Читать книгу Disassembly Required - Geoff Mann - Страница 6
Оглавление2. Capitalist Political Economy: Smith to Marx to Keynes and Beyond
The most powerful theories developed to understand capitalist political economy have always played a significant role in shaping it as well. In general, these theories have three basic and related objectives: understanding economic change, development, or “growth”; understanding the distribution of the wealth that growth generates; and (especially recently) understanding how market prices are determined. Despite this common ground, we find a vast conceptual diversity. These differences are only partly “normative,” i.e., attributable to contrasting views of how the world ought to work. The more fundamental force behind them is historical conditioning. Depending on their contexts, thinking humans develop certain ideas and not others; they feel compelled to explain certain elements, others they consider less worthy of attention. Even as they shift meaning over time, ideas carry their pasts with them, pasts with built-in limits and potentials that are hard to see. Once revolutionary ideas can come to seem reactionary. Things considered a priori or obviously true in one time and place are often open to debate in another.
Thus, as we turn to the foundational ideas of thinkers like Adam Smith, Karl Marx, or John Maynard Keynes, we must remind ourselves that theories of capitalism are attempts to make sense of dynamic processes unfolding in the world in specific times and spaces. This sensitivity is essential to any effort to uncover what work a theory was meant to do, what work it might or might not be able to do today, and the difference between them.
Adam Smith
Adam Smith is often called the first “classical” political economist. Why “classical”? Marx coined the term to distinguish this mode of “liberal” political economy from what came before (the “pre-classical”). Earlier economics (if we can call it that) primarily concerned the size of, and influences upon, the king’s coffers. Classical political economy, in contrast, developed an analysis of national wealth as collective or aggregate income, and was interested in the forces affecting the economic activity of the nation as a whole, not merely that of the monarch.
Smith was both extending and breaking with the analysis of the Physiocrats, political economists of eighteenth-century France who believed that the natural productivity of the land, set in motion by agriculture, was the origin of all wealth.6 For them, surplus value—the “additional” value produced between input and output in a production process—was possible only as a gift from nature. Their policy conclusion was logical: if agriculture was the source of the surplus upon which the state and all society depended, then anything that hindered it (taxes, trade restrictions, etc.) was bad.
Agriculture was also crucial to Smith, but the physiocratic approach seemed unable to make sense of his context (eighteenth-century Britain). In contrast to the relative conservatism of pre-revolutionary, absolutist France, Smith witnessed a period of extraordinary dynamism in Britain, which experienced a massive shift in the composition of society and an extraordinary accumulation of wealth. Smith’s objective was to intervene in a debate about the nature and causes of that change, which was marked by the dwindling success of feudal and especially mercantile systems of wealth accumulation and social organization.
Among the internal changes Smith witnessed, the most important were associated with a remarkable expansion in “commerce,” or the pursuit of individual gain via production and exchange by a growing proportion of society. Among the external changes he noted was the collapse of powerful empires and states that had formerly successfully accumulated wealth via the exercise of military power. Mercantilist states organized international economic activity around the “carrying trade,” bringing goods from places of production to places of consumption—via the spice trade between Southeast Asia and Europe, for example. Wealth in mercantilism was generated by state-favoured firms enjoying returns from arbitrage—the profits produced by the difference in purchase and sale price (which was of course augmented by colonial exercise). Trade routes and monopoly powers were sanctioned by the state, and protected by military power, tariffs, and other measures.
When Smith wrote his political economy (The Wealth of Nations appeared in 1776), the mercantilist system was increasingly crisis-ridden, the most astonishing example being that of Spain—a global mercantilist imperial power—losing control of the Netherlands, the relatively tiny emerging centre of what we might now call “capitalist” finance. Smith wanted to both explain how this new system was working, and determine how the state might help it work even better, to its own and everyone else’s advantage.
Like all classical economists, Smith was particularly interested in two phenomena: growth (what caused it) and distribution of income (what determined it). Because he was writing before the explosion of factory production—“industrial” capitalism—he was largely concerned with the expansion in the range and depth of market exchange, and the enormous wealth it seemed to create. His answer to the growth question was that eighteenth-century Britain’s wealth was due to extraordinarily productive shifts in the interaction between the “factors of production”: land, labour, and capital. These also gave him his answer to the distribution question: landlords, workers, and capitalists receive their respective share of the wealth generated by these interactions, in the form of rent, wages, and profit.7
These actors, Smith said, were connected in a “circular flow”: capitalists and workers paid rent, capitalists paid wages, landlords and workers consumed, and capitalists made profit, starting the process over again. The factors of production—and thus the classes that depended upon them for income—were mutually dependent. They had to exchange with each other, or nobody would win.
Smith thus argued that “freedom” of exchange and price determination (which would allow this system to work smoothly) were essential to the new system’s success. If we all depend upon maximum interaction, then anything that hinders it is by definition bad. And since it appeared that a new “liberty” among the population had made these exchanges possible (relative to feudal and slave modes), it seemed likely that the lack of state coordination (which for Smith would have been synonymous with “monarchical control”) made it possible. Although (by my reading, at least) he only uses the phrase once, this is what Smith meant by his famous “invisible hand”: the hand that made real wealth possible was neither the king’s nor anyone else’s. The implication, to some, was that it was God’s.8
According to Smith, circular flow engenders increasing market specialization. Producers seek to meet identified needs, creating an increasing division of labour, which allows for greater efficiency in the production process, which lowers costs and meets the needs of an expanding market. This is also supposed to work at the international scale. David Ricardo’s later elaboration of Smith’s theory led to the idea of “comparative advantage,” i.e., nations will specialize in the production of what they are best at (in terms of cost or efficiency).
Smith assumes that in this system, money serves almost entirely as a means of payment or unit of account. He doesn’t imagine market participants seeing money as a form of wealth they could or should accumulate (as we would today). This leads him to assume that people will not hold money as a store of wealth, but will spend it, keeping the circular flow going. Although Smith didn’t say it outright, in this system, price—the temporary resolution of competition between market participants—serves as a signal: rising prices tell producers to produce, and falling prices tell them to stop producing, or to produce differently. In addition, when prices are rising, new producers will enter a market and purchasers will leave, and when prices are falling, producers will leave and buyers will enter. Thus, price signals ought to lead automatically to “equilibrium” and the full employment of resources: any leftover resources would clearly be cheap, and would therefore find a price at which they made sense, eventually allowing the system to put all its productive capacity to work.
With all this working so well on its own, Smith does not see a big role for the state—basically, it needs to protect the nation, enforce the law (especially property law), and provide some public goods (i.e., infrastructure like roads and bridges). Still, it is a complete mischaracterization to suggest he saw no need for the state, as one often hears from people who claim to be working in his tradition. The state remains essential. This kind of thinking played a crucial role in the justification of Britain’s international role in the nineteenth century, which we might call “free-trade imperialism.” Smith himself took his logic to suggest that colonial power was not always what it was cracked up to be, and he supported the American desire for independence, suggesting the North American colonies be given representation in British Parliament, join a “federal union” with Britain, or better, be entirely emancipated from colonial rule.
Karl Marx
Smith and his followers are why we use the term “neoclassical” to describe modern economists who argue that the market is the most efficient and fair way to distribute.9 They are, or at least see themselves as, the “new” Smithians (but with a couple of important twists, as we will see). But not all Smith’s admirers have been market fundamentalists. Marx, for instance, is sometimes thought of as the anti-Smith, but if we look at their ideas, they are not so radically opposed. The most important difference between them lies not in their explanation of what drives capitalist production, but in the fact that Smith saw increasing harmony and mutual interdependence where Marx saw conflict, exploitation, and inequality. In his analysis of capitalism—and remember, unlike Smith, he wrote after the rise of the terrible factory system—Marx emphasized the tensions and conflicts endemic to capitalism, both in the relations between capitalists, and between capitalists and workers.
Marx called these processes “contradictions”: opposing or conflicting forces, whose interplay would eventually produce new forms, which would themselves contain their own contradictions. He argued that it was the force of these contradictions, the inability of any system to stay put in some steady state, that drove historical change in and through different modes of production. For example, as the technical and organizational forces of production change over time, they become less and less compatible with social relations that developed on the basis of earlier ways of doing things. The contradictions that emerged mean that eventually the relations must be reconfigured, sometimes radically.
Marx explained basic capitalist dynamics in the following manner. First, he adopted from Smith a distinction between use value and exchange value. Things that humans use labour to produce virtually all have a value “in use,” something you might do with it, like a hat you wear or a loaf of bread you eat. In any exchange system, things produced by labour also usually have a value “in exchange”: you can get something from someone else by trading them. In a monetary system, capitalist or not, producers sell things with use value on the market (if they didn’t have use value, no one would buy them) and receive money in return.
The two values do not have to be equal; indeed, they never are, since they represent two completely different phenomena. Use value is qualitative and non-generalizable; how do you measure the “usefulness” of a hat on your head, and if you did, would it be the same measure for everyone? Exchange value is clearly quantitative. In fact, that is basically all it is, a quantitative indication of an object’s value in exchange. What you can get for it can be very diverse, like in barter. Or it can be socially standardized, as in, say, 1 hat = 10 buttons. In either case, only exchange value is quantifiable, and, according to Marx, money emerges in a society when one commodity becomes the standard quantitative measure of exchange value. He calls that special commodity the “general equivalent,” because it is seen as quantitatively equivalent to any other commodity. It is the commodity that everyone understands as the one thing that can be accumulated, or piled up, in amounts that, in value terms, are socially accepted as equivalent to anything tradable. There is no reason money has to take any particular form; we could use buttons for money if everyone accepted them as money.10 Of course, how we come to accept money as money—do we “decide” democratically, or are we “told” authoritatively?—is an important question, to which will we turn in Chapter 3.
Marx considered the distinction between use value and exchange value essential, because in capitalism, in contrast to many other modes of production, wealth is accumulated in the form of exchange value: i.e., money. In other times and places—for example, among pre-conquest First Nations of the North American Pacific Northwest, where I live—wealth was accumulated in the form of use-values. To be wealthy meant possessing assets considered valuable, like food and clothing and slaves. (In some of these First Nations, the powerful demonstrated that wealth by giving it away “for free” in a ceremony called “potlatch.”) By Marx’s time, only money or assets readily convertible into money counted as wealth in Europe and North America.
One defining feature Marx noted about the world in which he lived was the glaring difference between people’s opportunities to accumulate wealth, and hence to enjoy security and a full and happy life. These differences depended on what people had to do to put food on the table. While virtually everyone has some capacity to contribute labour to producing things with use and exchange values, few both have the capacity to labour and own the stuff labour needs use to produce things—land, natural resources, tools, factories, etc. I might have all the skill and energy in the world, but without lumber, a hammer, nails and some wire, I cannot build a fence. You might be the most talented chef in the land, but without stoves, ovens, pots, utensils, and food, your hands are idle. These things that help us produce other things (and the money to purchase such “means of production”) have a special status. They are the magic things that, mixed with labour, turn raw materials into other materials for use and exchange. This special relation is what makes them capital, and makes the smaller group of people who own and control them capitalists.
What needed explaining, according to Marx, was why there were capitalists at all. Why didn’t everyone have, or at least have access to, those things that enabled you to produce things for use or exchange? How did the capitalists get to be the ones with the tools and resources? In search of an answer, he looked at European and especially English history. In light of those histories, he argued that capitalists and capitalism arose through a series of processes he called “original accumulation” (a phrase often translated less helpfully as “primitive accumulation”). By forcefully asserting a property right over what had been collective resources—enclosing common land, appropriating raw materials from colonized peoples, etc.—the means of production became concentrated in the hands of a few. This left the expropriated many with no means of getting by on their own. To survive, they had no choice but to find a way to get access to the means of production, which are also the means of putting food on the table.
One the most important conclusions Marx drew from this historical analysis is that capital can only exist in relation to its opposite, labour. Original appropriation by the few from the rest not only meant the emergence of capital, but also of wage labour. Once dispossessed, the many can get access to the means of production only by offering their capacity to work to the capitalists, in return for payment in some form. Selling one’s energy and skills for wages on the “labour market” is the source of one of the most important features of capitalism according to Marx: the distinction between labour and labour-power. Labour is the specific or “real” act of working. Labour-power is the abstract “capacity to work”: skills, knowledge, energy, etc. specific to each of those without access to means of production except through capitalists. Wage workers do not sell “living labour,” they sell the commodity labour-power on the labour market. The capitalist, who thus comes to control one more thing necessary for production (and the most important one at that—human energy and ingenuity) puts that labour-power to work as he or she sees fit, and pays the workers a wage for each unit of time they give up the control of their human energies.
Capitalists use labour-power, in combination with the means of production, to produce commodities for market exchange. (Commodities are, by definition, things produced for sale on the market—if you grow carrots to put in your salad, they are not commodities.) By selling commodities for more than it costs to produce them, capitalist profit is made possible. This is why Marx emphasizes capitalism’s social relations, and not merely its technical features, like, say, “advanced industrial machinery.” It is not technology or the form of firms’ “capitalist” organization, but property and other relations that define capitalism as capitalism. Capital is a social relation insofar as it is the nature of something (money, land, equipment) which, combined with human energy, has the capacity to expand or increase the amount of exchange value in the context of a particular arrangement of property relations and production systems.
This argument is the source of Marx’s well known exchange formulae: C-M-C and M-C-M'. Basically, his point is that in “pre-capitalist” modes of production, commodities were exchanged in order to get other commodities; the goal was not to accumulate money except insofar as it allowed you to purchase other commodities or accumulate wealth in another form, like gold or jewels or land. This C-M-C (Commodity-Money-Commodity) exchange made sense if one was a monarch and wanted to hoard precious metals and property, but it also characterized “everyday” transactions.11 If, for example, you were a saddle-maker, and you wanted to eat, you sold saddles for money, and used the money to purchase the commodities you ate, among other things.
With capitalism, Marx says, the fundamental unit of exchange relations changed not just quantitatively, but qualitatively. Capitalist production and exchange is not a high-powered version of its “pre-capitalist” antecedents, as modern orthodox economists tell it, but a different thing altogether. Capitalists start not with a commodity they have produced and seek to trade, but with money, with which they purchase commodities (including the key commodity, labour-power) to mix together in a production process that produces other commodities, that are then sold for more money: M-C-M' (M' being original-M-plus-something-extra).
Marx thought one of his key insights, if not the key insight, was that this process of profit-making—capitalists selling commodities for more than it costs to produce them—shows that the “extra” or surplus value created in the production process comes not from capital’s contribution, but from the labour power workers contribute to the whole relationship. In other words, the appropriation of labour’s surplus value—you can pay them less than what they produce is worth—is the source of wealth in capitalism.
This idea—the basis of the so-called “labour theory of value” (a phrase Marx never used)—is a very big deal. Yet it is frequently misconceived, both by those who think they agree with it entirely, and those who think it mistaken. Interestingly, these contrasting views do not sit on one side or the other of a simple left-right divide. Many on the left reject the labour theory of value, and many on the right accept it, if unwittingly. But either way, in most cases it is misunderstood. Contrary to what it might seem to suggest, Marx is definitively not arguing that labour produces all wealth in all times and places. His point is almost the opposite. If Marx has a “labour theory of value,” it pertains to capitalism alone. Only in capitalism is labour the sole source of value.
The misunderstanding is partly due to the fact that “value” in everyday English is generally considered to be a “good” thing. In addition to something that has some monetary worth, we frequently describe something “substantive” or “positive” as having “value.” Consequently, when we hear that Marx thought labour produced all value, many of us think Marx thought all good and useful things come from labour, and the problem with capitalism is that despite this essential contribution, capital rewards labour unfairly. This resonates with many a lefty’s “progressive” intuition. But Marx said neither of these things. What he actually said is much more insightful and important.
For Marx, “value” is the form wealth takes in capitalism. Value is precisely that abstract, monetized, everything-has-a-price-if-you-dig-deep-enough quality that many decry. It is the generalized relation of equivalence among all those qualitatively different dimensions of the world, rendered in cold quantitative form and expressed in money. Value is the tacit but astoundingly powerful relation that enables us to make an AK-47, an SUV and a field of grain exchangeable as “equivalents”: e.g., 100 AK-47s = 10 SUVs = 1 field of wheat. If you think about it, this is remarkable, and somewhat terrifying. My example is in no way absurd; indeed, the political economy underlying much of the current land-grab in Africa consists in exactly this exchange of equivalents: arms, elite luxury goods, and agricultural land. Capitalism’s historical achievement is to create a systematic and seemingly natural set of social relations that uses labour not to produce useful or beautiful things for the good they provide—if it did, then the “value” of those three things could never be rendered equivalent. Instead, capitalism condemns labour to produce “value” in this specifically capitalist sense.
If we work together to plant a community garden that can feed its members and add something useful to our lives and relationships, we would very comfortably say our efforts produce something valuable. Marx would never deny that, but it has nothing to do with what he meant by value in capitalism. Indeed, he would have said it is a good thing precisely because it does not produce capitalist value, but instead produces what he sometimes called “real wealth,” things that truly contribute to human physical and social well-being. The sources of real wealth are not only human, of course: nature, Marx noted, has a big role to play.
Similarly, it is certainly true that capitalism treats workers unfairly, and any improvement workers can realize in their lives is a “good thing.” But capitalism is not a bad system just because the numbers are off. For Marx, capitalism is bad because it is a systematic set of social relations in which humanity is prevented from realizing its capacity for “real wealth,” human potential, justice, and a non-arbitrary distribution of the means of life. (In fact, capital’s defence of arbitrary distribution, a kind of Darwinism that says that those who are wealthy are “by nature” the fittest in the economic ecosystem, is one of its main self-justifications.) If higher wages were all that is necessary, Marx would have been no more than a wordy and over-philosophical union activist. The problems, however, are much bigger: the wage relation and capitalist social relations themselves. The point is not to redistribute capitalist value, but to overcome it, to destroy it as the relation that rules the world.
The idea that capitalism will persist as long as the rule of value holds is Marx’s essential lesson. This is not a majority opinion, and is easily taken as dismissive of “reformist” efforts to improve working conditions and the distribution of income. I don’t mean to suggest such efforts are useless because they are not “radical” enough. Clearly, any effort on the part of labourers (and unemployed people) to improve the material conditions of their everyday lives is worthwhile. My point is that the fundamental problem with capitalism as a mode of production is not ultimately addressed by the redistribution of capital.
I suppose it is possible to argue that, while the rule of value is not fundamentally challenged by individual struggles to increase labour’s share of wealth, we might yet use such a strategy to sentence capitalism to “death by a thousand cuts,” as it were. Perhaps redistributing capitalist value more fairly, i.e., paying workers what they “really” deserve, might somehow undo capitalism as a mode of production. Maybe it has some built-in constraint that renders it structurally unable to pay “fair” wages to all workers, and if forced to, it would effectively collapse under its own weight.
It is not exactly clear what Marx thought about this strategy. He supported struggles for higher wages and better working conditions, but he also thought that no matter how high the wage rate, the wage relation itself is an essential pillar of capitalism, one that must be knocked down to create a post-capitalist world. If nothing else, he would probably have pointed out that there are some tricky contradictions involved in thinking that rewarding people with higher wages will lead them to toss off the very system now paying them “fairly.” The whole point of paying workers well is to keep the system going—in fact, there is a theory in orthodox economics that says this is exactly what “fair” wages do. So as a social justice strategy, wage demands are key. As a social transformation strategy, they are insufficient.
Yet it must be said that this still does not suggest an obvious reason to reject the idea that if workers were paid “fairly”—presumably at least as much as capitalists—then no one would want to be a capitalist anymore, or would have no self-interested incentive to be one, and the whole mode of production would fall apart. In other words, we might use the wage relation to overcome the wage relation.12 This resonates with Marx’s belief that capitalism’s undoing would come about from inside: the post-capitalist world he felt inevitable—even if he could not tell when it would come—would emerge not through an attack on capital from outside of capitalism, but from the collapse of the social relations that maintained its internal coherence. Ultimately, the main Marxian lesson is that we cannot reach a post-capitalist world unless we forsake, either willingly or because we must, the very relations that define capitalism as capitalism: value, capital, and wage-labour.
After Marx: The Neoclassicals
Marx is sometimes included among classical political economists because he uses the same categories (value, capital, and wage-labour) found in the political economy that came before him. Putting Marx in the classical box might be convenient, but it is more mistaken than helpful. Marx’s whole point was to critique political economy as a way of knowing, not to redo political economy in a “critical” way. He may have used the concepts the classicals developed, but he historicized and destabilized them in ways they could never have imagined.
Be that as it may, the distinctions between Marx and his predecessors do not much clarify the definitively non-Marxian “neoclassical” political economy that came after him. Most of it was largely unaffected by his thought, at least directly, and was thus not only different from Marx, but developed in ignorance of his analytical contribution. Instead, it represented a very different, liberal reaction to the same classical political economy against which he reacted so strongly. The most important differences between this liberal or neoclassical political economy and the older work of those like Smith and Ricardo lie in those “twists” on Smith’s classical take that I mentioned above.
The first twist is in the theory of distribution. There is a stark contrast between classical theories of political economy that understand prices and exchange as a function of the social relations of production and the neoclassical perspective that they are determined by demand. In fact, the well-known neoclassical doctrine that “without interference” markets will function perfectly (or “clear”) is also known as “demand theory.” The second twist is in the theory of value: while the classicals took capitalist value, the relation of general equivalence, to be inherent in some material substance or human action, the neoclassicals understand it as “subjective,” determined by individual tastes. It is worth considering each of these “neo” twists in some detail, because it is almost impossible to exaggerate how crucial they are to modern economics’ analytical justification for capitalism.
Neoclassical Twist #1: Distribution
For the classicals (in this, at least, we can include Marx), political economic analysis must be founded in society’s relations of production, exchange, and consumption. Of course, thinkers like Smith, Ricardo and Thomas Malthus (perhaps the most famous classical political economists) did not understand their analyses as specific to their historical and geographical context, but assumed their logical universality. They took nineteenth-century England as the historical and geographical centre of the world, and thus they thought they were not writing about just any old place, but about a “modern” set of economic relations that was clearly the direction in which history was headed. This is what Marx meant when he said that classical political economy was formulated as if everyone was, or at least acted like, a petit-bourgeois Brit: in one translator’s rendition, an “English shopkeeper.”
Universalized or not, social relations are the classical basics. Despite the wide range of policy goals classical political economists advocated, all their analysis was oriented toward developing a theory of distribution between the various classes involved in production (labour, capital, and landlords). The point was to explain who gets what and how much, in contrast to “neoclassical” economics. Figuring out what determined prices was a secondary concern.
Perhaps the most important steps in the transition from classical to neoclassical political economy lie in what is sometimes called the “Jevonian revolution.” Although named after William Stanley Jevons, the term in fact describes a shift in economic reason to which many contributed. The Jevonian revolution definitively ended the hold of “who gets what,” class-based analysis in orthodox economics, and instead consecrated the individual “consumer” as the unit of analysis. Like most mainstream economists to this day, he treated individuals and their preferences as ultimate data, neither produced by nor dependent upon anything but each person’s subjective and autonomous decisions regarding what they needed and what made them happy. This change is crucial, especially because it shifted how “who gets what” was understood. In the classical analysis, the distributional question is answered by what each class contributes to production. Labourers get wages, capitalists get profit, and landlords get rent. Even Marx, who felt that capital managed to get its share by “using” the commodity labour-power, understood distribution as determined by socially dominant definitions of each factor’s relative contribution—the amounts received are relative to the (capitalist) value of their “input.”13
In contrast, Jevons said the answer to the distribution question is not determined in production, but in exchange, by prices that reflect individually “given” preferences. Different individuals (forget about classes) get what they can pay for. And what they can pay for is determined by the price of what they want, which is in turn a function of how much there is, and how badly they and others want it. The market, not social relations (like property), determines distribution, and in an entirely objective, “natural” manner. This is a radical change. On this account, the market “decides” without a “decider”; it makes no promises, and it cares nothing for “justice” or what a particular contribution “deserves.” This means distribution is a secondary concern, worked out after price formation, which is a function of supply and demand (and obviously therefore the ability to pay).
It impossible to underplay how important this change turned out to be for life in modern, capitalist societies. The neoclassical doctrine is basically a bald claim that distribution is somehow not a function of, or really even affected by, social power and property relations. Instead, we are told, who gets what is determined outside those processes, in the neutral, apolitical, and un-manipulatable field of the market. This is a critical step toward the idea that “the market” is “natural” and “disinterested”—the principal, maybe the only, basis upon which the word “market” can be paired with the word “free.”
Neoclassical Twist #2: Value
The shift from classical to neoclassical political economy dramatically reconfigured the dominant understanding of value, in a manner very different from Marx’s distinctive critique. Classical economists like Smith and Ricardo held to the labour theory of value we discussed above, the one many people associate with Marx (who granted it a great deal of ideological force, but saw that as why it was necessary to abolish it). Their theory was that things have value in proportion to the amount of labour that goes into producing them. If something takes a lot of time, effort, and skill to produce, or if no one wants to do it, it will cost a lot; if it can be cooked up in a jiffy by anyone, it will be cheap. They did not posit some naïve labour-time price calculation, of course, but argued that labour value describes something like an average, and it will vary by time and place. They also understood that if something is relatively easy to produce, but producing it requires tools that are labour-intensive to produce, then the “total” labour involved will be reflected in a higher value.
Beginning with Samuel Bailey in the mid-nineteenth century, and Jevons a little later, political economists rejected this “substantive” theory of value (i.e., labour is the “stuff” of value). Just as Jevons transformed the theory of distribution in an individualized “consumer” manner, they argued instead that value is not determined “objectively” by stuff-amounts, but “subjectively,” by individuals’ tastes and preferences. If people want a lot of it, and want it badly, it has a lot of value, and its price—the expression of value—will be relatively high, and higher still if there is little of it to go around. This idea—that abstract, uncoordinated, decentralized forces of supply and demand determine the value or price of a commodity—is the foundation of modern mainstream economic analysis. When modern orthodox economists talk about the theory of value, they mean the theory of price determination.14
All this depends upon an understanding of the individual, with his or her given tastes and talents, as the atomic unit of human life. This idea is the foundation of the common sense that informs contemporary economic understanding, the basis upon which modern economic institutions and policy are considered legitimate and logical. It is no exaggeration, I think, to say that although you don’t hear people walking around talking about value and distribution, these theories are the logic behind the form capitalist institutions take. The idea that the distribution of socially valuable assets, resources, and so forth is a product of individuals pursuing their subjective self-interest, in combination with Smith’s “invisible hand,” leads easily to the normative proposition that unrestricted individual pursuit of self-interest produces, almost despite itself, optimal collective well-being.
These ideas helped justify a social philosophy called utilitarianism, which originated in the mid-eighteenth century, and whose last bastion is modern economics, where it continues to exercise a mind-numbing stranglehold in the form of “welfare economics.” Utilitarianism explains all human action as a motivated by the quest for pleasure and the flight from pain. Consequently, it proposes perhaps the simplest theory of human welfare imaginable for both individual and the community. It works like this: people act rationally when they maximize their self-interest or “utility” (given certain constraints, like how much money they have). Since those interests are subjectively determined, whatever you are doing, it is probably a utility-maximizing choice. The corollary, of course, is that the community is merely a set of individuals making these calculating choices, and community “welfare” is measurable only by the maxim “the more utility, the better.” Because utility is experienced entirely at an individual level, no distributional or fairness problem arises. If you add pleasure, even if only for individuals who already have a lot of it, it’s all good. You are not “taking away” from someone else. In fact, many utilitarians claim that added utility, even if it increases inequality, will eventually “trickle down” to those who didn’t get the extra to begin with.
In combination, these conceptual tools—rational pursuit of self-interest, clearing markets in which prices are determined by individual tastes, the invisible hand—form the core of modern “economic” knowledge, and its assertion that markets can make predictability, calculability, stability, and equilibrium possible.
John Maynard Keynes
From the early 1800s to World War II virtually all orthodox economists and “statesmen” in Europe and North America camped somewhere in the neo/classical range. The Great Depression that began in 1929, however, initiated a massive shift in what ideas were considered acceptable. So began the Keynesian era, named for the “revolutionary” work of the British economist John Maynard Keynes (1883–1946). We shouldn’t exaggerate the abruptness of the change. There were forerunners to Keynes’ ideas, and his took some time to become common sense. Classical/neoclassical ideas and policies persisted into and after the Depression. But there is no denying that between 1929 and the end of World War II, the world of political economy was transformed.
The key theoretical break turned on the theory of money. Orthodoxy had come to be associated with laissez-faire liberalism, a commandment to the state to “let them do as they will”: “free markets,” “free trade,” and unfettered pursuit of self-interest. Laissez-faire thinking understands money basically as Smith did: as a convenience for exchange and a way to make accounting easy. Money exists so that instead of me bringing my piano to market, and finding some combination of barter exchanges that ends with the fishing-net I want, sale and purchase can be separated in time and space. Accordingly, the orthodox economics of Keynes’ time assumed money had no utility as wealth, only as a convenience. It was economically neutral, a “veil” over the “real” economy. It made no sense to hold on to it; one would naturally put it back into circulation as soon as possible to enable the Smithian circular flow of wealth generation.15
When the Depression hit, Keynes (who had long defended this older thinking), saw that these ideas were just plain wrong: people wanted to hold money more than other stuff. They were buying less, investing less, and in general keeping the money and money-like things they had (things easy to use in exchange, like gold). And that, he said, should never ever happen if classical economics is right. Money was clearly not neutral, but had a very real, and fluctuating, value of its own as a security in the face of uncertainty. If money had ever been neutral in the classical sense (something he doubted), it was no longer. Modern capitalism, he said, is a “monetary production economy,” and money was perhaps its central institution, much more complex than a convenient means of payment and accounting device.
Like most of his ideas, Keynes arrived at this conclusion via what he thought was simple common sense. Yes, he said, it is true that from a purely utility- or profit-maximizing perspective it makes more sense to use one’s cash holdings to consume and invest. But because the future is always uncertain, it makes sense, in the real world, to hold at least some money most of the time, and a lot of money at especially unstable times. Keynes called this propensity to hold assets in money form “liquidity preference,” “liquidity” being the ease with which an asset can be readily monetized, i.e., exchanged for money. So if “liquidity preference” is high, it suggests people feel insecure or uncertain, and do not want to be holding on to assets they will have trouble selling if things go south.
Keynes argued that the state of liquidity preference among market participants, fluctuating in response to everything from weather to war, exercises enormous influence on modern monetary economies. The stock market, for example, enables rapid purchase and sale of highly liquid assets—indeed, the whole point of the stock market is to turn an enterprise, which on its own and as a whole is about as “illiquid” as it gets, into a collection of easily exchanged units of property. This is, of course, extremely useful and appealing to stock-holders, but difficult for the firms in question, whose bits and pieces are picked up and dropped in a flash—often for no apparent reason other than investors’ whims (a volatility only exacerbated in the “information age”). This is only one example of how prone capitalism is to what we might euphemistically call “inefficiencies.” It is one of a whole suite of dynamics that make the fundamental assumption of classical and neoclassical economic theory—that markets clear, resources are fully employed, and all engines are running full-bore—a highly improbable description of the world. Full employment, if it ever happens, will not hold for long. Keynes was pretty sure that, at least since the beginnings of capitalism, it had never happened.
The idea that “free markets” will realize capitalism’s “full potential” is proven wrong by more than just investors’ uncertainty. Fundamental features of capitalist institutions are also responsible. Keynes showed this, for example, in his demolition of the orthodox theory of unemployment. If we assume (as many orthodox economists do) the market economy would run at full capacity were it not for “inefficient” individual or state decisions, then any unemployment is due to the free choice of unemployed individuals. Remember utilitarianism? Here is a good example of the role it plays in orthodox economic analysis: unemployment represents a “preference” for leisure (that is really the word used) over available jobs at existing wages.16 But if Keynes was right, and money is kept out of circulation due to uncertainty, then much if not most unemployment is involuntary. This hurts both workers and employers, by reducing consumer demand and investor profit expectations, which means they will not buy and invest enough to get the economy running busily enough to pull all the workers into jobs. The changing intensity of unavoidable uncertainty regarding the future makes it impossible to expect that somehow everyone will just “get over it” and get the economy going full steam ahead.
The older, Smith-Ricardo-Jevons traditions knew levels of activity could decrease, but they said that if prices, especially wages, decreased too, then firms would start producing, investing, and hiring again, workers would be pulled into jobs, and everything would be hunky-dory. But, Keynes said, look around at the capitalist world in which we actually live. Prices don’t adjust that easily: workers either resist wage cuts, or, more likely, even if they are willing to accept them, as many in the Depression were, they cannot coordinate any economy-wide reduction in labour costs anyway (it’s not like they have that power in capitalism). Investors won’t instantly become optimists and throw their capital into production and hiring. For any set of self-interested actors, there is a massive collective action problem. Often, he said, the only answer is for the state to step in as mediator, regulator, and coordinator of economic relationships: organizing labour and capital so as to manage consumer demand, planning investments so they are complementary, and providing stimulus in the form of government spending when consumers and investors start to feel insecure again, as they inevitably will.
According to Keynes, this suboptimal up-and-down, occasionally with really high ups and really low downs, is how capitalism works. Its volatility is not a result of mismanagement or interference or workers’ demand for “excessive” wages, but a part of how it functions “naturally.” And, if the capitalist state does not manage the ups and downs, people might become so disgruntled that all that communism and socialism stuff whispered about in field and factory starts making sense. In the middle of the Depression and then World War II, with the Russian revolution in the background, that warning made many capitalists sit up and take notice. They may not have been big fans of liberal democracy, but it beat the alternative.
More on this later (Chapter 5). But before we turn to the principle institutions of capitalism, it is worth noting that Keynesian ideas, in different forms (not all of which Keynes would have endorsed), dominated capitalist economic theorizing from World War II until the early 1970s. Explicitly Keynesian theory and policy fell with the rise of a reinvigorated, formally complex (“mathematical”), and strident form of neoclassical analysis that was the first step toward the capitalist ways of knowing and doing we live with today. The crisis that began in 2007 has certainly troubled this resurrected neoclassicism, but, despite their obvious flaws, there is no guarantee that neoclassical economics or the neoliberalism it underwrites will go the way of the dodo.
6 Some of the better-known Physiocrats include Francois Quesnay, Richard Cantillon, and Jean-Baptiste Say (of “Say’s Law,” on which more to come in the section on J. M. Keynes below).
7 “Factors of production” is still a common term in economics today (although one hears much less about land). The term “economic growth” has, however, only been in common usage since World War II.
8 Adam Smith, The Wealth of Nations (New York: Modern Library, 2000), 484–85.
9 The term “neoclassical” with respect to economics was coined in 1900 by the American economist Thorstein Veblen, the same person who first discussed “conspicuous consumption.”
10 This helps explain some interesting features of monetary history that sometimes confuse us moderns, like the enormous stone “coins” of some ancient cultures. These were not money as we understand it today; rather, in essentially non-monetary social formations, “monetary” exchange was confined to very specific exchange conditions. These involved, unsurprisingly, significant ceremony—like the movement or change in ownership of a ten-ton “coin.”
11 W-G-W, Ware-Geld-Ware, in Marx’s German.
12 One thing to keep in mind, however, is that it would have to be all workers who enjoyed this transformative wage; history suggests that if it is just a fraction of workers, then the lucky few who earn “enough” tend to become much less interested in transformation.
13 It is interesting to note that Marx argued that the “valuation” of labour’s contribution to capitalist production processes could not be called “unjust,” since the meaning of justice is determined by the social relations of production in specific historical conditions. In capitalist society, “justice” is a capitalist standard. There are no “unjust” wages in capitalism, according to Marx; what was unjust (and clearly not by capitalist standards, but by the revolutionary ethics Marx espoused) was the wage relation itself.
14 For those familiar with a little bit of economic terminology, this is the basis of what is now called “general equilibrium” theory, the hallmark of modern neoclassical analysis. The “general” part refers to the entire set (the “vector”) of prices within an economy. The idea that those relative prices can find a system-wide equilibrium is the heart of the neoclassical theory of value, a theory often called “Walrasian,” after the seminal contributions of Léon Walras, a nineteenth-century Swiss economist. Walras did more than perhaps anyone else to reshape economics along the lines of a natural science like physics. If we had to choose one text as the foundation of modern, mathematized, neoclassical economics, it would have to be his Elements of Pure Economics (1877). “Pure” presumably meant “assuming away all that complicated real-life stuff.”
15 As we will see, the end of Keynesianism, and “return” of neoclassical economics in the postwar era, has also involved the reassertion of the theory of monetary neutrality, although it is now dressed up in a range of complex conceptual costumes (e.g., money-in-the-utility-function) that obscure it.
16 It sounds crazy, but this idea still circulates in powerful circles. Not only do some modern economists still believe it—see the passages below on the Chicago School—but even those who don’t must assume that if it weren’t for “imperfections,” markets would be perfect, and there would be no idle resources, like unemployed workers, hanging around.
