Marx Reading Group: Chapter 25, Section I

October 24, 2009

So I’ve been a disgraceful slacker on this Marx reading group – apologies. You’d think that, after not posting for so long, I’d have something considered to say. But the notes below are pretty much notes. I suggest people also check out (if you haven’t already done so) Nate’s posts on chapters 23 & 24, and NP’s posts on various aspects of chapter 25. (Plus all the other stuff in the sidebar reading group aggregator, for that matter.)

This post is focussed just on section I of Chapter 25. It is very sketchy.

In this chapter we shall consider the influence of the growth of capital on the fate of the working class.

This basically means – it’s business time. Marx has, by this extremely late point in Capital Vol. I, developed almost all the resources he feels he needs in order to speak (comparatively) plainly about matters close to the centre of his theoretical analysis.

The most important factor in this investigation is the composition of capital.

Marx distinguishes two ways of analysing the composition of capital – the value-composition and the technical composition of capital. NP has already written eloquently on the meaning of the distinction between ‘value’ and ‘material’ here. The fundamental economic issue, w/r/t the composition of capital, is obviously the difference and the relation between labour and other factors of production. This is what the chapter will centre on.

There are a number of different things in play here. On the one hand, there’s the distinction between technological advance in the means of production, and human labour. Technological advance increases human productivity – increases the productivity of labour – but this increase in productivity is a threat to labour, it produces unemployment, throws people out of work because fewer people are necessary to produce the same amount of stuff.

On the other hand, there’s an exchange-value dimension to this – the ratio of the money paid by capitalist firms for factors of production other than labour, and money paid in wages. It’s a matter of indifference to capitalist firms how their money is spent, so long as it generates profit, and ideally as much profit as possible.

The relation between these two modes of analysis – analysis of actual labour and actual technology, and analysis of the cost to capitalist firms of wages versus other investment, is a complicated one – Marx discusses it in the chapter, but I’m not going to discuss it in my summary. (It leads us into surprisingly deep waters quite quickly, imo, and while I want to return to it at some point, I’d rather get the bare bones of the analysis out here first).

Marx’s basic point is clear. If you have the same ‘ratio’ (however that’s understood) between constant and variable capital – between labour and other factors of production – and you’re dealing with capital accumulation, then the demand for labour is going to increase.

And this expansion in demand for labour may exceed the increase in the number of workers.

So wages rise.

[I’m going to note as an aside, here, that Chapter 25 is absolutely dominated by supply and demand analysis – it’s a large mistake to see Marxian analysis as not deploying supply and demand analysis.]

the requirements of accumulating capital may exceed the growth in labour-power or in the number of workers; the demand for workers may outstrip the supply, and thus wages may rise.

This is assuming the same organic composition of capital (however that’s understood), plus capital accumulation.

Marx now writes:

As simple reproduction constantly reproduces the capital-relation itself, i.e. the presence of capitalist on the one side, and wage-labourers on the other side, so reproduction on an expanded scale, i.e. accumulation, reproduces the capital-relation on an expanded scale, with more capitalists, or bigger capitalists, at one pole, and more wage-labourers at the other pole.

This is telegraphic, and relies on stuff that Marx discusses elsewhere in Capital. It’s probably right, but, with apologies, I’m basically going to fiat it, or pass it by, for now.

In a footnote here Marx makes the important point: “’Proletarian’ must be understood to mean, economically speaking, nothing more than ‘wage-labourer’” [p. 764]

p. 768. [And skipping over the footnote that NP’s already discussed.]

“Under the conditions of accumulation we have assumed so far” things are good for workers. Capital accumulates; as capital accumulates, more workers are needed; as more workers are needed (assuming population doesn’t rise to a comparable degree) wages rise. Land of milk and honey for the proletariat.

A large part of the worker’s own surplus product, which is always increasing and is continually being transformed into additional capital, comes back to them in the shape of a means of payment, so that they can extend the circle of their enjoyments

This is basically the analysis of capitalism that, say, The Economist would endorse (in Marx’s time and also in ours, conveniently). Capital accumulates and accumulates, real wages rise and rise. Sure, there’s a level of exploitation, here, but real living standards are constantly increasing

Marx aims to critique various aspects of this analysis.

First Marx notes that even given this analysis’s conclusions, the fundamental coercive relationship between capital and labour remains in place.

these things no more abolish the exploitation of the wage-labourer, and his situation of dependence, than do better clothing, food and treatment, and a larger peculium, in the case of the slave.

Here Marx makes a very characteristic and important point:

In the controversies on this question, the essential fact has generally been overlooked, namely the differentia specifica of capitalist production


It is essential to Marx’s analysis that it is not just a class analysis. Capital, which is devoted to analysing the differentia specifica of capitalist society, is dedicated to analysing the structural pressures that are distinctive to capitalist society, the structural pressures that enable and produce capitalist society’s distinctive class structure. This is fundamental to Marx’s project – and these structural pressures are extremely elaborate in their forms of self-reproduction, which is why a whole vast (unfinished) work like Capital is required to analyse them. Capital is focussed on the differencia specifica. The purchase and sale of labour power is at the heart of this – but what is distinctive in capitalism cannot be limited to the purchase and sale of labour power. (If only because there are other structural pressures in place which reproduce the social form of the sale and purchase of labour power – such a limited and contingent social form cannot, on its own, reproduce itself.)

Now Marx moves on to the next step of his analysis.

Various possibilities are on the cards here.

– The price of labour keeps rising, because accumulation is also rising to such an extent that this rising price of labour does not interfere with accumulation.

– The price of labour rises to such an extent that it interferes with profitability. This reduces or annuls the incentive to invest, which in turn reduces the demand for labour, which reduces the power of labour again.

In this latter scenario we have, as it were, a series of fluctuations around an ‘equilibrium’ of capitalist profitability. (Or, if you prefer, a constantly refreshed series of disequilibriums – but disequilibriums that are driven by the structurally reproduced social requirement of profitability.)

The mechanism of the capitalist production process removes the very obstacles it temporarily creates.

i.e. (as already said): if increased accumulation raises the wage-rate to such an extent that profitability is reduced, this will remove the incentives to capitalist investment, thereby reducing accumulation, thereby reducing the demand for labour, thereby reducing wages, until such a point at which the wage-rate is low enough to enable renewed accumulation, with profit as the incentive.

It is these absolute movements of the accumulation of capital which are reflected in relative movements of the mass of exploitable labour power, and therefore seem to be produced by the latter’s own independent movement.

In the next post I’ll try to address more central stuff. Hopefully to god there won’t be such a long gap between posts this time..

[NB: I apologise in advance if I don’t respond in a timely or adequate manner to comments – quite busy.]


12 Responses to “Marx Reading Group: Chapter 25, Section I”

  1. Nate Says:

    Thanks for this Duncan, glad to see this starting to move forward, and also glad I’m not the only one who has been easing in to ch25 one toe at a time instead of diving in headfirst. More substantial reply eventually…

    By the way, the sidebar’s giving an error message. My blog’s down at the moment, server problem, I assume those are related. Stupid … um… problems!

    take care,

  2. chabert Says:

    (off topic) related to your inquiries below…

    compares the economists who predicted the crisis with those who didn’t, comparing their models:

    A broadly shared element of analysis [among the former] is the distinction between financial wealth and real assets.
    Several of the commentators (Schiff and Richebächer) adhere to the ‘Austrian School’ in economics,
    which means that they emphasize savings, production (not consumption) and real capital formation
    as the basis of sustainable economic growth. Richebächer (2006a:4) warns against ““wealth
    creation” through soaring asset prices” and sharply distinguishes this from “saving and
    investment…” (where investment is in real-sector, not financial assets). Likewise Shiller (2003)
    warns that our infatuation with the stock market (financial wealth) is fuelling volatility and
    distracting us from more the durable economic prospect of building up real assets. Hudson (2006a)
    comments on the unsustainable “growth of net worth through capital gains”.
    A concern with debt as the counterpart of financial wealth follows naturally. “The great
    trouble for the future is that the credit bubble has its other side in exponential debt growth” writes
    Richebächer (2006b:1). Madsen from 2003 worried that Danes were living on borrowed time
    because of the mortgage debt which “had never been greater in our economic history”. Godley in
    2006 published a paper titled Debt and Lending: A Cri de Coeur where he demonstrated the US
    economy’s dependence on debt growth. He argued it would plunge the US into a “sustained growth
    recession … somewhere before 2010” (Godley and Zezza, 2006:3). Schiff points to the low savings
    rate of the United States as its worst malady, citing the transformation from being the world’s
    largest creditor nation in the 1970s to the largest debtor nation by the year 2000. Hudson (2006a)
    emphasized the same ambiguous potential of house price ‘wealth’ already in the title of his Saving,
    Asset-Price Inflation, and Debt-Induced Deflation, where he identified the ‘large debt overhead –
    and the savings that form the balance-sheet counterpart to it’ as the ‘anomaly of today’s [US]
    economy’. He warned that ‘[r]ising debt-service payments will further divert income from new
    consumer spending. Taken together, these factors will further shrink the “real” economy, drive
    down those already declining real wages, and push our debt-ridden economy into Japan-style
    stagnation or worse.” (Hudson 2006b). Janszen (2009) wrote that “US households and businesses,
    and the government itself, had since 1980 built up too much debt. The rate of increase in debt was
    unsustainable… Huge imbalances in the US and global economy developed for over 30 years. Now
    they are rebalancing, as many non-mainstream economists have warned was certain to happen
    sooner or later.” Keen (2006) wrote that the debt-to-GDP ratio in Australia (then 147 per cent) “will
    exceed 160 per cent of GDP by the end of 2007. We simply can’t keep borrowing at that rate. We
    have to not merely stop the rise in debt, but reverse it. Unfortunately, long before we manage to do
    so, the economy will be in a recession.”
    These quotes already reflect a further concern, that growth in financial wealth and the
    attendant growth in debt can become a determinant (instead of an outcome) of economic growth,
    undermining its sustainability and leading to a downturn. There is a recurrent emphasis (e.g. Baker
    2007), that home equity-fuelled consumption has in recent years sustained stable growth (especially
    in the US and UK) more than anything else, and that this was dangerous. Harrison (2007)
    juxtaposed his view to those who “assume that the health of the property market depends upon the
    condition of the rest of the economy. In fact, … property is the key factor that shapes the business
    cycle, not the other way around.” Baker (2002) wrote that “[w]hile the short-term effects of a
    housing bubble appear very beneficial—just as was the case with the stock bubble and the dollar
    bubble—the long-term effects from its eventual deflation can be extremely harmful”. Godley and
    Wray (2000) argued that stable growth in the US was unsustainable, as it was driven by households’
    debt growth, in turn fuelled by capital gains in the real estate sector. Their view was that as soon as
    debt growth slowed down – as it inevitably would within years – growth would falter and recession
    set in.
    This recessionary impact of the bursting of asset bubbles is also a shared view.

  3. duncan Says:

    Thanks guys.

    Nate – to be honest I think this post is pretty shoddy. But yeah – easing in…

    Chabert – that’s an interesting article – though I haven’t read it all yet. Need time and head-space. With reference to the bit you quote – I know basically fuck all about Austrian economics, and obviously ought to. * sigh *

    For what it’s worth, my personal blogospheric favourite prediction of impending housing-market crash financial crisis peril is D-Squared’s, back in 2002.

    The American consumer is pretty much all that’s holding up the entire world economy at the moment… Which wouldn’t be a problem, except that, as far as we can tell, the American consumer is basically only still spending because he thinks that magic beans grown on the Internet will pay for everything. The strong suspicion is that when the Yanks look under the bed and discover that all of their magic Internet stock market money has turned back into rotting leaves, they’re going to feel a little bit embarrased (and broke), and stop buying goods from Asia with money borrowed from Europe, a process which doesn’t look like it would be enough to keep the world going but in fact is. And given that the stock market’s been performing pretty badly these days, and is beginning to appear on the cover of USA today, lots of people are beginning to worry that the day of reckoning might be at hand. Which would obviously, leave us in the shit.

    This is the doctrine of the “wealth effect”, and if you can dig up a few factoids and linear regressions to illustrate it and avoid using the word “shit”, you can make a quite decent living as a pundit by repeating the paragraph above. On the other hand, if you had been placing bets on a US double-dip recession so far, you’d have lost them, because Alan Greenspan and his merry gang at the Fed have a solution to this problem. Basically, the solution’s pretty simple and it involves screwing interest rates down to the floor until mortgage rates follow them down to Low Low Prices levels, and pointing out to the Great American Consumer that it’s “Bye-Bye, Magic Stock Market Bubble Money!” but “Hello, Magic Housing Market Bubble Money!”. Marvellous.

    Cleverer readers at this point will be formulating an objection. The objection goes along the lines of:

    “Yeah, yeah, laughing boy, but what happens when the housing bubble bursts then?”

    Which is a damn good question to ask, particularly since the official policy of the Federal Reserve appears to be “hmmm yeh, never thought of that, I suppose we’d be kind of fucked”.

    D-Squared wouldn’t get past the criteria for inclusion in that article’s list of saw-it-comings, because there’s no time frame here. But still.

  4. duncan Says:

    Okay – this may be a really stupid question; but looking at Figure 3 – Godley’s Macro Balance Sheets in Matrix Representation – why should the Banks column sum to zero? Isn’t it part of the banking sector’s role in creating money, that there can intrinsically be an imbalance between deposits and cash+bills+loans? (I mean I understand that money lent out, and generated via this lending out, is going to be returned to the banks as deposits. But doesn’t the growth of the money supply via lending sort of inherently involve a not-summing-to-zero here?) I’m very likely missing something.

  5. Mike Beggs Says:

    Hey Duncan,
    Bank deposit money is always a liability for the bank and they have no interest in extending their liabilities without increasing their assets at the same time (i.e. lending or acquiring some other asset). It’s still a creation of money, in the sense of ‘means-of-payment’, because the corresponding liability for the non-bank borrower (asset for the bank) is a contract for future payment flows. The stock of liquid means-of-payment is increased, but everyone’s balance sheet balances.

    If a bank, for whatever reason, created a deposit for someone without getting an asset in return, say because it’s donating to a charity, its balance sheet still balances because its capital will decline – it won’t lose assets, but one category of its liabilities (its shareholders’ capital) will decrease to the extent that another category (deposits) increases.

    I haven’t read Chabert’s linked paper yet, but I will. I agree that the understanding of finance in accounting terms is really important – my thinking on this is informed by the post-Keynesian structuralists, and my paper at last year’s Historical Materialism attempted to build a bridge between Marx’s thinking on banking and central banking and the structuralist perspective.

    I do think accounting categories can easily mislead, though, if we’re not careful, because they are definitional and nothing causal can be read from them in themselves. I’ve seen some particularly bad accounting-based treatments of international economics, where imbalances between certain national accounting categories are treated as having some functional, causal reality.

    I also have a problem with the idea that predicting the crisis necessarily makes a framework valid or an economist awesome. Certainly, you want to be working with an analytical framework in which such crises are possible. But I’m skeptical of anyone who makes strong predictions about the future of economy, especially about the timing of crises and upturns, because I think these things are _actually_ and not merely epistemologically uncertain. Some people who predicted the crisis have been predicting crises their whole careers – stopped clocks who are right twice a day. A lot of people predicted a crisis for the wrong reasons, and they might turn out to be false theoretical friends.

  6. duncan Says:

    Thank you Mike. I’ve been thinking about your comment a lot today, and I think three things are going on here.

    1) I was unclear in my previous comment; 2) I am ignorant and somewhat confused; 3) we’re talking past each other to an extent.

    Unfortunately I don’t feel I’m able to address (1) and (3) before properly addressing (2), which I can’t really do in a comment. I need to adequately get to grips with the accounting model being proposed in the paper. I might try to gesture at what I’m thinking, here, later. But in case I don’t (which is likely), just – thank you for the comment, and it’s entered the brain churn, even if I don’t properly respond.

    [oh – and btw – is you HM paper from last year available online or in print? I went to see you present (or, in truth, I frustratingly missed the start of your presentation, and then raced off to hear another paper, so I didn’t have a chance to say hello – goddamn simultaneous panels!) But I’d be really interested to read it.]


  7. duncan Says:

    Damn – reading that back it seems a bit shitty. I’m not trying to downplay (2), if it seems that way. I just wish I could articulate and understand better what frustrates me about the model discussed in the paper. I’ll get there.

  8. mikebeggs Says:

    Hey Duncan,
    I had no idea you were at HM last year! I noticed after the fact that N. Pepperell had been there. Too bad I missed you guys.

    I just posted a version of my paper:

    I have been meaning to tidy it up and submit it somewhere but thesis has taken over.

    As for Godley’s accounting approach, it’s explained pretty simply in his book with Marc Lavoie from 2007: Monetary Economics, Palgrave Macmillan. I can send the pdf if your library doesn’t have the Palgrave ebooks.

    Also a similar approach is outlined in Chapter 1 of Lance Taylor’s ‘Reconstructing Macroeconomics’, which you can preview at Google Books:

  9. duncan Says:

    Oops, sorry, this got caught in the spam filter. Thank you for the reading tips – and the paper. I’ll keep the comment thread open, and in two or three years get back to you properly. 😛


  10. Mike Beggs Says:

    Hey Duncan,

    I meant to say Godley’s approach is “explained pretty simply” in the first chapter of his book with Lavoie – didn’t mean to imply the whole 600-page book was simple! (Later chapters build the model up to include more than 100 equations!) I’ve been taking another look at this stuff and finding it really interesting, especially with all the caveats and modest claims they make for what they’re doing.

    By the way, in the original post above, I like when you say “I’m going to note as an aside, here, that Chapter 25 is absolutely dominated by supply and demand analysis – it’s a large mistake to see Marxian analysis as not deploying supply and demand analysis.]” I think this is absolutely right. I really want to write something about supply and demand in Marx.

  11. […] reading Capital at a rate slower than Marx wrote it. Glacially slow. Perhaps there’s hope of a mid-winter […]

  12. […] 2/10/09: Lumpenprofessoriat. The General Law of Capitalist Accumulation 24/10/09: Duncan, Chapter 25, Section I 07/12/09: Duncan, Chapter 25, Part II [Part One] 14/03/10: Duncan, Initial Remarks on Value Theory […]

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