Book Reviews

The book’s title reflects the fact that in one sense Marx was in the tradition of Classical Political Economy, building on the work of Adam Smith and David Ricardo both of whom like him propounded a labour theory of value. On the other hand, Marx regarded his work as a “critique of political economy” (the title of one of his books and the subtitle of Capital).

Marx’s critique is straightforward enough. Smith, Ricardo and the others imagined that they were studying economics as if it were a natural science like physics or chemistry whose laws were valid for all times and places. Marx pointed out that what they (and he) were in fact studying were phenomena that only came into being under specific historical and social circumstances – predominating production for sale on a market with a view to profit – and that the laws and categories they used (such as value, price, money, wages, profits, rent and interest) were not useful or valid for all time and for all economic systems. Value didn’t exist before capitalism came on to the historical scene and wouldn’t exist after capitalism had disappeared.

This meant, the authors point out, that when Marx used the word “value” he did not mean the same thing as, in particular, his immediate predecessor, Ricardo. Whereas for Ricardo value was an empirically observable phenomenon that could be measured directly in terms of the amount of socially necessary labour-time needed to produce it from start to finish, for Marx value was an intangible social relation and which would exist under any economic system. As such it could not be measured directly, not even in terms of labour-time. All that could be measured was its expression as “exchange-value”, ultimately as a monetary price (which, due to the averaging of the rate of profit, was only indirectly linked to a commodity’s notional labour-time content).

The authors criticise Marx for not always sticking in his writings to this distinction and for occasionally slipping back into Ricardo’s position. This may well be true – there is certainly a discrepancy between his endorsement, albeit rather lukewarm, of labour-time vouchers in one place and his devastating criticism of schemes for labour-money elsewhere – but it should be borne in mind that in his first publications – The Poverty of Philosophy (1847) and A Critique of Political Economy (1859) – Marx didn’t distinguish between value and exchange-value and that, apart from Volume I of Capital (1867), all his other writings on economics were unedited, hand-written notes, prepared for publication by others after his death (Volumes II and III of Capital, Theories of Surplus Value, the Grundrisse). Since Volume I of Capital was carefully edited and seen to publication by Marx himself (incidentally, after most of his posthumous publications had been written) in cases of ambiguity or even contradiction it is what he wrote in this that must be regarded as his considered view.

On two keys points of understanding the way capitalism works the authors reach the same conclusion as we have, on the so-called “law of the falling tendency of the rate of profit” and on the reason for economic crises.

Much ink has been spent on the falling rate of profits (sometimes called, in view of so many predictions which failed to materialise, the falling rate of prophets). Many consider it to be a key element of Marxian economics, an economic law of capitalism uncovered by Marx . Marx’s point is simple enough. Capital is divided into “constant” capital (buildings, machinery, materials, etc) whose value is simply transferred unchanged to the product in the course of its production and “variable” capital (the capital laid out in employing productive labour) so-called because this is the only element of total capital whose value “varies” through productive wage-labour producing a “surplus value” over and above its original value. Marx calls these C, V and S respectively and so expresses the rate of profit as: S/(C + V). It is clear that, from a purely mathematical point of view, that as long as S/V (the rate of exploitation) remains unchanged if C increases faster than V the rate of profit will fall. Marx set out one good reason why C would tend to increase faster than V: technological advance. With this more of the accumulated capital takes the form of means of production (C) than of additions to the wages bill (V).

However, Marx deliberately chose not to call this the “law of the falling rate of profit” but merely the “law of the falling tendency in the rate of profit” (an odd formulation since something must either be a law or tendency but not both, but this was taken from one of Marx’s unedited papers). This was because he knew that other factors than technological advance could affect the outcome and that it could not be assumed that these would always be constant (as “the law of the tendency” as stated above assumed). Marx went on to list various “counter-tendencies”. Two in particular stand out.

The first is what he called the “cheapening of the elements of constant capital”, by which he meant factories, machinery, etc, and the ways of using and organising their use, becoming cheaper than previously. For instance, technical advance need not necessarily translate itself into C rising faster than V and would not if the inventions and innovations were more “capital saving” than “labour saving”. C could also rise less than V for non-technological reasons such as falls in raw material and energy prices due to market conditions.

The second was an increase in the rate of exploitation (S/V), i. e., the amount of surplus value produced per unit of productive wage labour. This in fact is another consequence of technical advance and indeed, under capitalism, is precisely why technical inventions and innovations are introduced, the capitalist class waging a non-stop class war against the working class to increase the amount of surplus value extracted from their labour—what might be called the “law of the rising tendency of the rate of exploitation” or indeed even the “law of the rising rate of exploitation”.

It should be clear that if C does not increase faster than V and/or if S (the amount of surplus value) increases, then (other factors remaining the same) the rate of profit (S/C + V) will not fall. Which means that, in the world of real capitalism, the outcome of these tendencies and counter-tendencies cannot be predicted in advance. As the authors put it:

“. . . the Marxist ‘law of the falling tendency’ in the rate of profit, although logically sound, is not a theoretical reflexion of the actual trend of the rate of profit . . . it applies under certain conditions . . . that may well not exist in a given capitalist society. Furthermore, it influences the rate of profit along with a variety of other factors not directly associated with technological innovation, factors which Marx considered to remain constant when presenting his ‘law’. This means that a falling profit rate in a given capitalist economy over a time period, which may be established on the basis of concrete empirical analysis, can be due to factors other than those related with technical innovation and the ‘law of the falling tendency’, which means that a further investigation will be necessary, if one wants to locate the exact causes of the profit rate’s course” (pp. 155-156).

The authors take the same approach to the reason for economic crises under capitalism to reject the same views held by some in the Marxist tradition as we do:

“Crises are conjunctural suspensions of the conditions for unimpeded reproduction of total social capital. They constitute transitory manifestations of the internal contradictions of capitalism and not permanently operative causal relationships inherently governing capitalist relations (a permanent deficiency in consuming power as against production, or the ever acting ‘law of the falling tendency in the profit rate’)” (pp. 182-3).