Cooking the Books: Yes, Read Marx

In an interview with the online magazine ‘Truthout’ (24 March) the historian Immanuel Wallerstein urged young people to ‘Read Karl Marx!’ He is one of the leading advocates of the theory that capitalism is a single ‘world-system’. His books describe the history of capitalism, as in effect the world market, from its origins in the sixteenth century to today. This theory has an important implication: that capitalism is not a collection of separate, national capitalist economies but a single world system and that there is therefore no national way out of it:

‘The capitalist system is composed of owners who sell for profit. The fact that an owner is a group of individuals rather than a single person makes no essential difference. This has long been recognized for joint-stock companies. It must now be recognized for sovereign states. A state which collectively owns all the means of production is merely a collective capitalist firm as long as it remains—as all such states are, in fact, presently compelled to remain—a participant in the market of the capitalist world-economy’ (The Capitalist World-Economy, pages 68-69).

Good point. When, however, it comes to explaining basic Marxian economics Wallerstein is not so sound. In an interview with the Belgian newspaper Le Soir in 1998 (20 March) he argued:

‘You easily imagine that if one respected the presuppositions of economic textbooks — an infinity of sellers and an infinity of buyers, all perfectly informed — capitalists would be incapable of making the least profit: consumers would immediately find the lowest price which would not be a centime above the cost of production!’

The main feature of the textbooks’ ‘perfect competition’ is that, because there are so many of each, buyers and sellers cannot influence the price at which goods sell. This is fixed by the market. But at what level?

Adam Smith called the price that the market would establish in the long run a good’s ‘natural price’. This would be the cost of producing it in terms of the labour expended on it from start to finish. He accepted that this would include an element of profit. Marx developed this theory and explained profit as ‘unpaid labour’, i.e., the labour expended by workers above what they received as their wages.

Wallerstein’s statement implies that profit could only arise if there is not ‘perfect competition,’ if capitalist firms are in a position to influence the price of what they sell due to having a partial monopoly. In other words, profit would be a form of rent. True, some firms are in this position and so do command a higher than normal profit. But this explains only the extra, monopoly profit, not normal profit. It fails as a theory of profit because it does not, and cannot, explain why firms not in this position still make a profit, as under capitalism they must otherwise nobody would invest in them.

The impasse Wallerstein’s statement leads to shows that the origin of profit cannot be explained as arising from the circulation (the buying and selling) of goods. It has to be sought elsewhere. Marx set out to explain it on the basis of goods selling at the price established under competitive conditions and showed that profits originated in the process of production where workers produced goods worth more than what they were paid as wages.

So, to understand profits, read Karl Marx, especially the section of his 1865 talk to English trade unionists, Value, Price and Profit, entitled ‘Profit is Made by Selling a Commodity at its Value’.