Marginal Futility- Reflections on Simon Clarke’s “Marx, Marginalism and Modern Sociology”September 30, 2011
Reflections on Simon Clarke’s “Marx, Marginalism and Modern Sociology”
I say “reflections” but this post is mostly a summary of parts of this great book by Simon Clarke. I read Clarke’s book “Marx’s Theory of Crisis” a year ago and found it an incredibly helpful history of the evolution of Marxist crisis theory. Both this and “Marx, Marginalism and Modern Sociology” are available in their pre-publication format for free on Clarke’s website, along with dozens of other books and publications of his . “Marx, Marginalism….” actually has two editions, a fact I only discovered after reading the first. The second is definitely an improvement, containing an entire chapter of critique of specific aspects of marginalist value and profit theory that are not in the first edition.
I post this summary/reflection as part of the “lead-up” to my next video, Law of Value 8:subject/object, which aims to address sum of the problems of the old debate over subjective and objective value that dates back 100+ years to early debates between Austrian economists and Marxists. This means that I am more interested in Clarke’s critique of marginalism than his critique of sociology. However the two critiques are related. It was the early marginalists’ desire to shrink the field of economics to theories of consumer preferences in their relation to price that excluded all sorts of important questions from the new “sciences”, questions that had previously been a part of political economy. Issues of social power, the molding of the individual by society, class, etc were excluded and taken up by the emerging field of sociology. Clarke’s book is about this process by which the unrealistic and obnoxious abstractions of marginalist thinkers bifurcated political economy into economics and sociology rendering both disciplines full of theoretical problems and lacking in the analytical tools to explain the real contradictions of capitalism.
Marx himself never read any of the founders of marginal utility theory and so we might feel that we cannot look to him for a critique of marginalism. However, Clarke is able to develop a strong marxist critique of marginalism based on Marx’s critique of the bourgeois economy that came before him. It is Clarke’s argument that both classical bourgeois economy and marginalism suffer from many of the same faults.
The essential fault is the attempt by both bourgeois theories to “naturalize” the social relations of capitalism. This the basic hallmark of any dominating ideology, to make the current state of affairs seem like the permanent, unchangeable, natural order of things. Bourgeois economics does this by claiming that capitalist-specfic categories like class, profit, capital, and wages, are just natural expressions of the technical division of labor.
Marx called this the Trinity Forumula: the idea that wages equalled labor’s contribution to the social product, that profit equalled the contribution of capital, and that rent was equal to the contribution of land to productivity. Thus the distribution of the social product between wages, rent and profit seemed like natural, technical properties of commodities themselves and not social relations between classes.
Clarke argues that marginalism is making basically the same claim, and thus falls prey to the same problems of classical economics. It is not clear exactly which properties of commodities correspond to profit. Does profit come from money, capital or means of production? Is it due to abstinence of the capitalists, the supervisory work of the capitalist, the capitalist’s ingenuity, risk, or the time of production? Are wages related to the value of means of subsistence, the disutility of work or the productivity of labor? Is rent related to the scarcity of land or the marginal fertility of land?
Regardless of the ways in which bourgeois thinkers have answered these questions we can’t escape the fact that things can’t have social powers unless bestowed upon them by social relations. Thus it makes no sense to isolate these social relations from our analysis and try to relate all economic categories to purely technical properties of commodities/production. Marx calls this mistake the fetishism of commodities and Clarke’s critique, in the end, boils down to an accusation of fetishism. (1)
Marginalism’s scope of analysis
Despite their similarities, marginalism’s subjective approach to value came as a response to some inadequacies in classical economics. In classical political economy prices were only theorized after a consideration of distribution. Once the contribution of land, labor and capital were analyzed independently price was just the adding of up of these sums. Thus we can only understand markets and prices through an understanding of class, leaving the way open for more radical interpretations of the theory that might question this distribution. (2)
Marginalism responded by developing a theory of price that directly related price to the subjective valuations of individuals contemplating objects. All social phenomena were abstracted away. This narrowed scope achieved three things: 1. Class and distribution were spirited away, allowing marginalists to claim that such questions were outside the sphere of economics; 2. The obviously political nature of distribution could be reduced to purely technical explanations (marginal productivity, etc) thereby allowing marginalists to claim that they were engaged in pure, non-partisan theory; 3. It provided a naturalistic justification of capitalism.
Clarke argues that the early founders of marginalism were not wholly ideologically motivated by the need to establish a new theory of capitalist apologetics, but that by the 1890′s the marginalist ‘revolution’ had taken on a deep apologetic nature, playing a central role in the worker movements of the late 1800′s in debates between reformist and revolutionary factions. Also, this was a time of rapidly growing social movements for reform. Marginalists wanted to develop some science of economics that could measure the effects of state intervention on the economy. This brought together people of different political persuasions to the marginalist project.
The Irrationality of Marginalism
Marginalism can abstract away all of society from economic theory because of its claim that capitalism corresponds to a formal rationality rather than a substantive rationality. Formal rationality is a purely technical calculation of means and ends as opposed to substantive rationality which is oriented around values or higher aims. For instance, in Human Action Mises claims that the basis of economics is the natural quantitative relations between objects… so much input can produce so much output, etc. For marginalism any constraints or limits to the system are purely technical, a result of natural scarcity in relation to our timeless wants, not social, and the market is the best mechanism for organizing these desires. This means that the marginalist model will fail if it can be proven that capitalist institutions have a ‘necessary substantive significance in subjecting individuals to social constraint’. In other words, if the limits and constraints of our society can be shown not the result of technical aspects like scarcity but rather the result of social institutions with particular values oriented toward the interests of certain groups of people (ie the capitalist class) than marginalism has not justification for its formal rationality, for its abstraction of society from economics, and the entire edifice of marginalism falls. It is not enough just to point to this abstraction as proof of the ideological nature of marginalism. We have to prove that it is an illegitimate abstraction. This is the common thread underlying all of Clarke’s specific critiques of different aspects of marginalism. (3)
Marginalists begin with the isolated individual making choices in a vacuum and erect all of their basic ideas upon some simple observations about these choices. As the model becomes increasingly complex, adding in more people, more commodities, money, the division of labor, private property, etc. it is claimed that all of their basic observations still hold. The expansion of the model is seen as just a formal matter. But Clarke argues that when we move from individual exchange to a system of exchange we are actually dealing with different phenomenon. In a market economy exchange is no longer and exchange for direct utility; in other words, we aren’t measuring our actual utility for the commodity we give up with the utility for the commodity we buy. Money intercedes as a mediary. We exchange things against money. Use-values are exchanged for values which are socially determined. Any claim to the formal rationality of the individual’s behaviour becomes dependent upon the rationality of the system as a whole.
The existence of money demands that we immediately abandon the basic principles of marginal utility. In the simple barter models posed by marginalists both actors can fully judge the use-values of items they are trading. But when we are exchanging things for money we are not just trading two commodities in isolation. Money links each commodity to an entire of world of commodities. Now if it was possible to know the future values of all commodities then it would be possible to generalize the marginalist barter model into a theory of indirect exchange. But we don’t know the future values of things. These are entirely uncertain. In fact, If the values of all commodities were always known we wouldn’t need money because any commodity could serve as money. This compromises the entire marginalist model.
In other words, marginalism can only have a theory of indirect exchange (of commodities traded for money instead of commodities bartered with each other) is all parties have perfect information on prices. But if we make this assumption we can no longer explain competition (or money).
Clarke then goes on to summarize and critique various failed solutions to this problem by Walras, neo-Austrians, Marshall, and Keynes. I won’t go into them all, but I will mention the neo-Austrian take on this issue: The 2nd generation Austrians like Mises were worried that Walras’s awkward solution to this problem left the door open for arguments for a socialist planner, a person that would know all prices and therefore eliminate the need for market. They therefore rejected the general equilibrium approach that we today associate with neo-classical economics and developed a theory of markets as dynamic information systems. Rather than individuals requiring perfect information, rather than markets tending to a state of perfect equilibrium, the new-Austrians argued that individuals lack perfect information. Prices are what carry information and the market is the place where this information is “processed”, creating the most efficient clearing house of information. The problem with this argument is that the defense of the market relies merely on faith and assertions. Just because the market is an expression of individual preferences doesn’t mean that it is a realization of those preferences or that it is the best way to organize individual behaviours. Instead the neo-Austrian defense of the market is based more on critiques of bureaucracy and state-planning. (4)
Theories of Profit
Similar difficulties face marginalist theories of profit. The ideological defense of capitalist profit must establish that profit is a naturally occurring result of some technical aspect of production (the contribution to the product of machines or land, subjective preferences over time, etc.) and not the result of social relations of domination/exploitation. This is impossible because profit is a category of value not of physical quantities of products, thus capitalist profit always presupposes the existence of capitalist social relations. Yet the various marginalist theories of profit will maintain that wages, rent and profit are not qualitatively different categories based on different social relations to production. Instead marginalists will argue, as did the classical economists, that wages, rent and profit are a result of technical aspects of production. But not only is profit a value category and not a physical quantity category, profit is also determined by the general rate of profit which implies a society of capitalist production not isolated producers.
Time-preference theory, usually associated with Bohm-Bawerk, attempts to work dig its way out of this hole by explaining profit not through the physical/technical aspects of production but through the differences in subjective time preference between those who want things now (workers desire wages) and those who are willing to wait (capitalists who wait for their profit).
But here too we can’t really understand a period of production time without recourse to the very social features that time-preference theory wants to abstract away. A production period is dependent on the rate of profit and of wage rates, both social phenomena that can’t be reduced to time preferences. Clarke argues that concepts like ‘marginal productivity of capital’ and the ’roundaboutness of production’ have no meaning abstracted away from the social relations of capitalism since the aim of capitalist production is to produce value, not physical quantities. We can’t measure productivity or roundaboutness in non-value terms because without value we have no standard of unit that all of these diverse inputs and outputs can be reduced to. Also, what reason do we have for being so sure that time preference is always positive and not negative? Sometimes, in conditions of uncertainty for instance, we prefer to delay gratification. This absolute assertion that we prefer present goods over past goods seems an indefensible assertion. Even further, capitalist investment strategies have nothing to do with delaying gratification or measuring investments against consumption. Capitalists constantly invest in production in pursuit of profit for profit’s sake, compelled on by competition not their subjective preferences.
Sneaking in the Back Door
In abstracting away the social relations of capitalism marginalism must assume that these abstract individuals enter exchange with given needs and given resources. Where do these needs and resources come from? The marginalist answer is that this question is outside the sphere of economics- that it doesn’t matter to economic theory where these needs and resources come from. But what if our economic system actually reproduced these needs and resources? If we could show that capitalism produced the hedonistic consumer as well as the conditions of scarcity the consumer confronts then we could expose a disastrous feedback loop at the core of marginalism. It seems that when we just assume given needs and resources we are actually only pretending to abstract away from capitalist social relations. While on the surface marginalists appear to be talking about a universal individual in universal conditions, in actuality they are sneaking all of the social relations of capitalism in the back door. This is very similar to the Bukharin critique I mentioned a few weeks ago.
I like the way Clarke develop his proof this problem: Commodity exchange presupposes individuals with different needs and different resources because if everyone had the same stuff there would be no reason for exchange. Thus exchange presupposes differences. If exchange is systematic these differences must also be systematic. Thus the formal equality and freedom of exchange is founded on different resource endowments. This means that the content of exchange can’t be reduced to its form (free, juridically equal relations between people) but must be found outside of exchange in the realm of production and property.
Scarcity relates to the application of labor to produce for need. The basis of exchange is the sale of the products of this labor. Thus the need for a theory of value based on human labor, not subjective whims.
Different types of exchange presuppose different production and property relations. The simple commodity exchange (independent producers exchanging the product of their labor in the market) is a popular image in marginalist accounts of exchange (as well as market-anarchism fantasies) yet such a system of exchange has only existed within larger societies dominated by other social relations (ie feudalism, capitalism, state-capitalism/20th century communism). Capitalist exchange presupposes social relations between two social classes, one owning the means of production, the other nothing. As we’ve seen, Marginalism tries to treat all factors of production with the same theoretical tools of subjective preference theory. But the division of the social product into rent, profit and wages actually presupposes antagonistic social relations between classes and thus requires different theoretical ideas.
Marginalists would like to treat the unequal resource endowments of individuals as due to extra-economic factors, consigning these concerns to the fields of history and sociology. But these inequalities don’t just proceed exchange historically. They are actually reproduced by exchange. Capitalism generates a world in which individuals must maintain a certain standard of living in order to survive (try paying the bills without a phone, house, car, work clothes, haircuts, health-care, etc.) and must engage in wage-labor. And wage-labor actively reproduced the two social classes of capitalist and worker and their violently divergent relationships to the means of production. Without scarcity we couldn’t have wage labor. There would be no reason to work. Thus capitalism must constantly reproduce scarcity.
Don’t Take My Word For It, Read the Book (5)
(1) Well… fetishism is more than just wrong ideas about the economy. It’s also about the way social relations take the form of material things, how material things obtain social power and dominate subjects. My critique of the subjective-objective value debate will directly relate the concept of fetishism of reframing this debate.
(2) This is not the only defect of the classical economics that motivated the marginalists. Another important one, mentioned by Clarke, is the contradiction in Ricardo’s theory of value: the problem of how to account for different organic compositions of capital under conditions of average profits. See my video “what transformation problem?” for an explanation, or my summaries of vol. 3 of capital.
(3) Here I intended to make a brilliant comparison between Clarke and Bukharin’s critiques of marginalism, one that caught some subtle yet meaningful distinction… but I didn’t get around to it.
(4) I would add that a great many aspects of the neo-Austrian argument are heavily based on “faith” and religious-y thinking. The market is this all-powerful, all-knowing entity that we as mere individuals can’t ever comprehend. Attempts to understand the market, control it or influence it are seen as foolish and arrogant. The fallibility of human understanding is stressed against this omnipotence of the market. Given these religious parallels it makes sense that this theoretical tradition has resonated so strongly with culturally-conservative politics.
(5) To the best of my recollection this is the famous slogan from the 80′s television show Reading Rainbow.