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Ernest Mandel

The Place of Marxism in History

III. Marxism’s transformation of the social sciences
c) The transformation of English political economy

Marx’s and Engels’s critical appropriation of French sociological historiography led them to link the concepts of social class and class struggle to the concepts of social labour and social product. This led them to deal with the problems of economic science and analysis, chief among which was the question of the nature of exchange. After some hesitation by Marx, they embraced the fundamental thesis of the classical English school of political economy: exchange was based on the equivalence (the comparison) of the quantities of labour contained in commodities.

This theory known as the labour theory of value had an ancient pedigree. It had already been crudely formulated in the Middle Ages by Scholastic and Islamic theoreticians (Thomas Aquinas, Albertus Magnus, Ibn Khaldun). It was refined in the 17th century by William Petty, and received its final form in the 18th century in the works of Adam Smith, and in the early 19th century, of David Ricardo.

As the theory of the rising and revolutionary bourgeoisie, classical political economy was distinguished by a frank and open attitude towards the problems to be resolved. Almost from the outset, it approached economic life under capitalism as an objective phenomenon requiring explanation, not a set of principles and “moral” values requiring approval or condemnation. It recognised that economic science, as all other sciences, ought to begin with immediate empirical data (chief among which were prices) and proceed to discover the laws that explained the movements of these data. This led it to place the value of commodities at the very centre of its explanation. For Adam Smith and others, the historical origins of the market economy constituted at least one of the foundations of the validity of the labour theory of value.

The 18th century French Physiocrats (Quesnay, Turgot) applied the idea that labour alone produced value in their own specific way: they asserted that only agricultural labour was productive. Their inflection and restriction of the concept clearly reflected the predominance of agriculture over industry in pre-revolutionary France. Nevertheless, they opened the way to two important advances over the existing tenets of English political economy. They conceived the income of the ruling classes (landowners as well as merchants/industrialists) as deductions from the product of the labour of the only productive class (for the Physiocrats, the peasant class); and they represented economic life as a whole as a flow of products and incomes governing both current production and future production, i.e. reproduction. Marx drew on these advances to perfect his own economic theory.

For Marx had to seek to resolve several fundamental contradictions and riddles of English political economy to which Adam Smith and Ricardo had found no solution:

1. Their very definition of value was incomplete, unsatisfactory and obsolete. Classical English political economy held that labour was, at bottom, merely a measuring instrument, a numéraire making it possible to reduce to a single “factor” the various cost items of a commodity, or the income of various social classes. But Smith and Ricardo did not proceed to answer the question: what is the essence, the nature of this mysterious value measured by labour?
2. This lack of precision on the nature of value led Adam Smith to an inextricable contradiction – a genuine circular argument – in his attempts to find a quantitative measurement of this value. (Ricardo only partially overcame the contradiction.) Adam Smith contended that labour determined the value of commodities. But “the value of labour” in turn was determined by its wage. The dead-end was obvious as soon as one asked: but what determines the value of the wage, that is of the subsistence commodities purchased by the worker with her or his wage?
3. The capitalist economy was perceived as essentially static. The classical school aimed above all to explain “the state of equilibrium.” It only considered disruptions of this equilibrium due to imperfect competition, that is the survival of monopolies of all sorts, or to monetary phenomena. It did not perceive, let alone explain, the fundamental dynamic of competition which creates a quasi-permanent disequilibrium between supply and demand, the former often exceeding the latter, and its outcome, periodic crises of overproduction. This was not merely a reflection of the fact that both Adam Smith and Ricardo lived before the phenomenon of periodic crises had manifesto itself in its full magnitude. It was due above all to their total failure to understand the way in which capitalist competition is based in the production process itself on a constant transformation of techniques and costs of production, which imply rapid changes in the value of commodities.
4. Even classical political economy’s theory of wages – the theory of Malthus and Ricardo – was essentially static. Wages, it asserted, oscillate around the minimum amount physiologically required for the workers’ survival. This theory of wages, incidentally, was less economic than demographic. It claimed that the fluctuations of birth rates and infant mortality regulated the supply of workers on the “labour market.” Any increase of wages above this physiological minimum would cause the supply of workers to grow significantly enough to cause the latter’s wages to be lowered; the theory therefore conclude that wages more or less automatically sank back to the physiological minimum. Later in the 19th century, the German Socialist Ferdinand Lassalle would revive this false theory of wages with his “iron law of wages” formula (Eisernes Lohngesetz). One could point out that this theory of wages, grounded in the situation of a pre-industrial or under-industrialised capitalist society (with little industry or enormous permanent structural under-employment) was a rationalisation of the interests of the young bourgeoisie and of its attempts to drive wages down to a very low level (absolute pauperisation of the proletariat).
5. The main representative of classical political economy, David Ricardo, defended a false theory of money: the so-called quantitative theory of money, which introduced a fundamental contradiction in his entire economic analysis (in fact his entire system of thought). On the one hand, Ricardo was a systematic and coherent defender of the labour theory of value and asserted that the value of all commodities was determined by the quantity of labour which they embodied. On the other hand, he contended that the value of gold was determined by the quantity of gold in circulation. Yet gold too was undeniably a commodity produced by human labour. Why then should its value not be determined by the quantity of labour which it embodied – but by the magnitude of its circulation?
6. Classical political economy purported to be essentially objective. It accounted for what was – sometimes so brutally that it verged on cynicism, particularly when it identified productive labour with labour productive of profits. But when confronted with the reality of workers’ struggles and workers’ organisation, particularly in favour of wage increases and shorter workdays, it suddenly ceased to be content with an account of what was an undeniable reality, and became normative, subjective, moralising. It tended to condemn workers’ organisations and struggles as “fetters on freedom,” “obstacles to free competition,” “conspiracies,” “utopias running contrary to the inexorable laws of economics (the laws of the market),” “offences against public order,” etc. To do so, it had to deny a fundamental aspect of economic and social reality, one which its most lucid exponents, the “Ricardian left” (the most radical disciples of David Ricardo), nevertheless laid bare, namely the exploitative nature of the capitalist mode of production, which inevitably sharpened the class struggle between employers and wage earners, and inevitably led the latter to regroup and coalesce to defend their interests. If (bourgeois) freedom implied the right of each and every one to defend his or her “selfish” economic interests, why should wage earners not enjoy the same right? Why should it be legitimate for bosses to try and increase their profits, and illegitimate for wage earners to try and increase their wages?

Marx and Engels succeeded in overcoming all these inherent contradictions of classical political economy thanks to two fundamental scientific discoveries of Marx, and to their consequences: the elaboration of a coherent system of economic analysis incorporating a coherent, faultless explanation and critique of the capitalist mode of production and its laws of motion.

Marx established that labour was not first and foremost a unit providing a common standard for measuring the different production cost elements of commodities. It was the very essence of value. Value was labour, or more precisely, a fraction of the labour potential (the total mass of workdays or work hours) available in a given society during a given period.

Social labour in general (that is, abstracted from the particular trade or skill of each particular worker) is the basis for the life and survival of all human societies. In a society based on private property, this total social labour is fragmented and broken up into private labours performed by individuals and units of production independently of each other. These tasks are not distributed to the producers on a conscious basis, but spontaneously. The producers’ spontaneous performance is only subsequently corrected by the market. Individuals have to get the labour which they have actually already performed, recognised as social labour. Private labour is always a parcel of social labour, but every quantity of private labour is not automatically recognised as such. It is precisely the value of commodities that governs this recognition. The value of commodities is the quantity of socially necessary abstract labour needed to produce them (the formula “socially necessary” is based on the average productivity of labour in each particular branch of production).

From this first great discovery of Marx emerged a second. Wage earners, proletarians, male or female, do not sell “labour” but labour power, that is their ability to produce. It is this labour power which bourgeois society transforms into a commodity. It therefore has its own value, as objectively given as that of any other commodity: its own costs of production, its own costs of reproduction. As every other commodity, it has a usefulness (its use value) to its purchaser, a usefulness which is the precondition for its sale but which does not determine the price (value) of the commodity sold.

But the usefulness, the use value, of labour power to its purchaser, the capitalist, is precisely that it can produce value, since by definition all labour power in a market society adds value to the value of the machines and raw materials to which it is applied. Every wage earner therefore produces “added value.” Since the capitalist pays wages to the worker – wages that represent the cost of reproduction of her or his labour power –, he will only purchase this labour power if the “value added” by the worker exceeds the value of the labour power itself. This fraction of the value newly produced by the wage earner is called by Marx surplus value. Surplus value is the difference between the value newly produced by a labour power and this labour power’s own value, that is the difference between the value newly produced by a worker and the costs of reproduction of her or his labour power, etc.

Surplus value, that is the total sum of the incomes of the owning classes (profits + interests + land rent) is therefore what remains (a deduction) of the social product, after the reproduction of the workforce is assured and its maintenance costs covered. It is therefore nothing else than the monetary form of the social surplus product, which is the owning classes’ share in the distribution of the social product in all class societies: slave-masters income in a slave society; feudal land rent in a feudal society; tribute in the tributary mode of production, etc.

The discovery of surplus value as a fundamental category of bourgeois society and its mode of production, along with the explanation of its nature (a result of the surplus labour, of the unpaid, unremunerated, labour supplied by the wage earner) and of its origins (the economic compulsion driving the proletarian to sell her or his labour power to the capitalist as a commodity) represents Marx’s main contribution to economics and social science in general. But it is itself an application of the perfected labour theory of value to the specific case of a particular commodity, labour power.

However, a rigorous application of the labour theory of value to the case of the commodity “labour power required a deeper analysis of the particularities of this commodity. “Labour power”, the ability to work, is not a purely physical quality that can be measured entirely in energy terms (the consumption of calories and the production of ergs which those calories permit). Workers are not only endowed with muscles, but also with nerves and a brain. While the reproduction of their purely physical ability to work is always indispensable for them to perform the labour expected by their boss, it is, in most cases, not sufficient.

The domestic labour of women in the family contributes to the reproduction of the work force from generation to generation, from meal to meal, from illness to illness, etc. But since it does not produce commodities, it does not enter into the calculation of the quantities of labour spent on commercial production in a market economy. Marx merely noted, studied and explained this form of accounting without, of course, either approving it or identifying with it.

Moreover, the full utilisation of labour power depends on the worker’s diligence and attention, qualities which are by no means purely physiological. The worker must be ready to work at a certain pace, with a certain attention and assiduity, with a minimum amount of skill (except perhaps for the lowest paid labourers, and only sometimes at that). Meeting all these requirements entails “costs of reproduction” that enter into the determination of the wage. This is obvious with respect to the costs of acquiring skills (apprenticeships, etc), but it also applies to learning to be attentive, getting used to assiduity, caring for tools, etc.

The capitalists, of course, try to obtain these qualities at the lowest possible cost, through threatening workers with the loss of their job or through discipline enforced by supervisory staff (foremen, headmen, time-motion experts). But experience has shown that these extra qualities of labour power beyond the mere physiological ability to produce energy, can only be produced and reproduced normally through the consumption of certain goods and services.

The value of labour power therefore includes two items corresponding to the value of two sets of commodities: those that are intended to satisfy the most elementary physical needs of the worker, that is the physiological minimum required to guarantee survival in the strictest sense of the word; and those which are intended to satisfy needs which Marx calls “moral-historical,” items that have been incorporated into the average wage through historical evolution, thanks to workers’ struggles, and which vary from one country to another and from one epoch to the next.

Far from permanently and automatically falling to the physiological minimum, wages therefore fluctuate, according to Marx, in tune both with the economic outlook and with the long-range tendency of this “moral-historical” component of wages to expand or contract. The bottom line of these fluctuations is the absolute physiological minimum beyond which the worker’s physical ability to work begins to deteriorate (she or he loses weight; faints on the job; falls ill). Their ceiling is the level above which profits disappear.

Marx’s theory of wages states that wages fluctuate on the one hand according to the size of the industrial reserve army (the extent of unemployment and the mass of potential but not virtual wage earners, such as housewives who are ready to sell their labour power, the surplus popular of the countryside, etc), and on the other hand according to the periodic impact of the outcome of struggles between Capital and Wage Labour on the balance of forces between these classes. The fluctuations of the industrial reserve army are determined in the last analysis by the ups and downs of capital accumulation. It will be readily seen that this theory represented an enormous improvement over Malthus’s and Ricardo’s theory of wages, since it no longer linked the evolution of wages to the population curve alone (by dealing only with the labour supply curve), but to the overall economic dynamics of capitalism (by dealing with both the evolution of the labour supply and of the demand for labour).

But Marx and Engels also entered the periodic shifts in the relationship of forces between Capital and Labour into this wage determination equation, thereby breaking out of the narrow and mechanical economic determinism of classical political economy. The class struggle became a determining factor (a variable) partly autonomous from the evolution of the capitalist mode of production. They revealed that a genuine dialectic linked the economic motive forces of this mode of production to the class struggle. Economic analysis thereby made it possible both to explain and to justify the workers struggle from an objective, scientific standpoint. Science became a weapon in the proletarian struggle.

The way in which Marx resolved the contradictions of Ricardo’s theory of money also constituted a major advance of economics. For Marx, only a commodity having a value of its own (an intrinsic value) could be the “pivot” of the monetary system. That commodity was gold. Since gold had a value of its own (the number of hours of labour socially necessary to produce one ounce of gold), prices evolved on the long term in accordance with the ratio between the trend of labour productivity in manufacturing and agriculture on the one hand, and the trend of labour productivity in gold mines on the other. The quantitative theory of money has no validity whatsoever for metallic money.

When there is an excess of gold in relation to the needs of circulation and payments due in a given country, gold “does not lose” its value. It is partially withdrawn from circulation, thesaurised. In the Marxist theory of money, the fluctuations of gold stocks (the amount of money thesaurised) play the role of regulators that (re)establish the equilibrium between the mass of money in circulation and the value of the commodities with which it must be exchanged, taking into account payments still pending and the velocity of circulation of this money. On the other hand, in strict application of the labour theory of value, paper money does lose “value” – that is, a unit of paper money does represent a smaller quantity of gold – if it is issued in excess (paper money inflation).

Starting from these two scientific discoveries in the field of economics, Marx was able to unravel the main laws of motion of the capitalist mode of production. One hundred and twenty five years of economic and social history since he wrote Volume One of Capital have resoundingly confirmed the validity of his findings:

1. The tendency to constantly revolutionise production techniques and the organisation of labour through a form of technical progress whose fundamental thrust is labour-saving, that is substituting machines for living labour.
2. The tendency for firms to subordinate all investment decisions to the search for additional profits. Capital thirsts for surplus value because surplus value is the only ultimate source of profits, and the drive to maximise profits is an inevitable consequence of competition and private property.
3. No less inevitably, the accumulation of capital (the expansion of the mass of capital) is at once the goal and the consequence of all capitalist economic mechanisms.
4. The accumulation of capital takes the form of a progressive concentration and centralisation of the various existing capitals. Capitals increase in magnitude. But at the same time, an increasing number of small and medium-sized capitalists are absorbed by increasingly fewer giant corporations.
5. As capitals grow, the portion of their mass allocated to the purchase of labour power (variable capital) expands more slowly than the portion allocated to the purchase of machines, raw materials and auxiliaries, energy, etc (constant capital). The organic composition of capital (the ratio of constant capital to variable capital) tends to increase on the long run.
6. The ratio of the fraction of total surplus value received by each branch of capitalist activity to the capital invested in that branch, tends to even out in the different branches: this is the tendency to the equalisation of the rate of profit, to the formation of an average rate of profit at least in each country for a given period.
7. This average rate of profit tends to fall as the organic composition of capital increases. The downward tendency though is compensated by several contrary factors, chief among which are increases in the rate of exploitation of the labour force, increases in the rate of surplus value (the ratio between surplus labour and necessary labour in the current production process). But on the long run, the falling tendency prevails.
8. The decline of the average rate of profit results inevitably in periodic crises of overproduction of commodities and over-accumulation of capitals. These have occurred 21 times since 1825, that is since the first crisis on the world market for industrial goods. So far, the duration of the “industrial cycle” (the succession of phases of crisis, stagnation, economic recovery, prosperity, overheating and crisis) has varied between six and nine years, that is around an average of seven and a half years.
9. As economic crises are inevitable under the capitalist regime, so are social crises. These are periodic large-scale struggles between Capital and Labour caused by the tendency of capital to increase profits at the expense of wages thereby provoking crises and unemployment, and the no less inevitable fight back of the wage-earners trying to defend and increase their wages and reduce their average work week.
10. Periodic political crises, that is objectively revolutionary mobilisations of the proletariat combined with counter-revolutionary efforts by the bourgeoisie, break out recurrently after phases of relative political stability of capitalism. In creating the proletariat, capitalism produces its own gravediggers. It cannot grow substantially and durably without the proletariat also growing substantially and durably, and without the proletarian class struggle developing apace. Moreover, the proletariat tends to constitute a larger and larger majority of the active population, at least in the industrialised and semi-industrialised countries.

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Last updated on 22.7.2004