Archive for the 'economy' Category

Unpacking the value suitcase

This will never be finished so I will publish now.

Clarifying the meaning of and distinguishing between the words: value, wealth, quality and money

Suitcase words: Marvin Minsky (The Emotion Machine) has coined this marvellous term to describe words that are not clearly defined and mean different things to different people. For example, Consciousness is a suitcase word. It can mean unifier, self awareness, identity, animator of the mind, provider of meaning, detector of feelings. It refers to many different mental activities that don’t have a single cause or origin. In part Minsky’s book is about the need to create a new vocabulary in order to discuss the workings of the mind.

So, let us discuss the value suitcase. Over the years it has become a very large suitcase with many thousands of words devoted to different interpretations of value theory resulting in a tangled mass of incoherent vocabulary.

I start with the folk perspective because what we pick up as the everyday background noise of the meaning of words does influence our understanding when we get around to analysing those words in more detail. We cannot properly acquire new understandings without first subjecting our old understandings to critical scrutiny. No construction, without destruction.

Here are some popular uses of the word value:
1) Tom is good value, ask him to do the job
2) That car is good value for money
3) Gold increases in value during economic recessions
4) Steve Jobs adds value to Apple shares
5) The role of a teacher is to add value to their students
6) It was a valuable experience to attend that Noel Pearson lecture

So, in folk use, value might be used to describe an attribute of a person, a commodity (two examples, car and gold), a business, a process or an experience. In some cases there is a close connection between value and money (sentences 2 and 4) but in other cases it refers to the ability of certain people to successfully transfer their skill to a job of work or to other people. It can also refer to a learning experience. In all of these cases value is a good thing and the more value there is the better.

In Capital, Marx doesn’t start with value. He starts with the commodity and then splits the commodity into something which possesses both use value and exchange value. It turns out later that exchange-value is the form of appearance of value. Exchange value is “observable” in a transaction. For example, one 32GB USB stick = 20 litres of Pura full cream milk. We can equate these values in real life but more realistically in our imagination and it does not have to involve money. Value is the underlying category, an abstraction, a theoretical underpinning of exchange-value.

In Marx’s terms value has a form, a substance and a magnitude. The form of value is its capacity to be exchanged. The substance of value is embedded abstract labour. The magnitude of value is the amount of embedded labour or socially necessary labour time. This thumbnail needs to be discussed in more detail later.

Marx clearly distinguishes between value and use value. For Marx value is a social product (or in his language, a social form). It only exists in a commodity society, a society where products are produced and sold to others. For Marx value does not exist, or only exists in embryonic form, in primitive society where hunters and gatherers are mainly working for themselves. For Marx value is historically contingent whereas use value is not. Use value refers to the properties of products that make them useful. For example, a car is useful for transportation. This is true irrespective of whether it is bought and sold in the marketplace. Marx makes a radical separation between the usefulness of products (true for all social systems) and their value, which is only true for products which are made to be sold in the marketplace. Such products are defined as commodities.

What is the difference between the folk perspective of value and the Marx perspective of value?

Well, Marx mercilessly dissects or interrogates the commodity and teases out a variety of meanings and distinctions (use value, exchange-value, value). For Marx value becomes a central theoretical concept which is complex in its own right, having social form, substance and magnitude. But for Marx a line is drawn between value and use value.

So, looking again at the starting sentences and adding some annotations about what the folk use of value means in each case:
1) Tom is good value, ask him to do the job (Tom is useful at work of an unspecified character)
2) That car is good value for money (I am prepared to exchange my money to buy that car)
3) Gold increases in value during economic recessions (Gold is special for unstated reasons because it is always valuable, even in economic crises)
4) Steve Jobs adds value to Apple shares (some individuals excel at their value interventions in the capitalist system because of their creative design and marketing skills)
5) The role of a teacher is to add value to their students (in the “knowledge economy” value can refer to added knowledge too; the teacher transfers their knowledge to their students)
6) It was a valuable experience to attend that Noel Pearson lecture (an experience can be valuable or personally enriching in its own right)

The folk usage of the word value does either mean or imply the similar concepts which Marx discovers in the commodity (usefulness, exchangeability), adds on a few more (creativity, knowledge transfer, enrichment) and then fuzzily blurs them all together. In folk usage value is a suitcase word. Folks are using the word value as a suitcase whereas Marx is starting with the commodity and meticulously teasing out various meanings in his analysis.

The folk perspective on value and Marx’s perspective also deviate when it comes to labour saving or productivity increasing technology. With technological progress the value of manufactured products decreases. They become cheaper to buy in the marketplace.

I said above in relation to the six introductory sentences which illustrate a variety of usages of value, that,

In all of these cases value is a good thing and the more value there is the better

But now I am pointing out that as technological productivity increases then the value of the manufactured products decreases. That experience is part of popular consciousness. We all know that we possess more products than our parents generation. We possess them because we can afford them since comparable items are cheaper relative to our wages than they used to be. But does the concept of declining value universally enter the popular consciousness?

7) Commodities are cheaper for my generation than previous generations. We’ve never had it so good!

There may be some awareness of this truth but it is not general folk wisdom. Why not?

Well, often prices don’t go down. Rather you buy a fancier equivalent of the commodity you want for the same price. You are getting more value for money but not getting the feeling that things are cheaper in an absolute sense. Windows 7 replaces Windows 6. It really doesn’t do anything different but has a few extra bells and whistles so you end up paying a similar price. In reality, absolutely free alternative operating systems such as Ubuntu are equivalent and better in some ways (no viruses).

Some prices do go up. For example, land, petrol, electricity, internet access in Australia.

It is cheaper to build a house now than previously, due to technological and organisational development. The house is cheaper but the land is often more expensive due to supply and demand for good location.

Petrol prices are subject to the control of a cartel (OPEC)

The price of electricity goes up due to lack of forward planning by governments who don’t build surplus capacity in good time.

The National Broadband Network (NBN) is potentially a good idea but due to government incompetence it is rolled out in a more expensive fashion than is needed.

Environmental costs contribute to rising prices. Once again, governments are generally incompetent in managing these issues, Julia’s carbon tax being a good current example.

It is hard to accurately compare our generation with previous generations. This arises from the nature of capitalist development. We have more things but in the main they are different things to our parents possessions. When I grew up we did not own a flush toilet, an electric frig, a TV, a microwave or a computer. They were either invented or became affordable consumer items later. Even the items that are common to both generations differ substantially. Houses and cars are far more sophisticated today, they possess added gadgets and functionality which was not present previously. This rough comparison makes it obvious that the current generation has far more material possessions than previous generations. The value of producing equivalent and / or better commodities has declined over time mainly due to productivity improvements.

What is the difference between value and wealth?

In folk usage wealth may refer to:
8 ) There are a wealth of ideas in the mind of that intellectual
9) James Packer is wealthy (aka filthy rich)
10) Capitalism increases the wealth of society but that wealth is distributed unevenly

If you substitute wealth for value in my original sentences it doesn’t work out. You wouldn’t say:
1′) Tom is good value wealth, ask him to do the job
2′) That car is good value wealth for money
5′) The role of a teacher is to add value wealth to their students
but you could say:
4′) Steve Jobs adds value wealth to Apple shares

This is because value means more than the finished product or money. It also means or implies productive labour. Wealth doesn’t fit in those sentences because it usually refers more to the end product or the market value of the end product than the productive labour required to obtain that product.

Marx and his predecessors also distinguished between value and wealth. Wealth is the sum of all use values irrespective of whether they require labour. Hence unadorned natural products, eg. virgin land, are part of wealth but not part of value. In Marx’s terms nature is not a source of value. Marx approved of his predecessor William Petty in distinguishing between labour and nature as sources of wealth:

“Labour is … not the only source of material wealth, ie of the use-values it produces. As William Petty says, labour is the father of material wealth, the earth is its mother.” (Marx, vol 1)

Wealth is the sum of all use values, which are concrete and particular. Wealth originates in both nature and labour. This applies to any society. Value is a creature of capitalism or a society where commodities are exchanged in the market place and display their exchange-value there.

What is the difference between value and quality?

In Marx’s terms value is not metaphysical. By metaphysical I mean broad trans historical concepts which attempt to define meaning in a permanent or grandiose sense. Marx’s analysis is relevant to capitalism, not all of history. Marx is not writing a theory of everything to last for all time but is doing a specific critique of capitalism and classical political economy, the partly correct then existing theories of his predecessors Adam Smith, David Ricardo and others.

It is a different approach to my memory of the sense in which Quality is discussed at length in Pirsig’s Zen and the Art of Motor Cycle Maintenance. I had the sense there that if only the slippery concept of Quality could be grasped then that would be similar to solving the riddle of life itself.

However, folk usage does not always embrace metaphysical texts. In folk usage there is not a clear distinction made between value and quality. If you take the sentences I began with:
1) Tom is good value, ask him to do the job
2) That car is good value for money
3) Gold increases in value during economic recessions
4) Steve Jobs adds value to Apple shares
5) The role of a teacher is to add value to their students
6) It was a valuable experience to attend that Noel Pearson lecture

For most of them you could substitute the word quality for the word value. It is only in sentence (3) that this substitution does not work. This is because the phenomenon of gold increasing in value during economic recession requires a detailed economic theory to explain it. Even though the sentence is part of folk usage the explanation of that sentence is not.

What is the difference between value and money?

From the original sentences value is measured in money terms in sentences 2 and 4 or at least the connection is clear:
2) That car is good value for money
4) Steve Jobs adds value to Apple shares

In folk terms the value suitcase is much broader than money and encompasses usefulness, creativity and experiences as well.

For Marx value originates from labour and evolves into a universal equivalent, gold money, which further evolves into paper money. But for Marx value is in motion. The capitalist uses money or credit to buy labour and means of production, proceeds to a production process, sells the resultant commodities and finally invests more into the production process in a continual cycle. Value moves through this whole process dynamically.

So value is far more than money in both folk and Marx’s usage but in different ways.

The folk connotation of value is that it is a good thing, that valuable things (people, commodities, experiences) are worth having. This is different from the Marxist understanding, that value is a creature of capitalism an underlying theoretical concept which is the staring point to explain the motion of the whole capitalist system. For Marx, value is the starting point for further analysis and understanding of capitalism.

China’s economy by Humphrey McQueen

Chinese Crackers (pdf, 35pp)

This article is an analysis of China’s economy by Humphrey McQueen, published in February 2011 by Surplus Value. Thanks to Jim Sharp for drawing our attention to this. I don’t currently feel expert enough to evaluate Humphrey’s detailed research and interpretations but it does strike me as well worth discussion.

the grapes of wrath

The Grapes of Wrath (1940) is a movie based on John Steinbeck’s Pulitzer Prize-winning, widely-read 1939 novel. I watched it in my youth and was moved by the graphic descriptions of grinding poverty in The Great Depression and the fight by the Joad family underdogs (and their preacher friend, Casy, who stopped preaching because he didn’t know what to preach anymore) against the powerful forces of the State.

I watched it again a few days ago (here is the torrent) and it is still an amazing movie. The overall wealth of industrialised countries has improved dramatically since The Great Depression. Rather than abject, grinding poverty and starvation the poor are better off absolutely although not relatively. Nevertheless, the fundamentals haven’t changed, the rich get richer and the poor adapt and / or resist according to their organisation and circumstances. How much things have changed and yet how much they remain the same.

Filmsite Movie Review: The Grapes of Wrath

making sense of the eurozone

Will Greece default? Or will the debt be restructured? What will then happen to Portugal, Ireland, Spain, Italy etc.? Does the structure of the eurozone create its own special problems on top of the declining world economy?

In searching for answers I have found the analysis of blogger Protesilaos Stavrou (Critical views on current affairs) helpful. Although the following does not directly address the wider problem of the ailing world economy he does make a strong case that there is a problem with the euro itself which makes things worse:

European leaders created a monetary union, a single currency, without a coordinated fiscal policy (a fiscal union), thus leaving the euro open to serious shocks that would hit directly at this systemic flaw. This is the reason why the once two-speed eurozone has become two-tier, since national economies grew unequally, as the economies of the more efficient countries of European center were concentrating the surpluses of the eurozone, while the periphery was left with debt and the illusion of prosperity that came from the once cheap loans. That is the reason why we say that the surpluses of the North (Center) are the deficits of the South (Periphery).

Failing to address the structural flaws of the euro, means failing to see the real problem, which is basically what happens today, since all European officials speak of the “Greek”, “Irish”, “Portuguese” crises, as if those are not related anyhow to the way that the single currency functions. That kind of approach, is made manifest in the bailout packages that are given to these countries, which do not aim at preventing defaults and bringing national economies back on track, but at buying precious time for German and French banks, who hold around 30% of their respective countries GDP in government bonds of the European South, so as to avoid a more generalized crisis. The bailouts are thus a means of indirectly financing German and French banks and minimizing loses.

These practices will not solve the problem. All they will do is accumulate more problems that go beyond the scope of economics into social and political spheres that will at some point erupt with unpleasant consequences for the EU architecture. For as long as the systemic flaws of the single currency are not touched upon, there will be no viable solution to the eurozone’s debt crisis
Systemic flaws of the Euro are the root of the debt crisis

Here are direct links to some of his key blogs:

update: July 6: An overview of the four dimensions of the Greek Crisis

July 4: Systemic flaws of the Euro are the root of the debt crisis

July 3: Eurogroup chairman speaks of limited Greek sovereignty

July 1: Market relief will be short lived over Greek debt

June 29: Evaluation of the new austerity measures in Greece

June 28: Ad hoc measures can not save the EU

June 19: The effects of a Greek debt restructuring

June 1: The scenario of Greece switching to the Drachma – Goodbye Euro

update: May 30: About the “change” the Indignant want

May 23: Better for Greece to default rather than take new austerity measures

May 16: What if Greece goes bankrupt?

May 10: Two-speed Europe becomes TWO-TIER

May 4: The European safety mechanism dooms Greece

update: April 7: The Greek Odious Debt and its Essential Lies

The marxist theory of crisis

karl marx

Marxist Theory of Overaccumulation and Crisis (1990) by Simon Clarke (21 pages)

The purpose here in writing a brief review is to generate enough interest in Simon Clarke’s essay, so that people will read it. This in turn may lead to reading Clarke’s more comprehensive book, Marx’s Theory of Crisis (1994)

At the start, Clarke somewhat mysteriously refers to orthodox Marxist theories as underconsumptionist. Don’t be put off by this. In section 3 (pp. 6-7) he stresses that overproduction is the Marxist tradition and presents an incisive explanation of the deficiencies of underconsumptionist theories.

Clarke’s goal is to explain that capitalist crisis is necessary, that it can’t be avoided. In this respect efforts to reform capitalism are a waste of time.

Various dodgy theories which have been advanced in the name of Marx are briefly described and critiqued.

The theory of the tendency of the rate of profit to fall is not a sufficient explanation for the cause of crisis. The falling rate of profit may intensify but cannot explain the necessity of crisis. Bad theories lead to bad policies, the idea that crises can be resolved by wage restraint and the transformation of work practices to restore the rate of profit.

So, what is Clarke’s understanding of the Marxist theory of crisis? This:

“The source of crisis lies neither in the ‘anarchy of the market’, nor in the immediate process of production, but in the relation between the two , in the ‘circulation process which is in itself also a process of reproduction’ “ (1)

The tendency of capitalism is to develop the productive forces without limit. However, the ability of the working (and unemployed) population to consume without limit is restricted. This creates the possibility of crisis at a point in between production and consumption.

But underconsumption and overproduction are not opposite sides of the same coin, as claimed by Sweezy.

Production and consumption cannot be neatly separated. They constitute a dialectic, both united and separate at the same time (2). For example, when the capitalist buys means of production and puts them to work that is both consumption and production combined – productive consumption.

Another misconception is to look at consumption as the ultimate goal of capitalist production. The real goal of capitalist production is to produce surplus value. For that to happen products made have to be sold. But that is not a smooth process. The strength of Marx’s analysis is his ability to articulate all the difficulties and contradictions along the way in between the categories of money, means of production, labour power, the production process and the exchange of the new commodities produced.

From experience of recessions and depressions it is obvious that not everything produced is automatically sold. Say’s law which states that production creates its own consumption is wrong. The market does not magically solve this issue.

Moreover, capitalists produce both means of production (Department 1) and consumer goods (Department 2). Underconsumptionist theories focus just on Department 2 consumer goods, the essential requirements to keep the working class (and capitalist class) ticking over. So, the unconsumptionist analysis is one sided in this respect as well.

However, unevenness and disproportionality in production and circulation can’t be avoided due to the tendency of capitalist production to expand without limit. A theory of inevitable disproportionality has far more credibility than a theory of inevitable generalised underconsumption.

It is necessary to study Marx’s circulation and reproduction schemes (Volume 2) to achieve more clarity about this.

Do crises arise from the ignorance of capitalists? Could a more centralised co-ordination of capitalist production avoid crises?

Before answering these questions we need to ask another: Why is there overproduction?

Capitalists may lust for more profit but why doesn’t the more rational, smarter capitalist anticipate the results of overproduction and gracefully withdraw to a more in demand productive sector, thus preventing disproportionality between sectors arising?

Various theories have been developed to explain the alleged general irrationality of capitalists. Unwarranted optimism. Erroneous expectations. The lure of creative innovation. Unwarranted credit expansion by irresponsible governments. Monopoly distortion of the market. Immobility of fixed capital. These theories are critiqued by Clarke.

Clarke demystifies the market by outlining the many contradictions that lie beneath its surface.

Competition for raw materials, means of production, labour power, credit etc. confront the capitalist as a barrier to further expansion and realisation of surplus value– a barrier which each capitalist must strive to overcome. The successful capitalist will develop the productive forces without regard to the limits of the market. Ultimately the only way to realise more surplus value is to produce more commodities as economically as possible and throw them onto the market. Capitalism is a dynamic, expansive system by its nature.

Competition inevitably leads to an uneven development of the forces of production as capitalists struggle for a competitive advantage. It is inevitable that this will lead to imbalances between production and consumption. Clarke traces out this immanent tendency of capitalism in more detail.

Eventually capitalism hits a wall. A crisis of accumulation means that capital exists which cannot be realised, cannot be used. This capital can be in the form of money which has no where to go, means of production which are not utilised (over capacity) or unsold commodities. The crisis can only be resolved by the destruction of this unrealised capital and then starting over again.

What is the role of credit in the capitalist system? As stated above competition for raw materials, means of production, labour power, credit etc. confront the capitalist as a barrier to further expansion and realisation of surplus value. To break through this barrier the capitalist needs money and may not have enough. Credit fills this gap for the capitalist.

At the other end of the chain the customer needs money to buy commodities. Once again credit can make up for a short fall here.

Can credit be used to overcome the tendency of capitalism to crisis?

Credit can delay and smooth the process but does not resolve the underlying contradictions. During a boom optimism prevails and credit is cheap and easily available. This stimulates further overaccumulation, uneven development and disproportionalities. If credit continues to expand in this context then this will lead to inflation.

Sooner or later, the boom turns to bust, a destructive downward spiral, where “the over accumulation of capital suddenly appears in the form of a mass of worthless debt and an enormous overproduction of commodities”, etc

This cycle of overaccumulation and crisis has been going on for over two hundred years.

Mainstream economics explains it as a monetary phenomena whose ultimate causes are psychological or political. But despite various theories the crises still continue. To explain them we need to return to Marx who looked below the surface to how capitalism really functions.

Recurring economic crisis is not just economic crisis. If it cannot be avoided then it is social crisis. It has to be dealt with.

The purpose of this summary is to encourage further critical study of authors such as Simon Clarke who do appear to have understood the Marxist theory of crisis amongst the swirl and confusion of many other interpretations.
(1) Clarke provides reference to three sources in Marx’s original writings to support the claim that his interpretation is the real deal. Here are the links:
Capital volume 3, pp. 351-2, Penguin, 1981 beginning with “Given the necessary means of production” in the online translation

Grundrisse, pp. 410-11, Penguin, 1973. beginning with “But from the fact”

Theories of Surplus Value, Volume 2, p. 513-517, Progress Publishers, 1968, 1971, beginning with “On the Forms of Crisis”

In section 2: THE GENERAL RELATION OF PRODUCTION TO DISTRIBUTION, EXCHANGE, CONSUMPTION, Marx presents a mind blowing account of the interrelations between these categories, which anticipates his more detailed treatment in Volume 2.

the achilles heel of capitalism

Tyler Cowen The Inequality That Matters

Capitalism has delivered an increased standard of living to those it exploits, which explains its longevity. Although Bill Gates is far, far wealthier than the average joe this in itself will not create a huge problem for the system, provided average joe feels that his or her lot is improving as well. Tyler Cowen’s article compares living standards today with 1911 and concludes correctly that most people feel that capitalism has delivered more prosperity over time.

At the same time, social inequality has increased. But people may put up with increasing inequality as long as their standard of living is not threatened. Once again the statistical facts are clear on increasing inequality and the social fact is clear that overall people put up with it, they don’t take it as sufficient reason to rebel. In practice the moral outrage argument put forward by free market anarchist Kevin Carson (1) (Damning Corporate Capitalism With Faint Praise) is not sufficient for most people to change their outlook. As long as the system delivers for most it is safe.

However, finally, it is the inability of capitalism to avoid economic crisis that is its real achilles heel. Tyler Cowen concludes on a pessimistic note:

“We probably don’t have any solution to the hazards created by our financial sector, not because plutocrats are preventing our political system from adopting appropriate remedies, but because we don’t know what those remedies are … Is the overall picture a shame? Yes. … Will it again bring our economy to its knees? Probably”

So, after arguing that increasing inequality doesn’t really create a threat to the system, Tyler Cowen concludes that the system is still under threat simply because we don’t understand how it works. Indeed, we don’t yet understand how it works …

(1) See Carson’s Mutualist blog for his own perspectives. In his homebrew manifesto Carson argues that big is bad and advocates resilient neighbourhood, backyard, desktop technologies as a progressive substitute. He has also published a significant study of political economy (Studies in Mutualist Political Economy) Many of Carson’s articles are published at Center for a Stateless Society. I noticed an article there attacking political environmentalism (Green Rising: The Dangers of Political Environmentalism) because extreme Greens value the earth more than humans. Carson and the free market anarchists deserve an extended footnote because these sorts of positions are well worth further discussion.

prognosis for 2011

global economic crisis

Sheldon Filger who maintains a regular commentary on the current economic crisis (Global Economic Crisis) provides this prognosis for 2011:

Among the many clouds on the horizon regarding the global economic outlook for 2011, here are three:

1. Greek sovereign debt crisis not cured by the massive Eurozone and IMF bailout. Knowledgeable observers have pointed out that mathematically, it is not possible for the Greek state to deflate its economy in line with deficit reduction commitments required under terms of the bailout package, while simultaneously engineering a miraculous return to robust economic growth at a level sufficient to service the exploding public debt. There is already word being leaked to the Greek press by government officials that after the current bailout package expires in 2013, Athens will seek to restructure its sovereign debt.

2. Irish banking crisis far from over. After receiving a staggering level of bailout assistance from the EU and IMF to cover the country’s insolvency due to guaranteeing the obligations of Anglo Irish Bank ( along with all other banking institutions in Ireland), the Dublin authorities were forced to inject nearly $5 billion into Allied Irish Banks, another bankrupt institution. As with Greece, it seems almost a certainty that Ireland will eventually seek to restructure its public debt.

3. China, the one ray of hope in the global economy due to massive government injections of liquidity that have led to high levels of supposed growth during the global economic crisis, is now beginning to raise interest rates in a frantic effort aimed at reining in burgeoning levels of price inflation. This could lead to a tightening in the Chinese economy, combined with a catastrophic deflation in the Chinese real estate market. Any downturn in China will reverberate with dire impact on the overall global economy.

Resources for studying “Capital” with emphasis on Value theory

There are many schools of economic thought. I have listed more than twenty (at the bottom). It’s important of course to have some real understanding of these various schools. However, Marx stands alone for his work on understanding the fundamentals of how capitalism works, its inner machinations. His work was a critique of the political economy that came before him and in its fundamentals delves far deeper than the economics that has preceded him. Although the person is long dead his ideas are still very relevant and in need of an update.

It is generally acknowledged that the most difficult part of Marx is Chapter One of Capital, titled Commodities. It has taken me quite some time to get my head around it. I believe that most people would require a guide or guides to understand it. It also requires a commitment to slow, deep thinking. I’m listing here some resources I have found useful with some short notes as to which areas they cover.

Marx, Karl. A Contribution to the Critique of Political Economy
This was published in 1859 by Marx before he wrote Capital. So it provides a briefer overview of his argument. It is useful to compare Contribution with Capital as well as the differences between first and second editions of Capital. There is considerable redrafting and evolution in Marx’s thinking. Contribution also contains a section on Method, which is famously missing in Capital.

Marx, Karl. Capital Volume One, Chapter one: Commodities (first published in German, 1867)
There are 4 sections to Chapter One
Section 1: The Two Factors of a Commodity: Use-Value and Value (the Substance of Value and the Magnitude of Value)
Section 2. The Two-fold Character of the Labour Embodied in Commodities
Section 3. The Form of Value or Exchange-Value
Section 4. The Fetishism of Commodities and the Secret thereof
This must be one of the most contested, interpreted and reinterpreted texts in the history of texts. We can’t expect to just read and understand this text. It does need to be gone over very carefully and of course a good conversation along the way helps with learning, a lot.

Fine, Ben and Alfredo Saad-Filho. Marx’s Capital (2004)
This is a relatively short (180 pages) introductory account of the central issues of Marx’s political economy and its brevity might appeal as a way to start.

Harvey, David. The Limits to Capital. (2006)
David Harvey has written lots of books including volumes devoted more closely to reading Capital. He also has a series of online videos about Volume One. This book by Harvey is the one I have been reading. He is a very good writer and interpreter overall of Marx IMO (although I am puzzled by his sometimes advocacy of a zero growth future) and provides many footnotes and references for further study.

Rubin, Isaak Essays on Marx’s Theory of Value (written circa 1928)
I have found this one extremely useful for understanding the form of value, as distinct from the magnitude of value, eg. Chapter 12. Content and Form of Value. The form of value has been missed or neglected by some interpreters.

Fine, Ben and Milonakis, Dimitris. From Political Economy to Economics: Method, the social and the historical in the evolution of economic theory (2009)
This contains some brief but very good sections explaining value theory. They are situated in a broader overview of the whole history of the economic methods of different schools, which helps to fill a gap left by Marx. It is quite an amazing feat really to compare the methodology of the major schools of economic thought in one volume.

Saad-Filho, Alfredo. The Value of Marx: Political Economy for Contemporary Capitalism.
Currently this is one of my favourite interpretations of Marx’s value theory and luckily it is online. I really like the first chapter which taught me new things about materialist dialectics and the subsequent chapters do a good job of critically explaining different interpretations of value theory including some of the more recent ones. I recommend reading the footnotes too, they are very informative.

Rosdolsky, Roman. The Making of Marx’s Capital (first published circa 1968)
Rosdolsky gained some insights into controversies about Marx’s value theory by reading work by Marx published long after his death, such as Grundrissse. Rosdolsky is not a great writer but he knows his Marx and he sets the record straight in a number of instances.

Quite a few of these resources are available on line at the Marxist Archive. Personally I find it best to buy them or print off the chapters I want to study, since the material is too dense to assimilate just by reading. My own study style is to make marginal notes and also to compile separate notes as I go along. If anyone can just read Marx and pick him up like chewing minties then good luck, i would like to meet you.

Of course all of this reading is  rather daunting. It’s a grunt. But it would be great to grow a community who understand and discuss these ideas and their application to the current economic crisis. Now then, we can’t really apply Marx’s ideas to the current economic crisis if we don’t understand them, can we?

List of Economic schools of thought:

  • mercantilism
  • physiocrats
  • classical
  • marx
  • neo classical (marginal theory of value)
  • keynesian
  • neo classical synthesis or neo keynesian or neo classical keynesian
  • welfare economics
  • new keynesian
  • post keynesian
  • chartalist
  • austrian
  • monetarist
  • chicago school aka neo liberalism
  • neo ricardo – sraffa
  • complexity theory – econophysics
  • complexity economics
  • dynamic stochastic general equilibrium
  • institutionalist or evolutionary or innovation economics
  • behavioural economics
  • public choice theory
  • rational choice theory
  • social choice theory
  • information economics
  • ecological economics
  • thermo economics
  • energy economics
  • neuro economics
  • experimental economics
  • first chicago school
  • mutualist political economy
  • game theory
  • agent based computational economics
  • AI economics
  • Dynamic economics

China’s empty city

this beggars belief …..

“Capitalism: Utopian and Scientific”

I recently had a look around the Santa Fe Institute website in order to see whether anyone there was seriously attempting to apply complex systems research to understanding capitalism, and the current economic crisis. ( links below.)

My reason for taking a look  is that SFI is a major centre of cross disciplinary research into complexity, and I was wondering whether anyone there was taking a serious look at capitalism from that perspective. I think that sort of work would have to be valuable, regardless of the fact that it would be commissioned by capitalists wanting to find a way to keep capitalism on its feet, rather than with the intent of demonstrating that the system is mortal.

The reason that “The Austrians” do have a certain appeal, relative to the fundamentally mechanistic approach of the Keynsians, and most of the neo-classical economists is that they have some idea that disequilibrium is an intrinsic part of capitalism. What they just can’t comprehend is the idea that this very disequilibrium (and associated dynamism) can’t help but drive the system to a whole new level   in which the continued ownership of the means of production will become something which very clearly stands in the way of what excites them about capitalism.

However, although we can say this, there is still a large amount of hand waving involved (especially when I say it!).  In order to engage in serious debate with people who are in favour of progress but see capitalism as the best driver of this, we need to be able to engage in detailed argument at a much higher level.

Contrary to  the straw man view of socialism which the Austrians have no great difficult in knocking down,  I think we need to argue that socialism  would not be a  system without disequilibrium . Although I just don’t know enough to be able to produce a coherent account of how a socialist economy would actually work,  philosophically I’m of the view that any system in permanent equilibrium would have to be a stagnating one. That of course is exactly the basis of the economic attack on socialism from the Austrians …. that it wouldn’t work because it would be a clunky top-down system driven by a rigid central plan, rather than a living, dynamic one.

Continue reading ‘“Capitalism: Utopian and Scientific”’

Cheaper books? But what about Snugglepot and Cuddlepie??


Watch out …. the invisible hand might get our precious Snugglepies…. or so they say….(creeping globalization and all that) snugglepot2

Ever wondered why it’s not possible to use a Kindle in Australia or why there is no branch of Amazon here?   It’s because the Australian publishing industry is protected (it’s 70% foreign owned, anyhow … I’ll leave that to one side).  It’s also why the books (especially non fiction and text books) cost so much here, relative to the rest of the world.

Fortuntely a recent Productivity Commission Report has recommended that restrictions on the parallel importing of books  be reduced. books

The restriction  on   “parallel book importing”  is the mechanism which gives Australia  based publishers an effective monopoly on the book market.  In a nutshell, any book which is physically published here cannot be imported by local bookshops.  This includes all  books, not only those  by Australian authors.  So effectively, bookshops are not permitted to purchase books at the cheapest price possible, and of course this means that there is  a severe lack of competition.   (And in any  case  books published here will be more expensive to produce, simply because of smaller print runs).

Naturally the publishing industry is up in arms about it and has managed to recruit a slew of  Australian authors to the cause. The line they’ve swallowed is that this will be the death of  the Australian writer, our kids will never come across Snugglepot and Cuddlepie again, we’ll be swallowed up foreign culture, this is an attack by neo-liberal free-marketism on everything we hold dear.

Continue reading ‘Cheaper books? But what about Snugglepot and Cuddlepie??’

Economics of the alternative

Marxists are often accused of doing a lousy job of explaining how socialism would do consciously what the capitalist market system can do without anyone being all that aware of what is going on.

But that’s OK, because the efforts of bourgeois economists more than make up for this. Their mission has been to show how capitalism is good at allocating resources efficiently (if sometimes with a bit of restrained government tweaking). But in the process they have had to explain what this means and the role of a price system in achieving  it. Thank you chaps. The revolution will be forever grateful.

We just need to drive home how a system of social ownership will be able to avail itself of this unintentionally provided wisdom. Making the case is fairly easy. Debunking the “calculation debate” is particularly easy. (More on that in a few months but in the meantime see here.)

The hard job for people like me will be (1) convincing ourselves and others that we really can transcend the profit motive and rely instead mainly on intrinsic motivation and (2) developing a transitional program given that it will take time for people to take on the abilities, habits and inclinations needed to make social ownership viable.

By the way, I now find it easier to tell people what I am working on without being put on the defensive. I usually say something to the effect that it’s been a bit unfashionable for quite a long time but now that capitalism is collapsing all around us I am expecting a bit more interest. This is generally greeted with a nod.

I’ve just revised the sections on investment, money and public goods in the main article at my Economics of Social Ownership website. I have cleared out all mention of quasi-public goods and removed all the murky speculation from the money section. The old versions of these sections are stored here purely for reference.

Price Systems

How would prices be established in the absence of a capitalist market?  This question has come up in the Who Needs the Owners? But What’s the Alternaitive?” thread.  Arthur pointed out proper discussion of this issue could get quite technical and therefore  deserves a thread of its own.

The question of pricing arose via comments from Jad, who has been arguing in favor of “technocracy” as an alternative to capitalism.

(It’s worth perusing that other thread in order to see how that discussion evolved, before jumping in here.)

I’ll republish the comment from Jad which prompted Arhur’s call for a new thread, followed by Arthur’s reply, and we can take it from there.



Hi Again, A bit more on technocracy, after having looked at “Bright Future”.

I agree that the technocrats are hopelessly Utopian in that they offer almost no practical steps regarding how their proposed system can be arrived at, but I think a similar criticism could be made of Bright Future. In any case, I don’t think small doses of crackpot, utopianist speculation now and then do any permanent damage, so I thought I would offer some comparisons between the resource allocation model in Bright Future (BFM) and the Energy Accounting Model (EAM) model of the technocrats. ( By the way, although I’ve only been seriously investigating Marx for a couple of years and was in nappies in ‘68 when some of you folks were stomping the streets, unfortunately I no longer consider myself very young!).

In relation to the determination of what is produced, for both BFM and EAM, this is dependent on consumer demand. To measure demand, BFM would rely on things such as past consumer behaviour, consumer surveys and demographic predictions, whilst EAM emphasizes the electronic recording of all purchases made. There is no difference of any substance here. Of course, both EAM and BFM recognise that supply will never be perfectly matched to demand, due to changes in consumer preferences.

In relation to individual’s consumption rights, under EAM all individuals would have the same consumption entitlement (which is based on the premise that without the waste of private ownership aggregate supply capacity would exceed aggregate demand), whereas under BFM, initially at least, consumption entitlements would depend on the amount and quality of work performed.

I agree that EAM, whilst more communistic, is unrealistically utopian here in not recognising that it would take time for people’s consciousness to change and that it is not just the technical aspects of the production system that are relevant.

Both EAM and BFM see factors such as prestige, enjoyment and intrinsic reward as becoming more important than material reward as a motivating factor for work. The major difference between EAM and BFM is in relation to the pricing of goods and services. Under EAM the cost and price of goods and services is determined by the energy required for their production. Under BFM allocation of resources to production units is dependent on demand for consumer goods, and consumer goods are exchanged for work. I presume that the price of consumer goods would therefore be dependent on the socially necessary labor time necessary for their production, in an application of the labour theory of value.

I think the EAM method and theory of pricing is superior to BFM for two interrelated reasons.

Continue reading ‘Price Systems’

Who needs the owners? But what’s the alternative?

Over the years I’ve done a lot of talking with people, friends and workmates in various workplaces, about the idea of the workers ‘taking over’ and running things for ourselves. It’s an idea that holds great appeal to me, so I advocate it. Most times, people respond by rolling their eyes – they generally think the system can be fixed so that it functions more fairly. I then try to point out that the system ain’t broke – unemployment, alienation and periodic crises is precisely capitalism functioning. Fortunately, people are skeptical and therefore willing to listen to new ideas. Some ask what the ‘workers taking over’ would actually mean, how would it be different/better, what would it look like?

I then point out that, in most situations, the workers ‘run’ things anyway – this happens on a day-to-day basis. Who in a workplace ever sees the boss – I mean, the real boss, the owner of the industry or service-provider? Sure, we see our foremen and managers, who – like us – need their weekly wage to survive. But the big boss, the owner? So, things day-to-day are pretty much done by the workers on the ‘floor’. While most people I’ve talked with reckon we need the foremen and managers, no-one has ever stated that we need the owners. No-one has declared: “Oh no! Without the owner of our industry, everything would collapse!”. Under the current economic crisis, the reality is that, with the current owners of industry, etc. in charge, everything is collapsing.

Continue reading ‘Who needs the owners? But what’s the alternative?’

Unemployment and Revolution

We haven’t said much on Strange Times about what is now looking to be the most serious capitalist economic crisis since the Great Depression (and quite possibly far worse than that one).   That’s because we’re floundering. Well I am anyway, and I have no desire to hide that by just coming out with “Marxist” platitudes about the inevitability of it, “we told you so”, “look what capitalist greed leads to” etc.  And I also don’t have enough of a grip on it to write anything which goes beyond superficial handwaving  about the falling rate of profit, over-production, debt, and all the rest of it.

When I see our leaders pontificating about the crisis and proposing various ‘stimulus packages’ it appears queasily Monty Pythonesque.  I don’t think they really know what they’re doing. It would be funny if it wasn’t so serious.  Nevertheless I just don’t know enough about Marxist or capitalist  economics to produce any sort of informed critique.

So that’s my excuse for staying quiet.

Nevertheless, it’s clearly of the utmost importance for us to get our heads around it rather than to just sit on the sidelines and watch things fall apart.   So to make a start on this I’d like to launch a discussion of an old (1981) paper entitled  Unemployment and Revolution.   It’s an analysis of why unemployment occurs under capitalism and why moving to social ownership makes far more sense than waiting for capitalism to rise phoenix-like from the ashes, yet again.

Continue reading ‘Unemployment and Revolution’