Robots vs. Luddites

part one:

part two:

Robots vs. Luddites

1812 Nottingham England
In 1812 sabotage crept through the British countryside. By the cover of darkness gangs of weavers organized under their anonymous leader “General Ludd” broke into factories by night and smashed the new automated looms to pieces. Cloaked armies of “Luddites” appeared at factory gates in the day to demand better wages, better working conditions, and the right to produce higher-quality fabric. The weavers had not always been guerilla fighters. For 300 years they had passed down their craft from generation to generation of skilled artisans, weaving fine silk and stockings in the comfort of their own home. But now there was a machine that could do all that. It was called the power-loom.

But why would a worker break a machine? A machine is supposed to make work easier and make life better.  To understand the violence of the Luddite rebellion we need to remember that when a worker uses a machine he/she enters into social relations with people. Work is always a social process entailing some sort of social cooperation. (In a capitalist society we can’t understand this social dimension without understanding the relations of private property which define it.) A machine conceals a social relation. Lift the veil and we see that the machine is an expression of the relationship between capitalist and laborer.

Throughout human history the social relations which we labor under have changed, from the primitive hunter-gatherer, to feudal societies, to modern industrial capitalism. We call these different organizations of social labor the “relations of production.” Different relations of production are characterized by different types ownership, different divisions of labor and different organizations of work.

Throughout human history the relations between people and the tools and machines they use has also evolved. From stone axes and knives to the automated loom to the personal computer the technical “forces of production” have undergone numerous revolutions.

These two aspects of work- the forces and relations of production- form the inner dynamic of human history. We might make some obvious observations about the two: Modern capitalist social relations couldn’t survive if we were constrained to the use of stonge-age tools. Conversely, the internet wouldn’t find much fertile ground for use within the social relations of 16th century European feudalism. We might use these obvious observations to make a more interesting observation: that the forces and relations of production co-evolve over time. This means that changes in one can have a profound effect on the other and that the inability of one to change can constrain the ability of the other to change.

By examining the coevolution of the forces and relations of production we can illuminate much about our history and our future.

So back to our question: why did the mysterious General Ludd and his followers steal through the English countryside under cover of darkness smashing the machines which were intended to make their work easier? To answer this question, let’s take a closer look at the machine in question.

The power loom did something that no loom before had done. It replaced the hands of the weaver with a mechanical hand that moved faster and more efficiently than the the most skilled of weavers. (figures?) The power loom didn’t just happen by accident. It appeared at a distinctive time in history when capitalists were introducing automated machines into production to replace the hand of the worker. Thus behind the machine, lay a social relation: a social relation between capitalists and workers.

By replacing the hand of the worker with the cold steel of a machine the skilled craftsman, the master weaver, was transformed into an unskilled machine-tender, an appendage of the machine. Unskilled workers could be paid lower wages. The pace of work could be dictated by the speed of the machine, not the pace of the human. Thus work could be sped up and intensified. Because less labor went into the product the prices of products fell making it impossible for independent craftsmen to compete with the new machines. In short, the replacement of the human hand with the automated tool meant a huge revolution in the social relations of 19th century Europe as the system of skilled craftwork was transformed into the large scale capitalist industry with its shopfloors of roaring machinery and the unskilled proletariat that tended these machines. The Luddite attack on the powerloom was a last-ditch defense of a dying labor process, a labor process quickly being replaced by modern industrial forces and relations of production.

And the Luddites weren’t the only barrier to the emergence of large-scale capitalist industry. The 19th century was filled with social conflict between capital and labor as workers resisted the impositions of the industrial labor process. The deskilling of work, the disciplining of the labor force and the acclamation of the population to the labor process continued into the 20th century inspiring innovators like Frederick Taylor and Henry Ford to lend their efforts to the problem. These were the major social problems of the times. The need for state regulation of labor conflict was a major factor in the emergence of the modern capitalist state. But of all the political and social attempts to regulate this conflict it may have been the machines themselves that did the most to discipline humans beings to modern capitalism.

But it would be a mistake to say that all of these changes were brought on by machines themselves, as if machine evolution was dragging human history along with it, kicking and screaming. Machines were introduced into production because they gave capitalists power in their conflict with workers. If you can be replaced by a machine you are much less likely to form a union or go on strike. If you are an unskilled machine-tender you can’t bargain for high wages like a skilled craft worker. Before the large-scale Industry of the 1800’s lay a tumultuous 200 year history in which capitalism ate away at the institutions of feudal property, creating the conditions for a modern labor force. The Manufacturing period which preceded the 1800’s still retained some held-over characteristics from the feudal period: There was still a lot of semi-skilled handicraft work, machines were used in a piece-meal fashion, and the size of the workforce was still relatively small.

But as more machines were introduced into the Manufacturing system, that system of production became less and less able to handle the demands of the machine. The powerloom, for instance meant that suddenly a factory could produce a lot more output than before. But this required increased input of raw materials. The sudden increase in demand for raw materials meant that those industries that produced raw materials were also under pressure to automate production. Increased output also meant finding new markets for goods. This required revolutions in transportation and communication: canals, railroads, and eventually automobiles and airplanes…

Automated production eventually meant the linking of all the machines in one workplace together to form one massive mechanical monster. This meant finding a regular, controllable motive power like the steam engine or, later, electricity to power production. Such a motive force became the regulator of the speed of production- the entire factory, its machines and human appendages, fell into rhythm with the rhythm of the steam engine. Once electricity became the prime moving force of production this meant revolutions in the system by which power was transmitted to production: power lines, power grids, etc. By the dawn of the 20th century the entire globe was linked up in interlocking power grids all coordinating the speed of production with a single motive power. Human life changed too, our movements falling into rhythm with the gentle hum of the power grid.

The demand for machines which would all be linked together in one big factory, powered by a uniform motive power, required both a huge increase in machine production and a uniformity of production that the semi-skilled workers of the manufacturing system couldn’t provide. It wasn’t until these workers were replaced by a less-skilled automated production system- the production of machines by machines themselves- that the Industrial Revolution could truly revolutionize European society.

The Luddite movement ended with violent repression and the hanging of its leaders. It seems that the defense of private property was more important to the emerging social order than human life. We see a curious relationship here. The technology that was to make life easier for humans becomes the source of the most violent, anti-human behavior. The social conflict that required the evolution of the machine in the first place is altered by the machine itself. But the conflict between labor and capital isn’t resolved, it’s merely transposed to another level: the social conflict of modern, industrial capitalism. The question then becomes, in this coevolution of the forces and relations of production, of machines and people, is there ever a point in which the technical basis of society can no longer support the class antagonisms of capitalism, in which the tremendous productivity and abundance made possible by technology can no longer function within the distorted social relations of private property?

Why should you care about the coevolution of the forces and relations of production in the 19th century?

Because these are the laws of motion of human history, laws we can see operating right now. We are living in the midst of a similar revolution in productive forces.

If the automated tools of the 19th century replaced the human hand what does a computer replace? The modern computer is the descendent of the Turing Machine. A Turing Machine, put simply, is a machine that can follow changing instructions. Feed in one set of instructions and the machine does one thing. Feed in another set of instructions and the machine does something else. Defined this way, a human being is also a turing machine. Tell Jim to lift pig iron and Jim lifts pig iron. Tell Jim to answer phones and Jim answers phones. With the advent of the Turing Machine it became possible to make a single machine which could do almost anything: a laptop that can check email and edit video, an iphone that can record music and get directions to the airport. One of the things about human beings that had made them so distinct from machines in the 19th century- their ability to follow instructions- had been eliminated.

There is a central contradiction in the replacing of humans with machines. Machines can produce commodities but they can’t create value. So while capitalists replace humans with machines in the search for more short-term profit, in the long run less value is being produced. The prices of commodities fall as less labor goes into them. If the turing machine can follow any set of instructions, the only labor that needs to go into the production process is the creation of these instructions themselves. The production of instructions, or information, then becomes the source of value. [Because the machine can do any task, the information we feed to machines becomes the most important aspect of production.]

Enter the information age- an age where the production and ownership of knowledge is the central thing around which all production revolves. If the speed of life in the industrial age was dictated by the pace of the steam engine or electricity, the speed of life today is dictated by the speed of information transfer. This speed of information transfer has increased rapidly in the last few decades to the point where huge amounts of information can now be sent across the globe with the click of a button. We are only beginning to see the tremendous revolutions in social relations that will be created by this evolution in the forces of production.

The race to improve the speed of information transfer to machines has led to revolutions in all sorts of industries like micro-processing, data storage, personal electronics, and the information infrastructure (cable, wireless, DSL, ethernet, etc.). It’s also causing the destruction of many older industries, industries which derived their profits from their exclusive ownership of the “means of duplication” like the record industry or print media. Recording a phonograph and pressing it used to require a great deal of capital. A record company’s profits relied not just on their ownership of the masters of a record but also on the fact that they had a monopoly over the ability to make more copies of that record. Now a musician can record their own album in their kitchen and distribute it online relatively cheaply. A fan can duplicate that recording a thousand times over with the click of a button. An entire generation of music listeners is now growing up with the expectation that they should be able to listen to any music they want at any time for free. Is this not proof of Marx’s argument that when human labor is removed from a task, the social value of that task falls to zero?

The newspaper industry is facing the same problem. Nobody wants to pay for the duplication of print media when they can get it for free online. Of course recording an album or writing a news article still requires labor from musicians and reporters. This is the information part of the commodity. But the crisis in the newspaper and record industry reveals an interesting aspect of information as a commodity: Information can only be bought and sold as a commodity if the seller has a monopoly over the right of duplication. When printing a newspaper required an expensive printing press and a complicated labor process it was a given that a newspaper was a commodity. But now that the duplication of news can happen at the click of a button that monopoly over duplication has disappeared.

For the newspaper industry the only solution so far has been to give news away for free online and rely on advertising for revenue. Meanwhile the recording industry has resorted to extravagant lawsuits against internet “piracy” and increasingly exploitative recording contracts with musicians called “360 deals” which demand a cut of all a bands revenue from merchandise sales to ticket sales.

If the monopoly on duplication is the only thing that makes information a commodity we are left wondering what is the true nature of information when this monopoly disappears. It seems increasingly obvious that information has an inherently social dimension. Where social knowledge leaves off and one person’s private contribution to social knowledge starts seems an increasingly arbitrary distinction defined by a narrow legal definition of intellectual property (a definition based in old-fashioned notions of commodity duplication.)

It’s not just that newspapermen and record industry executives are old-fashioned, or aren’t savvy enough with computers. It’s that the basic parameters of production and profit, the social relations, are changing as the forces of production evolve. As many times as they sue Napster or PirateBay the reality is that Napster and PirateBay represent the inherent nature of the new technology and the emergence of a new type of social relation that suggests a collective ownership of information. From wikipedia, to the blogosphere, to Linux, to the open-source software, new models of production and distribution are being experimented with on a collective level never before seen. But what kind of society is emerging? Clearly there are all sorts of problems with the way knowledge is created on the internet and there is a great deal of room for capitalism to expand into the internet for its own purposes of commodification and control. And outside of the internet there is still a great deal of real production that is done by human labor. What do the emerging models of information transfer of the internet-age have to offer the real-world labor process?

Industrial capitalism emerged from the manufacturing system of the early 1800’s spurred on by revolutions in the forces of production. But in order to come into its own as a new system of social relations it had to revolutionize the existing social relations. Today we can see the new forces of production overthrowing the established economic order. But what sort of society will emerge from this is yet to be seen.

Marx saw that despite of all the misery and exploitation of the Industrial Revolution that there were great socializing processes at work. The working class was being stripped of its antiquated, local superstitions. In being reduced to an unskilled, proletarian appendage to the machine, all workers were equalized, sharing the same social solidarity and common material interests. The labor process was becoming increasingly collective even as it became more degrading. Capital on the other hand was encountering greater and greater crisis and causing more and more people to question whether it could survive for much longer without destroying itself. But the great revolution that Marx had hoped for didn’t happen. It seemed that capitalism was not done learning how to displace crisis and finding new avenues of growth. And it seems revolutionary theory wasn’t ready to live up to the potential Marx saw in a post-capitalist society.

We have a lot of work to do in our time. These tectonic shifts in the forces and relations of production have coincided with global economic crisis and environmental crisis. At such times the future is uncertain. Anything can happen. If the left is to seize the initiative in the 21st century it has much theoretical work to do examining the trajectory of these new forces and relations of production and discerning what sort of possibilities they present for radical breaks from the present order.

Recommended reading:
Das Kapital, Karl Marx, the chapters on manufacturing and large scale industry
Cutting Edge, Technology, Information Capitalism and Social Revolution; ed. Jim Davis. This is a great collection of essays about the information age and value theory.
“Digitalization and the Monadization of Power”, a lecture by Dylan Suzanne: http://www.archive.org/details/suzannemainelecture2 . I am curious to acquaint myself more with Suzanne’s work. This is a good lecture.
Soderberg, Johnathan. “Copyleft vs. Copyright; A Marxist Critique.” First Monday volume 7, number 3 (March 2002) URL: http://firstmonday.org/issues/issue7_3/soderberg/index.html     This is an early work of Soderberg’s which eventually turned into his book Hacking Capitalism which I haven’t read yet because it’s way too expensive. If anyone has access to a digital version please let me know.

The P2P Foundation blog has a lot of interesting stuff: http://blog.p2pfoundation.net/

music by a great Trio from the West Coast called “Beep”. Check them out at myspace.com/beeptrio

Interview with Andrew Kliman

Here is an interview with Andrew Kliman in which Kliman discusses the Marxist theory of capitalist crisis. Kliman is professor of economics at PACE university and author of the very important book Reclaiming Marx’s Capital. Kliman talks about some of his work with the theory of the Falling Rate of Profit, criticizes some of the other theories of crisis floating around in the left today, and discusses the countervailing tendencies to a Falling Rate of Profit. Kilman then goes on to discuss the public reception of his work debunking the transformation problem, problems in academic marxism, and his thoughts about beginning to theorize a future socialist society. I interviewed Andrew on 4-17-09, the evening before we shared a panel together at the Left Forum.

Left Forum ‘09- Marx’s Capital and the Economic Crisis

I was quite fortunate to be invited to speak on a panel at the Left Forum this year (4-18-09) with some writers I greatly admire. Here I have posted the videos of all four speakers, the text to my portion, links to  other speaker’s work (when available), and video of the discussion that followed.

Chair: Radhika Desai

Radhika Desai is a professor in the Department of Political Studies, University of Manitoba.  She is the author of Slouching Towards Ayodhya: From Congress to Hindutva in Indian Politics (2004) and of numerous articles in Economic and Political Weekly, New Left Review, Third World Quarterly and other journals.  With Alan Freeman, she is currently working on a book series on The Future of World Capitalism. Here’s a recent article by her on neoliberalism’s crisis.

Speakers:

Andrew Kliman, author of “Reclaiming Marx’s Capital” and a leading figure in the Temporal Single System Interpretation (TSSI). Regular viewers will recognize Andrew’s name from my video on the transformation problem. His book was the main source of my arguments in that video. I highly recommend it. Andrew presented some research he is still engaged in which charts profit rates since WWII. His research shows that profit rates have declined steadily since the recovery after the Great Depression, falling toward what he calls the “long-term-labor rate of profit”. This is striking evidence of the explanatory depth of Marx’s theory of the Falling Rate of Profit.

Alan Freeman, co-editor of “The Politics of Empire: Globalisation of Crisis” is another influential figure in the TSSI field. He has a number of great papers on the falling rate of profit and crisis theory here. There are also some videos of him already on youtube. He is also co-editor of Critique of Political Economy and coordinator of the Association for Heterodox Economics (UK). Along with Radhikha Desai, he is working on a book series called “Future of World Capitalism.” Alan spoke about how WWII got the global economy out of the Great Depression and about the sort of progressive alternatives to war that we might currently be pushing for. Pay close attention to how Alan conceptualizes the role of the state in capitalist crisis.

Brendan Cooney- that’s me. I talked about bourgeois ideology and how it fails to explain crisis. And then of course I talked about how well marx’s value theory explains crisis.

The second speaker on the panel asked not to have his portion posted online.

Brendan Cooney’s text:

Left Forum talk

As leftists we’ve all had the experience of being told “Hey man, that’s just the way things are.” In the middle of some brilliant analysis of how lame Obama is, or how much the prison industrial complex sucks someone says to us “Hey man that’s just the way things are.” Is this not the essence of any dominant ideology? The point of a dominant ideology is the idea that the present is eternal and unchangeable- that the existing institutions, power structures and injustices are as natural as making babies, that any attempt to critique them or change them is futile. [Though ideologues may try to dress up the message with fancy theories of Pareto Optimality, or fancy algebra, the message is still the same: "Hey man, that's just the way things are."]

In order to do this ideology has to paint the present as something static and unchanging. The feudal landlord had the catholic church which imbued the class relations of society with an eternal christian mysticism. Today we have mainstream economics which projects its own categories backwards and forwards in time to create the illusion that there is nothing unique about modern capitalism and that there are no alternatives to the present.

There is a great, unfinished task before us- not just of how to understand this crisis, but how to understand capitalist crisis in general; and then, specifically to understand the future of capitalism, the openings that will arise for radical breaks from the present order, and the sort of new social orders that might emerge. This task of understanding capitalism also must be a radical critique of dominant ideology- bourgeois ideology. This is why Karl Marx subtitled Kapital “A Critique of Political Economy”. He was very clear that alternative ideas develop in relation to hegemonic ideas. When we aren’t clear about how our ideas relate to dominant ideology we run the risk of allowing bourgeois ideas to subtly influence our own thinking. And I think this is why a lot of leftist takes on the current crisis fall short of being truly radical- that they are not fully conscious of the master narrative and its influence on their ideas.

How does ideology paint the present as eternal? It does this by misusing the process of abstraction. It must abstract away from its description of the present anything which is historically specific, leaving only those vague categories that transcend time.

For instance, take the modern, neoclassical definition of capital which basically says “Capital is stuff that you use to make more stuff.” Now it is true that we can observe throughout human history the phenomenon of people using (stuff) tools to increase the productivity of their labor.  According to this vague bourgeois definition there is no real distinction between the bows and arrows wielded by the Iroquois Nation and a Ford Motor plant. And so this definition passes the test of ideology: it makes capital seem universal, timeless, natural and stable. And it does this by abstracting away all historically specific production relations.

By such a definition there is really nothing in capital that could cause a capitalist crisis. How can there be a crisis between a man and his tool? And this is why bourgeois economics must always paint crisis as something external to the system: famine, drought, or maybe malevolent manipulations of the market by governments or unions. But rarely do we hear anyone dare suggest that capital itself might be causing the crisis. (Even some self-proclaimed Marxists are hesitant on this point.) Such an explanation would suggest that there was something historically unique about capital. And after all, what could go wrong between a man and his tool?

The problem is that in a capitalist society those tools are not the property of the people who wield them. The means of production are privately owned by the capitalist class. Class relations are basic to the way production is organized. We might also note that work is a social process mediated through wage labor, not just a relation between individuals and tools. But now we are talking about people in groups, something bourgeois economics avoids at all costs.

Bourgeois economics treats society atomistically in a souped-up version of supply and demand: demand is the product of isolated individuals interacting with commodities; supply is the product of isolated individuals relating to tools. And  because people have always wanted stuff, and because there has always been a limited amount of stuff on the planet this is considered all we need to know to understand the economic universe. Mainstream economics substitute some eloquent algebra for what should be the fundamental question: what determines demand and supply? Demand is a function of one’s income from working and socially conditioned preferences from a consumer-driven culture. Supply is determined by the amount of labor apportioned to various tasks and the productivity of this labor. So we see how quickly the image of the atomistic individual falls apart and is replaced by a vast mode of social regulation all regulated by the class relations of a labor process.  The picture of the individual, atomistic consumer/producer can only be sustained by abstracting away all mention of these social relations.

This is Marx’s starting point in Kapital: this world of individuals interacting with commodities conceals a deeper world of social relations. By ignoring these relations ideology paints a picture of an eternal world of people interacting with objects in perfect equilibrium. All other factors are considered an external interference. [When a union organizes for better wages, this is not seen as a a direct result of the antagonisms of private ownership of property, but instead as something external to the picture which interferes. When the state intervenes to open markets, or protect capital from itself (like it is currently doing) this is not seen as an inherent reality of a crisis-prone capitalism, but as an external interference.]

Let’s take a look at an actual society with no internal crisis: the primitive hunter-gatherer society. Here work was a collective effort with little or no differentiation of activity. [This undifferentiated form of social labor was probably the simplest of economic systems.] It was immune to internal crisis because, as a large undifferentiated whole, there were no different internal parts to go awry. Crisis then was purely external- drought, famine, earthquake.

The productivity of capitalism is such that we rarely have to worry about an external threat causing a crisis. Hurricane Katrina was horrible but it didn’t make global stock markets tank. In our ability to store up enough social surplus to survive against these external shocks the crisis has been internalized. Now crisis is a problem with the internal mechanisms by which social labor and its surplus is apportioned.

In a capitalist society social labor is wage labor. The ability to work is bought and sold in the market as a commodity as are the products of that labor. Those commodities have value to the extent that they are part of the social labor process. It is in studying this value that we can begin to understand the way capitalism works.

The goal of the capitalist is to amass value, measured in money, for the sake of amassing value. The capitalist wakes up in the morning with money and at the end of the day has accumulated more money. And he doesn’t need to perform any labor at all in order to do this, nor does he care what kind of or how many commodities he has produced. The only question for the capitalist is “Tomorrow what will I do with all this money?” And the answer is always “Try to turn it into more money.”

Thus the total amount of value in society is expanding, by some estimates an average of 3% a year. This is growth for the sake of growth, regardless of the social consequences. Here is where the absurdity of the conspiracy theory becomes clear. The basic idea of a conspiracy theory is: “There is such an amazing coincidence of messed up stuff in the world. This can’t be an accident. There must be some evil will behind it all.” But the conspiracy theorist misses the point. The motor of society, growth- blind, inanimate capital accumulation- doesn’t happen for a reason. There is no will behind it. It’s growth purely for the sake of growth.

But how far is bourgeois economics from the conspiracy theorist? Surely, this is what was most fascinating about the Ron Paul phenomenon: how Ron Paul fused the libertarian and conspiracy causes. If we take libertarianism to be the basic ideological distillation of modern economics isn’t it revealing how close the bourgeois theories of crisis coincide with the conspiratorial notion of an evil, outside force destroying the fabric of society- governments, the FED, jews, aliens. Neither can see that capitalist crisis is indistinguishable from capitalism itself.

When we ask if crisis is internal to capital we are asking if there is a limit to this growth. Clearly capital can only grow at the expense of the laborer. We, the laborers, are the active agents in a vast field of capital comprised of the products of past labor- machines, tools, raw materials, partially finished commodities. Marx called this ratio of past labor to living labor, of machines to man, the “organic composition of capital” and he observed that over time the composition of capital becomes more and more dominated by machines- all intended to improve the productivity of labor. But just because more widgets roll off the conveyor belt doesn’t mean that more value is being produced.

You may know those beautiful Diego Rivera murals in Detroit- his homage to the American industrial worker. In the murals there is a busyness of motion, of swirling gears and conveyor belts, the clanging and rumbling of great industrial machinery. And in the middle of it all, their bodies falling in to rhythm with the machines, are the the muscular forms of the American proletariat. Here is a brilliant illustration of several of Marx’s key insights about capital. In its explosive growth, capital flows through more and more of our reality until everything around us takes on the rhythm of accumulation. In the acceleration of turnover time, the construction and reconstruction of physical space, the gyrations of the stock market and the interest rate, we are always in the presence of the thumping rhythm of “the machine” that is capital. But we are the solitary living ingredient in the equation. As our bodies fall in with the rhythm of the conveyor belt we breath life into the machine.

The bodies in Rivera’s mural are totally dependent on capital for their survival and capital is totally dependent on the exploitation of those bodies for its survival. Yet despite their mutual dependence the two sides are antagonistic. What happens if we perform that careless abstraction of the bourgeoise economist- if we wave our magic wands and make one of the two elements disappear?

If we were to make capital disappear the wage laborer would cease to exist. Yet, human beings would still exist and they would still labor. In fact humans have labored without capital before and hopefully they may again one day. Thus the self-negativity of the worker is that (s)he can say “no” to being a wage laborer. This is what gives a union power- it’s ability to say a collective “no” to capital. This is also why labor creates value in the first place- the ability to say no is the essence of a social contract. The ultimate “no”, the ultimate self-negativity of labor is revolution. This is when we transcend wage labor.

If the human species were raptured this very minute, imagine the world we would leave behind: Diego Rivera’s mural falls silent, the still machines rusting in dark factories; empty schools and prisons, money lying in dark vaults, oil lying still in its barrels- a dead, motionless world. Capital is nothing without the laborer. Thus the self-negativity of capital is that to the extent that it eliminates labor it eliminates itself.

If we were to paint a dozen more machines into Rivera’s mural, the physical output might double. Perhaps we might erase the workers altogether and replace them with machines. What could be better for capital? A machine increases physical output and frees capital of its reliance on labor. But while this may create short-term competitive profits for the individual capitalist it comes at a high price. The less workers we have in our mural, the less value we produce. The more we spend on machines the higher our costs. This is why efficiency is the self-negating part of capital: efficiency destroys the very thing which creates value in the first place.

This may seem intuitively puzzling. If we erased all the workers from Rivera’s mural, wouldn’t cars still be produced? Wouldn’t people still buy them? Wouldn’t profit still be made? This is precisely the argument of those who maintain that profit is physically determined- that an increase in efficiency/productivity must mean more profits. But this is counter to the tenants of value theory: that only labor can produce value and that to the extent that capital accumulates at the sake of labor it is self-negating.

The debate over these rival concepts of productivity, capital and value is crucial. It is important not to dismiss this debate as mere scholasticism. When the bourgeois economist looks at those great murals of Diego Rivera’s he sees only people using stuff to make more stuff, existing in static equilibrium, besieged on all sides by hostile external forces. From the perspective of value theory the roaring machines conceal a social relation which pervades our reality and is contradictory at its core. Those “hostile external forces” are caught up in the gravitational field of capital and become internal to capital. Capital subsumes money, the state, culture and physical space and leaves its mark on all of them forcing them to express its contradictions.

Bourgeois economics may project its categories back and forth in time to create the illusion of a timeless capitalism in equilibrium. But in times of crisis the veil is torn. In a crisis it becomes clear that all things are in flux, that nothing is certain, that social systems don’t grow on trees- that they must be reproduced. We see motion and change all around us. When capital can’t reproduce itself, anything can happen. A crisis is a horrible time for people, but it’s also a great time for radical theory.

Frederick Taylor- the biggest bastard ever

Part One:

Part Two:

Frederick Taylor- the biggest bastard ever

At the turn of the century many historians wrote cute-sy fluff pieces in the media about who had been the most influential person of the 20th century. Many names were floated: Hitler, Stalin, Churchill, Einstein, Ghandi, etc. One name that didn’t appear on many lists was Frederick Taylor. While Taylor is a common name in labor history circles, his name is unfamiliar to most. Yet Taylor’s impact on the 20th century was profound, so profound that his ideas continue to shape the day-to-day lived experience of most people today.

Taylor was a management theorist- a theorist of the labor process. In an era where the capitalist firm was becoming larger and larger, employing more and more workers, a fundamental problem was emerging: How do we get workers to work more? Of course this had always been a problem for capitalists. But the rapidly expanding size of the factory was demanding more nuanced control over workers to ensure maximum output.

(When the length of the working day can’t be extended then one must turn to the labor process itself. One must find a way of increasing the intensity of labor so that it produces more per hour. Remember that the capitalist doesn’t buy labor. He buys labor power- the ability of the worker to labor. How long and hard those workers work is an issue to be struggled over. )

During the late 1800’s and the early 1900’s Frederick Taylor studied, experimented with, and wrote about the theory of work. His goal was to find ways of controlling the motions of workers so as to attain the highest possible output for every dollar spent on wages. His writings are an incredibly lucid and frank distillation of the capitalist perspective on class struggle. Very rarely do we see the capitalist class engaging in such open discussions about how to control and exploit a labor force. The frankness of his writings almost eliminates the need for interpretation- thus much of this video will just be excerpts of his writings.

For Frederick Taylor there was an enormous problem afflicting modern society: workers didn’t work hard enough. He called such laziness “soldiering”.

“We can see our forests vanishing, our water-powers going to waste…. The end of our coal and iron is in sight. But the larger wastes of human effort, which go on everyday through such of our acts as are blundering, ill-directed or inefficient are less-visible, less tangible and are but vaguely appreciated…. And for this reason, even though our daily loss from this source are greater,… the one has stirred us deeply while the other has moved us but little.” (Taylor, iii)

Taylor is shocked that the inefficiency of workers hasn’t created a national outcry: “As yet there has been no public agitation for ‘greater national efficiency’, no meetings have been called….” (Taylor, iii)

Taylor was often upset that others around him didn’t share his obsession with efficiency- and it was an obsession. Taylor was obsessive-compulsive. As a child he counted his steps and timed all of his actions so as to make his motions as efficient as possible. In his adult life he sought to impose his obsessive compulsions on all those around him and eventually the entire capitalist world. And the capitalist world was ready for a Taylor. In the late 19th century capitalism was growing fast, competition was accelerating, the firm was growing in size and with it the number of workers employed on a single shop-floor. The need for increased control over this mass of workers was growing as was the need for them to work more efficiently to stay competitive.

“…in a majority of cases the man deliberately plans to do as little as he possibly can- to turn out far less work than he is well able to do- in many instances to do not more than one-third to one-half of a proper day’s work…. This constitutes the greatest evil with which the working people of England and America are now afflicted.” (Taylor, p.3)

For Taylor a “proper days work” meant the maximum level of output humanly possible. He often called it “a fair days work”. When workers were not physically capable or unwilling to work “a fair days work” he fired them.

Why did workers soldier? Taylor never was able to give an answer to this question. To him it represented one big misunderstanding between capitalists and workers. Actually, Taylor argued, there was no fundamental antagonism between workers and capitalists.

“The majority of these men believe that the fundamental interests of employees and employers are necessarily antagonistic. Scientific management, on the contrary, has for its very foundation the firm conviction that the true interests of the two are one and the same.”(Taylor, page 1)

Soldiering was made possible because management didn’t even know how much work it was possible to extract from workers.

“The greater part of the systematic soldiering is done… by the men with the deliberate object of keeping their employers ignorant of how fast work can be done.” (Taylor, page.7)

Taylor’s goal was to seize this knowledge of the labor process from the worker and put it in the hands of management to be used as a tool for control. He called this “scientific management”. As a science management could refine the labor process to a point of efficiency far greater than any worker could achieve on their own.

“..the science which underlies each workman’s act is so great and amounts to so much that the workman who is best suited to actually doing the work is incapable, either through lack of education or through insufficient mental capacity, of understanding this science.”

Note the wording “the workman who is best suited.” Who were these workers who were best suited for particular jobs? Workers who were too intelligent, too strong-willed, or incapable of working at maximum speeds were not best suited.

Taylor envisioned a perfectly harmonious social order where all workers were employed in occupations where they could work most efficiently. They would be accompanied by a strata of scientific managers who analyzed their motions and reorganized them for maximum output. Anyone one who didn’t fit into this perfect vision of the world would be fired.

“the greatest prosperity can exist only when that individual has reached his highest state of efficiency; that is when he is turning out his largest daily output.” (p2)

“The search for better more competent men… was never more vigorous than it is now…. It is only when we fully realize that our duty as well as our opportunity lies in systematically cooperating to train and to make this competent man… that we shall be on the road to national efficiency.” (iii)

The entire structure of production and society would revolve around the creation of this new efficient human. “In the past man has been first; in the future the system must be first.” “The fundamental principles of scientific management are applicable to all kinds of human activities, from our simplest individual acts to the works of our great corporations…. the same principles can be applied with equal force to all social activities: to the management of our homes; the management of our farms; the management of the business of our tradesman, large and small; of our churches, our philanthropic institutions, our universities and our governmental departments.” (iv)

We can just imagine how satisfying such a rationalized fantasy-world must have seemed to his obsessive-compulsive mind. A big part of this fantasy world was Taylor’s concept of harmony between classes. Taylor believed that all the workers he was retraining to work harder were his friends and that he had their best interest at heart even if they didn’t know that. He persisted in this fantasy even when workers threatened to kill him (p.24)

“…the men who were under [me] were [my] personal friends…. [I ] used every expedient to make them do a fair day’s work, such as discharging or lowering the wages of the more stubborn men who refused to make any improvement….” (p.23)

Midvale Steel- testimony before Special Committee of the US House of Representatives:

Taylor started his management career at the Midvale Steel Company outside Philadelphia.

“As soon as I became gang boss the men who were working under me and who, of course, knew that I was onto the whole game of soldiering or deliberately restricted output, came to me at once and said, “Now Fred, you are not going to be a damn piecework hog, are you?”

“I said ‘If you fellows mean you are afraid I am going to try to get a larger output from these lathes,’ I said ‘Yes; I do propose to get more work out.’ I said ‘You must remember I have been square with you fellows up to now and worked with you…. I have been on your side of the fence. But now I have accepted a job under the management of this company and I am on the other side of the fence, and I will tell you perfectly frankly that I am going to try to get a bigger output from those lathes.’ They answered ‘Then you are going to be a damned hog.’”

“I said ‘Well if you want to put it that way, all right.’ They said, ‘We warn you Fred, if you try to bust any of these rates, we will have you over the fence in six weeks.’ I said, ‘That is alright; I will tell you fellows frankly that I propose to try to get a bigger output off these machines.’”

“Now that was the beginning of a piecework fight that lasted for nearly three years, as I remember it… in which I was doing everything in my power to increase the output of the shop, while the men were absolutely determined that the output should not be increased….”

“I began, of course, by directing some one man to do more work than he had done before, and then I got on the lathe myself and showed him that it could be done. In spite of this, he went ahead and turned out exactly the same old output and refused to adopt better methods or to work quicker until finally I laid him off and got another man in his place. This new man- I could not blame him in the least of circumstances- turned right around and joined the other fellows and refused to do any more work than the rest.”

Notice that Taylor says he couldn’t blame this man for not wanting to work harder. In several accounts of his battle at Midvale Steel Taylor does admits to some sort of fundamental antagonism between management and workers.

“As a truthful man, [I] had to tell them that if [I] were in their place [I] would fight against turning out any more work, just as they were doing, because under the piecework system they would be allowed to earn no more wages than they had been earning, and yet they would be made to work harder.” (p.24)

Taylor was convinced that workers needed a material reward for working harder. A fundamental part of his theory of scientific management was the permanent raising of wages for workers who conformed to this new scientific work ethic. Taylor thought that capitalists would consent to higher wages because the increased cost of higher wages would be compensated for by the increased size in output and by the diminished size of the workforce(increased efficiency and “scientific selection of workers” meant massive layoffs for many of the firms Taylor laid his hands on.) But, to Taylor’s great dismay, once new levels of efficiency had been reached most employers chose to slash rates and wages returned to normal or even lower.  In fact, the effect of scientific management was to reduce the skill-set of the working class as a whole which in turn reduced labor’s bargaining power and lowered wages. It seemed there were fundamental class antagonisms immune to Taylor’s utopian philosophy.

But back to Midvale…

Taylor decided to take the next step:

“I hunted up some especially intelligent laborers who were competent men… and I deliberately taught these men how to run a lathe and how to work right and fast. …and every solitary man, when I had taught them their trade, one after another turned right around and joined the rest of the fellows and refused to work one bit faster.”

Frustrated Taylor decided to take the next step. He said to the men, “Now, I am going to cut your rate in two tomorrow and you are going to work for half price from now on. But all you have to do is to turn out a fair day’s work and you can work better wages….”

Eventually the men caved in and production rose at the Midvale Steel factory.

“After that we were good friends, but it took three years of hard fighting to bring this about.”

Emboldened by this success Taylor went on to become a highly sought-after and influential management consultant. Over the years he perfected his system of “scientific management.” Here’s how the system worked.

First Taylor would observe the labor process as it existed. He cataloged all the motions of the workers and timed them. He then set about, through trial and error, devising the most efficient flow of motions possible.

“…there are many different ways in common use for doing the same thing…. there is always one method and one implement which is better than any of the rest. And this one best method and best implement can only be discovered or developed through a scientific study and analysis of all the methods and implements in use, together with accurate, minute, motion and time study.” (p.9)

No job was too simple or complex. Taylor famously spent 26 years studying the best way to cut metal. (The task seemed impossible to rationalize as there were too many variables. Even famous mathematicians told him it couldn’t be done. But Taylor’s obsessive compulsive genius prevailed.) But simple work could be rationalized as well.

In a famous example Taylor sought to come up with a more efficient method for loading pig-iron into a train car. Men had to pick up a piece of pig-iron, walk up a plank and drop the pig-iron into a train car. On average a worker could load about 12 1/2 tons of pig iron a day. After careful study Taylor “discovered” that 47 tons a day was a “proper day’s work”. He did this by analyzing the tiring effect of physical labor on muscle. He discovered that a man’s muscles require a certain percentage of rest for an amount of work exerted. The trick was to time the ratio of work to rest for each worker so that they could work the hardest without tiring out.

The second step was to pick the right worker. Any old worker wouldn’t do. In fact only about one in eight men could load 47 tons of pig iron a day.

“With the very best of intentions’ the other seven out of eight men were physically unable to work at this pace. Now the one man in eight who was able to do this work was in no sense superior to the other men who were working on the gang. He merely happened to be a man of the type of the ox, — no rare specimen of humanity, difficult to find and therefore very highly prized. On the contrary, he was a man so stupid that he was unfitted to do most kinds of laboring work, even.”

Taylor started with just one man: a large Pennsylvania Dutchman named Schmidt. These were his instructions to Schmidt:

“…you will do exactly as this man tells you to-morrow, from morning till night. When he tells you to pick up a pig and walk, you pick it up and you walk, and when he tells you to sit down and rest, you sit down. You do that right straight through the day. And what’s more, no back talk. Now a high-priced man does just what he’s told to do, and no back talk. Do you understand that? When this man tells you to walk, you walk; when he tells you to sit down, you sit down, and you don’t talk back at him.” (p.21)

Taylor’s next comments tell us more about the “scientific selection of workers”:

“This seems to be rather rough talk. And indeed it would be if applied to an educated mechanic, or even an intelligent laborer. With a man of the mentally sluggish type of Schmidt it is appropriate and not unkind, since it is effective in fixing his attention on the high wages which he wants and away from what, if it were called to his attention, he probably would consider impossibly hard work.” (p.21)

Throughout his writing Taylor stresses the idea of selecting only workers who are able to work at the very highest level of efficiency. This always meant firing all of the other workers. Taylor had no sympathy for these displaced workers.

“And indeed it should be understood that the removal of these men from pig-iron handling, for which they were unfit, was really a kindness to themselves, because it was the first step toward finding them work for which they were peculiarly fitted…” (p.31)

The result was a drastic reduction in the number of workers employed and at the same time a rise in output. Workers were given raises though, as mentioned earlier, these raises usually did not stay in effect. Meanwhile the size of management grew. There was an office where labor was planned out. When workers came to work in the morning they were given a set of written instructions as to how exactly to work. Time-study men patrolled the factory floor timing motions. There was a proliferation of managers all dedicated to different aspects of labor control.

Divorced from the knowledge of the labor process, the worker became less and less skilled. Work was more repetitive and it was harder to bargain for higher wages when it was so easy for employers to replace a workforce.

Taylorism was also fiercely resisted. It produced much shopfloor conflict and militant strikes. Taylor consistently left this detail out in his own versions of his successes claiming that: “…during the thirty years that we have been engaged in introducing scientific management there has not been a single strike from those who were working in accordance with its principles….” Such blatant omissions were typical of a man who could not tolerate anything the interfered with his utopian vision of a planned, rational universe.

While Taylor’s perfect world- a world free of class conflict, where worker and capitalists worked toward a common goal of perfect efficiency- never came into being, his ideas about the labor process became part of the basic fabric of working life. The planning of motion in work and management’s monopoly over the knowledge of work are a basic fact of the way we experience much of modern work. Scientific management is still taught in industrial engineering schools and its concepts still inform the way workplaces are built and the way jobs are structured.

While some of management theory has moved on since Taylor the basic questions he was grappling with are still crucial. As the productive powers of labor increased rapidly over the course of the 20th century there was much thinking about how production and society were to be organized and how the worker would be habituated to the demands of capital. As we begin to look at the history of capitalist crisis it will be important to keep these basic questions in mind.

Bibliography:
“The Principles of Scientific Management” Frederick Winslow Taylor; Dover Publications 1998; originally published in 1911. I have condensed some sentences/paragraphs to make some quotes more You-tube friendly. This is indicated by the traditional “…”. (I have not in any way changed the meaning of the text. See my comment below.) “Principles” can be read online at the marxist internet archive: http://www.marxists.org/reference/subject/economics/taylor/principles/index.htm

Taylor’s narration of the Midvale battle comes from Taylor’s testimony before “A Special Committee of the House of Representatives to investigate the Taylor and other Systems of Shop Management” as quoted in Harry Braverman’s “Labor and Monopoly Capital”, 1998 Monthly Review Press

I also enjoyed “Frederick Taylor: A Study in Personality and Innovation” by Sudhir Kakar. MIT Press 1970

Work

Work.

Part One:

Part Two:

Human beings have always worked. But the way we work has changed over time. In working we not only create the necessities for our own survival but we create the world around us and create ourselves. Work not only defines our relation to the natural world which we work upon. It also defines our relations with each other and how we understand ourselves. As our labor becomes more powerful- more productive and impressive in its achievements- it takes on more complexity and calls forth a more sophisticated social system to coordinate all of these diverse and complex labors.

Certainly other animals are capable of very complex and impressive work: a bee hive, an ant colony, etc. But yet there seems to be something distinctive about the way humans work, the way we relate to the natural world, the way we build societies… Karl Marx says about this question, “What distinguishes the worst of architects from the best of bees is that the architect raises his structure in imagination before he builds it.” (1) I think Marx was on to an important point here. While the bee, the bird, the ant, all engage in instinctive acts of work, acts they have repeated for hundreds of years, the human thinks creatively about work. Humans look at the world and dream up new things to build and new ways to build them. We can separate the conception of work from the execution (the carrying out of) of work. (2)

In this daily act of doing, we construct not only houses, bridges and fields, but also all of the social relations of a labor process. Human labor has always been a collective process. Our social labor is greater than the sum of its parts. When we work we enter into relations of cooperation with each other. The labor process is this organization of our social cooperation. As our social relations evolve, as our relation to nature evolves, and as our collective knowledge evolves so too does the labor process evolve.

Capitalism
To understand our current condition, to understand modern man, it is crucial to understand what is unique about work in a capitalist society and the ways this labor process has evolved over the history of capitalism. [We should start by remembering three things about work in a capitalist society: 1. Work happens under conditions of private ownership over the means of production. That is, a small group of people own the main productive apparatus of modern society and the rest of us sell our labor to them for wages. 2. A capitalist only invests in production in order to make a profit. 3. The exchange of labor and the products of this labor is coordinated by a concept of value which we measure in money.]
We should start by noticing the distinctive way labor is used in a capitalist society. When a worker produces a product for a capitalist he doesn’t sell his labor, he sells his labor power. That is, a worker doesn’t sell a definite amount of work to the capitalist. He sells his ability to work for a given amount of time. It is up to the capitalist to get the most labor out of this period of time as possible in order to maximize profits. Thus with capitalism we get the problem of management: of how to control and organize the labor process for maximum efficiency. This is why the question of time becomes so important in capitalist society. The capitalist is constantly seeking ways to get the most value out of every minute. This constant question of time in relation to productivity permeates all of society, even outside the workplace, the more capitalist social relations become dominant.

Capitalism didn’t just create a new labor process from the start. It inherited a preexisting labor process and a preexisting division of labor. Work in feudal society was mostly skilled craft work. Goldsmiths, cobblers, weavers, etc. all owned their own means of production and had total control over their own labor process. Their trade took years of study to master and required an extensive period of apprenticeship. The agricultural work of the peasant classes, though not generally considered craft-work, was a form of skilled labor that took years to learn. Parents passed down their collective knowledge of farm work to their children as the whole family shared in a collective labor process.

In order to transform this craft-work into a capitalist labor process these workers had to be separated from their own means of production and be turned into wage laborers totally dependent on capital in order to survive. This was a long, complex and painful historical process (called primitive accumulation) that will have to be discussed elsewhere. We can still see this process at work in parts of the 3rd world where free trade policies like NAFTA destabilize traditional agriculture sending people out into the job market looking for work as wage laborers.

One of the first innovations in the capitalist labor process was to bring all of these workers together into one workplace. This allowed  the capitalist more control over the labor process thus beginning the long history of a conscious manipulation of the nature of work in order to extract as much value as possible from a workforce.

One of the simplest ways to do this is to increase the total amount of time workers work. The early history of capitalism was one of long working hours and constant battles over the length of the working day. It wasn’t until 1833 that a legal length of the working day was established in England. It lasted from 5:30am to 8:30 pm. Children were forbidden from working more than 12 hours a day. French workers workers won a 12-hour day in 1848. The battle for the 8 hour day began in the US after the Civil War:
“The first and great necessity of the present, to free the labor of this country from capitalistic slavery, is the passing of a law by which 8 hours shall be the normal working day in all the States of the Union. We are resolved to put forth all our strength until this glorious result is attained.”- The General Congress of Labour held in Baltimore, August 1866(3)

It wasn’t  until 1936 that the battle for the 8-hour day was won in the US.

The issue of the length of the working day is still an ever-present issue in capitalism. It manifests itself in petty struggles to stop workers from milking the clock, to battles over vacation time, retirement age, over-time, and, still, the length of the work-week. As long as labor power remains a commodity there will always be struggles over time.

To the extent that the working day can no longer be extended (whether because of class struggle or because the working day itself just isn’t long enough for the voracious appetite of the capitalist class) the capitalist is driven to increase the amount of surplus value workers produce for the capitalist within a given period of time. This means exerting more control over the labor process- controlling how workers work- in order to make this work the most efficient.

The history of work in capitalism is full of experiments and theories (management theory, industrial sociology, human-relations theory, etc.) all devoted to this problem of labor-control. One of the most influential of such theorists was Frederick Taylor who pioneered the concept of “scientific management”. [Taylor's theories, a pure distillation of capitalist management, deserve a video of their own.] Taylor sought to separate conception and execution within the labor process. A task was studied in detail by an engineer, all of its motions mapped out, timed and measured and then reorganized so as to achieve maximum efficiency. The worker was then trained to work in this new efficient method thus depriving workers of any control over their own work.

A management guide about office work from 1960 broke down the category “open and close” like this (4):
File drawer, open and close, no selection – .04 minutes
Folder, open or close flaps- .04 minutes
Desk drawer, open side drawer of standard desk- .014 minutes
Open center drawer- .026 minute
close side- .015 minutes
close center-.027 minutes

This information was collected in order to organize the placement of objects in the office and the motions of workers so as to achieve maximum efficiency.

A big part of scientific management was the breaking down of work into its component tasks which could then be spread out amongst many workers. This is different than the division of labor in society in which the labors of autonomous producers are coordinated through a market. Here the labor process itself is divided and reorganized via the authority of management. We often associate this concept with assembly lines where each worker performs a simple, repetitive task before the commodity passes to the next worker. But actually, most work in a capitalist workplace is divided up like this. We rarely see a product through from start to finish. This allows work to be reduced to just a few simple, repetitive motions requiring little skill. The worker needn’t know anything about the labor process as a whole or even know what it is he or she is making. This process is called the “rationalization” of work.

This has several implications:

The worker looses control of the pace of work. As a cog in a much larger mechanism the worker is forced to work at a given speed, a speed which can be controlled by management. This in turn gives management more control over the amount of value workers produce within a given period of time.

Though more and more science and planning may go into the organization of the labor process by engineers and managers, the worker understands the process less and less. The worker, instead of being a skilled craftsman with years of training could be anyone able to follow simple directions. The traditional craft-worker is undermined and the “ideal worker” comes to resemble an unskilled worker-drone.

Unskilled labor is cheaper labor. This raises profits. The more work is “deskilled” the more all jobs start to resemble one another in skill. It becomes easy for workers to move from one occupation to another. It is also easier to replace workers.

This new labor process calls forth a whole host of new occupations. Engineering departments are created to map out shop-floors, design new machines, time-workers and design labor processes. The job of management becomes too complicated for the individual capitalist to handle. The job of controlling workers is actually rationalized itself, and a class of salaried managers is created to do this work of management for the capitalist. (In the upper levels of management the role of capitalist and manager blur together in CEO’s. And of course, in the modern corporation the CEO comes closest to the personification of the individual 19th century capitalist. More on the evolution of the capitalist in a future video.)

The increasing size of these rationalized, planned factories requires a massive extension of bookkeeping. Inventories, debts, payroll, profits, etc. all must be tracked meticulously. The job of bookkeeper is rationalized, broken down into a large gradation of occupations all involved in tracking the flow of value in and out of the company. (And because nobody can be trusted all counting of value happens twice via a system of double-bookkeeping. Outside the firm accounting agencies, government regulators, and tax-offices all duplicate this booking again. Thus even though the labor process of bookkeeping has been rationalized, it is all grossly inefficient from a social standpoint. But the tracking of value flows is an indispensable task in the modern capitalist firm so society tolerates this duplicate labor.)

The increased efficiency of labor means that there are a lot more commodities to be sold. This calls forth a tremendous increase in marketing. The job of marketing is essentially to produce the consumer. The modern capitalist firm has a huge marketing department and this work of marketing is also broken down into all of its component pieces and rationalized. Marketing becomes more and more a part of the experience of living in a modern capitalist society. Try to imagine how different society and people would be without advertising and you will understand how effectively marketing has been at producing the consumer.

Now if you are thinking critically at this point you may be saying “…but all work in a capitalist society is not unskilled!” This is true. The process of rationalization of labor is the tendency in which capital moves. But this tendency also calls forth scientists to design efficient machines, engineers to design factories, management experts, etc. The greater the pool of unskilled workers at one pole the more there is a need for a small amount of specialists at the other end. And the work of these specialists can also be rationalized…

An important principle here is Babbage’s principle (named for Charles Babbage) which states that the breaking down of a job into component parts always saves money. If you have a skilled worker like a doctor, why should this doctor waste time filling out insurance forms, or doing simple things like weighing people and taking their blood pressure? You could hire less doctors if you had people like nurses to do the simpler work, secretaries to fill out forms, billing offices to bill patients, lab technicians to analyze data, etc. A hospital is the perfect example of the Babbage principle at work. We see a gradation of skill from doctors to janitors as management has broken up all the tasks required to run the hospital, separating out each layer of skill so as to cheapen the worker whenever possible. This is why most of your time at the doctor’s office doesn’t involve you actually seeing a doctor. You probably only see the doctor for 10 minutes if you are lucky. The rest of the time you are talking nurses, med students and secretaries.

When new industries are created like, say the the computer industry, there is often a large degree of skill involved in the labor process. Over time this labor process is rationalized and skill is squeezed out of the labor process as much as possible. Computer work today is now broken up between software designers, code writers, designing and manufacturing hardware, tech support, etc. While there is still lot of skill that goes into computers it has also become a lot easier to do things like, replace parts, write code, design webpages etc. Many aspects of the computer world have become less-skilled reserving the skilled jobs for a smaller group of workers. (Smaller in portion to the amount of commodities being produced.)

Ever had a really frustrating time on the phone to a customer service representative? After going through a computerized menu for 5 minutes, listening to Kenny G for 10 minutes, you finally get a human being. But the person doesn’t know how to help you and doesn’t know any one in the office who can help you. Customer service work has been extremely rationalized. Workers have computers which guide them through answering all the expected questions. But if a question deviates from their script they are totally helpless. The modern worker doesn’t understand the entirety of the labor process. They are just given a tiny, repetitive task to repeat. So when the customer service agent tells you that there is nobody that can solve your problem this is literally true- the labor process controls the worker, the worker doesn’t control the work. There really is nobody there that knows what is going on or who can deviate from the script.

And this is the night-marish potential in modern capitalism: That there really is nobody that knows what is going on. We becomes a cog in a very large process that we can’t understand. We perform repetitive, simplified tasks and the motion of our work is controlled by forces outside of us, beyond our control.

But labor hasn’t always been like this and it doesn’t have to be like this. There is nothing about labor itself that requires it to be unskilled, repetitive or brutish. But once a change has become generalized throughout society we tend to think that life has always been this way: that labor has always been a commodity and that it is “progress” to attempt to cheapen labor whenever possible. From the perspective of capital this is indeed progress: the progress of making profit. But from the perspective of humanity there is nothing progressive or efficient about wasting human life and potential merely to feed the insatiable appetite of capital.

Footnotes:
1. Karl Marx, Das Kapital. Vol. 1 p. 284 (Penguin edition) from the beginning of the chapter “The Labor process and the Valorization Process.”

2. In chapter one of “Labor And Monopoly Capital” Harry Braverman points out that there are some other animals that problem solve in their work, that can use simple tools in creative ways, but that the difference in degree to which this predominates in human labor is enough to signify a qualitative difference between man and other animals. He cites the Hegelian idea of change in quantity becoming a change in quality.

3. Quoted in Das Kapital p.414
In 1866 Karl Marx himself drafted a proposal for the 8-hour day as one of the demands of the International Workingmens’ Association. Das Kapital p. 415, bottom footnote (Penguin edition)

4. The manual was “A Guide to Office Clerical Standards: A compilation of Standard Data Used by Large American Companies” (Detroit 1960) Quoted in Labor and Monopoly Capital by Harry Braverman, p.221. The manual goes on to time walking, walking in confined spaces, turning while walking, reading a line of typed copy, “jogging” paper, cutting paper with scissors, stapling, opening mail, folding paper, and even punching time clocks!

Crisis! – overaccumulation

Crisis and the Overaccumulation of Capital

We can’t understand anything in isolation. We only understand things by comparing them to something else. If we are to understand why a capitalist economy goes into crisis we need to compare capitalism to something outside itself. Through such a comparison we can begin to see what is distinctive about capitalist crisis.

In order to make the most striking comparison, here we will use the example of a primitive hunter-gatherer society. The economic life of these early societies were extremely simple because there was no differentiation of work activities. Labor was a collective effort in which everyone participated to the best of their ability. The products of that labor were shared amongst the community according to need. The economic structure of these early primitive-gatherer societies was a large undifferentiated whole. There was no possibility of internal economic crisis because there were no internal parts that could be in conflict with each other or get out of synch.

Economic crisis, then, was external. Drought, cold, fire, disease, predators…. The brutal forces of nature had their way with early man. It was this opposition between man and nature that defined life for early man.

Fast forward a few millennium…

Capitalism could be seen as the polar opposite of this. Our vast productive abilities have enabled us, for the most part, to be free of this opposition with the natural world. By producing a social surplus, we can store up goods to feed us in times of drought, to shelter us from the ravages of storm and cold. This tremendous productive ability is accompanied by a tremendous differentiation of economic activity into separate parts- millions of different productive units (workers, companies, banks, governments) all coordinated through capitalist markets. When crisis hits a capitalist society it is not because of some external shock, but because something has gone awry internally. The mechanism by which all these different labors are coordinated has broken down. Crisis in a capitalist society is not a matter of man versus nature but of man versus himself. We might even say that the external conflict has been internalized.

How are all of the different productive activities of a capitalist society coordinated? Rather than sharing in one collective laboring effort like in a hunger-gatherer society, capitalist production is separated into millions of separate labor processes all coordinated through the exchange of commodities. By exchanging commodities in the marketplace the labor of tomato pickers, car makers, hair stylists and coal miners is coordinated. The private labors of these individual labor processes (tomato pickers, car makers, hair stylists and coal miners) each make up just one small part of the total labor process of society. Their labors are represented in the form of commodities. What at first glance appears to be just physical objects exchanging with one another is actually a complicated process whereby the various components of a social labor process are brought together. Karl Marx remarked about this process that, “Material relations between people become social relations between things.” That is, commodities become representations of these tiny parts of the collective labor process.

Value

Commodity exchange implies a notion of value. While in previous eras people labored in order to make things for themselves, capitalist production means working in order to make commodities to sell. Commodities don’t just have a subjective value to the people who use them (a use-value). They also have an objective value, their exchange-value, which expresses their value relative to all other commodities. (We don’t just worry about whether or not we want a commodity; we also worry about how much it is worth relative to other commodities). Value expresses the amount of labor represented by a commodity. It is through this exchange of values in the market that all of the different parts of the social labor process are coordinated. We measure value in money.

So the social relations between people in a capitalist society are regulated by commodity exchanges. And commodity exchange is organized around values. “Value”, in the economic sense, is a very peculiar concept, unique to capitalism. Value is produced by the private concrete labor of an individual worker or group of workers. Yet this labor only has value to the extent that it is part of a larger social labor process happening all over the world. Through exchange the value of my individual labor is measured against the value of everyone’s labor. When we say that crisis in internal to capitalism we mean that something has gone awry with the way value regulates this commodity exchange.

Accumulation and Overaccumulation

[Money is also a very peculiar thing. We use money to measure value. It helps us exchange one commodity for another (C-M-C). In capitalism another use of money also becomes possible- M-C-M: A capitalist begins the day with money (M). (S)he sets this money in motion producing commodities (C) to sell. At the end of the day (s)he has more money (M). Whether a capitalist invests directly in production or loans money out as credit they are engaging in M-C-M. Thus the total amount of value in society is constantly expanding.]

Money is also a very peculiar thing. We use money to measure value. This allows money to act as an intermediate stage in the exchange of commodities: rather than directly bartering I sell a commodity for money and then use that money to buy a different commodity. But the opposite can also happen: I can spend money on the production of commodities and then sell those commodities for money. It only makes sense to do this if I end up with more money. This is exactly what capitalists do all day long. They turn their money into more money by investing in production (or loaning money). When capitalists accumulate more money they are accumulating more value. Thus the total amount of value in society is constantly expanding.

In previous societies the rich were primarily concerned with accumulating specific things (use-values): land, subjects, riches, etc. In a capitalist society it is money itself, as the representation of abstract human labor, that is the goal of accumulation. Instead of pursuing particular qualities of commodities the capitalist is interested in gaining greater quantities of the same thing: money. Because humans can always work more, always produce more value, there is no limit to the amount of value that a capitalist can accumulate.

Eventually Genghis Kahn would have run out of desert to conquer. Pizarro could only steal so many riches from the Incas. The Pharaoh could only build so many pyramids. But the capitalist can grow and grow, seemingly without limit. Hence the amazing, dynamic trajectory of capitals growth- a system that in a few hundred years has conquered the globe, revolutionized the lives of everyone on it, destroying old societies and creating new ones out of their ashes… always getting bigger.

Because there is no limit to the amount of value that can be created the only thing the capitalist worries about is where to invest to make more money. As long as money can be turned into more money the economy is in good shape. But if there is ever a reason why money can’t find profitable investments we are in trouble. When money can’t be turned in to more money the Crisis! sirens go off on Wall Street. Capital freezes in all the stages of it’s circuits and economic activity grinds to a halt. The only solution is to devalue capital: to sell off excess commodities at discounts, to close factories, fire workers, write down assets, foreclose on mortgages, etc. When capitalist accumulation overreaches its own ability to grow it has no choice but a violent purging of value from the system. This is what a crisis is.

Nowadays we talk a lot about the external, ecological limit to capitalist growth. But value theory is interested in a different limit- an internal limit lodged in the very heart of capitalist accumulation. When the accumulation of value hits a limit it appears as a crisis of over-accumulation: an excess of capital that can’t find profitable investments. This manifests itself as idle factories, factories with excess capacity, shelves of unsold commodities or partially finished commodities, unemployed workers, debt which can’t be paid, devalued real estate, etc. Value theory argues that the same process whereby value is accumulated generates its own limits. Let’s take a closer look as to how this happens.

Labor and Capital

In order for a capitalist to turn his money into more money there must be a commodity which is capable of creating more value than it costs. This commodity is, of course, human labor. The amount of money paid to workers in wages has nothing to do with the amount of value they produce. These are two entirely distinct quantities of value. (We often refer to this as the difference between the use-value and exchange-value of labor power. The use-value is the capacity for creating value and the exchange-value is the cost of reproducing the worker.) The more labor a capitalist gets out of his workers relative to their wages, the more surplus value the capitalist makes, the more profit he makes, the more the economy grows.

This means that there is a fundamental antagonism between the interests of capitalists and workers. The more surplus value the capitalist extracts from his workers the better he is at being a capitalist. The better the working class can resist this exploitation the more they defend their own interests. This antagonism lies at the very heart of the way value is created in a capitalist society. Let’s look then at how this antagonism generates limits to accumulation.

Though labor and capital are antagonistic they are also mutually dependent. Without capital workers wouldn’t have jobs. Without labor capital wouldn’t be able to turn itself into more value. When workers become too powerful they can demand higher wages from capital which means less profits. So capital looks for ways to free itself of its dependence on workers. The name for this is “efficiency.”

That sounds like a weird definition of efficiency but this is precisely what lies behind the capitalist obsession with efficiency. When the labor process becomes more efficient it means that the same task can be done with less labor. It also causes much of the labor process to be simplified, meaning that jobs require less skill and lower wages. This all makes workers easily replaceable and makes capital less dependent on labor. Capital can lay off workers or pay them less and workers have less power to resist.

More efficient production also allows capitalists to out compete their rivals. Since prices are set by the average productivity of labor, if a capitalist can cause their workers to be more productive than other firms then they can take advantage of this difference between their firms productivity and average productivity to make extra profit.

But as much as capital may try to free itself from labor it is always ultimately dependent on labor to produce value. So there is a real and dangerous contradiction between the dependency on labor to create value and capital’s drive to rid itself of this dependency. It is this antagonism which creates the crisis of overaccumulation: capital goes looking for profit and can’t find enough places to make profit because it has annihilated its own ability to create value.

Let’s look a little more concretely at how this happens.

Machines

Since it’s emergence on the historical stage capitalism has displayed a remarkable ability to innovate. Vast revolutions in our technological abilities, from transportation to communication to production, have created revolutions in every aspect of our lives, altering even the ways we experience space and time. The primary drive in all of this has been to decrease the amount of time required to produce a commodity. Yet while such technological revolutions have often triggered enormous economic booms they have also eventually destabilized value relations and opened the door for crisis. We have to remember that anytime we increase the efficiency of the labor process this means that the product represents less value.

When workers are replaced by machines this means less labor input per commodity… which means less value per commodity. If just one capitalist does this he can produce commodities more efficiently than the social average thus turning the difference into excess profits. But this encourages other capitalists to follow in search of these same excess profits. Once they all introduce more machines into their labor process a lower average productivity is reached and the prices of commodities fall. But the expense of making a commodity has gone up due to the cost of adding new machines. This can manifest itself as a falling rate of profit. (See video on falling rate of profit.) When profit rates fall this means that capital can’t find profitable places to invest. Money can’t be turned into more money fast enough. The circuit if capital (MCM) grinds to a halt.

Fixed Capital

The worker finds himself surrounded by an increasingly complex array of machinery all designed to purge human labor from the production process. Capital finds itself entangled in larger and larger investments in machines while the value of their commodities keeps falling. But what if the price of machines are falling as well? If new machines are constantly being purchased at cheaper prices this could stabilize profit rates in the long run.

But much of the machinery in a capitalist society is built to stay around for a long time. Auto factories, oil refineries, steel plants, gas pipelines, etc. all entail large start-up costs and years of construction. It takes these investments many years, perhaps even decades to pay off these initial start-up costs. We call these machines that stick around for a long time “fixed capital.” Fixed capital introduces all sorts of complications into value relations. Capitalists are committed to the use of fixed capital, to a certain level of efficiency, for some time even if the value relations around them are changing. For instance, if you build a factory for a million dollars in 2000 that has a maximum capacity of producing a thousand widgets a year… and then your competitors all build factories in 2005 that cost half as much to build but produce more widgets… you are screwed because now you have to sell your widgets at a loss. And you can’t just go buy a new factory because you still haven’t paid off the old one.

The current problem in the US auto-industry is a perfect example of this problem. The US auto-industry dominated world markets after World War II. But as the Japanese and German economies began to revive they built more efficient factories with new, cheaper fixed capital. (The costs of these fixed capital inputs had fallen over the years.)  The Germans and Japanese began to produce cars more cheaply and undercut American car production. This sort of competition effectively devalued the existing stock of fixed capital in the US, yet the US couldn’t just abandon its factories and build new cheaper ones because it still hadn’t recouped the costs of its initial fixed capital investments! This led to the economic crisis of the 70’s in which Nixon had to devalue the dollar in order to make US commodities more competitive in global markets. (This is all a huge oversimplification.)

The US auto-industry found itself with an overaccumulation of fixed capital that could no longer produce enough value to stay competitive in the world market. This particular overaccumulation manifested itself as excess capacity, but overaccumulation can take a variety of forms. In our current crisis we can see many different types of overaccumulation. Retail sales are down and commodities are bunching up in warehouses. Industries are struggling to shed themselves of excess capacity by closing factories and firing workers. The ranks of the unemployed grow by the tens of thousands every month. Real estate is over-valued. There is an excess of credit unable to be paid off. In all these cases there is too much capital stuck somewhere in the circuit of capital, unable to move to the next stage.

Devalue

In all these instances the solution to overaccumulation is devaluation. By reducing the prices of commodities, closing factories, firing workers, cutting wages and benefits, writing down debts and slashing real estate values capitalism can devalue capital in all of its stages. This process of devaluation- this violent purging of the system is the necessary antidote to the problem of overaccumulation. This is what a crisis is- a drastic process of devaluation.

Though devaluation will drive many capitalists out of business, some will survive. Those that do survive come out on top. They are able to buy up the assets of their competitors at devalued prices as we have recently seen Bank of America do. Crisis is often a time of massive capital consolidation.

In a crisis the capitalist class battles over who will absorb the brunt of devaluation. Will it be the banks and credit agencies that finance production? Will it be the productive capitalists who drove down profit rates with their fixed capital and excess capacity? Or will devaluation be displaced geographically?

One of the most common strategies for devaluing capital is to devalue the currency. This devalues all capital relative to other countries making a country’s commodities more competitive on foreign markets. Devaluation of the currency effectively socializes the costs of devaluation meaning that all commodities, capital and labor are devalued. When Nixon devalued the dollar in 1971 this made all US commodities cheaper and better able to compete against the Germans and Japanese. But the long term effect of this was to trigger a long process of competitive devaluations as different currencies adjusted relative to other currencies all trying to shift the burden of devaluation onto some other country. The Asian financial crisis of 1997 showed us how reckless and destructive this strategy can become. It will be interesting to see how the process of competitive devaluation plays out in the current economic crisis. Who will be forced to bear the brunt of devaluation? What political alliances and battles will form out of this global conflict over devaluation?

Another strategy is to postpone devaluation in time through the use of credit. This has been a major strategy for displacing crisis since the 70’s. When profitable investments can’t be found in production capitalists can pour their money into loans, mortgages, hedge funds, etc. This creates the illusion that their money is still in motion, that it is still generating more value. But a lot of time this just means that debt is just being passed from capitalist to capitalist… This can create enormous bubbles of credit values not backed by any real value at all. (see my video “What is Credit?”) The insane over-investment in credit markets (accompanied by an insanely low rate of interest) before the recent bubble burst is evidence of the lack of real actual profitable investments in the global economy relative to the amount of capital needing to be invested.

Conclusion

When we say that crisis is internal to capitalism this means several things. It means that the method by which all of the laborers of a capitalist society are coordinated, value, creates antagonisms that destroy that very coordination. Value as a coordinating mechanism spawns class antagonism between a capitalist class that exists to appropriate this value and and a working class that must be exploited if capitalist accumulation is to take place. And this class antagonism is reflected in the antagonism between man and machine- the conflict that drives accumulation forward toward its own destruction.

Capitalism is a system rife with such dynamic, explosive internal antagonisms. What else could explain the cycles of boom and bust that have rocked capitalism since its inception? When we say that crisis is internal to the structure of capitalist social relations we mean that the very way our social relations are structured are dangerously unstable. While the mainstream political discourse debates which capitals to devalue and how to initiate the next boom phase we must remember that a true solution to capitalist crisis is to redraw the basic mechanisms of these social relations. If we can’t understand capitalist crisis without comparing it to something outside of itself we also can’t solve capitalist crisis by confining our logic to the internal logic of the system. We must appeal to a future stage of history: an organization of social relations without accumulation based on exploitation.
Bibliography:

Das Kapital- Karl Marx
Limits to Capital- David Harvey
“Turbulence in the World Economy” by David McNally in the Monthly Review; June 1999 (http://www.monthlyreview.org/699mcnal.htm)
I also recommend the following series of papers/lectures:
http://akliman.squarespace.com/crisis-intervention/

Commodities- remix

Commodities (remix)

part one:

part two:

Let’s talk about people.

When we talk about people as individuals we are talking about biology, neuroscience, physiology, etc. We are talking about respiratory systems, circulatory systems, nervous systems, brain waves- in short we are studying the relationships between the different parts that make up a whole- a whole called “the person”.

When we talk about people in groups we are talking about sociology, economics, politics, religion, philosophy. We are talking about families, classes, rulers and ruled- in short we are studying the relations between individuals that make up a whole- a whole called “a society”.

So if we are going to understand anything about societies we first need to understand some basic things about relationships. Some of what I’m about to tell you about relationships will sound obvious at first but we will soon move from the obvious to the mysterious, so bear with me.

Let’s begin by looking at a relationship that is fundamental to the human condition, a relationship that we all have- that between mother and child.

The first thing we might notice about this is that a mother can’t be a mother without a child and a child can’t be a child without a mother. Each requires the other in order to have their identity. So the relationship is mutually dependent.

Here’s another obvious point: A mother can’t be her own mother and a chid can’t be her own child. Obviously a mother is someone else’s child, but she can’t be her own child. When she stands on the mother side of the relation “mother-child” she is only the mother, not both. So the two sides of this relation are exclusive, opposites. They express their identity through their relation to their opposite. We might call this an “identity of opposites”.

The mother-child relationship is an abstract one. In concrete reality it takes the form of the relation between Tanya and Jermaine, Sarah and Riley, or Martha and Brendan. But despite all of the variations in the way mothers and children can appear, there are certain universal traits that transcend all these specific differences. These universal traits cannot be changed by the individual subjective manifestations of mothers and children. At the same time, this abstract relation doesn’t have a pure form divorced from its concrete manifestation. The mother-child relation has to be expressed through Tanyas and Jermaines, Sarahs and Rileys. Through a mother’s relation with her child she knows something about all children everywhere. Through the child’s relationship with its mother it knows something about all mothers everywhere. Through a concrete relation we learn about the abstract.

So in the same way that we draw an equation that says “mother-child” and discuss the identity of opposites in this equation we might also make another equation that says “abstract-concrete” and discuss this relation. All relations are both concrete and abstract at the same time. The concrete world is the everyday world of infinite variation. But all of these variations are just improvisations upon a basic abstract form- a universal relation standing behind the concrete. But abstractions cannot exist by themselves. They must express themselves in the concrete.

When we study relations we are looking to explain two things: What is this universal abstract form? And what is the relation between this form and the concrete appearances it takes?

breathe

Throwing Spears

There are a lot of relationships that make up a society. When we study economics we are studying the way people relate to each other as laborers in order to create and distribute all of the goods we consume. In different places and different times this relationship has been quite different. But in all societies there have been two main relations: the relation of the individual laborer to a larger group, and the relation of different groups to each other.

In early hunter-gatherer societies work was divided between two different groups, hunters and gatherers. Men went out and hunted. Women went out and gathered. How did the two groups relate to each other?  Each group made half of the social product and therefore, neither half could exist without the other half. At the end of the day they met and shared the products of their work.  It was only in this sharing between the hunters and the gatherers that each separate group expressed its true identity. How did hunters know they were hunters? Because they weren’t gatherers. How did gatherers know they were gatherers? Because they weren’t hunters.

How did individual hunters relate to their group? -by throwing spears at antelopes, along with all the other hunters. They coordinated their activity collectively to create the hunter’s half of the “social product”. In other words, the individual hunter was just the concrete manifestation of an abstract group called “hunters”. [Without individuals there could be no group. But without a particular hunter, Joe or Ug, there could still be a group.] How did Joe or Ug understand what it meant to be a hunter? In their relation to another hunter they understood something about all hunters: that hunters throw spears at antelopes. [If joe just threw spears at antelopes by himself he would think, "I am a guy that throws spears at antelopes." But when he looks over his spear and sees all the other guys doing the same thing that he is doing he says, "I am a hunter." ] Through the relation between two concrete things, we find the abstract.

Kings and Peasants

In feudal society the two main groups were landowners and serfs. Serfs made most of the social product. Landowners took some of that product even though they hadn’t created it. Unlike the hunter-gatherers, the landowners didn’t offer anything in return. It wasn’t sharing. It was appropriation. The landlords got away with this because they owned all the land. There were other groups too: In order for the landowners to extract their taxes from the serfs they needed a class of knights to poke the peasants with swords if they didn’t work on the landowner estate and a class of priests to tell people God wanted them to work for the landlord. That’s how the groups related to each other.

Within the serf class, how did individuals relate to each other? Serfs worked together on the landlord’s land, and they worked in smaller family groups on their own land. Through their work with each other they identified themselves as part of an abstract class called “serfs.”

Capitalism

In a capitalist society there are two groups: Capitalists and Workers. Workers create the social product. Capitalists take some of this product without offering any social product back to the workers in exchange. Like the landlords, they get away with this because they own the factories.

How do the two groups relate to each other? The workers go to the factory and work for the capitalist. At the end of the day they don’t get a portion of the social product they created. They get wages. They take these wages to the store and buy back the products they created. So the two groups relate to each other through the buying and selling of commodities. The capitalists buy a commodity called “labor power” and the workers buy commodities called “consumer goods.”

How do individual workers relate to each other? Within a company workers cooperate together to create a commodity. But the social product is made of of billions of different commodities made by workers all over the world. These workers all relate to each other through the buying and selling of commodities. They never see each other, they never speak to each other. The social relations between people become “material relations between people and social relations between things.

This is why commodities are so important to the study of economics. Commodities are social relations. When we buy a commodity we are interacting with millions of other people. This doesn’t happen when we use a commodity. When we use a commodity it is just an interaction with ourselves and the commodity. But when we buy a commodity we are exchanging money representing our own labor (for which we were paid in wages) with the labor of another group of people. But we don’t see these relations. We just see ourselves and the commodity we are interacting with. Thus, the process of exchange in a capitalist society obscures the social relations behind this exchange. When a hunter looked at another hunter he understood his identity as part of a group through this relation. Workers don’t see other workers. They just see commodities. This means that the most important questions of economics- the relations between groups, and the relations of individuals to these groups- are obscured in a capitalist society. They are a mystery.

To unravel this mystery we must look closely at the relations between commodities themselves.

Alienation

Count how many people you interacted with today. Now think about how many commodities you interacted with. Most likely the commodities outnumbered the people tenfold. We wear commodities, eat commodities, drive, sleep and walk in commodities. They dominate our visual space and our thoughts, yet we never ponder where they came from or what abstractions they may represent.

Because our social relations are obscured by commodities they take on a power over us. Instead of needing a coercive army of knights like a feudal landlord, commodities themselves compel us to do things. The need for commodities compels us to work for someone else for a living. The profit we create for capitalists compels them to compete and exploit for a living. “The hidden hand of the market” is the coercive nature of capitalist social relations exercised through the faceless, inanimate form of commodities.

In a capitalist society we often have the feeling that our lives are out of control, dominated by impersonal forces we never really see. But actually those forces are all around for us to see: they are commodities. Through these commodities we can see the abstraction that is the social relations of capitalism. If we looked closely we would see that those commodities are just products of work that we ourselves, as workers, did- that is, we are being dominated by ourselves. This is what it means to talk about alienation in a capitalist society.

[The ultimate goal of those who oppose capitalism- be they anarchists, socialists, communists, etc.-is to replace this alienation with empowerment where people live in a world of their own choosing- not the choosing of blind forces.]

Value

When you eat a potato you are having a relation between yourself and a potato. This is not a very interesting or mysterious relation to discuss: you like potatoes, you eat them, your stomach gets full.

But when you buy a potato you are expressing a very mysterious relation. You are trading money paid to you in wages for your labor in exchange for a commodity made by another worker somewhere in Idaho. When the two things meet in the market place and are exchanged for one another this implies some sort of equivalence. (They must be equal to each other in some way.) A pack of cigarettes equals two hot dogs. A pair of shoes equals three shirts. If we follow along with this process (pack of cigarettes= 2 hot dogs= 1 shirt= loaf of bread= 2 cups of coffee=etc.) we could create an infinite string of relations all expressing the value of commodities in their relationship to one another. This means that there must be some “value” behind commodities- they all must express varying amounts of some common substance.

But what could this common substance be? Smell? Taste? Weight? Bourgeois economists say “use”. But how can use be the substance behind value? Use is just a private experience between oneself and a commodity. It doesn’t tell us about the relations between people. It doesn’t tell us about the way commodities relate to each other.

For a worker, the commodity has no use at all except to be exchanged for a commodity they do need. Thus they produce the commodity not for its “use value”, but for its “exchange value.” Just like the hunter-gatherers who worked with the intent of sharing their labor with the other half of the group, our private concrete labor implies a wider social relationship. Because the hunter-gatherers worked with the intent of sharing their labor with everyone there was no need for a concept of value: There was no exchange, just sharing. In a capitalist society where our labor is coordinated via exchange we need some way of determining the value of the things we exchange so that we know how much labor to devote to what activities.

Now the mystery is already solved… the hidden substance behind value is labor itself. It is human labor, in the abstract, that gives a commodity its exchange value. This idea, that labor is the substance of value is called “The Labor Theory of Value.” It is one of the oldest ideas in the history of economics.

There are just two puzzles left to unravel before we have a complete picture of commodities and their values. They both involve the relationship of the individual laborer to the group, of the concrete to the abstract.

Human labor is diverse. Some people dig ditches. Others give haircuts or serve coffee. How can we reduce all of this concrete work to some abstract notion of value? We do this in the same way that any relation between concrete and abstract proceeds- by identifying what is universal about a relationship. Because the abstraction doesn’t exist by itself, because it must be expressed through the world of the concrete, we must look at specific relations to discover what is universal about the relation.

When we equate digging ditches with serving coffee what is being equated? The only thing that both activities have in common is that they are both expenditures of human labor. Thus the process of exchanging commodities abstracts from the specifics of an individual’s labor and gives it a value only to the extent that it relates to the total labor of the group. Value then, represents abstract labor. As individuals we perform concrete labor. But when we exchange the commodities we produce we are expressing the abstract quality of this labor.

How is this labor measured? Since the specific type of labor doesn’t matter, the only other way we have of measuring labor is through time and intensity. The more time and intensity expended, the more value is created.

In a capitalist society, capitalists are under a lot of pressure to get their workers to be as productive as possible. They try to get the most work out of their workers per hour of work. Thus, the amount of intensity of labor tends toward a social average. Thus the amount of time becomes the primary determinate of value. Commodities that take a large amount of labor to produce (cars) cost a lot more than commodities that take very little time to make (potatoes). Thus, we measure value in labor time.

But what if I take a really long time to make cup of coffee? Does that mean that that cup of coffee is worth more than someone who works more productively at making coffee? No, of course not! The value of a commodity is equal to its “socially necessary labor time”. Because a capitalist society operates under a system of free exchange, people will buy commodities from whomever can make the commodity the cheapest- the most efficiently. This encourages all producers to produce at the same level of efficiency. This average level of efficiency is the “socially necessary labor time”. Even if I take a really long time to make a cup of coffee I still have to sell it at the socially necessary labor time!

We can combine these two terms to say that the value of a commodity is equal to its “socially necessary abstract labor time.” This is a very clear expression of the way the individual relates to the group in a capitalist society. The labor that you as an individual do only has value to the extent that it is part of a larger project of value creation being carried out all over the world by workers everywhere. Like all societies before, the work we do in creating the social product is what unites us as people. It is the foundation of our economic relationships. But unlike other societies, the process of commodity exchange obscures these relations from us. We experience our relationship as workers as a relationship between ourselves and commodities.

What of our relations between groups- between capitalists and workers? This too is obscured through exchange.

In previous societies, when a dominating class appropriated the labor of another class it was easy to see. In feudalism the serfs worked part of the week on the landlord’s land and part of the week on their own land. It was clear that they were giving part of their labor to an exploiting class without being compensated. It was clear that they were only doing this because knights would poke them with spears if they didn’t. In a capitalist society we work the whole week in a capitalist’s factory/workplace and at the end of the week we receive wages. At the end of the week the capitalist has commodities of a greater value than those wages. Profit is the difference between the value workers create for a capitalist and the amount of wages they are paid for that value. But this is much harder to see because of the way in which exchange obscures this process. Exchange makes it appear that profit is something that a capitalists receives through exchange itself, instead of through some domination in the workplace.

If we were to accept this world of appearance and not look behind it to discover the abstract social relations behind it then we could accept the claims of bourgeois economics that capitalism is a system of personal freedoms in which individuals choose which commodities they want to interact with; that because an individual worker chooses which individual capitalist they want to work for, there is no need to look behind this concrete relation to find any abstract form behind it like class. By treating the subjective experience of our relations with commodities as the only relevant perspective bourgeois economics is able to avoid addressing the coercive social relations which lay behind our concrete subjective experiences.

But a useful perspective should take the opposite approach- always asking what concrete experience tells us about the social relations behind it. This is how we should approach an understanding of commodities.

What Transformation Problem?

Nerd alert: I know that my videos normally represent the height of fashion. I know that my massive popularity, on the account of all the violence, sex appeal, and sports references have launched me into the top ranks of viral culture, making me a real trendsetter.

But this video will not be like that. So I’m warning you now, this video gets an extremely high nerd rating. It will try to explain the details behind probably one of the nerdiest theoretical debates in marxist economics. But if you watch this video you could very well be set to join the ranks of other fashionable revolutionaries like these guys… (nerd quiz: can anyone name these guys?)….
That being said, the topic I am going to discuss is an important one, but only because the debate behind it lies at the core of claims that Marx’s labor theory of value is “discredited”, “contradictory”, etc. One does not have to look to far into Marxist economic theory before one stumbles upon the quagmire that is “the transformation problem”. And the sheer magnitude of algebra and technical gobbledy-gook involved in most of the discussion of the transformation problem scares most people away from ever really looking into the debate further.

Over the last 100 years there has been furious debating back and forth over the meaning of Marx’s theory of “the transformation of values into prices of production” and over the various criticisms of it- debates of such a stunningly polarized and mathematical nature that it is hard for us normal folks to wrap our mind around the issues at stake enough to know what to make of it all.

The goal of this video is to explain the basic nature of the problem and to defend Marx’s transformation procedure on the basis of some new scholarship on the topic. I will do all of this without any math or any algebra. On my wordpress blog ( http://kapitalism101.wordpress.com/transformation-math-supplement/ ) you will be able to find a supplement with a more detailed discussion and some math examples for all of you super-nerds who want to plow into some simple math. [If you aren't afraid of a little division and subtraction I recommend you check out the math supplement and learn how to solve some transformation problems of your own. It's kind of fun- like a sudoku puzzle for marxists. Then you can scribble them out on paper napkins at bars and parties to impress people. It's always a real hit.]

Value

So everything in Marxist economics centers around the idea of value. Without a theory of value we wouldn’t be able to make most of the arguments that are considered a crucial part of marxisim: exploitation, crisis, class, etc. Value is not some abstract, metaphysical concept. It is a real tangible thing that effects all of us everyday. It is the reason we go to work in the morning. It’s what allows us to buy groceries. It’s why countries go to war. It’s why we have banks and railroads and stockmarkets. The unfolding of the “law of value” is the unfolding of the inner mechanisms of a capitalist society. So it’s important that the concept of value is internally consistent and logical or else its status an explanatory concept is questionable.

If you’ve seen many of my videos then you probably know by now that value is created by human labor, and human labor only! Machines can’t create value. Buying and selling commodities doesn’t create value. Differences in subjective preference don’t create value. Let’s review a few different arguments as to why this is the case. The point of any economy is to coordinate human labor in such a way as to provide stuff for people. There are many different ways this labor has been coordinated throughout history, and there will likely be many more ways it will be coordinated in the future. In a capitalist economy labor is coordinated via commodities.  That is, I make a commodity and you make a different commodity. When we exchange them we are exchanging our labor. That’s how our collective labors are organized.

The only reason all of these diverse commodities can exchange with each other is because they are all products of human labor in the abstract. This is what gives them their value. But commodities don’t walk around with their value written all over them. (If they did, capitalism would be a lot easier to understand and you wouldn’t need to watch this video.) You can’t buy a toothbrush and read on the toothbrush how many hours it took to make it, how many people worked to make it, what their working conditions were, how it was shipped to the store, who put it on the shelf, etc. Value has to be expressed through money. Money prices are an expression of value.

But here is where things start to get confusing. How is value measured in money prices? Is price always equal to value? What happens when price doesn’t equal value? Since anyone can set any price they want when they sell a commodity it may at first seems hard to see how price could realistically reflect value. But we know from our own lives that there seem to be some sorts of forces at work in the universe- some hidden hand of the market that keeps prices from being totally arbitrary. A toothbrush or a new car costs more or less the same anywhere you buy it. Not only that, but the car will always cost more than the toothbrush. So what are these forces that make prices converge? And is it just a coincidence that things that take more work to make usually cost more than things that take little time to make?

The more perfect competition is in a capitalist society, the harder it is to arbitrarily set prices above values. Perfect competition makes it impossible to just conceive of prices as arbitrary or of profit as a mere “mark-up” above costs. (Of course competition is never perfect, but if we are building an abstract model of a capitalist economy we have to identify the inner logic of capitalism in the abstract before we see how outside forces distort this model.) We also can assume that supply and demand balance each other. Obviously if supply ever shrinks this will create a rise in prices above values. But this rise in prices means a rise in profits for those capitalists producing scarce goods. This rise in profits encourages more capitalists to invest in producing this good and this, in turn, increase the supply until prices are back down to an equilibrium point. The opposite happens with decreases in demand.

The argument of the labor theory of value is that, behind all of these fluctuations there lie equilibrium prices and that these equilibrium prices correspond to the value of commodities. Now, what happens when monopoly, trickery or demand allows someone to get away with arbitrarily charging more for a commodity than its value? The answer to this question is really crucial, so listen closely: The total amount of value in society corresponds to the total amount of prices. So if someone is getting away with arbitrarily high prices it means that someone else is not getting the full value of their commodity. In this way, though profit can’t be created through exchange, it can be shuffled around between people. Through monopoly, fads, whatever people can benefit from an inequality in exchange- a defect in the manifestation of capitalist competition. But such an inequality does not create more value! The real source of profit in a capitalist society is the difference between the value of commodities and the wage paid to workers. This, of course, is the theory of exploitation.

So if we abstract from disturbances in competition, or minor fluctuations in supply and demand we see that commodities, in general, have prices that are relatively proportional to their values…. or at least, they would if there wasn’t one other complicating factor…

It is this other factor that required Marx to theorize about “the transformation of values into prices of production” and which has created all the fuss for all these years. It is very similar to what I just described about the way supply and demand equalize. The same way in which supply and demand fluctuate around equilibrium price also creates an average rate of profit amongst capitalists. That is, if one capitalist is making more profit than the rest, other capitalists will start doing whatever (s)he is doing and thus eat into his/her profits. Through this sort of competition an an “average rate of profit” is established among capitalists.

But this average rate of profit seems, at first, to conflict with something else that I’ve talked about in other videos: the organic composition of capital.

Let’s illustrate this with an example. Let’s say there are two industries: one makes coffee and the other cars. Within both industries there is competition to make their workers the most productive by introducing the newest labor-saving machines. Thus within each industry there is about the same ratio of workers to machines. (This is what the “organic composition of capital” is- the ratio of machines to workers. When there are a lot more machines than workers we say the organic composition is high. When there are more workers, we say the organic composition is low.) But between industries this ratio differs.  Some industries just naturally have a higher ratio of machines to workers than others. In our example, the automobile industry uses a lot of machines! The coffee industry uses a lot more workers.

Now if value can only be created by human labor, it would seem that the coffee industry creates a lot more value than the car industry. And, actually this is the case- the more work that’s done in an industry, the more value it creates. Yet, under conditions of competition, under the law of the average rate of profit, both industries receive the same profits, even if one creates much less value.  An average rate of profit means that each capitalist receives the same rate of return on their total investments, regardless of what proportion of this investment goes to workers or machines. How is this possible? (Do the workers in the auto industry just work harder? Are they more exploited? There’s no necessary correlation between the ratio of machines to workers and their wages so lets assume that the rate of exploitation is equal in both industries.)

Here is the solution to this puzzle. The total amount of value in society is equal to the total amount of prices. The total amount profit is equal to the total amount of surplus value (Surplus value is the difference between the value of a commodity and the cost of paying workers and paying for raw materials, machines, etc.) The total rate of profit measured in value, in society as a whole, is equal to the total rate of profit measured in money.

These are the “three aggregate equalities” that form the holy trinity of the theory of the prices of production. Individual capitalists can have money prices or profits that diverge from their values, but in the aggregate these equalities prevail. But how?

All capitalists contribute to the total amount of surplus value according to how much labor they employ.  So if coffee makers have more workers, they contribute more to the aggregate surplus value than car manufacturers. But capitalists withdraw their money profits from this total surplus value according to the average rate of profit- that is, in proportion to the total cost of their production. Regardless of how many workers they actually employ, they all receive the same rate of return on their investment, even if all of their investment goes into machines!

Thus the price of a commodity is not the cost of inputs plus surplus value. It is the cost of inputs plus the average return on those investments. We call this price the “price of production”. The total prices of production equal the total amount of value. But individual commodities do not trade at their values. They trade at their prices of production. The price of production is still a function of value, but it is not necessarily directly equal to it.

This is why it is possible to have a falling rate or profit (see “Falling Rate of Profit video). Individual capitalists have no way of knowing that they are destabilizing the collective rate of profit, because they don’t receive less profit when they replace workers with machines. It is only when automation has spread throughout the economy to a substantial extent that it can drag down the profit rate.

This relationship between individual action and wider social forces is true to the spirit of much of marxist theory. Individuals are always free to act as they choose. That’s the easy part of social theory.  The hard part of a good social theory is to explain why those free actions coalesce around certain norms. For Marx, it is value which is the central mediating force between individuals and so it is the laws of motion of this value that ultimately govern the success or failure of individual actions.

A Little Bit Of History.

Marx took the ideas of classical political economy to their logical end. After Marx one couldn’t operate as a political economist without accepting the notions of exploitation and crisis that he had so thoroughly developed. And so those who were interested in doing truly bourgeois economic theory had to abandon the notion of a labor theory of value if they were to save economic theory from Marx. In so doing, thinkers like Leon Walras developed what is now called “neoclassical economics”. Neoclassical economists abandoned the notion of value altogether. They essentially took price as a given- refusing to look behind it for any deeper meaning. In doing so they also abandoned the whole notion of social class, and all of the other wider social phenomena that Marx had woven into his theory. Their restricted, narrowed perspective soon developed an obsession with number-crunching and fancy algebra.

I say all this because it was out of the neoclassical school that the critique of Marx’s transformation procedure developed. And it was this new way of thinking about economics that produced the sort of assumptions that led to this critique. In 1907, Ladislaus Bortkiewicz, a Russian economist, published a paper which claimed that Marx’s transformation procedure was internally contradictory- that when taken to it’s logical conclusion it produced mathematical results that simply didn’t add up. Ever since, people doing Marxist economics have had to contend with this accusation that their fundamental theoretical category, value, is not logically valid. Over the course of the 20th century many Marxist economists embraced the neoclassical models of Bortkiewicz and his successors in various, attempts to rescue Marx’s value theory from within the framework of bourgeois economics. It wasn’t until the 1980’s that some scholars began to challenge the assumptions behind this neoclassical critique and to construct a defense of Marx from within the logic of value theory. The most promising of these new defenses is the “Temporal Single System Interpretation” or “TSSI” for short. Let’s take a closer look at the Bortkiewicz argument and the TSSI response.

The neoclassical tradition that Bortkiewicz came out of had several major differences from the Marxist tradition. Where Marxist theory builds a model of capitalism that is dynamic, constantly evolving, prone to disproportion and crisis, the neoclassical school views capitalism in a static, unchanging equilibrium state where the hidden hand of the market naturally smoothes out imperfections. It is important to keep this difference in mind when viewing Bortkiewicz’s critique.

It was Bortkiewicz’s fascination with these static, equilibrium models that led him to question Marx’s transformation procedure. Bortkiewicz put Marx’s argument into a standard neoclassical input-output model.  On the input side went machines, raw materials and wages all measured in their values. On the output side came newly produced commodities, all now priced at their prices of production. Bortkiewicz then asked, quite logically, shouldn’t the inputs into the production process be bought at their prices of production and not their values?

Indeed Marx himself had acknowledged that it only made sense for inputs to be bought at prices of production, but this did not lead him to the same conclusions as Bortkiewicz. Bortkiewicz took those end prices of production and plugged them back into the input side of his equation. When he did this all hell broke loose with the math. Specifically it became impossible to maintain all three of Marx’s original equalities: total money profits equal total surplus value, total money price equals total value, total money rate of profit equals total value rate of profit. Only one equality could be maintained at a time but only by arbitrarily imposing that condition at the expense of the other two equalities. To Marx’s critics this was the end of the labor theory of value.
[Here I decided not to explain the way in which Bortkiewicz created a dual system of value and price.]

The TSSI critique of Bortkiewicz is simple and elegant. They argue that it is illogical to plug output prices back into the inputs of the same production period. They accuse him of two false assumptions: simultaneism and physicalism. Let’s look at each in turn.

Simultaneism

For Bortkiewicz the prices of inputs and outputs are simultaneously determined. In other words, input and output prices have to be equal. Let’s say we have an industry that makes corn. It also needs seed corn as an input. Bortkiewicz would argue that if at the end of the production period corn sells for 10 dollars a bushel then it must also enter production as an input at 10 dollars a bushel. There can be no change in price. But he seems to be arguing for some theory of time travel, as if a farmer would go back in time and sell themselves corn at their future output price. In the real world, the opposite happens.  Values change over the course of a growing season due to the productivity of labor and soil, weather, changes in technology, etc. The price of corn at the end of the production period doesn’t have to equal its price at the beginning. The new prices of production become input prices for the NEXT production period, not the one that’s already happened.

In contrast to Bortkiewicz’s simultaneous determination of prices, the TSSI is “temporal”. It tracks changes in the prices of production through time, from one production period to the next. In each period the input prices are the output prices of production from the previous period. In this way the TSSI is much more faithful to the marxist project- to build a dynamic model of value as it moves through time, constantly expanding.

Physicalism

Bortkiewicz, in a way, defended his simultaneism by constructing his model within the framework of an economy with no growth. He argued that in an economy with no growth prices wouldn’t change over time and thus it would make sense to simultaneously determine input and output prices. This model of an economy with no growth actually came from Marx himself who theorized about Simple Reproduction- an economy with no growth in which the entire social product was produced and sold each production period. Simple Reproduction was an abstract model Marx used to simplify some arguments about exchange before he introduced his more complex model of expanded reproduction. Yet, still the theoretical possibility for simple reproduction to occur does exist and so we do need to consider whether the transformation of values into prices of production works under conditions of zero growth.

The problem is that Bortkiewicz assumed that no physical growth meant no growth in value. This is the essence of physicalism: that changes in value are directly tied to changes in the amount of actual physical commodities. ie. If I produce ten apples instead of five I have twice as much value. This seems to make sense. But look at the way this actually plays out in the real world. (21)When a supply expands its value falls. When a supply shrinks its value rises. In a drought the same amount of apples is worth more than in a glut. So just because there is more of something in physical terms doesn’t mean its value is more. In fact, value can change while physical output remains the same if the production process becomes more efficient or input values change.

This is precisely what happens in the TSSI version of the transformation “problem”. From one period to the next the physical outputs stay the same. The same amount of goods are produced and consumed. But the value of those goods changes overtime. Each production period, new work is done; new labor is added to the social product. And so total value rises each production period. This total value becomes the input for the next production period.

From the TSSI illustration it becomes clear that it would be ridiculous to take the prices from the end of the production period (prices representing an increase in value) and plug them back into the equation at the beginning of that same production period. The Bortkiewicz solution flies in the face of the basic logic of value theory and so it necessarily produces absurdist results.

Conclusion
Bourgeois economics is often thought of as an objective, rational science for number-crunching specialists, divorced from political bias. But all of these matrices and graphs exist within a very narrow range of assumptions. By leaving out questions of value, by treating capitalism as a static, universal entity without change, and by ignoring class it prevents itself from addressing the most essential elements of economic analysis. It is these assumptions which have led to the entire notion of a “transformation problem”, and to the general attack on marxian economics.

While it can be intimidating to wade through the specialist literature on a topic, we should never forget that underneath the numbers lie arguments and assumptions about the real world and that  these are, in the end, the crucial things to be concerned about. There is no reason why you and I should have to take a graduate course in economics in order to understand the debate over value and price. We should never be intimidated by “experts” into not thinking for ourselves and not challenging assumptions. Such timidness in the face of algebra has led to far too much meekness from the left. In the coming economic crisis it will be crucial to assert our ideas clearly and boldly, and without bowing to the tools of bourgeois economics. It is high time to put an end to this tiresome debate about the transformation problem.

Bibliography

“Reclaiming Marx’s Capital” by Andrew Kliman

“One System or Two? The transformation of values into prices of production vs. the transformation problem” a paper by Andrew Kliman and McGlone. This available on Kliman’s website: http://akliman.squarespace.com/

Marx’s Theory of Value and the ‘Transformation Problem- an essay by Anwar Shaikh from the book “The Subtle Anatomy of Capitalism” ed. Jesse Schwartz

“Limits to Capital” by David Harvey

“Das Kapital” vol. 3 Karl Marx

Falling Rate of Profit

The Falling Rate of Profit

The financial world is a mysterious one. It appears that through trading stock, advancing credit, or swapping currencies profit can appear out of thin air- that is, money can be turned into more money just by clicking some buttons on a computer or placing a call to a stockbroker. Indeed much of the confusion and mystique we attach to the dizzying world of finance comes from this illusion of money growing from money.

This is inherently abstract. To most of us, money is something we earn from performing concrete labor. And we use this money to buy real commodities- actual physical objects or services that represent labor done by other people out there in the economy. For us, money (M) is an abstract step of measuring value that exists between two very real concrete things: the labor we perform (C) and the labor of the commodities we buy (C). C-M-C

But for the capitalist, this realm of the concrete is not the goal. It is the abstract power of money that is important. To turn money into more money (M-M1) is the goal of capitalist production. For productive capitalists (capitalists that generate profit by selling commodities) the concrete labor process that creates commodities is an annoyance along the way to making a profit. They thus seek to minimize the time it takes to make a commodity so that they can turn their commodities back into money as quickly as possible.

For financial capitalists there is no annoying stage of concrete labor. They move their money to one place and it magically turns into more money. So why then, aren’t all capitalists in finance? Why do they bother producing commodities anyway?

The answer to that should be obvious. Without commodities and human labor to make them we couldn’t even have an economy. All value in the economy eventually relates back to the labor process. And though financial capitalists may never see a worker or set foot on a shop-floor, the profit they make is ultimately, in one way or another, dependent on the value produced by productive capitalists, whether through interest on loans, stock value, rent, etc.

But if we let financial capital carry on in its own mad way, turning money into more money through increasingly exuberant orgies of investment it is not hard to see how this can create temporary bubbles of speculation. Symbols of value- credit, mortgages, even money itself- can be traded back and forth assuming prices way above the actual value of the asset until the financial sector finds itself awash in ‘fictitious capital’. This is a fancy word for symbols of value that are divorced from any real value- any real connection to the labor process- in the way an actual commodity is.

But if you have your thinking cap on you might already see that we can’t blame crisis solely on financial capital. The monstrous bubbles of fictitious values it creates are only a problem if there isn’t enough value in the economy to back up all those symbols of value. We must also look to the productive side of the capitalist class and ask “why isn’t there enough value in the economy to back up all that fictitious value?” How come there aren’t enough wages to pay off those mortgages?  Why does the government have to go into debt in order to bailout investment firms and banks?

To answer these questions we need some theory about the rate of accumulation- the rate at which real value is produced in a capitalist society. The theory of the falling rate of profit is such a theory, and it is this theory that will be the topic of this video after many mentions and sneak-previews in other videos. The theory of the falling rate of profit argues that the basic way in which value is created in a capitalist society contains a basic contradiction which destabilizes accumulation. If not offset by some countervailing influence this will cause capitalism to go into crisis.

The basic argument is actually pretty simple. If capitalists see the concrete stage of commodity production (C) as an annoying step in between an initial investment (M) and profit (M1) it is in their interest to decrease the amount of time spent in this concrete stage while getting the most possible value out of it. This is basically what it means to increase efficiency. Workers produce more commodities per labor-hour, thus increasing the physical productivity relative to the initial investment.

The problem is that the more efficient capitalists are at producing commodities the less those commodities are worth. And this is simply because increased efficiency means less labor input per commodity and therefore less value, meanwhile more spending on labor-saving, efficient machines. So the very actions that capitalists take to generate more profit create a falling rate of profit.

This theory, that increased efficiency drives down the rate of profit has aspects that are both intuitively commonsensical and aspects that seem illogical. It makes intuitive sense that the more there is of a commodity the less it is worth. It doesn’t seem to make sense that capitalists would continue to behave in ways that drove down their own rate of profit. Let’s look more closely at this process and try to unravel the mystery.

The expansion of value is the essence of capitalism. Capitalists exist to turn raw materials, tools and labor power into commodities of greater value, to sell them for money and then to start the process all over again the next day. Competition between capitalists creates a race to lower prices relative to rival capitalists. But if price were ever lowered below the actual value of a commodity capitalists couldn’t make a profit at all. The only way to lower the price of a commodity and thus out-compete a rival is to produce something more cheaply than a rival capitalist. How is this done? -By increasing the productivity of labor.

Remember, commodities’ values are equal to their socially-neccesary labor time- the amount of time it takes, in general, for a commodity to be produced under average conditions. Let’s say you are a capitalist who makes widgets and the average firm produces 10 widgets an hour per worker. But your firm only produces 5. In order to make the same amount of profit as your competitors you would have to sell your widgets at a higher price. But you can’t get away with charging more for your widgets because people will just go buy from someone else who can make them cheaper. You will be forced to get your workforce to achieve average productivity or else go out of business. You will be forced to achieve the socially necessary labor time.

Now, if you can get your workers to produce 15 widgets an hour then you are producing at under the socially necessary labor time. This means your can sell your widgets at slightly less than the average cost, outselling your rivals and getting more profit per widget than them. Whereas other firms’ widgets are worth one tenth of an hour of labor time (a worker makes 10 widgets an hour) your widgets are worth a fifteenth of an hour. But you can charge anywhere from and eleventh to a fifteenth and still undersell your rivals.

How do you achieve more efficient production? Obviously you can make your workers work harder. But you will encounter some opposition if you try to get them to work too hard. After all, workers are people with a certain level of tolerance for their own exploitation. We can assume that all of your rivals are making their workers work equally hard. Your only other option is technical innovation. If you invest in better machines, new machines, fancy computers, new conveyor belts, etc. you can make your workers more productive. And this is exactly what capitalists do all the time. This is the motor behind the dazzling technological dynamism of a capitalist society.

Once you’ve achieved a more efficient production system other capitalists are going to want to do the same. It is hard to keep technological advances secret for long. Once all of your competitors are producing 15 widgets an hour per worker the socially necessary labor time of a widget goes down. Now all widgets are worth only 1/15th of an hour. The value of the commodity has fallen, and with it the amount of profit that can be made from it. The actions of individuals competing to make a profit by producing at less than the socially necessary labor time, eventually lowers the socially necessary labor time itself, thus undermining the aggregate profit rate. (repeat this)

The rate of profit is the total profit over the total price of inputs: profit/inputs. We call the profit s for surplus value- the amount of additional value added by labor, over and above the money paid to workers for their wages. We divide the inputs into two categories: wages paid to workers, and expenditures on pre-produced commodities like machines, raw materials, factories, etc. At the time of buying one of these pre-produced commodities the capitalist pays a price representing the value of the commodity. This value is then transfered onto the final product, but no additional value can be transferred by a machine or raw material, so we call the value of these pre-produced commodities “constant” and denote them with “c”. Since the wages paid to workers are not representative of a specific amount of value that will be produced per worker, that is, since there is no way of knowing how much value a worker will produce, we call their value “variable” and denote this with “v”.

We can then translate profit/inputs into s/c+v. This is the standard equation for the rate of profit (though you will sometimes see it written as s/v/c/v.) From this equation it is easy to see that an increase in investment in either c or v must correspond to a rise in the amount of surplus value in order for the rate of profit to rise or stay the same. If s stays the same while c or v increases then the rate of profit will fall.

In our example of capitalists reducing the socially necessary labor time of widgets we saw that although some capitalists gained a temporary advantage over others through increased efficiency, ultimately the same amount of workers produced the same amount of value each hour. The value was just spread out over more widgets. In terms of our equation s/c+v this means that surplus value does not rise just because physical output rises.

What does rise is c. In order to increase the efficiency of output capitalists had to spend more on machines and raw materials. This means that the denominator in the equation is increasing. And this means a falling rate of profit.

So when people say “it doesn’t make sense that capitalists would invest in ways that drove down their rate of profit” you can now explain to them the following 3 points:

1. We see the price of commodities fall all of the time due to increased efficiency. Notice the plummeting price of digital technologies, once adjusted for inflation. This means that increased productivity does not mean increased value. The same amount of workers are producing the same amount of value. This value is just spread out over more, cheaper commodities. But for some “mysterious” reason capitalists keep racing to pump out more and more cheaper commodities, even though it ultimately undermines the rate of profit.

2. Capitalists’ decisions are not centrally coordinated decisions made for the long-term benefit of the capitalist class. They are totally anarchic, the result of thousands of individual capitalists all competing against one another for temporary, short-term market advantage. The immediate, on-the-ground pressure on an individual capitalist is to increase output per worker to achieve maximum possible efficiency without regard to the effect on aggregate values or market saturation.

3. Capitalist do not operate from a conscious labor theory of value. To them, increased physical output means increased profits. This confusion of physical output with value is referred to as “physicalism”. It is the same theoretical error that confuses many of the critics of the falling rate of profit like Nobuo Okishio and John Roemer. Both capitalists and their bourgeois theorists are stuck in a theoretical quagmire where they think the value of commodities stays the same regardless of how efficient the production process is, while it is quite obvious to any lay observer that the value of commodities is constantly decreasing with rising productivity.

There are however some counter-vailing tendencies against a falling rate of profit and it is to these counter-vailing tendencies that we will turn next.

Again, if you have your thinking cap on you may have noticed that this entire thesis of the falling rate of profit is predicated on one assumption: that capitalists will increase their investment in constant capital (c) relative to variable capital (v). The ratio of c to v (c/v) is usually called the “organic composition of capital” though sometimes you will hear it referred to as the “value composition of capital”. It should be clear by now that if the organic composition of capital rises that the rate of profit falls. But if the organic composition of capital shrinks- if v rises relative to c- this should counteract the tendency toward a falling rate of profit.

Indeed this was a major strategy in response to the crisis of the early 70’s in which the west found itself with an overaccumulation of constant capital in the form of large factories and other industrial infrastructure. By an increased use of subcontracting in the 3rd world firms were able to move production overseas to take advantage of cheaper, easily exploited labor. In many parts of  Asia and Latin America there was no need to increase efficiency via constant increases in technology because the labor force, displaced from their rural means of production through deregulation in trade, was so vulnerable and exploitable.

While such investment strategies stem the falling rate of profit, they do so by expanding capitalist social relations into new areas on the periphery of capital. In so doing they don’t resolve the contradictions implied in the falling rate of profit, they merely displace these contradictions in space by bringing more people and spaces into the system. In doing so all sorts of disequilibriums are created in the fabric of capitalist space. The eventual rise to economic power of some areas of the periphery has much to do with the current disequilibrium of international capitalist relations.

A second way of stemming the falling rate of profit has to do with decreasing the value of constant capital. If the race to improve efficiency is cheapening all commodities we can expect the costs of inputs like machines and raw materials to fall as well. This allows capitalists to increase the physical amount of technology they use without increasing the value of constant capital. Unlike the previous “fix” which displaced crisis in space, this “fix” is part of the internal logic of capital and, some argue, could very well be a permanent fix.

What should be added though is that many production technologies involve very large investments in fixed capital. Fixed capital is constant capital that is fixed in space like roads, bridges, damns, factories, skyscrapers, enormous machines, etc. An enormous investment in fixed capital commits the investor to the long term use of this fixed capital, preventing the capitalist from switching to new, cheaper constant capital. The turnover time of fixed capital investments can be several years to several decades, as the capitalist waits for the cost of a new building or road to pay itself off. Thus the “fix” provided by the falling value of constant capital is neutralized in the case of fixed capital investments. The longer an industry has been around, the more automated production tends to be, so there is a tendency toward increasing investments in fixed capital.

The problems of turnover time in fixed capital investments are often overcome through the credit system. By borrowing money for investments, or borrowing money in expectation of future revenues, capitalists can get the money they need now, instead of waiting decades for an investment to pay itself off. In this way the credit system creates a socially necessary turnover time which equalizes turnover time across industries allowing industries with massive fixed capital investments to stay competitive with more labor-intensive industries. This also means that the crisis of overproduction of constant capital and the subsequent falling rate of profit are displaced in time and transferred to the credit system.

And this takes us back to our starting point. If capital can make good on all of it’s credit- if it can turn all of its investments into real value, we are safe from crisis. But if capital can’t generate enough profit relative to its investments, if technological change destabilizes value creation in one way or another we get crisis in the form of bubbles of credit which can’t find value, massive factories which can’t make a profit, shelves of commodities that can’t be sold and masses of workers without jobs. The theory of the falling rate of profit provides a starting point for analyzing how all of these factors are inter-related. While there are countervailing tendencies away from a falling rate of profit, many of them are mere displacements of crisis which merely postpone crisis, bottling it up to breakout with increasing violence when it can no longer be contained. We must also remember that there is no centrally coordinating body in a capitalist society to manage investments in a way that stabilizes the rate of profit. We are almost ready to begin an analysis of the way these abstract forces have evolved historically to land us in our present state.

Bibliography:

Limits to Capital, by David Harvey

Reclaiming Marx’s Capital, by Andrew Kliman

Class, Crisis and the State, by Erik Olin Wright

An Introduction the History of Crisis Theory, by Anwar Shaikh (from U.S. Capitalism in Crisis)

Capitalist Equilibrium?

Part one:

Part two:

10 Step Program for Capitalist Equilibrium.

Ahhhh, capitalist equilibrium…. A world of free and voluntary exchange, perfect competition, the perfect allocation of resources to meet the demands of consumers, of maximum freedom for all individuals…

Or is it? In a world of drastic inequality and crisis we have to ask why the real world diverges so drastically from this picture of capitalist equilibrium. Are there external forces hindering capitalist equilibrium or are inequality and crisis actually the true face of capitalism?

Already with the present crisis we mostly hear the former argument in various forms: that the crisis comes from poor government regulation, corruption, or central bank interference, inflation…

Most amusing is the argument of the far libertarian right that claims US economy is actually a socialist economy because of the tax system, state spending and the central bank. Thus any crisis could never be a crisis of capitalism, but only socialism. With such logic it is difficult to make any claims about whether capitalism works, because according to this argument there never has been and there never will be some abstract pure form of capitalism in which there is no government, no coordination of banking, no corruption, etc. This bourgeois conception of capitalism as a self-regulating system of free and voluntary exchange is an abstraction. But it is not the abstraction itself which is the problem with the bourgeois argument.

It is precisely this same abstraction which Marxists use to build their theory of capitalist crisis. The theory that capitalism is inherently prone to violent crisis is not built upon a model of government regulation, central bank-led inflation, etc. It proceeds from the same basic abstraction that bourgeois economy proceeds from: a free and voluntary exchange of commodities among equals. Let us then, take a whirlwind, speed-tour of how the logic of crisis is built from this abstraction. In just 10 steps!

1. Yes, you can fool some people sometimes… you can rip people off… you can always find a sucker, but by and large, in a society with free exchange trade tends to be trade between commodities of equal value. Because if someone is trying to rip you off you can always go trade with someone else. This tends to equalize the exchange value between commodities. Yes, this is an abstraction which makes certain assumptions, but it is the inherent tendency within in exchange.

2. We can’t talk about an equality of exchange without some notion of value. It is logically impossible. Because the point of an economic analysis is to explain how all the productive activities of trillions of people are coordinated in one vast system, we use human labor as our notion of value. Again, this is an abstraction. Labor varies in intensity and expertise. But by and large, in the same way in which exchange creates an equivalence of value among heterogeneous commodities, exchange reduces work to a socially necessary abstract labor time. In other words, when commodities are exchanged this implies that an equal amount of work went into the making of them.

3. None of this would be possible without money. We don’t exchange commodities directly with other commodities (C-C). Money intervenes in this process (C-M-C). We need money to measure the amount of value, the amount of socially necessary abstract labor time, represented by a commodity. With money, this abstract notion of value becomes more concrete. With this concreteness comes all of the ways concrete, empirical reality varies around this abstract form. We get price fluctuations and imbalances. Supply and demand cause money prices to shift above and below the actual labor value of a commodity. But underneath this fluctuation lies an abstract equilibrium price and this price corresponds to the amount of abstract labor in a commodity. These fluctuations are not exceptions to the abstract model. They are part of the model, made possible with necessary introduction of M into C-M-C.

4. Money is really powerful. It is the only measure of value. It can be exchanged for any other commodity. It also makes this possible: We can change C-M-C into M-C-M. People can set their money in motion, buying commodities, and then sell these commodities to someone else for more money (M-C-M1)! They can use their money not just as a medium of exchange in the free and voluntary exchange of commodities. The goal, for some, becomes not attaining the things one needs, but getting more of the same thing: money. We call these people capitalists and we call this never ending cycle of M-C-M1 capitalism.

5. But now our model appears to contradict our basic starting point: equal exchange. How is M-C-M1 possible in a world of equal exchange? Some one has to get ripped off at some point. But if we assume that we can’t make a profit by fooling people through exchange we have to look somewhere other than exchange. Capitalists don’t just sell the same commodities they buy. They buy raw materials, partially finished commodities, machines and human labor. At the end of their production process they have new commodities of greater value than they began with. They sell these commodities for a profit. We could write this: M-C…C1-M1. What happens in this mysterious production process? Where does that extra value come from? It comes from the difference between the wages paid to workers and the value created by those workers. This difference between the value created by human labor and the wages paid to those laborers is called surplus-value. Surplus value takes its money form as profit.

In fancy talk we call this surplus “s”. We call the human labor power bought by wages “v” for variable capital. And we call the other commodities the capitalist buys “c” for constant capital. We call labor power variable because there is no way of knowing from the wage paid to a worker how much value they will produce each day. That is entirely up to how hard the capitalist can get them to work. In other words, the input in wages does not necessarily equal the output in value. We call all the other inputs (raw materials, machines, etc) constant capital because they can’t be made to work harder. Thus, if you will indulge me in a little simple algebra, the value of a commodity is worth: c+v+s while the capitalist only paid c+v to make it!

That’s a lot of information to jam into 5 steps, but if you’ve been watching many of my videos hopefully this all is review. At this stage we have an abstract model of a capitalist society: a model with two classes, capitalists and workers, one which benefits at the expense of the other. The model is constantly in motion as capitalists in competition seek new ways to increase the amount of surplus they extract from workers. This motion is responsible for much of the social antagonism in the world as well the incredible dynamism and innovation of a capitalist society.

Again, this model is an abstraction. In a real capitalist society there is a lot more complexity to this class map. But this is the way we proceed from the abstract to the concrete. We started with just the free and equal exchange of commodities and now we already have a theory of value and profit, a basic class structure and the beginnings of a model for the dynamics of motion in a society driven by the quest for profit. At each stage in the analysis, the model comes to resemble the real world more and more and at each stage we see how much variation is possible within the model, how many different types of capitalist worlds could emerge from the model.

The model doesn’t move from abstract to concrete merely by injecting real world phenomena randomly into the analysis (like crude libertarians who start with an abstract concept of freedom through free exchange and then throw the Federal Reserve into the analysis without building any sort of theoretical structure with which to understand the relation of central banking to the system of exchange.) Instead we will see features of the real world emerge from the constant expansion of the basic concept of free and voluntary commodity exchange.

Next we will look at the way this basic class antagonism between capitalists and workers creates disequilibrium in the systems of production and exchange. It doesn’t create this disequillibrium through political struggle- that would be more of a libertarian argument- that political interference with the market creates crisis. It destabilizes through the market and through production itself through a crisis we will eventually call “overaccumulation”.

Once we’ve abstracted from the details of the falling rate of profit argument towards a more general theory of capitalist overaccumulation, we can begin to examine the ways the crisis of overaccumulation moves through space, constantly displacing crisis in geographical space as capital is globalized. And then we can talk about the way crisis is displaced over time via the credit system. And once we’ve talked about space and time we can talk about the role of the state in displacing crisis.

Only then, once this theoretical structure is complete can we begin to look at the history of capitalist crisis: The way capitalism evolved through successive displacements of the overaccumulation problem via Keynsianism, globalization and credit bubbles.  In contrast, the mainstream media and also much of left media start the the analysis with a brief history of sub-prime mortgages as if that is a logical starting point!

Whether or not you learn this from one of my videos or a book or wherever…  it is imperative for us to understand the basic structure of this argument if we are to come up with ways of surviving this coming crisis. It may very well be far bigger and more devastating than we can imagine.

Part two of this video asks an important question: Could such a system achieve equilibrium? I will set our model in motion and discuss the way value is created, expanded and recreated on a mass scale. This will then lead to an explanation of what would be required for this abstract model of capitalism to achieve equilibrium.

Part 2

6. Capitalist are in competition with each other. In order to survive they have to make more profit than their competitors- which is another way of saying “extract as much surplus value from workers as they can.” Again, this is an abstraction. Some capitalist may be better or worse than others at this. The intensity of competition and the power of a labor movement can affect their ability to extract surplus value. But the drive to increase surplus value is the dominant tendency. One of the best ways of doing this is through technological innovation. By replacing some workers with machines a capitalist can increase the output per worker. Of course, once other capitalists adopt these innovations, the amount of socially necessary labor time in a commodity drops and the race to innovate begins all over again. Thus our model sees a cyclical rate of of unemployment and a constant race to innovate as related features of the same drive to increase surplus value.

7. This means that the total value of all the commodities in the economy is greater than the total amount of wages. This could create a system-wide problem if there wasn’t enough demand to buy back all of the products created by capital. This is the problem of underconsumption which I discussed in my last video (Consume!). At the end of that video we concluded that capitalists could escape the underconsumption problem with the right reinvestment strategies. That is, if capitalists reinvest their surplus in expanding production they can increase the general demand in society enough to keep demand in pace with supply. This creates a further imperative for capitalism to keep growing. If growth ever slows the whole system can go into crisis.

8. The question then is, what sort of investment strategies would create a system in equilibrium? How much of the surplus should be spent on wages? How much on constant capital? To make this more complicated, we have to realize that there are two general types of commodities. There are consumer goods, the stuff you and I buy in the store, and there is constant capital, all the tools, raw materials and machines that capitalist need to buy. This complicates our equilibrium model a little because now we have to take into account capitalists paying workers, workers buying from capitalists, capitalists buying consumer goods from capitalists, and capitalists buying constant capital from capitalists. To visualize all this we divide the capitalist class into two “departments”. Department 1 produces means of production (or c, constant capital) for the entire capitalist class. Department 2 produces consumer goods for both capitalists and workers. We can diagram this model of the economy thus:
Department one: c + v + s
Department two:  c + v+ s

This diagram shows the total value of all the commodities in both departments. Both departments’ commodities are the total of all constant and variable capital and surplus value. Department one makes constant capital for itself, but it’s workers and capitalists must turn to Department 2 for consumer goods. Department 2 produces consumer goods for all of the capitalists and workers, but it must turn to department 1 for constant capital. Capitalists have to decide how much of their surplus to devote to reinvesting in c+v and how much to spend on personal consumption. Their investment decisions determine the amount of supply and demand in the economy.

[An aside: Sometimes, in response to some of my videos about the labor theory of value, viewers countered that supply and demand are much better and explaining price than labor times. Here, in this video, I am explaining the way this model leads us to an explanation of the way supply and demand are created in the first place. It took us sometime to get to this point because we are not only concerned with measuring prices, but also with explaining the way the basic social structure of capitalism is reproduced. It is a much wider and more ambitious scope.]

If all these inputs and outputs line up, if everything balances out, capitalism is in equilibrium. But if things go out of balance we will see the overproduction of some commodities in one of the departments without enough demand to buy it back. If such an overproduction diverges far from balanced growth we see violent crisis in the economy: profit falls, investment falls, unemployment rises, commodities face devaluation, etc.

9. Karl Marx set about to establish such a model for a capitalist society in equilibrium. And he discovered this. If Department 1 reinvests half of its surplus in constant and variable capital, at the same ratio of constant to variable capital, and if Department 2 reinvests 3/10’s of it’s surplus in constant and variable capital, preserving the same ratio, the model can grow forever without crisis. Of course it may encounter external barriers, like environmental crisis, but our investigation here is about internal crisis.

I’ve decided that the math of the argument isn’t all that suited for a Youtube video. But if you’d like to check it out, you can check out my wordpress blog where I have posted a “Math Supplement” to this video.

http://kapitalism101.wordpress.com/math-supplement-to-capitalist-equilibrium/

So there you go: capitalism, theoretically, can grow and grow forever without problem. Story over.

Well… maybe there are a few more things to say….

10. If you’ve been paying close attention, you might have noticed, even without the math supplement, that there are some fishy things about this equilibrium model. First of all, if equilibrium requires very specific investment strategies, how are these reinvestment strategies ever to be reached if they are the result of lots of individual capitalists acting on their own? We can’t use the old argument of supply and demand naturally balancing each other out, of the “hidden hand of the market” coordinating reinvestment, because we’ve just seen that supply and demand themselves are formed via these very reinvestment strategies. Such a restrictive reinvestment scheme could only be reached by accident.

In fact, these restrictions actually conflict with some of the more important aspects of our model. If exchange is free and voluntary than the model should allow capitalists to invest outside of their own department. We know that this happens all the time in the real world- automakers invest in computer companies, soft drink companies invest in the entertainment industry, etc. Michio Morishima has shown that if we allow capitalists to invest outside of their department, our model produces either progressive economic stagnation or violent crisis.

This model also assumes that capitalists don’t change the ratio of constant capital to variable capital when they reinvest- in other words, it assumes that for every $100 reinvested, $50 go to new machines and $50 go to new workers. But we have already argued that the whole point of introducing machines into the labor process is to replace human labor. That’s what machines are for. So, it makes no sense to reinvest in production at the same proportions.

If we allow for a steady increase in machines relative to workers we start to see a fall in the total amount of value created relative to total investment. In other words, we get a falling rate of profit. A falling rate of profit means a shrinking pool of profitable investments. And this means that capital stops flowing: a crisis.

Bibliography:

Das Kapital, vol. 2, by Karl Marx

Limits to Capital, by David Harvey

Marx’s Revenge, Meghnad Desai

“Marx’s Theory of Value and the Transformation Problem”, by Anwar Shaikh, from “The Subtle Anatomy of Capitalism” Jesse Schwartz, ed.        Shaikh’s work is available online at: http://homepage.newschool.edu/~AShaikh/