Question

1. What were the major tenets of the Marginalist School? Explain and critically evaluate.
2. Discuss and critically evaluate the ‘laws of motion’ of capitalism as set forth by Karl Marx.

Answer 1

Marginalism is a theory of economics that attempts to explain the discrepancy in the value of goods and services by reference to their secondary, or marginal, utility. The reason why the price of diamonds is higher than that of water, for example, owes to the greater additional satisfaction of the diamonds over the water. Thus, while the water has greater total utility, the diamond has greater marginal utility.

Although the central concept of marginalism is that of marginal utility, marginalists, following the lead of Alfred Marshall, drew upon the idea of marginal physical productivity in explanation of cost. The neoclassical tradition that emerged from British marginalism abandoned the concept of utility and gave marginal rates of substitution a more fundamental role in analysis.Marginalism is an integral part of mainstream economic theory
If Marx's theory of surplus-value is his most revolutionary contribution to economic science, his discovery of the basic long-term ‘laws of motion’ (development trends) of the capitalist mode of production constitutes undoubtedly his most impressive scientific achievement. No other 19th-century author has been able to foresee in such a coherent way how capitalism would function, would develop and would transform the world, as did Karl Marx. Many of the most distinguished contemporary economists, starting with Wassily Leontief (1938), and Joseph Schumpeter (1942) have recognised this.

While some of these ‘laws of motion’ have obviously created much controversy, we shall nevertheless list them in logical orders rather than according to the degree of consensus they command.

(a) The capitalist's compulsion to accumulate. Capital appears in the form of accumulated money, thrown into circulation in order to increase in value. No owner of money capital will engage in business in order to recuperate exactly the sum initially invested, and nothing more than that. By definition, the search for profit is at the basis of all economic operations by owners of capital.

Profit (surplus-value, accretion of value) can originate outside the sphere of production in a precapitalist society. It represents then essentially a transfer of value (so-called primitive accumulation of capital); but under the capitalist mode of production, in which capital has penetrated the sphere of production and dominates it, surplus-value is currently produced by wage labour. It represents a constant increase in value.

Capital can only appear in the form of many capitals, given its very historical-social origin in private property (appropriation) of the means of production. ‘Many capitals’ imply unavoidable competition. Competition in a capitalist mode of production is competition for selling commodities in an anonymous market. While surplus-value is produced in the process of production, it is realised in the process of circulation, i.e. through the sale of the commodities. The capitalist wants to sell at maximum profit. In practice, he will be satisfied if he gets the average profit, which is a percentage really existing in his consciousness (eg Mr Charles Wilson, the then head of the US automobile firm General Motors, stated before a Congressional enquiry: we used to fix the expected sales price of our cars by adding 15% to production costs). But he can never be sure of this. He cannot even be sure that all the commodities produced will and a buyer.

Given these uncertainties, he has to strive constantly to get the better of his competitors. This can only occur through operating with more capital. This means that at least part of the surplus-value produced will not be unproductively consumed by the capitalists and their hangers-on through luxury consumption, but will be accumulated, added to the previously existing capital.
The inner logic of capitalism is therefore not only to ‘work for profit’, but also to ‘work for capital accumulation’. ‘Accumulate, accumulate; that is Moses and the Prophets’, states Marx in Capital, Vol. I. Capitalists are compelled to act in that way as a result of competition. It is competition which basically fuels this terrifying snowball logic: initial value of capital – accretion of value (surplus-value) – accretion of capital – more accretion of surplus-value – more accretion of capital etc. Without competition, the fire of growth would burn out.

(b) The tendency towards constant technological revolutions. In the capitalist mode of production, accumulation of capital is in the first place accumulation of productive capital, or capital invested to produce more and more commodities. Competition is therefore above all competition between productive capitals, i.e. ‘many capitals’ engaged in mining, manufacturing, transportation, agriculture, telecommunications. The main weapon in competition between capitalist firms is cutting production costs. More advanced production techniques and more ‘rational’ labour organisation are the main means to achieve that purpose. The basic trend of capital accumulation in the capitalist mode of production is therefore a trend towards more and more sophisticated machinery. Capital growth takes the dual form of higher and higher value of capital and of constant revolutions in the techniques of production, of constant technological progress.

(c) The capitalists' unquenchable thirst for surplus-value extraction. The compulsion for capital to grow, the irresistible urge for capital accumulation, realises itself above all through a constant drive for the increase of the production of surplus-value. Capital accumulation is nothing but surplus-value capitalisation, the transformation of part of the new surplus-value into additional capital. There is no other source of additional capital than additional surplus-value produced in the process of production.

Marx distinguishes two different forms of additional surplus-value production. Absolute surplus-value accretion occurs essentially through the extension of the work day. If the worker reproduces the equivalent of his wages in 4 hours a day, an extension of the work day from 10 to 12 hours will increase surplus-value from 6 to 8 hours. Relative surplus-value accretion occurs through an increase of the productivity of labour in the wage-goods sector of the economy. Such an increase in productivity implies that the equivalent of the value of an identical basket of goods and services consumed by the worker could be produced in 2 hours instead of 4 hours of labour. If the work day remains stable at 10 hours and real wages remain stable too, surplus-value will then increase from 6 to 8 hours.

While both processes occur throughout the history of the capitalist mode of production (viz. the contemporary pressure of employers in favour of overtime!), the first one was prevalent first, the second one became prevalent since the second half of the 19th century, first in Britain, France and Belgium, then in the USA and Germany, later in the other industrialized capitalist countries, and later still in the semi-industrialised ones. Marx calls this process the real subsumption (subordination ) of labour under capital, for it represents not only an economic but also a physical subordination of the wage-earner under the machine. This physical subordination can only be realized through social control. The history of the capitalist mode of production is therefore also the history of successive forms of - tighter and tighter - control of capital over the workers inside the factories (Braverman, 1974); and of attempts at realising that tightening of control in society as a whole.

The increase in the production of relative surplus-value is the goal for which capitalism tends to periodically substitute machinery for labour, i.e. to expand the industrial reserve army of labour. Likewise, it is the main tool for maintaining a modicum of social equilibrium, for when productivity of labour strongly increases, above all in the wage-good producing sectors of the economy, real wages and profits (surplus-value) can both expand simultaneously. What were previously luxury goods can even become mass-produced wage-goods.

(d) The tendency towards growing concentration and centralisation of capital. The growth of the value of capital means that each successful capitalist firm will be operating with more and more capital. Marx calls this the tendency towards growing concentration of capital. But in the competitive process, there are victors and vanquished. The victors grow. The vanquished go bankrupt or are absorbed by the victors. This process Marx calls the centralisation of capital. It results in a declining number of firms which survive in each of the key fields of production. Many small and medium-sized capitalists disappear as independent business men and women. They become in turn salary earners, employed by successful capitalism firms. Capitalism itself is the big ‘expropriating’ force, suppressing private property of the means of production for many, in favour of private property for few.

(e) The tendency for the ‘organic composition of capital’ to increase. Productive capital has a double form. It appears in the form of constant capital: buildings, machinery, raw materials, energy, It appears in the form of variable capital: capital spent on wages of productive workers. Marx calls the part of capital used in buying labour power variable, because only that part produces additional value. In the process of production, the value of constant capital is simply maintained (transferred in toto or in part into the value of the finished product). Variable capital on the contrary is the unique source of ‘added value’.

Marx postulates that the basic historic trend of capital accumulation is to increase investment in constant capital at a quicker pace than investment in variable capital; the relation between the two he calls the ‘organic composition of capital’. This is both a technical/physical relation (a given production technique implies the use of a given number of productive wage earners even if not in an absolutely mechanical way) and a value relation. The trend towards an increase in the ‘organic composition of capital’ is therefore a historical trend towards basically labour-saving technological progress.

This tendency has often been challenged by critics of Marx. Living in the age of semi-automation and ‘robotism’, it is hard to understand that challenge. The conceptual confusion on which this challenge is most based is an operation with the ‘national wage bill’, i.e. a confusion between wages in general and variable capital, which is only the wage bill of productive labour. A more correct index would be the part of the labour costs in total production costs in the manufacturing (and mining) sector. It is hard to deny that this proportion shows a downward secular trend.

(f) The tendency of the rate of profit to decline. For the workers, the basic relation they are concerned with is the rate of surplus-value, i.e. the division of ‘value added’ between wages and surplus-value. When this goes up, their exploitation (the unpaid labour they produce) obviously goes up. For the capitalists, however, this relationship is not meaningful. They are concerned with the relation between surplus-value and the totality of capital invested, never mind whether in the form of machinery and raw materials or in the form of wages. This relation is the rate of profit. It is a function of two variables, the organic composition of capital and the rate of surplus-value. If the value of constant capital is represented by c, the value of variable capital (wages of productive workers) by v and surplus-value by s, the rate of profit will be s/(c + v). This can be rewritten as [s/v]/[(c+v)/v] with the two variables emerging ((c + v)/v obviously reflects c/v).

Marx postulates that the increase in the rate of surplus value has definite limits, while the increase in the organic composition of capital has practically none (automation, robotism). There will be a basic tendency for the rate of profit to decline.

This is however absolutely true only on a very long-term, i.e. essentially ‘secular’, basis. In other time-frameworks, the rate of profit can fluctuate under the influence of countervailing forces. Constant capital can be devalorised, through ‘capital saving’ technical process, and through economic crises (see below). The rate of surplus-value can be strongly increased in the short or medium terms although each strong increase makes a further increase more difficult; and capital can flow to countries (e.g. ‘Third World’ ones) or branches (e.g. service sectors) where the organic composition of capital is significantly lower than in the previously industrialised ones, thereby raising the average rate of profit.

Finally, the increase in the mass of surplus-value - especially through the extension of wage labour in general, i.e. the total number of workers - offsets to a large extent the depressing effects of moderate declines of the average rate of profit. Capitalism will not go out of business if the mass of surplus-value produced increases ‘only’ from £10 to 17 billion, while the total mass of capital has moved from £100 to 200 billion; and capital accumulation will not stop under these circumstances, nor necessarily slow down significantly. It would be sufficient to have the unproductively consumed part of surplus-value pass e.g. from £3 to £2 billion, to obtain a rate of capital accumulation of 15/200, ie 7.5%, even higher than the previous one of 7/100, in spite of a decline of the rate of profit from 10 to 8.5%