A Marx for our times
When Karl Marx wrote Capital it was the crowning achievement of a lifetime spent in political and theoretical struggle. Ravi Bali reviews the work of Andrew Kliman, which shows how Marx’s theories have real meaning for today.
Capital must rank as one of the best known but least read works ever published. Most of us will have gleaned what we know about Capital through commentators or interpreters. And there lies the problem. Marx’s explanation of capitalist development is so far removed from conventional accounts of how our society functions, that it is particularly difficult to appreciate.
In America and Britain, philosophy departments prefer to teach about the thinkers who have proceeded from the viewpoint of the isolated contemplating individual rather than those philosophers who take a broader more objective perspective. So Descartes, Kant and Leibnitz are paid far more attention than Spinoza or Hegel.
The viewpoint of the stand alone self-determined individual is the default setting for anyone considering their place in our capitalist world. This means any analysis that is not based on this subjectivist attitude will seem counter-intuitive. To understand Marx is to think historically and in that much-abused word, dialectically. One cannot hope to grasp the meaning of Marx by applying rules of formal logic such as the law of the excluded middle.
Dialectical thinking instead recognises that development is the process of both unbecoming (moving away from one state) and becoming (towards a different state). So that at anytime any object may both be one thing and contain within itself the possibility of becoming other than what it is.
To look at society as a historically-produced entity with its own laws of development and to capture them in concepts which we can understand, is a formidable task. To say Marx was a genius for even trying to do this is uncontroversial. Nobody has even come close to matching the scope and detail of his explanation of how capitalist society works.
Andrew Kliman is someone who has studied Marx very closely and believes that the old revolutionary still has something vitally important to tell us about how our society works. Kliman, Professor of Economics at Pace University in New York, has not only simply given us a guide to Capital but rather has drawn out its central purpose and shown its contemporary relevance. Reclaiming Marx’s Capital was published four years before Kliman’s 2011 follow up work The Failure of Capitalist Production.
Reclaiming Marx’s Capital is Kliman deliberately restricting himself to questions of the theoretical consistency of Capital arguing that if Marx’s argument can be proved to be self-contradictory then it can and has often been dismissed as irrelevant. Only once Marx’s work has been acquitted of the charges of internal inconsistency does Kliman move on in his second book to the applicability of using these theoretical categories to explaining the current economic crisis.
Reclaiming Marx’s Capital is an extended treatise on the attacks on crisis theory with a challenge to those critics and “defenders” of Marx who have misunderstood his work and in so doing have made it seem incoherent. This is important in that Marx’s Capital still represents the most comprehensive critique yet developed of capitalism and the mystified categories through which as a system it is understood. The revolutionary importance of his critique is that if accepted then it points to the need to transform society that takes us beyond the anarchy of the market system to one that is organised under conscious human control.
A major problem is that many who have claimed to be working in the tradition of Marx have done great violence to the legacy of his thought. The significance of this for Kliman is that when interpreted according to his own assumptions rather than those incorrectly attributed to him by both his critics and “defenders” (who then feel that he needs correction), Marx’s central argument stands as entirely consistent.
It is immediately clear that Kliman is committed to setting the record straight of Marx being not only personally committed to communism, but of him giving us a consistent theoretical foundation as to why it is absolutely necessary. He makes this as accessible as possible. Kliman is rigorous in setting out his argument and given the difficulty and complexity of this material, his writing style is very clear. It is an argument that runs counter to the immediate intuitions of those who might have fleetingly considered the subject. This should not come as a surprise since (to paraphrase Marx) if appearance exactly corresponded to the essence of things, all science would be superfluous.
The presentation of Capital is based on a series of conscious abstractions (or deliberate simplifying assumptions) in which much of the complexity of the real world is stripped away to what is most essential for capitalism’s functioning. The justification for these abstractions is that they make intelligible what would otherwise be overwhelmingly complicated. This abstraction is an aid to understanding for the reader. As we move through the three volumes of Capital, these simplifying assumptions are gradually abandoned once the most essentially important elements are explained in their interrelationships.
In presenting the accumulation process at these abstract levels, Marx uses tables and formulas to show the main dynamic of the system. Only once this necessarily simplified picture is elaborated are the complicating factors brought in. These secondary factors mitigate but do not negate the dynamic of the main elements.
It is at these levels of abstract presentation that those who accuse Marx of inconsistency find fault. If Marx’s system can be shown to fall down at this simplified level of presentation then the more complex picture which it is built up from cannot hope to stand either.
Kliman’s purpose is to give a reading of the argument in Marx’s Capital that shows it to be a coherent whole. He is very pointed in making clear in his first book that he is not trying to establish Marx’s theory as true (correctly explaining the real workings of capitalism) but rather the more modest task of showing it as coherent, that it makes sense on its own terms.
The most central aspect of Marx’s thought that Kliman seeks to defend is the tendency for the rate of profit to fall. This most important insight into the workings of capitalism could fairly be described as the main point for Marx writing Capital. Kliman uses the abbreviation LTFRP (law of the tendential fall in the rate of profit).
It is critical, because once understood it provides a possible explanation for why capitalism is crisis-prone and seems inevitably to lurch towards breakdown. The LTFRP is the expression of how the introduction of labour-saving technology has the effect over time of depressing the rate of profit.
Marx’s contention in Capital was that there are specific laws that spontaneously regulate the way in which capitalists accumulate wealth. By advancing a certain quantity of capital used to employ labour (and other means of production such as raw materials, land and machinery) to produce something. This product is then sold on for more than was initially advanced and the capitalist increases the size of his capital. This making of profit is both the incentive and motor force of capitalism. As long as sufficient profits are being made then capital can accumulate and we will have economic growth. If something interrupts this making of profit then capitalism grinds to a halt.
What Marx was able to show was that, based on a modified labour theory of value which posits that because human labour is the source of all value, there is a consistent trend for capitalism to continually undermine the profit basis of its functioning. This arises from the fact that an individual capitalist will try to improve the efficiency of his operation through introducing labour-saving technology.
He can for a period either make higher profits by having a more streamlined operation while charging the same price for his product than his now less efficient competitors or alternatively undercut his competitors on price and gain a greater market share. These technological improvements that mean that fewer workers are required to make each item of product will eventually be adopted by his competitors thus making this more efficient level of production the new industry standard. This has the effect of squeezing out the living labour that is the source of all profits.
This in turn has the eventual effect of lowering the general rate of profit. It is thus ironically the profit-maximising behaviour of each individual capitalist that ultimately has the effect of reducing the basis for making that very same profit which they all rely upon.
Now the reason why this most important of Marx’s laws of capitalist motion is counter-intuitive is that we assume that improved productivity which leads to the cheapening of the production process should for a smaller outlay allow firms to make higher profits (assuming commodities sell at the same price). We project from this advantage for the individual capitalist and imagine this must be true for the operation of the whole economy.
However, in a system based on market exchange, as the labour cost-reducing machinery spreads there is a general effect of lowering the market price of the finished product over time. This is a peculiarity of how capitalism works because a product’s value is determined by the average time it takes to make that product and it is around this value that its price will gravitate.
The interests of each individual capitalist is to raise their labour productivity (reduce labour time for making their individual product) but this ends up reducing the rate of profit for all capitalists. The underlying pattern of capitalist development is for a rising proportion of the capitalist’s outlay to be on machinery and materials (called constant capital) and a falling proportion on paying workers (called variable capital).
This is referred to by Marx as the rising “organic composition of capital” and is the reason that there is a LTFRP as living workers that are the only source of surplus value and therefore profit are reduced as proportion of total capital. The LTFRP is not the only tendency in capitalism otherwise the system would have long since collapsed. Other factors can slow and even temporarily reverse the process.
Kliman knows that anyone who is even vaguely familiar with Marx will be aware of his premise of a labour theory of value. He goes on to demonstrate that the many people who have tried to correct Marx’s system of argument fail to use this premise. He painstakingly goes through the variety of ways in which those who say that Marx’s argument is inconsistent are in fact not basing their own arguments on his premise but instead are smuggling in their own differing assumptions.
These assumptions violate Marx’s principle that socially necessary labour time is the only source of a commodity’s value and that surplus labour (labour performed by the worker that is not paid for by the capitalist) is the sole source of surplus value and profit. This contrasts with recent ideas such as total factor productivity which hold that living labour is not the only source of new value.
The Failure of Capitalist Production argues that the roots of the current economic crisis lie in the unresolved problems of over-accumulation that forcefully remerged at the end of the post-war boom in the 1970s. This is not an entirely novel insight but Kliman presents it more comprehensively and he is more combative in challenging many misconceptions that have arisen in both left and mainstream commentaries on the current crisis.
Kliman shows why it is not a failure of policy or regulatory framework that is to blame for today’s economic woes but rather an integral feature of how capitalism as a system (mal) functions. He examines not just the main tendency of a falling rate of profit but also the counteracting influences that have slowed and shaped the trend towards crisis. It is the exhaustion of these counter-crisis measures that are most important in explaining the timing and form of the current crisis.
Every effort to compensate for a falling rate of profit (whether conscious or otherwise) ends up reproducing the problems in both a more intensive and extensive way. The expansion of credit and rising debt can mask underlying problems of low profitability and sluggish growth for a time but these cannot be extended indefinitely before there is a “correction” which affects the whole of society.
Kliman’s discussion of the events that lead up to the collapse of Lehman Brothers in 2008 is as lucid an explanation of the unfolding crisis as you will find anywhere. He shows how in response to the sluggish state of the American economy after the bursting of the previous bubble in new online enterprises (the dot com boom), US rulers were keen to avoid following the example of the “lost decade” in Japan.
That decade of next to or no growth in Japan was associated with deflationary pressures caused by a decline in consumer prices. The US central bank (The Federal Reserve), to avoid the danger of deflation and stagnation, maintained artificially-low interest rates to encourage business borrowing for the purpose of investment. This in conditions of low profitability did not stimulate investment but instead encouraged financial institutions to borrow this extremely “cheap money” from the government and lend it to people who used it to buy houses. As money poured into the housing market it fuelled the housing price bubble.
Kliman is very good at drawing out his point that if the Federal Reserve had pursued a different policy then the crisis would have manifested itself in a different way. But given that the fundamentals of the economy (conditions of profitability) were so shaky there was no avoiding the crisis happening in some form.
Kliman is at pains to show that even though the LTFRP is the most important law of capitalism it is not the immediate cause of the crisis. The LTFRP will always generate a response within capitalism which can temporarily abate its effects only to reproduce it later, impacting on wider sections of society and with more devastating results. So this time, sluggish growth due to low profitability, necessitates a government response which triggers a housing bubble, which once burst leads to the great recession sending shockwaves around the world.
The LTRFP is the underlying ultimate cause of capitalist crisis but the immediate cause or actual trigger will be different according to how that underlying problem is “managed” in any particular situation. This is because the counter measures never eliminate the LTFRP which is intrinsic to capitalism’s functioning as a value producing system.
There is a good chapter on “underconsumptionism” which is actually the dominant way in which Marx’s idea of crisis is most commonly misunderstood. In the UK, the trade unions, most of the radical left and mainstream economists all read Marx through an “underconsumptionist” lens. This is the idea that an insufficient share of the national income goes to workers that can be spent, creating demand for goods and services, which can then stimulate growth. This radical spin on Keynes “equilibrium” theory of insufficient demand has nothing in common with Marx’s crisis theory. It is the ubiquity of these faulty interpretations of Marx that are a major problem for understanding his work.
In Stephanie Flanders’ otherwise excellent BBC series “Masters of Money”, when it came to looking at Marx's ideas she attributed insufficient consumption of the masses as the underlying problem of capitalism. In that sense Flanders saw Marx as being a proto- Keynesian but just with a political desire to get rid of capitalism.
Kliman, by contrast, maintains that the central problem of capitalism is due to the tendency for the rate of profit to fall caused by a rising organic composition of capital (rising proportion of constant to variable capital). This problem is not susceptible to any kind of redistribution but points to the need to transcend capitalism itself.
There has been criticism of Kliman for concentrating too much on US developments. This is not reasonable as America is the archetypal capitalist economy, and for now still the world’s largest. America expresses today the same laws of development that Britain did when Marx was writing in the nineteenth century.
The examination of the trends shown through US data is not a parochial narrowness but a valuable contribution. It should ideally serve as inspiration for those of us operating in other countries. As an implacable revolutionary, Kliman has through his work done a great service to those who wish to understand the world with a view to transforming it.
20 March 2013