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CHAPTER ONE

The Fundamental Status of the Law of Value

After devoting Volume I of Capital to the foundations of the law of value, Marx concerns himself in Volume II with what might seem to be a purely “economic” argument. He tries, in fact, to show that accumulation can take place in a “pure” capitalist system, and to determine the technical conditions for dynamic equilibrium.

In Marx’s illustrative examples, the system is characterized by a certain number of magnitudes and proportions, all of which belong strictly to the economic field. These magnitudes and proportions are: (a) the proportions in which labor-power and means of production are distributed between the two departments that define the main basis of the social division of labor, making possible the simultaneous production of means of production and of consumer goods; (b) the proportions that characterize, for each department, the degree of intensity in the use of means of production by direct labor; this intensity measures the level of development of the productive forces; (c) the evolution from one phase to another of these latter proportions, measuring the pace and direction of the progress of the productive forces; and (d) the rate of exploitation of labor (the rate of surplus-value).

Marx offers a series of examples in which the magnitudes are all given in value terms, and he is right to do so. But what he deduces from these examples—namely the economic conditions for expanded reproduction—could, to some extent, be deduced in the same way from a model constructed directly in terms of prices of production, in which profit is shown in proportion to capital employed and not to labor exploited. Within this precise and limited context, the two arguments, both of them “economic,” are equivalent to each other.

There is nothing, then, to prevent one from expressing directly—in terms either of value or of price—the general economic conditions for expanded reproduction by formulating a system of linear equations in which the various variable magnitudes allowed to each department, defined correctly in relation to the parameters of sectoral distribution and of evolution from one phase to the next, are related to each other by the equality in value from one phase to the next in the respective supply of and demand for consumer goods and means of production.

I have done this—in value terms, defining, with the Greek letters lambda (λ) and gamma (γ), two parameters for measuring the progress of the productive forces in each department and from one phase to the next, and then characterizing this progress by the increase in the physical quantity of use-values produced with a decreasing quantity of labor. I therefore set out a model of expanded reproduction (with progress in the productive forces) which is defined simply as follows:

PHASE 1:

Department I: Production of means of production

(meaning a hours of direct labor, using 1 unit of equipment and raw material, produce p units of equipment).

Department II: Production of consumer goods

(meaning: b hours of direct labor, using 1 unit of equipment and raw material, produce q units of consumer goods).

PHASE 2:

The progress of the productive forces is defined by the capacity of the same quantity of direct labor (a and b) to set to work a larger mass of equipment and raw material and produce by this means a larger mass of equipment and consumer goods. Or, when λ and γ measure the progress of the productivity of labor (with λ and γ both >1):

Within this very general framework I established the following set of propositions:

1. A dynamic equilibrium is possible, provided only that labor-power (a + b) is distributed between the two departments in suitable proportions.

2. The pace of accumulation (measured by the growth in the production of equipment) conditions the level of employment (a conclusion opposite to that assumed by conventional economics).

3. Dynamic equilibrium presupposes that the consumer goods produced during one phase are purchased during that same phase and the equipment goods produced during one phase are purchased at the beginning of the next. Since the surplus-value generated during one phase cannot be realized until the next phase, dynamic equilibrium requires centralized and correct management of credit.

4. If the entire economy is reduced to these two departments, dynamic equilibrium demands that there be an increase in wages, to be determined in a proportion that combines λ and γ.

5. If real wages do not follow their necessary progression, equilibrium is possible only if a third department, for unproductive consumption of surplus-value, develops parallel with Departments I and II.

1. AN ILLUSTRATION WITH A SIMPLE MODEL OF ACCUMULATION

The relation between the two departments of production can be expressed in terms of physical quantities:

Constant capital inputs are given directly in capital goods units e, direct labor inputs in hours h; outputs are given in capital goods units e for Department I and in consumption units c for Department II. In this example, it will be noted that the organic composition is the same in both Departments.

It is assumed that the product of labor is shared between the proletarian and the capitalist in identical proportions in the two Departments (identical rates of surplus-value). It is also assumed that wages constitute the sole source of demand for consumer goods c, i.e., that the purchasing power incorporated in the remuneration of labor enables the entire output of Department II to be absorbed during each successive phase described. On the other hand, the entire surplus-value is “saved,” in order to finance gross investment (replacement and additions), i.e., the purchasing power incorporated in the surplus-value generated during one phase enables the installation of the capital goods necessary to maintain the dynamic equilibrium of the next phase.

As to dynamic equilibrium, we define the progress achieved between one phase and the next by the rate of increase of labor productivity (the output divided by the input of direct labor). For example, if productivity in each Department doubles between one phase and the next, the technology for Phase 2 will be given as follows:

The same quantity of direct labor utilizes twice the quantity of capital goods, raw materials, etc., to produce a doubled output. The physical organic compositions are doubled.

How, under these conditions, can equilibrium be maintained from one phase to the next? Let us assume that the quantity of labor available in the society (120h) and available stock of capital goods (30e) are given from the outset. Their distribution between the two Departments, the rate of surplus-value and the rate of growth (the surplus production in I over replacement needs) are simultaneously interdependent. For example, we have:

Here, the output of Department I during Phase 1 is twice what is necessary to replace the capital equipment and makes it possible to obtain during Phase 2 an output which is itself doubled. We verify that the proportions 2/3–1/3 which represent the distribution of the productive forces between I and II and a surplus-value rate of 100 percent, i.e., unchanged (hence double real wages) are the conditions of dynamic equilibrium, where Phase 2 is expressed in the following way:

Note that the purchasing power incorporated in the wages corresponding to 120 hours of labor (of which 60h is necessary labor) should make it possible to purchase 60c during Phase 1 and 120c during Phase 2, i.e., that real wages should double in the same way as labor productivity. Capital equipment output, being doubled between one phase and the next, finds an outlet in the following phase. We note that the rate of increase of available capital equipment governs the total quantity of labor used and not the reverse. This is a very important point: the accumulation of capital governs employment and not the reverse (as claimed by bourgeois economics in general and marginalism in particular). Here, by the very choice of assumptions, the volume of employment remains unchanged from one period to another. Under the assumption of an increase in the working population, for instance, a natural increase, the rate of accumulation does not make full employment possible.

This very simple model illustrates the nature of the objective relation between the value of labor-power and the development level of the productive forces in the capitalist mode of production. Nothing is gained by using a common denominator so as to be able to add up the inputs, by substituting prices for values in the computation (equalization of the profit rate which is, here in any case, equal to the rate of surplus-value, the organic compositions being the same in both Departments), or by introducing more complicated assumptions: different organic compositions and/or different increases in productivity in the two Departments.

The conditions of equilibrium, for example, can obviously be expressed in homogeneous terms. Assuming the unit price of c to be 1F, that of e, 2F, and the wage rate per hour 0.50F, the surplus-value (here equal to the profit) being obtained as the difference, we have the situation shown in Phase 1. For the following phase, if the money wage rate remains the same, the prices of the products are reduced by half, productivity having doubled (see Phase 2). Note that there is no difficulty of absorption. For the absorption of consumer goods, the wages paid in each phase (60F) make it possible to purchase the entire output of Department II in the same phase: in the first phase, 60c at 1F per unit; in the second phase, 120c at 0.50F per unit.

A useful observation at this point is that the capital equipment produced during one phase does not have the same use-value as did the capital equipment used in its production. With the 20e installed during Phase 1, not 60e of the same type but 60e of a new type were produced. For instance, with steam engines would be produced, not more steam engines, but electric motors. Otherwise, there would be no way to understand how, with the same type of capital equipment, its efficiency would be doubled in the following phase. If the capital equipments were the same, their efficiency would be the same; that is to say, the same ratio of capital equipment to direct labor. If the same quantity of direct labor can set in motion twice the value in capital equipment in order to produce twice as much output, it means that the equipment is different, new, and more efficient.

This observation allows us to distinguish between a model of intensive expanded reproduction from an extensive model. In the latter, the same capital equipment is produced, but in increasing quantity (such extensive expanded reproduction requires for its service a proportionally increased amount of labor). In the—more interesting—intensive model considered here this is no longer necessarily the case. (A general algebraic model of expanded reproduction is formulated in the Appendix to this chapter.)

2.REALIZATION OF THE SURPLUS-PRODUCT AND THE ACTIVE FUNCTION OF CREDIT

From this general scheme of expanded reproduction I have thus deduced a first important conclusion, namely, that dynamic equilibrium requires the existence of a credit system that places at the capitalists’ disposal the income that they will realize during the next phase. This demonstration established the status of the Marxist theory of money and gives precise content to the Marxist (anti-quantity-theory) proposition that the supply of money adjusts itself to the demand for money (to social need), by linking this social need to the conditions for accumulation. How important this proposition is remains unperceived by those theorists who do not dare to continue Marx’s work, but prefer to confine themselves to expounding it. Moreover, this precise integration of credit into the theory of accumulation is the only answer to the “market question” raised by Rosa Luxemburg.¹

3.GIVEN THE HYPOTHESIS OF UNCHANGING REAL WAGES, IS ACCUMULATION POSSIBLE?

What happens with the equations of expanded-reproduction when real wages do not increase at the same rate as productivity; for example, when the real wage per hour remains unchanged? There are only two sets of mathematical solutions to the problem: an absurd one corresponding to Tugan-Baranovsky’s “roundabout” approach, and a realistic one, introducing the consumption of the surplus-value.

Joining in the debates concerning markets and the trade cycle as early as the beginning of the twentieth century, Tugan-Baranovsky considered a succession of phases in dynamic equilibrium is spite of stagnation in real hourly wages in The Industrial Crises in England, published in Germany in 1901. The additional equipment produced in the course of each phase, and in increasing quantity as a result of increased productivity, is allocated to Department I in the following phase in order to produce other equipment, capital, and so on indefinitely, while Department II only expands insofar as the use of the additional equipment requires a quantitative increase in labor, since the hourly wage rate remains unchanged. In the next example, where productivity doubles from one phase to the next in each of the two Departments, we have:

The utilization of 60e produced in the course of Phase 1 requires 120h of direct labor during Phase 2. The labor, with its real wage unchanged, is able to purchase 60c, which require only 10e and 20h of direct labor. The remaining equipment (50e) will enable 150e to be produced. This equipment will require in Phase 3 an extra labor of 150h, which combine to produce an output in Department II of 75c (which only requires 12.5e and 12.5h). Equilibrium is achieved from one phase to the next in spite of the stagnation in the real hourly wage combined with the growth in productivity (with a doubling in each department from one phase to the next—both in labor productivity and in the physical organic composition). Equilibrium is obtained through a distortion in the distribution of the productive forces in favor of Department I and the increase in the rate of surplusvalue, as follows:

This “roundabout” solution is absurd since the balance between consumption and capital equipment must be obtained from one phase to the next and cannot be indefinitely postponed. If each phase corresponds to the life of the capital equipment, this period coincides exactly with the “planning” period for investment decisions. Capital goods will be produced in the course of one phase only if in the following phase the output of consumer goods which they bring about finds an outlet. Thus, in fact, if hourly wages are stagnant, there will be an overproduction crisis as from Phase 2, with the equipment produced in Phase 1 remaining unused, while that proportion of it that does get used will only give rise to a reduced demand for labor. This is the Keynesian problem and the source of the Great Depression: the system has broken down (available equipment and unemployment) and can only be started up again by a rise in wages.

Oddly, the Tugan-Baranovsky solution, absurd in a real capitalism, can be envisaged in the hypothetical case of a planned statism, which would have the means to allow itself to push ever outward the consumption horizon that, under capitalism, governs profitability and investment decisions. Indeed, that was the case in the Soviet system during the Stalinist epoch.

The absurd part of it can be avoided if the surplus-value is consumed. In our very simple scheme, the entire surplus-value is “saved”; but if we assume that a constant proportion of it is consumed, there will be no change in the nature of the equilibria. Hence, if real hourly wages remain stagnant or increase at a lower rate than productivity, an increasing proportion of the surplus-value must be consumed in order to maintain a dynamic equilibrium. For there are no “insurmountable” contradictions—the thesis of catastrophic collapse, of a “general crisis,” etc.—but only different alternative ways of overcoming them: capitalist alternatives that preserve the essential features of the system and socialist alternatives that go beyond them.

Under capitalism the question is to be answered through one of the three following solutions:

1. The first “solution”—the individual consumption of an increasing proportion of the surplus-value by the capitalist—is not “normal” since competition among capitalists requires “savings” and the ideology of the system, which reflects the features of the capitalist mode, is opposed to it.

2. The second “solution” is one discovered by the central system itself in order to overcome its contradictions. We have already noted that there are no “insurmountable” contradictions—the theory of catastrophic collapse, of “general crisis,” etc.—but only different alternatives to overcome them: those of capitalism that maintain the essential features of the system and those of socialism, which supersede them right from the start. Monopolistic competition, the inclusion of “selling costs” in the price of the product, and the subsequent development of tertiary parasitism, which were well described long ago by Chamberlin and Joan Robinson, constitute, as Baran and Sweezy have said, the “spontaneous” solution of the system.²

3. The third “solution” involves direct intervention by the state in the absorption: public, civil, and military expenditure. Paul Baran’s great intuition was to understand that henceforth the analysis of dynamic equilibrium could not be made within the framework of the “pure” two-sector model but within a new framework—with three sectors (the third sector in fact being the state, consumer of an increasing proportion of the surplus). This analysis, which corresponds to reality, required the introduction of a concept wider than that of surplus-value and directly linked with the productivity of productive labor. The concept is that of surplus.

Does the introduction of these “solutions,” the third in particular, remove the objective status of labor-power? The answer is yes, for those who regard this status from an economistic point of view. But in actual fact, these “solutions” remind us only of the existence of a dialectic between subjective and objective forces; for state intervention must be placed within the context of the class struggle that gives it its meaning.

Dialectic does not mean juxtaposition of autonomous elements. Class struggle, in all its varied manifestations outlined here, does not “reveal” the objective necessities of equilibrium by a lucky chance. Class struggle modifies the objective conditions. The model is necessarily unilateral, but reality is not. The results of class struggle alter the conditions of the “model”: they act upon the allocation of resources, the rates of growth of productivity, etc. Objective conditions and subjective forces act and react upon each other.

A final remark: the preceding analysis of dynamic equilibrium did not contain assumptions regarding the trend of the profit rate. We will return to this question later, in relation to the stages of the evolution of the capitalist system and the related question of the falling rate of profit. I will not here enter into the discussions about the “law of the falling tendency of the rate of profit.” Following Paul Sweezy, I have in my turn dared to offer several reflections going beyond what Marx wrote on the question. Thus I entered the discussion to suggest that the facts that can be acknowledged concerning changes in the profit rate be placed in the context of a concrete historical framework defining successive phases characterized by particular combinations of the indicators (lambda, λ, and gamma, γ) of the growth of productivity in each of the two sections modeled in Marx’s line of argument.

4.FROM PRICES OF PRODUCTION TO MARKET PRICES

As the competition among segments of capital is enough to account for the transformation of values into prices of production, we have now to consider a third family of operative realities, which in their turn transform prices of production into market prices. The first element to be considered here is the existence of oligopolies, which wipe out the liberal hypothesis of “competition.” These oligopolies, which have defined contemporary capitalism since the end of the nineteenth century, are positioned to bleed off monopoly rents from the overall mass of surplus-value, guaranteeing them rates of profit higher than those obtained by the segments of capital subordinate to them. The contributions of Baran, Sweezy, and Magdoff have brought about a qualitative advance in this domain. They alone allow an understanding of the nature of capitalism in our time, both its tendency to stagnate and the ways in which it tries to overcome that tendency (especially financialization).

Extending that analysis, I have put forward the thesis that the advanced degree of centralization of capital, henceforward characteristic of contemporary capitalism, made it worthwhile to speak, for the first time, of a system of generalized, globalized, and financialized oligopolies—the basis for the crystallization of a collective imperialism of the triad of the United States, Europe, and Japan.³

The second intervening element in the determination of market prices calls for a theoretical analysis of the functions of the monetary standard. Marx here puts forward an expanded view of great interest concerning the interlinking of the “standard commodity” (gold) and the role of credit in creating and destroying money. I likewise have put forward several theses about this subject under the new conditions in which the metallic standard has been generally abandoned.⁴ The fact remains that human societies—on account of their alienation (in this instance, the market alienation proper to capitalism) always need a “fetish.” Gold, in the last analysis, remains that of our “modern” world, as is seen at moments of accumulation crisis—our present moment, for example.

A third family of disparate elements, whether they define a general conjuncture (times of easy growth and times of sharpening competition among capitals) or special conjunctions (“new” products versus products whose growth potential is becoming exhausted), enters into the determination of observed market prices.

The absolute empiricism that is the standpoint of vulgar economics, dominant in Anglo-Saxon cultures even more than elsewhere, claims to draw “laws” allowing the understanding of economic life directly from the observation of immediate realities (prices such as they are). Its failure—as our subsequent consideration of Sraffa’s model will show—simply reveals the ideological nature of vulgar economics, reduced to chatter designed to legitimize the activities of capital.

5.THE UNAVOIDABLE DETOUR BY WAY OF VALUE

What does the law of value state? That products, when they are commodities, possess value; that this value is measurable; that the yardstick for measuring it is the quantity of abstract labor socially necessary to produce them; and, finally, that this quantity is the sum of the quantities of labor, direct and indirect (transferred), that are used in the process of production. The concept of the commodity and the existence of the law of value, formulated in this way, are inseparably interconnected.

What does the law of value not state? That commodities are exchanged in proportion to their values; and that direct labor is present labor, whereas indirect labor is past labor crystallized in the means of production. (Volume II of Capital is based on the fact that the production of the means of production and the production of consumer goods are not successive in time, but simultaneous, this simultaneity defining the social division of labor in its most fundamental aspect.)

Possessing a certain value and being exchanged at that rate are two different notions. Marx says that, in the capitalist mode, commodities are exchanged in accordance with relations defined by their prices of production. Is this a contradiction? Does it mean that making a detour by way of value is pointless? My view is that neither is so.

Prices of production result from a synthesis of the law of value, on the one hand, and the law of competition among capitals, on the other. The first-mentioned factor, the more fundamental of the two, would cause exchange to take place in accordance with value in a mode of production reduced to the sole reality of domination by the commodity, that is, simple commodity production. This mode does not exist in history. The capitalist mode, which cannot be reduced to this, is characterized by the presence, alongside domination by the commodity, of the fragmentation of capital and competition among capitals (and capitalists). Visible reality, in the form of prices of production, results from the combining of these two laws, which are situated on different levels.

We say that prices of production result from the combined action of the two laws. Can this combination be expressed in a quantified transformation formula? In Volume III of Capital Marx does this, in his usual way, by giving numerical examples of various possible cases. He does not put forward successive approximations, but confines himself to a first approximation: constant capital stays measured in value, not in price. One can, without difficulty, solve the problem of transformation in an elegant way, without successive approximations, by means of a system of simultaneous equations. Is this operation legitimate? Certainly it is.

It cannot be said that value is a category of the process of production whereas price belongs to the process of circulation. Value and price are both categories of the process as a whole. Actually, value is realized, and consequently exists, only through exchange. It is in this overall process that concrete labor is transformed into abstract labor, and complex (compound) labor into simple labor.

The only condition for transformation is that it should be possible to reduce concrete wage-labor to a quantity of abstract labor. In fact the actual tendency of capitalism is indeed—by subjecting labor to the machine and downgrading labor skill on a mass scale—to reduce concrete forms of labor to abstract labor.

The question of transformation has been obscured by the fact that the writers who first tried to carry through the operation begun in Volume III of Capital also wanted to solve a problem that was easily shown to be insoluble: transforming values into prices while retaining equality between the rates of profit resulting from the equations establishing the production prices and that rate of profit expressed in value and derived directly from the rate of surplus-value.

If we abandon this requirement, we find no difficulty in transforming values into prices. Is the fact that the rate of profit necessarily differs from the rate of surplus-value an embarrassing fact? On the contrary, it is normal for these two rates to differ: indeed, this result of transformation is one of the essential discoveries of Marxism.

In the “transparent” modes of exploitation, the rate of exploitation is immediately obvious: the serf works for three days on his or her own land and for three days on the master’s. Neither the serf nor the lord is blind to this fact. But the capitalist mode of exploitation is opaque. On the one hand, the proletarian sells his labor-power, but seems to be selling labor, and is paid for the eight hours of work put in, not just for the four that would be necessary for maintenance; on the other hand the bourgeois realizes a profit that is calculated in relation to the capital owned, not to the labor exploited, so that this capital seems to the capitalist to be productive.

I have ascribed fundamental importance to this difference between the transparency of precapitalist exploitation and the opacity of the extortion of surplus-value under capitalism, and have based upon this distinction a series of propositions dealing respectively with (a) the different contents of precapitalist ideology (alienation in nature) and capitalist ideology (market alienation), and (b) the different relations between base and superstructure, with dominance by the ideological instance in all the precapitalist modes and, contrariwise, direct domination by the economic base in capitalist mode. Thereby I have related the appearance of “economic laws,” and so of “economic science,” to the capitalist mode.

Bourgeois economic science (neoclassical, i.e., vulgar, economics) tries to grasp these laws directly, on the basis of what is immediately obvious. It therefore takes capital for what it seems to the capitalist to be, that is, a factor of production, productive in itself, with labor as another factor of production.

6. IS AN EMPIRICIST APPROACH TO ACCUMULATION POSSIBLE?

The strictly empiricist philosophical mind-set of the Anglo-Saxon world, transmitted to all contemporary vulgar economics, means that only observable facts (“prices,” such as they are) count toward the direct deduction of “laws” allowing one to understand the mechanisms of the reproduction of the system and of its expansion. For the “professional” economist, an empiricist and nothing but an empiricist, a detour by way of value is burdensome and useless.

One might confine oneself to replying that to understand capitalism means not only to understand its economic laws but also to understand the link between these laws and the general conditions of social reproduction, that is, the way its ideological instance functions in relation to its base. The concept of value is a key concept, enabling one to grasp this reality in its full richness. Those who carry out the reduction, which I here condemn, always end up by conceiving socialism as nothing but “capitalism without capitalists.”

However, this argument, though sound, is not the only one available. We will, in fact, see that the empiricist treatment of the question, which “economizes” that “burdensome and useless detour” (for it) by directly apprehending reality as expressed in “market prices,” loses itself in a blind alley.

7. SRAFFA’S SCHEMA

In Sraffa’s model the productive system is given (the quantities of each commodity, 1, 2, … i, … n, and the techniques used to produce them, including the inputs of direct labor), as is the real wage (the quantity of various goods that the hourly wage enables the wage earner to buy). Consequently, the relative prices and the rate of profit are determined in static equilibrium. The difference between the two methods is situated on two planes, which must be carefully distinguished: (a) the substitution of prices for values; and (b) the adoption of a system of production with n branches instead of the two departments specializing in the production, respectively, of equipment goods and of consumer goods.

Let us assume that there are two lines of production, (1) and (2), each of which produces both producer goods and consumer goods, and that a_ij = the coefficients of inputs necessary for the production of these goods, p₁and p₂ = their unit prices; w = the wage rate (the quantities of labor being assigned by the coefficients a₀₁ and a₀₂); and r = the rate of profit. We then have:

To this system corresponds the following system of values:

Let it be remembered that since the two products (1) and (2) are not destined by nature, one for use as equipment and the other for consumption, this system does not describe an equilibrium of supply and demand for each department. The conditions for that equilibrium, which are assumed to be achieved, are external to the model.

We define two parameters of improvement in productivity, π₁ and π₂, specific to each of the branches (1) and (2). Let us assume, for simplicity, that it is the same, π, in both cases. Let us go on to assume that the system of values for Phase 1 is as follows:

from which we get:

Assuming that the same quantity of direct labor becomes capable of setting to work twice as much equipment and raw material and, for simplicity, in the same proportions aij so as to provide twice the quantity of end products (that is, if π = 0.5), we have for Phase 2:

from which we get:

The table below will then show the evolution of the system of values obtained with the same global quantity of labor, left unchanged.

The results, meaning the increase in the net product (from 1.00 to 2.00) are independent of distribution (no assumptions having been made regarding wages or the rate of profit).

	Phase 1	Phase 2
Production	1.0v1 + 1.0v2 = 2.45	2.0v′1 + 2.0v′2 = 4.92
– Productive consumption	0.7v1 + 0.5v2 = 1.45	1.4v′1 + 1.0v′2 = 2.92
= Net Product	0.3v1 + 0.5v2 = 1.00	0.6v′1 + 1.0v′2 = 2.00

Rising productivity can be expressed by falling prices while nominal incomes remain unchanged or by nominal incomes’ increases with unchanged unit prices. Here prices are doubled:

If, however, we examine the evolution of a system expressed in prices, we have to introduce an assumption regarding the way income is distributed.

The previous system, expressed in price terms, namely:

completed by an assumption regarding wages, e.g., that:

can be reduced to a system of “production of commodities by means of commodities only” which here is as follows:

the solutions of which are:

For the next phase the system becomes:

The results (relative prices and rate of profit) will depend on the way that wages evolve. If we assume an unchanged real wage, that is, if

the reduced system becomes:

the solutions of which are p′₁/p′₂ = 0.98, from which we get the comparative table, established in price terms, given below:

	Phase 1	Phase 2
Production	1.0p1 + 1.0p2 = 2.08	2.0p′1 + 2.0p′2 = 4.04
– Productive consumption	0.7p1 + 0.5p2 = 1.24	1.4p′1 + 1.0p′2 = 2.42
= Net Product	0.3p1 + 0.5p2 = 0.84	0.6p′1 + 1.0p′2 = 1.62
of which, wages	0.2p1 + 0.2p2 = 0.42	0.2p′1 + 0.2p′2 = 0.40
and profits	0.1p1 + 0.3p2 = 0.42	0.4p′1 + .8p′2 = 1.22

It will be noted that comparison between the two phases is obscured by the fact that the solution of the system gives relative prices, p₁/p₂ and p′₁/p′₂, which differ according to the evolution of wages. We do know, from our assumption, that the system of Phase 2 will enable us to obtain, with the same total quantity of labor, twice as much physical product (use-values) from (1) and (2). But if we assume p₁ = p′₁ = 1, we have p₂ unequal to p′₂, since p₁/p₂ and p′₁/p′₂ both depend on the way distribution takes place. Here p₂ = 1.08 and p′₂ = 1.02.

The net product, which is the measurement of the growth in value that is independent of distribution (in my model, this net product increases in value terms from 1.00 to 2.00), here increases from 0.84 to 1.62 (a growth rate of 93 percent) when we analyze the evolution of the system in price terms, with the given assumption regarding wages.

It is because of these uncertainties in measurement of the development of the productive forces in price terms that we should prefer models constructed in terms of value, the only certain standard.

The major defect of analysis in price terms compared with analysis in terms of value is not due to the “open” character of Sraffa’s model (meaning that the dynamic equilibrium of supply and demand for each product—equipment goods and consumer goods—is not formulated as an internal condition of the model but simply assumed to be related externally), in contrast to the “closed” (full circle) character of Marx’s model (in which the equilibrium in question is formalized in the model itself). This defect is due to the substitution of prices, which depend on distribution, for values, which do not so depend. This means that the concept of improvement in the productivity of labor (as the measure of the development of the productive forces), which is perfectly objective in Marx’s practice (it does not depend on the rate of surplus-value), is no longer objective in Sraffa’s model or in any other model constructed in price terms.

Furthermore, the Sraffian framework does not lend itself to analysis of the conditions for dynamic equilibrium, since, unlike Marx’s framework, it is not concerned with the equilibrium of supply and demand for each type of product. It is therefore impossible to deduce from it the propositions set out above concerning expanded reproduction. What it offers is a meager empirical model, which serves at best to describe an evolution that has been observed, but not to infer from this any laws of evolution.

A system defined directly in price terms is also perfectly determined—in the sense that relative prices and the rate of profit are determined—once the rate of real wages is given.

But then there arises the question of a standard, which Sraffa, in the Ricardian tradition, defines like this: is there a standard that would leave the net product unchanged while distribution (w or r) changed independently? The answer to this question is no. Let us see why this is so.

Sraffa does not analyze the system as Marx does. He excludes labor-power from the productive process, in order to consider wages not as the value of labor-power but as a distribution category. This is why he describes the system in the following form:

He further proposes, as we know, that we select as our standard the price of the net product:

With this standard, r and w are in a linear relationship that is independent of p₁ and p₂:

With this standard, r and w are in a linear relationship, whereas any arbitrarily chosen standard gives a relationship between r and w that is neither linear nor monotonic, and is described by a curve (see graph on opposite page).

But is this standard any better than others? Not so at all: (a) because this standard presupposes Sraffa’s treatment of wages: if the wage is integrated in the productive process as variable capital, the standard varies when w varies: it is no longer independent of prices; (b) because, even in Sraffa’s formulation, since the net product changes with the passage of time (the result of growth), the standard is not independent of prices but is elastic.

If then we reintegrate w in the productive process, as we should, whatever the standard being used, we get three equations and four unknowns (p₁, p₂, r, and w). It is still possible to express r as a function of w, but the relation is no longer linear, nor even of necessity a monotonic decreasing one.

The fundamental question underlying the dispute over whether to choose value as the standard, or something else, is that of how to measure, precisely and objectively, the progress of the productive forces.

The value standard, on the other hand, enables us to measure the progress of the productive forces from one phase to another; that was why Marx chose it.

It is not fair to Marx to reduce his proposition that value should be chosen as the standard of prices to the argument that this standard “works”—that is, that with it transformation is possible. The debate on transformation remains secondary, and however much ink it has caused to flow, it is in no sense primordial.

Marx was actually seeking an instrument by which the development of the productive forces could be measured. This instrument is value. In fact, the quantity of socially necessary labor is, in the last analysis, society’s only “wealth”—and value is independent of distribution.

This value standard means comparing the progress from one system (0) to another—(1), (2), etc.—along the Y-axis w. Along this axis r = 0, and wages w absorb the entire net product. The system that maximizes w for r = 0 maximizes income, or else minimizes the socially necessary labor time needed to produce a given amount of use-values. It corresponds, therefore, to more efficient, more highly developed productive forces.

Sraffa’s standard, on the other hand, means comparing the systems along the X-axis r. For w = 0, r = R, and profit absorbs the entire product. Assuming w different from zero does not affect the conclusion since Sraffa cancels the wage by replacing it with the goods consumed by the wage earner. Sraffa therefore compares systems along a horizontal line parallel to the z axis, starting somewhere on the vertical w axis. The system that maximizes the rate of profit R will be considered the best. Isn’t that the same thing? Not necessarily. The result of the two methods of comparison would be the same only if the two curves (0) and (1) did not intersect. If they do intersect, then it is possible that the system that maximizes w does not maximize r.

Why is this? Because, along the Y-axis (r = 0) comparison between the systems takes into consideration simultaneously (for a system with two products) the four coefficients a₁₁, a₁₂, a₂₁, and a₂₂, corresponding to the commodity inputs, and the two coefficients a₀₁ and a₀₂, defining the inputs of direct labor. The productive systems become (for r = 0):

and the prices p are then similar to the values.

If, however, we compare the productive systems along the X-axis for which w = 0, this means taking into consideration only the first four coefficients (production of commodities by means of commodities, and not by means of commodities plus direct labor) and leaving out the two coefficients of input of direct labor. The systems then become (for w = 0):

The value standard is superior because this standard alone considers production as the resultant of all the technical coefficients that describe it.

The conclusion of this analysis is fundamental: that social system that maximizes the rate of profit (for a given level of wages) does not necessarily maximize the development of the productive forces (the reduction of social labor time).

There is no way of doing without the theory of value. This theory alone enables us to link all the economic magnitudes (prices and incomes) to a common denominator—value, that is, the quantity of socially necessary labor, which is independent of the rules of distribution (exploitation, competition, and so on), and to do this both for characterizing a given phase (static synchronic analysis) and for measuring change from one phase to another (dynamic diachronic analysis) of the progress of the productive forces.

If a single standard is chosen to describe two systems, successive or simultaneous, there is a relation between w and r that is illustrated (see page 41) either by two curves of type C or by one curve C plus one straight line D.

In the system of Sraffa there can exist no common standard for two systems. In that system, wages being replaced by their equivalent (the consumption goods destined for workers), labor disappears from the production equations: commodities are then only produced by means of commodities without intervening labor (which remains underlying); the surplus being entirely attributable to capital, which becomes the only factor of production! We have here reached the highest stage of alienation: commodities (including subsistence goods for workers) have children (a larger quantity of commodities) without the intervention of labor as such. This supreme alienation is comparable to that of the financier who, making money by means of money, regards money as in itself productive (see chapter two). Or, even further, material inputs are made to disappear, replaced by their equivalent in past labor. Then in the system will appear only one factor, dated labor falling back on the factor “productive time” à la Böhm-Bawerk.

All post-Marxian economics has tried—in order to get rid of Marx—to put the origin of “progress” somewhere other than in social labor. To that end, it has invented specific productivities of “the factors of production,” or reduced these to that of the “commodity” (Sraffa: “commodities produced by means of commodities”), or to that of money (money produces money), or to that of time (“time is money,” Böhm-Bawerk’s discounting of the future), or—today—that of “science” (“cognitive capitalism,” descended from the marginal efficiency of capital as it was understood by Keynes). All these are nothing but forms of the basic alienation proper to conventional bourgeois social thought.

Marx had filled out his critique of capitalist reality with a critique of the writings that aimed to legitimize capitalist practice, whether those produced by the great classics, who founded modern thought in the domain of the new political economy (Smith, Ricardo), or of those from the vulgar economics already present in his day (Bastiat and others). Critique of the post-Marxian economists is no less necessary. It has been carried out by several good Marxists who have thrown off the yoke of exegesis. In this regard, the contributions of Baran, Sweezy, and Magdoff have been crucial. Let me point here to my own contribution to critique of the best attempts of conventional economics to extend the classics (Keynes, Sraffa) and also my critique of the new forms of vulgar economics (which I called “the witchcraft of modern times”).⁵

8. ECONOMIC LAWS AND THE CLASS STRUGGLE

The schema of expanded reproduction thus seems to reveal that precise economic laws do exist, which, like any other laws, have an objective existence, that is, impose themselves willy-nilly on everyone.

To conclude, the importance of Volume II of Capital, as it stands, is essential: it shows that, in the capitalist mode, social reproduction appears first and foremost as economic reproduction. Whereas in the precapitalist modes, in which exploitation was transparent, reproduction implied direct intervention from the level of the superstructure, that is not so here. This qualitative difference needs to be emphasized.

There has been no question, so far, of the class struggle. This is, indeed, absent from the direct discourse of Volume II of Capital.

“Economic determinism” was foreign to Marx, but not so to historical Marxism. A linear economic determinism, linked to a scientistic philosophical vision of “progress,” was predominant in the Second International and became even more dominant when social democracy, after the Second World War, abandoned its claim to derivation from Marx.

One attitude that can be taken in this connection is that the class struggle setting bourgeoisie and proletariat against each other over the division of the product (the rate of surplus-value) is subordinate to economic laws. The class struggle can, at most, only reveal the equilibrium rate that is objectively necessary. It occupies, in this context, a position comparable to that of the “invisible hand” of bourgeois economics. The language of the “universal harmony” of social interests is replaced by that of the “objective necessities of progress.”

What we have here is a reduction of Marxism to the so-called Marxist (or, rather, Marxian) political economy that is fashionable in the English-speaking world under the name of “Marxian economics.” According to this view, there are economic laws, which constitute objective necessities, irrespective of the class struggle.

On such a basis, however, it is no longer possible to conceive of a classless society in the true sense, since it appears as a society identical with class society. The progress of the productive forces continues to dominate it, just as this progress has been dominant throughout history. This progress has its own laws: an ever more intensified division of labor, in the form we know well. Capitalism is seen as guilty only of not being able to carry forward the march of progress effectively enough. As for those writings of Marx in which he criticizes sharply the shortsightedness of the philistine who cannot imagine a future in which no one is exclusively an artist or a lathe-operator, they are so much utopian daydreaming. Capitalism is seen as, basically, a model for eternity, blameworthy only for the social “wastage” constituted by the capitalists’ consumption, and for the anarchy caused by competition among capitals. Socialism will put an end to these two abuses by organizing, on the basis of state-centralized ownership of the means of production, a system of “rational planning.”

How are we to arrive at this statist mode of production—the highest stage of evolution, a wise submission to “objective laws” for the greater good of society as a whole? By the road of reformism: trade unions, by imposing a “social contract” governing the distribution of the gains of productivity, prepare the way for the formal expropriation of the unnecessary capitalists, after having first served as a school of management for the cadres and elites who represent the proletariat and whose task it is to organize and command.

There is a second possible attitude. Reacting against this type of analysis, one proclaims the supremacy of the class struggle. Wage levels, it is held, result not from the objective laws of expanded reproduction, but directly from the conflict between classes. Accumulation adjusts itself, if it can, to the outcome of this struggle—and, if it can’t, the system suffers crisis, that’s all.

I here put forward four theses concerning the linkage among the (economic) “laws” of capitalistic accumulation, on one side, and the social struggles, in the broadest sense, on the other. By that, I mean the totality of social and political struggles and conflicts, national and international.

THESIS 1: These struggles and conflicts, in all their complexity, produce “national” systems and a global system, which go from disequilibrium to disequilibrium without ever tending toward the ideal equilibrium formulated by conventional or Marxian (but, in my opinion, scarcely Marxist) economists.

THESIS 2: The inner logic of capitalism—maximization of the rate of profit and of the mass of surplus-value—gives rise to a tendency toward a disequilibrium favoring the possessing classes (the bourgeoisie in the widest sense) at the expense of labor incomes (of all diverse forms). Capitalist reproduction, by virtue of this fact, ought to become “impossible.” And in fact, the history of capitalism is not one of “continuous growth,” of a “long tranquil river” assuring continuous growth of production and consumption, flowing over accidental obstructions that are called “crises.” Like Paul Sweezy, I view this history, contrariwise, as being one of long crises (1873–1945; 1971 to today and, no doubt, stretching far beyond 2010), reducing the short periods of rapid (and problem-free) growth to historical exceptions (like the “thirty great years” between 1945 and 1975).⁶

THESIS 3: Despite this permanent malaise, capitalism has managed so far to get out of its blind alleys and to invent effective ways for adapting to the demands posed by changes in the balance of social and international forces. This reminds us that the progress of the productive forces (its pace and the directions it takes) is not some independent exogenous factor, but one that results from class struggle and is embodied in production relations—that it is modulated by the ruling classes. This thesis reminds us that the Taylorism of yesterday and the automation and “technological revolution” of today are responses to working class struggle, as are also the centralization of capital, imperialism, the relocation of industries, and so on.

So long as capitalism has not been overthrown, the bourgeoisie has the last word in class struggles. This must never be forgotten. It means that unless crises lead to the overthrow of capitalism—which is always a political act—they must always be solved in the bourgeoisie’s favor. Wages that are “too high” are eroded by inflation, until the working-class, exhausted, gives in. Or else “national unity” makes it possible to shift the burden of the crisis onto others’ backs.

For a view of the matter that is not one-sided we need to appreciate that the class struggle proceeds, in the first place, from a given economic situation, reflecting the reality of a particular economic basis, but that, as long as the capitalist system still exists, this modification necessarily remains confined by the laws of economic reproduction of the system. An alteration in wages affects the rate of profit, dictates a type of reaction of the bourgeoisie that is expressed in given rates of “progress” in given directions, changes the social division of labor between the two departments, and so on. But as long as we remain within the setting of capitalism, all these modifications respect the general conditions for capitalist reproduction. In short, the class struggle operates on an economic base and shapes the way this base is transformed within the framework of the immanent laws of the capitalist mode.

The schemata of expanded reproduction illustrate this fundamental law that the value of labor-power is not independent of the level of development of the productive forces. The value of labor-power must rise as the productive forces develop. This is how I understand the “historical element” to which Marx refers when writing of how this value is determined. The only other logical answer to that question is the rigid determination of the value of labor-power by “subsistence” (as in Ricardo, Malthus, and Lassalle).

But this objective necessity does not result spontaneously from the functioning of capitalism. On the contrary, it constantly comes up against the real tendency inherent in capitalism, which runs counter to it. The capitalists are always trying to increase the rate of surplus-value, and this contradictory tendency is what triumphs in the end. This is how I understand what is meant by the “law of accumulation” and the “relative and absolute pauperization” by which it is manifested. Facts show the reality of this law—but on the scale of the world capitalist system, not on that of the imperialist centers considered in isolation; for whereas, at the center, real wages have risen gradually for the past century, parallel with the development of the productive forces, in the periphery the absolute pauperization of the producers exploited by capital has revealed itself in all its brutal reality. But it is there, precisely, that the pro-imperialist tendency among Marxists pulls up short. For it is from that point onward that Marxism becomes subversive. (This problem of the class struggle in relation to accumulation on the world scale will arise again in chapter four.)

Capital overcomes this contradiction by developing a “third department,” the function of which is to take in hand the excess surplus-value, which cannot be absorbed in Departments I and II, owing to the inadequate increase in the real wages of the productive workers. This decisive contribution by Baran and Sweezy has never been and can never be understood by any of those who decline to analyze the immanent contradiction of capitalism in dialectical terms.

Starting in the 1930s, but above all since 1945, capitalism has recorded a gigantic transformation that has borne the share of those activities called “tertiary” to heights previously unknown. The reading of this transformation by conventional economists, including Fourastié who was the first to offer an analysis of it, is uncritical—in fact, apologetic. Ours is not.

Undoubtedly the “tertiary” has always existed, if only because no capitalist society is thinkable without a state, whose monarchical functions have a social cost, covered—outside the market—by taxes. Likewise, indubitably, the expansion of “selling costs” associated with the monopolistic competition referred to previously, along with the relative autonomization of commercial and financial activities, are those things at the origin of the accelerated growth of the “tertiary.” No less important, however, is the expansion of public services (education, health, and social security) produced by successes of the people’s struggles.

So without here going into the labyrinth of the activities called “tertiary”—activities of fundamentally diverse natures—I will here call attention only to the theses that I have put forward concerning the linkage between the puffing up of this “Sector III” of surplus-value absorption and the imperialist fact: the concentration of control operations over the world system by the powers making up the imperialist triad (United States, Europe, and Japan) through what I have termed “five monopolies of the triad’s collective imperialism”.⁷

Opposed to the strategies of capital, which endeavor to capture control over this swelling of “tertiary” activities through privatization of their management in order to open new fields into which to expand—rather by expropriation than by any new creation—are possible people’s strategies of democratic control of the activities in question.

The dizzying expansion of “Department III” (complementing the Departments I and II of the analysis of accumulation put forth in Das Kapital), which has become de facto “dominant” in the sense that it comprises two-thirds or more of what conventional economics terms GDP (Gross Domestic Product), certainly calls into question the formulations of the law of value that Marx offers us. It is even here that are placed the main arguments in favor of claims that “the law of value is outdated.”

THESIS 4: Capitalism only adapts to the exigencies of the unfolding of struggles and conflicts that form its history at the price of accentuating its character as destroyer of the bases of its wealth—human beings (reduced to the status of labor force/commodity) and nature (reduced in the same way to commodity status). Its first long crisis (begun in 1873) paid off with thirty years of wars and revolutions (1914–1945). Its second (begun in 1971) entered the second, necessarily chaotic, stage of its unfolding with the financial collapse of 2008, bringer of horrors and destructions that henceforth are a menace to the whole human race. Capitalism has become an obsolete social system.⁸

9. IS THE LAW OF VALUE OUTDATED?

Identification of value as the central axis for critical analysis of the economy of capitalism and thus of its presence, concealed by the workings of its transformation into observed prices, is not without its problems. Marx’s own discussions of these questions invite Marxists not to limit themselves to exegeses of those texts but to dare to go further: in particular concerning (i) concrete labors of diverse character and their reduction to the concept of abstract labor; (ii) the time required for the production, circulation, and realization of surplus-value and, consequently, the relationship between living labor and transferred dead labor; (iii) the identification of use-values; (iv) the treatment of natural resources,whether privately owned or not; (v) the appropriate definition, specific to capitalism, of social labor, and the analysis of its relationship to other forms of labor; and (vi) making clear the forms of absorption of surplus-value by Department III.

The evolution of capitalism since Marx’s day and the gigantic transformations that it has produced challenge Marxist analysis. A perspective that tries to stay critical and even to deepen this radical critique of capitalism requires going far beyond Marx’s answers to the challenges concerning these questions. Certain Marxists, myself included, are trying to face these challenges.⁹

The current climate of opinion does not favor pursuit of these attempts to enrich Marxism, itself conceived as unbounded in its fundamental critique of the reality of the capitalist world. Instead and in place of enriching Marxist thought, one would rather prefer to bury it and claim to start over from zero. One is then usually the prisoner—whether aware of it or not—of vulgar thought, uncritical by nature. The radical critique of the reduction of the concept of progress to increasing GDP that I have put forward and—in counterpoint—the thesis that I have adopted, likening progress to emancipation, are registered here against the current climate of opinion.¹⁰

Current fashion is to say that the law of value is “outmoded.” It would have applied to the industrial manufacturing phase of capitalism, itself made out of date by the formation of contemporary “cognitive capitalism.” Forgotten is that by its essential nature capitalism, today as yesterday, is based on social relationships securing the domination of capital and the exploitation of the labor force associated with it.

The invention of the “cognitive capitalism” concept rests on a capitulation to the method of vulgar economics based on “measurement” of the specific productivities of “factors of production” (labor, capital, and nature). One “discovers” then that the rates of growth recorded by these partial productivities explain only 50 or 60 or 70 percent of the “general progress” (of “growth”). This difference is ascribed to the intervention of science and technology, considered as constituting a fourth, independent, “factor.” Some think to have rediscovered in this “factor” the general intellect, whose central position in the definition of the productivity of social labor had already been pointed out by Marx. But in fact there is nothing very new there, in the sense that labor and scientific/technical knowledge have been inseparable through all the stages of human history.¹¹

There is but a single productivity, that of social labor working with adequate tools, in a given natural framework, and on the basis of scientific and technical knowledge whose elements are indissociable one from the other. What vulgar economics artificially pulls apart Marx unites, thus giving the concept of value that emerges from this unity its fundamental status: the condition in its turn for a radical critique of capitalist reality.

Cognitive capitalism is an oxymoron. We will be able to talk of a “cognitive economy” only then, when social relations different from those on which capitalism is based have been established. Instead and in place of this deviant notion inspired by the climate of opinion, I have tried to formulate the metamorphoses that the transformations of capitalism engender in forms of expression of the law of value.

In my work I have imagined a capitalism that has reached the furthest limits of its tendency to reduce the amount of labor used for material production (hard goods: manufactured objects and food products) through an imaginary generalization of automation.¹² The departments of production no longer set in motion more than a tiny fraction of the labor force: what is used partly for the production of science and technology (soft goods) needed for that of hard goods and partly for services linked to consumption. In those conditions, the domination of capital is expressed in the unequal distribution of the total income, and value has no longer any meaning except on this integrated and global scale. The concept of value would persist only because society would still be alienated, mired in scarcity thinking.

Would a system that had reached such a stage of its evolution still merit the appellation “capitalism”? It would probably not. It would be a neo-tributary system based on systematic application of the political violence (linked to ideological procedures capable of giving it the appearance of legitimacy) indispensable for the perpetuation of inequality. Such a system is, alas, thinkable on a globalized scale: it is already in the course of being built. I have called it “apartheid on the world scale.” The logic of the forces governing capitalist reproduction works in that direction, which is to say, in the direction of making “another possible world,” one even more barbaric than any of the class societies that have succeeded each other throughout history.