, and usually is, permanently fixed at, or oscillates about, a point which is different from its value as measured by the amount of labor necessary for its (re)production; (2) that the amount of profits which a capitalist obtains from his capital does not depend upon the amount of surplus-value produced by his own workingmen; and (3) that the old theory of cost of production as to value, price and profit holds good.” (Boudin 1920: 140).
This description of Marx’s “law of value” in volume 1 of Capital is correct, as I have shown here.

That the labour value of a commodity “was the point about which its price will oscillate” in volume 1 is shown by Marx’s statement as follows:
“It is true, commodities may be sold at prices deviating from their values, but these deviations are to be considered as infractions of the laws of the exchange of commodities, which, in its normal state is an exchange of equivalents, consequently, no method for increasing value.” (Marx 1906: 176–177).
If Marx didn’t mean this, then why did he write it?

And as Boudin notes, since many Marxists themselves later found a straightforward contradiction between volume 1 and volume 3 of Capital in the law of value, it follows that they must have interpreted Marx to have meant what he wrote here in volume 1.

Moreover, we know that Engels strongly protested against Werner Sombart’s view that the law of value in volume 1 had no place in real life, was not an empirical concept and was a purely “mental” one (Boudin 1920: 134; see Engels’ letter here). Engels’ attempt in 1895 to argue that the law of value in volume 1 had still been an empirical reality in an “historical” sense is very telling (see Engels 1991 [1895]). It is difficult to see why Engels did this if the law of value in volume 1 – that commodities tend to be sold at their true labour values – had only ever been interpreted as a purely abstract theory, not referring to reality.

Boudin, Louis Boudianoff. 1920. The Theoretical System of Karl Marx in the Light of Recent Criticism. Charles H. Kerr, Chicago.

Engels, F. 1991 [1895]. “Supplement and Addendum” to Volume 3 of Capital,” in Karl Marx, Capital. A Critique of Political Economy. Volume Three (trans. David Fernbach). Penguin Books, London.

Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York.