An introduction
to Marxist economics
Marxist economics
differs significantly from mainstream economics. Mainstream economics
tends to focus on the amount of money people have. At first, this may
seem like common sense. After all, the more money people have, the
richer they are. A lot of mainstream economics tends to focus on
things like deficits, surpluses, interest rates and inflation. All of
this is about how much money there is about, who owns it and in the
case of inflation, whether the amount of money you have will buy you
the same things today as it did yesterday.
Mainstream economics
is good at understanding how money moves and flows, grows and
shrinks. Marxist economics is more interested in the driving factor
that makes money worth something in the first place – value. In
this talk I want to give a brief outline of Marx’s economic
perspective, how it works in practise, and how Marxist economics
informs our political perspective.
Marx and
economics
Marxist economics is
about value: how it is created in a capitalist society and what that
means for social organisation. Marx did not get this idea from
scratch. He was building on the work of earlier economists like Adam
Smith and Ricardo, but with a few insights of his own. His theory did
not spring into being fully-formed, but developed over the course of
several decades. The most complete version is to be found in what is
possibly his most famous work, Capital.
Volume I of Capital
begins not with the working class, or the factory, or money. It
begins with the commodity. The commodity is the heart of capitalism,
its distinctive product, that which differentiates it from other
forms of economic and social organisation. The commodity is any
product created not for use but for trade. One criticism that is
often heard when Marx’s theories are brought up in polite company
is that of course Marx was all very well in his day but of course the
system has changed now so it is no longer valid. And when you think
about Marx’s starting point, of course they must be right. In
Marx’s day commodities tended to be things like coats, but of
course today none of us use such items. Commodities today are all
services like Facebooks and suchlike.
Facetiousness aside,
commodities are a really useful way of looking at capitalism. In
every bottle of Coke we see the same process as in every TV, car and
copy of GTA 5. It is the finished product of the system, and yet it
is not produced because it is useful. Yes, every commodity satisfies
some want or need, but that is not why it is made. It is made so that
it can be sold. The sole purpose of production is to make a profit
for the producer.
This is not the same
as making money. Money is another kind of commodity. It is produced
for exchange, just like a coat. The unique thing about it is that it
is a universal form of exchange. All commodities are produced to be
traded for something else, yet in capitalism we do not exchange coke
for coats, but for the money commodity.
Value
So if everything is
produced for exchange, what is being exchanged? When I buy my new 3D
flatscreen TV for £1,000, what is it that makes my TV worth £1,000
– and more importantly, a thousand pounds of what?
This is where one of
Marx’s key concepts comes in – value. What is embodied in every
commodity made by capitalism is the one thing that all commodities
have in common – human labour. When a worker sells their labour
power to a capitalist, they do work on the production of commodities.
It is this common feature which allows the commodities to be
exchanged at all. If labour were not expended on them there would be
nothing to exchange.
However, if
exchanging £1,000 for a TV is really just an exchange of one item
that embodies a certain amount of labour power for another, there
would be no profit. If I exchange one orange for one orange, I have
no more than I started with. Yet profit is at the heart of
capitalism. It is the reason that businesses produce. Where does this
profit come from?
The source of profit
is the same as the source of exchange value: human labour power. It
is also one of Marx’s key insights into the nature of economics. It
is also very straightforward, once you think about the way
businesses which you are familiar with actually work. One job I had
once was working in a caravan handbrake factory. I was paid just over
£5 an hour to work on a small production line for 7.5 hours a day.
On the line we had to make hundreds of handbrakes per day between the
four of us. Needless to say, the number of handbrakes we produced was
worth far more to the company when sold on than it paid us in wages.
This difference between the cost of human labour and the cost of the
plant needed for us to produce the handbrakes is the profit that the
company makes.
You may be thinking
that the machinery is a source of profit – after all without it we
could not have made any handbrakes at all, but it cannot be. No
matter how much more efficient it makes the process of production, it
cannot make more profit for the manufacturer. This comes down to the
question of what is being exchanged when a commodity is bought and
sold – a quantity of human labour power – and to what the
machinery is really doing in the production process, which we will
come onto shortly.
So the ability of
the employer to pay their workers less than the value of the goods
they produce is crucial to profit-making. Labour power is the source
of value but by exchanging a lower value of the money commodity for
each worker’s labour power than is congealed in the commodities
they have created, an employer can profit. This is a necessarily
exploitative relationship – and a worker can be well-paid and this
will not affect the fundamental relationship between the employer and
the worker. In fact a well-paid worker in a high-technology industry
in the West can be more exploited in absolute terms than a sweatshop
worker in Bangladesh in terms of their ability to generate more value
from their work for their employer. Of course, this is not to make
light of the poverty created by the system, but it does highlight one
of the odder features of capitalism. It’s interesting that the very
terminology adopted by capitalists unconsciously reflects this
situation. In Engels’ book on the working class in England he
reports how factory owners would refer to their workers as ‘hands’
– a term which accurately reflects what a worker means to an
employer: not people, but a device for doing work.
Socially
Necessary Labour Time
So what generates
profits for an individual employer is the exploitation of the labour
power that they purchase from their workers. But in capitalism all
employers are in competition with others. If they are to survive,
they must make more profits than their competitors or go bust. I will
explain why shortly.
One way to do this
is to lengthen the working day and decrease wages. Both of these make
more profits by increasing the rate at which workers are exploited.
Labour power is made cheaper but the number of commodities produced
is higher so the profits of the capitalist rise. However, this cannot
be extended indefinitely: workers need a certain minimum in order to
survive, they physically can only work for so long. In addition,
workers under sustained attack have a tendency to fight back –
capitalists do not always get away with attacks on pay and conditions
by employers. There is a limit to how much you can increase your
profits this way.
This is where
machinery comes in. Investing in new machinery can help make
production more efficient and increase the amount of production.
However, the machinery is purchased for an amount of money that
reflects the labour congealed in it, just like any other commodity.
Once purchased it is not a new source of value, but a way of
extracting more value from the labour power of the workers involved
in the production of the employer’s commodities. This is what Marx
called ‘dead labour’, as opposed to the ‘living labour’ of
workers.
However, the first
employer to do this has a huge advantage over their competitors –
with fewer workers they can produce more commodities and therefore
make more profits when they sell them.
The reason that they
can make more profits is that the money price of a commodity reflects
the socially necessary labour time required to produce it. When the
first manufacturer invests in new machinery, the price they can
charge for their products is the same as the price of the old
labour-intensive price that the rest of the industry is still using.
However, all the manufacturers are in competition, so if they are not
to go under they must invest in new machinery too. As everyone
invests in the new machinery and the companies compete with each
other, the money price they charge will drop to reflect the new lower
labour time cost that is now socially necessary. This is a key
difference between Marx’s understanding of economy and earlier
thinkers like Smith.
This also shows one
way in which the money price of a commodity does not directly reflect
the amount of value created by the labour power congealed in it. The
price, under normal conditions of capitalist production, is primarily
affected by the socially necessary labour time required to produce
the commodity – that is to say the average labour power used at
average intensity in particular social conditions. However there are
a range of other conditions in which the price of an object may
differ significantly from the amount of labour invested in it. One
major issue is crisis, which we will look at shortly.
The long-term
tendency of the rate of profit to fall
What this shows
about capitalism is its dynamism. It is constantly in motion,
constantly changing. Nothing stays the same for long, and means of
production are constantly being revolutionised as competing
capitalists try to increase their profits. However, as you can see
from the way that they have to increase their profits, there are
limits to their ability to do this, and over time the rate of profit
– the rate by which they can extract value from their workers –
will fall as the socially necessary labour time for production falls.
As the rate of profit falls, the profitability of the system as a
whole falls. Capital accumulates – which is to say that there is
more and more dead labour compared to living labour and it is harder
and harder for capitalists to squeeze increased value from their
workforce.
Crisis
The long-term
tendency of the rate of profit to fall is at the heart of another key
feature of the capitalist system: crisis. We are currently still in
one of the longest crises in the history of capitalism, more than
seven years after it began. Crisis has been a frequent visitor to the
system, both as a whole and in its various parts. Mainstream
economics often refers to crisis as ‘recession’ because it is
interested in the growth of economies and thinks in terms of how much
money is in them, so it sees recession as a setback on the path to
growth. However, the real cause of crisis in the system is an
accumulation. Because capitalists don’t extract profits just so
that they can consume more, but so that they can create more profit,
they reinvest a lot of the value that they extract in more
production. This goes back into creating more commodities for sale
and therefore more profit. Eventually, however, there comes a point
where too much has been produced. Warehouses lie full of commodities
that cannot be sold. Profit falls everywhere. Capitalists cannot just
store up their profits indefinitely. Unless there are fresh profits
being generated, the value of the money commodity will fall, as it
only gains its apparent value through its use as a medium of
exchange.
Meanwhile, as
capitalists are unable to invest because they will not receive
profits from their investments, workers are laid off because they are
no longer generating profit. As workers are laid off or their pay is
reduced, their consumption falls, leading to further and further
reductions in profitability and still more workers losing their jobs.
This is what happened in the great depression of the 1930s, and what
we began to see again in 2007, as the financial crisis meant that
workers, whose real wages have not increased since the early 1980s,
were unable to secure further credit with which to maintain or
increase levels of consumption. Demand and production fell and has
not recovered fully to the levels reached before the crisis, which
means that capitalists have yet to see a renewed increase in profits
and investments are still low.
Destruction of
capital
If crisis is a
constant feature of the system, you would expect it to have collapsed
long ago, but unfortunately it has not. The reason for this is that
crisis destroys much of the accumulated capital that is clogging up
the system. Unprofitable firms close down, its machinery is bought up
by profitable parts of the system at a fraction of its value. The
prices of unsold commodities fall. Workers’ conditions can be
attacked more easily because of the higher unemployment, and profits
begin to rise again as the cost of investment for the profitable
parts of the system decrease (buying up cheap machinery from
collapsed competitors) and more value is extracted from the
workforce.
All of this means
that capitalism goes through constant cycles of boom and bust, and
must continue to do so. It also means that those who pay the cost of
crises are the working class. Anyone who has seen the way in which
austerity policies have been introduced can see this for themselves.
The wealthy have continued to accumulate capital yet find few
opportunities to reinvest it, and workers have paid through lower
wages and reduced public services. Further, in the next crisis the
managers of capitalism in the developed world will find it extremely
difficult to resolve the crisis in the same way. Workers' living
standards can only be cut so far without serious resistance, and
capital can only sit idle for so long.
Fictitious
Capital
Fictitious
capital is basically finance capitalism. This is a system that runs
alongside the productive processes of capitalism, that often supports
capitalist production either through investment of the money
commodity into production or the provision of credit to allow
commodities to be purchased. Fundamentally it is an industry which
deals in only one commodity – the money commodity, and has a huge
influence on where that commodity goes and how much of it is
manufactured. The current crisis within the capitalist system has its
roots in the tendency of the system to seek new forms of profit –
in this case by commodifying specific amounts of the money commodity
into a series of transferable betting slips with names like
Collateralised Debt Obligations and Credit Default Swaps. The
interaction between the system of fictitious capital and the
productive system is necessarily complex and headache-inducing, and
probably deserves a talk all of its own.
Why socialism?
Our understanding of
capitalist economy leads us to certain conclusions. Firstly, the
working class are necessarily exploited by capitalist modes of
production. Secondly, the working class is the class with the power
to change the system.
By concentrating
workers in large companies, workers understand their common interests
and their ability to act together. Workers are the only source of
profits for capitalists. By withholding their labour, workers can
bring the system to a halt. This is why in the Socialist Workers’
Party we emphasise workers’ action over other forms of action.
Direct action, demonstrations, protests can all have an impact, but
only workers can stop the system. This is why 2 million people could
march against the war, and yet it still went ahead. On the other
hand, a general strike would have made war impossible to conduct.
Mainstream
economists will tell you all about money. Marxist economics can teach
us the value both of money and of the class of people that make it
valuable.
Further Reading
This introduction is necessarily brief and glosses over much detailed analysis - much of which we were able to bring up in our discussion after the speech, especially on the nature of the financial crisis of the last 7 years. If you are interested in learning more about Marxist economics, one way is to come and meet us! Another way is to read some of these:
Bookmarks, the socialist bookshop also has a whole range of books on the subject of economics
Marx's oeuvre can be found online at the Marxists Internet Archive, but if attempting Capital itself, I would strongly recommend Marxist academic David Harvey's free accompanying lecture series and/or his book A Companion to Capital.
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