Marx Reading Group: Chapter 25 – Initial Remarks on Value Theory

March 14, 2010

Apologies for leaving such an incredibly long gap between posts. Since I last posted, Nate and NP both have new Marx posts up, and Roger is writing on Marx again. (Those with too much time on their hands can follow a lengthy debate Roger and I have been having in the Limited Inc. comment boxes). [EDIT: For personal archiving purposes, I’ll note further debate on Marx between myself and roger here and here.] Plus Qlipoth has been responding to Roger’s posts too. All in all a wealth of blogospheric Marx riches!

Anyway – in sympathetic mimicry of Marx’s method, I’ve revised the below enough times that it probably makes no fucking sense. Basically it really ought to (and at one point did) have a long discussion of different interpretations of Marx’s value theory as a preamble. But the literature on value theory is a goddamn oubliette; so I’ve cut the discussion down to a bare minimum.

One way of slicing up interpretations of Marx’s theory of value, then, is by dividing them into ‘production-oriented’ and ‘circulationist’ theories of value. The former more or less says that price is determined by labour-time inputs (this is how the ‘labour theory of value’ is often understood). The latter reverses the causality, and says that labour-time inputs are generally determined by price (among other factors), because supply and demand regulates the distribution of labour between and within industries.

The latter theory has the benefit of being true [in the complicated sense that I’m about to outline]; the former has the disadvantage of being false. (My earlier remarks on the labour theory of value: 1; 2; 3) But there are plenty of places in the three volumes of Capital where Marx seems to be saying stuff that implies the former. What gives?

N Pepperell has been writing at length about Marx’s presentational strategy – and about everything else relevant to the interpretation of Capital…; as usual my debt to NP’s work is profound throughout this post. In a word: Marx has an extremely rococo organising principle for Capital v.I. He starts with common (for his time) political-economic propositions, then gradually embeds them in the social conditions and practices that give rise to them – shows how these perspectives on the reproduction of capital are made available by moments of capital’s reproduction. At the same time, Marx argues that these perspectives fail to give a fully adequate analysis of capitalist society because they overgeneralise from a specific slice of social reality – they take a moment of capital’s reproduction as representative of the whole, failing to see that this social moment can only function as it does, as part of the reproduction of capitalism, because of other social moments, many of the consequences of which directly ‘contradict’ the consequences of the social practices that produce this specific perspective.

This critique of overgeneralisation from specific social practices intersects with another vector of Capital‘s analysis, where Marx suggests that inhabitants of capitalist society are systematically prone to misattributing the effects of a complex set of interactions between different social actors and processes, to a single moment of this larger social process. This latter misattribution is what Marx calls fetishism.

Marx thinks that even the best political-economic discourse is guilty of these kinds of naturalisation. Nonetheless, Marx still generally thinks that the political-economic-style analyses he gives us in Capital are in some sense true. (When he thinks political economic analysis is false, he’s not shy about saying so.) Marx just thinks that the ‘labour theory of value’ analyses he appropriates for Capital are not true for the reasons political economists (such as Ricardo or Adam Smith) think they are. Marx uses a lot of quasi-Ricardian formulations in Capital – formulations which suggest that labour qua labour produces value – a claim that I believe Marx considers to be, literally speaking, false. On my – Pepperellian – read of Capital, one of the tasks Marx sets himself for the work as a whole is to show why the political-economic claims oriented around this value theory might nonetheless be true – why, that is, they are true for the specific social context of capitalism – and, just as importantly, how this truth is produced by a host of apparently unrelated social activities.

In other words, Marx believes he can ‘derive’ his version of the ‘labour theory of value’ from the dynamics of the general social context: show how these formulations are made true by the aggregate effects of many different activities in capitalist society. In good (right side up) Hegelian style, Marx aims to demonstrate that his apparently dogmatic starting point can be shown to be generated as a product of the system as a whole.

Does Marx succeed in this project? Not altogether, is my opinion. But I’m not going to talk about that in this post.

What I am going to talk about is the organic composition of capital. On one ‘classic’ read of Capital the organic composition of capital [roughly, the ratio of variable capital (labour) to constant capital (machines, etc.) in any given unit of investment capital] plays a key explanatory role in Marx’s account of crisis. The read (with which I disagree) would go something like this: If labour qua labour is taken to generate value, then all else being equal a greater ratio of variable to constant capital is going to generate more value, which means (again all else being equal) more profit. If there’s a secular trend towards mechanisation – i.e. if the amount of constant capital is increasing relative to variable capital – then on this value theory you’re going to get a decline in the value produced by any given investment unit of capital. There is, therefore, a tendency for the rate of profit to fall – which is, ultimately, the source of capitalist crisis.

[The causal chain re: crisis might go something like:
– profits fall
– which reduces or eliminates incentives to invest
– which reduces investment
– which both directly and via knock-on effects on wages, etc., reduces aggregate demand
– which produces a crisis of underconsumption
Though there are plenty of other possible accounts.]

On a read like this, Chapter 13 of Volume III – on the tendency of the rate of profit to fall – finally cashes out an analysis of capitalism’s inherent tendency towards crisis, by using the labour theory of value initially elaborated in Volume I.

I don’t accept this interpretation of the direction of Marx’s argument. I think, instead, that Marx’s discussions of the organic composition of capital should be seen as treating the changing organic composition of capital as an effect of changing profit rates (among other factors), rather than as a cause. [Though I have some provisos I’d like to attach to this, which I am going to postpone until some subsequent post.] I think we can see how some of this argument plays out in Chapter 25 of Volume I.

So – ‘The General Law of Capitalist Accumulation’. Very crudely, the argument to which this chapter contributes runs something like this:

Capitalism as a system is oriented towards blind economic growth, and generally characterised by wage-labour as a form of production. [Why a drive towards growth? Various reasons, but most importantly the credit system. Historically speaking, capitalism really starts gathering steam when governments/ruling cliques become dependent on the newly created national debts for institutional self-perpetuation – this dependence ties state power & state violence to the capitalist drive to productivity.] Anyway, the drive towards growth manifests and reproduces itself at a capitalist-firm level as the profit motive. Capitalist-firm-level imperatives towards profit can be responded to by:
– Simple appropriation – ‘primitive accumulation’
– Simple expansion – seeking out new markets.
Or, especially if these two routes are blocked
– Increased productivity.
Increased productivity in turn can be achieved by lengthening the working day; intensifying work; or mechanization.

Chapter 25 is concerned, in large part, with this connection between the drive to accumulation and mechanisation. There is a loose tendency towards mechanisation in a given industrial sector, driven by the need to increase productivity. Competition within a sector (which is part of the structural incentive to increase productivity in the first place), plus the increased supply as a sector expands its output, will also tend to drive down prices as a sector develops. Here you have a (loose) tendency for lower profits to accompany increased organic composition of capital – and this has nothing to do with a causal link from labour-time-inputs to profit.

At the same time, as labour is expelled from mechanising industries, it enters and increases the ‘reserve army’ of labour. This has the effect of driving down the price of labour-power on the wage-labour market. This is one of the ways in which the capitalist system ‘self-regulates’ (not via ‘efficiency’ but via economic convulsions with an extremely high human cost). [This idea has purchase in the mainstream economic literature via (among other things) Schumpeter’s (Marx-derived) concept of ‘creative destruction’.] Loss of profits in a sector (say via overproduction, or price reductions through competition) will tend to result in the failure of some firms & cost-cutting from others, which means unemployment for workers in that sector.

But as profits from over-producing sectors decrease, there’s also an orientation within the system to find or produce new markets & create new industries which can generate a better profit rate. These industries will often tend initially to be more artisanal/labour-heavy – sometimes because they can simply absorb cheap labour expelled from more profit-crisis-ridden sectors, and therefore don’t have an incentive to mechanise; but also because it takes time to figure out how to mechanise new industries, and because the drive to mechanisation is in large part produced by the falling profit rate produced by competition – which only really starts to bite once a new sector has been up and running for a while.

And these factors can also tend to produce an (again very loose) correlation between the organic composition of capital and the value produced by a given industry per unit of capital – more variable capital per unit of capital goes along (here) with more profits. Again, though, the causal mechanism does not run from labour-time inputs to surplus-value production. The reverse is closer to the truth.

These are some of the themes that Chapter 25 of Capital is touching on. Architectonically Chapter 25 is therefore key to Marx’s argument because:
1) The discussion of the movement of labour into reserve army and then back into (newly created) labour articulates one of the dynamics that Marx regards as the heart of capitalism.
2) The connection of this dynamic to the changing organic composition of capital is an important step in Marx’s attempt to derive the (more or less) Ricardian ‘law of value’ from the social dynamics of capitalism as Marx (but not Ricardo) understands them.

There’s a lot more I should say; but I think I’ll go ahead and put this post up as is. Given how long it’s taken me to write this, I’m not overly confident about having another up any time soon. But in any possible future posts on Chapter 25 I’d like first to spend some time on how the category of ‘value’ functions in Marx, given the above interpretation, and then get down more into the nitty-gritty of Chapter 25.

I suppose I should say that I reserve the right to alter any aspects of the interpretation above as we go along – Capital may not be written as a series of ever-more-adequate approximations to reality, but this blog is.

[NB: If anyone leaves comments and I don’t respond very fast it’ll be because I’m busy; I’ll get back to you soon…]

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13 Responses to “Marx Reading Group: Chapter 25 – Initial Remarks on Value Theory”

  1. roger Says:

    Duncan, those with too much time on their hands should go outside and observe God’s green earth – but those who want to see a fairly sophisticated debate between two views of Marx should go to my comments boxes.

  2. Mike Beggs Says:

    Hi Duncan,

    I really want to respond to this (esp. the first part) but also really busy – in the meantime will just say it’s very good.

    I think Ricardo’s conception of value is a little more sophisticated than simply ’embedded labour’ though – I tend to think Marx made the qualifications and conditions explicit rather than saying stuff Ricardo wouldn’t have agreed with had it been put to him.

  3. Mike Beggs Says:

    Just to clarify – I mean Ricardo wouldn’t have disagreed specifically with qualifications like ‘socially necessary’ etc., or with the idea that commodities don’t actually exchange at the ratio of the labour required to produce them. Obviously Marx went a long way beyond Ricardo in other respects.

  4. duncan Says:

    Hey Mike – thanks. The post doesn’t suggest this, but I think I agree with you about ’embedded labour’. Basically two things are going on above: one is that, for reasons of time and of ‘ohmygod the literature goes on forever’ the post sort of acts as if the crude embedded labour thing is the only other form of LTV that could be in contention. It is indeed a prominent version of the LTV – i.e. it’s not just a straw man – but as you say, there are of course other, more sophisticated positions out there.

    W/r/t Ricardo – the truth is that I’ve just not read enough of the dude to have a solid opinion either way. What you say seems extremely plausible to me – as in, I’d be quite surprised if Ricardo’s LTV isn’t a lot more sophisticated than various other versions running around. But I need to do systematic work on this that I simply haven’t gotten around to yet. In that sense the opening of the post above is doubly hasty – I think it does a reasonable job of contextualising the interpretation of Marx by contrasting it with a familiar/intuitive alternative; but it certainly doesn’t adequately survey other figures’ LTVs – classical or Marxian.

    I really want at some point to sit down and do a proper study of different value theories – but it’s a long-term project, alas.

    Anyway, thanks for your comment!

  5. chabert Says:

    nice post

    ” I think, instead, that Marx’s discussions of the organic composition of capital should be seen as treating the changing organic composition of capital as an effect of changing profit rates (among other factors), rather than as a cause. ”

    it’s effect and cause and neither (expression).

    you are describing the celebrated “contradiction” (rather than conflict) of capitalism.

    that is, the selfsame capitalists, by reacting (individually, in competition with one another) to a market imperative, create that very imperative. they are all together the force to which they individually react. more than this the very selfsame actions they take to increase profits individually is what causes the rate of profit’s tendency to fall, necessitating their reactions, etc.. The tendency of the rate of profit to fall is cause (motive) and effect of the labour saving innovations capitalists make.

    that is, profits may not actually fall but there is a tendency, a downward pressure, which drives individual capitalists competiting with one another to innovate to save labour in search of higher surplus extraction. but those individual actions in search of more surplus to sustain and increase profits against the tendency to fall is what consitutes the tendency to fall in the first place. the tendency is produced by what the capitalists (aggregately) do (individually) in reaction to it. it’s escher-like, arising from the dual condition of capitalists as at once members of a class and individual interests in competition with other members of the class.

    so the changing organic composition is a way of expressing the tendency of the rate of profit to fall (across an industry or market), but in any specific firm, the higher organic composition represents increased profits.

    anyway one other thing important to remember is Ricardo treated labour as a natural resource, like land; he did not, as Marx did, recognise labour power as a commodity produced by labour, whose value is expressed in the products of labour and vice versa. It’s a huge problem.

  6. Mike Beggs Says:

    Hey Chabert,

    Not sure I agree about Ricardo – there is a sense in which the reproduction of labour via the product of labour is vital to his system. In his early stuff against the Corn Laws he argued that a high price of grain would raise the real wage because the same quantity would be required for the workers’ reproduction – thus a transfer ultimately from farmers to landowners, which would ultimately reduce the rate of profit for non-farmer capitalists also – because of the competitive forces equalising the profit rate.

    Malthus criticised him for assuming that the first part of the argument could be made with reference only to agriculture, pointing out that the wage-bundle included non-agricultural goods also.

    This ultimately drove Ricardo to generalise his argument, which required a theory of value (since a single homogenous product used for capital or consumption – corn – was no longer sufficient). The difference between the labour required to produce wage goods and the rest was crucial in determining the distribution of the product that was not absorbed by rent between labour and capital.

  7. Mike Beggs Says:

    Re: the organic composition and the TRPF:

    The main criticism of the tendency that has stuck is not Okishio’s theorem (that rational capitalists would never engage in technical change that would lower their profit rate, which begs the question) but the possibility of capital-saving technological change being as important as, or more important than, labour saving. It’s been a while since I’ve read the relevant chapters, so not sure if Marx himself included this as a counter-tendency. But it does become an empirical question as to which tendencies run faster.

    I think the whole argument needs to be reformulated anyway, away from industry-specific mechanisms and towards a theory of the accumulation of money-capital and fictitious capital across the whole economy. In Marx’s day capital markets were much less developed, firms more atomised, and banks more dominant as the mediator of money-capital. Capitalists were identified more with their specific firms which they were tied to. It perhaps made more sense to talk about the accumulation of capital as if fixed-capital in industrial production was the main game. Whereas now capital is more abstract in a sense – accumulation in one sector flows more easily to be reinvested elsewhere, mediated by capital markets as well as banks.

    The possibility of capital-saving technical change is an effective rebuttal to the necessity of a growing organic composition. But it has nothing to say about the accumulation of money-capital. In fact a declining need for fixed capital might intensify problems for the accumulation of money-capital, because there would be less demand for it from firms and hence lower returns. That’s OK if the accumulators of money-capital are willing to just up their consumption – but a problem to the extent that they want to continue to accumulate.

    That’s maybe not very clear – but what I’m saying is that we ought to be knitting the theory of interest, and the associated theory of fictitious capital, closer together with the theory of profit, and that might give us an argument about profit and returns on capital appropriate to an era of asset price inflation and recurrent financial crises.

  8. duncan Says:

    Thanks guys. Don’t have anything to contribute on Ricardo. Chabert – thanks, I think I agree re: effect & cause – in emphasising effect over cause in the post, I’m really just trying to set off my interpretation from the labour-time-inputs stuff; I certainly agree about the Escher-style reciprocal interaction of the different aspects of the system. “they are all together the force to which they individually react” is a nice way of putting it.

    Mike – I’m not sure I follow your longer comment. I take it that the argument is already necessarily oriented to the whole economy – you’ve already got capital markets, large-scale movement of capital between industries, a tendency towards recurrent financial crises, etc., or Marx’s analysis of the structural imperatives at the individual firm level wouldn’t work. I’ve a feeling that I’m missing the context here, though – that you may have a specific debate in mind that I’m unfamiliar with?

    Cheers…


  9. […] Duncan, Chapter 25, Section I 07/12/09: Duncan, Chapter 25, Part II [Part One] 14/03/10: Duncan, Initial Remarks on Value Theory Posted by duncan Filed in Uncategorized 11 Comments […]

  10. chabert Says:

    sorry mike you’re right; my head is elsewhere; just the neoRs do that.

  11. Carl Says:

    Love this post, Duncan, and my apologies for both seeing it belatedly and punking on the whole project. Especially I like that your analysis is actually dialectical, although you leave that in the subtext somewhat. It’s very difficult to even begin to understand Marx without grasping that cause and effect change places in real historical dynamics – effects become causes and so on, so that a characteristic of reification is the pinning of one moment in that cycle as if it’s the whole dynamic.

  12. duncan Says:

    Hey thanks Carl. Yes – I think that the
    ‘pinning one moment in the cycle’ thing is right: Marx unpins, as it were – and describes the social dynamics that produce the pin-makers.

    I almost commented on your post on the teapartiers, btw, and then for some reason didn’t. I really liked what you said there about relative immiseration.

    Take care…

  13. duncan Says:

    I’m temporarily closing comments on this post, because it’s getting a whole heap of spam. Real comments are still very welcome, but please leave them on a nearby post, and refer back to this one. Thanks.


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