John Quiggin

I’ve been writing series of posts examining the question – what is left of Marxism, as a way to understand the world, and as a way to change it, once it is accepted that capitalism is not going to be overthrown by a working class revolution. The first was about class and the second about crisis. Now for the final instalment: capital.

By the way, the first post got translated into Spanish, here. It’s one of the things that I still find stunning about the Internet that things like this can happen.

First there is Capital, the book,, and the value theory which is its main focus. Marx’s value theory is problematic, to put it mildly, in its own terms, as is shown by the notorious ‘transformation’ problem. But as long as Marx’s value theory formed the theoretical basis for a revolutionary workers movement, tthis and other problems was something that could be left for later resolution.

As the theoretical basis for a proletarian revolution, Marx’s value theory had some obvious merits. Given its central claims, that the return to capital arises from exploitation (scientifically derived as the expropriation of surplus value) and that the declining rate of profit means that the intensity of exploitation must increase, we are led to the conclusion that revolution is inevitable. The claim about the declining rate of profit (not specific to Marx – most of the classical economists also saw the rate of profit declining) hasn’t turned out to be true, at least not in a sense that requires steadily increasing exploitation or brings the system ever-closer to collapse.

Marx’s theory of value remains as unsatisfactory as ever, and the attempt by Sraffa to revive Ricardian economics, only showed up more problems. More to the point, once you abandon the idea of revolution, and of a society that divides neatly into workers and capitalists, the labour theory of value simply uninteresting[1]. What does it matter whether the incomes of the top 1 per cent are derived from ownership of capital or from some more complex combination of direct ownership, managerial control and straightforward corruption? It’s obvious either way that the growth of ultra-high income has come at the expense of stagnation for nearly everyone else (as discussed in the post on class, and in Zombie Economics, most of which is online here.

For those engaged in attempts to achieve a better, more equal and more sustainable society, Marx’s theory of value has little to offer. What can it tell us, for example, about the relative merits of trying to promote equality through higher minimum wages, through more progressive taxation or through expansion of public ownership? But, in the Communist Manifesto and elsewhere Marx had a lot to say about capital and capitalism that was, and remains, both interesting and insightful.

Most importantly, capital is not just an aggregate of machines, buildings, trading stock and so on[3]. It is a social relation, and gives rise to a kind of society quite different from previous societies where power over land was the core relation.

And, whereas Capital is generally concerned with a fixed-proportions, constant returns to scale economy, Marx, when not doing formal economic theory, was among the first to realise that capitalism is not about constant returns to scale. Marx saw the crucial importance of economies of size in permitting large capitalists to drive out smaller competitors. The dynamic pushing towards ever greater concentration is in inherent in the capitalist mode of production. By contrast, while earlier societies saw huge inequality in control over the means of production, that did not reflect the superior productivity of latifundia – quite the opposite. Rather this inequality was produced, and had to be maintained by, military power.

Capitalism is more dynamic than any previous society, but also, in its pure form at least, more unstable, and at least as unequal. These features have been amplified, in ways we have yet to fully comprehend, by the explosive financialisation of the last three decades or so. Of the books I’ve read recently, I found The Enigma of Capital to be the most useful on this.

The problem for social democrats is to keep the dynamism and innovation[2] while delivering more stable and sustainable, and less unjust outcomes. I’m planning to write yet more about this, but in the meantime, it’s open for comment.

fn1. Though not as uninteresting as attempts to justify the existing distribution of income on the basis of marginal productivity theory or Austrian metaphysics.

fn2. In important respects, particularly as regards the public good of pure research, social democracy can promise innovation that would not arise under either pure capitalism or central planning. The Internet is perhaps the most striking recent example.

fn3. Not to mention the fact that the aggregation is highly problematic, as the Cambridge controversy of the 1950s and 1960s showed. The value of capital assets depends on the return they receive, and the latter isn’t uniquely determined (the famous ‘reswitching’ concept being one way of showing this). BTW, commenters are free to point out that I’ve misrepresented the core of the controversy here. I’ve never worried much about the details, having never believed in capital as a meaningful aggregate value.