(Research in Political Economy) P. Zarembka - The Capitalist State and Its Economy - Democracy in Socialism. 22-JAI Press (2005)

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THE CAPITALIST STATE AND ITS

ECONOMY; DEMOCRACY IN
SOCIALISM
RESEARCH IN POLITICAL ECONOMY
Series Editor: Paul Zarembka
RESEARCH IN POLITICAL ECONOMY VOLUME 22

THE CAPITALIST STATE


AND ITS ECONOMY;
DEMOCRACY IN
SOCIALISM
EDITED BY

PAUL ZAREMBKA
Department of Economics, State University of New York,
Buffalo, USA

2005

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CONTENTS

LIST OF CONTRIBUTORS vii

PART I: THE STATE IN CAPITALIST DEVELOPMENT

AGRARIAN CAPITALISM AND POOR RELIEF IN


ENGLAND, c.1500–1790: RETHINKING THE ORIGINS OF
THE WELFARE STATE
Larry Patriquin 3

TAXATION AND PRIMITIVE ACCUMULATION: THE CASE


OF COLONIAL AFRICA
Mathew Forstater 51

THE STATE-CAPITAL RELATIONSHIP AND THE


SIGNIFICANCE OF INCORPORATING THE ROLE OF LABOR
Eshrak Zaky 65

POLITICAL INSTITUTIONS AND ECONOMIC


IMPERATIVES: BRINGING AGENCY BACK IN
Martijn Konings 85

PART II: ABSTRACT LABOR, PRICE, AND TECHNICAL


CHOICE IN CAPITALISM

QUANTIFYING ABSTRACT LABOR: “ALIQUOT PART”


REASONING IN MARX’S VALUE THEORY
Bruce Roberts 133
v
vi

EXCHANGE, DEMAND AND THE MARKET-PRICE OF


PRODUCTION: RECONCILING TRADITIONAL AND
MONETARY APPROACHES TO VALUE AND PRICE
David Kristjanson-Gural 167

TESTING OKISHIO’S CRITERION OF TECHNICAL CHOICE


Cheol-Soo Park 199

TESTING FOR THE MARXIAN-CLASSICAL CRITERION OF


TECHNICAL CHOICE
Gérard Duménil and Dominique Lévy 209

PART III: SOCIALISM

REFLECTIONS ON ECONOMIC DEMOCRACY


W. Paul Cockshott and Allin Cottrell 217

PART IV: ON THE PRODUCTION OF KNOWLEDGE

ON THE PRODUCTION OF KNOWLEDGE


Guglielmo Carchedi 261
LIST OF CONTRIBUTORS

Guglielmo Carchedi University of Amsterdam, the Netherlands


W. Paul Cockshott University of Glasgow, Scotland
Allin Cottrell Wake Forest University, Winston-Salem, NC,
USA
Gérard Duménil MODEM-CNRS, Université de Paris
X-Nanterre, France
Mathew Forstater University of Missouri, Kansas City, USA
Martijn Konings York University, Toronto, Canada
David Bucknell University, Lewisburg, PA, USA
Kristjanson-Gural
Dominique Lévy CEPREMAP-ENS, Paris, France
Cheol-Soo Park Pratt Institute, New York, USA
Larry Patriquin Nipissing University, North Bay, Ontario,
Canada
Bruce Roberts University of Southern Maine, Portland,
Maine, USA
Eshrak Zaky University of Toronto, Ontario, Canada

vii
PART I:
THE STATE IN CAPITALIST
DEVELOPMENT
AGRARIAN CAPITALISM AND POOR
RELIEF IN ENGLAND, c.1500–1790:
RETHINKING THE ORIGINS OF THE
WELFARE STATE

Larry Patriquin

ABSTRACT
The system of government-run poor relief in England, dating from the
sixteenth century, was not replicated in Europe until the mid- to late 1800s.
In order to understand why, poor relief must be placed within the socio-
economic framework of capitalism, a system of surplus appropriation which
originated in the novel class relations of English agriculture. The English way
of dealing with poverty was distinctive and this distinctiveness was rooted in
the unparalleled expansion of capitalism in that country in the early modern
era. Assistance to the poor in England emerged alongside a qualitative social
change, wherein an economy rooted in custom was transformed into one based
on the competitive social relations of capitalism. The main conclusion of this
article is that the welfare state was not a product of industrialization but of
the class structure of agrarian capitalism.

English poor relief dates from the sixteenth century. It was organized by the state
and was funded through obligatory taxation. Benefits, typically in the form of
money, were provided to those who could demonstrate sufficient financial need.

The Capitalist State and Its Economy; Democracy in Socialism


Research in Political Economy, Volume 22, 3–50
Copyright © 2005 by Elsevier Ltd.
All rights of reproduction in any form reserved
ISSN: 0161-7230/doi:10.1016/S0161-7230(04)22001-6
3
4 LARRY PATRIQUIN

Recipients of support lived, for the most part, in their own homes (and not in
workhouses). This method of delivering assistance to the poor in England was
peculiar; it had no equal in Europe until after c.1840. In a pamphlet published
more than 250 years ago, Thomas Alcock (1752, p. 21) highlighted the exceptional
nature of the English case:
No nation, if we except the Jews, who had something of this kind in later times, ever allowed
of a law to force charity. A strong argument this, that no such law ought to be allowed. For if
the law had been right, and requisite, and necessary, many states and nations would long ago,
no doubt, have adopted it. May not it seem very extraordinary then, that England should be the
only nation that should ever have come into such a law? Are there not poor in other countries,
as well as in this?

The objective of this article is to address an old question: Why was England’s
system of poor relief unique, or why, in the words of Alcock, did the English alone
have “a law to force charity?” There were, of course, a number of similarities
between England and other nations in the treatment of the poor in the early modern
era. This was especially so in the disapproval by governments of “idleness,” the
use of disciplining codes to control laborers, the regulation of begging, the struggle
against the effects of plague, and the building of hospitals, orphanages, and prisons.
While brief attention is occasionally paid to the unique features of English poor
relief, it is these similarities that have been overwhelmingly emphasized in the
literature. For example, Richard Smith (1996, p. 31) approvingly quoted Joanna
Innes to the effect that the “range of efforts directed towards the poor in England did
not differ greatly from that to be found elsewhere in Europe. What was different was
the balance between the parts.” Marco van Leeuwen (1994, p. 591) commented that
many studies “have demonstrated the manifold similarities in the functioning of
poor relief in preindustrial Europe.” In contrast, I suggest that after c.1540, England
began, in crucially important ways, to diverge from the Continent in its provisions
for the relief of poverty. I propose that England’s government-run system of relief
in the early modern era had no counterpart, and that this uniqueness needs to be
first and foremost in any explanation of the development of social welfare.
The existing approaches that attempt to understand the nature and origins of
English poor relief are problematic because they are typically rooted in ambiguous
concepts like “mercantilism” or “commercial society.” These concepts do not
provide an informative context for analyzing relief, because they do not confront
in a precise manner the social relationship of exploitation. I will argue that the
socio-economic framework within which poor relief must be placed is capitalism,
a system of surplus appropriation which originated in the changing class relations
of English agriculture.
I will also suggest that most writers in this field do not address another key
issue, specifically the role of the state. The state is an institution which has been
Agrarian Capitalism and Poor Relief in England, c.1500–1790 5

involved, in a myriad of ways, in the exploitation of labor. Too many historical


analyses pay scant attention to the fact that, in class societies, one segment of the
population produces a surplus that is then systematically confiscated by those with
superior social control over the means of production. The physical organization of
this process takes a number of forms, especially in precapitalist societies. Hence it
is important, in considering the basis of assistance to the poor, to differentiate the
various methods of exploitation and the various types of states that have existed
throughout history (Wood, 1991, pp. 21–41).
We must place class and state structures at the center of any account of English
poor relief. We currently do not, because most scholars simply write-off historical
materialism. Hall and Ikenberry (1989, p. 7), for example, contend that Marxists
run into problems, “especially when they seek to explain the modern welfare state
– the mere existence of which seemingly contradicts Marxism.” Michael Harloe
(1997, p. 31) observed that “the Marxist account of the class-based nature of
social policy is impossibly simplistic and historically inaccurate.” Lynn Hollen
Lees (1998, p. 351) concluded her recent survey of poor relief by arguing that
“long-run changes cannot be circumscribed within a story organized around the
concept of class interest.” In contrast, “bringing back” both class and state is a
necessary prerequisite to an analysis of the nature and purpose of England’s social
policy in the period from 1500 to 1790 (and beyond). We need to focus on the
essential features of the capital-labor social relation and the raison d’être of the
capitalist state if we are to pinpoint the precise role of poor relief in English society.
In sum, the perspectives that I am critiquing are hampered in any attempt to
explain the origins of English poor relief because they do not effectively focus
on two questions that are essential for an adequate analysis: What, specifically,
is the mode of exploitation, the way in which surplus is pumped out of the
direct producers? And how is the state implicated in this exploitation (Comninel,
1987, pp. 166–174)? Placing social welfare “in context” means answering these
questions, and this has the potential to add significantly to an interpretation of the
rise of public support for the poor.
The unique character of the exploitive social relations under capitalism must
be grasped in order to discern what was different about assistance to the poor
in England. The English way of dealing with poverty was distinctive and
this distinctiveness was rooted in the unparalleled expansion of capitalism in
that country. A socio-economic transition, indigenous to England, provided an
opportunity for the state to intervene in the creation of an exceptional set of class
relations. English poor relief was the first permanent welfare state (as we recognize
it today),1 having developed within the confines of what would become the first
capitalist society. It was an important labor adjustment program which eased the
harsher aspects of the centuries-long transition to capitalism, a response to the fact
6 LARRY PATRIQUIN

that most people, over the course of three or four hundred years, were losing access
to land and common rights and were becoming “free” laborers. Assistance to the
poor in England emerged alongside a qualitative social change, from an economy
rooted in custom to one based on the competitive social relations of capitalism.
My main conclusion is that “welfare” was not a product of industrialization but of
the class structure of agrarian capitalism.
I will begin with a brief survey of agrarian capitalism. I will then critique the
standard interpretations, those that locate the source of public assistance to the
poor in the peculiarities of English government, the presence of “commercial
capitalism,” or the expansion of mercantilism. This will be followed by a history
of poor relief in England from the Middle Ages to 1601 which will provide the
background for an assessment of writers who, in my view, overemphasize the role
of the Protestant Reformation in the creation of this relief. I will then complete the
historical survey, examining the periods 1601 to 1660, the post-Elizabethan years,
including the Civil War; and 1660 to the 1790s, prior to the implementation of the
famous Speenhamland system. I will conclude by drawing out a new interpretation
of the origins of the welfare state.

1. AGRARIAN CAPITALISM

What is capitalism? The failure to address this deceptively simple question, perhaps
more than anything, has been responsible for generating a number of problematic
interpretations of English poor relief. I would suggest that most writers in this field
have an inadequate understanding of capitalism which leads them to ignore some
of the basic distinctions between this economic form and previous, peasant-based
societies. Indeed capitalism is generally absent in narratives of the transition from
“past to present,” replaced by concepts such as “industrialization” or “modernity”
(Wood, 1991). Capitalism, as a social system, tends to go unexplored, while
exploitation, which permeates stratified communities, barely receives comment.
In most studies of poor relief, a lack of specificity in defining capitalism is often
accompanied by little or no discussion of the role of the state, an organization that
intervenes in and reproduces class relations. One would think that an interpretation
of this unique type of government assistance could not advance far without at least
a basic state theory being outlined. However, scholars have generally failed to
draw out the characteristics of the English state and the link between this state and
the development of capitalism. They have been especially inattentive to the state’s
participation in surplus appropriation, and the fact that the state, from its very birth,
has been an institution that has been used by dominant classes, an essential tool in
the project of ensuring that subordinated classes continue to produce a surplus.
Agrarian Capitalism and Poor Relief in England, c.1500–1790 7

In discerning the origins of capitalism and its historically unprecedented


“laissez-faire” state, it was a series of ground-breaking articles by Robert
Brenner (1976/1985, 1982/1985) that, I maintain, provided the most informative
explanation. Despite the fact that it has been almost 30 years since Brenner began
writing on the question of the transition to capitalism, his thesis has been ignored
by most historians (see, for instance, virtually anything rooted in the “world-
systems” perspective). This is unfortunate, because Brenner’s work, in highlighting
the uniqueness of England’s economy in the early modern era, has much to offer in
our attempt to understand key events and ideas such as the Industrial Revolution,
the birth of political economy, and the development of the welfare state.
Brenner provided an account of how it was possible for the capital-labor
relationship to be established, the process by which peasants were removed from
the soil. He addressed the question: How did a relatively large proportion of the
means of production (that is, land) come to be monopolized by a small number
of individuals who were then able to “hire” their fellow human beings? Brenner
proposed that what was at the heart of the transformation to capitalism was a
modification of social relations in England from the old “landlord versus peasant”
to a unique three-tiered class structure consisting of landlords, capitalist-farmers,
and wage-laborers. Building on Marx, Brenner emphasized that this class triad
reached a point where it no longer operated in an environment of custom but rather
one of competition (see also Patriquin, 2004, pp. 201–211).
The main conclusion of Brenner’s work is that the birthplace of capitalism was
not Europe or even West Europe. It was England. What was most important in the
creation of capitalism was the development of a competitive imperative between
those who rented land. In the early modern era, land in England was increasingly
being held on leases which were not protected by the customary relations typical of
precapitalist societies. Tenant-farmers had to be productive if they were to pay their
rent and hence hold on to land. This forced them to sell their goods at the market
price while specializing and introducing new methods of production in order to
stay ahead in the competitive race. If they failed, they would fall into arrears and
be evicted. The requirement to compete is the driving force behind social changes
in capitalist society, and it contributed enormously to the creation of a proletariat
in England, as smallholders went to the wall in great numbers, unable to maintain
their small tenancies in the face of the onslaught by large capitalist farmers. The
result of this new socio-economic system, grounded in the necessity to increase
productivity, was a massive expansion in the level of production (see also Wood,
2002).
In the period 1500–1800, peasants lost access to land to the point where, by
the 1790s, this class had virtually ceased to exist in England (Lazonick, 1974).
This abolition of the peasantry is related, in important ways, to England’s unique
8 LARRY PATRIQUIN

“common law” (Comninel, 2000). In a complex process dating from the late twelfth
century onward, a new legal system developed, one that intruded on the older
“customary law” which had offered fairly strong protections for peasants. The
common law, in contrast, generated a doctrine of exclusive ownership of property.
As far as the common law was concerned, many peasants had dubious claims to
land, despite living and working on it, and, over the course of hundreds of years,
such claims went increasingly unrecognized. The idea that peasants had rights (or
an “interest”) in land was superseded.
Another factor in removing peasants from the land, one tied to the development
of the common law, and one again unique to England, is the process of enclosure
(Ault, 1965; Yelling, 1977). Land became absolute private property and was no
longer available for communal use (as a place to graze one’s cow, for example).
The main effect of enclosure was to destroy common rights (Neeson, 1993; Thirsk,
1967). An individual could not take products off the land because this land was
now owned by someone else. Commoners no longer had access to materials like
wood and fish. A person attempting to enforce their customary claims would
now be “trespassing” and “stealing.” These rights had been essential in allowing
the peasant household to survive (Blum, 1960, 1971; Bush, 1992; Bushaway,
1992; Dyer, 1994; Tawney, 1912/1967; Wood, 1997). Without access to significant
amounts of land, and without common rights, people were left with only one
“option”: to sell their labor-power.
The outcome of increasing productivity in the years after 1500 was an
agricultural revolution in England (Beckett, 1990; Overton, 1996) that was
unparalleled, in an era when neighboring countries suffered significant famines,
as France did in the 1760s and Ireland did right down to the 1840s. In England,
by the end of the seventeenth century, a market for agricultural goods had
developed. The way farming was done had changed. The capitalist-farmer
took control of production away from the community, introducing new crops,
implementing innovative techniques (irrigation systems, putting lime on the soil),
using only unskilled labor for simple tasks, and so on. By 1700, England’s
capitalist farms were different from the peasant-based operations on the Continent.
Unlike other countries, England was able to free up a large segment of laborers
for non-agricultural production, largely because agrarian changes had increased
productivity. It was these modifications to English agriculture that allowed for the
possibility of the Industrial Revolution in the nineteenth century (Patriquin, 2004).
The Industrial Revolution, then, should be seen more as an end, rather than a “take
off,” in the evolution of the English economy. In sum, from the sixteenth century
onward, England was becoming a capitalist country, while other nations in Europe,
with their massive peasant populations, went virtually untouched by this process.
It was in this burgeoning capitalist society – and only here – that a comprehensive,
Agrarian Capitalism and Poor Relief in England, c.1500–1790 9

government-run program of social welfare was established in the early modern


period.

2. A CRITIQUE OF STANDARD INTERPRETATIONS


In explaining the development of the new types of poverty and poor relief which
appeared in late sixteenth century England, it is essential to stress the alterations to
the “economic,” and this necessitates an emphasis on the history of capitalism. The
standard approaches, however, despite highlighting the state and/or the economy,
suffer from a number of flaws. They need to be critiqued as a prelude to what I
hope will be a more satisfying account of the creation in England of laws “to force
charity.”
Let us begin with Paul Slack, one of the most important contributors to the
literature. He has noted that, in contrast to the Continent, the unique feature
of poor relief in England by the beginning of the seventeenth century was that
local taxes were being used to collect money that was in turn given “to many
hundreds of paupers living at home” (Slack, 1990, p. 17). He pointed out that this
unparalleled response to poverty in England is typically accounted for by three
variables: population increase, which resulted in a higher number of poor people;
public enlightenment, in the form of humanism and a more generous Christianity;
and government need for order and control. While acknowledging that these factors
had some influence, he did not see them as being critical to the development of
the poor laws (and I would agree with this assessment). However, Slack (1990,
p. 13) also concluded that “economic circumstances can do little to help us
explain innovations in social policy” because, over the years, there had been
a virtually continuous demand for reform of the poor laws during times of
dearth as well as periods of prosperity (though I would suggest that ruling
class complaints about relief are not a good reason to reject “economic
circumstances” as being crucial to any explanation of England’s uniqueness).
Slack, in turn, placed greater emphasis on the peculiar organization of English
government:

If we ask why England alone produced a social-welfare system of this size and complexity, we
must find the answer in political habits and structures of government . . . The English poor law
succeeded not just because Parliament could frame practicable strategies, but because Privy
Council, assize judges and sessions could enforce them . . . (Slack, 1990, p. 57).2

The unusual centralization of English government, its ability to ensure local obedience through
Assize judges and justices of the peace, and its success in moulding parishes into effective units
of administration, created a unique English institution [i.e. the poor laws] (Slack, 1988, p. 206).
10 LARRY PATRIQUIN

In noting the growth of health care institutions in early modern London, Slack
(1997, p. 247) concluded that: “First and most obviously, and perhaps tritely, they
show that new mechanisms for the protection of health and welfare had little to
do with the social circumstances of poverty and disease themselves, and more to
do with ideology and politics.” Joanna Innes (1987, p. 63) arrived at a comparable
conclusion. With reference to the construction of bridewells, she suggested that:
Features of English society and economy alone provide no adequate explanation for English
distinctiveness . . . it is not obvious that English social and economic arrangements were so
different from those prevailing everywhere on the Continent as to account for so distinctive a
governmental response.
The establishment of bridewells to serve rural as well as urban England was made possible,
and indeed probably positively encouraged, by the existence at a vital point within the hierarchy
of English government of the officers called Justices of the Peace.

These analyses point to the importance of the centralization of the English


state, which allowed for the opportunity of implementing a fairly uniform poor
law at the local level. However, Slack and Innes make no connection between
this centralized state and the development of capitalism. The peculiarities of the
English state, especially the absence of a parasitic bureaucracy that pumped a
surplus out of an impoverished peasantry, were related in important ways to the
existence in that country of privatized exploitation (Wood, 1991). The above noted
explanations also fail to give due recognition to the breakdown of manorial society
in determining how the unique treatment of the English poor came about and, in one
case (Innes), makes an empirically flawed generalization about the supposed lack of
distinctiveness of the English economy. As well, how can one so clearly separate
the “social circumstances of poverty” from “politics” and “ideology,” as Slack
does? This implies that the state has little or no role in the process of exploitation.
Other commentators have paid somewhat more attention to the relationship
between capitalism and poor relief than Slack and Innes, but they still have not
adequately drawn out the nature and specificities of this economic system. A case
in point is Gertrude Himmelfarb. She has developed an idealist explanation of
indigence and poor relief, situating them within the context of a novel form of
“morality.” With reference to the new poor law of 1834, she placed great stress on
the ethical “spirit of the age,” which was packaged in fairly coherent “principles,
assumptions, and rhetoric.” This moral discourse and resulting practices remained
dominant, she argued, “until very different principles, assumptions, and rhetoric
[at the end of the nineteenth century] brought about another revolution in social
sensibility and social policy” (Himmelfarb, 1984, p. 154).
In order to prepare the groundwork for this analysis, however, Himmelfarb
attempted to remove the critical focus from capitalism, beginning with her assertion
that the period of the late seventeenth and early eighteenth centuries “is better
Agrarian Capitalism and Poor Relief in England, c.1500–1790 11

known today under the label of mercantilism.” Himmelfarb described the century
1750–1850, the territory of her work, as one “during which England emerged as
the ‘first industrial nation.’ ” She gave great credence to the idea of “the ‘takeoff’
of industrialism (in Walt Rostow’s famous phrase)” and spoke of the years around
1760 as “the time when industrialism and capitalism began their ‘takeoff.’ ” This
argument as to when capitalism originated was further highlighted in her criticism
of C. B. Macpherson’s Burke. She claimed that this work involved “a dubious
reading of history, in which capitalism is ushered in (as it was for Tawney) a full
century or more before the Wealth of Nations” (Himmelfarb, 1984, pp. 6, 25, 40,
41, 73).
Himmelfarb (1984, pp. 55, 56) continued her argument in a discussion of a
number of classical economic theorists where she suggested that, not only does
capitalism follow mercantilism, but it was also distinct from the “industrialism”
with which it was contemporaneous. She proposed, for instance, that Adam
Smith had seen alienation as being grounded “not in capitalism as such but
in industrialism, and more specifically in the division of labour that was the
peculiar character and the special strength of modern industry.” Smith, she
maintained, “held industrialism rather than capitalism at fault” for the miseries
faced by humanity. Himmelfarb clearly endeavored to separate industrialism from
capitalism, while seeing only the former as the bearer of social evils. It sometimes
does make sense to distinguish these two, since industry is not necessarily capitalist
and capitalism does not have to be industrial – witness English agriculture. But
this distinction is not what she had in mind. Her conceptual division seems to
be a concerted attempt to rescue capitalism itself from moral disrepute. As such,
Himmelfarb must refuse to recognize the salience of the specifically industrial form
that capitalism developed, while at the same time failing altogether to engage with
its agrarian origins.
Mitchell Dean is another writer who has ignored the agrarian roots of capitalism
while characterizing the economy of eighteenth century England as mercantilist.
His book The Constitution of Poverty (1991) is a discursive analysis of the “event
of pauperism” which took place in the years 1795–1834 and which entailed a break
with the older mode of discourse. In the century and a half before Malthus’s famous
Essay (1798), Dean argued, poverty was discussed “in a remarkably consistent
fashion.” Concern in this “Discourse of the Poor” was with the administration of
people with lower incomes who formed most of the population. This changed,
however, in the late eighteenth century with “the rise of the discursive, if not
administrative, conditions for a liberal mode of government of poverty.” He noted
that the pre-nineteenth century discourse “must be challenged, and its characteristic
concepts displaced, before the liberal transformation of governance, which will be
conducive to capitalist relations, is complete” (Dean, 1991, pp. 1, 19, 23, 51, 52).
12 LARRY PATRIQUIN

There can be no doubt that the period 1795 to the 1830s was marked by a
profound ideological shift, and that Malthus was the driving force behind this
change. Where I would take issue with Dean is in his conception of the context for
his writing, and particularly in respect to the historical development of capitalism
and its relationship to poor relief and understandings of the poor. Dean, for example,
while critiquing both Marxian and Weberian historiography, explicitly broke the
link between the origins of capitalism and the unprecedented response to poverty
in England. He wrote:
Like Marx, Weber too easily reads earlier state administration and legislation through the telos
of capitalism. Both prematurely identify the role of the state in legislation towards the idle and
industrious Poor (in poor, labour, and vagrancy legislation) as functioning to promote capitalism.
By contrast we have sought to contribute to a non-reductive and non-teleological analysis of
what is indeed a highly complex genealogy of the governance of the Poor. At a minimum, the
present study implies that eighteenth-century discourses and governmental practices concerning
the Poor cannot be understood simply by reference to their functions in terms of capitalist social
relations (Dean, 1991, p. 214).

It is the point of my work to argue the opposite: that poor relief practices
in England and the development of capitalism were, in fact, intimately related.
For Dean, in contrast, the pre-1790s Discourse of the Poor was mercantilist, not
capitalist, because it defined “national wealth in terms of a favorable balance of
trade and an industrious population.” There was little in this discourse, he claimed,
which resembled “a nascent capitalist ethos, including its notions of labor, wealth,
and profit.” What was important for Dean in terms of context was “the mercantilist,
biopolitical problem of the utilisation and fostering of the population” (Dean, 1991,
pp. 19, 23, 58). The implication here is that there was an economic phase called
“mercantilism” which ran from c.1650–1800. This period was not (or not quite)
capitalism; it was only in the nineteenth century that mercantilism gave way to
capitalism proper.
There is a problem with Dean’s and Himmelfarb’s use of the concept
“mercantilism” to describe the environment within which the discourses and
methods of dealing with English poverty evolved. The term mercantilism was
first popularized by Adam Smith who used it to describe a system of economic
nationalism involving government regulations, the objective of which was to
encourage exports while placing barriers on imports. Economic prosperity was
seen as a zero-sum game, hence the importance placed on the hoarding of gold
and silver. Subsequently, about a century after Smith, a number of historians began
using the term to refer to state-building and the pursuit of power by merchants who
wanted monopolies and protection for their trade. Mercantilism, however, is not a
particularly helpful concept, despite Smith’s description of it as a system. It tends
to be invoked in reference to all western European states, taking no account of
Agrarian Capitalism and Poor Relief in England, c.1500–1790 13

the substantial distinctions between them. It does not, for example, explain the
very different policies implemented over the period 1500–1800 in England and
France. Furthermore, mercantilism does little to aid our understanding of how
one of these countries produced a capitalist economy while the other developed
a form of absolutism, with its state as a private resource, extracting taxes from a
near-starving peasantry.
Mercantilism may serve as a term for categorizing a group of loosely related
economic theorists, but it cannot be used to designate an entire economic system –
a mode of production, with the possible exception of France for brief periods
in the seventeenth and eighteenth centuries. The concept, even when applied
to theoreticians, has to be used with care, because it fails to highlight the
distinct problems that were addressed and the prescriptions that were advanced
by writers, say, in England and France. Differences between “mercantilists” in
these two countries are especially pronounced and begin to make more sense
when we look at the historical context of the theories. In the period c.1600–1800,
British political economists were making their observations in a nation with an
increasingly privatized economy. According to David McNally (1988, pp. 21, 66),
seventeenth century England saw “the emergence of a framework of analysis in
which agriculture was seen as the foundation of national wealth,” where the class
structure consisted of landlords, capitalist-farmers, and wage-workers, operating
within the confines of a more or less “night-watchman” state. Consequently, the
main preoccupation of these writers was in finding the best methods of increasing
rent (the taxable income on landed property). In France, in contrast, mercantilists
were dealing with the destructive role of the absolutist state, hence “the problem of
taxation was the central concern of French political economists during this period.”
Here, the state was seen as a more active authority, one required to bring order
to a disordered nation, a prerequisite for economic prosperity. The state, through
its control of wealth, was necessary to the organization of productive life, though
with levels of taxes so high, critics felt that it had overstepped its bounds.
Mercantilism can hardly be considered a coherent discourse. The idea that
mercantilists were all protectionists, for example, is simplistic. In fact, they
often critiqued the privileges that came with monopolies, with many, particularly
in England in the late seventeenth century, arguing for greater freedom of
trade in selected areas of the economy, with the maintenance of government
protection in others. The notion that mercantilists were diametrically opposed
to the proponents of laissez-faire is also an exaggeration, given that even the most
prominent exponent of the free trade position, Adam Smith, saw an important
role for state regulation in many areas, including the education of young children.
There was, then, no unity to mercantilist thought, even within a country, let alone
between countries, reflecting “differences of social structure, national resources
14 LARRY PATRIQUIN

and characteristics, and the stage of economic and social development attained
by different societies” (Wilson, 1958, p. 20). In sum, as a means of describing
economic theory, and certainly as a way of designating the relations of production,
mercantilism “is not simply misleading but actively confusing, a red-herring of
historiography” (Coleman, 1969, p. 117).
In contrast to the writers surveyed thus far, Catharina Lis and Hugo Soly are two
individuals who have approached the subject of poor relief from a perspective
that combines a theoretical approach with detailed historical analysis. They are
cognizant in their work of the importance of national differences. They pay due
attention to the development of agrarian capitalism and the fact that the chronology
of proletarianization in England differed from that elsewhere in western Europe.
They point to the English peasantry’s weak claims to landed property, the abolition
of common rights, and the deleterious effects of engrossment and enclosures.
Despite these observations, there is in their work a frustrating lack of
acknowledgment of how very different English social policy was from the
Continent, aside from an admission that England’s poor law had a “unique
continuity.” Their recognition of agrarian capitalism did not prevent them
from writing that the “more or less symbiotic relationship between merchant
and manufacturer helped clear the path for the eventual breakthrough of the
capitalist mode of production.” This analysis is based on Lis and Soly’s
overly generous acceptance of the presence of “commercial capitalism.” For
example, they argued that fourteenth century European towns, despite “their
small quantitative weight . . . would largely determine the course of subsequent
economic development,” because it was here, and “not in the countryside, [where]
commercial capitalism was born.” For them, sixteenth-century western Europe
saw an extension of this burgeoning, yet unstable, economic form. As a result
of merchant entrepreneurs seeking quick profits, the “development of western
European industry, consequently, was characterised by a continuous ‘redrawing of
the map,’ in the words of Fernand Braudel.” With the constant movement of capital,
no area at this time was able to take a “qualitative lead” in the production of goods.
This form of capitalism, they argued, existed at the same time as the numerous
European innovations in urban poor relief from about 1520 to 1540. From this, they
concluded that the “connection between the triumph of commercial capitalism and
the genesis of the new social policy appears undeniable” (Lis & Soly, 1979, pp. 9,
67, 92, 96, 156). A more detailed example of this line of thought is Lis and Soly’s
(1984, pp. 177, 178) description of two of the failed attempts at developing social
policies outside England in the early sixteenth century:
In France and the Netherlands, central governments did not even attempt to enforce the poor laws
promulgated in the 1530s. The reasons are obvious: in France, there was civil war between 1562
and 1598, and in the Netherlands a revolutionary movement emerged in 1566 and eventually led
Agrarian Capitalism and Poor Relief in England, c.1500–1790 15

to the independence of the United Provinces. In both countries, decisions regarding poor-relief
were left to the municipalities, which often saw no particular reason to continue a coordinated
social policy. Many towns experienced growing economic problems, aggravated by war, and so
the poor-relief schemes introduced in the 1520s and 1530s lost their labour-regulating function.

It would seem that, for Lis and Soly, social policy on the Continent died along
with commercial capitalism, which itself was killed off by wars and revolutions.
France and Holland were given as examples of failed – or at least stunted – capi-
talism. But poor relief did not fall apart in these two countries because of internal
strife; after all, as we shall see, it survived intact in England during the revolutionary
decades of the seventeenth century. Publicly funded social welfare emerged much
later on the Continent because capitalism did not fully develop here until, in some
cases, well into the nineteenth century. Also, it was the peculiar development of
agrarian capitalism in England that provided the impetus for the creation of what
we recognize today as social policy, much more so than the primitive forms of
commercial capitalism that may have existed in the cities on the Continent.
In sum, my analysis of the context of English poor relief is different from almost
all the literature on the subject. In determining the necessary conditions for the
emergence of state assistance to the poor, far too much emphasis has been placed
on the institutions of English government, especially when these are detached
from the development of capitalism; a pan-European commercial capitalism; and
the abstract economic form of mercantilism. In contrast, if we place the spotlight
on agrarian capitalism, we will have a better understanding of the development of
the peculiar treatment of the poor in England.

3. POOR RELIEF IN THE MIDDLE AGES


In the Middle Ages, despite exploitation and stark social divisions, there was no
urgent need for a comprehensive system of poor relief in England. “Capitalist
poverty” did not yet exist. Because most people lived in villages where they
were entitled to land and common rights (such as taking wood from the forests),
they could normally avoid the situation of some of their descendants who were
completely bereft of property and who were often left with no choice but to beg
in the streets.
The elderly are an interesting case study in demonstrating how a society
could function without “poor relief.” In a capitalist economy, many people reach
retirement age having saved little money because they never earned much. Owning
nothing, they require public welfare in order to survive. However, within the social
relations that made up the manor-based economy in England, elderly people who
were no longer able to farm “their” land could make arrangements to rent it out,
16 LARRY PATRIQUIN

to profit-share, or to transfer it to another person in return for a “pension.” Elaine


Clark (1982) has documented a number of cases between the 1250s and 1450s
where old people who had access to land allowed others (kin or non-relatives) to
take over their farm. In return, their pension would consist of room and board,
proper clothing, and perhaps some spending money. The person farming the land
would pay the rent and perform the labor services due. Hence, land was an asset
for tenants even though, from a modern perspective, they did not own it. They
often had control over who would succeed them; therefore, they could negotiate
their own retirement, usually when their physical abilities had diminished. Those
who were not productive would be removed from the world of work, but by the
force of their rights to land they would not go hungry or become homeless. Clark
(1990, p. 191) concluded that “rights in property gave householders the necessary
leverage to obtain labour and support” from the younger generation “and thus
to bargain for income maintenance in old age.” Landlords usually accepted this
transfer of land because it meant that their income would not be interrupted. It was
always in the landlord’s interest to have a tenant who was able to cope with the
physically demanding tasks of farming.
The particulars of these agreements were often set down in a contract which was
kept in the records of the manorial court. Failure by the caregiver to maintain the
terms of the contract could lead to the land reverting back to the elderly person,
and another tenant would have to be found. Such transfers were also done on a
more informal level, especially between parents and children. They applied, not
only to the elderly, but any group such as the mentally ill or orphaned children
who had inherited land but who were unable to work. This system of transfers
has been described as a “traditional peasant poor law” (Dyer, 1994, p. 415).
Frances Page (1930, p. 133) argued that “it is difficult to overrate the importance
of the customary land law as a method of poor relief” in providing people with a
respectable lifestyle and keeping them out of abject poverty. Hence, a growing body
of landless individuals, cut loose from village ties, would prove to be a problem.
They would have to be cared for by poor relief.
In England, provisions for the poor had remained fairly stable in the few
hundred years before 1500. By the sixteenth century, a number of institutions
had long been in place. They looked after those who could not work: the sick
(mentally or physically), the orphaned, the old, and widows with children. One
such institution was the Christian church, whose clergy collected money and
distributed it to the poor in every parish. Generally one-quarter to one-third of
the church’s annual revenue was earmarked for the relief of poverty, though this
amount fluctuated greatly depending on local circumstances. The responsibilities
of religious organizations in this area were well established by 1281 when a
Agrarian Capitalism and Poor Relief in England, c.1500–1790 17

provincial Council declared that every church had to ensure “that at least extreme
necessity among poor parishioners is relieved” (as cited in Tierney, 1959, p. 78).
Other institutions working with the indigent included monasteries, the haven for
monks and nuns, which typically donated a small percentage of their income to
the poor in the form of food and money. In addition, there were approximately 600
hospitals by the mid-fourteenth century, funded by private legacies, confraternities,
or monasteries. They took care of all types of people, including the sick, but also
those just needing a shelter, such as travellers or the odd pauper. They never looked
after extensive numbers. Around 1400, roughly “the equivalent of one person from
every two parishes was being cared for in a hospital or recorded almshouse”
(McIntosh, 1988, p. 216), typically the elderly who were in declining health.
Almshouses were residences where “older persons, with certain qualifications,
would be given housing, food, clothing, and warmth for as long as they lived”
(Tobriner, 1985, p. 14). The rent or interest from their founding gifts of land,
property, or money could serve as a perpetual source of income for a house, some
of which survive to this day (Tobriner, 1985, p. 26). As well, there were the more
informal gifts of private charity. Households that were well-off, from the royal
family on down, would occasionally arrange to feed the poor of the community.
Individuals with varying degrees of wealth sometimes had money distributed at
their funerals or they left their estate in the form of a bequest.
Religious fraternities or guilds (usually dedicated to a patron saint) and craft
guilds (identified by craft or line of business) were common by the thirteenth
century and served as another form of assistance. Some of these organizations
(one-third of the religious) had insurance funds that they generated from paid
subscriptions or fees. However, because of their practice of giving small grants,
guilds did not contribute a great deal to relief, in many cases nothing at all,
the promises contained in their by-laws notwithstanding. It would have been a
strain on the resources of some fraternities to provide support for just one person.
McRee’s (1993) study of religious fraternities concluded that the organizations that
dispensed charity tended to be overwhelmingly urban-based and fairly prosperous,
with relatively high admission fees. This ruled out entry by the poorest members of
the community. Guilds responded to situations where physical infirmities brought
on by aging or accidents deprived one of their members of the ability to labor.
They also provided temporary support to individuals who were victims of fire
or robbery, until they could re-establish their businesses. Guild members were
relatively unaffected by low wages or the lack of seasonal employment. The
beneficiaries of this type of assistance, then, were not “those who were chronically
short of funds during the ordinary course of their working lives” (McRee, 1993,
p. 209).
18 LARRY PATRIQUIN

4. THE TRANSITION TO PUBLIC POOR


RELIEF, c.1530–1601
In the sixteenth century, a fairly different and much more comprehensive, publicly
funded welfare system was constructed in England. From the 1550s to about 1600,
alterations in poor relief practices tended to be undertaken in populous areas,
where significant resources could be raised, particularly in London, where the
population rose from 55,000 in the 1520s to 200,000 by 1600 (Wrigley, 1985,
p. 688). As a result, London was one of the first places to respond to pressing
calls for assistance. The city had a well-established group of institutions that dealt
with various needs, including Christ’s (for children), St. Thomas’s (generally aged
persons), St. Bartholomew’s (sick patients), and Bethlehem (for “lunatics”). By
the 1540s, it had become clear that the money raised at Sunday church services was
not providing sufficient finances, so the collections were ended and were replaced
by a compulsory tax. This involved a new method of organizing relief by the
municipal government; however, there “was no sudden break with the older system.
St Thomas’s, St Bartholomew’s and Bedlam [Bethlehem] had all been hospitals
for centuries. They had been saved from [the] destruction [of the Reformation
period], improved and enlarged, but essentially the same work was done in the
same places” (Leonard, 1900/1965, p. 38).
This organization of relief would soon receive a novel supplement in 1552 when
the city of London petitioned King Edward in an attempt to obtain Bridewell. This
building was to be used as a new type of “hospital” for the able-bodied. It became
one of the first major efforts “by governments to create work opportunities for the
workless poor” (Innes, 1987, p. 53). Raw materials and wages were to be supplied
by private companies who would receive back finished products such as nails, caps,
and knitted goods. Within the institution, governors and other employees would
enforce order and discipline. Labor would be coerced out of “sturdy beggars,”
who were seen as voluntarily unemployed, in the hope of “reforming” them. The
objective of those who established Bridewell was to set up a “house of occupations”
so that able-bodied individuals, who would otherwise depend on charity, could
support themselves through the production of goods.
Bridewell began operations in 1557 and joined the impressive array of
institutions noted above. It was committing about 400 individuals per year in the
1560s, in a city containing roughly 100,000 people. Those who entered Bridewell,
usually beggars and vagrants, rarely stayed long. It quickly became apparent that
what had been created was not a house of occupations but rather a “penal revolving
door” (Innes, 1987, p. 57). The building served as a place of incarceration for those
engaged in crimes such as petty theft, prostitution, and public drunkenness. At the
end of the century, Bridewell was generally known as a “house of correction.”
Agrarian Capitalism and Poor Relief in England, c.1500–1790 19

London’s five hospitals were dealing with around 4,000 people per year by 1600;
in other words, a small percentage of the population, yet perhaps a significant
percentage of those in need (Slack, 1980, p. 109). As a rule, though, the hospitals
did not take care of many able-bodied poor.
By the turn of the sixteenth century, poor relief had become a substantial feature
of English society. Surveys by various scholars for a number of parishes in London
around 1600 are “consistent in suggesting that about 7 per cent of householders
were dependent on regular parish support and a further 18 per cent [were] in need
of occasional help and threatened with destitution in crisis years. As a proportion
of the population the poor were about 14 per cent” (Archer, 1991, p. 153).
Other centers, in addition to London, came to terms with the growing number of
destitute people. By 1600, about a dozen populous areas had established bridewells
while all the larger towns had enacted poor rates (Slack, 1988, p. 170). It is tempting
to see urbanization, then, as an important factor in contributing to the creation
of poor relief. However, the size of some places was probably the reason why
they instituted rates a few decades ahead of most villages. Also, there were not
many towns, so we should be careful not to exaggerate their significance. By
1600, London was the only genuine city, with 200,000 people, 5% of England’s
population. The next largest town was Norwich with 15,000 inhabitants. Excluding
London, only 3% of the English population lived in areas with more than 5,000
people, rising to just 4% of the total by 1670, though by this time London had
roughly 475,000 residents, almost 10% of England.3 It is clear, then, that the
vast majority of the massive numbers dislocated in the late sixteenth and early
seventeenth centuries remained in the countryside.
The period from the 1530s to 1601 is also notable for the increasingly active
involvement of the central government in relieving the poor. During these years,
a series of poor relief statutes were passed in parliament. They were eventually
implemented throughout England and Wales at the local level, in 15,000 parishes,
most of which contained only a few hundred families. By 1601, two overseers in
each parish, elected or appointed annually, were charged with the responsibility of
taking care of the poor. They met monthly, estimated the amount of money required
to meet their obligations, set the local level of taxation (the “rate”), and collected
the funds. They were then responsible for allocating these monies, accounting for
their proper distribution, and maintaining records of taxpayers who were in arrears.
Churchwardens, officers who looked after church property, were also involved in
administering the poor, though to a lesser extent. They had some additional powers
which overseers did not, allowing them, for instance, to suppress vagrancy. Justices
of the Peace (JPs) also had a role to play. They approved the rate determined by the
parish, penalized the members of the community who were unwilling to pay taxes,
heard appeals from the poor who were denied relief, could imprison those who
20 LARRY PATRIQUIN

refused to work, and ensured that, during times of dearth, sufficient supplies of
food were brought to the market and sold at a fair price. They also enforced central
government orders and supervised overseers and constables. Crown, Parliament,
and Privy Council were at the top of this hierarchy. The connection between the
center and the localities was the assize judges, who traveled throughout the country
on a periodic basis.
The legislation of this era established the pattern of poor law administration for
the next 200 years. Local taxes, based on the value of land and houses, were to be
assessed and collected from all occupiers of property, and those who refused to pay
were to be punished; richer parishes were to be taxed if necessary so that money
could be used in poorer neighboring parishes, especially those struck by plague or
an economic depression (this tax was known as a “rate-in-aid”); the physically able
were to be put to work; weekly assistance, usually in the form of a cash payment,
was to be given to the aged and the disabled; apprenticeships were to be found
for children; accommodations were to be located for those who needed shelter;
“vagabonds” and “rogues,” those wandering able-bodied individuals who were
thought to refuse work out of laziness, were to be punished, usually by whipping
or incarceration in a house of correction; there was to be no begging except by those
who had been granted a license to do so; and (more so after the mid-seventeenth
century) proceedings were to be initiated in order to remove certain newcomers
who did not have a “settlement,” a right to remain in the village where they were
residing (and hence a right to make a claim for relief in that village).
By the 1570s, with the approval of Parliament, compulsory taxes were being
assessed in a number of larger centers. And while the English had had to pay
mandatory taxes for other reasons, this was the first time that such funds were
to be raised on a (soon to be) national level expressly for the poor. In addition,
parishes were now being ordered to maintain materials such as wool and hemp
which were to be used in the employment of “surplus hands.” With this, legislators
had clearly understood that vagrancy and idleness were not just the result of an
individual’s faulty character but had their origins in a lack of available work.
The famous Elizabethan poor laws passed in 1597–1598 and 1601 contained
no new principles and hardly any novel practices with regard to the treatment of
the poor. They were merely a reiteration of what had been said and done over the
previous 70 years and, in some instances, for “time out of mind.” What had changed
was that the government was now actively supporting this course of conduct.
While the English state had established commissions to study agrarian protests
(for instance, in 1548–1549), it did not at any future point take serious measures
to oppose the enclosures and engrossment that were breaking down the manorial
economy. However, the state was prepared to deal with the consequences of this
breakdown, namely that many people with just a cottage and a garden – or no land
Agrarian Capitalism and Poor Relief in England, c.1500–1790 21

at all – would require financial support at some point in their lives, from young
workers to aged retirees.
At this time, the amount of money and in-kind benefits flowing into the hands
of the poor was still small. By 1603, “the total yield of endowed charities for poor-
relief amounted to less than 0.25 per cent of the national income” (Slack, 1984,
p. 239). Poor relief provided an amount roughly equivalent to that disbursed by all
charities (Slack, 1990, p. 52). The need for such support was obvious, especially
in a society with a growing disparity in access to land. As limited as it was, though,
this assistance constituted a redistribution from rich to poor. A. L. Beier (1981,
p. 58) has shown how in one community in 1582, 27% of the inhabitants paid the
rate but did not receive assistance; 44% neither paid nor received; 18% did not pay
and were barely above the level of subsistence; while 11% accepted relief (and,
of course, paid no poor rate). Although the numbers varied from parish to parish,
it was an impressive feature of English poor relief from the very beginning that
those who had, paid; while the most destitute of those who did not, received.

5. THE REFORMATION AND POOR RELIEF


In establishing the origins of relief under the old poor laws, the crucial question that
has to be answered is: What happened in the sixteenth century that precipitated the
development of a method of assistance that was both systematic and publicly-run?
It is certainly unusual to suggest that the emergence of capitalism was at the root
of poor relief. Standard interpretations have tended to emphasize the importance
of the Protestant Reformation, when monastic lands and property were taken over
by the Crown in the years 1536–1540. Indeed, the “dissolution” of the monasteries
used to be seen as the source behind state assistance to the English poor. This is
no longer the case, yet a number of writers still view it as the main component of a
satisfactory explanation of the implementation of government relief. For example,
the editors of a recent collection of essays wrote: “Without denying the significance
of the serious social and economic changes which affected Western Europe in
the sixteenth- and seventeenth centuries, most of the contributors to this volume
have serious reservations about the traditional or conventional association between
economic change and welfare reforms.” They placed their emphasis instead on the
“politics” and “ideology” of the Reformation. They concluded that “the question of
why England managed successfully to introduce a poor rate . . . at a time when other
countries failed . . . may well be found in the protracted character of the English
Reformation” (Grell & Cunningham, 1997, pp. 2, 32, 33).
Marjorie McIntosh (1988, pp. 225, 228) has also stressed the importance of the
confiscation of church property, such as hospitals, and the abolition of monastic
22 LARRY PATRIQUIN

alms: “The consequences of the political/religious changes of the 1530s and 1540s
upon local poor relief were disastrous” with the result that by the 1550s “most of
the established forms of poor relief had thus been eradicated, placing the burden
of support de facto on local people and the parish.” From 1536 to 1549, 260
almshouses and hospitals, roughly half the total, were closed. In addition, she
estimated that the loss from fraternities, charities, and monasteries could have been
used to take continuous care of almost four people per parish per year, or smaller
amounts could have been distributed to many more individuals. Paul Slack (1990,
p. 16), while suggesting multiple causes for relief, noted that the religious
upheavals brought on by Henry VIII “destroyed much of the institutional fabric
which had provided charity for the poor in the past: monasteries, gilds and
fraternities.”
There were around 500 to 800 monastic institutions in England in the 1530s,
housing between 7,000 and 9,500 monks and nuns. Within their walls there may
have been another 20,000 workers and corrodians (paying guests) (Kelly, 1977,
p. 14). This was in a nation of 2.8 million people (rising to 4.1 million by 1600).
The annual income of the monastic houses went to pay various taxes, fees, and
dues; repairs and maintenance of the physical property; an allowance for the abbot
or prior; food and clothes for the members of the household; and past debts.
Staff would have consisted of agricultural and pastoral laborers, servants, cleaners,
bakers, brewers, and the like.
What happened to the members of these communities after the monasteries
were dissolved? Many of the monks and nuns received a pension in perpetuity
from the wealth of the house, a pension that was given regardless of other earned
income and which, despite additional religious conflicts, continued to be paid
by future governments until the last pensioner died in 1607. Special care was
taken to make sure the aged and infirm religious members would have their needs
met. Pensions provided “a low, but not an unreasonably low, subsistence wage”
(Knowles, 1976, p. 293). Because the stipend was, in many cases, not adequate to
furnish a comfortable life, most monks and nuns probably supplemented it with
work, either in the religious or secular world. In sum, they would not have been
well off, but few would have become beggars. As for the employees, “many of them
were retained at their old jobs under the new masters who purchased the confiscated
lands from the crown” (Kelly, 1977, pp. 32, 33). This leaves the corrodians, a
group of lay people, mostly elderly, who were either making payments to a house
or promising a bequest in return for food, clothing, and shelter. Their numbers
were “very small,” about 1,000 or so (Knowles, 1976, p. 152). The corrodians,
however, would not have gone without support, since they were usually well off,
having made a grant or a promise to leave a substantial legacy in order to enter the
religious institution in the first place.
Agrarian Capitalism and Poor Relief in England, c.1500–1790 23

There is a further debate on the question of how valuable monastic alms were.
Some writers argue that monks and nuns did not give alms to many people and what
they did distribute to the hungry at their gates was relatively small. John Pound
(1971, pp. 16, 22) suggested that the fall of the monasteries “made relatively little
difference to the numbers of either poor or vagrants” in part because monastic
establishments spent a low percentage of their income on charity, which suggests
that it “was of little consequence, and that the lot of the poor cannot have been
radically affected one way or the other by the dissolution.” Records from 200
monasteries, with half the total monastic revenues, found that on average 3% of
income was being earmarked for alms, with almost half of the houses giving
nothing, “a proportion which all would agree to be remarkably small, if not
totally inadequate” (though the figures from this study probably underestimated
the amount of charity work done) (Knowles, 1976, pp. 150, 151). The more recent
review by Rushton (2001, pp. 16, 20) suggests that at least 5% of monastic income
was spent on poor relief, though this is still not a relatively large amount.
A strong argument can be made, then, that the Reformation did not have a dire
effect on socio-economic life in England. The Webbs claimed that the monasteries
and nunneries never “made anything like a systematic provision” for meeting
needs, so it does not make sense to attribute the development of a public poor
relief system “to the dissolution by Henry the Eighth and Edward the Sixth
of a few hundred convents of monks and nuns” (Webb & Webb, 1927/1963,
pp. 18, 19). In addition, most hospitals and almshouses were not closed. Petitions to
Henry VIII were usually successful. The hospitals that did remain open often came
under the management of municipal governments (Leonard, 1900/1965, p. 31).
Almost all of the almshouses – at least those “whose suppression could in any
real sense have swollen the flood of pauperism – were saved from destruction,
even if not without a hard struggle” (Ashley, 1893/1966, p. 327). After the
Reformation, “many of the hospitals and almshouses still survived to perform
their old functions” (Ashley, 1893/1966, p. 362). A few may even have granted
money to the poor. Rushton (2001, p. 32) notes that in some places (he gives the
example of the New Foundation at Westminster Abbey), doles were still handed
out. This “suggests a continuation of the methods of ecclesiastically funded relief
where religious houses were allowed to continue as reformed corporations.” The
changes that were brought on by the religious upheaval must have had some effect,
but one must concur with Ashley’s (1893/1966, p. 354) one hundred year-old
analysis that economic changes in the countryside were much more important:
“By the side of this agrarian revolution, the other causes of destitution are hardly
worth considering.” The old poor law had little to do with the transformation
“of the charitable institutions of the Middle Ages, but [was required in order]
to cope with evils which had grown up in spite of those institutions” (Ashley,
24 LARRY PATRIQUIN

1893/1966, p. 328). Even Rushton (2001, p. 35), whose new data might suggest
a greater emphasis on the conflicts of the 1530s–1540s, concluded his study
thus:

Even if the Dissolution had never happened, the religious houses would still have eventually
needed help from the secular authorities to deal with the problem, because it had begun to take
on a new dimension and required the kind of administrative infrastructure to control it which
only government could provide.

The ideologies of poverty that supposedly grew out of the sixteenth century
Reformation also tend to be seen as marking a break with the past. These ideas
are often viewed as an important contributor to the way in which poor relief was
organized. However, debates about private property, the morality of poverty, and
the treatment of the poor go back to the early Christian church. Most canonical
theorists, from the beginning, accepted forms of individual property as just,
however ownership always carried with it certain social obligations. Canonists
generally combined their defence of private property with a critique of excessive
wealth, emphasizing that goods had to be shared, especially in times of dearth.
There was an obligation to give, especially food to those facing destitution, if
one held possessions above and beyond the needs of one’s immediate family.
Superfluous accumulation in the face of manifest suffering was simply not in
accordance with God’s will.
Of major theoretical importance was the attempt to distinguish between the
“deserving” and the “undeserving” poor. This distinction goes back at least to St.
Augustine (354 AD–430 AD). He suggested that the worthy were embarrassed
by their plight and would almost prefer to die of hunger, while the unworthy
were those who were not ashamed to beg (Coleman, 1988, pp. 627, 628). There
are signs that the debate on these categories was intensifying by the twelfth
century. The question that theologians struggled over was: Should those in need
be helped without question, without prying into their personal situation and the
circumstances surrounding their poverty, or should there be some “discrimination”
in deciding who merited assistance? Some writers argued that only God was
entitled to judge an individual as undeserving, while others maintained that
indiscriminate charity could lead the able-bodied to choose a life of idleness.
From the beginning, canonical theorists “discussed the problem of discrimination
in charity on innumerable occasions, in great detail, and with a full realization
that they were debating an issue of major importance” (Tierney, 1959, p. 54).
This is borne out by the multitude of words that had entered the Latin vocabulary
between c.1300–1500 to describe the different sorts of poor (Mollat, 1986, pp. 3,
4). Long before the sixteenth century, then, there was a division between those
who were considered to be worthy of support and those who were deemed to
Agrarian Capitalism and Poor Relief in England, c.1500–1790 25

be unworthy. There were numerous sub-groups within each of these two main
categories, and there were elaborate justifications of the obligations of the rich
to these various types of poor. A committee of leading citizens in London in
1553 developed the following list, no doubt the product of centuries of debate, yet
strongly influenced by recent social changes (as cited in Webb & Webb, 1927/1963,
p. 49). The committee noted that there were:
Three degrees of poor . . .

1. The poor by impotency.


2. Poor by casualty.
3. Thriftless poor.

The poor by impotency are also divided into three kinds, that is to say,
1. The fatherless poor man’s child.
2. The aged, blind and lame.
3. The diseased person by leprosy, dropsy, etc.

The poor by casualty are of three kinds, that is to say,


4. The wounded soldier.
5. The decayed householder.
6. The visited by grievous disease.

The thriftless poor are three kinds in likewise, that is to say,


7. The rioter that consumeth all.
8. The vagabond that will abide in no place.
9. The idle person, as the strumpet, and others.

In contrast to the idea that it was the fallout from the Reformation or alterations
in the “spirit of the age” which served as the major force behind the creation of poor
relief, I would place much greater emphasis on socio-economic changes as a causal
factor. The English state was responding to the collapse of the manorial economy
and the fundamental modifications that were being initiated in the customary
usages of land. What was new in the sixteenth century was the much larger number
of able-bodied individuals without work and without access to sufficient amounts
of property (or they had no property at all). Especially from the 1560s on, more
people were falling into poverty because they lost secure landholdings or they
were outright evicted. Many of these individuals would have suffered because
of insufficient earnings, especially by the 1590s, because real wages had fallen
dramatically throughout the century. Their livelihood could also be precarious if
they depended heavily on employment in textile industries which were prone to
serious periodic depressions. These social problems were compounded by a vastly
26 LARRY PATRIQUIN

increased population, more than doubling from 2.3 million in the 1520s to 5.3
million by the 1650s.
A few contemporary observers pointed to laziness and drunkenness as the
sources of misery; however, it was recognized by the more astute authorities of the
time that laborers were often poor through no fault of their own. The realization that
changes on the land, among other factors, had contributed significantly to the large
increase in poverty and vagrancy did not escape critical attention (Wood, 1994, p. 3;
see also Wood & Wood, 1997). Indeed, it was acknowledged by reformers, state
personnel, and religious officials, even as early as the 1530s, that there were “those
which endeavour themselves with all their will and labour to get their living with
their hands, and yet cannot fully help themselves for their chargeable household
and multitude of children.”4 Laborers who were unemployed or underemployed,
those who worked but earned low wages, and individuals with large families were
recognized in books, pamphlets, and poor law accounts at the end of the sixteenth
century, which noted that funds were being spent on “decayed householders,” “poor
men overburdened with children” and “poor able labouring folk” (as cited in Slack,
1988, pp. 27, 28). In the sixteenth century, then, poverty was “taking new forms
and appearing on a much greater scale than before,” and this was acknowledged
in the commentaries of the time (Oxley, 1974, p. 15).

6. THE OLD POOR LAW, 1601–1660


For almost 200 years, from the end of Elizabeth’s reign to the era of the French
Revolution, poor relief underwent only incremental changes. The methods used in
dealing with the poor solidified after 1600, and were slightly modified from time
to time in efforts to control spending, but were only significantly altered in the face
of a major agricultural crisis at the end of the eighteenth century. Philosophically,
there were sporadic criticisms of relief and the provision of doles for those who
did not work. These, however, were overshadowed by a universal acceptance of
the requirement to grant assistance to those in need. Before 1750, poor relief
“functioned reasonably well.” As a result, “no substantial attack or proposal for
abolition was to emerge in this period. Complaints against unduly heavy poor rates
were rare” (Huzel, 1989, p. 759).
The relief provided to the poor in most parishes from roughly 1600 to the 1790s
would have included:
(a) cash payments: these were the “commonest as well as the easiest form”
(Slack, 1990, p. 27) of “out-relief” (assistance given to those living in their own
households, outside of a workhouse). Direct cash payments were always more
significant than in-kind benefits, perhaps because they were convenient for both
Agrarian Capitalism and Poor Relief in England, c.1500–1790 27

overseers and recipients. The poor could buy what they needed, when they needed
it, and the parish would not have to stock and distribute goods. Cash disbursements
usually consisted of a pension, paid weekly or monthly to the elderly, the disabled,
and widows with children, all of whom had to demonstrate sufficient need. The
names of these recipients were recorded by the overseers in a “poor’s book,” which
was supposed to be revised every Easter. Cash payments also came in the form of
short-term assistance (“the dole”) given to the “casual poor,” such as those who
were ill for a brief period and the able-bodied unemployed. These individuals were
typically described as being “in want” or “in distress.” People advancing in age
often moved, after a few years, from receiving these occasional payments to the
list of permanent pensioners. Webb and Webb (1927/1963, p. 157) concluded that
this “system of Doles and Pensions . . . formed, at all times and in nearly all places,
the basis of the Overseer’s practice in Poor Relief.”
(b) in-kind benefits: the most important of these, especially by the eighteenth
century, were rent payments, usually made directly to private landlords for
parishioners who could not, through their own means, maintain a roof over their
heads. Landlords would not hesitate to call on the parish for the rent of their
poorer tenants (Oxley, 1969, p. 28). “In some parishes it amounted to nearly one-
half of the total poor law expenditure” (Webb & Webb, 1927/1963, p. 168). The
“poorhouse” was another form of accommodation, a simple structure which served
as a free shelter; it was not normally a formal institution with staff. Pensioners,
paupers, and sometimes the disabled and sick lived there. In addition, some parishes
owned houses which the poor could rent at a reduced rate or live in rent-free.
By the early 1830s (the years when the best data are available), the proportion
of community housing (that is, parish-owned houses and charity houses) varied
from one county to the next, but in some cases could be quite large, representing
38% of the total housing stock in Warwickshire, 27% in Bedfordshire, and 24% in
Buckinghamshire (Broad, 2000, p. 168). Another standard living arrangement was
provided for children and elderly people with no immediate family. They could
be looked after in the home of a caregiver who lived in the community, usually a
woman, who would be paid by the parish for her services.
Other in-kind benefits available included repairs to cottages (wood, nails,
thatching, carpenter’s wages), food (usually grain, but also bread, potatoes, flour,
meat, salt, sugar, butter), clothes (coats, shirts, boots, shoes, undergarments),
household “necessaries” (soap, candles, bedding), fuel (coal, wood, peat),
medical assistance (repair of broken bones, inoculation, medicine, provision
of a midwife for births, admission to a hospital for serious cases, nurses and
surgeons’ fees, even alcohol – wine, brandy, ale – for medicinal purposes),5
payment of burial expenses (shrouds, coffins, gravediggers, pallbearers), the costs
related to “bastardy” (attempts to legally enforce paternal support for children),
28 LARRY PATRIQUIN

and various other requirements, such as buying back a parishioner’s pawned


goods.
(c) the provision of work: this, a less significant aspect of poor relief, was
generally done within a workhouse, though these institutions employed no more
than a small minority of people who needed assistance; the rest were on the dole.
Only larger parishes could afford to build workhouses. Occasionally, materials and
tools were provided to people for use in their own home. Much more important
than this were apprenticeships, the standard method of providing for children aged
seven and over, typically orphans or those from very poor families. Indeed, “the
death of one or both parents made it all the more likely that the parish would
take on such responsibility for a poor child” (Kent & King, 2003, p. 133). The
apprenticeship of paupers “should be seen as a means of transferring children
from families which could not support them to families which could” (Wales, 1984,
p. 376). A “master” would voluntarily agree to apprentice a child while providing
for that child’s maintenance and education. In the absence of volunteers, the parish
would sometimes force local masters to take on apprentices. In other cases (more
so after 1700) a group of children could be taken in by one person, often a factory
owner, where they would be employed making items such as hosiery, lace, silk,
and carpets. Boys and girls were also apprenticed, sometimes in “batches” of 50
or more, to the owners of the early cotton and woollen mills, a practice most
prominent in the last few decades of the eighteenth century (Rose, 1989).
After 1600, relief practices were extended rather quickly throughout the country
(Beier, 1989; Leonard, 1900/1965) so that by the 1620s, “poor rates were universal
in the larger towns and increasingly common in more populous rural parishes”
(Slack, 1988, p. 128). Indeed, from the 1560s to the 1640s, the number requiring
relief jumped substantially, rising from about one-twentieth of the population to
as much as one-third in some parishes (Beier, 1989, p. 234). In general, by the
early seventeenth century, the figure for those receiving assistance on a constant or
occasional basis in any given parish was usually in the range of 10–20% (though
not all were obtaining relief at the same time).
The years 1600–1640 were especially marked by the more vigilant role of the
Privy Council in providing direction to local government in the form of Books of
Orders, released during grain crises. Such directives, of course, were not new. The
revised – and most famous – version issued by Charles I in September 1630 did
not call for a radical transformation in the treatment of the poor. Its main effect
was to encourage standardization of relief methods in the south and west where, by
now, virtually all substantial parishes had a poor rate. The intention of publishing
the Book was, as it had been over the previous half-century, to get corn into the
hands of the poor by ensuring the observation of strict market rules. The justices of
the peace were required to meet with constables, churchwardens, and overseers to
Agrarian Capitalism and Poor Relief in England, c.1500–1790 29

inform them of the orders, and this group of local officials would then report once
a month to the JPs on how the various aspects of poor relief were being organized
and implemented. It is a mark of the success of English agriculture that nothing
similar to the 1630 Book of Orders was ever used again. From this point on, the
existence of food, for the most part, would no longer be a problem. The price of
food, though, would in the next century and a half serve as a major source of class
conflict. It was no longer seen as necessary to be regulating the distribution of
basic goods to people in the face of abundance (relative to the Continent, at least).
However, for the poor, being able to afford access to that abundance was another
matter.
In the seventeenth century, administrators began to give more attention to the
able-bodied who were becoming a noticeable and permanent fixture in poor relief
records. A few municipal governments raised funds to purchase materials to help
make work for individuals or, alternatively, furnished incentives for manufacturers
to take on the poor, yet this type of activity was not common. After 1600 or so,
parish “authorities did not as a rule provide work for the labouring poor. Instead they
gave them cash payments to supplement inadequate wages, thus vastly expanding
the number of people on poor relief” (Slack, 1988, p. 29).
There were still few men or women in need who were totally unemployed.
Earning money by selling one’s labor power was, as a rule, an important income
supplement but usually not the sole source of one’s livelihood. The poorest of the
poor were the few “unfortunates” who relied solely on wages and who, when “down
and out,” sometimes resorted to begging or petty theft. Incarceration was now being
used even more extensively in dealing with these individuals who teetered on the
margins between work and vagrancy. For example, an act passed in 1610 ordered
houses of correction (bridewells) to be built in every county. These “mixed” houses
– half workplace, half prison – continued to place their emphasis on punishment.
As in the past, they committed just a handful of people each month, many of whom
stayed for only a few days or weeks. Nevertheless, construction of a large number
of these institutions persisted so that “by 1630 a network of bridewells covered the
whole of England,” including its rural areas, a “more truly distinctive – and much
less commonly observed – feature of English experience” (Innes, 1987, p. 62).
By 1640, the provision of poor relief was deeply rooted, with a history that went
back some 80 years. The endurance of assistance in the ensuing two decades of
social upheaval has been the source of some debate. It had long been accepted
by earlier writers that by 1660 the smooth operation of the poor laws had been
significantly altered in such a way that they had “fallen very largely into desuetude
and even into oblivion” (Webb & Webb, 1927/1963, p. 323). Recent research,
however, has suggested that the Civil War did not furnish a major challenge to
the durability of the administration of assistance to the poor. While there were
30 LARRY PATRIQUIN

some problems in 1642–1643, poor relief did not disintegrate at this time. In
Warwickshire, “the JPs handled nearly three times as many relief cases [from]
1649–60 as in the same duration, 1630–41” (Beier, 1966, p. 78). Ronald Herlan’s
(1979, p. 35) study of seven London parishes from 1640 to 1660, which accounted
for inflation, suggests “continuity and resilience, not disruption and breakdown of
public assistance to the English poor.” Jeremy Boulton’s (1997, pp. 22, 23) analysis
of London’s West End (mostly St. Martin-in-the-Fields) shows relief expenditures
going from £820 on the eve of the Civil War to £1,140 by the Restoration, jumping
further to £2,700 by 1680. Coates (2000, p. 47) concluded that “total poor law
expenditure by the Westminster parishes fell by less than 5 per cent between 1641
and 1644, from £1,879 to £1,797” (and London’s economy improved slowly after
1644). In sum: “Few overseers’ accounts have come down to us from this period
but those we do have show clearly the way in which the payment of pensions
continued unabated during the war” (Oxley, 1974, p. 18). Spending may not have
been adequate to meet needs (when is it adequate in any capitalist society?), but it
did not decline much, if at all, in most parishes. In addition to regular expenditures,
Joanna Innes (1987, p. 77) has observed that the number of bridewells in operation
remained roughly constant throughout the revolutionary period, with some new
ones opening while others closed.
The Civil War certainly did not prevent the nation’s largest city from undertaking
a major social experiment in 1649 in the form of the London Corporation of the
Poor. This organization was created with the expressed intent of developing a work
site, as opposed to establishing yet another gaol-type house of correction. Two
buildings were eventually obtained. By 1655, roughly 1,000 adults and 100 children
were employed here (in a city with a population of about 375,000). However, the
corporation ran into financial difficulties and ceased operations just five years later,
in 1660 (Pearl, 1978). Its influence was to live on, though, in the form of similar
projects undertaken at the end of the century. Experiments outside London at this
time were negligible, perhaps because many able-bodied men were drawn into the
army, either Parliamentary or Royalist, hence the need to provide assistance to the
unemployed had declined.

7. THE OLD POOR LAW, 1660–1790s


The following period, from the end of the Civil War to the late eighteenth century,
is often described as one of “decentralization,” when local governments were
basically left on their own, “abandoned” by Parliament. For example, Geoffrey
Taylor (1969, p. 25) has argued that after 1660, the Poor Law “was administered
by men whose responsibilities ceased at their parish boundaries, whose actions
Agrarian Capitalism and Poor Relief in England, c.1500–1790 31

were in no way called to account, and whose increasing difficulties all too often
failed to attract the attention of a myopic central government.” This view is an
exaggeration. It fails to account for the fact that direction from London was, for the
most part, no longer required. Assistance to the poor had been operating smoothly
for almost one hundred years and grain was being produced in abundant supply, so
there was in fact little need for intervention in the nature of Books of Orders. The
benefits of agricultural “improvement and formal transfer payments through the
poor-relief machine rendered granaries and market regulation superfluous” (Slack,
1992, p. 17).
After 1660, provision for the “impotent” continued apace. However, the method
of dealing with the able-bodied which had been developed, for example by the
London Corporation of the Poor, began to garner criticism on the grounds that the
commodities produced by these endeavors could be purchased cheaper from other
sources, and that such institutions were harmful because they established work
in occupations where a large number of people were already unemployed (Pearl,
1978, pp. 231, 232). It seems clear that decision-makers accepted the arguments
of commentators who were opposed to government attempts to create work. And
yet, while some writers decried the futility of interfering with the market, others
criticized the lack of state involvement which allowed the poor to receive their
sustenance without working for it, especially at a time when poor rates were
(correctly) seen to be rising. This latter group promoted their cause in a number
of pamphlets published from the Restoration to the 1690s, including Sir Matthew
Hale, Sir Josiah Child, Richard Haines, Roger North, and John Locke, all of whom
were opposed to individuals who, in Haines’s (1677/1965, p. 489) words, “live idly,
and by the sweat of other men’s labours.” Some of these writers espoused a new
hope: that it might be possible to not only put the poor to work, but to make a
profit from their labor. A number of optimistic proposals were forwarded with the
intent of ending the practice of maintaining “idle” persons via public assistance.
It was suggested that labor could be sold cheaply to private entrepreneurs, or
the government could employ the poor at subsistence pay on public works such
as fixing roads. Either way, there would be a conscious attempt to make work
available to people. Refusal of an offer of employment would mean that one would
lose one’s claim to relief. At the same time, responsibility for finding work was
increasingly being pushed down onto laborers themselves. Daniel Defoe was no
doubt reflecting a growing upper class concern when he wondered why “it is our
business to find them work and to employ them, rather than to oblige them to find
themselves work” (as cited in Marshall, 1926/1969, p. 47).
The primary effect of these calls for change was the movement in towns to form
Corporations of the Poor, based on the recent experiment undertaken in London.
Different parishes were to be united over a large geographic area in order to create a
32 LARRY PATRIQUIN

more efficient method of administration. The first of these was instituted in Bristol
in the 1690s, when 19 parishes were combined. From 1698 to 1712, about a dozen
other centers copied the Bristol model. One of the main objectives of these unions
was to build a substantial workhouse in order to deal with the unemployed, while
consciously avoiding the creation of the more authoritarian houses of correction.
But this goal would never be met.
It is difficult to date the founding of workhouses (as opposed to bridewells
or poorhouses). Webb and Webb (1927/1963, p. 215) suggested that the first
recognizable one was built in the 1640s at St. Giles-in-the-Fields, a suburb of
London. These institutions were involved in manufacturing items such as shoes,
linen garments, cotton cloth, lace, fishing nets, and paper bags as well as producing
fabrics like hemp, wool, or flax. Their main drawback was that they were expensive
to run and they quickly ran up substantial debts. The high maintenance costs
included the house itself, furniture, clothes, food, and the tools and raw materials
for employment. They also had great difficulty competing because they were
typically producing goods for which there was little or no demand, and they were
using generally unhealthy laborers who were, no doubt, lacking in profit-creating
talents and skills. In just about every area that attempted this experiment, it became
apparent within a few years that it was much cheaper to maintain people on out-
relief in the form of small cash payments. In Bristol itself from 1696 to 1714, the
rates “rose by 50 per cent . . . and the workhouse lost £1,980 in the first seven years
of its operation. It turned to unskilled occupations, such as pinmaking, ceased to
teach skilled trades, and finally became a hospital” (Slack, 1988, p. 200). The
workhouse which was part of the revived London Corporation of the Poor suffered
the same fate. The intent here was to hire boys and girls to spin wool, yet within a
short time the Corporation was maintaining roughly 400 vagrants over the course
of a year, in addition to a similar number of children. By 1711, the workhouse
was £3,300 in debt. Few children were admitted after 1713 and the institution
became yet another house of correction for vagabonds and beggars (Macfarlane,
1986). Workhouses, then, often began with the intention of profitably employing
the poor, but they almost always turned into mixed workhouses containing all types
of destitute, non-able-bodied people.
Despite its failure as a make-work scheme and its inability to produce a profit, the
workhouse thrived during the eighteenth century. The reason, especially important
from the 1720s on, was that these institutions, regardless of their relative expense,
were useful in serving as a deterrent to those seeking relief. The Workhouse Test
Act of 1723 gave parishes the right to refuse aid to individuals who declined to enter
the house. As a result, hundreds of workhouses were constructed between the 1720s
and 1780s, often by smaller parishes that had combined just for this purpose. Parish
officers hoped that the presence of these buildings would mean that, with the “offer
Agrarian Capitalism and Poor Relief in England, c.1500–1790 33

of the house,” only those who were in extremely desperate financial circumstances
would seek assistance, hence the rates would be kept down. It was also felt that
a number of families had exaggerated their claims of poverty because doles and
pensions were supposedly easy to obtain and that the houses would reintroduce
some badly needed self-discipline. The workhouses were seen as a way of weeding
out the “indolent” and the “burdensome” who were believed to be responsible for
the graduated but pronounced increase in rates. One official in Maidstone in the
1720s was pleased with the effects of the new workhouse: “Very great numbers of
lazy people, rather than submit to the confinement and labor of the workhouse, are
content to throw off the mask and maintain themselves by their own industry” (as
cited in Webb & Webb, 1927/1963, p. 245). The workhouse test was vigorously
applied in some parishes. However, it did not take long before overseers realized
that the “needs of many of the poor were unquestionable and [as a result] the test
was reserved for borderline cases” (Oxley, 1969, p. 36). Regardless, rural parishes
also formed unions beginning in the 1750s. These areas of the country attempted
to keep their rates down by developing better houses of industry, despite the fact
that by the mid-eighteenth century many administrators were realizing that “the
workhouse movement had failed, utterly and completely” (Marshall, 1926/1969,
p. 145).
A survey undertaken in 1776 counted slightly fewer than 2,000 workhouses in
England (with only 19 in Wales). “The given capacity of all these institutions was
almost 90,000, ranging in size from two to 500 inmates, with the typical house
having a capacity of twenty to fifty inmates” (Taylor, 1972, p. 61). This total
excluded many of the bigger workhouses, located in large towns and cities, which
had been constructed under the authority of particular acts of Parliament. Some
of these contained over 1,000 people. A typical example was in Liverpool where
in 1794 the house maintained about 1,200 individuals, only about one-third of
whom were capable of working, usually with textiles and cloth. The staff included
a governor, school teachers, servants, cleaners, washers, cooks, a gardener, and
at least twenty nurses (see Oxley, 1969). Given this, it is not surprising that,
according to Marshall (1926/1969, p. 146), a report to the House of Commons
in 1776 found “that in no case was a workhouse able to pay its way on the money
earned by its inmates.” The problem, as noted, was that while workhouses began
with the intent of creating work for the able-bodied, they usually evolved into
a form of housing for the impotent poor and vagrants. After 1800 or so, little
employment was undertaken in these institutions because of the decline of crafts
and the rise of larger, capital-intensive industries, “for it was spinning, carding,
weaving, knitting, beating and winding various materials that were the principal
workhouse employments” (Taylor, 1972, p. 69). Workhouses were always more
successful at looking after individuals who were on permanent relief. Indeed, over
34 LARRY PATRIQUIN

time they had become virtual asylums, caring for orphaned children, the chronically
ill, the mentally disabled, the aged, and unwed mothers.
Bridewells, the other form of institutionalization, continued to provide
employment, punishment, and discipline in their attempt to reform individuals
“guilty of no more than petty delinquencies considered to be especially
characteristic of the poor: ‘idle and disorderly’ behaviour of various kinds,
unlicensed begging, vagrancy, and the like” (Innes, 1987, p. 42). Seventeen
new bridewells were constructed between 1690 and 1720, mainly in recently
industrialized areas. By the 1770s, newer structures were being built “with
unprecedented attention to the details of prison design” (Innes, 1987, p. 96). The
total bridewell commitments in the early 1770s were in the order of 9,000 to 14,000
per year, roughly one person per parish.
The need to reform the system of poor relief was acknowledged with the passage
of Gilbert’s Act in 1782. It encouraged the creation of poor law unions (the
amalgamation of parishes for administrative purposes). These would be especially
useful in providing care for the impotent poor, who were now to be the sole
residents of “workhouses.” Gilbert’s Act incorporated the accumulated knowledge
of the previous 100 years of poor relief practice when it deemed that houses should
be places that relieved children, the infirm, and the aged, but not the able-bodied
unemployed. It also asserted (in the words of the Webbs) that, when a man required
work, “it was the duty of the Poor Law Authority in all parishes either to find him
employment at wages, or else to maintain him and his family on Outdoor Relief”
(Webb & Webb, 1927/1963, p. 276). The pervasive acceptance of the need to give
outdoor assistance to the able-bodied is seen by the fact that in the early 1830s, only
two of 368 towns were relieving such individuals indoors (Taylor, 1972, p. 65).
From the mid-eighteenth century, assistance to the poor was characterized by
rising costs, beyond inflation, along with an increase in the number of able-bodied
persons on relief (Huzel, 1989, pp. 771, 772). This was especially so in the south
after 1760, when surplus labor in agriculture was becoming a serious problem and
cottage industry, especially woollen cloth production, started a slow decline. By
the end of the century, the domination of agrarian capitalism was contributing to
rising poor relief costs. For example, in the 1790s, the average apprenticeship in the
southeast counties had fallen to under four years, down from six and one-half years
in the 1750s (Snell, 1985, p. 236). Long-term hirings for farm servants, ranging
from three months to a year, were harder to come by. The new socio-economic
practices “threw unmarried labour onto the parish during the winter, when they had
previously been kept by the farmer” (Snell, 1985, p. 98). In addition, real wages
fell by about 18% in southeastern counties between 1767 and 1795 (varying from
12% to 28%) (Boyer, 1990, pp. 34, 47).
Agrarian Capitalism and Poor Relief in England, c.1500–1790 35

For these reasons, by the 1790s, poor relief had become a substantial stabilizing
element of the English economy. The amount spent on the poor had grown
significantly. In 1610, “the total, including endowed charity, may have been no
more than £40,000, compared with £200,000 in 1650 and £550,000 in 1700”
(Slack, 1988, p. 207). The figures were £690,000 for 1748–1750 and £4.3 million
by 1802–1803. These increases were large, “far outstripping price inflation and
population growth” (Beier, 1985, p. 174). From the 1690s to the 1750s, poor
relief expenditure per capita roughly doubled and it nearly doubled again by the
1800s (Slack, 1990, p. 30). As well, the vast majority of the total outlay was now
being channeled through parish vestries. In 1600, roughly two-thirds of the money
available for the poor came from private charities. By 1700 approximately three-
quarters was coming from public taxation (Slack, 1988, p. 171) and almost all
of it was by the end of the eighteenth century. In addition, it was no longer just
the south that had to deal with poverty. The poor rate was universal in England
by 1700 (Slack, 1990, p. 26). At this time, even in the northeast, “out-relief had
become the standard method of maintaining the poor throughout the region, often
unconditionally” (Rushton, 1989, p. 142).6
The expansion of funding for the poor was to become the focus of considerable
discussion near the end of the eighteenth century, and it would not be the monies
allotted to the aged and disabled that raised concern. Rather, it was the growing
number of unemployed workers relying on relief who were the focus of criticism.
The able-bodied poor had always been seen as a significant drain on the nation’s
resources, but now more so than ever. Analysts proposed numerous reasons to
account for this “idleness,” everything from depressed trades to the absence of
a work ethic. In addition to this, however, poor relief itself was coming under
scrutiny as being one of the principal causes of unemployment. The calls for
reorganization that were put forward revolved around two questions that shadowed
poor relief from the very beginning: Who was entitled to relief? And how was
assistance, particularly to the able-bodied, to be administered? These were long
standing issues, often discussed in Parliament, especially in the second half of the
eighteenth century (Connors, 2002). This debate, though, was about to move in
a new direction with the advent of a major economic crisis in the 1790s. Now,
in a significant break with the past, proposals were circulated recommending
that the poor laws be completely dismantled. Most commentators, however, did
not consider abolition to be a serious option. Nevertheless, the voices defending
the status quo were growing weak. The debate between these different camps
would eventually produce important changes to the relief system in the ensuing
decades, in the form of Speenhamland (1795 and after) and the new poor law
of 1834.
36 LARRY PATRIQUIN

8. POOR RELIEF AND THE TRANSITION


TO AGRARIAN CAPITALISM
The existence of relief provisions under the old poor law was a result of the fact
that the social relations of exploitation which existed in the late medieval era and
those that were prevalent in the ensuing centuries were radically distinct. Much
had happened in the intervening years which made the creation of poor relief not
just possible but unavoidable. At the start of this period, say on an early fourteenth
century manor, most peasants would have had access to land while also enjoying
common rights. Members of the community would see little change over the course
of their lifetimes. Their well-being was secure, thanks to customary law. There
was certainly exploitation here, but even this surplus extraction, because it was
grounded in custom, would have been routinized, only occasionally proving to be
a source of contention. Co-operation was the essence of life because bringing in
the maximum grain yield required that the community develop and follow a set of
regulations. Of course, the peasants’s world should not be romanticized. They lived
in a stratified society and, especially for those at the bottom, keeping body and soul
together was always difficult. Nevertheless, the disparities in the ownership of the
means of production were not immense in the way that they are, for instance, in
capitalist society. In the post-plague era, only about 2% of individuals in England
had been reduced to just a cottage and a garden. Even through most of the fifteenth
century, people were flourishing because of the lower land-to-labor ratio brought
on by the large reduction in population in the 1340s. At this time, say the 1470s,
customary tenure still brought a fair degree of stability to the lives of the peasantry,
and poor relief was negligible. Except for periods of famine, charity and private
benevolence were (minimally) adequate to meet the challenge posed by the small
numbers in need.
If we move forward 150 years to the early 1600s, we find a nation that was
profoundly remodeled. The number of peasants reduced to mere cottagers no
longer numbered in the tens of thousands, as it did in the late fourteenth century,
but was now in the order of two million (Lachmann, 1987, p. 129). Wage-labor
in agriculture, once the major recourse of perhaps 10% of a village, was an
essential component in the earnings of roughly half the population (Lachmann,
1987, p. 17). Custom, which had placed substantive and communally-driven limits
on exploitation, was being eclipsed by competition, with its anarchic markets and
its destruction of the agreed upon values of the village, creating a society that
was more in flux. Life was ruled increasingly by individuals, “entrepreneurs” who
wielded decision-making power that was once held by the community. From c.1540
onward, the English state intervened in these new social relations, with efforts to
assist and punish the poor, commissions to study the effects of enclosures, sporadic
Agrarian Capitalism and Poor Relief in England, c.1500–1790 37

attempts to create make-work programs for the able-bodied, and an escalation of


criminal sanctions against individuals who protested or resisted social change.
Poor relief itself was an important weapon of state control that could be used to
discipline the needy. Forfeiting one’s access to assistance for violations of property
was not unheard of. For instance, an order issued in the rural Essex parish of Great
Easton in 1603 stated that:

If any poor pensioner shall break any hedge or shall unreverently abuse any that is a contributor
to the poor [they] shall for every such offence be put from their pensions for that week wherein
the said offence of breaking of hedges, pulling up of stiles [a series of steps on each side of a
fence], breaking of gates, [or] carting away either rails or bars shall be committed (as cited in
Emmison, 1953, p. 21).

In the last one-third of the sixteenth century, England was a society with an
emerging division between the “political” and the “economic” (Wood, 1995). Here,
the task of taking care of those in need would not become the direct responsibility
of the growing class of tenant-farmers. The juridical relation between lord and
peasant, along with their mutual rights and responsibilities, was being dissolved.
Now, agrarian capitalists would merely employ “hands” and were under no social
or legal obligation to provide an acceptable standard of living to them, especially
if these individuals had large families. Assistance to the indigent was to become a
“public” function and, so long as it operated smoothly, in the sense that it did not
interfere with the labor market or increase in cost, it would not become a major
concern to the renters (and owners) of private property.
If we move forward once more to, say, the 1780s, we find that access to
substantial common rights and any land beyond a small garden was a distant
memory for most people. Parliamentary enclosures would ensure that the common
land that did remain would soon be inaccessible to all but a few. Capitalism had
changed immensely, becoming a dominant presence in agriculture, forcing many
individuals into other forms of employment (which were not nearly as much in
the grip of capitalism, though they soon would be). Work in both agriculture and
domestic industries was becoming precarious. This was reflected in the rise in poor
rates throughout the eighteenth century in absolute and per capita terms. More
people required help, they tended to need more of it, and requests for assistance
were increasingly being made by able-bodied males.
Poor relief was a response to the fact that a growing segment of the population did
not hold land because access to it was, for the most part, dependent on the ownership
of capital. Land was no longer a guarantee of membership in a community and
of seasonal work (at harvest time, for example). The movement away from the
manorial economy was a qualitative change in the way that social relations were
organized. The old way of living was replaced by a fluctuating market for work,
38 LARRY PATRIQUIN

typified by constant insecurity. Indeed, underemployment and unemployment were


recognized as new phenomena by political economists in the sixteenth century
(Wood, 1994). If people are landless, and have no access to common rights, they
find themselves in a position where they have to search for employment, the level of
which in any given area may be suitable to meet the needs of capital, but inadequate
for those requiring work. In this situation, there is only one way to prevent people
from starving to death. In a country that was quickly developing the ability to feed
itself, with a growing market for food, it must have soon become apparent that the
most efficient mechanism for dealing with the new form of poverty that was being
created was simply to give money to those in need.
Poor relief was an intervention in the slowly evolving class relations that
coincided with the origins and development of agrarian capitalism. It was an
adjustment program which provided some benefits to people during the three
centuries of this transition. Poor relief was a substitute for access to land and
common rights, a virtual exchange of money as compensation for the creation
of absolute private property, brought about by competition, enclosure, and
engrossment (Patriquin, 2004). This, of course, was not a trade that involved
equivalents, as it seriously reduced the independence of those who no longer
had recourse to the means of production. Poor relief was a different form of the
old common right, peculiar to the new type of class society that was unfolding.
What could no longer be obtained from physically occupying land would now
be purchased on the market with the funds provided from taxation. From the
perspective of the landed classes, poor relief was the price to be paid for an
“improved” method of exploitation. It would ease the potential for conflict between
agrarian capitalists and the growing body of poor people, especially those seeking
work. It would also provide assistance to groups like the elderly and disabled whose
skills were of little value to capitalist-farmers in an environment of heightened
competition. How else could these individuals be cared for in an economy that was
increasingly demanding able-bodied workers, capable of socially average levels
of production?
For the poor, when the means of subsistence could not be obtained on the market,
they would be provided by the state. Poor relief would help the lowest 5–15% of
the population at any given time, and perhaps the bottom one-third over a period
of decades. The actual numbers, though, would have been in the millions, and
one can only imagine the threat to order if this many people, owning nothing and
having little to lose, were set adrift in society.
Agrarian capitalism had changed in the period c.1570–1760, from its beginnings
to the point where a substantial portion of the English peasantry had been removed
from the soil. At the same time, this was a gradual process. For example, the
percentage of families who were involved in agriculture, who worked as laborers,
Agrarian Capitalism and Poor Relief in England, c.1500–1790 39

or were cottagers or paupers, fell from 59% in 1688 to 52% in 1759.7 This was
a manageable drop over 70 years (though change was somewhat more dramatic
in the century 1570–1670). It should come as no surprise, then, that poor relief
could remain fairly stable, given this 200 year period of adjustment.8 There were
consistent calls for reform in terms of creating jobs, building workhouses, and so
on, yet there was never a perception that the system was in a deep crisis.
The alterations to social life undertaken in the next 70 years, from 1760 to
1830, were much more radical than what had occurred in the previous half-
millennium. Most importantly, the status of agriculture in the economy was about
to be marginalized, in terms of its contribution to total production and the number
of people it employed. The percentage of families involved in agricultural pursuits
would fall from 52% in 1759 to 42% in 1803, down to just 28% in 1831 (Mitchell,
1988, pp. 102, 103). These modifications of agrarian capitalism, rooted in its
incomparable levels of productivity, were to usher in the two most substantial
revisions in relief practices since the Elizabethan era: Speenhamland (1795 and
after) and the new poor law of 1834.
Poor relief was an important component of the transition to capitalism, notably
in southern England. Yet this is rarely mentioned in scholarly debates; it is perhaps
the major gap in the poor law literature (and the transition literature as well). A few
writers have focused on the relationship between enclosures and the creation of
poor relief, in particular K. D. M. Snell (1985). A handful of others have examined
the positive implications of relief on economic development, such as facilitating
migration and creating social stability (Flynn, 1990; Solar, 1995). However these
authors, with the exception of Snell, have generally not entertained the larger
question of the transition to a specifically capitalist mode of production. This
omission of capitalism from most theoretical frameworks is replicated in the large
number of case studies on poor relief, where historians have concentrated on the
personalities and actions of bureaucrats and overseers, the particulars of workhouse
management, the minute details of the financial ledgers, and so on.
Further research is required in order to better clarify the link between capitalism
and poor relief. However, demonstrating such a relationship (or the lack thereof)
means giving serious consideration to the effects of large-scale social changes in
agriculture on the construction and extension of a poor relief system, especially in
the sixteenth and seventeenth centuries. For now, let me suggest that assistance to
the poor in England must have been important, indeed essential, to the transition
to capitalism. Geoffrey Taylor (1969, p. 88) is not alone in asserting – and I
must agree with his general conclusion – that “social and political stability, long
esteemed as a uniquely British achievement, owed a sizeable debt to the relatively
liberal distribution of poor relief.”9 This is especially so from the time of the last
major disturbance in the sixteenth century, Kett’s rebellion in 1549, to the Civil
40 LARRY PATRIQUIN

War of the 1640s. In the period when the foundation for poor relief was being
constructed, the reign of Elizabeth I (1558–1603), “there was no such thing as a
purely peasant uprising and virtually no [open] class war” (Youings, 1984, p. 209).
The amounts raised by the poor rate from the wealthy and the well-off10 grew
over the centuries and peaked at an amazing 3.1% of gross national product (GNP)
in 1817, or £9.3 million, falling to 2.5% of GNP by 1831 (£8.6 million) (Digby,
1989, p. 9).11 It should be mentioned as well that these are national figures. In
areas “where poor law disbursements were above the national average and where
the community did not have an especially high income, the proportion of the total
available income being redistributed could well have been above the 5 per cent
mark” (Thomson, 1991, p. 208). Many people were affected by this system, and
poor relief, especially to permanent pensioners, was substantial, unlike the trivial
amounts of assistance given to the needy in places outside England. Richard Smith
(1996, p. 38) has shown that in the period 1660–1740, 40–45% of those aged 60
and over “were in receipt of a regular weekly pension, paid at a level in the south
[of England] equivalent to a labourer’s weekly wage.” Susannah Ottaway’s (1998)
survey of the same age group for the second half of the eighteenth century showed
pensions to be at least 80% of laborers’s wages (occasionally they were even better
than workers’s wages) – and this study did not include in-kind benefits such as
clothing and medical care.
Compare England’s remarkable system of poor relief, dating from the 1540s,
with Ireland’s poor law, passed in 1838, less than a decade before a terrible famine
wiped out one million people; or Scotland, which received its poor law in 1845,
though it would take until the 1890s before the law became universal; Prussia,
which had little or no poor relief well into the nineteenth century, with the first
major, and inadequate, forays into social policy by Bismarck in the 1880s; or
France, where public spending did not surpass private charity until the second
decade of the twentieth century (Weiss, 1983, p. 77), a ratio that held true for
England by the 1650s (Slack, 1988, p. 171).
The absence of government-run poor relief in these countries has to do with the
absence of capitalist social relations. In short, the population of these nations was
not dominated by a true “working class,” completely separated from the means of
production, bereft of landed property. These countries also did not have a “capitalist
state” of the type that developed in England from the mid-sixteenth century onward,
one that was consolidated in the first half of the nineteenth century (Saville, 1994).
There was much poverty in these other countries, caused by plague, famine, war,
and inefficient methods of production. Yet people had access to land. They engaged
in subsistence farming in a non-market economy under the guise of a parasitic
state which burdened peasants with taxes and heavy feudal dues. The few who
did sell their labor, mostly as a supplement to their agricultural activities and
Agrarian Capitalism and Poor Relief in England, c.1500–1790 41

common rights, did so in a customary economy, often receiving a “traditional”


remuneration in the form of food, drink, clothing, housing, and small amounts of
cash. It was this peasant “ownership” of property that prevented the development
of capitalism. This whole socio-economic system, however, was swept away in the
course of the nineteenth century in a series of “revolutions from above” (Mooers,
1991). Scotland, Ireland, and the countries on the Continent adopted England’s
social policy at the exact same moment that they adopted England’s class relations
(Patriquin, 2001, pp. 73–80).

9. CONCLUSION: THE ORIGINS AND HISTORY


OF THE WELFARE STATE
This article has addressed the question: Why, for almost 300 years, was England
the only country in Europe to have a system of poor relief? My answer is that the
development of this assistance was linked to the emergence of agrarian capitalism.
Significant changes in the social relations of landed property in sixteenth century
England lay behind the establishment of compulsory taxes in local parishes,
with the funds collected being distributed to individuals who could demonstrate
sufficient need. Despite some similarities in relief practices between English and
European cities for a brief moment at this time, it was their respective rural areas
that would go off in two very different directions and that would make England’s
treatment of its poor distinct from anything on the Continent.
My argument is predicated on the basic (yet generally ignored) fact that in most
of western Europe outside England, capitalist social relations in agriculture, as
well as industry, are a remarkably recent phenomenon. This is why England had a
comprehensive system of poor relief from the late sixteenth century onward while
nations like Scotland, Ireland, France, and Prussia lacked a social welfare regimen
until well into the nineteenth century – a difference of more than 300 years. In
England, and eventually throughout Europe, the creation of welfare states was a
consequence of the fact that land and common rights were relinquished in return
for income support during periods of unemployment. This welfare also assisted
people through “life cycle” changes such as widowhood or old age, these changes
now exacerbated by the reality of propertylessness. The means of production,
which allowed an individual to make a living, were exchanged for the means of
survival, sums of money so small that they enabled the recipient to be a consumer
but not a self-directed producer. This transfer to “welfare,” typically viewed as
one of the key elements of “progress,” was in fact an imposition that peasants and
“half-free” laborers did not want. Writers like E. P. Thompson (1963/1968, 1993)
and Christopher Hill (1974) have demonstrated that people throughout England
42 LARRY PATRIQUIN

were opposed to the abolition of their way of life in return for a “mess of pottage.”
There was always a realization among those who were being stripped of their
land and common rights that they were losing something important, and that the
employment they may have found afterwards, and the amounts received now and
then from the parish vestry, did little to make up for this loss. Even worse, welfare
would always be tied to various rituals of psychological degradation devised by
ruling classes who had to ensure the survival of individuals who were not attached
to the labor market, while being certain that all recipients experienced a dose of
second-class citizenship.
The appearance of social assistance, then, must be considered as part of a historic
trade-off of rights. “Economic” rights (as opposed to “goods” like free speech) are
the direct result of a struggle between different classes over the distribution of
the social surplus. The poor speak of their right to access to a common, to relief,
or to welfare, while the wealthy declare and defend their right to the fruits of
private ownership. When groups make conflicting claims like this, the decision as
to who gets what is determined by compromise, by force, or by some combination
of the two. These struggles, which involve opposing classes fighting over their
respective titles to property, have been a part of the social landscape since the
appearance of stratified societies. From the perspective of the poor, the meaning
of their struggle has never been altered by the content of what was at stake, be it an
armful of firewood, a few bits of grain, a silver coin, or a government cheque. The
resources that each side brought to this conflict, however, changed dramatically
with the transition to capitalism. Now, because they are propertyless, those who
require welfare must go begging, cap in hand, to state officials as a prerequisite to
receiving their basic sustenance. But since the history of welfare as a trade-off of
rights has been lost in the thick fog of liberal historiography, which celebrates the
death of the “backward” peasant and the birth of the “free” wage-laborer, we have
ended up forgetting William Cobbett’s observation that “the money, or food, or
clothing, proceeding from the poor-rates, is the poor’s property. It is not alms” (as
cited in Broadbridge, 1973, p. 11). Relief for the poor is, as John Stuart Mill put it,
“a claim against private property” (as cited in Webb & Webb, 1929/1963, p. 165).12
Ignoring the relationship between capitalism and English poor relief leads to
misinterpretations of the origins of the “welfare state.” Many commentators would
take umbrage at my use of this term, insisting on a marked distinction between
poor relief and the forms of social assistance provided from the second half of the
twentieth century onward. Stuart Woolf (1986, p. 2), for example, wrote about “the
workings of the welfare state, whose origins can be traced back barely one hundred
years and whose philosophy and realities only came to the fore after the Second
World War.” Similarly, while noting the “welfare function” of English poor relief,
Miller (1999, p. 17) could still comment that:
Agrarian Capitalism and Poor Relief in England, c.1500–1790 43

What is not at issue is that the welfare state is a phenomenon of the modern, industrial nation.
Not before the twentieth century in most cases, and in no case before the nineteenth century, did
the machinery exist, at [a] national or local level, to sustain the taxation and service provision
characteristic of the welfare state. It hardly makes sense to speak of “social policy” in these
earlier times – and therefore it hardly makes sense to speak of the “social problems” to which
that policy is often a response.

But poor relief was not something qualitatively different from the welfare state.
English poor relief was a welfare state. This claim is not a knee-jerk attempt to
take something that is peculiar to the “modern age” and to push it into the farthest
recesses of time. For sure, many errors have been made in the process of “reading
back into history.” However, at a time when theory is still heavily influenced by
postmodernism, the pendulum has swung too far in the other direction, to the point
where it is considered crude to even suggest that there may be a link between our
current welfare systems and their origins, their history. Martin Daunton (1996,
p. 1), for one, has proposed that today’s historians have had “to move from
Whiggish accounts based on a linear progression towards a welfare state” with
“their assumption that history was marching to a pre-ordained end.” The revival
of neoliberalism in the 1980s and 1990s “has led to the death of teleological
interpretations” and a “collapse of the old grand narrative.” As a result, Daunton
warned against “viewing the past through the distorting lens of the contemporary
welfare state.”
But there is nothing necessarily wrong with trying to make a connection
between the past and the present provided that the threads connecting the two
can be convincingly demonstrated. I have proposed that there is substantial
evidence linking the transition to capitalism to the rise of poor relief. If this link
between capitalism and welfare is accurate, then we need to rethink the effects
of urbanization, industrialization, and democracy on the development of social
assistance. If England had a small-scale welfare state by the mid-seventeenth
century, then this welfare unfolded in a society that was predominantly rural,
mostly agricultural, and decidedly undemocratic. Indeed, we have to retrace our
steps if we are to discover the meaning of, and the basis for, “poor relief.” Large
sections of the history of the welfare state need to be written anew.

NOTES

1. Gough (1979, pp. 44, 45) defines the welfare state as “the use of state power to modify
the reproduction of labour power and to maintain the non-working population in capitalist
societies.” Briggs (1993, p. 708) defines the welfare state as an institution that intervenes
“deliberately to limit or to modify the consequences of the free operation of market forces in
circumstances where individuals and families . . . [are] confronted with social contingencies
44 LARRY PATRIQUIN

deemed to be largely beyond their control, notably unemployment, sickness and


old age.”
2. E. M. Leonard (1900/1965, p. 294) made a similar observation when she concluded
that the difference between England and places like France and Scotland “was mainly caused
by the coexistence in England of a Privy Council active in matters concerning the poor and
of a powerful body of county and municipal officers who were willing to obey the Privy
Council.”
3. All these statistics are taken from Wrigley (1985, pp. 686, 688). I would add that,
for the late sixteenth century, certain centers like Norwich have left records that are quite
informative compared to what has been preserved from rural areas. This may be a factor in
contributing to our perception that, for a brief period of time, poor relief was more pervasive
in places with greater population.
4. As cited in Slack (1990, p. 12), who was quoting a monastic visitation injunction of
1535–1536.
5. Mary E. Fissell (1989) has noted that medical assistance was an integral part of poor
relief. There was no separation between “health” and “welfare” in the eyes of both parish
officials and recipients. Health care grew in importance in relief accounts after the mid-
eighteenth century when many parishes began to appoint medical officers. See also Thomas
(1980).
6. Wales was particularly late with assistance to the poor, despite the fact that it was
always closely integrated with England and was finally annexed in the 1530s. In the seven-
teenth century, poor rates existed in just a single Welsh county. Few parishes had one before
the 1760s, when about 25% of the land was still held in common (Jones, 1994, p. 8). Rates
appeared slowly at first, but increasingly so after the 1790s, mainly because of Parliamentary
enclosures undertaken during the Napoleonic Wars (Dodd, 1926, p. 119). On the state of
underdevelopment of research on the poor law in Wales, see King and Stewart (2001).
7. Derived from Mitchell (1988, p. 102), based on the work of Peter H. Lindert and
Jeffrey G. Williamson.
8. This fits fairly well with our own experience of the stability of the welfare state in
the period from the 1950s to the 2000s, despite the changes to capitalism in these years,
especially in an increasingly globalized economy, and notwithstanding the determination
of neoliberals to roll back social assistance. Even in Great Britain and the United States,
public spending on health, welfare, and education as a percentage of gross national product
has moved down only slightly, if at all, demonstrating great resilience even in the face of
overt ideological attacks.
9. While agreeing with Taylor on this point, my overall perspective on the origins of poor
relief is very different from his. For instance, Taylor (1969, p. 87) summarizes Jean-Jacques
Rousseau to the effect that “it is a natural consequence of freedom that some are reduced
to want.” I would substitute “capitalism” for “freedom” here.
10. For instance, the industrializing parish of Aberdare, Wales, had 3,400 inhabitants in
the late 1820s but only 150 ratepayers, mostly small farmers. Those who had just enough
money to be rateable and who had typical earnings could have paid as much as 15% of
their income on the rates (Davies, 1977, pp. 292, 293). By the 1830s, in many communities,
the rates had worked their way further down the property scale, with many poor people
having to request (and receive) exemptions (Digby, 1978, pp. 86–88). The issue of rates and
benefits, who paid and who received, and how this changed over time, is a neglected area
of poor law research.
Agrarian Capitalism and Poor Relief in England, c.1500–1790 45

11. To put this in context, the GNP of the United States was $8.5 trillion in 1998; 3.1% of
this is $264 billion. Using figures from the period 1997–1999, the United States government
spent roughly the following on major programs aimed specifically at the poor: Medicaid,
$160 billion; the Earned Income Tax Credit, $30 billion; food assistance (including food
stamps and school lunch and breakfast programs), $34 billion; and Supplemental Security
Income, $31 billion. Total federal and state expenditures on Temporary Assistance for
Needy Families (formerly Aid to Families with Dependent Children) were $21 billion.
These amounts add up to $276 billion. The indigent do benefit from other government
programs, but it is interesting that, in general, the poor in the United States at the turn of the
twenty-first century do not receive much more of their nation’s wealth from the government
than the poor in England did at the turn of the nineteenth century.
It should be noted as well that not all the funds raised from the poor rate in England went
directly to the poor; some was used for administrative purposes.
12. Mill’s comment is contained in a letter to a colleague, written in 1863.

ACKNOWLEDGMENTS
I would like to thank the two referees from Research in Political Economy for
helpful comments and David McNally, George Comninel, and Ellen Meiksins
Wood for their advice on a previous draft of this article.

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TAXATION AND PRIMITIVE
ACCUMULATION: THE CASE
OF COLONIAL AFRICA

Mathew Forstater

ABSTRACT

In Volume One of Capital, Marx laid out what he called “The Secret
of Capitalist Primitive Accumulation.” Capitalist accumulation must be
preceded by some previous accumulation, “an accumulation which is not the
result of the capitalist mode of production but its point of departure” (1990,
p. 873). Marx, concentrating on European history, identified the “double-
freedom” requirement necessary for capitalist production: workers must be
“free” to sell their labor-power and they must be “free” from the means
of production. But in this analysis, Marx not only was focusing his remarks
on Europe, he actually states that the “classic” case is limited to England,
while the “history of this expropriation assumes different aspects in different
countries, and runs through its various phases in different successions, and
at different historical epochs” (p. 876). In the European colonies, land
expropriation and forced labor were used, but another important means of
forcing indigenous populations to work as wage-laborers or produce cash
crops was taxation and the requirement that taxes be paid in colonial currency.
This paper provides an overview of this method, and documents its historical
importance, concentrating on Africa. Taxation also played an important role
in the monetization and commoditization of African economies, and in the
rise of a peripheral capitalism. As the paper demonstrates, Marx was not

The Capitalist State and Its Economy; Democracy in Socialism


Research in Political Economy, Volume 22, 51–64
© 2005 Published by Elsevier Ltd.
ISSN: 0161-7230/doi:10.1016/S0161-7230(04)22002-8
51
52 MATHEW FORSTATER

unaware of money taxes functioning in this manner, and the phenomenon was
in no way limited to Africa.

1. INTRODUCTION
In Volume One of Capital, Marx laid out what he called “The Secret of Capitalist
Primitive Accumulation.” Capitalist accumulation must be preceded by some
previous accumulation, “an accumulation which is not the result of the capitalist
mode of production but its point of departure” (Marx, 1990, p. 873). Marx identified
the “double freedom” requirement necessary for capitalist production: workers
must be “free” to sell their labor-power and they must be “free” from the means
of production. The existence of a working class ready to sell their labor-power to
capitalists requires that a mass of population have no means of production with
which to produce their own means of subsistence. If they could produce their own
means of subsistence, they would not be compelled to sell their labor-power to
capitalists. A legal system is also required under which workers are freed from
their feudal obligations and by law may enter the market to sell their labor-power.
As Marx wrote, “so-called primitive accumulation, therefore, is nothing else than
the historical process of divorcing the producer from the means of production”
(1990, pp. 874, 875).
Despite this emphasis, Marx recognized other important varieties of primitive
accumulation as well as the fact that it played out differently under different
historical conditions. Although many authors associate primitive accumulation
primarily with the enclosures that divorced serfs from the land, creating a landless,
property-less class compelled to sell their labor-power to capital to obtain their
means of subsistence, Marx uses the term primitive accumulation much more
broadly, to encompass a whole variety of preconditions and prerequisites for the
capitalist mode of production. In addition, in highlighting the historical processes
by which the producers were left without means of providing their own subsistence,
Marx not only was focusing his remarks on Europe, he actually states that the
“classic” case is limited to England, while the “history of this expropriation
assumes different aspects in different countries, and runs through its various
phases in different successions, and at different historical epochs” (Marx, 1991,
p. 876).
In addition to divorcing the mass of population from the means of production,
Marx refers to the importance of merchant capital; the wealth and resources
resulting from European contact with Asia, Africa, and the Americas; and other
processes contributing to monetization, commoditization, and marketization. In
Volume 3 of Capital, Marx notes that merchant capital “is itself a historical
Taxation and Primitive Accumulation 53

precondition for the development of the capitalist mode of production” (Marx,


1991, p. 444):
There can be no doubt – and this very fact has led to false conceptions – that the great revolutions
that took place in trade in the sixteenth and seventeenth centuries, along with the geographical
discoveries of that epoch, and which rapidly advanced the development of commercial capital,
were a major moment in promoting the transition from the feudal to the capitalist mode of
production. The sudden expansion of the world market, the multiplication of commodities in
circulation, the competition among the European nations for the seizure of Asiatic products
and American treasures, the colonial system, all made a fundamental contribution towards
shattering the feudal barriers to production (Marx, 1991, p. 450).

Already in Volume 1 Marx had identified this history as an integral part of primitive
accumulation:
The discovery of gold and silver in America, the extirpation, enslavement and entombment
in mines of the indigenous population of that continent, the beginnings of the conquest and
plunder of India, and the conversion of Africa into a preserve for the commercial hunting of
blackskins, are all things that characterize the dawn of the era of capitalist production. These
idyllic proceedings are the chief moments of primitive accumulation. Hard on their heels follows
the commercial war of the European nations, which has the globe as its battlefield (Marx, 1990,
p. 914).

These insights recognize the role that colonialism and imperialism played in
contributing to the establishment of the capitalist mode of production in Europe,
but they do not address the processes of primitive accumulation in the colonies
and territories themselves. Marx stated that “it is otherwise in the colonies” (Marx,
1990, p. 931), but he did not document all the particulars of what might be called
“colonial capitalist primitive accumulation.”

2. THE ROLE OF THE STATE IN MARX’S ACCOUNT


OF PRIMITIVE ACCUMULATION IN EUROPE
AND COLONIAL CAPITALISM
Some of Marx’s additional remarks concerning primitive accumulation in
European countries do provide hints regarding colonial capitalist primitive
accumulation.
For example, Marx included the role of the state, including taxation, as part of
primitive accumulation in Europe. He wrote that:
The different moments of primitive accumulation can be assigned in particular to Spain,
Portugal, Holland, France, and England, in more or less chronological order. These moments
are systematically combined together at the end of the seventeenth century in England; the
combination embraces the colonies, the national debt, the modern tax system, and the system
54 MATHEW FORSTATER

of protection. These methods depend in part on brute force, for instance the colonial system.
But, they all employ the power of the state, the concentrated and organized force of society, to
hasten, as in a hot-house, the process of transformation of the feudal mode of production
into the capitalist mode, and to shorten the transition. Force is the midwife of every old
society which is pregnant with a new one. It is itself an economic power (Marx, 1990,
pp. 915, 916).

And, again:
The modern fiscal system, whose pivot is formed by taxes on the most necessary means of
subsistence . . . thus contains within itself the germ of automatic progression. Over-taxation is
not an accidental occurrence, but rather a principle. In Holland, therefore, where this system
was first inaugurated, the great patriot, DeWitt, extolled it in his Maxims as the best system
for making the wage-labourer submissive, frugal, industrious . . . and overburdened with work.
Here, however, we are less concerned with the destructive influence it exercises on the situation
of the wage-labourer than with the forcible expropriation, resulting from it, of peasants, artisans,
in short, of all constituents of the lower middle-class. There are no two opinions about this,
even among the bourgeois economists. Its effectiveness as an expropriating agent is heightened
still further by the system of protection, which forms one of its integral parts (Marx, 1990,
p. 921).

Clearly Marx recognized the role that the State played, with its “whole series
of forcible methods,” but he “only passed in review those that have been epoch-
making as methods of the primitive accumulation of capital” (Marx, 1990, p. 928).
What I am calling the “colonial capitalist mode of production” is similar to what
Clive Y. Thomas has called the “colonial slave mode of production,” in which the
“mode of production was clearly determined by the colonizing power, and was in
no way a ‘natural’ outgrowth of the development of the indigenous communities”
(Thomas, 1984, p. 10). In the colonial capitalist mode of production, “the process
of colonization ultimately required the effective concentration of power in the
hands of the colonizing power” (Thomas, 1984, p. 14), and “. . . the local state
developed out of the need for an organizing authority to perform certain ‘common’
functions in the local society and the need to have an ‘on-the-spot’ public coercive
power to guarantee the interests of the dominant local and colonial interests”
(Thomas, 1984, p. 15). Some of these functions “included overhauling existing
land and property arrangements; creating, in place of slaves, a stable labor supply
for commercial agriculture and mining; extending the use of money and exchange,
frequently by requiring the payment of money taxes and land rent” (Thomas, 1984,
pp. 18, 19).
A variety of methods were employed by the colonial powers to force colonial
subjects to become wage-laborers. These included forced labor and varieties of
methods to create a property-less class. But creating a landless, property-less class
was not always preferred by colonial governments. Maintaining “reserves” of
some kind was beneficial to capital, for a number of reasons. If labor was seasonal,
Taxation and Primitive Accumulation 55

workers could return to home in the off-season and live off the subsistence base. In
this way, wages did not have to be high enough to support workers and their families
year-round, and profits could be higher. Even without seasonal labor, maintaining
a subsistence base could supplement wages, which again would not have to be
high enough reproduce labor-power. The problem was that if the subsistence base
was capable of supporting the population entirely, colonial subjects would not be
compelled to offer their labor-power for sale. Colonial governments thus required
alternative means for compelling the population to work for wages. The historical
record is clear that one very important method for accomplishing this was to
impose a tax and require that the tax obligation be settled in colonial currency.
This method had the benefit of not only forcing people to work for wages, but
also of creating a value for the colonial currency and monetizing the colony. In
addition, this method could be used to force the population to produce cash crops
for sale. What the population had to do to obtain the currency was entirely at
the discretion of the colonial government, since it was the sole source of the
colonial currency. This method was widespread and important enough to be called
“a secret of colonial capitalist primitive accumulation” (since it was not the only
method, it must be called “a” secret). This practice is extremely well documented,
yet it has hardly ever been mentioned as an important method of primitive
accumulation. If, as Marx stated, “accumulation of capital is . . . multiplication of
the proletariat,” then direct taxation (and the requirement taxes be paid in money)
was, in the colonies, “a secret of so-called primitive accumulation,” especially
because of the other associated effects, including monetization, marketization, and
commoditization.

3. MARX’S RECOGNITION OF THE ROLE OF


TAXATION IN PRIMITIVE ACCUMULATION
Marx’s understanding of the role of taxation in the creation of wage-labor expanded
during his study of the Russian peasantry and their proletarianization (White, 1996,
p. 247). In particular, he was influenced by his reading of N. Flerovsky’s The
Condition of the Working Class in Russia (Flerovsky was the pseudonym of V. V.
Bervi), published in 1869 (White, 1996, p. 247). Marx wrote to Engels that “this is
the most important book which has appeared since your Condition of the Working
Class” (White, 1996, p. 248):
Flerovsky made it plain that . . . not all Russian peasants were on the same economic
level . . . While rich peasants . . . could earn their living entirely from the land, the poorer ones
could not because ‘the amount of taxes levied on the peasantry is so great that they cannot pay
it without earning wages’ (White, 1996, p. 248).
56 MATHEW FORSTATER

According to Flerovsky, “The main reason which compels the worker to resort to
the capitalist is to pay his taxes” (White, 1996, p. 249). As White reports, “Marx
was delighted with Flerovsky’s book and as he wrote to Engels: ‘What I like,
among other things, in Flerovsky is his polemic against direct taxes exacted from
the peasants’ ” (White, 1996, p. 249):
Flerovsky’s book had a lasting significance for Marx’s studies of Russian economic
development, because the picture it presented was not contradicted by any of the other sources
which Marx used, and indeed, the statistical materials which he consulted served only to add
substance to what Flerovsky had said (White, 1996, p. 249).

Marx’s extensive study of the Reports of the Fiscal Commission “served to


substantiate Flerovsky’s opinion that the system of taxation in Russia . . . was
responsible for turning workers into proletarians” (White, 1996, p. 249).
The influence of Flerovsky seems to be present in Engel’s analysis, inserted
in Chap. 43 of Capital, Vol. 3, where he refers to “Russian and Indian peasants
succumbing to the screws of taxation”:
the lands of the Russian and Indian communistic communities, which had to sell a portion of
their product, and an ever-growing one at that, to get money for the taxes exacted by a merciless
state despotism – often enough by torture. These products were sold with no regard to their
costs of production, sold at the price which the dealer offered, because the peasant absolutely
had to have money at the payment date (1991, p. 860).

Later in Volume 3, in Chap. 47, Marx himself makes clear that taxes function
to speed up the preconditions for capitalist development. In a discussion of the
Mercantile system, Marx argues that the transformation from feudal society to
capitalism was in no way “natural,” but was facilitated by the State:
We have already noted how the Monetary System correctly proclaims that production for the
world market and the transformation of the product into a commodity, hence into money, is the
precondition and requirement for capitalist production . . . But it is also a characteristic feature of
the self-interested merchants and manufacturers of that time, and belongs to the period of capital-
ist development that they represent, that the transformation of feudal agricultural societies into
industrial societies, and the resulting industrial struggle of nations on the world market, involves
an accelerated development of capital which cannot be attained in the so-called natural way but
only by compulsion. It makes a substantial difference whether the national capital is transformed
into industrial capital gradually and slowly, or whether this transformation is accelerated in time
by the taxes they impose via protective duties, principally on the landowners, small and middle
peasants and artisans, by the accelerated expropriation of independent direct producers, by the
forcibly accelerated accumulation and concentration of capital, in short, by the accelerated
production of the conditions of the capitalist mode of production (Marx, 1991, p. 920).

Clearly, Marx understood the role of taxation in primitive accumulation and the
accumulation of capital (see Zarembka, 2000, for definitions of the two notions
and their relation).
Taxation and Primitive Accumulation 57

While Marx’s interest in the role of money taxes in primitive accumulation


certainly deepened as a result of his reading of Flerovsky, there is evidence that
this recognition was not new and that he had already understood the importance
of these processes earlier. In the Urtext, the original draft of A Contribution to the
Critique of Political Economy, written in 1858, Marx emphasized “the way that an
absolute monarchy pressures for production for exchange simply by demanding
money taxes” (Nelson, 1999, p. 102):
The absolute monarchy, itself already a product of the development of bourgeois wealth to a
level incompatible with old feudal relationships, is – in accordance with the uniform general
power which it must be able to exercise at every point of the periphery – in need of a material
instrument of that power: the universal equivalent, wealth in its constant battle-ready form in
which it is completely independent of particular local, natural, individual relations. It needs
wealth in the form of money. A system of services and deliveries in-kind tends to impart, in
accordance with their specific character, a particular character to their use as well. Money is
alone capable of being converted into any particular use value. So the absolute monarchy is
actively engaged in converting money into the universal means of payment. That can be done
only through forced circulation, which makes products circulate at below their value. For the
absolute monarchy, the conversion of all taxes into money taxes is a vital matter (Marx, 1987
[1858], pp. 430, 431).

In the Grundrisse, Notebook I, “The Chapter on Money,” Marx recognized that


“Prussia has paper money of forced currency. (A reflux is secured by the obligation
to pay a portion of taxes in paper)” (Marx, 1973, pp. 132). Furthermore, Marx
viewed this as part of the larger transition associated with money and the role of
the State:
(To be further developed, the influence of the transformation of all relations into money relations:
taxes in kind into money taxes, rent in kind into money rent, military service into mercenary
troops, all personal services in general into money services, of patriarchal, slave, serf and guild
labour into pure wage labour) (Marx, 1973, pp. 146).
In the period of the rising absolute monarchy with its transformation of all taxes into money
taxes, money indeed appears as the moloch to whom real wealth is sacrificed (Marx, 1973,
p. 199).

Along the same lines, in Part III of Theories of Surplus Value, in a discussion of
early capitalist development and the genesis of wage-labor, Marx again highlights
the importance of “the conversion of rent into money rent and generally of all
payments in kind (taxes, etc., rent) into money payments” (Marx, 1971 [1863],
p. 289).
For Marx, money taxes played an important role in primitive accumulation, both
in terms of “regulating the supply of labour power” and ensuring that “[m]oney,
must, in short, be able to command the labour of others” (Harvey, 1982, pp. 51,
256): “The growth of mortgage markets, the taxation of land as a financial asset by
the state (which forces monetization) and the whole complex history of primitive
58 MATHEW FORSTATER

accumulation and the monetization of landed property relations . . . also play their
respective roles” (Harvey, 1982, p. 348).

4. TAXATION AND PRIMITIVE ACCUMULATION


IN COLONIAL AFRICA
Colonial administrators at first believed that market incentives and persuasion
might result in a forthcoming supply of labor:
Initially the French imagined that if they would only create new needs for the Africans, the
indigenous people would go out to work. When this did not happen, the French introduced
taxes so as to make Africans earn wages (Coquery-Vidrovitch, 1969, pp. 170, 171).
From the first it was assumed that ample cheap labor was a major asset in Africa . . . Practical
experience soon showed, however, that Africans did not, as a rule, approximate to Indian
coolies. Few in sub-Saharan African had experience of working for pay or outside the traditional
subsistence economy, and few had any real need to do so. In course of time monetary incentives
might generate a voluntary labor force, but during the first decades after pacification neither
governments nor private investors could afford to wait indefinitely for the market to work this
revolution (Fieldhouse, 1971, p. 620).

A number of methods were utilized to compel Africans to provide labor and


cash crops. Among these were work requirements, pressure for “volunteers,” land
policy squeezing Africans into “reserves” destroying the subsistence economy, and
“contracts” with penal sanctions (Fieldhouse, 1971, pp. 620, 621). But the most
successful method turned out to be direct taxation.
Direct taxation was used throughout Africa to compel Africans to produce cash
crops instead of subsistence crops and to force Africans to work as wage laborers
on European farms and mines:
In those parts of Africa where land was still in African hands, colonial governments forced
Africans to produce cash crops no matter how low the prices were. The favourite technique was
taxation. Money taxes were introduced on numerous items – cattle, land, houses, and the people
themselves. Money to pay taxes was got by growing cash crops or working on European farms
or in their mines (Rodney, 1972, p. 165, original emphasis).

The requirement that taxes be paid in colonial currency rather than in-kind was
essential to producing the desired outcome, as well as to monetize the African
communities, another part of colonial capitalist primitive accumulation and helping
to create markets for the sale of European goods:
African economies were monetised by imposing taxes and insisting on payments of taxes with
European currency. The experience with paying taxes was not new to Africa. What was new
was the requirement that the taxes be paid in European currency. Compulsory payment of taxes
in European currency was a critical measure in the monetization of African economies as well
as the spread of wage labor (Ake, 1981, pp. 333, 334).
Taxation and Primitive Accumulation 59

Colonial governors and other administrators were well aware of this “secret” of
colonial capitalist primitive accumulation, although they often justified the taxation
on other grounds, some ideological and others demonstrating the multiple purposes
of taxation from the colonial point of view. “One Governor, Sir Perry Girouard,
is reported to say: ‘We consider that taxation is the only possible method of
compelling the native to leave his reserve for the purpose of seeking work’ ” (Buell,
1928, p. 331). First Governor General of the Colony and Protectorate of Nigeria, Sir
Frederick Lugard’s Political Memoranda and Political Testimonies are filled with
evidence regarding direct taxation: “Experience seems to point to the conclusion
that in a country so fertile as this, direct taxation is a moral benefit to the people by
stimulating industry and production” (Lugard, 1965a, p. 118). Lugard’s belief that
“Direct taxation may be said to be the corollary of the abolition, however, gradual,
of forced labour and domestic slavery” (1965a, p. 118), acknowledges the role of
direct taxation in forcing Africans to become wage-laborers. Lugard was also clear
that the “tax must be collected in cash wherever possible . . . The tax thus promotes
the circulation of currency with its attendant benefits to trade” (1965a, p. 132).
Lugard and other colonial administrators cited a number of other justifications
for direct taxation:
Even though the collection of the small tribute from primitive tribes may at first seem to give
more trouble than it is worth, it is in my view of great importance as an acknowledgement of
British Suzerainty . . . It is, moreover, a matter of justice that all should pay their share alike,
whether civilized or uncivilized, and those who pay are quick to resent the immunity of others.
Finally, and in my judgment the most cogent reason, lies in the fact that the contact with officials,
which the assessment and collection necessitates, brings these tribes into touch with civilizing
influences, and promotes confidence and appreciation of the aims of Government, with the
security it affords from slave raids and extortion” (Lugard, 1965b, pp. 129, 130).
The tax affords a means to creating and enforcing native authority, of curbing lawlessness,
and assisting in tribal evolution, and hence it becomes a moral benefit, and is justified by the
immunity from slave-raids which the people now enjoy” (p. 173).

Taxation was also justified on grounds that it assisted in “civilizing” African


peoples: “For the native,” Ponty stated in 1911, “taxation, far from being the sign
of a humiliating servitude, is seen rather as proof that he is beginning to rise on the
ladder of humanity, that he has entered upon the path of civilization. To ask him
to contribute to our common expenses is, so to speak, to elevate him in the social
hierarchy” (Conklin, 1997, p. 144). Colonial tax policies were also introduced
in the name of the “dignity” of, and the obligation to, work, where contact with
Europeans again was emphasized:
From this need for native labor, the theory of the dignity of labor has developed; this dignity
has been chiefly noticeable in connection with labor in the alienated areas. The theory has also
developed that it is preferable for the native to have direct contact with the white race so that his
advance in civilization should be more rapid than if he remained in his tribal area attending to
60 MATHEW FORSTATER

his own affairs. This is the “inter-penetration” theory in contrast to the “reserve” or “separation”
theory (Dilley, 1937, p. 214).

All of these functions of direct taxation may be seen in some sense as part
of colonial capitalist primitive accumulation, whether as assisting in promoting
marketization or serving ideological functions in the reproduction of the colonial
capitalist mode.
Several points concerning the role of direct taxation in colonial capitalist
primitive accumulation need to be made. First, direct taxation means that the
tax cannot be, e.g. an income tax. An income tax cannot assure that a population
that possesses the means of production to produce their own subsistence will enter
wage labor or grow cash crops. If they simply continue to engage in subsistence
production, they can avoid the cash economy and thus escape the income tax and
any need for colonial currency. The tax must therefore be a direct tax, such as the
poll tax, hut tax, head tax, wife tax, and land tax. Second, although taxation was
often imposed in the name of securing revenue for the colonial coffers, and the
tax was justified in the name of Africans bearing some of the financial burden of
running the colonial state, in fact the colonial government did not need the colonial
currency held by Africans. What they needed was for the African population to need
the currency, and that was the purpose of the direct tax. The colonial government
and European settlers must ultimately be the source of the currency, so they did
not need it from the Africans. It was a means of compelling the African to sell
goods and services, especially labor services for the currency. Despite the claims
by the colonial officials that the taxes were a revenue source, there is indication that
they understood the working of the system well. For example, often the tax was
called a “labor tax” or “prestation.” Under this system, one was relieved of their tax
obligation if one could show that one had worked for some stated length of time for
Europeans in the previous year (see, e.g. Christopher, 1984, pp. 56, 57; Crowder,
1968, p. 185; Davidson, 1974, pp. 256, 257; Dilley, 1937, p. 214; Wieschoff, 1944,
p. 37). It is clear in this case that the purpose of the tax was not to produce revenue.
To achieve its intended effects, it was also important that the direct tax be
enforced, and numerous penalties existed for failing to meet one’s obligation. In
German East Africa, “Sanctions against non-payment were severe – huts were
burnt and cattle confiscated – so tax defaulters were not numerous” (Gann &
Duignan, 1977, pp. 202, 203). All kinds of harsh penalties for failing to pay taxes
have been documented:
If a man refused to pay his taxes, the Mossi chief was permitted to sequester his goods and sell
them. If the man had neither the taxes nor the goods, the chief had to send him and his wife
(or wives) to the administrative post to be punished. Sometimes, a man and his wife would be
made to look at the sun from sunrise to sunset while intoning the prayer Puennam co mam ligidi
(“God, give me money”). Other times a man would be made to run around the administrative
Taxation and Primitive Accumulation 61

post with his wife on his back; if he had several wives, he had to take each one in turn. Then
his wife or wives had to carry him around (Skinner, 1970, p. 127).

Collective punishments were also used widely to enforce the tax. At the very least,
failure to “pay could be met, and regularly was met, by visits from the colonial
police and spells of ‘prison labour’ ” (Davidson, 1974, pp. 256, 257).
Another important element in assuring the smooth functioning of the direct tax
system was keeping wages low, which had the additional benefit of keeping costs
down for private employers. If wages were too high relative to the tax burden,
Africans would only work enough to pay off their tax obligation and the labor
supply would remain limited:
While taxation is high, wages are very low. It would not do to pay the Natives too much for they
would not work a day more than it was absolutely necessary to get tax money. So employers
pay the minimum in order to exploit their labourers as long as possible (Padmore, 1936, p. 67).

Direct taxation was also used to promote and control migration of wage labor.
If wage labor and money for cash crops was not available locally, Africans
were forced to migrate to plantations and mines to find money wages (see, e.g.
Greenberg, 1987; Groves, 1969; Onselan, 1976; although see also Manchulle,
1997, especially p. 8, for a critique).

5. TAXATION AND PRIMITIVE ACCUMULATION


IN EUROPE AND ASIA
In arguing that taxation played an important role in primitive accumulation, this
paper has focused on the case of Colonial Africa, but this should in no way imply
that the process was limited to Africa. Evidence has already been mentioned in
passing with reference to Russia and elsewhere. Vries, in a section entitled “Taxes,
the Financial Revolution, War, Primitive Accumulation, and Empire” from his
article “Governing Growth: A Comparative Analysis of the Role of the State in
the Rise of the West” (Vries, 2002), argues that:
Praising Europe’s state-system and its mercantilist competition implies, whether one likes
it or not, praising taxes. The increase of taxation we see in mercantilist countries may also
have been a blessing in disguise. Paying them may have been an unpleasant experience, but
it need not necessarily have been a bad thing from a macro-economic point of view. It is not
farfetched to expect that ever-increasing taxes forced people to work harder and longer. Since
the economy of large parts of early modern Europe was characterized by un(der)employment
and under-utilization of the available means of production, there was plenty of room for
increased production. Moreover, the fact that taxes were collected in money, led to increasing
commercialization. Which in turn could increase government income via indirect taxes (Vries,
2002, p. 75).
62 MATHEW FORSTATER

Despite Vries’ view of the process as a “blessing,” etc., it is clear that the description
highlights the ways in which money taxes affected labor supply and monetization
in early modern Europe, and even uses the term “primitive accumulation.” Later in
the article, Vries reports that, in China, “one finds officials proclaiming that taxes
ought to be raised to force the populace to work harder” (Vries, 2002, p. 95; for
more on China, see Von Glahn, 1996). Vries goes on to report that this development
took place throughout Europe and Asia:
When it comes to the way taxes were levied, monetization appears to be the tendency in the
entire Eurasian continent. This process had progressed furthest in Europe. All governments
preferred to get their income in money and to a very large extent managed to do so. In China an
important grain levy continued to exist, but all other important government taxes had gradually
been transformed into monetary payments. In India taxes for the central government had to
be paid in cash. In the Ottoman Empire monetization made the least progress, but with the
increasing weight of cizye, avariz, and tax farming, here too cash payments were on the rise
(Vries, p. 98).

Additional support for Europe and Western Asia is provided by Banaji (2001).
Evidence for the notion that money taxes force pressures for increased market
activity is provided by the reverse development, namely that a “decline in the
exaction of money taxes brought about a decline in trade” (Hopkins, 1980, p. 116,
quoted in Banaji, 2001, p. 16). Banaji goes on to report that:
the relentless pressure for taxation in money would also mean that despite the commercial
decline which is supposed to have occurred in the Mediterranean of the seventh century,
Egyptian landowners and rural communities were undoubtedly forced to meet their monetary
obligations through increased production for the market (or participation in it as wage-labourers)
(Banaji, 2001, p. 158).

Additional research is necessary to provide a more comprehensive and detailed


documentation of the role of monetary taxation in monetization, marketization,
and the creation of wage-labor and cash crop production in other regions and
time periods, but it is clear that the historical process was in no way confined to
Colonial Africa. The fact that various aspects of the phenomenon were recognized
by not only Marx, but economists and other social scientists and historians as
geographically, temporally, and theoretically diverse as Adam Smith, John Stuart
Mill, Fred M. Taylor, Philip Henry Wicksteed, Karl Polanyi, and John Maynard
Keynes supports the position that it existed with a great deal of generality (see
Forstater, forthcoming).

6. CONCLUSION

Direct taxation was used to force Africans to work as wage laborers, to compel
them to grow cash crops, to stimulate labor migration and control labor supply, and
Taxation and Primitive Accumulation 63

to monetize the African economies. Part of this latter was to further incorporate
African economies into the larger emerging global capitalist system as purchasers
of European goods. If Africans were working as wage laborers or growing cash
crops instead of producing their own subsistence, they would be forced to purchase
their means of subsistence, and that increasingly meant purchasing European
goods, providing European capital with additional markets. It thus also promoted,
in various ways, marketization and commoditization. We have also seen that
taxation was related to a variety of ideological aspects related to the reproduction
of colonial relations of production. Direct taxation was thus an important “secret of
colonial capitalist primitive accumulation.” It appears to have been one of the most
powerful policies in terms of its wide variety of functions, its universality in the
African colonial context, and its success in achieving its intended effects. Of course,
taxation was not the sole determinant of primitive accumulation. But it has certainly
been under-recognized in the literature on primitive accumulation. The history of
direct taxation in colonial capitalism also has some wider theoretical implications.
It shows, for example, “that ‘monetization’ did not spring forth from barter; nor did
it require ‘trust’ – as most stories about the origins of money claim” (Wray, 1998,
p. 61). In the colonial capitalist context, money was clearly a “creature of the state.”

ACKNOWLEDGMENTS
For helpful comments on previous drafts the author thanks, without implicating,
Scott Fullwiler, Mark Peacock, James White, Randy Wray, and Paul Zarembka.

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THE STATE-CAPITAL RELATIONSHIP
AND THE SIGNIFICANCE OF
INCORPORATING THE ROLE
OF LABOR

Eshrak Zaky

ABSTRACT
The unsettled opposing conclusions reached by a number of scholars about
the remaining significance and/or weakness of the nation-state and its conflict
and/or coalition with global capital represent an analytical and theoretical
impasse. These contradictory views have been contested in the literature
leaving no clear methodological and analytical guidance on how to examine
the state-capital relationship in any specific area in the era of globalization.
This paper suggests that the contradiction and change in the relationship
between the nation-state and capital is rooted in the contradictory needs
of labor versus capital. However, the role of labor and its contradiction
with capital has been absent from most state-capital analyses or is treated
as a background variable. To help overcoming this analytical impasse, the
paper calls for re-conceptualizing the role of labor on the global level
and for incorporating this role within the state-capital relationship. The
paper first provides a critical appraisal of the opposing views of the state-
capital relationship and pinpoints problems in their analytical logics of
contradictions and structural determination. The basic contradiction between

The Capitalist State and Its Economy; Democracy in Socialism


Research in Political Economy, Volume 22, 65–83
Copyright © 2005 by Elsevier Ltd.
All rights of reproduction in any form reserved
ISSN: 0161-7230/doi:10.1016/S0161-7230(04)22003-X
65
66 ESHRAK ZAKY

labor and capital is restated and the ways in which different approaches
had incorporated (or ignored) labor in relation to capital and the state are
criticized. The critique covers mainstream and recent synthesized approaches
but focuses more on post-Marxist political economy. The paper concludes
with some suggested directions for research for addressing the capitalist state
contradictions.

1. INTRODUCTION: STATE-CAPITAL ANALYSES AND


THEIR UNSETTLED CONCLUSIONS
Recent changes in the global capitalist system led many scholars to question the
fate of the nation state and whether these changes would strengthen or weaken
its institutional capacity and its ability to defend people’s interests. (I will explain
in Section 2 below the interchangeable use of the terms “labor” – as per the title,
and “people.”) Two main contradictory views, with some variations, about the
continuing significance of the nation-state have been expressed among a number
of scholars. On one extreme are those who argue that the state has weakened,
becoming transnationalized and condensed into an emergent Transnational State
(TNS) represented by international institutions such as WTO, World Bank, IMF,
which protect the interests of the Transnational Corporations (TNCs) and a
Transnational Capitalist Class (TCC) (e.g. Castells, 1997; Cox, 1987; Robinson,
2001; Sklair, 1999).
On the other extreme, there are those who assert that the nation-state is still a
major player in both the national and international economy (e.g. Dicken, 1998;
Wade, 1996) and that globalization is just overstated and that recent changes are
merely a quantitative intensification of historical tendencies and not a qualitatively
new stage (e.g. Gordon, 1988; Weiss, 1998; Wood, 1999). The state is much more
needed than before in order to enhance competition among TNCs (e.g. Porter,
1990) and/or to provide political support for global organizations of capital (e.g.
Block, 2001; Wood, 1999).
Taking a sample of some selected studies that represent these views on the
state, arguments about state weakness and strength could be roughly located
on two epistemic explanatory logical axes as shown in Table 1. The first axis
differentiates them by their positions on the institutional structural determination
of the relationship between the nation-state and global forces (e.g. the TNS, TCC
or TNCs) while the second distinguishes them by their views on the degree to
which global forces and nation-state interests are integrated or divergent (i.e. have
common or contradictory needs). The epistemic strategy of state weaknesses’
arguments tends to adopt a unidirectional top-down hierarchical position that
The State-Capital Relationship 67

Table 1. Epistemic Explanatory Axes of the Relationship Between Global


Factors and Nation-state.
Institutional Structural Determination
Integration of Downward from Global Upward from Nation-State
Interests/Needs Factors

Contradictory/divergent Global factors Nation-state is able to


disable/weaken nation-states compete and control global
(e.g. Robinson, Castells) factors (e.g. Dicken, Wade)
Cooperative/common Global factors requires Nation-states
cooperation and enable/strengthen global
strengthening of nation-states factors (e.g. Wood)
(e.g. Porter, Block)

perceives the direction of determination to be moving from higher global levels


of transnational agencies to the lower level of the nation-state. They also find the
relationship between capital and the state to be contradictory because each has
its own interest. In contrast, arguments about the remaining importance of the
nation-state derive the strength of the state either from the common interests that
unite transnational forces with the nation-state or from the potential strength still
remaining within the state itself.
The various writings of the state weakness approach rest on the shared
assumption that capital acts and states are acted upon. Castells (1997), for
example, points out that the instrumental capacity and the degree of freedom of
a government’s economic policy has been drastically reduced in the 1990s by the
interdependence of financial and currency markets, the harmonization of monetary
policies at the supranational level and the pressure role of international financial
institutions. These factors have lessened states’ control over financial markets and
capital, and undermined the flow of their budgetary policies that support their
welfare programs (pp. 245–251). This general conclusion, which Castells reaches,
in which the state is presented as an inactive agent or victim of economic processes
was full of inconsistencies as a result of using a very small unrepresentative sample
of countries.
In an attempt to solve the problem of “agentless” states, Robinson and Harris
(2000) have introduced the concepts of the transnational state (TNS) and
the transnational capitalist class (TCC), as two important political agents that
substitute for the nation-state, and that play more active roles than individual TNCs,
in the process of globalization and weakening state role. According to them, since
the 1970s and 1980s the dominance of finance capital through transnational banks,
68 ESHRAK ZAKY

investment firms, etc., facilitated the emergence of a TCC, which represents that
fraction of the world bourgeoisie and transnational capital which own the leading
worldwide means of production as embodied in the TNCs and private financial
institutions. Although Robinson (2001) acknowledges that the TCC swept into
power in the 1980–1990s by “capturing the commanding heights” of nation-states’
key policymaking and ministries to advance its global neoliberal agenda (p. 174),
he does not see a connection between the TCC and these nation-states.
By adopting this extreme transcendence epistemology in which the TCC and
the TNS are considered to be separate agents over and above both national
and international ones, the authors generate a dichotomous relationship between
national economies and politics on one hand, and global classes and global
governance on the other hand. This extreme transcendence or emergence usually
leads to ontological dualism because it “implies a total break of the emerging higher
level from lower levels, (where) the necessary process of reconnecting to, relating
to and controlling downwards the lower levels remains a mystery” (Kontopoulos,
1993, p. 24).
The idea of the TCC and TNS that were put in contradiction to the survival of the
nation-state by the state-weakness camp has been criticized by Block (2001), who
argues that “a true TNS would need to have an effective monopoly on legitimate
use of violence,” which has not been developed yet within the structure of the
TNS. So, in that case, the TCC and its TNS would have to rely on nation-states’
power, which would reinforce rather than diminishes nation-state power. While
Block’s argument against state weakness is derived from the need of the TNS for
the nation-state to enhance its incomplete form of monopoly over the legitimate
use of violence, which implies that the nation-state is a tool in the hands of the
TNS and global forces, Wood (1999) argues that it is rather the transnational
state apparatus that should be considered an instrument in the hands of powerful
nation-states. Arguing from a rather prescriptive view that ignores the contradictory
needs between labor and capital, Porter (1990) too sees the new global economic
changes as requiring a wider role for the nation-state. According to him “while
globalization of competition might appear to make the nation state less important,
instead it seems to make it more so” (p. 19).
Unlike the previous version of strong-state arguments that emphasizes the
enabling and cooperative role of the state towards transnational capital and
underestimates any potential conflict between the two, a second set of strong
state arguments acknowledges the existence of some conflict between the two
but focuses more on the resisting potentials residing in the nation-state itself.
Scholars in this approach list a number of regulatory measures that are and could
be undertaken by governments to control transnational capital in trade, finance,
production, and investment (e.g. Dicken, 1998, pp. 91–101; Wade, 1996; Yeates,
The State-Capital Relationship 69

2001, p. 66). They also spotlight the fact that the main bulk of economic activities in
many countries and sectors are still in the hand of nation-states. These arguments,
however, tend to collapse all elements of the production processes together and to
conflate the geographical and political dimensions of the state.
The above unsettled conclusions reached by state-capital analyses represent
an analytical impasse. The attempts to reconcile these contradictory conclusions
by arguing that the relationship between the state and capital is cooperative and
competitive, conflictual and supportive (e.g. Gordon, 1988, p. 61; Yeates, 2001,
p. 93) provide only a description of a complex reality more than an explanation
to it.
The main problem with these approaches on state weakness and strength
lies in the two axes of their explanatory logics mentioned before: the logic of
contradictions or dialectic, and the logic of structural determination. Although most
of these approaches acknowledge that the nation-state is in a state of transformation,
they tend to perpetuate certain moments on these two axes. Yet, there is nothing
permanent about the relationship between capital and state except its dynamic
change. The source of this change is located in labor or people who have been
absent from most of these analyses or are treated as a background variable. The
following section restates the basic contradiction between capital and labor and
provides a critical examination of the ways through which the role of labor
and its contradictions with capital have been incorporated (or ignored) in the
analyses of the state-capital relationship. This examination would uncover the
analytical problems in the logics of contradictions and structural determination in
understanding this relationship.

2. INCORPORATING THE ROLE OF LABOR


2.1. Restating the Contradiction

The value of the evidence surveyed above, brought about by the different arguments
concerning state weakness and strength, is that it unveils the fact that what is
perceived to be contradictory needs between the nation-state and global agents
of capital (i.e. their non-identity) is rooted in the contradictory needs of capital
and labor/people. For example, the TNCs’ need for deregulated policies conflicts
with the state’s capacity to ensure reasonable taxation system to support social
programs or employment (Dicken, Robinson, Castells). On the other hand, what
is perceived to be a common interest between capital and the nation-state (i.e.
their identity) is based on the view that the nation-state represents just one unified
interest: either those of everybody who lives within its boundaries (e.g. Porter) or
70 ESHRAK ZAKY

those of a certain social group, e.g. the capitalist class or state’s bureaucrats (e.g.
Wood, Block).
The presence of the nation-state as a unity is, in fact, a real moment in which the
identity of the state as a whole comprises the two contradictory aspects or poles
of capitalists and laborer/people. However, this holistic identity of the nation-state
is not absolute or permanent but rather conditional. It is conditional on the ability
of the two opposites to exercise a relatively balanced power or on the capacity of
one of them to dominate the other while confining it within the boundaries of the
national whole without completely eliminating it. The period of the golden age
welfare state, for example, was a moment in which the relative powers of labor and
capital exhibited some balance. This moment appeared on the surface as a moment
of national unity and common identity between labor and capital because labor in
most countries acquired some gains in terms of improved wages, social security etc.
Since the 1970s, however, the conditions that gave rise to this “nationally uni-
fied” developmental projects and which gave the nation-states a unified appearance
started to collapse because of the separation of financial capital due to capitalism’s
secular crisis and the falling rate of profit. The hegemony of capital since that time
has been successful through either military attack on some recently independent
states and/or through forcing countries to follow structural adjustment policies to
open their economy for TNCs investment. When TNCs invest they usually have two
main aims: to increase their revenues through sales (the market-oriented production
firms) and/or to decrease input production cost, including labor cost (the supply or
cost-oriented firms) (Dicken, 1998, p. 188). Most firms follow the two strategies
simultaneously but the nature of the commodity sector and the market conditions
in which they operate affect the selection and extent of these strategies.
These two aims of capital investment are inherently contradictory with labor or
people’s needs everywhere. The reason is that in a capitalist mode of production
people’s ability for consumption is determined by their ability to pay (i.e. their
income) and the cost of product. Expressed in a simple way: Consumption =
Income (I) – Cost (C). Consequently, consumption increases by either raising
people’s income and/or by decreasing the cost of products. On the other hand,
production in a capitalist society is part of commodity production, which is
pursued by profit maximization. Profit = Revenue (R) – Cost (C). Profit rises
by either increasing revenue from the sale of product and/or by reducing its cost
of production.
As shown from the above, there are two basic contradictions between the
major components of these two equations. First, the income (I) component in
the first equation on consumption is part of the cost (C) component in the profit
equation. That is, wages or labor-cost represent a major element in the production of
commodities that should be reduced if profit is to increase. Thus, while reduction in
The State-Capital Relationship 71

wages would enhance profit maximization in the second equation, it would reflect
negatively on peoples’ ability to satisfy their needs in the first one. The second
contradiction is that the cost component in the consumption equation represents
a major element in the revenue (R) component in the profit equation. A reduction
in the cost (C) of product in the consumption equation will result in a reduction in
the revenue (R) component in the profit equation.
Thus, the contradiction between nation-state and capital is rooted in the
contradictory needs between labor and capital or the contradiction between the
use value and the exchange value of the commodity. The non-identity aspect of
the nation-state that holds these two opposing poles (labor and capital) within
its boundaries is the true aspect of the capitalist nation-state not its single
unified identity or aspect. As the above equations show, capitalist contradictions
on the global level do not only affect people as laborers in the production
aspect of the commodity, i.e. by extracting more surplus value through wage
cuts to increase profit. But they also directly affect the majority of people as
consumers whether or not they are involved in the production process as laborers.
This point explains the interchangeability between the terms: labor and people
in this paper, which somewhat deviates from the traditional Marxist use of
terminology. Labor is only one capacity, among others, through which people
participate in the production process. People as laborers or non-laborers differently
participate in, or being excluded from, other aspects of the production process,
which include consumption, distribution and exchange. In addition, in capitalism,
people’s relations to the processes of production are determined by other social
forms of class divisions and exploitation congealed into ascriptive characteristics
such as race, nationality and gender, which capitalism takes advantage of to
increase profit.
Since the 1970s the contradictions between labor and peoples’ interests and
those of capital have intensified worldwide making the intermediary role of the
state in keeping the unity of the nation-state together increasingly ineffective. These
contradictions stifle the reproduction of people, means of production including
knowledge, and the socio-political unit itself (i.e. the nation-state) that holds them
together. Does this mean that the contradictions have been finally resolved for
the triumph of capital and that the nation-state would (or should) eventually
disappear, and if so, who might be the potential agent for defending people’s
interests? Answers to the above question are significant for their implications
for understanding the mechanisms and strategies of social change. As shown in
Table 2, these answers tend to generate different theses/antitheses that correspond
roughly with major schools of thought and praxis. Although there is a clear
overlap between these answers, they tend to differ by perceptions over the
recommended potential agent, if there is any, for supporting people’s interests
72 ESHRAK ZAKY

Table 2. Future of the State and Potential Agents for Change.


Would (or Should) the Nation-State Remain?

Is there an Agent for No Unclear Yes


Supporting People?

No (neoliberalism) Neoconservatism Neoliberal Neoliberal


structuralists regulationists
Unclear (conflict New globalization Neo and post Marxist Marxist & Weberian
theories) approach: The state structuralists: system instrumentalists.
will be absorbed. No analysts and The state will remain
clear agent for people. world-system as a repressive agency
approaches. to support capital
and/or itself.
Yes (new synthesized Civil society, NGOs. Democratic New statist
approaches) transnational states approaches.
and democratic Nation-states could be
people’s able to support people.
organizations.

and therefore on the role of the state, i.e. whether or not the state would or should
remain.
The first group of answers belongs to those neoliberal leaders of globalization,
whose thoughts and practices advocate freedom for transnational capital and
therefore provide a clear “NO” to the question of who would support people’s
interests. The second group belongs to conflict theories, which are undoubtedly
against transnational capital but they have no clear answer for who might be the
future agent for people: people themselves or the state. Finally the third group or
new approaches believe that there should be a clear agent for supporting people
but they are still searching for this potential agent among civil society, non-
governmental organizations, or new forms of national or transnational states. The
following part provides a critical appraisal of the ways in which these different
approaches incorporate (or ignore) the role of labor/people and the impact of this
incorporation on the views for the future of the nation-state.

2.2. Neoliberal Approaches

The economic crisis of the 1970s, which brought about the political dominance of
neoliberalism in the mid-1980s and 1990s, came through a series of hybridization
and metamorphosis between different models of economic growth. The first
hybrid of neo-conservatism came as a mix between two seemingly contradictory
The State-Capital Relationship 73

intellectual strands: the traditional conservatism of the Middle Ages with its close-
knit circle of aristocratic hierarchical community and the classical libertarian
bourgeois ideology of the cult of individualism and “laissez-faire” philosophy. The
combination of these two strands produced a new paternalistic attitude towards the
poor, as has previously been present in “modernization” theories with the notion
of “trickle down” effect to “elevate” the conditions of the working classes and the
poor. Instead of supporting a patron-client relationship or calling for the freedom
and liberty of people from such relationship as in the past, this new mix now calls
for the elimination of the role of “patron” (now reads state) and the “freedom of
the individual capitalist.” Together both conservative and liberatarian ideologies
formed the right wing core of global capital advocating the elimination of the state
and the freedom of capital.
The second major hybrid, known by neoliberal regulationists, originated in Paris
during the 1970s as a mix between a strand of liberals (social democrats) who
wanted to recover “national economic growth,” while the second strand came
from regulationists (along with neo-Marxist structural functionalists) who intended
to overcome deteriorating labor conditions by rising above “Marx’s economic
reductionism.” They both wanted to find a reconciliatory solution to serve the
overall “national” interests, which include “both capital and labor’s interests.”
This new mix formulated by the neoregulationists aims at transcending modern
models of industrial mass production growth (fordism) with a new post-modern
model of “growth” based on both production and consumption (i.e. post-fordism,
post-industrialism) and the integration with and regulation of international division
of labor (e.g. Aglietta, 1976; Davis, 1986; Gordon, Edwards & Reich, 1982;
Lipietz, 1987). This neo-regulationist model of growth has been inspired by the
Japanese flexible model of accumulation based on mechanisms such as just-on-
time, subcontracting, and outsourcing practices with developing countries.
These two major hybrids (neo-conservatism and neo-regulationism) constituted
the backbone ideology of neo-liberal strucuralists who took the political lead
for implementing the hegemonic global agenda of capital. This agenda was
consolidated in the early 1980s under the program of the Washington Consensus
(Williamson, 1993) which started with Ronald Reagan and Margaret Thatcher’s
administrations in the 1980s to formulate the global political bloc of transnational
capital.

2.3. Conflict and Post Marxist Approaches

As shown before, conflict approaches as manifested in instrumentalist Marxist and


neo-Weberian organizational realists believe that the nation-state will remain but
74 ESHRAK ZAKY

only as repressive agency to protect the interests of capital or itself (e.g. Wood
and Block). Originally, in Marxist theory, the main agent for making change for
the interest of the people is the working class whose power is anchored in the
process of production or in its ability to control capital through class struggle.
With globalization, a large part of industrial production sites became fragmented
spatially throughout the world. The reason behind this fragmentation is the strategic
response of capital to capitalist crisis manifested in the tendency of the rate of profit
to fall with the concomitant phenomenon of the separation of finance capital from
productive capital (i.e. the rising organic composition of capital). The main reason
behind this historical tendency of capital (i.e. to set itself free from commodity
form) is crisis in circulation and consumption (Arrighi, 1994).
Although Marxist economists saw these signs of the crisis since the 1960s (e.g.
Baran & Sweezy, 1966), they have later failed to explain the rising profits and
economic growth along with rising unemployment and underemployment during
the 1980s in western countries. These two seemingly incompatible processes were
attributed by post-Marxist structuralists to a “fundamental theoretical error” in
Capital, as suggested by Gorz, who argues that while Marx links the tendency of
the rate of profit to fall with the rising organic composition of capital, there is no
mathematical (i.e. logical) necessity for profits to fall as the organic composition
of capital rises. Rather, according to Gorz, the falling rate of profit and the rise in
the organic composition of capital are linked historically in Capital to the success
of the class struggle which leaves capitalists with no alternative but to substitute
constant (fixed) capital for variable (circulating) capital (factor substitution) or
flee to areas of lower labor costs (globalization) (Gorz, 1985, p. 11 cited in
Barrow, 2000).
Instead of explaining these two seemingly contradictory phenomena by
relocating and empirically developing the analysis of the labor process into the
global level (which is theoretically acknowledged) and in order to see how capital
managed to avoid “fight by flight” to areas of lower labor costs, post-Marxists
(specifically system analyst structuralists) resorted to the role of technology as
an explanation. Advances in automation and computerization in the production
process were considered to be responsible for diminishing the importance of work
and increasing unemployment in developed countries, which, according to post-
Marxists, causes a rupture in capital’s “law of value” (e.g. Barrow, 2000; Gorz,
1982; Offe, 1984). This rupture is made possible by the ability of science and
technology to generate value independent of human labor (Gorz, 1982; Habermas,
1970, p. 37).
This interpretation, however, ignores the empirical reality of the ongoing process
led by capitalists to reorganize production through relocating and fragmenting
the production tasks to take advantage of the abundant unskilled cheap labor
The State-Capital Relationship 75

force in the global market, which means that capital’s law of value has not
been ruptured but rather reconfigured (e.g. Frobel et al., 1980). New advances in
information and communication technology, in addition to political power, made
it possible for capital to reorganize its productive facilities spatially in order to
utilize the large pool of cheap unskilled labor power as well as to control market
outlets and therefore continually reconstruct the consumption patterns. Since
mercantile capitalism, capital flight associated with the rising organic composition
of capital has always been accompanied by restructuring the global socio-political
systems of accumulation (such as state) by conquest and wars (Arrighi, 1994).
Thus, the reason behind the tendency of the rate of profit to fall is built into
the social organizational fabric of capitalist contradiction (between commodity
production and consumption) irrespective of the role of technology and class
struggle. Technological advances motivated by competition aim at overcoming
this tendency by creating new products, modifying old ones or finding new ways
for decreasing production cost to gain a larger market share and profit. While the
general level of science and knowledge sets limits on technological advances, the
extensive use of high tech in production sites tends also to accelerate the basic
contradiction between capital and labor through increasing surplus labor. This
contradiction increases the possibility of intensifying class struggle. To avoid this
struggle, capital resorts to globalization in search for a cheaper and more docile
labor force.
Although these forms of exploitation temporarily resolve the fall in the rate of
profit, they accelerate the main contradiction within the global capitalist mode
of production as a whole because they tend to destroy the very preconditions on
which capitalism’s survival depends: the reproduction of labor power (both skilled
and unskilled labor) that sustain reasonable levels of consumer purchasing power;
and the overall level of technology and science embedded in technology and in
human capacity. Both phenomena produce reinforcing feedback mechanisms and
make capitalist development unsustainable globally.
Since the non-capitalist Marxist alternative to correct this problem is anchored
in the role of labor and since labor has been given a diminishing role due to
“advances in technology,” class struggle became less important too. The non-
capitalist alternative, according to post-Marxists, would come through not by
class struggle but by “breaking with the law of value” (Gorz, 1985, p. 6) and “the
centrality of labor” in Marxist analysis (Offe, 1984, pp. 283–285). Yet, and in order
to “save” people, post-Marxists wanted also to achieve “communism” in which
work would not be used as a criterion for distribution (Gorz, 1982, p. 123). Looking
around for an alternative agent of change, rather than the working class, post-
Marxists found that postindustrial late capitalism is characterized by a centrifugal
tendency, where its structural contradictions systematically throw off afunctional
76 ESHRAK ZAKY

social tailings of unemployed and underemployed groups (Offe, 1984, p. 40). This
new “servile class” constitute the neo-proletarians or quasi lumpen-proletarians
(Gorz, 1982). The ineffectiveness of this “servile class,” as seen by post-Marxists,
is expressed in the new social movements/groups’ amorphous, ad hoc forms of
organization with its transient floating membership exhibited, for example, in
mass demonstrations. For Habermas unless these groups “are connected with
protest potential from other sectors of society no conflicts arising from such under-
privilege can really overturn the system-they could only provoke sharp reactions
incompatible with formal democracy” (1970, p. 110 cited in Barrow, 1993, p. 124).
From another venue, Offe (1984, p. 285) considers that the revolutionary potential
of the labor movement too lies in broadening it to be “more than a labor movement”
and in making links with other conflicts such as those generated by consumers,
clients, citizens etc.
If the above directions provided by Habermas and Offe are correct, what is
needed then is to help make the link between social movements and production
sectors/issues analytically clearer and, at the same time, to integrate consumption,
ecosystem, and other concerns within the labor movements to enlarge their scope.
This would have required two analytical tasks: first, uncovering the class character
of social movements by highlighting the historical and spatial use of ascriptive
characteristics by capitalist class in taking advantage of differences between people
(based on race, gender, religion or nationality etc). Second, uncovering the impact
of capitalist organization of production not just on work and pay conditions but
also on the overall ability of society to consume, reproduce and therefore sustain
the socio-ecological balance of the earth and humans. However, and instead of
doing that, post-Marxists have ignored the connection of the social movements
to the labor market in the issues they raise and in the attachment of many of
their members to the labor market as effective participants who are vulnerable to
discriminations (Gordon, 1991 cited in Barrow, 1993, p. 123) and failed to note that
large parts of the middle classes have been proletarianized in most countries. The
recent developments that indicate that these movements are tending to overcome
their fragmented identities, transnationalizing their activities and beginning to
bring about effective social change have been largely ignored too. Furthermore,
and after twelve years from his call for broadening the labor movement, Offe
(1996) considers that the broadening of labor’s substantive domain to include
industrial and consumer-related policies would “weaken” labor as a collective
actor (p. 52)!
Uncoupling the labor movement from its historical capacity to control processes
of production and being unable to uncover the class character of the new social
movements, post Marxists lost sight of the key potential agent of change. They
turned instead to the state to achieve the unfulfilled working class agenda of social
The State-Capital Relationship 77

justice or “communism” based on “entitlements.” Yet, at the same time, post-


Marxists acknowledge that the existing welfare state is an “apparatus of domination
and administration . . .” (Gorz, 1982, p. 42). This contradiction in which the state
is called upon to act as the agency for achieving a working class agenda and at the
same time is seen as a repressive agent represents a bizarre ideological conclusion
reached by post Marxist analyses that is obviously inconsistent with Marxist theory
and praxis.
By focusing just on the role of technology and ignoring labor, and by confining
the role of people to a single capacity as laborers, post-Marxists built their analysis
on a temporary moment in the development of capitalism and this led them to the
position that class struggle “became less important too.” Had they focused on the
“capital flight” aspect (which they never develop), class conflict and struggle would
have not become less important (at the global level), but that the “proletariat” now
needs to be re-conceptualized within a global or transnational system of production
and consumption. Thus far, most empirical and theoretical work on globalization
has focused on re-conceptualizing the state and the capitalist class, but it has
not devoted any significant attention to the working class formation in the global
economy, where it continues to struggle (at least partly) through the political form
of the nation-state.
The political impasse of post-Marxists, in which worker and popular class
interests are seen to be achieved from above by the state and not by the people
themselves, had facilitated the rise of loose or splintered perceptions of social
structures as shown before in the recent globalization theories.
These theories find no hope in the state, declare its death or absorption by the
transnational agents of capital, and provide no suggestions for a change agent that
would support people. While some consider that the state has been a victim of
global capitalist policies (Castells), others find that the weakness of the state is
due to the weakness of popular classes who became unable to force the state to
redistribute wealth and that their inability is due to the restructuring of capital on
the global level (Robinson, 2001, p. 197).
It is true that states do not carry out policies against capital unless forced to
do so by popular classes. However, it is misleading to reduce class struggle to a
struggle “through the state.” It is precisely this model of struggle that has been
defeated vis-à-vis capital as shown above. This model has disabled popular classes
from their own power and substituted state power for people’s power. Popular
classes do not only fight against capital through politics and the state apparatus but
they fight in work places, communities, and the streets through different forms of
formal and informal organizations. It is the co-optation and destruction of people’s
organizations by capital and the state that is behind the weakness of workers and
popular movements.
78 ESHRAK ZAKY

Second, the idea that recent restructuring of global capital has weakened the
popular classes is also questionable. There are many indications of a worldwide
resurgence in the movements of popular classes working, each from its own
perspective, both within and across countries to control the hegemony of capital and
its consequences. In addition, contrary to common beliefs that the restructuring of
the production processes across countries had completely weakened the bargaining
power of working classes vis-à-vis capital, it might decrease global capital’s
ability to control production, exchange and consumption processes. Therefore,
restructuring mechanisms need to be reexamined in a more nuanced way in regard
to their effects. If there is a present “triumph” of capital over state or a coalition
between the two, it is because labor does not yet have a solid strategy for dealing
with the consequences of global restructuring mechanisms, a strategy, such as that
of capital, that transcends present forms of nation-state geographical, social and
cultural territorialities.

2.4. New Synthesized Approaches

The failure of post-Marxist analyses to introduce a clear agent for defending


people’s interests generated other ideas and proposals. Some of these proposals
attempt to find a way out by readapting old strategies to the new conditions of
globalization; others search for new directions. As shown before, there has been a
revival of interest in Keynesian economic traditions including welfare and statist
models.
One of the problems that create difficulty for making sense of the detrimental
social effects of global capital and for enforcing beliefs in nation-state doctrines
is the persisting gap between center and peripheral nation-states which persists
despite transferring some industries to Southern countries. When state proponents
attack globalization theorists they usually cite this persisting gap as an indication
that developed countries still hold the lion share of industries and capital despite
the new trend towards Third World industrialization (e.g. Gordon and Wade). This
persisting gap is frequently taken as a strong evidence against the convergence
thesis advocated by proponents of New International Division of Labor (e.g. Frobel
et al., 1980) who argue that the main reason behind the migration of capital and
industries from developed to underdeveloped countries is to exploit cheap reserve
supplies of labor.
The convergence, however, does not happen between nations but between classes
across nations. The search for cheap labor produces sharper class divisions within
nations because it creates unemployment among those who lose their jobs in
the global labor market competition and breeds severe forms of exploitation in
The State-Capital Relationship 79

places where jobs have been transferred. Therefore, globalization and new forms
of division of labor generate convergence between classes across countries and
breeds divergence between classes within countries. It produces polarization and
sharper class rather than national divisions. As Firebaugh (2000) indicates, the
between-nation income inequality, which accounts for about two-thirds of the total
world income inequality, has stabilized in recent years. It calls for more research
on its interaction with the within-nation inequality.
The same sort of arguments that support state alternatives are also prevalent
among nationalists of Third World countries who point to state-guided or
controlled models of development as being successful before (e.g. Petras &
Veltmeyer, 1999). These one-sided analyses prevent the development of a critical
assessment of these models to uncover their internal fragility that made them
vulnerable to capital attacks.
State models have failed on three interrelated levels. First, they do not address
the main contradictions of the capitalist production. Second, they do not depend
on people/labor for formulating non-contradictory democratic socio-economic
policies. Third, and as a consequence, state and interstate systems do not have
an authentic democratic structure to sustain any national change that might be
built around the interests of the people.
The weakness of state models and analyses lies in opting for selective rather
than comprehensive solutions for addressing capitalist contradictions which are
highly interdependent. Advocates of these models substitute the democratization of
decisions making over production aspects (which include production, distribution,
exchange and consumption) with the delegation of these decisions to a state or party
apparatus. This form of “governing by delegation” or “absentee governance” tears
apart the identity of people as both producers and consumers and their ability to
act in both capacities.
Welfare state strategies such as redistribution of products, services or income
are unsustainable because they are strongly tied to unsustainable patterns of
production. Suggested interventions for combating globalization effects such as
in income safety net, citizenship income etc and their replication on the global
level (Deacon et al., 1997; Gorz, 1985; Offe, 1996) are also unsustainable. These
strategies might work momentarily to remedy a symptom but will not succeed in
eradicating the deeper malady. To address the core contradictions of capitalist
commodity production, the production for profit, accumulation, and exchange
value, as opposed to production for peoples’ needs and use values, would require
reintegrating, theoretically and practically, the different aspects of the production
process into the global and local levels of analyses.
However, there is a common practice in social sciences to treat different aspects
of the production process and their related components (e.g. labor, income, needs
80 ESHRAK ZAKY

satisfaction etc) as separate fields of investigation. A long time ago Marx had
pointed to this problem of analytically splitting different aspects of production
in his critique of political economists who considered production as the field
of economics while problems of distribution and consumption as related to the
political economy (1973, pp. 88–111).
The contradictions and interdependence between rules of production,
distribution, exchange and consumption processes in capitalism put limits on
states’ intervention strategies not only due to the pressure of capitalists but because
a selection of one strategy means forgoing the other. For instance, imposing code of
conducts on the TNCs to follow a socially-responsible behavior – such as refraining
from using child-labor and sweatshop practices – does not work, not because labor
laws are not enforced nationally and internationally (McClintok, 1999, p. 516 cited
in Yeates, 2002, p. 80) but because dealing with labor laws separately from con-
sumption needs does not work. If a poor family had had another option for survival,
rather than sending their child to a sweatshop, they would have never sent him/her.
Second, the inability of the statist models to break with capitalist models of
production generates paternalistic models of governance, where the state rules
“for” the people but without the people as in the tyranny of “the fair king.” There is
always a threat in the institutionalization of power in certain loci such as the state.
Social egalitarianism is not sustainable except by the diffusion of power among
the people as a whole and not by the institutionalization of power in a particular
locus to enforce equality.
The new proposals calling for enhancing the development of a democratic
transnational state (TNS) through reforming global institutions such as the UN,
World Bank, IMF etc (e.g. Deacon et al., 1997; Held, 1995) are important.
However, these proposals should pay careful attention not only to the remote
likelihood of bringing a real policy shift to these institutions given their
historical role (e.g. Cox, 1997), but, rather, to the likelihood that institutionalized
power within these institutions could easily be taken over by unrepresentative
powerful state members, as is currently the case. Therefore, the development
of a representative and fair transnational-state should go hand in hand with
the development of democratic nation-states. The new role of a transnational
body of member-states, in that context, would be to coordinate and monitor the
maintenance of democratic control from below within those states. In order for
this to happen, people should have their own strong democratic representative
organizational structures. However, the lines along which people’s organizational
structures are, were, or should be arranged in order to represent people constitute
one of the contentious issues in socio-political research.
Concepts such as “civil society” and non-governmental organizations (NGOs)
that have been introduced recently to describe or enhance people’s democracy are
The State-Capital Relationship 81

important but they are also vague and problematic. Because these loose conceptual
definitions came in reaction to, and as a substitution for state models, they have
tended to analytically collapse capital and people’s organizations together as
opposed to that of the state, implying that any non-governmental organization
should by definition be “democratic.” It is not sufficient for an organization to be
non-governmental to make it democratic or representative of people’s interests.
Sometimes, governmental organizations are much more representative of people’s
needs than non-governmental ones, whose strategy directly or indirectly may serve
the interests of capital.
Thus, the dichotomy expressed in the disagreement over whether emphasis
should be placed on modifying globalization “from above” through a transnational
state or “from below” through NGOs (e.g. Yeates, 2002, p. 77) is really a false
issue because, in reality, the two processes intimately go hand in hand. Different
structural levels (lower and higher) are not intrinsically at odds with each other.
They could either be parallel and complementary or opposed and conflicting. This
is contingent upon the benefits holders of each structural level wish to see and gain
from any change.

3. CONCLUSION AND SUGGESTED DIRECTIONS

The impasse reached by the analyses of state-capital relations is rooted in their


explanatory logics of contradictions and of structural determination in which
the role of labor is absent. The attempts to incorporate this role by other
approaches failed to focus on this role in its global and socially integrated
character. An appropriate incorporation of the role of labor could help in finding
an alternative strategy for addressing the capitalist contradictions and state crisis.
This non-capitalist alternative, however, needs to address the above-mentioned
three interrelated problems of the capitalist state through the following. First, we
must reintegrate all aspects of the production processes together into the analytical
framework of the policy alternative to include: production along with distribution,
exchange and consumption. Second, this integration should help redefine the
agency of change from the limited role of people as laborers in the production
aspect of the commodity, to the more enlarged roles of socio-economic life in which
people are actively involved (or excluded) as consumers too. Labor and the labor
movement is only one capacity through which people can make social change in the
current global crisis of capital. People as both producers and/or as consumers have
other capacities and power to act and interrupt the capitalist commodity chains of
exploitation and exclusion, and to make effective social change possible. The global
class conflict has been concealed by other forms of social struggle manifested,
82 ESHRAK ZAKY

for example, in national liberation, human rights, anti-globalization, and feminist


movements, which are rooted in relations of exchange and distribution too. The
class character of these movements can not be unveiled unless we tie together all
aspects of the production process, which include production, distribution, exchange
and consumption in both theory and practice.
Third, an alternative strategy should tackle the idea of sustaining and maintaining
this alternative on both local and global levels. People, through their own social
organizations, should be able to constantly maintain, defend, and modify their
alternatives according to their own beliefs and interests and those of others living
in different communities across the globe. This would require that social research,
labor and social movements reintegrate the socio-political structural units of
analysis (e.g. nation-state, NGOs or other institutions) with their economic base
as manifested in the intertwined global and local commodity-chains that penetrate
people’s life everywhere. It is through focusing on these socio-political, economic,
chain-like structures where actions of global and local agents of capital and labor
meet each other and where different patterns of economic, political, and cultural
governances and conflicts could be revealed, understood, and modified.

ACKNOWLEDGMENTS

I’m grateful to Richard Roman and Ito Peng for their helpful comments and
guidance on earlier versions of the paper. Paul Zarembka and the anonymous
reviewers also provided me with valuable remarks that made the paper’s arguments
clearer. An earlier version of this paper was presented at the Eleventh World
Congress of Social Economics in Albertville, France on June 8–11, 2004.

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POLITICAL INSTITUTIONS AND
ECONOMIC IMPERATIVES: BRINGING
AGENCY BACK IN

Martijn Konings

ABSTRACT

Over the last decades, the social sciences have become increasingly
concerned with the role of the state and the politics of institutional
restructuring. Within mainstream political science this has led to the
development of a “state-centered” research program that emphasizes the
autonomy of institutions. Marxist theory, however, has continued to adhere to
a “society-centered” perspective, seeking to combine an ability to account for
institutional change with the analysis of more structural social and economic
forces. After some introductory comments that frame the problematic within
which the paper is situated (Section 1), I discuss in Section 2 three of the
most important recent Marxist attempts to construe the relation between
socio-economic imperatives and political institutions. My argument is that
Marxists’ attempts to relativize the autonomy of state institutions are too
often still based on the postulation of an unexplained structural moment. This
leaves them vulnerable to institutionalist claims concerning the autonomous
nature of institutions. Section 3 proposes a different way of thinking the
role of institutions in capitalist society. This approach breaks with a
causalist, structuralist mode of explanation and relies on a more hermeneutic
understanding of the role of institutions. I will shift the problematic to the

The Capitalist State and Its Economy; Democracy in Socialism


Research in Political Economy, Volume 22, 85–130
Copyright © 2005 by Elsevier Ltd.
All rights of reproduction in any form reserved
ISSN: 0161-7230/doi:10.1016/S0161-7230(04)22004-1
85
86 MARTIJN KONINGS

relation between institutions and agency, arguing for a more pragmatist


understanding of the role of institutions and an agency-based understanding
of the formation of socio-economic imperatives. Section 4 concludes with
some thoughts on the prospects held out, as well as the challenges faced, by
the approach proposed in this paper.

1. INTRODUCTION: THE CRISIS OF THE POST-WAR


ORDER AND THE RETURN OF THE STATE IN
POLITICAL ECONOMY
Over the last decades, the social sciences have experienced a return to the state.
This development should be understood against the background of the crisis of the
post-war order. During the 1950s and 1960s the smooth functioning of the economy
seemed to have rendered obsolete concerns with the independent role of political
institutions. On the level of theory, this was reflected in the dominance of structural-
functionalism and modernization theory in mainstream social science, and of
structuralism in Marxist theory. To be sure, none of this meant that institutions as
such were considered irrelevant; in fact, it had become part of common wisdom that
a capitalist economy was in need of a considerable measure of institutional support
(in the form of the Keynesian welfare state). The point is rather that there was no
reason to theoretically problematize the role of institutions, to consider them as
somehow subject to a logic different from, and potentially at odds with, that which
ruled the capitalist economy. The crisis of the 1970s, however, brought questions
concerning society’s institutional framework back into focus: what needed to be
theorized was a kind of strategic political agency with a transformative impact that
could not anymore be understood in the terms that had been used to describe the
mechanisms of economic reproduction.
In mainstream political science, this challenge was taken up by attempts to
“bring the state back in.”1 Directing its conceptual arrows at the tendency (found
in Parsonian structural-functionalism, liberalism and Marxism alike) to neglect
the state or reduce its workings to the requirements of the social or economic
system, this institutionalist literature proposes a shift from a “society-centered”
to a “state-centered” perspective. Institutions matter, so is the message; they have
an autonomous, irreducible impact on the make-up of our social reality. Social
and economic forms of human interaction are ab initio embedded in institutional
structures and can therefore not profitably be studied in isolation from them.
Within this movement to bring the state back in, it is the “varieties of capitalism”
literature that has addressed most explicitly the problems of the post-war political
economy (Evans, 1997; Garrett, 1998; Hall, 1986; Weiss, 1998; Zysman, 1983,
Political Institutions and Economic Imperatives 87

1994). This literature has staked out its theoretical position mostly with reference
to neoliberal accounts of the end of the post-war period, which view the demise
of the post-war interventionist state in an era of globalizing capital as the natural
triumph of economic rationality and efficiency over ill-informed attempts to curtail
these forces. Against the myth of globalization, according to which international
economic forces put irresistible pressure on national states to converge around a
neoliberal model, institutionalist authors find abundant evidence for the persistence
of a wide variety of institutional models. Institutional configurations have as much
independent impact on social change as ever.
Not surprisingly, within Marxist theory the revival of theorizing about the state
took a rather different form.2 The writings of Poulantzas (1975, 1980) represent an
attempt to account for the autonomy of the state within a structuralist, Althusserian
model of state-society relations. Likewise, Miliband (1969, 1977), who was well
aware of the fact that political struggles are not predetermined, still considered the
levers of political power as ultimately bound to the structure of socio-economic
class relations. In other words, both (their theoretical differences notwithstanding)
firmly adhered to a “society-centered” perspective, asserting that the autonomy of
the state is relative to more structural social and economic forces. Now, this desire to
combine an ability to account for institutional change and political turmoil with the
analysis of more structural economic developments is also what has marked the de-
velopment of Marxist political economy since the 1970s.3 It has resulted in a wide
range of works that have done much to elaborate the theoretical issues at stake as
well as to illuminate the nature of the post-war period. Critical of institutionalist un-
derstandings of the crisis and the politics of restructuring, these works have empha-
sized the more structural social relations and (international) economic imperatives
as the context in which institutional restructuring needs to be understood. The trend
towards neoliberal restructuring is wide-spread, it is argued, and it is an illusion to
believe that national political institutions possess the kind of autonomy that would
allow for the construction of substantial alternatives to neoliberal globalization.
Although I am sympathetic to and to a large extent in agreement with these
Marxist contributions, I believe they are not without their weaknesses. This paper
is devoted to a theoretical exploration of some of these.4 In Section 2 I will discuss
three of what I regard as the most important recent Marxist attempts to construe the
relation between economic imperatives and political institutions.5 The critique that
will emerge is that Marxists’ attempts to relativize the autonomy of state institutions
are too often still based on the postulation of a structural moment that escapes
explanation. Institutions are seen as implicated in the constitution of capitalism,
but this constitutive capacity remains subordinate to the imperative powers of a
socio-economic structure; the role of institutions is viewed as partial, provisional
or temporary. I will show that these Marxist theories have considerable difficulty
88 MARTIJN KONINGS

identifying the structural causal mechanism that functions to bind institutions to


production relations, and argue that this leaves them at least partially vulnerable
to institutionalist claims concerning the “true autonomy” (Skocpol, 1985, p. 6) of
state institutions, i.e. their irreducible capacity to shape social developments.
While Marxists have gone out of their way to show how the state and its
institutions are implicated in the constitution of capitalist society, I will argue that
the terms on which the problem has generally been posed are not very conducive
to a solution. Interestingly, these terms are very similar to the way in which
institutionalists tend to frame the question: the causal efficacy of socio-economic
imperatives vis-à-vis that of institutions. Now, since there is no way around the fact
that both economic and institutional factors matter, the argument that Marxism and
institutionalism each supply part of the truth possesses a good deal of prima facie
plausibility. It therefore often seems as if the best we can do is to arrive at a blend
of Marxism and institutionalism. Without wanting to disparage such endeavors, in
Section 3 I propose a less eclectic, qualitatively different way of thinking the role of
institutions in capitalist society. This approach breaks with a causalist mode of ex-
planation and relies on a more hermeneutic understanding of the role of institutions
(invoking Winch’s (1958) classic notion of the distinctive nature of social science).
Rather than trying to relativize the autonomy of institutions by emphasizing their
ultimate subordination to the determinations emanating from a socio-economic im-
perative, I will shift the problematic to the relation between institutions and agency.
First, I will suggest that institutions should be considered more in terms of their
cognitive and pragmatic functions than in terms of their causal capacities, i.e. as
conceptual forms that agents use to gain some grounding for their agency. Second,
I will suggest a new understanding of where constraints and pressures on agency
come from: economic imperatives are not best understood as socio-economic
structures that are ontologically prior to institutions, ideology and political agency,
but should instead be conceptualized as the result of how people act on institutions
and in so doing affect the conditions of agency for others. I then explore the
implications of these considerations for our understanding of the role of institutions
in capitalist society. I conclude with some thoughts on the prospects held out, as
well as the challenges faced, by the approach proposed in this paper (Section 4).

2. ECONOMIC IMPERATIVES AND POLITICAL


INSTITUTIONS IN RECENT MARXIST THEORY:
A CONSTRUCTIVE CRITIQUE
This section will discuss three strands of recent Marxist theory: Regulation Theory,
Political Marxism and Open Marxism. Regulation theory has attempted to wed
Political Institutions and Economic Imperatives 89

Marxist and institutionalist insights. The resulting combination of institutionalist


pluralism and “in the very last analysis” economic functionalism commits it to
an emphasis on the regulatory and instrumental nature of institutions, i.e. their
insertion into a functional capitalist whole. The paper will then turn to Brenner’s
critique of regulation theory, and, more broadly, the theoretical project of Political
Marxism, which has sought to socialize and historicize economic determinations
in terms of the imperative social rationality specific to a capitalist market society.
It simultaneously proposes to shift attention away from institutions, not on the
basis of a structuralist, economistic view of history, but on the grounds that
under capitalism (and only under capitalism) socio-economic imperatives become
separated from processes of institutional transformation. As I will argue, the main
problem with this perspective is that it is principally impossible to theorize any
kind of determinate social pressures without looking at how agents act within and
use institutional structures: institutional mediations can never be considered as
absent from social processes in any meaningful sense. I will then examine the
social form approach of Open Marxism through the work of Simon Clarke, who
aims to combine a concern with institutions and an emphasis on the historically
specific separation of state and society (the liberal form of the state). Thus, he tries
to theorize the market imperative and political institutions as the “social forms”
assumed by the relations of production. I show that Clarke’s work reproduces
many of the conceptual tensions at the heart of regulation theory, and trace this
back to the ambiguous status of the concept of social form. Clarke understands
social form in an objective and ontological sense, which is what allows him to
posit that the forms are all tied to one and the same social content. From there
on, in the third section, I develop my own approach to the problem, building on a
different understanding of social forms and institutions.

2.1. Regulation Theory: Institutions as Regulators

In its origins, regulation theory is very much a project that seeks to draw on the
traditional strengths of Marxist theory while avoiding, or proposing conceptual
solutions to, its more problematic aspects. As Marxism’s most debilitating feature
is regarded its economistic disregard for the social, political and ideological levels
where ideas, norms and institutions are produced and struggles occur, i.e. its
inclination to subsume agency under, and reduce history to, the structural logic
of capital accumulation. The most fundamental tenet of regulation theory, then, is
that the development of capitalist society cannot be understood as a mere function
of its economic logic. The fact that social processes are not only governed by the
laws of accumulation entails a recognition of the necessity of forms of regulation
90 MARTIJN KONINGS

articulating these different levels. The real world of capitalist accumulation


acquires stability and coherence only as a particular regime of accumulation. The
latter concept designates a mode of interaction of production and consumption that
is such as to prevent accumulation from breaching its immanent limits.
The coherence of a regime of accumulation is precisely what cannot be
presupposed; its constitution is theorized with the concept of a mode of regulation,
which refers to the institutional forms through which the operation of the laws
of accumulation is socially stabilized. A mode of regulation produces social
hegemony, the social norms which ensure that individuals act in a manner
consistent with the reproduction of a regime of accumulation. Regulationist
authors broadly distinguish five institutional forms, the particular configuration
of which shapes the nature of a mode of regulation: the wage relation, monetary
relations, relations of competition between capitals, external economic relations
(the international regime), and the structure of state intervention.
Although the regime of accumulation is posited at the economic level whereas
the mode of regulation pertains to the institutional mediation of capitalist relations,
this conceptual scheme is proposed not as a reiteration of, but as a solution to
the problems traditionally associated with, the structuralist understanding of the
relation between state and economy. The mode of regulation is meant to articulate
the way in which the economy is necessarily politically regulated, and as such
is conceived as operating both on the terrain of production and on the field of
politics and ideology. It forms “the economic-cum-institutional” basis of social
hegemony and is seen as having “one foot on the structural level and the other
on the [. . .] ‘subjective’ level” (Mavroudeas, 1999, p. 331), i.e. as straddling the
divide between economic structure on the one hand and human agency, political
institutions, and social struggle and compromise on the other.
The state, as the institutional repository of society’s constitutive rules, is “the
archetypical form of regulation” (Lipietz, 1987, p. 19).6 The relations between
state and production relations need to be understood in terms of interacting
determinations which can be theorized as a specific mode of regulation and the
latter’s non-necessary conjunction with a regime of accumulation. It is precisely
the state’s separation from society that endows it with the relative autonomy
required for the performance of its regulatory functions, i.e. with its own complex
institutional framework that re-shapes class relations in a way conducive to the
formation of social compromises.7 Since social cohesion can only be constructed
through the institutions of the state, it is tied to the boundaries of the nation. We
must, therefore, “study each national social formation in its own right” (Lipietz,
1987, p. 20; italicized in original).
To speak of a stable course of accumulation, then, means that there exists an
adequate match between the accumulation regime and the mode of regulation.
Political Institutions and Economic Imperatives 91

A crisis occurs when the dynamics of accumulation start to escape the available
capacities for adjustment and to undermine the institutions in which the mode
of regulation is embedded. Owing to the dense and complex links between the
accumulation regime and the mode of regulation, an economic crisis will sooner
or later articulate itself as a crisis of social hegemony and stability. When a society’s
institutional structures are thrown into doubt and lose their natural legitimacy, a
space is opened up for social struggle: different classes, class fractions or groups
will attempt to bring their favored accumulation project to hegemony.
Regulation theory has elaborated its conceptual framework mostly with
reference to the analysis of Fordism. Under Fordism, the new forms of labor
organization which had thrown into crisis the competitive mode of regulation
were inserted into a comprehensive mode of regulation, the institutional framework
of which was the Keynesian welfare state. The post-war institutions rested on a
society-wide compromise between classes and class fractions. Furthermore, the
domestic orientation of policy was premised on an international regime under
American hegemony regulating the movement of international finance.
The Fordist mode of regulation integrated the capitalist dynamic of accumulation
into a coherent institutional framework. The social consumption norm was of
central importance here, since it both ensured the mass consumption required to
contravene the tendency towards the overaccumulation of capital, and functioned
to reconcile workers to Fordist methods of production.8 The combination of stable
wage costs and social demand, expansionary credit policies, and the monopolistic
regulation of competition, allowed capitalists to plan their long-term fixed capital
investments relatively accurately and to take the costs of devaluation into account
in the determination of selling prices. Devaluation became socially generalized
as the devaluation of money (inflation) and was thus “incorporated into the
value composition of the total capital as a permanent modality of accumulation”
(Aglietta, 1979, p. 206).
Towards the end of the 1960s Fordism went into a crisis of profitability. Although
the profit squeeze explanation, according to which the institutionalized strength
of labor became a threat to profitability when productivity growth began to slow
down, is sometimes used and rarely rejected, most regulationist authors subscribe
to a less mono-causal understanding of the fall in the rate of profit. Whereas
previously productivity increases had been sufficiently high to compensate for a
rising value composition of capital, this was no longer the case. The resulting
dynamic of overaccumulation, intensifying competition and accelerating fixed
capital devaluation started to escape the post-war modalities of regulation.9 The
fundamental cause of the disintegration of the Fordist accumulation regime – the
slowdown in productivity, then, is to be found in the sphere of production, in the
exhaustion of the Fordist organization of the labor process.
92 MARTIJN KONINGS

The stagnation of accumulation threw into doubt the legitimacy and efficacy
of the mode of regulation, and thus became a social crisis. The dissolution of
the international regime under U.S. hegemony is seen to be crucial here: as both
productive and financial capital began to transnationalize, the institutions of the
Keynesian welfare state quickly turned into inflationary cost-factors weakening
national competitiveness. In this context, it was the Right that prevailed in the
political and ideological struggle over the redefinition of the social form of
accumulation. However, far from having produced a new well-regulated regime
of accumulation, the neoliberal state project has caused political discord and
social disintegration.10 Although the last decades may have done something to
dent Lipietz’s 1985 notion that neoliberalism and monetarism can be demoted to
the status of “unnecessary catastrophe” (Lipietz, 1985b, p. 129; my translation),
regulationist authors remain in agreement that a new accumulation regime is yet to
emerge, and that the misguided notions of neoliberalism form an obstacle to this
occurring.11
Let us address two problems in the regulationist account of the post-war period.
First, it tends to overstate the coherence of the Fordist match between economics
and institutions. First, since the first years of the post-war period were marked
by public austerity, it would seem that it was not so much political compromise
and institutional innovation, but rather the high rate of profit in the context of a
massively devalued capital stock that sparked the post-war boom (Clarke, 1989, p.
74). Second, although inflation may have contributed to high rates of profitability
and investment, it cannot be seen as an instrument of regulation: it was rarely
considered a solution to anything and the danger of it getting out of hand was
throughout seen as a problem. Well in advance of the clear onset of crisis conditions,
the inflationary character of accumulation began to put pressure on the balance
of payments and as a result government policies became increasingly oriented
towards maintaining international competitiveness, mainly through attempts to
contain wage growth. Third, then, collective bargaining procedures never really
corresponded to the corporatist image of capital-labor partnership but are better
understood as the institutions through which the potentially disruptive power of
labor was channeled into manageable wage demands (under the consistent threat
of statutory wage controls).12
Second, regulation theory is unable to account for the crisis (its world-wide
nature and its persistence) and the politics of institutional restructuring. The
importance accorded to hegemonic struggles on the terrain of the national state
is paid for with an inability to account for the fact that neoliberal and monetarist
state projects came to power in a wide range of countries at approximately the
same time. It remains unclear what the relation between the exhaustion of national
modes of regulation and the demise of the international regime is: since there is
Political Institutions and Economic Imperatives 93

little in the regulationist analysis of domestic patterns of accumulation and national


modes of regulation that could contribute to an explanation of the transformation
of the international regime, it often seems as if the two developments just happened
to occur at the same time and to reinforce each other. Moreover, it remains rather
unclear why, despite decades of neoliberal austerity and a ferocious onslaught on
working-class rights and freedoms, the crisis still endures and no new regime
of accumulation has emerged. Regulationism suggests that neoliberalism is a
misguided project, inherently unsuited for setting accumulation on a new stable
footing because it destroys rather than constructs institutional coherence. However,
it is hard to reconcile regulationism’s understanding of the crisis as caused by
the exhaustion of the Fordist organization of the labor process and the decline
of productivity growth with the idea that forcing down wages and demolishing
the institutions that sustain the strength of labor are inappropriate measures for
regenerating accumulation.13
These considerations should prompt us to reconsider regulationism’s
understanding of the source of the crisis. Of relevance here is that recent
contributions have noted that the slowdown in productivity growth followed rather
than preceded the decline in profitability (see Brenner, 1998; Webber & Rigby,
1996). According to these arguments, the tendencies towards the overaccumulation
of capital, which had been gathering pace from early on in the post-war period,
caused the average rate of profit to start falling during the early 1960s. This, in
turn, gave rise to a decline in investment which was responsible for the slowdown
in productivity growth. The development of productivity, then, far from being a
cause of the fall in the rate of profit, must itself be theorized as driven by the
decelerations and accelerations of the rhythm of capital accumulation. Immediate
relations of production as they exist within the confines of the labor process do not
by themselves cause anything with a determinate social significance.
To gain a clearer perspective on the theoretical issues at stake, let us have a closer
look at the regulationist conceptual framework. A few peculiarities stand out. While
on the one hand the wage relation is presented as capitalism’s constitutive relation
(whose inherent instability is to be regulated), on the other hand it consistently
features as merely one of the institutional forms (through which regulation takes
place). Similarly, there is something curious about the conception of competition,
money and international economic relations as institutions in an era where one
of capitalism’s most noted features is the tendency of market forces to disembed
themselves from their institutional environment. Furthermore, it is hard to even
envisage the kind of institutional autonomy that allows actors, otherwise engaged
in fierce competitive struggles, to work out stable hegemonic consensus. At the
same time, it is unclear what the institutional autonomy of the state amounts to if
political and ideological relations are ultimately incapable of doing anything other
94 MARTIJN KONINGS

than reproducing the economic rule of capital – which, after all, is seen to have
remained intact after three decades of crisis during which social relations have
been inadequate to capital’s logic.
The root of these problems can be traced back to the basic regulationist
conviction that “the capitalist mode of production is a combination of two basic
relations: commodity relations and wage relations” (Lipietz, 1987, p. 30). The kind
of independence of exchange relations and wage relations suggested here prevents
a conceptualization of the wage relation as constituted through, rather than existing
alongside, generalized commodity-exchange. The initial separation of production
and exchange obscures how exchange mediates production relations, and, as a
result, also hampers an adequate understanding of the institutional framework
through which these relations are reproduced.
Regulation theory fails to put the historically specific social form of production
at the heart of its analysis; owing to its structuralist roots it abstracts production
from those social forms that endow it with its capitalist character. As a result,
its identification of the wage relation as capitalism’s foundational relation is
left without theoretical foundations and for all theoretical intents and purposes
the wage relation remains one institution amongst others – an autonomously
existing sphere whose subsequent articulation with other institutions (namely
those which we could call the “exchange institutions” – money, competition,
and international economic relations) endows capitalist accumulation with its
coherence. Meanwhile, this economic logic of accumulation itself remains largely
untheorized and presupposed as a deep-structural and ultimately self-reproducing
reality. Social relations either exist in a space of institutional arbitrariness, or are
fully determined by the logic of production. Since the initial disarticulation of
production relations and commodity-forms strips capitalism of the mediations
which give it its expansive and imperative tendencies, the illusion arises that
the logic of accumulation can be durably regulated by and contained within the
institutions of capitalism. Failing an understanding of the social rationality that
binds together capital’s forms of manifestation, an ultimate material economic
logic must be posited to which institutions, agency and struggle are subordinated
(as its functional regulators). Regulation theory attempts to avoid the pitfalls of
economic reductionism by autonomizing ever further the political and ideological
realms from the determinations of the economic, but at the same time these political
and ideological relations seem ever less capable of doing anything other than
reproducing capitalism’s economic structures.
Thus, had regulation theory relied less on the immediacy of things, it would
have conceived of money and competition not as regulatory instruments but as the
very forms through which capital’s expansive, imperative rationality is composed.
This would also have provided a clearer starting-point for an analysis of the state.
Political Institutions and Economic Imperatives 95

Instead of viewing the state as a field on which social relations are temporarily
freed from the economic determinations of capital (although subject to a mysterious
strategic selectivity) and on which social cohesion and hegemony are produced,
there is now the prior question of how the autonomous form of the state is
constitutively related to the historically specific mode of capitalist domination.
Now, the state’s autonomy consists in the constitutionally codified delimitation of
political authority vis-à-vis a society in which class domination comes to assume
a peculiarly depoliticized character. This separation of state and society is always
tendential and provisional and it is only through its continuous reproduction that an
economy based on generalized exchange is maintained. The autonomy of political
institutions is certainly relative; not, however, in the sense of functional to a deep-
seated economic structure, but relativized by their implication in the constitution
of a specific social rationality.

2.2. Political Marxism: Institutions as Subordinate to the Market Imperative

Political Marxism takes an important step in this direction, seeking to replace


regulationism’s combination of Marxist economism and institutionalism with an
emphasis on the imperative rationality of capitalist market relations. However,
although similar in important respects, my critique of regulation theory differs
from Brenner and Glick’s (1991). Framing their contribution around the question
“social property-relations or institutions?” (ibid., p. 106), they argue that regulation
theory has gone wrong in its concern with institutions as this has led to a neglect
of property relations and commodity-exchange and an inability to understand the
role of competition between capitalists.
The recent controversy around Brenner’s own account of the post-war period
provides a convenient way to frame the problem. Brenner’s account centers not on
the labor process, but on the anarchic nature of capitalist competition (Brenner,
1998). The fact that investment “tends to take place in waves and be embodied
in large, technically interrelated, developmental blocks” (ibid., p. 30) means that
cost-cutting producers, instead of replacing at the prevailing price only the output
previously produced by higher-cost producers, will reduce output prices in order
to capture a larger share of the market. The higher-cost producers, although they
are unable to recover the costs of their “sunk” fixed capital, will stay in business
so long as they can make the average rate of profit on their circulating capital.
The result is a lower average rate of profit. The slowdown in productivity growth
is not the cause of the crisis, but merely the consequence of capitalists’ inability
to mark up sufficiently over costs and the concomitant reduction of incentives to
make new investments. Brenner’s contribution points us to the fact that within
96 MARTIJN KONINGS

the relations of competition between capitals, independent of the state of class


relations at the point of production or the institutional context within which capital
accumulation takes place, there are mechanisms operative that tend to throw sand
in the wheels of a pattern of accumulation. The tendency to overaccumulation was
never functionally integrated into a coherent mode of regulation; rather, the end
of the boom must be seen as precipitated by an overaccumulation of capital which
had been gathering momentum from early on in the post-war period.
Although Brenner’s analysis successfully debunks the regulationist notion that
capitalist competition can be functionally integrated into a mode of regulation,
it remains difficult to see how Brenner’s analysis of long-term fixed capital
investments and profit rates can bear the explanatory weight that he puts on it.
Confining one’s analytical focus to the relations of competition between capitals
does not allow one to explain why a fall in the rate of profit leads to a crisis of
capitalist society rather than merely a slowdown in the pattern of growth (if, that is,
we already accept that a lower rate of profit always leads to a decline in investment,
which is by no means certain) (Crotty, 1993). In other words, Brenner’s analytical
framework cannot account for how the economic downturn led to a crisis in the
way social relations are institutionalized.
Although I believe that this process of institutionalization can only be understood
with reference to class relations (and will later explain the way in which this
should be understood), from the above it will be clear that my main concern with
Brenner’s contribution differs somewhat from the critiques of his theory that have
appeared over the past years.14 Most of these critiques focused on the absence
of class struggle on the industrial or political level, the lack of a conception of
value and a notion of exploitation, and the consequent stress on capitalist mark-
up strategies. In brief, all faulted Brenner for having abandoned labor as the
conceptual underpinning for his theory. But, with the exception of the “social
form” theorists (to whom we will turn in a minute), what remains unclear is how
these authors construe the primacy of labor, class and exploitation in a way that
does not fall victim to the problems associated with regulation theory’s attempt
to ground the wage relation as capitalism’s foundational relation, i.e. the very
problems in response to which Brenner presented us with his new account of the
post-war period.
There is more to what Brenner is trying to do than any of his critics has so far
acknowledged. While the relative absence of class agency is indeed a problematic
aspect of Brenner’s account, perhaps this is not best seen as sudden forgetfulness
on Brenner’s part, but rather as an unfortunate consequence of a prior conceptual
problem. Many commentators have noted that Brenner seems to be reverting to
a Smithian, bourgeois conception of the market that his earlier work has done
much to discredit. What few have contemplated is what the reason behind this
Political Institutions and Economic Imperatives 97

apparent about-turn might be, and what this tells us about the difficulties involved
in maintaining an unproblematic concept of class relations as an antidote to a
bourgeois conception of market relations. Now, although Brenner’s early work was
certainly a critique of those branches of Marxism that equated (the transition to and
development of) capitalism with (the growth of) the market, his understanding of
the relations between class, market and institutions was by no means unambiguous
then. As evidenced by phrases such as “the class (property/surplus) structure of the
economy as a whole” (Brenner, 1977, p. 32) and “the property/surplus extraction
system (class system)” (ibid., p. 33), his conception was in fact marked by an
uneasy conflation of class, market and institutions.
We can imagine three ways out of this conceptual problem. The first is the
one that Brenner has actually taken, according primacy to the imperatives of
competition vis-à-vis production relations and institutions. The second route would
be to attempt to remedy the problem on the level of production relations by radically
reconceptualizing these, i.e. by opening up the concept of production relations so
as to encompass the market economy and its institutional framework as moments
of their constitution and in this way to avoid the dangers of Ricardianism and crude
materialism. This option was pursued by the social form theorists, which we will
discuss shortly. I find both these solutions wanting and this leads me to explore
the third route, the one that leads back to institutions. The central question then
becomes how to conceive of institutions in a non-institutionalist way.
It is not difficult to see how Brenner’s initial conflation of private property as an
institution, social property relations giving rise to market competition, and class
exploitation, could subsequently have given rise to the notion that once, or as long
as, “horizontal” social property relations giving rise to the market imperative are
in place, “vertical” relations of exploitation become essentially unproblematic
– in the sense that they may pose problems for individual agents (capitalists
or workers) but cannot affect the logic of capitalist reproduction itself in any
substantial manner – and processes of institutional transformation become more or
less irrelevant. Political Marxism sees this theoretical move as licensed by its ever
greater emphasis on the historically specific separation of political institutions from
the realm of production brought about by capitalist private property (see especially
Wood, 1995, Chap. 1). Whereas under pre-capitalist social formations relations of
exploitation and domination were directly political and immediately backed up by
the threat of physical coercion, under capitalism relations of political authority are
institutionally separated from the mechanisms of economic exploitation; that is to
say, domination is no longer direct (‘extra-economic’), but mediated by market
exchange. Both Brenner and Wood tend to see the separation of the political
and the economic through the institution of private property as a once-and-for-
all separation, after which social relations become subordinated to the imperatives
98 MARTIJN KONINGS

of the market and the institutional framework of the state continues as an appendage
of the accumulation process, i.e. as the aloof guarantor of property rights.
The problem with this perspective is twofold. First, institutions as conceptually
distinguishable from (non-coterminous with) social relations are not specific to
capitalism. The distinction between pre-capitalist social relations as unmediated
(directly political) and capitalist relations as mediated (by the market), i.e. the
stark distinction between, on the one hand, societies marked by a fusion of state
institutions and social relations and, on the other hand, capitalism as marked by
their separation does not stand up. No institutional order is subject to all the same
vagaries and contingencies that inevitably affect everyday social affairs. Direct
political authority backed up by (the threat of) coercion can never be pervasive
and continuous enough to secure a mode of domination. Social domination is
never naked and immediate, but always constituted according to a specific social
rationality, i.e. mediated and ideologically cloaked. And this brings us to the second
problem. For while institutions always possess a certain kind of rigidity vis-à-vis
social relations, they are nonetheless never outside or external to the historically
specific rationality of those relations. Stressing the importance of the separation
of institutions from society under capitalism is perhaps not wrong but nonetheless
misleading: it leads to either too little specificity (since other social formations
are characterized by a certain autonomy of institutions too) or to the problematic
claim that under capitalism social relations are free from institutional mediations.
Where Political Marxism goes wrong, is in its attempt to identify and theorize an
imperative that exists on the level of social relations taken by itself, independently
of how institutions mediate those social relations, or, to put it more precisely,
in abstraction from how social relations are constituted by agents who must
necessarily base their agency on the institutional forms which they find before
them. Without looking at public institutions, it is impossible to understand the
specific quality of a social process. But this does not of course mean that we can, in
institutionalist fashion, read off this quality from those institutions themselves. The
specificity of a social imperative resides neither inside nor outside the institutions,
but is shaped by how agencies invest those institutions. The point, then, is that the
imperative is nothing but the unintended and unanticipated effects and pressures
that agents produce by acting in a certain way on the institutional forms available
to them. Agents can never act outside of the range of public norms and meanings
formalized in institutions, but this does not mean that the social ramifications
and significance of their actions is contained within those institutions. To try
to specify the historically specific nature of a society either with sole reference
to institutions, or in abstraction from them, is impossible. Thus, while it would
certainly be misplaced to suggest that Brenner and Wood lack historical sensitivity,
it is nonetheless the case that they take what has turned out to be an extraordinarily
Political Institutions and Economic Imperatives 99

fruitful notion in the case of English history (the market imperative), to be a


solution to the theoretical problem of capitalism – a role which it can never fulfill,
and which tends to fail to generate sufficient specificity when it is transposed onto
other contexts.15
Thus, while we certainly need to problematize the way in which regulation theory
assigns an undue ultimate primacy to the immediate process of production, this is
perhaps not best done by shifting our focus to free-floating relations of competition,
based on Brenner’s sharp distinction between production relations on the one hand
and property relations giving rise to generalized exchange and the competitive
imperatives of the market on the other hand. Whereas regulationism goes wrong
in assuming that the rationality of capital can be durably contained within the
institutional forms of the state, Brenner tends to overlook the fact that this expansive
rationality is only constituted and maintained through the ever problematic and
provisional reproduction of those institutions. What is wrong with regulation theory
is therefore not so much the fact that it focuses on institutions, but rather that it
conceives of these as spaces in which social groups and classes, freed of the deter-
minations and contradictions of capital, can construct coherent regulatory regimes.

2.3. Open Marxism: The Market Imperative and State Institutions as Social
Forms of Production Relations

As Bonefeld (1999) has noted, Brenner was not the first to emphasize that the crisis
of post-war capitalism could not be understood in terms of unmediated relations of
class struggle or exploitation. Much earlier, Simon Clarke had asked in what sense
exactly we are to understand the crisis as a crisis of class relations if the rise of
neoliberalism and its clampdown on workers has done little to sanitize the capitalist
economy. To this end, Clarke, drawing on the work on social form that had begun
to emerge during the 1970s (see Holloway & Picciotto, 1979), and sparking the
development of Open Marxism, proposed to consider both state institutions and
market relations as the social forms of appearance assumed by the antagonistic
relation of production, a relation which does not exist in and of itself, but is
mediated by and only exists through these social forms. As an alternative to both
regulationism’s combination of materialism and institutionalism, and to Brenner’s
singular focus on relations of market competition, Clarke accords primacy to the
historically specific social form of capitalist production, i.e. its subordination to
relations of market exchange, relations themselves dependent on the liberal form
of the state. It is not private property that explains the nature and dynamics of
capitalist production (as the utopian socialists, and, after them, Brenner mistakenly
believed), but it is the alienation of labor that lies at the root of private property.
100 MARTIJN KONINGS

Clarke’s argument that market relations and state institutions are to be seen as
the forms of manifestation of the underlying social relations of production should
not be taken to imply that state and market do not fulfill crucial functions in the
reproduction of these class relations. What is wrong with regulation theory is not
the fact that it focuses on institutions, but rather that it fails to conceive of these
as forms assumed by the capital relation – forms which are therefore subject
to both the expansive and imperative tendencies and the antagonism inherent
in that relation. Far from being able to guarantee the coherence of a mode of
regulation, state institutions are ab initio implicated in the contradictions of the
capital relation. Before we look at the regulatory capacity of state institutions,
we need to understand the liberal form of the state, its separation from society:
its historically specific nature as a constitutional state (its subordination to the
rule of law, the institution of private property) is coterminous with the formation
of capitalist relations of production, the subjection of labor to the commodity-
form. The capital relation is constituted through generalized market exchange,
and therefore depends on the continuous dissociation and depoliticization of social
relations, and consequently on the continuous reproduction of the separation of
the state’s institutional framework from society.
In light of the radically different conceptions of the market put forward by
regulationism and Brenner, it is interesting to note that Clarke criticizes both
regulation theory and Brenner for adhering to a bourgeois conception of the
market. For Clarke, it is not by itself sufficient to restore the imperative character
of market relations; or, perhaps more accurately, it is impossible to locate an
objective imperative on the level of market relations itself. His critique of the
bourgeois conception of the market can thus be seen to have two different, and
logically separate, aspects: first, the imperative, indeed, what in Clarke’s work often
seems the compulsory character of the social pressures emanating from the market,
and second, the objective foundation of these social pressures in the relations of
production. As I argued in the previous section, this is a potentially hazardous
balancing act, which few of Brenner’s critics have been able to maintain, and much
therefore hinges on the exact way in which these two elements are articulated. What
Clarke needs to be able to show, therefore, is how the social forms of the market
and the state are tied to alienated labor as their content.
The basis for this articulation is laid by Clarke’s reversal of Brenner’s under-
standing of the relation between production and private property. But still, in order
to establish the relation in a more concrete way, Clarke needs to find something
on the level of the market that refers us beyond this level, linking it to production.
More concretely, then, a crucial step in his attempt to formulate a properly Marxist
conception of the market is to shift the focus away from market relations as such
to the changing functions of money. In Clarke’s theory, it is money as a social
Political Institutions and Economic Imperatives 101

form that binds together, in non-determinist fashion, what was disarticulated, in


different ways, by Brenner and regulation theory: production relations, the market,
and state institutions. It is through the rule of money that society and the state are
subordinated to the imperatives of capital accumulation. Under capitalism, money
functions not only as a means of exchange, but is at the same time the most general
form of value, the most abstract expression of the capitalist form of labor. Far from
being a regulatory instrument, it is the independent form of social power.
Thus, overaccumulation cannot be explained in terms of either (the anarchy of)
market relations or the inadequacy of the configuration of institutional forms to the
requirements of the accumulation process. Rather, the tendency towards overaccu-
mulation is inherent in the contradictory social form of production, i.e. its subordi-
nation to the production of value existing in the form of money. It is through money
as the most general expression of the impersonal power of capital over labor, that
(re)production comes to be subordinated to valorization. The drive to accumulate,
although imposed through competition and modified by the institutions in which
capitalist relations are embedded, is ultimately determined by neither of these, but
is subject to its own laws (Clarke, 1990, p. 454; 1999, p. 65) – laws which are rooted
in the contradictory form of capitalist production. The necessity to valorize their
capital, i.e. to achieve a certain rate of profit, compels capitalists to develop the
forces of production without regard for the overall extent of the market. This lowers
the average rate of profit and is experienced by capitalists as a downward pressure
on profits and an intensification of competition. Individual capitalists’ strategies
to maintain their profits will only exacerbate the tendency to overaccumulation.
The contradiction embedded in the capitalist form of production expresses itself
as a barrier to the accumulation and hence the reproduction of capital. Most
fundamentally, then, overaccumulation is a lack of opportunities for the profitable
investment of capital on the basis of the prevailing relations of production.
State policies and institutions have an important impact on the exact course of
accumulation, and are therefore at the center of class struggle. When faced with
tendencies to overaccumulation, the state can suspend the barriers to accumulation
by means of expansionary credit policies. However, although the state can
extend the limit of the market and so temporarily accommodate the tendency
to overaccumulation in response to popular pressures, its regulatory capacities
are ultimately incapable of overcoming the contradictory form of production from
which the tendency stems. That is to say, whatever the exact balance of class forces,
the state has a prior commitment to the reproduction of the rule of capital. For the
form of the state is determined by the historically specific form of production
relations: inscribed in the state’s very mode of constitution is the obligation to
secure the conditions for continued accumulation without transgressing the limits
of its liberal (autonomous) form. By virtue of its constitution as the obverse
102 MARTIJN KONINGS

side of a society based on a depoliticized form of class domination, the state


is subordinated to the imperatives of capital; or, to be more precise, the national
state is subordinated to the global rule of money. This is most apparent in the
constraints imposed on state policy by its responsibility for the balance of payments
and the exchange rate. Thus, while – depending on the balance of class forces –
the state can stave off the eruption of crisis tendencies by means of expansionary
credit policies, in doing so it intensifies the underlying contradiction and fuels the
overaccumulation of capital. At some point the expansion of credit will reach its
limits, accumulation will falter, and the accumulated (both internal and external
speculative) financial pressure on the state will become such as to necessitate a
wholesale and fundamental restructuring of production relations.
In Clarke’s interpretation, then, the institutions of post-war capitalism were not
elements of a coherent mode of regulation, but instead the institutional forms of
the class struggle, the terms on which the social strength of labor was channeled
through the liberal form of the state. Similarly, the contradictions of state policies
and institutions should not be viewed as the inadequacy of a mode of regulation and
the temporary disintegration of social hegemony, but as the permanent expression
of class antagonism. While these insights have certainly gone astray in the course
of development of the regulationist paradigm, it is not always clear that they
are entirely different from the latter’s original bid for the reappropriation of
Marxist theory, nor that they are able to solve the conceptual dilemmas that led
regulation theory down the institutionalist road. Quite tellingly, Clarke’s more
empirically oriented work produces readings of history that look remarkably like
the regulationist accounts which he is at pains to criticize, and they tend to be
marked by similar problems.16
In the end, Clarke’s construal of the relation between production relations
and state institutions remains rather formalistic and, because of a continuous
slippage from form-determination to an unwarranted and pre-emptive content-
determination, functionalist. To be sure, the antagonism embedded in the capital
relation is abundantly stressed, as well as the fact that capitalism’s constitutive
contradiction is reproduced in its economic and political forms. But the problem is
that this often seems to amount to little more than, precisely, a formal gesture, tying
together with a somewhat rhetorical sleight of hand what needs to be theoretically
articulated.
Perhaps most conspicuously, Clarke’s notion of overaccumulation remains
underdeveloped. To say that the tendency to overaccumulation is subject to its
own laws that cannot be explained in terms of exchange relations but inhere
in the capitalist form of production is problematic if the nature of that form is
not specified beyond the subordination to the imperatives emanating from market
relations. In other words, it is less than clear how the tendency to overaccumulation
Political Institutions and Economic Imperatives 103

inheres or is immanent in the capitalist form of production, the relation between


capital and labor. And this was precisely the problem encountered in the discussion
of regulation theory: the inability to conceptually ground the wage relation as
capitalism’s foundational relation. Clarke’s response to this would presumably be
that he does not focus narrowly on the wage relation, but rather on the society-wide
process of reproduction of the capital relation in which the contradictory form of
production expresses itself as a barrier to accumulation. But the argument made
here is precisely that this link from the (contradictory) form of production to the
(barriers to the) overall process of reproduction remains unspecified, and supposed
rather than articulated. There remains a degree of uncertainty as to what it is exactly
that compels individuals capitalists to accumulate that cannot be grasped in terms of
competitive market relations; and what turns accumulation into overaccumulation
– the limited extent of the market – does not refer us beyond the market to the
hidden abode of production either.
To phrase this slightly differently, the existence of pressures on capitalists to
develop the forces of production is seen to derive from the transformation of
money from a simple means of exchange into the most abstract form of labor and
therefore the independent form of social power. This certainly pushes towards
an insight into the specificity of capitalism’s relations of competition and the
social functions of money (i.e. their imperative nature) that is entirely absent from
regulationism (which is oblivious to the way in which these phenomena are inserted
into a capitalist rationality and seeks to integrate them into an institutional space
devoid of social determinations). The problem, however, is that the link between
production and money is assumed rather than explained.
This element of theoretical arbitrariness becomes clear in Clarke’s treatment
of credit. He argues that relations of credit and finance do not bring any new
determinations into the dynamics of accumulation. They appear on the scene
to either suspend or precipitate crises, to contain or play out the fundamental
contradiction of capitalist production relations. Either the overaccumulation of
capital is accommodated by means of expansionary policies, or the financial
pressures on the state are such as to necessitate a fundamental restructuring of
production relations. On the one hand, there is little consideration of how credit
relations are ab initio involved in the constitution of production relations; on the
other hand, Clarke does not really indicate how to locate the point beyond which
accumulation cannot anymore be sustained by means of the further expansion
of credit. “In principle” the eruption of crisis tendencies could be postponed
“indefinitely,” but “eventually” the expansion of credit will reach its limits – limits
defined by the contradictory form of production. While the expansion of credit was
an expression of capital’s tendency to develop the forces of production beyond the
limit of the market, its contraction expresses the need to confine accumulation
104 MARTIJN KONINGS

within this limit. Different institutional regimes will negotiate the exploitation-
money/credit nexus in different ways, but the limits within which they can do so
are for each objectively defined.
What seems implicit in Clarke’s theory of crisis, is the notion that there is a valid
distinction to be made between money as directly tied to capitalist production, and
credit as an institutionally generated, state-licensed suspension of the contradictory
logic of capitalist production. In the former case there is an objective (if socially
mediated) link between money and production; in the latter case a fictitious capital
is created and a social fiction is to be sustained – a fiction which must sooner or
later bow before the fundamental contradiction of economic reality. The state’s
capacity to regulate production relations by integrating the power of labor through
the institutional forms of the liberal state is based on the possibility of gaining a
sufficient degree of leeway vis-à-vis the logic of capitalist production. Ultimately,
the power of money will reassert itself and necessitate the restoration of the link
between money and the exploitation of labor.
The constitutive role of state institutions thus remains limited. Above all, the
institutional level remains a space in which classes can negotiate the terms of
reproduction, under the ultimate constraint of the power of money. Capitalism’s
contradictory principle can be modified or its effects suspended, but its basic logic
remains intact. In this sense, the project of Open Marxism has more in common
with regulation theory than it cares to admit. The latter attempted to rescue class
agency from structuralism’s iron economic determinations by putting class struggle
“beyond any ‘law’ ” (Aglietta, 1979, p. 67) and ended up relegating it to a realm
of arbitrariness and indeterminacy, ultimately subordinated to an undertheorized,
mechanical principle of accumulation. And although this trajectory is the focus of
Open Marxism’s critique of regulation theory, which tries to understand the logic
of capital and the autonomy of the state as themselves the forms of existence of
class struggle, its own theoretical framework is marked by the same, if diluted,
tension.

3. INSTITUTIONS, AGENCY, AND THE CONSTITUTION


OF CAPITALIST IMPERATIVES
3.1. Marxism, Institutionalism, and “the Idea of a Social Science”: Bringing
Agency Back In

In the above I have tried to show that none of the three approaches discussed
does full justice to the role of institutions, and how each has recourse to an
undertheorized structural moment. While Marxist analyses seek to differentiate
Political Institutions and Economic Imperatives 105

themselves from institutionalist approaches by emphasizing the more fundamental


ensemble of socio-economic relations that underlies an institutional order, they
have considerable difficulty identifying the structural imperative that gives us the
true meaning of social relations behind their political and institutional forms. What
this points to, I believe, is the need to take more seriously the attempt to bring the
state back in, i.e. the attempt to move away from explanations of social life couched
primarily in terms of economic laws and structures and towards an understanding of
patterns of economic interaction as always and necessarily embedded in political
institutions. In other words, if it turns out to be so difficult to find something
“behind” institutional forms, our starting-point should perhaps be to abandon the
search for a deep-structural reality of any kind, and follow the new institutionalism
in its insistence on viewing institutions as themselves the framing, structuring
moments of human interaction.
But how could this be different from what institutionalists hold, and does
this proposal not simply amount to the final abandonment of a specifically
Marxist analysis? Now, as we have seen, it is precisely the kind of Marxism
in search of an underlying structure that always finds itself forced to import
institutionalist concepts in order to account for the historical material which its
general theory leaves unexplained. The reason why Marxists can do this lies in
the fact that Marxists and institutionalists tend to subscribe to a very similar logic
of explanation: to give an account of human interaction is to find the causes that
drive it, and theoretical abstraction is about isolating these mechanisms. This gives
the two perspectives a certain degree of complementarity: the historical variety of
agency and interaction that is left unexplained by Marxists’ basic theory of the
socio-economic structure can be addressed by means of a pluralist emphasis on
the constitutive role of state institutions. Both Marxism and institutionalism, each
in their own way, regard the emphasis on institutions as a solution to the problem of
agency. What I propose, then, is a break with such a causalist mode of explanation
and a qualitatively different way of thinking the relation between agency and
institutions.
While any attempt to deal with the new institutionalism in state theory on
a theoretical level is somewhat constrained by the fact that its methodological
underpinnings have received scarce elaboration, (Jessop, 2001a),17 it should be
noted that its account of the relation between institutions and agency remains
embroiled in a problematic that is rather similar to the one encountered in the
Marxist conceptualization of socio-economic structures and agency. Although it
is frequently pointed out that institutions and agents exist in a dynamic two-way
relation, institutionalism’s explanatory capacities are still entirely premised on the
possibility of identifying institutional structures that explain to us the way in which
agents behave: we can only have an understanding of agency to the extent that it
106 MARTIJN KONINGS

is determined by institutions; to the extent that it is not, agency is seen as arbitrary


and there is little we can say about it. Even when it is stressed that institutional
frameworks do not determine agency but merely set up a range of constraints and
incentives, what remains unclear is what happens with the “surplus of agency”
thus identified. Therefore, one could say that institutionalism is structuralist in the
same “last instance” way that Marxism is.
However, this claim would seem to be at odds with the new institutionalism’s
reputation for bringing agency and politics back into the picture, and seeing why
this is not in fact the case will bring us to the heart of a crucial ambiguity in
the attempt to “bring the state back in.” When authors such as Skocpol fault
Marxists for not allowing for the independent effects of political institutions, they
are simultaneously invoking these institutions’ causal efficacy and determining
structural powers (in the sense that institutions are seen as governing the behavior
of individuals in the sphere of social life that is defined by a particular institution)
as well as celebrating the scope for agency that they create (i.e. the liberation
from economic necessity) – an odd combination, of course. While I will build on
and reconceptualize the insistence on the structuring powers of institutions, it is
crucial to see that for institutionalists, the agential aspect of political institutions
derives ultimately from nothing but the belief that “the political” is about choice,
deliberation, communal decision-making, the common good, etc. – precisely the
kind of problematic notion that Marx already decisively debunked in his earliest
writings (Marx, 1972a, b).
One problem with such an understanding of the working of institutional
structures is that it leads to a potentially boundless pluralism. If social reality
were composed of institutions that are autonomous in the sense of exercising an
irreducible causal influence on the course of human interaction, then any significant
variation in individuals’ agency must correspond to a process of institutional
differentiation. If institutions are structures which determine how people act, then
any theoretical rendering of them must be pluralist for the simple reason that
no action is the same as any other, and that any way of deriving concepts on
the basis on the basis of the similarity displayed by individuals’ actions will be
more or less arbitrary. That is not to say that any such generalizing, classificatory
conceptualization is as (in)valid as any other, but rather that there will always
be good reasons for multiplying the number of institutions supposed to explain
agency in order to account more fully for the qualitatively different ways in which
individuals act. Ultimately, we will need as many institutionally located causal
mechanisms as there are courses of agency, and theory will mirror the multiplicity
of the world.
The problem with institutionalism is therefore not so much that it conceives
of institutions as structuring instances (as Marxists have often formulated their
Political Institutions and Economic Imperatives 107

objections), but rather that it implicitly relies on a realist, causalist understanding


of structure and social constitution (which it shares with much of Marxism).18
What I would like to argue here, following such authors as Winch (1958)
and Taylor (1985), is that such a conception fails to distinguish between the
methods appropriate to the social sciences and the natural sciences. Although
institutionalists often criticize Marxism for searching for immutable and a-
historical laws of motion, the methodology employed by institutionalists is still
naturalistic in the sense that they ignore the element of signification present in
the relation between agency and institutional structures. Institutionalists seek to
group phenomena under conceptual headings on the basis of their similarity,
reflecting mechanisms causally influencing agents. A procedure of generalization
thus corresponds to an understanding of institutions that sees their constitutive
powers as based on the consistency with which individuals act in accordance with
them. However, the distinguishing characteristic of a human institution or a set
of rules, as opposed to a law of nature, is that it can remain in force even when
transgressed – in fact, a rule may become more salient if violated frequently. By
contrast, a presumed law of nature will have to be discarded when it is clearly
inconsistent with its empirical manifestations. The implication of this is that an
inductive, generalizing logic of enquiry and a causal conception of structuration
and constitution are inappropriate for understanding the constitutive aspect of
human institutions. The constitutive, structuring quality of institutions does not
derive from any causal powers existing independently of human agents, but from
a capacity for signification that cannot be considered in isolation from agents’
capacity for interpretation.
This view of the distinctiveness of social science has been criticized by realist
authors such as Bhaskar (1979), and briefly considering this critique will help me to
specify the argument made here. According to Bhaskar, the advocacy of a distinct
methodological underpinning for the social sciences rests on a Humean, empiricist
understanding of natural science which is itself deeply flawed. The very possibility
of scientific explanations must be seen as premised on the emergence of generative
structures with causal powers which cannot be reduced to constant conjunctions
of empirical events. Bhaskar’s own transcendental realism therefore allows for
an “ontological gap between causal laws and their empirical grounds” (Bhaskar,
1979, p. 14), and, in the case of social science, between structures and agents.
However, Bhaskar rather overestimates the degree to which this pre-empts the kinds
of concerns and objections that can be raised by more hermeneutically oriented
approaches. Although he allows for ontological gaps between causal mechanisms
and empirical instances and so frees himself from the most immediate problems
associated with inductivism (such as those identified by Humean skepticism), his
conception of structure is still firmly bound up with a generalizing logic (Pleasants,
108 MARTIJN KONINGS

1999). Thus, I read Winch’s hermeneutics not so much as a critique of particular


problems associated with empiricism, but rather as a much broader critique of the
very idea that questions of social science can be posed on an ontological level.
Transcendental or critical realism may qualify the “ironness” of causal laws, but
it does not offer a conception of social structure that is qualitatively different from
the way we normally understand the operation of natural laws. Even if we concede
to critical realism that causal laws should be seen as tendencies and may therefore
survive the observation of inconsistent empirical instances, the point remains that
social structures (i.e. human institutions) are normative and constitutive in a sense
that natural laws are not.
Somewhat paradoxically perhaps, within a realist, causalist logic we can actually
not think the constitutive effects of human structures and rules. A natural law is
not dependent for its validity on the phenomena which it describes believing in its
existence; its formulation is therefore purely an act of description, and does not
have any constitutive impact on the chain of phenomena that it describes. However,
for institution-based explanations to have any salience at all, it is necessary that the
participants whose behavior is to be explained know and believe in the institution,
which is therefore constitutive of their agency in a sense that a natural law is not.
In other words, if we seek to infer the existence of an institution from people’s
actual, “revealed” behavior, while disregarding the moment of interpretation which
precedes this behavior, we will never be able to capture the constitutive aspect of
those institutions – for, unlike the phenomena subsumed under a natural law, the
revealed behavior was already affected by the presence of a normative institutional
structure. The notion of the specificity of social science implies that it is impossible
to give an account of people’s behavior which ignores the views and beliefs that the
actors themselves have about that behavior (Winch, 1958). The challenge, then, is
to capture these two elements in our conception of institutions: their constitutive
aspect, and their non-determining nature. While agency does not exist prior to or
independently of institutional structures, it is nonetheless not determined by them
in any meaningful sense. Let me illustrate this with reference to the classic example
of a constitutive rule, namely the rules for chess. These rules are constitutive of the
interaction of two people playing chess, since without them there would not be the
kind of activity that we could label “playing chess”; the rules thus do not merely
regulate or reproduce an already existing kind of activity. However, at the same time
the rules do not in any meaningful way determine which moves the players will
make – they merely legislate that certain kinds of moves do not “make sense.”19
Institutional structures, then, are best seen as formal, conceptual frameworks
of rules and norms that individuals use in order to gain some grounding and
orientation for their agency; agents could not act outside of them, but their
actions are nonetheless not determined by them.20 Thus, rather than “firming
Political Institutions and Economic Imperatives 109

up” our conception of the constitutive, structuring power of institutions (Lawson,


2003), I believe that we need a conception of institutions that is more formal
than substantive, more conceptual and discursive than material and causal. It is
precisely such a conception of structuration that realist theories caution against:
according to Bhaskar and Archer, the abandonment of structures as pre-existing
generative mechanisms with a capacity for exercising causal powers leads to
an idealist voluntarism which cannot account for the constraints and pressures
on human agency (Archer, 1995; Bhaskar, 1979). However, I believe that more
hermeneutically oriented approaches are in fact better able to account for the
constraints and pressures on agency than causal explanations. For as we have seen,
it is precisely the kinds of theories relying on “firm” causal structures that can only
acknowledge the role of agency in terms of indeterminacy and arbitrariness: agency
is seen as effective only when the causally constitutive aspect of structures, while
usually decisive in the last instance, ceases to operate.
Now, the reason that critical realists tend to view structure and agency as
mutually exclusive21 is that they are unable to differentiate structure and agency in
a qualitative way. While structure and agency are viewed as distinct, they are still
considered as the same kinds of entity: both produce interventions in the world,
and there is nothing that a structure can do that an agent in principle cannot. Such
an understanding precludes the possibility of structure and agency being operative
simultaneously. However, if we “soften” our notion of structure, the structure-
agency problem loses something of its dilemmatic character. Structures are now
seen as constitutive of agency without fail or interruption (as in the chess example),
and the reason they can be so understood is precisely that they do not anymore vie
with agency for real-world efficacy. It is crucial here to see that I am not arguing
that structure and agency are two sides of the same coin:22 Archer is entirely right
to insist that structure and agency need to be differentiated, but my argument here is
precisely that realists are unable to do this in a qualitative way, and that this sets up
a conceptual framework which tends to move back and forth between determinist
and voluntarist explanations. Structure and agency are not just different things, but
rather different kinds of things. Structures do not do anything of their own accord,
and can principally not be defined on an ontological level; they are the formal,
discursive forms used by actors in order to gain some grounding and orientation
for their agency.
But softening up our notion of structure does emphatically not imply that
agents do not experience constraints or pressures: it merely forces us to reconsider
where exactly these come from. That is, it should lead us to acknowledge that
constraints and pressures are only produced by the ways in which agents act
on structures, not by structures themselves. Taken by itself, Bhaskar’s remark
that “social behaviour typically consists of more than being in possession of the
110 MARTIJN KONINGS

concept under which one’s action falls” is exactly correct (Bhaskar, 1979, p. 174).
However, the argument made here is that he is wrong about what that something
more is. The limits on our agency are not best understood as a pre-existing causal
or generative mechanism existing independently from, yet (partly) determining
of, agency, but rather as the unintended effects of our agency. And in this sense,
the conception of the agent-structure relation relied on here is much closer to
the account offered by Giddens (1979, 1984).23 For Giddens, structures are not
to be understood primarily as patterns of behavior, but rather as the “virtual,”
inter-subjective rules and resources that actors draw on. The “instantiation” of
structural properties through practices then refers to the “invocation” of certain
institutional rules and public meanings by agents, rather than to the “exhibition”
of general patterns produced by generative mechanisms. The necessary corollary
of this conception of structures as primarily epistemic is a conception of agency
as inherently knowledgeable of its own conditions – albeit, crucially, necessarily
imperfectly so, as this knowledge is not direct, but precisely always filtered through
those public conceptual structures. The practical investment of these structures by
agents, then, always has consequences not anticipated or acknowledged by either
themselves or other agents.24
These considerations point to a reconceptualization of social imperatives that
does not fall prey to the problems associated with the Marxist attempt to identify
deep socio-economic structures. While the approaches discussed in Section 2
tried to ground the imperative as a causal structure prior to, and (at least partly)
determining of, institutions and agency, the understanding of the imperative offered
here views it not in abstraction from agency and institutions, but as the result
of the interplay between them. That is to say, the imperative is nothing but the
institutionally mediated effects of our agency. By practically investing a formal
structure of rules and institutions, agents produce effects that are not captured in,
and cannot be read off from, that structure itself. Because these effects elude the
conceptual grip afforded by a given set of institutions, agents experience them as
pressures that they cannot instantly account for in terms of the public meanings
available to them. In other words, we need to make a distinction between the way
in which agents understand and rationalize their own agency and the unintended
effects and interdependencies that they produce. Social imperatives, then, emerge
only from the strategies which actors employ in order to reproduce themselves
on the basis of a given set of institutions, and are nothing but the constraints,
pressures and opportunities created by one agent for another. So, far from the
imperative being a foundational content behind institutions, it is the result of how
agents act on institutional forms. To illustrate this again with the chess example:
while playing according to the rules, the players produce effects that cannot be
deduced from those rules themselves. The pressures that the players experience,
Political Institutions and Economic Imperatives 111

and in response to which they design their next move, are the result of how they
act on and use the formal structure of rules available to them.

3.2. Institutions, Agency and the Specificity of Capitalism

It follows from the preceding discussion that the theoretical problem should not be
to find a causal structure, imperative or principle exerting effects of its own accord
which we then have to articulate to the level of institutions, ideology, and agency,
but rather to understand how agents’ practical investment of a formal structure
of rules and norms produces a specific social rationality. This social rationality
is never fully expressed in or given with an institutional framework, because the
way agents subjectively rationalize their behavior never coincides with the social
ramifications of that behavior. The main task, then, is to understand what is specific
about this in capitalist society.
To repeat, then, the problem of institutions as distinguishable from (non-
coterminous with) social relations is not as such specific to capitalism. For the
institutional codification of certain rules and norms implies precisely that they
come to possess a certain structural rigidity vis-à-vis the vagaries and contingencies
of everyday life. What is distinctive about capitalism is therefore not that
institutions do not coincide with social relations, but rather that the independence
of institutions vis-à-vis private interests becomes itself institutionally codified
and becomes the basis on which the state is organized. It is not only the case
anymore that agency is oriented towards publicly defined rules (which it always and
necessarily is), but, in addition, that the rules apply indiscriminately and in the same
way to every member of the public. It thus becomes impossible to say anything
about the social power commanded by specific agents merely by looking at the
rules themselves. Instead of prescribing specific relations between certain (groups
of) agents, institutions now circumscribe the range of practices that individuals can
adopt in their attempts to reproduce themselves. The specificity of capitalism does
not lie in the absence of institutional mediations from the way in which individuals
interact, but rather in the fact that the reach of others’ agency is limited by means of
the constitutional demarcation of state institutions on the basis of the principle of
private property – a principle which in itself tells us nothing about those agencies.
Thus, in a society where state institutions are organized so as to delimit the range
of actions available to individuals but do not prescribe any specific practices, agents
have very little overview of the effects of their actions, and will therefore experience
the consequences of each other’s actions as an anonymous, system-like compulsion
divorced from anyone’s conscious attempt to exercise power. While under pre-
capitalist social formations strategies of reproduction were predominantly defined
112 MARTIJN KONINGS

by, and focused on, explicit relations of political authority, under capitalism agency
comes to be systematically mediated by exchange relations and oriented towards
the procurement of money. This means that agents experience the monetary
framework of the economy as imposing an imperative. Money is then indeed “a
sovereignty” (Grahl, 2000, p. 295), but not in the regulationist sense: the public
character of money cannot be seen as indicating its communal and conventional
character, but should be understood as the institutionally codified independence of
the social bond vis-à-vis private interests. Thus, Clarke’s critique of regulationism’s
understanding of exchange relations and money is of crucial importance because
it removes these from the realm of arbitrary institutional manipulation and inserts
them into the expansive, imperative rationality of capitalist socialization.
However, where Clarke goes wrong is in assuming that money functions as
an economic structure that exerts determining effects on agency. As we have
seen, his dichotomous conception of money and credit still embodies a conceptual
tension similar to the one present in regulation theory. While the claim that “the
power of money does not derive from the institutional forms in which it appears”
(Clarke, 1988, p. 9) is true in the sense that it is not dependent on any particular
national capitalist context, it is problematic insofar as it suggests that the power of
money exists outside institutional mediations. Money does not hover over “social
relations” and “the state”: it is nothing but an institutionally codified mediation of
agency. The “power of money” is merely the social power which agents vest in it,
the value which they attribute to it. Consequently, any clear distinction between
money with an objectively determined economic content and credit as generated
by state fiat becomes untenable. The power of money is neither objective nor an
arbitrary convention.25
It is not the institution of money as such that creates the monetary imperative, but
the strategies that agents have developed around this institution. Thus, while under
capitalism monetary relations certainly occupy a central position in the fabric of
society, the important thing is to grasp this transformation of money into the focal
point of social power in terms of the generalized adoption of a new kind of social
practice. Historically, market pressures have been met in a variety of ways, and the
re-organization of the labor-process according to the principle of wage-labor has
been one of these. And it is precisely the progressive cutting-off of the population
from all avenues for access to the means of subsistence other than wage-labor which
has been responsible for the intensification of market pressures to the historically
unprecedented degree that allows us to speak of a market imperative. Thus, market
imperatives are only generated through the development of a historically specific
way of producing and a specific set of production relations. This means that it
is inaccurate to say that first market imperatives developed and that in response
a particular mode of producing, centered around the exploitation of wage-labor,
Political Institutions and Economic Imperatives 113

was created (Wood, 1999b). This leaves the transformation of market relations
themselves unexplained, and draws too sharp a contrast between the market as
an “opportunity” and as an “imperative.” Markets have always had a determinate
social significance and exercised social pressures, and it has never been the case
that the market only represented an opportunity that could either be pursued or
entirely ignored. A more adequate representation of the process through which
market imperatives are formed would be one which stresses the strategies adopted
in response to market pressures, and the role of the resulting production relations
in shaping the imperative nature of the market.26
The status of the concept of production relations, then, is here rather different
from the place it occupies in orthodox Marxist theory. Whereas the latter sees
the relation between capital and labor as the foundational relation of capitalist
society – a structural relation which allows us to explain agency, the argument
here emphasizes the importance of understanding the historical conditions under
which human agency has come to express itself through such specific forms
as the institution of wage-labor. The concept of class is here not used to
determine individuals’ positions in an objectively given economic structure, but to
conceptualize the different strategies that agents pursue in response to the market
imperative on the basis of the resources available to them, and how these strategies
reproduce or problematize capitalist socialization.27

3.3. Rethinking the Relation between Imperatives and Institutions

How, then, do these remarks help us in thinking about economic change and
institutional transformation? Not only is it not very fruitful to try to locate an
objective law or a contradictory causal principle from which crises originate, even
more sophisticated attempts to define crisis either on the level of social relations
as such or on the institutional level are problematic for the simple reason that there
are no such things as “social relations” except insofar as agencies meet through an
institutional structure of rules and in so doing produce specific social pressures. Any
meaningful concept of crisis needs to be specified in terms of how individual agents
experience their social context and can therefore only pertain to a widely perceived
inadequacy of the institutional forms through which agents interact to the strategies
they hitherto employed in pursuit of their interests. While others’ actions always
have constraining effects on our own agency, what defines a crisis situation is that
social pressures evolve in such a way as to render ineffective agents’ normal strate-
gies and at the same prevent them from developing a coherent set of new strategies.
It is important to see the specificity of this process under capitalism. In non-
capitalist societies, the stagnation of certain social practices will impact much more
114 MARTIJN KONINGS

directly on specific actors who exist in certain institutionally defined relations,


and will therefore give rise to politically oriented responses. This would result
in a struggle focused on the reproduction or transformation of institutions. By
contrast, under capitalism, the fact that institutionally codified rules are based on
the principle of the non-coincidence of state and civil society and thus delimit
the range of permitted courses of agency rather than prescribe specific kinds of
relations, means that a similar situation will not as quickly usher in struggles around
the form of the state. This involves two related matters. First, individuals have a
much greater leeway to pursue their interests by means of alternative strategies that
are still in accord with the institutional framework which they find before them,
precisely because this framework does not define any specific relations. This is not
to suggest that individuals continuously devise new practices out of the blue – after
all, people only ever adopt new practices because it makes sense in the context of
what they are already doing – but it does mean that they enjoy greater room and
flexibility for practical experimentation. Second, the consequences of individuals’
actions are much more impersonally distributed, and the agential origin of certain
effects at the social level becomes much more difficult to trace. The effects of
individual strategies do not impact so much on specific relations between specific
actors, but get dispersed throughout the system, putting pressure on the agency
of others in an anonymous way. A stagnation in the efficacy of a certain kind of
strategy will therefore not immediately result in a challenge to existing institutions,
but rather in a more or less gradual shift of agency towards new strategies consistent
with this framework.28
The question then is: how do capitalist strategies of reproduction produce
social effects and pressures which tend to render these strategies increasingly
ineffective? To understand this, we need to detail somewhat our understanding
of capitalist strategies of class exploitation. Workers, being separated from the
means of subsistence, have to offer their labor-power for sale. Similarly, there is
no meaningful sense in which “the capitalist class” can be said to “own the means
of production”: individual capitalists are always dependent on the market for the
maintenance and augmentation of the value of their capital. But even though both
experience the market as a compulsion, it is the capitalist rather than the worker who
makes the decisions concerning investment and production. More specifically, in
response to the competitive pressures emanating from the market, capitalists aim
to intensify the exploitation of workers by introducing productivity-increasing
technologies. Now, it is of crucial importance to appreciate the double-sidedness
inherent in this strategy of class exploitation, i.e. its contradictory social effects.
On the one hand, this practice of exploitation reproduces individuals’ dependence
on the market. On the other hand, however, it tends to produce social effects that
render market relations problematic in terms of what agents expect from them.
Political Institutions and Economic Imperatives 115

While in any society there exists the possibility of a mismatch between the
decisions of producers and the social structure of needs, this becomes a systematic
problem under capitalism because the market allows agents both to consistently
avert the consequences of their actions, and to develop supplementary strategies –
both of which will allow them to persist in their basic strategies of production. To
begin with, the market provides no mechanism to prevent producers from entering
a branch of production that is already producing more than the market can absorb,
because if the newcomer produces more efficiently, others will have to bear the
brunt of his/her decision. Thus, aggregate economic indicators and considerations
of overall market efficiency will have very little bearing on capitalists’ decisions.
In addition, once a producer has entered an industry, the logic of his/her calculation
undergoes further change, attenuating even the link between his/her future behavior
and the overall profitability on his/her own capital. The crux here is the use of
long-term fixed investments in the exploitation of labor: since the outlays for fixed
capital absorb part of his/her capital at the moment of purchase, the capitalist
will no longer base his/her future decisions on straightforward calculations of the
revenues and costs associated with his/her entire capital.
Since other capitalists continue to innovate after the capitalist’s initial
investment, the profits he/she can reap on the basis of his/her capital’s exploitative
capacity soon decline. Were the capitalist to dismantle his/her production capacity,
his/her profits would pass to his/her competitors in full. However, the capitalist’s
logic of calculation will dictate that there is no point in pulling out of business
because this would mean foregoing the chance of recovering the value of his/her
fixed investment. Therefore, provided the capitalist is able to access sufficient
additional funds, he/she will try to improve his/her competitive position by means
of further investment. Alternatively, if sufficient credit is not forthcoming but he/she
can nonetheless avoid bankruptcy, he/she will stay in business with his/her old
technologies given the fact that he/she will still be able to make a profit on the
circulating part of his/her capital. Either way, producers will have good reasons
to stay in business that are not reflected in any aggregate economic measures
or considerations of overall market efficiency, nor even in the return on their
own capital taken as a whole. Since this will translate into an overproduction
of commodities, and an overaccumulation of capital in relation to the average rate
of profit,29 the effect of individual capitalists’ investment strategies is to reduce
the profit-making opportunities for other capitalists, i.e. to undermine the general
viability of these investment strategies. A crucial aspect of the capitalist’s ability
to persist in strategies of exploitation that undermine the viability of this strategy
on an overall social level, then, lies precisely in his/her ability to draw on sources
other than only the sale of his/her commodities and thus to avoid singular reliance
on the exploitation of labor.
116 MARTIJN KONINGS

The most important of these avenues is the advance of credit. In order to be able
to think the relation between accumulation, financial imperatives and the state in
less restrictive terms than is allowed by Clarke’s conceptualization of money and
credit, it is important here to re-emphasize the contingent character of the link
between production and money. As I have argued, Clarke’s work is hamstrung
by his belief that financial relations do not bring any new determinations into the
analysis of capitalist dynamics and are in the last instance at the mercy of the
(contradictory) process of accumulation. I have sought to attenuate the objectivity
of the connection between capitalist production and money by reconceptualizing
the monetary imperative as a result of the way in which agents have historically
invested the institution of money. Now, credit, too, existed well before capitalism,
and can in principle be seen as nothing but an extension of the use of money. What
distinguishes money and credit relations under capitalism from their appearance
in other social formations, then, is that they become allied to accumulation and
the exploitation of labor rather than only exchange and trade (Itoh & Lapavitsas,
1999).
Two important points are bound up with this observation. First, credit relations
occupy the prominent position they do in capitalism because they have played a
role in particular kinds of strategies. Capitalist economic strategies have relied
on, and meshed with, credit from their very inception, and this means that
credit relations have historically been much more “organically” integrated with
production relations than is recognized by Clarke, who sees credit as brought
in more or less from outside the accumulation process. In other words, credit is
perhaps not best viewed as institutionally generated in Clarke’s sense, as part of
modalities of institutional regulation possessing a certain degree of autonomy
from the process of accumulation – nor, then, do we have to relativize this
presumed autonomy by positing the ultimately determining nature of production.
Credit relations are embedded in and subject to the changing strategies of agents,
particularly capitalists. Second, then, the recognition of this embeddedness permits
us to go beyond Clarke’s theorization of credit as an instrument for suspending
the laws of production, and of speculation as a disciplining force on states to
restore the ultimately objective link between money and labor. If finance cannot
be understood as merely postponing or precipitating accumulation crises, then
it should be recognized that the build-up of a structure of financial titles offers
opportunities for strategies that are qualitatively different from the exploitation
of labor. Excessive emphasis on the “fictitious” character of credit pre-empts the
question of the social significance of the creation of financial titles, and blinds
us to the potential coherence (and contradictions) internal to financially oriented
strategies. This is especially relevant to our understanding of speculation, as I will
show below.
Political Institutions and Economic Imperatives 117

Thus, after the capitalist has introduced a new method of production he/she
will for some time enjoy a competitive advantage and be able to realize a profit
higher than the average rate. If these profits are sufficiently high and stable, the
company may be able to finance a good part of its further investment out of its
retained earnings.30 At some point, however, the company will be overtaken by
other producers implementing newer and more productive technologies with a
greater exploitative capacity, which pushes the company down the stratification of
capitals. If the market possessed an in-built adjustment mechanism to push this
capitalist out of business, there would be no problem of overproduction at the
social level. However, since such considerations do not enter into the capitalist’s
calculations, he/she will draw ever more on external sources of finance in order to
replace his/her fixed capital equipment before he/she has earned back the value of
the old capital. When the returns on new investments turn out to be disappointing,
firms will expose themselves to an even higher degree of financial fragility by
taking on ever more debt in order to finance further investment. Increasingly,
the financing constructions used will become more speculative, i.e. based on the
hope or expectation that things will take a turn for the better rather than on any
extrapolation of present trends for the future.
At the same time, the effects of stagnating strategies will reverberate throughout
the economy and reinforce downward trends in other sectors of the economy. As
the prospect of realizing sufficient profits to meet all financial obligations becomes
increasingly bleak for some companies, they will begin to adjust their strategies
towards practices that seem to hold more promise for generating profits. Familiar
examples are attempts to undermine the competitive structure of the industry by
merging with other companies, to force down wages and working conditions, to
begin diverting part of the companies’ resources to purely financial activities,
to shift investments towards other localities, etc. Meanwhile, the companies that
fall behind the competition to such an extent that all chances of catch-up seem
to have faded will be cut off from credit and will perish, but with the existing
capacity being utilized as long as profit can be made on the circulating capital, thus
exacerbating the downward pressure on the average profit rate. As this process
continues and begins to affect several industrial sectors or segments of society,
there will come a point at which the average rate of profit has fallen so much
that it has become difficult even for the most productive capitalists to maintain
profits sufficient to comfortably meet all their financial obligations. Increasingly
perceiving the limits of their investment strategies, capitalists, instead of further
stepping up their investments and thereby intensifying the logic of a tightening
competitive imperative, are more likely to fundamentally reconsider their strategies
and to begin exploiting the speculative opportunities offered by the structure of
financial obligations. This flight out of production and into finance has two sorts
118 MARTIJN KONINGS

of consequences: first, it will lead to an intensification of more explicitly political


struggle, and, second, it sets the stage for this struggle.
First, the most immediate consequences of massive disinvestment are a rise in
unemployment, a decline in the growth rates of income and productivity, and a
decline in the state’s tax base. Thus, at the same time as workers’ capacity to
reproduce themselves through reliance on wage-labor becomes jeopardized, the
material basis of the state’s capacity to act as a mediator of social conflicts is also
under pressure. Labor militancy will tend to spread, further adding to pressures on
profits, and as the basis for collective action on the basis of shared interests grows,
the working classes will pursue their interests ever more by means of politically
oriented strategies.
Second, it is important to see that even though the recourse to financial
speculation is a response to and remains subject to the monetary imperative, the
specific nature of this imperative nonetheless undergoes drastic change. That is,
these new strategies involve a very different sort of socialization around money:
the social rationality associated with financial speculation is one of returns that do
not decrease, but increase with the rise in the number of market participants.
Whereas strategies of exploitation are characterized by a declining efficacy,
financial speculation thrives on the number of participants pursuing similar kinds
of strategies.
Thus, this process is perhaps not best understood as a divergence of the financial
superstructure from “economic fundamentals.” Nevertheless, while the idea that
production somehow forms the bottom-line of financial speculation is an illusion,
it is nonetheless a widely-held and very powerful illusion, which decisively affects
the dynamics of financial speculation. What many regard as objective indicators
of the ultimate unsustainability of speculation, become “signs in a different social
logic” (Knafo & Konings, 2003, p. 24) – a rationality that drastically transforms
the nature of competition as compared to the social rationality associated with
practices of exploitation. And the point is precisely that the distinctiveness of this
rationality eludes its participants. So, although financial speculation cannot be said
to be parasitic upon productive activities in any objective sense, and although there
is no reason to suppose that it is “inherently” crisis-prone, what gives the process
its volatility is rather the beliefs that actors themselves have about the coherence
and long-term viability of their practices. Financial speculators will themselves
base their decisions on their expectations concerning what other investors will do
– and in this logic, the larger the influx of participants and funds, the better –, but
still assume about the behavior of others that it is based on a more or less rational
assessment concerning the development of production indicators. It is never the
“real indicators” in themselves that spark a financial meltdown, but only ever the
expectation that others will respond to them in a certain way.
Political Institutions and Economic Imperatives 119

The danger of a financial meltdown or a massive pull-out of capital from a given


context will, then, be generally perceived in terms of the discrepancy between
the development of financial markets on the one hand and “real” indicators on
the other. Now, the fact that financial strategies escape the kind of logic to which
regular strategies of capitalist reproduction are subject but are nonetheless assessed
according to that logic means that they are seen to have a disciplining force
on the specific institutional context which they are seen to have “disembedded”
themselves from. This “disembeddedness,” then, is a misleading appearance, since
the point is precisely that financial capital is still allied to a specific kind of
institutional framework, even though it is the product of a different way of acting
on and socializing around this framework. External pressures on the state thus
stem from a reorientation of capitalists’ strategies but can only exist in virtue of
a continued popular belief in the objective value of money and the naturalness of
a capitalist social rationality. External pressures on the state, then, only exist in
virtue of a specific internal organization of that state. And it is the perception of
this external constraint that systematically biases struggles around the redefinition
of the state in favor of the interests of the capitalist class.
For meanwhile, the state is subject to internal pressures, stemming from actors
who forge politically oriented alliances with the aim of reconstructing the state. But
the struggle over the state never occurs outside the state: although the politicization
of class struggles is an expression of individuals’ decreasing ability to rationalize
their experience of their social relations in terms of the public meanings and
institutionalized norms available to them, this occurs in a context where they are
unable to think outside the practices which seem naturally associated with these
rules and norms, i.e. to envisage other types of strategies as viable on an overall
social level. Even though labor movements will often aim for a reorganization of
the state, their aims have always remained hostage to the perceived necessity
of maintaining the state’s financial sanity in the hope of wielding the policy
instruments offered by it. Although of course the bourgeoisie has its own political
organizations, the selectivity of the state will forever remain a mystery as long as
we seek to locate the sources of this in the differential organizational capacities
of labor and capital. It is of course true that employers’ organizations have better
access to a variety of resources, but any such considerations would be outweighed
by the sheer numerical difference between the working class and the bourgeoisie.
Ironically, the selectivity of the state operates primarily through the organizational
modalities of working class mobilization and politicization itself, i.e. through the
working classes’ continued evaluation of social practices in the traditional terms.
Thus, there is little point talking about a tendency of capital to overaccumulate or
the selectivity of an autonomous state as if these were mechanisms exerting causal
effects on individuals’ agency. All we can do is to understand what problematizes
120 MARTIJN KONINGS

the rationality of capitalist socialization and will prompt actors to adjust their
strategies of reproduction. While crises will necessarily play themselves out
around the institutional forms of the state, it is misleading to describe this process
as a relatively undetermined struggle for hegemony, or even as a more direct
confrontation of classes shorn of their ideological qualities with “objective”
interests in the reproduction or transformation of capital conceived as an economic
principle or structure. As we have seen, attempts to theorize the development of
capitalism in terms of undetermined and open-ended political and ideological
class struggle (i.e. to put class relations “before” or “beyond” the logic of capital)
tend to proceed on the basis of an implicit conception of capital as an underlying
economic principle to which those struggles are ultimately subordinated. While the
mechanisms that systematically bias the outcome of political struggles in favor of
the reproduction of capital remained entirely unclear and unspecified in regulation
theory, Clarke sought to link the state to the maintenance of the rule of capital
through the power of money. However, his inability to fully specify this power in
social terms meant that his account of the reproduction of capitalist relations is still
functionalist, with the role of state institutions reduced to either accommodating
the power of labor by means of credit expansion or translating the power of
money (imposed through speculation) into a restructuration of class relations.
Thus, in order to understand the processes of institutional transformation specific
to capitalist society, it is necessary to part with any notions of class strategies as
temporarily freed from the rationality of capitalist relations. That is, everything
depends on how actors, located in specific institutional settings, produce a definite
social rationality, experience social pressures, which strategies they will choose
and which alliances they will forge in response to these, and how in doing so they
transform their institutions. There is no such thing as “capitalism” which we can
theorize to subsequently introduce the country-specific institutional details. This
should not be taken as an abandonment of theory; rather, it should be seen as a
shift from “a theory of capital(ism)” to theorizing paths of social development and
thus to enrich our understanding of what “capitalism” means.

4. CONCLUDING REMARKS

While this paper has argued for a more historical understanding of capitalist paths
of development, I hope that the case I have made sounds less facile and gratuitous
than the note on which most recent discussions of the relation between state and
economy conclude – that generalizing theory does not suffice. What I propose is not
so much to do historical work because we have exhausted our theoretical resources,
but rather to theorize in a different way from the very beginning. Theory should
Political Institutions and Economic Imperatives 121

neither introduce institutions to “mop up” the empirical instances that remain
outside the explanatory ambit of its general laws, nor fall prey to the temptations of
an untrammeled pluralism which matches every “type” of agency to an institution.
As long as we continue to think in the traditional terms that we tend to be offered
by Marxists and institutionalists, the best we will be able to do is to arrive at a
blend of economic and institutional determinations. The argument of this paper
has been that we need to escape from a causalist logic of explanation, and think the
relation between institutions, imperatives and agency in a qualitatively new way.
The outline of my alternative approach has admittedly been rather tentative, and
I am fully aware that the themes I have broached need to be worked out in much
more detail, both theoretically and empirically. On a theoretical level, my approach
will remain vulnerable to the argument that it is based on an essentialization of
individual agency until I give a convincing account of how it is consistent with
an understanding of the constitution of agency itself. On an empirical level, my
account will no doubt meet with objections that I pay either too much or too little
attention to institutional diversity vis-à-vis processes of capitalist convergence. Let
me single out two aspects of such more empirical issues with respect to which I
intend to elaborate the approach sketched in this paper (see also Konings, 2005,
forthcoming).
First, although I am very sympathetic to Marxist critiques of the new
institutionalism’s reasoning in terms of varieties and models of capitalism,
the question that remains to be addressed is what the institutional differences
between different social formations do signify. If it is not enough to say that the
determining forces of “capitalism” are stronger than the “variety” of institutional
forms in which it appears, then in one way or another this variety should
itself inform our conceptualization of capitalism. But, secondly, emphasizing the
constitutive importance of these institutional differences rather than similarities
and convergence can never be a straightforward move, since one of the most
conspicuous features of our era is the global spread of capitalist pressures and
processes. Within the discipline of international political economy, this question
is most often addressed in terms of the hegemonic power under which capitalist
reproduction is secured on a global scale. These attempts suffer from problems very
similar to the ones I have tried to lay bare in this paper. Even Gramscian Marxists
remain caught in an understanding that prematurely differentiates capitalist
economic structures and the levels of institutions and ideas (e.g. Cox, 1987; Gill,
1993).31 In order to come to terms with the apparent anomaly of the enduring power
of the U.S. since the 1970s, they then focus on the process of transnationalization to
which each of these levels is subject, highlighting the structural power of capital on
which U.S. power relies (e.g. Gill & Law, 1986). However, globalization cannot be
understood as a generic instance of the universalizing tendency of capitalism.The
122 MARTIJN KONINGS

only way in which we can grasp the specificity of contemporary globalization is


by viewing it in terms of the spread of social pressures and dynamics engendered
within specific sets of predominantly domestic institutions. More concretely, we
can only ever hope to understand the way in which the post-war period was shaped
on a global scale if we manage to understand what is specific about capitalism as
it originated and developed in the US, and what gave it the particular dynamic that
it has projected outwards over the past century.

NOTES
1. The phrase is taken from Evans, Rueschemeyer and Skocpol (1985), which represents
the central programmatic statement of this literature. Other seminal collections include
Steinmo, Thelen and Longstreth (1992), Kitschelt et al. (1999), and Hall and Soskice
(2001). For an overview, see Robertson (1993). While the label “institutionalist” could
potentially be applied to a range of different bodies of theory, this essay is specifically
concerned with those strands of institutionalism that have directly concerned themselves
with questions of state theory, i.e. the new institutionalism in political science (also known
as “historical institutionalism”). We can also identify “new institutionalisms” in economics
(North, 1981), sociology (Granovetter & Swedberg, 1992), and organizational analysis
(Powell & Dimaggio, 1991). For an overview, see Immergut (1998). Within economics
we find yet another strand of institutionalism – one that is critical of the rational-choice
tendencies in the new institutional economics and draws extensively on the old institutional
economics of Veblen, Commons, etc. (Hodgson, 1993; Tool, 1993).
2. To be sure, I am not here suggesting that the post-war period was the first time that
Marxists began to think about the state and its institutions. In fact, the analysis of the
state has a rich tradition dating back to the period of classical Marxism, beginning with
the debates between Bernstein, Kautsky, and Lenin. For overviews, see Boggs (1995) and
Pierson (1986).
3. For overviews of Marxist state theory (see Barrow, 1993; Carnoy, 1984; Clarke, 1991a;
Jessop, 1982).
4. See Konings (2005, forthcoming) for an attempt to show how the theoretical
considerations put forward in this article work out on a more empirical level.
5. Without any claims to completeness, I will treat the following three strands of recent
Marxist theory: Regulation Theory (Aglietta, 1979, 1998; Boyer, 1990; De Vroey, 1984;
Jessop, 1990b, 1997; Hirsch, 1995; Lipietz, 1985a, b, 1987), Political Marxism (Brenner,
1998; Brenner & Glick, 1991; Wood, 1995, 1999a), and Open Marxism (which I will
examine through the work of Simon Clarke (1988, 1989, 1991b, 1992, 1994, 2001), but
for other contributions see the edited volumes of Bonefeld, Holloway and Pscyhopedis
(1992a, b); Bonefeld, Gunn, Holloway and Psychopedis (1995); Bonefeld and Holloway
(1991, 1995)).
6. The analysis of the state has mostly been elaborated by Jessop (1990) and Hirsch
(1995), drawing mainly on Poulantzas and Gramsci.
7. In other words, the state’s separation from the economy “and its relative autonomy
make it possible that it becomes a locus for the mediation of social compromises
Political Institutions and Economic Imperatives 123

and balances without which no capitalist society can last” (Hirsch, 1995, p. 24; my
translation).
8. That is to say, the Fordist mode of regulation permitted the “a priori” fulfillment
of “the two rules of the ‘golden age.’ ” First, pro capita fixed capital and productivity
in Department I grew at the same rate, so that the cheapening of investment goods
compensated for the tendency towards the overaccumulation of capital. Second, mass
consumption and productivity in Department II rose at the same rate, so that tendencies
towards overproduction were counteracted (Lipietz, 1985b, p. 125; my translation).
9. Since these developments took place with the institutions of Fordism still in place, i.e.
within a relatively coherent web of “external connections” whose “autonomy is maintained
by the strength of the institutions of monopoly regulation, particularly the rule of credit
money,” the crisis did not cause prices or production to collapse but took the shape of
combined stagnation and inflation (Lipietz, 1987, p. 111).
10. “[T]he ascendancy of neo-liberalism represents a regulatory vacuum, the absence of
a new institutional fix” (Peck & Tickell, 1994, p. 296).
11. Owing in part to the large number of visions of post-Fordist futures, it remains unclear
what a new regime could look like. In the most general of terms, however, the problem of
devising a new accumulation regime revolves around how to regenerate profitability and
enhance competitiveness through new institutional supports for innovation and productivity
growth, decentralized wage regulation and labor market flexibility, selective fiscal and credit
policies attuned to the needs of regional industrial clusters, and a more layered organization
of political authority and intervention mechanisms. While concepts such as “national
competition state” and “Schumpeterian workfare state” have been proposed in order to
both signal the fact that neoliberalism, seeking to demolish the economy’s institutional
environment rather than re-embed the dynamics of accumulation, is inherently incapable of
offering solutions to these problems, and take into account that the construction of a new
regime may not be quite the communal endeavor as which it is often presented, regulation
theory as a research program is revolving ever more around the question of “how social
progress can be renewed in harmony with a regulatory principles [sic] which must strengthen
the nation so that it can take advantage of the opportunities offered by global capitalism”
(Aglietta, 1998, p. 87).
12. Thinking too much in terms of a coherent compromise and society-wide hegemony
leads one to ignore not only the continued salience of class antagonism, but also how
contradictory class interests were imported into, and played themselves out within, the
labor movement.
13. How plausible is it to maintain, at the same time, that the capitalist class devises
comprehensive state projects and coordinates their implementation, and that it lacks the
insight to see that its neoliberal strategies are killing the goose that lays the golden eggs?
14. See especially the fourth and fifth issues of Historical Materialism.
15. It should be clear, then, that the object of my criticism in this section has not been
the historical insights generated by the project of Political Marxism, but rather the way
in which its leading practitioners have tried to theoretically explicate the thrust of their
historical research.
16. The two most important aspects of the regulationist account of the post-war period on
which Clarke’s analysis clearly improves are the excessive emphasis on the “consumption
norm” and the problematic understanding of the relation between the national regime and the
international environment. However, an important additional difficulty for Clarke’s theory
124 MARTIJN KONINGS

is that if the power of labor is indeed the fundamental variable that determines the shape
of a particular configuration of state institutions, it is difficult to see why it was only after
the second world war that the integrative institutions of Fordism arose. Regulation theory
at least tries to address this problem by positing the independent influence of economic
variables. (I have drawn this insight from Notermans, 2000.)
17. But see Hall and Taylor (1996), who argue that historical institutionalism can address
the relation between agents and institutions by drawing on either a holist approach or a
rational-choice calculus.
18. Institutionalist authors who are not primarily concerned with questions of state theory
have much more explicitly drawn on realist theories of structure and agency (e.g. Lawson,
1997). Among the Marxist theories discussed here, it is regulation theory has made explicit
its affinity with realist philosophy (Jessop, 1990a, b, 2001b). It should be noted here that
Open Marxist authors such as Bonefeld and Holloway (see the contributions to Bonefeld
& Holloway, 1991) have criticized regulationism’s appropriation of critical realist insights.
While a detailed consideration of this debate lies beyond the scope of this essay (all the
more so since it would involve working out the many subtle differences between the work
of Clarke, Bonefeld and Holloway), I believe that Bonefeld and Holloway are ultimately
unable to effectively rid their understanding of structuration of realist affinities and causal
reasoning (for some further comments see note 20).
19. It has been pointed out that this analogy between social institutions and game rules
is invalid, because the former involve an element of coercion which the latter do not.
Since I cannot here go into the larger question of whether it is permissible to conceive, in
Wittgensteinian fashion, of social interaction in terms of games, I would like to suggest
that the skeptical reader imagine the chess example with the authority of the rules being
safeguarded by coercive force. This coercive moment can of course have crucial effects,
but it has these effects only in terms of the rules of the game.
20. These structural forms are certainly inter-subjective, and therefore social, but this
does not mean that it is fruitful to think of institutions as “forms of social relations” (as
Clarke suggested) insofar as this is still an attempt to define the concept on an ontological
level, i.e. to tie institutional forms back to an independently subsisting structural content.
My argument is that the concept of social form should be understood in a more pragmatic
and epistemological sense, i.e. as an abstract conceptual form that agents utilize in order to
gain some cognitive grip on the world and to act. “Social forms” do not only differ from
Althusserian structures in the sense that they disallow us from thinking in terms of the
articulation of pre-partitioned material bits of reality, but also in the sense that they have
no practical import except insofar as they exist for and are invested by agents. And it is
this latter sense that Clarke fails to appreciate, which prevents him from pursuing the full
implications of his form theory.
These points would apply equally to the arguments put forward by Bonefeld and Holloway
in their critique of Jessop’s regulationist and critical realist affinities (see the chapters in
Bonefeld & Holloway, 1991). While I am sympathetic to their claim that Jessop disarticulates
structure from struggle, I also think it does not go far enough. For instance, there is great
ambiguity in Bonefeld’s claim, found elsewhere, that “the notion of the primacy of class
antagonism effectively says that structures do not exist. Of course in a sense they do exist,
but they exist only as modes of existence of class antagonism and hence as social process”
(Bonefeld, 1992, p. 114). This says little about what structures exactly are, i.e. what this
sense or mode in which they exist is. At the same time, the concept of class struggle
Political Institutions and Economic Imperatives 125

becomes an explanatory catch-all category (Joseph, 1998, pp. 97–98) which, for all intents
and purposes, functions as an ontological bottom-line. As such – even if technically the
charge of structuralism can always be countered by insisting on the primacy of struggle
– it pre-empts, rather than facilitates the exploration of, the question of agency. Here too,
the main problem is that Bonefeld and Holloway still seek to solve the question on an
ontological level.
21. See also Doty (1997). Archer (1995) has taken this logic to its extreme by positing
the temporal separability of structure and agency.
22. This is Archer’s somewhat unfavorable reading of Giddens’ work.
23. I should point out here that I see the thrust of Giddens’ work as much more compatible
with the analytical hermeneutics of Winch and Taylor than Giddens himself does. Giddens
criticizes Winch (and the linguistic turn in analytical philosophy at large) for presuming
that agency is exhausted by the meaning that actors ascribe to it, and for downplaying the
ways in which social practice is much richer and more complex than just following rules. I
wonder if this criticism is entirely fair: Winch rather overstates his case when he says that
behavior is “rule-governed,” but he also emphatically asserts that the salience of rules for
studying social life merely depends on the possibility of distinguishing a right from a wrong
way of following a rule, and that rules are publicly defined rather than “in our heads.” This
is certainly not to deny that Giddens pays much more attention to both the modalities of
agency and the unanticipated consequences of social action, but rather to suggest that this
can be seen as a fruitful elaboration rather than a refutation of hermeneutically oriented
approaches. It is also to suggest that the limits of hermeneutics coincide with the limits of
Giddens’ work – as well as, I hasten to add, the limits of the argument made in this article:
both ultimately fail to account for the construction of agents and the emergence of agency
(see note 24).
24. As indicated in note 23, I believe that the agency-based approach presented in this
paper is much more vulnerable to the objection that I rely on a conception of agency as pre-
constituted (as having a “prior and independent existence,” as one reviewer put it) and fail to
consider the constitution of agency, than to critiques of realist and structuralist provenance.
I do not of course think that my argument ultimately supposes such an understanding
of agency and subjectivity, but acknowledge that the discussion in this paper does not
suffice to remove all reasonable suspicion in this regard. And it is of course the case
that the hermeneutic approaches that I draw on have never explored this problem in
any great depth; nor, as indicated in a previous footnote, has Giddens’ work solved this
question. Post-structuralist approaches, for instance, would certainly take issue with my
argument on the grounds that it is not only structures which are not objective in any
realist sense of the word, but that agency is equally a discursive construction, deprived
of ontologically primordial qualities. Doty (1997) offers an eloquent formulation of this
argument, but her attempt to think both structures and agents at the same, epistemological
level, i.e. as discursive constructions, produces dilemmas that are oddly reminiscent of the
structure-agency problematic that she criticizes. I believe it is crucial to acknowledge that,
while agents are certainly discursive constructions, the efficacy of agency, understood in a
more fundamental sense, cannot be reduced to discursivity because it originates precisely
there where meaning is insufficient to account for experience, and because agency always
produces effects that are real (i.e. non-symbolic) in a sense that structures are not (which
is clearly not to deny that these effects cannot be grasped on an ontological level and that
we have only access to them through discursive structures). Agency is always prompted by
126 MARTIJN KONINGS

an inability to discursively account for certain experiences, and it always produces effects
that cannot be grasped on an epistemological level, that precisely elude the conceptual
grip provided by a given discursive structure. This echoes Žižek’s attempt to differentiate
Lacanian psychoanalysis from poststructuralist understandings of subjectivity. According
to Žižek, agency should not be seen primarily as a product of discourse, “as an effect of a
fundamentally non-subjective process” (1989, p. 174); the formation of agents and subject-
positions through discourse precisely conceals a lack in the discursive structure – a lack
that is subjectivity itself. So, while the reduction of the subject to epistemology is resisted,
it is also not defined in a positive way. Clearly, however, this is to broach many questions
that lie well beyond the scope of this paper.
25. I would like to emphasize that the discussion of money offered in this paper should
be seen as part of my attempt to carve out a position in the debate on the relation between
economic imperatives and political institutions (as this has crystallized through different
explanations of the post-war period), and is not intended as a contribution to the Marxist
theory of money and finance. What I want to show is that money can be understood neither
as an institution in the regulationist sense nor as a structure that operates independently
of institutional mediations (as in Clarke’s work), and that we need to understand the
development of financial pressures in a different way. Marxist political economy has a
long tradition in theorizing money and finance which would no doubt help in working
out more concretely some of the themes broached here, but a discussion of the concrete
modalities and mechanisms of money and finance lies beyond the scope of this paper. See,
however, De Brunhoff (1976), Reuten (1988), Lapavitsas (1991), Harvey (1999), and Itoh
and Lapavitsas (1999).
26. The question of whether market competition determines (the laws of) capitalist
production or the other way round, i.e. of whether market imperatives cause the formation of
capitalist class relations or the other way round, leads to the problem of the chicken-and-the-
egg, and therefore seems a poor way of phrasing the issues at stake. Both market pressures
and wage-labor were around long before the advent of capitalism, but in non-capitalist
institutional settings they had an entirely different social meaning; a social rationality based
on the link between money and labor could not develop. The problem is therefore not to
find first causes, but rather to understand a historically shaped social rationality in terms of
the development of determinate social practices (something for which either “class” or “the
market” as such is insufficient).
27. The term “resources” is often taken to imply a Weberian theory of social stratification,
which has descriptive power but fails to understand the phenomena it describes as underlain
by an objective class structure. However, I understand resources as having no social
significance of their own, but as employed by agents following a set of institutionally defined
rules. Resources are always inserted in a social rationality thus constituted. Ironically, it is
precisely the kind of Marxism in search of such an objective class structure (e.g. Wright,
1985) that often finds itself having to rely increasingly on Weberian categories (and to
water down the Marxist element) as it tries to approach historical reality. The point of class
analysis is not to tack labels onto individuals, but to clarify the specific conditions and
modalities of their agency.
28. Thus, in a very important sense, far from being absent, the mediating influence of
institutions is much more profound and resilient under capitalism than under any other
social formation (which accounts for the fact that many observers see modern society as
characterized by the extraordinary powers of the state, whereas others try to define this
Political Institutions and Economic Imperatives 127

specificity in terms of the limitations on the state). This means that capitalist crises will be
more postponed, more generalized and more dramatic than in any other social formation.
29. As Reuten (1991) and Brenner (1998) have argued, any systematic tendency for the
rate of profit to fall is dependent on the assumption of the stratification of capitals.
30. See Doughney (1999) for a theoretical and empirical treatment of sources of finance.
31. See also Burnham’s (1991) important critique of Gramscian international political
economy.

ACKNOWLEDGMENTS
I am grateful to the following for their help and comments on earlier versions
of this paper: Greg Albo, Robert Albritton, Etienne Cantin, David Coates, Travis
Fast, Sam Gindin, Samuel Knafo, Thierry Lapointe, Leo Panitch, and David Sarai.
I would also like to thank Paul Zarembka and the anonymous reviewers for their
comments. An earlier version of this paper was presented at the Workshop for
Value Theory held at York University on March 9, 2002.

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PART II:
ABSTRACT LABOR, PRICE, AND
TECHNICAL CHOICE IN
CAPITALISM
QUANTIFYING ABSTRACT LABOR:
“ALIQUOT PART” REASONING IN
MARX’S VALUE THEORY

Bruce Roberts

ABSTRACT

Building on an analysis of values and prices in the context of explicitly


heterogeneous concrete labors, this paper formally examines Marx’s repeated
imagery of capitalist competition as a process of “sharing” among
“hostile brothers,” each a “shareholder” in a “social enterprise” in
which particular commodities and capitals appear as “aliquot parts of the
whole.” Approaching each commodity as it appears in competition – as the
product of an aliquot part of the aggregate inputs to production – allows
several conclusions. First, value-price transformation is equivalent to a
transformation of actual production conditions (on the basis of which the
social labor contained in the commodity is its value) into socially average
or aliquot part production conditions (on the basis of which the social
labor contained in the commodity is its production price). Second, price
formation (“gravitational” adjustment to levels expressing equivalence) is
the same thing as the formation of abstract labor as the homogeneous unit of
measure for the labor content of commodities. Each is an aspect of a single
process that simultaneously commensurates use-values as market equivalents
and commensurates concrete labors as abstract labor, so that equivalents
in exchange do indeed “contain” equal amounts of abstract labor. Third,

The Capitalist State and Its Economy; Democracy in Socialism


Research in Political Economy, Volume 22, 133–165
Copyright © 2005 by Elsevier Ltd.
All rights of reproduction in any form reserved
ISSN: 0161-7230/doi:10.1016/S0161-7230(04)22005-3
133
134 BRUCE ROBERTS

concerning commodity fetishism and the “illusions” of competition, the social


content of particular magnitudes becomes visible when each is represented
as a “bearer” of crucial characteristics of the aggregate that have been
projected onto its parts, so that what initially appears as separate, particular
and individual is simultaneously connected, general, and social.

The concept of abstract labor is one almost guaranteed to start an argument among
those familiar with Marx and the theory of value. Such arguments often bog down
due to the thoroughly different – indeed, sometimes inconsistent – premises of
the participants. For example, to some, the term “abstract labor” invokes a host
of quantitative issues, due to the perceived necessity for an explicit mathematical
reduction of concrete labors to abstract labor in the derivation of Marxian value
magnitudes, while for others it is a fundamentally qualitative category, important
largely as a signpost warning of the irreducibly social or systemic content of all
magnitudes in capitalism (and is, therefore, to some, essentially unmeasurable
except in its manifestly visible form as money price). Still others, opponents
of Marxian value accounting, deny that the concept of “abstract labor” has
any real meaning at all, viewing it as “just a pair of words” (Steedman, 1985,
p. 31).
Differences of this sort have contributed to making most contributions appear
“one-sided” when looked at from an alternative perspective. From the perspective
of those interested mainly in social, historical and political critique, a focus on
mathematical issues may seem to betray an indifference to social form that is
Ricardian, echoing Marx’s critique of the classicals as “entirely absorbed by the
analysis of the magnitude of value” (1976, p. 174). Similarly, from the perspective
of those whose direct interest is the quantitative determinacy and consistency of
Marxian value theory, qualitative questions of fetishism and form may seem, at
best, beside the point and, at worst, an obstacle to clear thinking about Marx’s
fundamental analytic concerns – exploitation, accumulation, and crises. All might
broadly agree that Marx himself was interested in both sets of questions and yet
still find little common ground for further discussion.
This paper is grounded in the quantitative tradition, in that it takes seriously the
need to specify the “reduction” by which concrete labors become abstract labor.
Such a reduction is necessary, says Marx, since “to measure . . . commodities by
the labour-time they contain, the different kinds of labour have to be reduced
to . . . labour of uniform quality, whose only difference, therefore, is quantity”
(1970, p. 30). Marx thinks of the reduction as the outcome of a real social process
(albeit one that “goes on behind the backs of the producers” (1976, p. 135)), but
his brief theoretical considerations of it often have an algebraic flavor, as when
Quantifying Abstract Labor 135

he says that “in every process of creating value, the reduction of the higher type
of labour to average social labour, for instance one day of the former to x days
of the latter, is unavoidable” (1976, p. 306). In practice, though, Marx chooses to
avoid any detailed examination: solving for x is labeled a “superfluous operation”
which, in order to “simplify [the] analysis,” can be avoided by “the assumption
that the labour of the worker employed by the capitalist is average simple labour”
(1976, p. 306). Marx scholars may (and do) differ about whether this truly is
a mere simplifying assumption, but even if one grants that it is, the relaxation of
simplifying assumptions is a worthy task for theory; if the reduction that determines
Marx’s “x” is “unavoidable” when we are trying to quantify the outcome “in every
process of creating value,” then Marxian theory is better off confronting it, by
clarifying what an abstract labor-hour is.
I am aware that some view the entire question of quantifying abstract labor as
misconceived, since to some the only appropriate, even possible, unit of account for
values is money. For example, those working with a “value-form” approach (e.g.
Arthur, 1993, 2002; Reuten, 1993; Reuten & Williams, 1989), though often quite
critical of Marx, find support for their stress on the centrality of money in Marx’s
oft-quoted statement that “money as a measure of value is the necessary form of
appearance of the measure of value which is immanent in commodities, namely
labour-time” (1976, p. 188). Those who stress this passage tend to underline the
word “necessary” (money is the necessary form of appearance of value) as implying
that any quantitative focus on abstract labor as a unit of magnitude distinct from its
monetary expression is not merely superfluous but positively misguided. I don’t
share this view, and the sentences immediately preceding the statement by Marx
just cited suggest the reason why, by putting the “necessity” of money in a rather
different light: “It is not money that renders commodities commensurable. Quite
the contrary. Because all commodities, as values, are objectified human labour, and
therefore in themselves commensurable, their values can be communally measured
in one and the same specific commodity, and this commodity can be converted
into . . . money” (1976, p. 188) (emphasis added). Marx does not begin Capital 1
with money prices and then derive from them an implied “immanent” measure
of value in terms of labor time; he begins with the equivalence relation between
any two non-money commodities (coats, linen), insists that the commensurability
of commodities is the commensurability of the labors they contain, and only
then, quite deliberately, does he derive the (necessary) existence of money as
a consequence of systematic commodity exchange, simply an extension of the
“general form of value” which relates commodities as exchange equivalents
without reference to money prices.1 While I understand that other readings are
possible, in my reading of Capital there is a “discursive priority” given to labor-
time units that simply cannot be dispensed with in a Marxian analysis,2 and so
136 BRUCE ROBERTS

my approach here is to pursue the reduction of concrete to abstract labor without


giving any special role to money as a unit of measure.
But even though the quantitative focus of this paper has little in common with
value-form or monetary approaches, I share with those approaches an interest
in the qualitative concerns that are so crucial to Marx. The visible “surface” of
experience in commodity societies is filled with numbers – prices, quantities,
work-days or weeks – and so the explanation and/or derivation of those numbers
is part of the task of social theory. But questions of “why” and ‘how” are every bit
as important as “how much,” and an interrogation of the social form and character
of individual activities occupies a significant part of Marx’s attention and takes
up a significant part of his writings. His lengthy and repeated examinations of the
“fetishism” of commodities and money, the “illusions” created by the monetary
system and by competition, the consequences for perceptions and experience of
participants in social arrangements that lack the transparency of “production by
freely associated men” (and women) are all qualitative applications of his theory
of value. So the point of the algebraic derivations that follow is to reexamine, in
this light, the qualitative role of value in “transform[ing] every product of labour
into a social hieroglyphic” (1976, p. 167). Integral to this is a formal treatment of
some of Marx’s more metaphoric conceptual arguments, including his imagery of
capitalist competition as a process of “sharing” among “hostile brothers,” each a
“shareholder” in a “social enterprise” in which particular commodities and capitals
appear as, in effect if not in fact, “aliquot parts of the whole.” Marx’s aliquot
part imagery can be developed to provide a formal bridge or link between the
quantitative/mathematical and qualitative aspects of his value theory.
In the interest of clarity, I want to emphasize in advance that what follows is not
intended to be a presentation or summary of Marx’s own value theory as a whole.
It is instead an examination of the joint implications of particular statements Marx
makes, ones chosen because of their relevance to the concepts of abstract labor,
fetishism, etc. Naturally, my interpretation of Marx as a whole informs the choice
of quotations and the form of the argument. Yet my principal interest is to present
a systematic quantitative approach specifically focused on particular statements of
Marx’s that have been, in my view, underappreciated in this context.
The next section presents an overview of the relations between labor-
times, allocation, and equivalent exchange, setting the context for Marx’s
aliquot part imagery. The section following briefly elaborates (one approach to)
the mathematical determinacy of the various labor-time categories in Marx’s
arguments (values, exchange-values, and “reduction coefficients”). The final
sections then develop on that basis an explicit algebraic treatment of Marx’s claim
that “each particular capital should be viewed as simply a fragment of the total
capital” (1981, p. 312) and each commodity similarly “as the product of an aliquot
Quantifying Abstract Labor 137

part of the social capital” (1971, p. 81). I will argue that such an approach sheds new
light not merely on some familiar quantitative issues (value-price transformation
and commensuration of heterogeneous labors) but also on some of Marx’s more
qualitative concerns (the “illusions” of competition and commodity fetishism).

1. QUANTIFICATION, ALLOCATION,
AND EQUIVALENCE
To begin with, why should Marx set out in the first place to conceive the exchange-
value relations of commodities in terms of labor-time? Obviously, such a project
is rooted in the long history of previous efforts to relate prices to labor values, but,
abstracting from Marx’s place in the history of political economy, an answer might
go as follows. In any sort of society (and, for Marx, that is always where we must
start: every “micro” relationship has “macro” foundations, i.e. societal, social,
conditions of existence), production of the gross output in any period involves
combining (along with “nature”) produced physical inputs and various sorts of
human effort. That means we can in principle always observe two aggregate lists
or vectors. On the one hand, we could observe the aggregate of concrete labors
– all the various things people do as agents in production, the hours of (concrete,
heterogeneous) work put in; in a familiar notation to be defined below, this is Lx.
On the other hand, after accounting for replacement of consumed physical inputs,
we could calculate the aggregate bundle of concrete use-values that represents
the social net product – the outputs (in some but not all cases, the commodity
outputs) that are the physical basis on which the society reproduces itself, the
source of all consumption plus net investment; notationally, this is y.3 It was Marx’s
fundamental intuition, the basis of the entire “Marxian” approach, that these two
vectors are simply different forms of the same thing. There is a social identity
between newly performed labors and newly produced net output: the former, as
a part of the production process, is literally analogous to the latter as a part of
the aggregate results of production.4 Indeed, it is not too strong a statement to
say that, for Marx, an economy is simply an ongoing social process of turning Lx
into y, “transforming” the former into the latter. Non-labor inputs to production,
in particular, the physical means of production, are literally no more and no less
than that – the means by which society turns Lx into y.
On this basis, the fundamental task of the value theory Marx develops in Capital
is to make it possible to see how these two vectors are related in capitalism, to
“account for” the elements of each in a way that allows their equality to be visible.
Where outputs take the form of commodities, how do those commodities “count,”
one in relation to another, as parts of aggregate social income or value added
138 BRUCE ROBERTS

by labor? Where labor-powers are themselves commodities, how do the various


labor activities “count,” one in relation to another, in generating that new value?
Both sorts of “countings” are necessary to establish the identity of labors and
incomes, though they initially seem to take us in different directions: counting the
commodities that make up y means interrogating the “relationships among things”
made visible in the exchange process, through which incomes are distributed in
capitalism; counting the concrete labors that make up Lx means examining the
“relationships among people” who are participants in one or another sort of labor
process, through which incomes are created in capitalism, as in every other form of
society.5 But to Marx, exchange and production are still “moments of one process”
rather than separate spheres, and thus it is my premise that, first and foremost, and
whatever else it may seek to accomplish, Marx’s value theory is the conceptual
language necessary to see the social net incomes of capitalist society as literally
just a transformation or redistribution of concrete labors performed in a social
setting: value theory is the means to understand the relationship:
Lx ↔ y
as one encompassing both qualitative difference and substantive identity. And
since a formal identity between Lx and y requires a common unit of account,
the very terms in the relation suggest the need for not merely the monetary
measure appropriate to commodities but also a labor-time unit of account which
commensurates the qualitatively different concrete labors comprising Lx. It is
this that allows Marx to develop the theory of exploitation focusing on the class
relationships underlying the partition of each aggregate into “necessary” and
“surplus” portions and to pursue on that basis the dynamics of explicitly capitalist
economies.
More immediately, though, Marx is led to consider the social allocation of
productive resources. The particular types and quantities of both the concrete labors
in use and the commodities comprising the gross (x) and net (y) output depend on
allocation decisions. Every society must in some way allocate labor and non-labor
resources so that, in comparison with “social need,” there is neither too much nor
too little of particular use-values. In commodity economies, including competitive
capitalism, this is the domain referred to by the Marxian “law of value.” For Marx,
the dividing line between “too much” and “too little” output is approached by
means of the concept of “exchange equivalence,” in the sense that non-equivalent
exchange is definitionally synonymous with a “wrong” allocation of resources.
If some actual market price exceeds the price expressing equivalence, then too
little of that commodity has been produced and the higher-than-equivalent price
signals the need for (and provides the incentive which attracts) greater quantities of
labor and other resources; in the same way, an actual market price below the level
Quantifying Abstract Labor 139

expressing equivalence signals that too much has been produced, thus motivating
the allocation of lesser quantities of resources which are sufficient to meet social
need. Hence, exchange equivalence refers to prices which, if actually realized
in the market, ratify producer decisions and therefore in themselves call forth no
automatic pressure for reallocation. Equivalence in exchange represents what Marx
frequently refers to as the “pure” case, free from “the appearances produced by
the movement of demand and supply” (1981, p. 291) as competitive reallocation
continually forces changes in market prices representing non-equivalence. In the
terminology of prior classical economics, he thinks of equivalent exchange as
representing “the center of gravity” for market prices, the level towards which
market prices are forced by competitive supply and demand adjustments.
Still, and this is a key point, equivalence in exchange is not definitionally
synonymous with exchange at values. Despite Marx’s initial assumption
(repeatedly labeled as an assumption)6 of value equivalence, the concept of
exchange equivalence is more general, with value equivalence representing merely
a possible form in which an “equivalence rule” could be specified.7 For tactical
reasons Marx does adopt that premise at the beginning of volume 1 of Capital,
but in the context of the competitive capitalism “as a whole” posed on volume 3,
it is prices of production – prices consistent with a uniform profit rate in different
spheres of production – that express the center of gravity to which market prices
are forced by the pressure of competitive resource allocation:

If supply and demand coincide, the market price of the commodity corresponds to its price of
production, i.e. its price is then governed by the inner laws of capitalist production, independent
of competition, since fluctuations in supply and demand explain nothing but divergences
between market prices and prices of production . . . (1981, pp. 477–478).

Of course, whatever the unit of account (money or labor-time), production prices


deviate from values in a determinate manner, yet, as the above quotation makes
clear, capitalist exchange equivalence involves an equality of the production
prices, rather than the values, of commodities which could be swapped one for
another, i.e. profit rate uniformity supersedes equality of values as the criterion
defining what an equivalent exchange is. So, in the context of competitive
“capitalist production as a whole,” reallocation decisions proceed in response to
non-equivalent exchange (market prices different from production prices), creating
a continuous pressure towards equivalence as expressed in the production prices
which define the capitalist exchange-value of commodities. If a commodity did
actually exchange at its production price,8 then
the total quantity of social labour which is applied to produce the overall amount of this kind of
commodity must correspond to the quantity of the social need for it, i.e. to the social need with
the money to back it up. Competition, and the fluctuations in market price which correspond
140 BRUCE ROBERTS

to fluctuations in the relationship of demand and supply, constantly seek to reduce the total
quantity of labour applied to each kind of commodity to this level (1981, p. 294).

This is why Marx refers to production price, rather than value, as “the condition
for supply, the condition for the reproduction of commodities, in each particular
sphere of production,”9 even while continuing to regard production price as a “form
of commodity value, a form that appears in competition” (1981, p. 300) (emphasis
added).
Now, given the conceptual identity of aggregate concrete labors Lx and the
social net product y, Marx faces a double task: the desired labor-time unit of
account must allow a consistent counting of both the concrete labors in Lx and
the various commodities appearing in x and y (each of which has both a value
and a production price differing from it). These tasks are necessarily linked, since
analytically it makes no sense to try to quantify outputs in terms of labor unless one
can also in some fashion homogenize and commensurate the direct labors involved
in producing each output. In Marx’s view, though, the linkage is even more direct
and significant. In various places in several of his works he argues strongly that the
relation between commodities as exchange-values, i.e. as equivalents in the market
when taken in particular proportions, is itself a relation of equivalence between the
concrete labors “contained” in those commodities. Heterogeneous concrete labors
are rendered countable on a homogeneous scale as “social” or “abstract” labor by
the equivalences between commodities established through competitive allocation
in the market. He argues, for example:
. . . the different kinds of individual labour represented in . . . particular use-values, in fact,
become labour in general, and in this way social labour, only by actually being exchanged
for one another in quantities which are proportional to the labour-time contained in them. . . .
The point of departure is not the labour of individuals considered as social labor, but on the
contrary the particular kinds of labour of private individuals, i.e. labour which proves that it is
universal social labour only by the supersession of its original character in the exchange process.
Universal social labour is consequently not a ready-made prerequisite but an emerging result
(1970, p. 45) (emphasis added).

. . . the specific social character of [producers’] private labours appears only within . . . exchange.
In other words, the labour of the private individual manifests itself as an element of the total
labour of society only through the relations which the act of exchange establishes between the
products, and, through their mediation, between the producers. . . . It is only by being exchanged
that the products of labour acquire a socially uniform objectivity as values . . . (1976, pp. 165,
166) (emphasis added).

The equalization of the most different kinds of labor can be the result only of . . . reducing them
to their common denominator, . . . human labor in the abstract, and only exchange brings about
this reduction, opposing the products of different forms of labor with each other on the basis
of equality (Marx, quoted in Rubin,10 1972, p. 148) (emphasis added).
Quantifying Abstract Labor 141

It is only the expression of equivalence between different sorts of commodities which brings to
view the specific character of value-creating labour, by actually reducing the different kinds of
labour embedded in the different kinds of commodity to their common quality of being human
labour in general (Marx, 1976, p. 142) (emphasis added).

Elsewhere (Roberts, 2004) I have referred to this argument as “the equivalence


thesis”: the specific form which labors assume in the unit of social account, the very
substance of value, is inseparable from and thus explicable only with reference to
the specific form of equivalence between commodities in exchange. In other words,
the two tasks referred to above are not separate or even separable “problems”:
concrete labors can be counted on a common scale as abstract labor because, and
only to the extent that, commodities (concrete use-values) can be similarly counted
on a common scale as equivalents in exchange. But again, as argued above, the
capitalist commodities that exchange as equivalents (have equal exchange-values)
do not in general have equal values, so it is as exchange-values rather than directly
or immediately as values that commodities come to express particular amounts of
social or abstract labor. This does not in any way make the concept of value any
less important for Marx – the point is simply that values are not directly visible in
the equivalences established by capitalist competition.
In what follows I will argue that this equivalence thesis leads to a consistent
quantitative system which, while not to be found as such in Marx’s writings,
conforms to key aspects of his quantitative and qualitative arguments. It confirms,
for example, Marx’s (1976, p. 176) claim that “exchange-value is a definite
social manner of expressing the amount of labour bestowed on a thing,” even
for the general case in which exchange-values are not by assumption equal to
the labor embodied in commodity value. In addition, I will argue that it offers
some insight into a ubiquitous but relatively little noticed pattern in Marx’s
thinking. When Marx confronts particular magnitudes within the broader context
of capitalist commodity production, he is often at pains to stress the social
content of what presents itself initially as an isolated event (a consequence of
particular or local or technical conditions). Whether he is considering, early on
(e.g. the fetishism section) the exchange-value of a particular commodity, or later
the concrete labor done by a particular worker, or still later the average profit
realized by a particular capitalist competitor, he frequently finds it important
to remind the reader that broader social relations are part and parcel of every
seemingly isolated event. Often he does this by employing a conceptual analogy
that amounts to a metaphorical “reallocation”: the individual number (pertaining
to, say, some specific commodity) comes about “as if” society had first summed
or “amalgamated” all such particulars to determine a social aggregate, and then
distributed or “allocated” back to each commodity a fractional share of that
aggregate. In this fashion, the particular and qualitatively distinct feature of the
142 BRUCE ROBERTS

commodity is rendered equivalent to a share of the aggregate with the qualitative


characteristics of that social aggregate: instead of “the individual commodity, the
individual product,” we see the commodity “as a commodity, as a part both really
and conceptually of production as a whole” (1971, pp. 112, 113). This metaphorical
“amalgamate and allocate” process is given a formal treatment within the system
presented below, with results that further reinforce the centrality of the equivalence
thesis. Equivalent exchange homogenizes labors because the exchange process
(“the real relation that exists between [commodities]” (1970, p. 41)) links each to
the others “as a part both really and conceptually of production as a whole,” and this
in turn, I will argue, identifies each commodity with a qualitatively homogeneous
though quantitatively distinct share of the aggregate of concrete labors
available.

2. A DETERMINATE SYSTEM11

Consider a simple economy with n commodities produced by single-product


industries with no fixed capital and no differences in turnover time (the case
of generalized joint production is analyzed in Roberts (1997)). The technical
conditions of production are represented by A, the n × n matrix of inter-industry
coefficients, and L, the m × n matrix of direct labor coefficients per unit output,
with A ≥ 0 and L ≥ 0 (each row and column of L must contain at least one
positive element). In line with Marx, assume that wages are advanced to each of
the m different types of labor-power employed in production, with the wage for
each type of labor-power assumed to be precisely sufficient to allow each worker
of that type to purchase the same bundle of specified commodities.12 Thus, the
columns of the n × m matrix W ≥ 0 represent the typically different “real wage
bundles” of the m different types of labor-power. The matrix of capital advances
in physical terms K is then K = A + WL and, in order to focus attention on
viable economies in which the rate of profit is positive, assume that the maximum
eigenvalue of matrix K is ␭K m < 1. Let column vector x > 0 represent the total
or gross product of the economy, with y = [I − A]x ≥ 0 representing the social
net product.13 Finally, for fidelity to Marx, assume as Marx invariably did that
the technical conditions summarized in each column of A and L represent “the
average conditions for capital in that whole sphere of production,” “the average
of the total capital in the sphere in question” (Marx, 1981, pp. 777, 243), so that,
should there be differences among the firms in each industry in terms of technique
or form of organization, the columns of A and L express the sum of the per-unit
input and labor requirements of each firm weighted by the fraction of total industry
output accounted for by that firm.
Quantifying Abstract Labor 143

Define p and v as production price and value respectively, and ␲ and s as


average profit per unit output and surplus value per unit output respectively; each
of these is taken as expressed in units of homogeneous “abstract” labor-time
(what this means precisely is developed below). Despite the differences which
typically exist for each commodity between these pairs of variables, it was for
Marx necessarily the case that “the sum of the profits for all the different spheres
of production must . . . be equal to the sum of surplus-values, and the sum of prices
of production for the total social product must be equal to the sum of its values”
(1981, p. 273). In what follows these aggregate equalities are taken as premises
vx = px (1)
sx = ␲x (2)
The now standard solution for prices consistent with a uniform rate of profit (r)
emerges as a normalized vector satisfying
pK(1 + r) = p (3)
or
p[K − ␭K
m I] = 0 (3′ )
where, given the assumptions, r = (1/␭K m ) − 1 > 0. pK expresses what Marx
called “cost-price” (advanced commodity capital expressed in terms of the
production price equivalent which would have to be paid to replace it), so that ␲ =
pKr. I take this to be consistent with Marx’s intent,14 so the system to be developed
will produce solutions for p and r capable of satisfying (3). For convenience, it is
assumed that conditions allow a strictly positive price vector p > 0.15
Consider first, as Marx does, the concept of value. In the context of vol. 3 of
Capital, Marx initially defines cost-price such that “commodity value = cost-
price + surplus-value” (1981, p. 118). Although this comes prior to explicit
consideration of production prices different from values, the same conception
persists even when such deviations are present. In numerous places he repeats the
point that, since cost-price refers to the quantity of “paid labor” the commodity
contains, the difference between the value and production price of output is a matter
of how much “unpaid labor” is added on to this common quantity of paid labor:
value is cost-price plus the actual surplus value generated in its production, whereas
production price is cost-price plus a typically different amount, “the surplus-value
allotted to it by the general rate of profit” (1981, p. 897).16 Since cost-price is
repeatedly referred to as itself a magnitude in price of production terms (pK), the
implied definition of value operative in Vol. 3 is
v = pK + s = pA + pWL + s (4)
144 BRUCE ROBERTS

Here, the variable capital outlay on wages (pWL), on the one hand, and the surplus
value (s), on the other, represent respectively the “paid” and “unpaid” portions
of the value newly created by the living labors actually performed in producing
each unit of output. Of course, to express the total value created as a scalar – the
abstract labor-time associated with a set of qualitatively distinct concrete labors –
requires what Marx calls a “reduction,” so define ␣ as a 1 × m vector such that
αj expresses the abstract labor represented by an hour of the jth type of concrete
labor, i.e. the “value added” by the performance of that hour’s work. On this basis,
␣L is the total value added by the living labors performed in producing each unit of
output, so
␣L = pWL + s (5)
and, from (4), this implies17
v = pA + ␣L (6)
Through ␣, the fundamental conceptual premise discussed at the beginning can
also be stated explicitly: for Marx, the aggregate value derived from the total set of
concrete labors performed (␣Lx) is identical to the aggregate social income, the
labor-time expression, via production prices, for the social net product (py), so
␣Lx = py (7)
To set the scale for ␣, assume that the total value added by living labor is bounded
by the total of actual hours worked, so that
␣Lx = u′ Lx (8)
where u is a column summation vector with all elements equal to unity and its u′
transpose. Of course, the summation u′ Lx (“hours worked”) is not itself a value
aggregate, since its component hours are unweighted measures of duration rather
than directly expressive of the value added by abstract labor-time. But the sum
of hours worked is clearly calculable despite the heterogeneity of its components,
and using it to scale ␣ as in (8) implies that
  
1
␣ Lx =1
u′ Lx
In effect, this defines the unit of social account – a single hour of “abstract” labor –
as the value created by a composite, socially average hour of work [Lx(1/u′ Lx)]. In
other words, a physically average hour of the concrete labors actually performed
“counts” as one hour of abstract labor, as creating one unit of value. This convention
respects Marx’s frequent identification of value with “average social labour” (e.g.
1976, p. 306), and has two great virtues: first, an hour of abstract labor is thus,
Quantifying Abstract Labor 145

as Marx (1971, pp. 138, 139) says, “not any particular labour, with particular
qualities” (it incorporates all particular labors in their average proportions) and,
second, such an average hour is then “social” in an immediate and obvious sense
(it mirrors the composition of the social aggregate Lx, “the total labour-power
of society, which . . . counts . . . as one homogeneous mass” (u′ Lx) despite the
differences between its concrete components (1976, p. 129)).
Equations (7) and (8) imply that
py = u′ Lx (9)
and combining this with (6) yields
 py 
v = pA + ′ ␣L
u Lx 

1
 (10)
v = p A + y␣L
u′ Lx
Designating the commodity matrix in brackets in (10) as T allows that equation to
be simplified to
v = pT (11)
In T, the value added by the living labors performed in producing each commodity
is replaced by a commodity bundle (a “share” of net output y) representing an equal
amount of abstract labor; the second term in T is thus a commodity equivalent for
both the paid and unpaid portions of the value added by direct concrete labors.
Equation (11) presents a direct “transformation” relation between v and p, and the
relation is in principle reversible; if T is non-singular, then from (11):
p = vT−1 (12)
which inverts the relation to express each pj as the value of a particular bundle
of commodities. In what follows I will assume that T is non-singular; however,
should T be singular, it is always possible to modify T by substituting appropriate
physical quantities of other commodities for certain elements so that the resulting
modified T is non-singular and able to satisfy both (11) and (12).18 Of course, T
and T−1 are functions of ␣, so neither is determined in advance of a full solution,
but the relationship between v and p, expressed in different forms in (11) and (12),
proves very useful in developing and interpreting the results derived below. Via
(12), it is possible to take any relationship defined in terms of exchange-value (p)
and express it (“transform” it) into the parallel relationship in terms of value (v);
(11) allows the reverse operation.
In considering the pressures for a general rate of profit, Marx typically assumes
a uniform workday and rate of exploitation, uniform both across industries and
146 BRUCE ROBERTS

across types of labor-power. He does this not because the assumption is necessary
but because any such differences, while “important . . . for [a] specialist work on
wages,” should be regarded as “accidental and inessential as far as the general
investigation of capitalist production is concerned” (1981, p. 242). With a uniform
rate of exploitation (e),19 the paid and unpaid portions of the value added by any
particular act of laboring are uniformly proportional so that, when wage differences
exist, the higher-paid labor-power creates value “proportionally” greater in relation
to the wage payment made as an equivalent for its value (i.e. αj is proportional to
the “paid labor” (pWj Lj ) of this jth labor-power) (1976, p. 305).20 Thus it must
be the case that
␣ = pW(1 + e) (13)
where the factor of proportionality (1 + e) is uniform. Employing (12), (13) can
be expressed in terms of values as
␣ = vT−1 W(1 + e) (14)
Multiplying through by Lx and employing (8) yields
u′ Lx
(1 + e) = −1
vT WLx
which can be used to eliminate explicit reference to (1 + e) in (14):
u′ Lx
 
−1
␣ = vT W (15)
vT−1 WLx
As argued above, a full solution for all the variables defined in terms of abstract
labor requires a specification of the form of exchange equivalence, since “it is
only the expression of equivalence between different sorts of commodities which
brings to view the specific character of value-creating labour, by actually reducing
the different kinds of labour embedded in the different kinds of commodity to
their common quality of being human labour in general” (Marx, 1976, p. 142).
Until a particular equivalence relation is stated, none of the categories of Marx’s
value theory is fully determinate.21 And since the capitalist exchange equivalence
relevant in vol. 3 is based on equality of the rates of profit earned by average
capitals in each sphere (rather than on equality of values), there must be a uniform
proportionality between cost-price and production price for each commodity.
In other words, the “equivalence rule” in competitive capitalism (“the idea that
capitals of equal size must yield equal profits in the same period of time” (1981,
p. 312)) requires that any commodity j exchange equivalently for Kj (m), where
m = (1 + r) is a uniform factor of proportionality (with m > 1 required for r > 0).
This is, of course, precisely the relation expressed in the standard price Eq. (3)
Quantifying Abstract Labor 147

above. Thus, one could determine production prices p in terms of labor-time from
(3′ ) normalized by (9), with ␣ following from (13) and v from (6) or (11). Equally,
however, the equivalence rule can be expressed directly in terms of value by
substituting (12) into (3′ ) to yield
vT−1 [K − ␭K
m I] = 0 (16)
which can be combined with
u′ Lx
 
␣ = vT−1 W (15)
vT−1 WLx
and (from (9) and (12))
vT−1 y = u′ Lx (17)
to produce solutions for v and ␣ without reference to or prior solution for
production prices; p then follows from (12). Whether the initial solution is in
terms of p or v, the system as a whole is determinate and consistent with the
aggregate equalities (1) and (2) above on which Marx placed such stress.22

3. WHAT IT MEANS
In A Contribution to the Critique of Political Economy, a prelude to Part One of
Vol. 1 of Capital, Marx examines the implications of exchange equivalence, taking
it as his goal “to measure the exchange-value of commodities by the labour-time
they contain” (1970, p. 30). He asserts:
The corresponding quantities of different use-values containing the same amount of labour-
time are equivalents; that is, all use-values are equivalents when taken in proportions which
contain the same amount of expended, materialised labour-time. Regarded as exchange-values
all commodities are merely definite quantities of congealed labour-time (1970, p. 30).

This is a strong statement of an equivalence rule, and taken literally it poses


a problem. Equivalent exchange rates are here said to be directly proportional
to relative quantities of labor embodied, yet (as Marx was already well aware)
capitalist production prices are not in general proportional to commodity
values, where value as commonly understood refers to precisely the (socially
necessary) labor-time “contained” or “congealed” in commodities. Clearly the later
transformation of values into production prices analytically supersedes what Marx
called the “basis [of] our investigation so far: that commodities are sold at their
values” (1981, p. 252). But if so, what happens to Marx’s parallel claim, developed
on the premise of value equivalence, that “the different kinds of individual labour
148 BRUCE ROBERTS

represented in . . . particular use-values, in fact, become labour in general, and


in this way social labour, only by actually being exchanged for one another in
quantities which are proportional to the labour-time contained in them” (1970,
p. 45)? How are concrete labors commensurated as abstract labor if equivalent
exchange does not equate commodities as values? Does anything remain of Marx’s
original goal of measuring the exchange-value of commodities “by the labour they
contain?”
Answering these questions is aided by attention to a common, though seemingly
little noticed, form of analogical reasoning Marx employs. An early example
occurs in A Contribution almost immediately following the passages quoted
initially above. In a paragraph discussing “the specific manner in which the social
character of labour is established,” Marx pursues the question of how “the labour
of every individual . . . is equated with the labour of all other individuals” (1970,
p. 32). Concerning exchange-value as “a social magnitude,” he says: “The effect
is the same as if the different individuals had amalgamated their labour-time and
allocated different portions of the labour-time at their joint disposal to the various
use-values” (1970, p. 32). Note the analogy: the exchange-value of a specific use-
value produced by the labor of an “isolated individual” is nonetheless a magnitude
of social labor because it is equal to a particular “portion” of the “amalgamated”
labor-time of all individuals. This form of “as if” reasoning, in which Marx equates
a particular magnitude to an “allocated” portion of an “amalgamated” or aggregated
whole, recurs frequently, and invariably in the context of an effort to establish the
social character of what initially appears to be an isolated or particular event.
Here the “amalgamate and allocate” metaphor is used to consider exchange-
value in general, prior to any explicit consideration of capital, but the same form
of logic is ubiquitous in Marx’s various subsequent discussions of the average
profit earned by capitalist competitors. A typical example:

there prevails . . . a tendency . . . to transform profits into mere portions of surplus-value that are
distributed not in proportion to the surplus-value that is created in each particular sphere of
production, but rather in proportion to the amount of capital applied in each of these spheres, so
that equal amounts of capital, no matter how they are composed, receive equal shares (aliquot
parts) of the totality of surplus-value produced by the total social capital (1981, pp. 273, 274).

Or again, average profit for any particular capital can be calculated by


amalgamating (taking “the amount of surplus-labour produced by the aggregate
capital”) and allocating (multiplying by “the relative portion of the aggregate
capital which [that] particular capital represents”) (1968, p. 29). But here as
elsewhere, Marx extends the analogy: it is not merely average profit which is
an aliquot part of the whole, but each capital in itself:
Quantifying Abstract Labor 149

Competition among capitals thus seeks to treat every capital as a share of the aggregate capital
. . . (1968, p. 29).
Each capital, . . . in each particular branch, represents a portion of the total capital of the
same organic composition, both as regards constant and variable capital, and circulating and
fixed capital. As such a portion, it draws its dividends from the surplus-value created by the
aggregate capital . . . (1968, p. 433).

Indeed, the analogy extends beyond capitals to the level of the output they produce:
“each individual commodity represents a definite portion of capital and of the
surplus-value created by it” (1971, p. 113), since in competition the commodity
appears “as the product of an aliquot part of the social capital” (1971, p. 81).
Given the volume of commentary on Marx’s transformation and the general
rate of profit, it is surprising that the implicit formalism here has been so little
examined. Consider the set of relationships Marx describes. The capital advanced
per unit output j can be expressed as a portion (␾j ) of total capital by
   
1 1
␾= pK = VT−1 K
pKx vT−1 Kx
where by definition ␾x = 1. Since the production price of commodity output is
directly proportional to the capital advanced in producing it, it follows, as Marx
notes, that ␾ can also be written to express each commodity as the same share of
total output:23
   
1 1
␾= p= vT−1
px vx
The matrix  which expresses the “amalgamate and allocate” or aliquot part
transformation is then
   
1 −1 1
 = x␾ = xp = xvT
px vx
 is of rank 1 since it is the product of two vectors; postmultiplication by 
thus sequentially imposes the two operations described by Marx. For example,
if the vector of per-unit surplus values s is postmultiplied by , surplus value is
first “amalgamated” (summed across output x) and then “allocated” (distributed
in portions ␾ proportional to capital advanced). Thus s = ␲ (see Roberts, 1997,
p. 492).
To formalize Marx’s point that “each . . . capital should be regarded as simply
a fragment of the total capital” (1981, p. 312), consider the aliquot part
transformation as applied to matrices A and L. Let
 
1
A∗ = A = Ax␾ = AxvT−1 (18)
vx
150 BRUCE ROBERTS
 
∗ −1 1
L = L = Lx␾ = LxvT (19)
vx
A∗ and L∗ represent a hypothetical technology constructed so that the rows and
columns within each are directly proportional. There is then in Marx’s sense a
uniform “composition of capital” since the proportions between physical inputs are
uniform across industries.24 Each commodity is thus viewed as the product of the
same proportional combination of means of production and concrete labors, so each
is “produced” under what effectively are average conditions, i.e. conditions that
mirror the aggregate input structure of the actual economy. Given the definition of 
and the fact that vT−1 x = px = vx, Ax = Ax(vT−1 x/vx) = Ax and similarly
Lx = Lx. Thus an economy operating with hypothetical technology A∗ , L∗
would absorb precisely the same aggregate quantities of means of production and
concrete labors as in the actual economy from which it is derived. The difference
is simply in the microallocation of those inputs: hypothetical technology A∗ ,
L∗ associates each output with its own pro rata share of the economy’s total
inputs, as if all were produced under the same physically average conditions.
Thus, the hypothetical technology given by A∗ , L∗ represents the input structure
of each industry in physical terms as the “aliquot part of the total social
capital [which] is invested in each particular sphere of production” (Marx, 1981,
p. 262).
In effect, the aliquot part transformation takes the actual “whole” (the aggregate
inputs given by Ax and Lx) and divides it into different “parts” associated with
each commodity. By construction, these “parts” are, when evaluated as capital in
terms of production prices, equal to the actual capital advanced, but they have the
additional property of being qualitatively homogeneous. On this basis, consider
with Marx the labor “contained” in each commodity. Under aliquot part conditions,
the concrete labors directly and indirectly embodied in each commodity are given
by the columns of matrix N,25 where
   −1
∗ ∗ −1 −1 1 −1 1
N = L [I − A ] = LxvT I − AxvT (20)
vx vx
Since the columns of N are directly proportional, each output is associated with
a qualitatively homogeneous and only quantitatively distinct vector composed
of concrete labors in the proportions of Lx, the actual aggregate vector of
concrete labors. Given (8), a weighted summation of these concrete labors
as abstract labor via ␣ will yield the same result as the simple unweighted
summation via u′ , so ␣N = u′ N. And since the composition of capital here
is uniform, guaranteeing the equality of prices and labor embodied, the
abstract labor here associated with each commodity is precisely equal to
Quantifying Abstract Labor 151

its production price as calculated on the basis of the actual conditions of


production:26
p = ␣N = u′ N = u′ L∗ [I − A∗ ]−1
   −1
1 1
= (u′ Lx)vT−1 I − AxvT−1 (21)
vx vx
Equation (21) is interesting in several ways. First, though less important in the
present context, note that (21) expresses production prices in terms of values v
and “reduction coefficients” ␣ (contained in T−1 ), which are in turn derived above
simply from the physical data (A, L, W, x) and ␭K m (itself directly implied by
the form of capitalist exchange equivalence). This represents an entirely novel
conceptual approach to “the transformation of values into prices of production.”
Every other consistent approach to production prices proceeds by first creating
an expression for capital and then imposing a uniform rate of profit (e.g. Eq. (3)
above). The relation of prices to labor-time (if any) is handled separately from the
derivation of prices, through normalization or “the value of money” or some other
way of specifying an additional link between price calculation and value calculation
in labor-time terms. In contrast, Eq. (21) offers a way to solve for production prices
as “values,” i.e. as the amounts of abstract labor contained in commodities under
aliquot part production conditions. To derive prices of production, first solve for
v and ␣ by means of (15), (16), and (17) above; then use v and ␣ to define 
and “transform” the technological conditions of production so as to identify each
commodity with its own “aliquot part” of the total social inputs (A∗ , L∗ ); finally,
via (21), solve for production prices as the abstract labor contained in commodities
under these conditions. The transformation of values into prices of production is
thus equivalent to a transformation of actual production conditions A, L (on the
basis of which the social labor contained in the commodity is its value) into socially
average or aliquot part production conditions A∗ , L∗ (on the basis of which the
social labor contained in the commodity is its production price).
Second, and of more immediate relevance in the present context, (21) bears
directly on the meaning of the term “abstract labor.” Recall Marx’s arguments
referred to above as the “equivalence thesis”:
It is only the expression of equivalence between different sorts of commodities which brings to
view the specific character of value-creating labour, by actually reducing the different kinds of
labour embedded in the different kinds of commodity to their common quality of being human
labour in general (Marx, 1976, p. 142) (emphasis added).

Marx here is saying that the formation of prices (the “gravitational” adjustment to
levels expressing equivalence) is the same thing as the formation of abstract labor
as the homogeneous unit with which to evaluate the labor content of commodities.
152 BRUCE ROBERTS

Each is simply an aspect of a single process that simultaneously commensurates


use-values as market equivalents and commensurates concrete labors as abstract
labor, so that commodities that exchange as equivalents “contain” equal amounts of
abstract labor. How can this be, given that even in his early writings on the subject,
such as the Contribution, Marx is well aware that capitalist exchange does not in-
volve equal quantities of value changing hands in an equivalent exchange? The an-
swer: as an exchange-value, each commodity represents simply a “portion” of “the
aggregate labour of society” (1976, p. 165), a fraction of the whole which is qualita-
tively homogeneous and differs from other fractions only in magnitude. Whatever
the particular and individual concrete labors which go into creating a commodity,
they “count” in a way that makes its exchange value “the same as if the different
individuals had amalgamated their labour-time and allocated different portions of
the labour-time at their joint disposal to the various use-values” (1970, p. 32).
Equation (21) formalizes this Marxian intuition and says that p, the measure
in terms of which each capitalist commodity is expressed on a common scale as
an equivalent in exchange for particular amounts of all other commodities, can
be approached by, first, amalgamating the total living concrete labors performed
as a simple sum of measured hours (u′ LX) and then reallocating by “projecting”
portions of that sum onto each commodity.27 By doing so, concrete labor hours
(u′ LX) are reduced to abstract labor hours associated with each commodity in
exchange (p). Another way to say the same thing in reference to (21): if we start
with simply the concrete labors socially necessary as direct inputs (L), then p can
be derived by using the “amalgamate and allocate” procedure to “transform” L
into the socially average concrete labors that are directly and indirectly contained
in its exchange-value (N = LX␾{I − Ax␾}−1 ) and then simply adding up those
hours of concrete labor (1N), which is possible precisely because N is socially
average, qualitatively homogeneous, and thus the concrete labors it represents are
“labour of uniform quality whose only difference, therefore, is quantity” (1970,
p. 30). The “effect is the same as if” these private, individual, and concrete labors
were immediately social and universal – abstract – labor.
The point is perhaps obvious, but since the very project of accounting for
commodities in terms of labor-time is sometimes regarded as suspect, it deserves
repetition. To be a commodity with an exchange-value in the marketplace is to
be a quantifiable fraction or “part both really and conceptually of production as a
whole” (for commodity j, the fraction is ␾j ). Understood as such a (aliquot) part,
each commodity is the product of a corresponding part of the aggregate inputs to
production (A∗j , L∗j ). Each commodity is thus identified with the vector of concrete
labors it would directly and indirectly embody under such (aliquot part) conditions
(Nj ). Since each such vector is qualitatively homogeneous, each can be expressed
as a scalar quantity of average labor (u′ Nj ), because each is merely a fraction of the
Quantifying Abstract Labor 153

aggregate labor-time available (and, in the process, each particular type of concrete
labor takes on simultaneously its own specific weight within that aggregate).28
Thus, whatever the conjunctural form of production and exchange, once the basis
for equivalent exchange is given, allowing meaningful specification of the aliquot
part represented by each commodity, each commodity is automatically quantified
as a magnitude of homogeneous, socially average (abstract) labor-time. To be
an exchangeable part of the social product is immediately to represent social
labor. Thus, price of production, the exchange-value of the commodity under
competitive capitalist conditions, is indeed, as Marx argues, “a definite social
manner of expressing the amount of labour bestowed on a thing” (1976, p. 176).
Third, the relations developed above allow a deeper understanding of the
significance to Marx of the adjective “social” in the preceding quotation and
others like it. In the “fetishism” section of chapter one, Capital 1, Marx is
concerned to underline some unique aspects of commodity-exchanging societies.
Unlike Crusoe on his island, the feudal manor, or a communal “association of
free men,” commodity economies have no conscious allocation mechanism. This
imposes the necessity for “valuation,” in the specific sense that each commodity
must appear with a price defining it as a particular magnitude in exchange, an
individual part of “the whole world of commodities” (1976, p. 159). There is
no need for such quantitative valuation in economies where allocation proceeds
according to a conscious plan (be it collective or exploitative) through which use-
values are produced and distributed. But lacking a conscious and visible plan for
allocation, valuation becomes imperative to provide the quantitative information
needed for individual allocative choices. To Marx, these are opposite sides of
the same coin: on the on hand, the allocation “problem” is to find the correct
proportions between commodities as use-values, so that concrete labors have
been “reduced to the quantitative proportions in which society requires them”
(1976, p. 168); on the other, the valuation “problem” is to find the correct
proportions between commodities as exchange-values, so that each commands
only an equivalent amount of the others. These are really, to Marx, the same
problem, in that equivalent exchange (whatever may be the particular form of the
equivalence rule) means definitionally the absence of the reallocations provoked
by non-equivalent exchange, hence the “correct” allocation (for this particular set
of social circumstances).
In commodity economies, then, what appears, visibly “on the surface” of
experience, are numbers – particular, individual, seemingly isolated exchange
relations (20 yds. linen = 1 coat), each definitionally concrete and seemingly
specific to the use-values involved. But all such numbers have a social dimension
that is real even if not readily visible, since the particular numbers attached to
commodities are the means by which the social allocation of labor occurs. That
154 BRUCE ROBERTS

“social” content becomes visible when we realize that every individual exchange-
value, reflecting the relevant particular conditions for a single product, is equal
to the number resulting from an “amalgamate and allocate” calculation, and is
derivable on the basis of aggregate social conditions, simply as a part of the
whole. To understand the social character of market quantification is to relate
each particular magnitude to the aggregate of which it is a part, since aggregates
are by definition what a society has available to allocate. In this sense, the whole
is “the social.” In the marketplace, each commodity is a unique use-value isolated
from all others, just as in production the concrete labors that give rise to it
are idiosyncratically unique, different both qualitatively and quantitatively from
others. Still, each commodity is a part of society’s output, and it is only when
commodities are looked at as such, as fractions or aliquot parts, that the social
character of the whole appears directly in the resulting individual magnitudes.
In (21), the particular exchange-value of each commodity emerges as a way
to mark it as a magnitude of social labor: the whole (u′ Lx) is subdivided by
competition into n individual aliquot parts in which each type of concrete labor
appears, so that each type of “labour of [a] private individual manifests itself
as an element of the total labour of society” precisely “through the relations
which the act of exchange establishes between the products, and, through their
mediations, between the producers” (1976, p. 165). Equation (21) thus formalizes
a significant part of the meaning of Marx’s concept of commodity fetishism.
In a relation of equivalent exchange (e.g. 20 yds. linen = 1 coat), “the social
relations between [producers’] private labours appear as what they are, i.e. . . .
social relations between things” (1976, p. 166). Yet the number these equivalent
things have in common, their (equal) exchange-value, is itself in (21) simply a
portion of society’s collective labor. Thus, despite initial appearances, “exchange
of products as commodities is a method of exchanging labour, [it demonstrates] the
dependence of the labour of each upon the labour of the others” (1971, p. 129).29
There is, however, more to the concept of fetishism than this, more, in fact, than
Marx is able to admit into his discussion so early in Capital 1. It is not merely that
the equivalence of the linen and the coat does not in itself directly allow one to
see the labors involved; equally important is the fact that any such equivalence
generated in capitalist exchange does not as a rule express the equality of the
social labor embodied as value in the two commodities. Capitalist equivalence
is not defined in terms of “labor” – the equal rate of profit criterion makes no
reference to labor content and especially no reference to the paid or unpaid status
of labor. “Profit” on “capital” is all that figures in the allocation decisions of the
entrepreneurs whose actions form the basis for the equivalence rule.
Here again Marx has recourse to the language of “appearance” and “illusion”
characteristic of the fetishism section.
Quantifying Abstract Labor 155

In competition, . . . everything appears upside-down. . . . [The capitalist] simply forgets (or


rather he no longer sees it, since competition does not show it to him) that . . . all [capitalists]
have an equal claim on the common booty, the total surplus-value, in proportion to their
capital. It appears to them, rather, that the profit which they pocket is something different
from the surplus-value they extort, . . . that they actually create profit itself, since profit seems
to derive simply from the addition to the cost-price made with one justification or another (1981,
pp. 311–313).

. . . every capitalist regards his capital as a source of profit equal in volume to that which is being
made by every other capital of equal size. . . . This illusion confirms for the capitalist . . . that
capital is a source of income independent of labour, since in fact the profit on capital in each
particular sphere of production is by no means solely determined by the quantity of unpaid
labour which it itself “produces” and throws into the pot of aggregate profits . . . (1968, p. 69).

Marx refers to this as an “illusion,” but it is an illusion based on a partial truth.


Average profit is proportional to capital (not living labor), just as the equivalence of
the linen and the coat is a “social relation between things” (not a direct expression
of human social relations). The “illusion” has a basis in reality: in competition,
commodities do appear as mere aliquot parts of the whole, and profit is therefore
a uniform part of the commodity’s production price. But this truth is nevertheless
fetishistic because it is partial, in both senses of the word (both “incomplete”
and “partisan” or ideological). What’s missing is again the aggregate of which
the individual profits are parts, the “pot” (containing “the total sum of surplus-
value (or unpaid labour) which the total variable capital . . . of the class produces”)
from which each capital’s return is drawn (Marx & Engels, 1956, p. 159). The
“invisible” status of this aggregate which the capitalist “no longer sees” gives
rise to the ideological or fetishistic content of the “illusion,” which consists in
attributing to capital (“thing-like” and visible) the surplus created through the
underlying social relations responsible for the existence of unpaid labor.
Again, Eq. (21) is relevant, because it poses each commodity as it appears in
capitalist competition, in direct contrast to the actual conditions of the production
of value and surplus value. Commodity production generates value, but capitalist
commodities do not exchange as values – in competition, each commodity’s
production price instead stamps it as the product of an aliquot part of the social
capital. Therefore, Marx reasons, “each particular capital should be viewed simply
as a fragment of the total capital and each capitalist as in fact a shareholder in the
whole social enterprise, partaking in the overall profit in proportion to the size
of his shares of capital” (1981, p. 312). It is (21) which formalizes this vision of
capitalists as “shareholders” in a common enterprise, each with “an equal claim on
the common booty,” since in it each capital is literally presented as a qualitatively
identical but quantitatively distinct “share” of the inputs deployed by the total
social capital. In (21), the underlying redistribution of unpaid labor is presented as
156 BRUCE ROBERTS

it appears in the market: with competitive pricing, “the effect is the same as if” each
undifferentiated “share” of the aggregate capital had indeed “produced” its own
profit as a uniform part of the output’s exchange-value, as a return proportional to
its magnitude. In this way, the competitive necessity for a market redistribution
of surplus value among technologically differentiated industries emerges, through
the “amalgamate and allocate” calculation, in the fetishized form of aliquot part
production by uniform capitalists representing merely shares in the common
exploitative enterprise.30
Interestingly, then, the concept of commodity fetishism has applications even
in some contexts where Marx never explicitly uses the term. His early usage in
Capital 1 concerns the production of commodities (including, but not limited
to, capitalist commodities); in this context, the point is that the visible status of
exchange-value as an equivalence relation between concrete “things” occludes
one’s vision of exchange-value as simultaneously and necessarily an expression
of social (abstract) labor. But one might equally consider a more developed
form of capitalist commodity fetishism in which the visible status of profits
as the natural product of “capital” occludes the perception of the implicit and
necessary redistribution of unpaid labor. Marx’s “amalgamate and allocate”
analogy is revealing on both levels. In (21), each particular exchange-value
expresses an aliquot part of aggregate labor (the social labor “contained” in
the commodity when it is viewed as merely a part of the whole); equally, the
portion of that exchange-value representing profit expresses an aliquot part of the
aggregate surplus value (the unpaid labor “contained” in the commodity when
it is viewed as merely a part of the whole). Not merely does the exchange of
commodities as equivalents demonstrate “the dependence of the labour of each
upon the labour of the others,” its capitalist form demonstrates the dependence
of the profits of each on the profits of others, and even more so on the
labor of all.

4. CONCLUSION
The analogical reasoning expressed in the “aliquot part” or “amalgamate and
allocate” metaphor occupies a deep place in Marx’s thinking about capitalism. It
tends to recur at crucial points where Marx is contemplating particular outcomes
in the context of the overarching process of social allocation. The social content
of particular magnitudes is made visible when each is represented as a “bearer” of
crucial characteristics of the aggregate that have been projected onto its parts,
so that what at first glance appears as separate or particular or individual is
simultaneously connected, general, and social. Each act of laboring, each capital,
Quantifying Abstract Labor 157

each commodity then is what it is, of course, but it can also simultaneously be seen
as a part of a larger whole.
The analogy derives its power from the fact that social allocation is ultimately a
matter of the relations of the parts and the whole – to allocate is by definition
to take a whole and divide it into distinct parts with appropriate “locational”
characteristics. In commodity economies in which there is no conscious allocation
plan, this requires the visible quantification of use-values on a common scale, where
each can be seen and responded to as a part of the whole. What is actually allocated,
of course, are productive resources – concrete labor capacities and the means of
production needed to make use of those capacities – but the appropriateness of
the resource allocation is judged by the correspondence of use-value outputs
to social needs, and the degree of correspondence is read from the prices of
the commodities. Only if actual market prices express equivalent exchange (i.e.
conform to the socially recognized equivalence criterion, whatever it may be under
current circumstances) is the allocation “correct” in the specific sense that no-one
receives more or less than an equivalent for what is given up in exchange. Only
then has neither more nor less than is socially necessary been allocated to any
particular sphere. Thus, the set of equivalence relations between commodities as
exchange-values occupies a pivotal place in the social allocation process, and on
that basis, as argued above, Marx recognizes these equivalence relations as the
means by which concrete labors as well as concrete use-values are simultaneously
commensurated as parts of their respective wholes.
Since the point is easily misinterpreted, it deserves underlining that the act of
exchange, in and of itself, creates nothing – neither use-value nor value itself
originates in the act of property transfer. The aggregates of actual concrete labors
(Lx) and concrete outputs (x, y) existing at a point in time are what they are
independent of exchange outcomes in the market. But equivalent exchange still
plays an indispensable role in defining how the various concrete parts of these
aggregates are to be counted, i.e. the extent to which any particular concrete
labor counts as abstract labor and, as such, creates value, and the extent to which
any particular commodity functions as a bearer of value through its exchange-
value. “Labor” is the “substance” of value because concrete human activity is
the only way to generate “more” than what nature provides, but in a world of
heterogeneous commodities and heterogeneous production processes, labors only
become “labor” through the same market equivalences that turn use-values into
“income.” At the beginning I argued that Marx thinks of an economy in the broadest
sense as simply the set of social relations by means of which concrete labors Lx
are transformed into the aggregate incomes derived from the social net product
y, so the elements of Lx and y must be counted in a way that makes visible their
conceptual identity. It is then exchange equivalence that provides the means – and,
158 BRUCE ROBERTS

as Marx repeatedly stresses, the only means – to do this, to quantify each of these
sets of heterogeneous individual magnitudes as determinate parts of one or the
other (equal) social aggregate.
Marx writes:

[the commodity] reflects the social relation of the producers to the sum total of labour as a
social relation between objects, a relation which exists apart from and outside the producers.
. . . In other words, the labour of the private individual manifests itself as an element of the total
labour of society only through the relations which the act of exchange establishes between the
products, and, through their mediation, between the producers (1976, p. 165).

I read this as an insistence on the simultaneous nature of the two “countings” of


fundamental concern to Marx: the counting of concrete labours (Lx) on a common
scale as “elements” of “the total [abstract] labour of society” (␣Lx) comes about
(via the relations of equivalent exchange) in the same way, through the same
mechanism, as the counting of concrete use-values (y) on a common scale as
parts of the total net output/income of society (py). Neither counting is possible
without reference to the social basis for equivalent exchange, but each counting
necessarily implies the other, since, as in the system above, the labor-time unit of
social account is fully determinate as soon as the equivalence rule is specified in
some form. Thus, when Marx says “regarded as exchange-values, all commodities
are merely definite quantities of congealed labour-time” (1970, p. 30), the statement
need not be read as requiring a premise of value-equivalent exchange. Values and
exchange-values (production prices in competitive capitalism) do differ, and the
difference can be approached as a matter of comparing the labor “contained”
in commodities under two different allocations of the same aggregate inputs.
Value is the abstract labor contained (newly performed or advanced for means of
production) when the commodity is looked at as what it actually is, individually,
in production – the product of actual technical conditions (A, L) under the existing
allocation. Production price, on the other hand, is, as in Eq. (21), the abstract labor
contained when the commodity is looked at as it appears on the market, as “a part
both really and conceptually of production as a whole” – the product of aliquot
part technical conditions (A∗ , L∗ ) derived from an “amalgamate and [re]allocate”
calculation.
So the concept of abstract labor as a homogeneous unit of social account
is neither metaphysical nor unquantifiable. As (21) above demonstrates, the
production prices that commensurate heterogeneous use-values as equivalents
in competitive capitalist exchange are themselves expressions in which
heterogeneous concrete labors are “transformed” for each commodity into socially
average concrete labors (N), the simple sum of which is homogeneous, social –
abstract – labor. Marx puts it provocatively:
Quantifying Abstract Labor 159

. . . when we bring the products of our labour into relation with each other as values, it is not
because we see in those articles the material receptacles of homogeneous human labour. Quite
the contrary: whenever, by an exchange, we equate as values our different products, by that
very act, we also equate, as human labour, the different kinds of labour expended on them. We
are not aware of this, nevertheless we do it (1967, p. 74).

In light of (21), and given the struggles provoked among even consciously Marxian
economists by the very concept of abstract labor, Marx’s words lend themselves
to a parallel restatement, extending his point about experience in markets to the
explicit practice of economic theory: when we, as economists, bring theory to bear
on competitive prices, it is typically not because we see those prices as expressions
of homogeneous human labor. Quite the contrary: when, by means of pricing
equations, we calculate the ratios of equivalent exchange in competitive capitalism,
by that very act we also commensurate the different kinds of concrete labors
on a homogeneous scale as abstract labor. We are not aware of this – we may
even dismiss the whole project or deny the applicability of its very concepts –
nevertheless we do it.

NOTES

1. Indeed, Marx presents the equations expressing “the general form of value” as
accomplishing “the reduction of all kinds of actual labour to their common character of
being human labour in general” (1976, pp. 159, 160), without any reference to money, in
fact, prior to any consideration at all of “the money form of value.” The general form of
value involves only equivalence relations within “the world of commodities,” none of which
yet need be thought of as the unique universal equivalent.
2. This is not the place to develop the argument which would support this claim, but to
sketch it: Marxism as a mode of social analysis is more than a value theory of capitalism.
Marxism is a class analysis of any sort of social formation, and the general distinction by
means of which Marx defines class is that between necessary and surplus labor. These are
general concepts, applicable in principle to societies irrespective of whether commodities
and money are present. Thus, when Marx considers capitalism, in which quantitative
relations are expressed in money, the task is to conceive those monetary magnitudes as the
particular “forms of appearance” of the general labor categories, a task which (I argue) gives
labor-time units a discursive priority as the primary unit for conceiving quantitative relations.
3. Realistically, it is, of course, possible that some elements of y might be negative,
if particular physical inputs or means of production are not, or not fully, replaced, for
example, technically obsolete inputs still in current use but not physically necessary
for future production (due to the availability of superior substitutes which are currently
produced). Nevertheless, we should think of y as a “social positive,” since only in exceptional
circumstances (amounting to a total social breakdown) can we imagine the physical basis
for aggregate net incomes as a negative magnitude.
4. There are many possible citations linking the aggregate labor performed, and portions
of it or of the value created by it, to the social net product (“the annual product in which the
160 BRUCE ROBERTS

labour . . . newly added during the year is represented” (1981, p. 973)), and corresponding
portions of it, particularly from Chap. xlviii through Chap. l of Capital 3 (“The Trinity
Formula,” “Concerning the Analysis of the Process of Production,” “Illusions Created by
Competition”). Marx regularly identifies aggregate living labor with the total revenues of
the three classes, e.g. “freshly added labour . . . is always reducible to three elements, wages,
profits, rent, which constitute the three forms of revenue” (1981, p. 993). Similarly, the sum
of these three revenues, labeled “gross income,” is identified with “the part of the gross
product . . . which remains over after deducting . . . the part of the total production . . . which
the [constant] capital advanced and consumed in production replaces” (i.e. y = x − Ax); this
net product vector is then decomposed into “the part of the product destined to become the
workers’ income” and “the . . . surplus-product that remains after wages are deducted,” the
physical counterpart to surplus-labor and surplus-value) (1981, p. 979). Cf. also, 1981,
pp. 958, 961, 973, 975, 978, 988.
5. The implied contrast here, between relationships “among things” and “among people,”
intentionally echoes the language Marx uses to pose the “fetishism of commodities,” a topic
that will be explicitly examined below.
6. Among Marx’s statements, see 1976, pp. 431, 655, 710; 1978, pp. 207, 428, 429;
1981, p. 279.
7. The explicit or implicit form of the “rule” for exchange equivalence evolves as Marx’s
argument develops. In no sense is Marx obligated by his interest in the labor-content of
commodities to presume an equality of values or any other sort of “substance” that must
necessarily be contained in equal amounts in commodities that exchange as equivalents.
But the focus on equivalence as the “center of gravity” for exchange rates does enforce an
obligation to examine the “grounds for compensation” (1981, p. 310) on which commodity
producers approach the market. The value-equivalence (exchange “at values”) assumed
in volumes 1 and 2 of Capital follows precedent in Smith and Ricardo but is a tactically
motivated choice designed to get the analysis of capitalist production off the ground. The
stylized competitive capitalism of Part Two of volume 3 – capitalist production relations in
all sectors, worker mobility, sufficient development of credit markets to allow relatively easy
flows of investment capital across industry boundaries – implies its own criterion: exchange
ratios consistent with competitive equalization of the profit rate across sectors. But this is
hardly the final step; further factors which would modify the equal-rate-of-profit criterion
include, for example, monopoly power, government-administered prices, and international
trade. Thus, the evolving form of exchange equivalence is not so much a description of
market conditions (e.g. supplies and demands) as a reflection of the underlying social
structure under consideration.
8. The quoted passage following actually refers to the consequences of exchange at
“market-value,” but six pages later (1981, p. 300) Marx makes it clear that “everything
that was said about [market-value] applies with the necessary limitations also to price of
production,” echoing his previous statement (1981, p. 280) that “what we have said here of
market value holds also for price of production, as soon as this takes the place of market
value” as “the centre around which the daily market prices revolve.”
9. Cf. Marx (1971, pp. 83, 84).
10. The quoted passage is from the fetishism section of the French edition of Capital
(1875, Vol. 1, p. 29); Rubin stresses that the final part of this sentence, containing the explicit
reference to exchange, was inserted by Marx into the French edition as a conscious effort
to clarify the meaning of the prior German editions.
Quantifying Abstract Labor 161

11. Similar mathematical arguments are developed in Roberts (1995, 1997, 2004).
12. There is no necessity to assume that each worker must purchase precisely these
commodities in these proportions. The assumption is simply that all workers of a particular
type are paid wages which allow this set of purchases.
13. See Note 3 above. The assumptions of x > 0 and y ≥ 0 are convenient, but not
necessary so long as technical coefficients exist for any production processes which happen
to have zero gross outputs (i.e. physical inputs which are not currently produced) and the
negative elements of y still allow the condition (developed below) py = u′ Lx to hold (i.e.
social net income is still positive).
14. Clearly Marx intended to get prices and r “right,” and the traditional objection that “he
forgot to transform the inputs” has been roundly criticized by many in recent years (among
them, for example, Kliman & McGlone, 1988; Moseley, 1993; Ramos, 1992; Roberts, 1981;
Rodriguez, 1994). Moreover, the simultaneous nature of the solution for p and r is in my view
similarly consistent with Marx. “Temporal” or “sequential” solutions which derive “output
prices” from a different set of “input prices” taken as given from the previous period may
have much to contribute to understanding dynamics, but they represent a misspecification of
the problem at hand here, namely to specify a (single) set of prices consistent with capitalist
equivalent exchange, the “center of gravity” for any actual market prices reigning in the
current period. When output prices differ from input prices (even if the former are derived
with a uniform profit return added to the pregiven capital advance), the ongoing change in
prices marks the situation as subject to “the movement of demand and supply,” rather than
the “pure” or “law-like form” expressing equivalence, where price phenomena are examined
in “the form that corresponds to their concept, . . . independently of the appearance produced
by the movement of demand and supply” (1981, p. 291). Using existing (presumably market)
prices as data for the derivation of production prices enforces a very different conception
of what Marx was about; indeed, in my view it fundamentally distorts the key distinction
between equivalent and non-equivalent exchange. See Note 21 below.
15. The rate of profit is associated with a strictly positive vector of prices if K is
irreducible or, when K is reducible, if ␭Km is the maximum eigenvalue of the submatrix
on the principal diagonal which refers to those commodities which are basic with respect
to K (the characteristics of W ≥ 0 and L ≥ 0 guarantee that there is always at least one
commodity which is basic in this sense).
16. Among the many statements by Marx which suggest this reading are 1968, p. 30;
1981, pp. 265, 309, 893, 897.
17. Equation (6), like (4) above, may seem to imply that a solution for v requires the
prior solution for p, but this turns out not to be the case. See below.
18. Roberts (1997, pp. 500, 501) demonstrates this for the case of homogeneous labor
by considering the various forms of T which might give rise to singularity. The necessary
substitutions involve reference to the specific form of exchange equivalence; this means
that, in considering the “volume 3 world” of competitive capitalism, some of the physical
quantities in the modified T will be functions of ␭Km the maximum eigenvalue of matrix
K = A + WL. Since the purpose of the exercise is to allow the determination of v, and v
(as will be argued) depends on ␭Km in this case anyhow, this does not present any problems.
With heterogeneous varieties of labor performed by distinct types of labor-power, the only
difference is the presence of ␣ within T, which complicates computation but is irrelevant to
the theoretical existence of a modified non-singular T capable of inversion. Of course, some
of the elements of T−1 will typically be negative, a fact which, while perhaps disconcerting,
162 BRUCE ROBERTS

is not conceptually problematic. Negative elements “can be interpreted, by analogy with the
accounting concept, as liabilities or debts, while the positive components will be regarded
as assets” (Sraffa, 1960, p. 48), so that the bundle as a whole, as a composite of assets and
liabilities, is still a meaningful physical construct whose value expresses p.
19. The general approach developed in this paper can be extended to incorporate
the differential rates of exploitation resulting from extraction of absolute surplus value,
differential wages for any particular type of labor-power simultaneously employed in
different industries, and so on, if additional information about particular conditions for
different workers and industries is brought to bear. The assumption here of a uniform social
e is made for brevity and simplicity rather than of necessity, but it is still an assumption
thoroughly consistent with Marx’s common practice.
20. Note that, while it is not the higher wage paid which causes ␣j to be greater – it is
the greater complexity of the labor-power that results in both the higher wage and the larger
␣j – the ␣ for this type of labor-power is nonetheless proportional to the value paid for it.
Similar logic is frequently employed by Marx; in addition to the citations above, see, Marx
(1963, p. 91; 1968, pp. 27, 384; 1971, pp. 165, 231).
21. Note that the role here attributed to equivalent exchange is not at all the same as
saying (as some do) that a commodity’s value is determined only upon the actual sale of
that commodity and the realization of its value in the form of some particular amount of
money. Actual sale (or, for that matter, non-sale) is a matter of the market price reigning under
current conditions of supply and demand, and such market prices are virtually synonymous
for Marx with non-equivalent exchange. The ever-changing conditions of actual exchange
are quite a different matter from the criterion by which equivalent exchange is defined, and
thus the market success or failure of the commodity in actually fulfilling that criterion is
irrelevant to the determination of its value in terms of abstract labor-time. Nor should this
invocation of exchange equivalence be interpreted temporally, as implying that events of
any sort in the market subsequent to production must occur before the value created by
labor in production can be determined. Exchange, in the sense that is relevant to value as
abstract labor-time, is not “subsequent” to production, nor is it an “event”; exchange in this
sense is an underlying condition of existence for capitalist production, an overdetermining
“social form of the process of reproduction” (Rubin, 1972, p. 149) that is as much prior
to as it is subsequent to every production process. Labor in the process of production is
already abstract labor, but not directly in itself and not because of the character of the
production process, but because of the constitutive nature of equivalence relations. When
Marx says that “it is only the expression of equivalence” between commodities that is
responsible for “actually reducing” concrete labors to a common standard, he invokes
exchange equivalence in this sense, as a presupposition of the very concept of value as
labor-time.
This point is relevant to the “temporalist” claim that simultaneous equations restrictively
deny the reality that input prices at the time production is initiated typically differ from output
prices at the time produced commodities reach market (e.g. Freeman, 1995; McGlone &
Kliman, 1995 among many possible citations). This is undeniably true for actual capitals
in historical time, but in my view the concept of price of production involves a deliberate
abstraction from actual prices in any time period, and instead concerns the “pure” or “law-
like form” expressing equivalence.
22. Surplus value per unit, understood as unpaid labor, is here s = (␣ − vT−1 W)L. It is
easily shown that the solutions here fulfill the aggregate identities; see Roberts (1997).
Quantifying Abstract Labor 163

23. In the presence of joint production, per-unit expressions are no longer meaningful;
in this case, ␾ would be defined to express the total output (or total capital) of each process
as a portion of aggregate output (or aggregate capital).
24. Cf. Marx (1968, p. 433): “Each capital, therefore, in each particular branch, represents
a portion of a total capital of the same organic composition.”
25. In meaningful capitalist cases in which r and all prices are strictly positive,  is non-
negative and of rank 1, and therefore so is A∗ . This means that the only non-zero eigenvalue
of A∗ is given by its trace (the sum of the elements on the main diagonal). Given the simple
form of A∗ , tr(A∗ ) = ␾Ax = vT−1 Ax/vx < 1, which guarantees that [I − A∗ ]−1 exists and
is non-negative.
26. A simple proof: from (6), aggregate value vx is given by
vx = pAx + ␣Lx
Combine this expression with (12):
(vx)p = (pAx + ␣Lx)vT−1
Divide both sides by vx:
   
1 1
p = pAxvT−1 + ␣LxvT−1
vx vx
Substitute from (18) and (19):
p = pA∗ + ␣L∗
Solve for p:
p = ␣L∗ [I − A∗ ]−1 = ␣N.
27. I say “projecting” here because clearly the means of production have to be accounted
for in addition to living labors performed; in fact, (21) can be modified to make the point
more easily. Given note 25 above, define β = (1/1 − tr[A∗ ]) = vx/u′ Lx > 1. The simple
form of A∗ means that the inverse matrix [I − Ax␾]−1 in (21) can be replaced by β, yielding
N = Lxβ␾ and
p = u′ [Lxβ]␾ (21′ )
Thus, when Marx envisions individuals “amalgamating” their labor-time, the total “labour-
time at their joint disposal” is more than merely the sum of the direct (or “living”) labors
actively performed by current producers (Lx) – allocation of “portions” proceeds instead
from the larger aggregate Lxβ incorporating the additional indirect (or “dead”) labors
available in the concrete form of the aggregate means of production Ax.
28. To see this, substitute (21′ ) into (13), yielding
␣ = (u′ Lx)β␾W(1 + e) = (u′ Lx)␩
where ␩ = ␾Wβ(1 + e) gives the specific “weights” attached to concrete labors as activities
creative of value. As soon as an equivalence rule is stated, allowing meaningful specification
of the aliquot part vector ␾, ␣ then follows immediately: a measured hour of the jth concrete
164 BRUCE ROBERTS

labor counts, in terms of abstract labor, as a particular fraction ηj of the aggregate value
created by living labors (u′ Lx).
29. The quotation appears in an argument in which “fetishism” is directly invoked.
30. In this sense, Eq. (21) is provocative in light of Marx’s reference to “a mathematically
exact demonstration of why the capitalists, no matter how little love is lost among them
in their mutual competition, are nevertheless united by a real freemasonry vis-à-vis the
working class as a whole” (1981, p. 300).

REFERENCES
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A Reexamination. Atlantic Highlands, NJ: Humanities.
Arthur, C. (2002). The new dialectic and Marx’s Capital. Leiden-Boston-Koln: Brill Academic.
Freeman, A. (1995). The psychopathology of Walrasian Marxism. In: A. Freeman & G. Carchedi (Eds),
Marx and Non-Equilibrium Economics. London: Edward Elgar.
Kliman, A., & McGlone, T. (1988). The transformation non-problem and the non-transformation
problem. Capital & Class, 35, 56–83.
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Marx, K. (1967). Capital (Vol. 3). New York: International.
Marx, K. (1968). Theories of surplus-value (Vol. 2). Moscow: Progress.
Marx, K. (1970). A contribution to the critique of political economy. New York: International.
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House.
McGlone, T., & Kliman, A. (1995). One system or two? The tramsformation of values into prices of
production vs. the transformation problem. In: A. Freeman & G. Carchedi (Eds), Marx and
Non-Equilibrium Economics. London: Edward Elgar.
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Marx’s Method in Capital: A Reexamination. Atlantic Highlands, NJ: Humanities.
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at the beginning of Marx’s Capital. In: F. Moseley (Ed.), Marx’s Method in Capital: A
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Roberts, B. (1981). Value categories and Marxian method: A different view of value-price
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Roberts, B. (1995). Value and exchange-value: From concrete labors to abstract labor. Mimeo,
University of Southern Maine, Portland, Maine.
Roberts, B. (1997). Embodied labor and competitive prices: A physical quantities approach. Cambridge
Journal of Economics, 21(4), 483–502.
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Roberts, B. (2004). Value, abstract labor, and exchange equivalence. In: A. Freeman, A. Kliman &
J. Wells (Eds), The New Value Controversy and the Foundations of Economics. Cheltenham:
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Oxford: Blackwell.
EXCHANGE, DEMAND AND THE
MARKET-PRICE OF PRODUCTION:
RECONCILING TRADITIONAL AND
MONETARY APPROACHES TO VALUE
AND PRICE

David Kristjanson-Gural

ABSTRACT

This paper seeks to reconcile two very different views existing in the literature
concerning how exchange and demand affect the magnitude of commodity
values. Traditionally, value is considered to be created in production and
subsequently realized in exchange. An alternative monetary approach posits
that exchange itself contributes to the determination of commodity values.
Proponents of each view claim that significant parts of Marx’s theory of value
are compromised if their interpretation of the role of exchange is not adopted.
Drawing on the work of Rosdolsky and Roberts, I argue that it is necessary
to distinguish between the effects of exchange and demand. Exchange acts
to reduce concrete, private labor to abstract social labor, while demand
affects the magnitude of labor considered “socially necessary” in the sense
of being expended in accordance with existing social need. I identify a new
category of exchange value – the market-price of production – and use it to
explain how changes in demand act to redistribute value across industries by

The Capitalist State and Its Economy; Democracy in Socialism


Research in Political Economy, Volume 22, 167–198
Copyright © 2005 by Elsevier Ltd.
All rights of reproduction in any form reserved
ISSN: 0161-7230/doi:10.1016/S0161-7230(04)22006-5
167
168 DAVID KRISTJANSON-GURAL

affecting the magnitude of abstract labor considered to be socially necessary.


In this way the major claim of the two approaches to exchange are reconciled.
The magnitude of value is fully determined in production. At the same time
monetary exchange effects, or brings about, a social division of labor by
reducing concrete, private labor to abstract social labor and by distributing
value according to social need as expressed by effective demand.

1. PRODUCTION OR EXCHANGE?
A commodity is produced with labor of average skill and intensity but fails to sell.
Has value been created? The answer to this question delineates two schools of
thought within the value theory literature, places at odds two important elements
of Marx’s economic theory and reveals important assumptions concerning what is
meant by the concept of value.
Traditionally, the answer is yes: value is created in production but fails to be
realized in exchange. Insufficient demand for a commodity affects the commodity’s
value only indirectly, through changes in market prices, industry rates of profit
and subsequent changes in the conditions of production which affect the labor
expended in production. Allowing for a direct affect of demand on a commodity’s
value implies that market conditions can augment or detract from a commodity’s
value. This position undermines the idea that all value comes from the expenditure
of labor in production and invalidates the claim that all surplus labor results from
the exploitation of workers in production. Marx’s theory of exploitation, according
to this traditional view, requires that demand cannot directly affect the magnitude
of commodity values.
An equally compelling case can be made for the opposite claim that market
conditions must directly affect the magnitude of commodity values. In this
monetary approach, only the exchange against money can validate a private
expenditure of labor-time as part of the social division of labor in a capitalist society.
In capitalism, independent private producers expend concrete, particular labor in
production but only through exchange is this expenditure of labor measured against
the private labors of other producers and articulated into a social division of labor.
It is through exchange that the social relations between producers are validated as
part of the total social labor. In this way the exchange of commodities is fetishized:
the social relationship among producers takes on the appearance of a relationship
among the commodities themselves mediated by money. The magnitude of value,
in this monetary view, is only measured by and determined through the quantity of
money a commodity receives in exchange. Marx’s theory of commodity fetishism
thus requires that demand directly affects the determination of commodity values.
Exchange, Demand and the Market-Price of Production 169

Marx’s theory of value and price is thus stuck on the horns of a dilemma.
Choosing one or the other answer to the question of how demand affects value
places in jeopardy one of these two important aspects of Marx’s theory of
value. Furthermore, the answers to this question imply very different assumptions
concerning what is meant by value. Clearly a resolution of this disagreement is
necessary for the further development of Marx’s theory of value.
In this paper, I will argue that it is possible to reconcile the main claims of these
two opposing views. It is possible, in other words, to allow a direct role for demand
in the determination of value without undermining the idea that all value is created
in production. In order to effect this reconciliation, it is necessary to integrate
two developments within Marxian value theory and in so doing to distinguish
two effects within the exchange process that are commonly conflated. The first
concerns the effect of exchange per se on the determination of value and exchange-
value. This question is independent of the question of the role of variations in
demand. It deals specifically with the relationship between a commodity’s value
and exchange-value and the question of how exchange effects a reduction of private
concrete labor to social abstract labor. Here, the recent work by Roberts (1997,
2004, 2005), building on the insights of Wolff, Callari and Roberts (1984), can be
used to explain how exchange effects a reduction of concrete to abstract labor and
distinguishes a commodity’s value from its exchange-value without contributing
an independent source of value.
The second is Rosdolsky’s interpretation of the effect of demand on the
determination of market-value in Chapter 10 of Volume 3 of Capital. Rosdolsky
(1977) argues that demand plays a direct role in the determination of market-value
by affecting the quantity of labor expended that is considered socially necessary
in the sense of being expended in proportion to the existing social need for the
commodity. With the integration of demand, it is necessary to consider the range of
techniques within an industry in order to determine a commodity’s market-value.
The limitation of Rosdolsky’s analysis is that it takes into account competition only
within a single industry. An increase in demand thus appears to imply an increase
in the magnitude of value produced. By generalizing Rosdolsky’s interpretation
of the determination of market-value to the case of competition among industries
it can be demonstrated that demand acts to redistribute value among industries; it
does not represent an independent source of value.
By integrating Rosdolsky’s and Roberts’ contributions a new category of
exchange-value emerges – the market-price of production. I will argue that this new
concept permits the analysis of how changes in demand in the short run redistribute
value. The value and exchange-value of a given commodity are directly affected
by the magnitude of demand; however, demand does not act as an independent
source of value. The theory of exploitation and the theory of commodity fetishism
170 DAVID KRISTJANSON-GURAL

can be retained and the difference between the two approaches to value and price
can be reconciled.
In Section 2 below, I will first examine Roberts’ arguments concerning
how exchange affects the magnitude of abstract labor and then Rosdolsky’s
interpretation of how demand directly affects value by affecting the quantity of
labor-time considered socially necessary. In Section 3, I will integrate these two
developments and explain the determination of the market-price of production
and how this concept can be used to theorize the redistribution of value due
to shifts in demand between industries. I will conclude, in Section 4, with
some observation on the merits of the present analysis and directions for future
research.
Since the intent of the paper is to reconcile the competing interpretations of the
meaning of value in order to provide a theoretical basis for Marxian price theory,
I will present only limited numeric examples meant to clarify the concept of the
market-price of production. An algebraic model demonstrating the relationship
between value and exchange-value is presented in the appendix. A more complete
explication of this model can be found in Kristjanson-Gural (2003).

2. EXCHANGE, DEMAND AND VALUE

2.1. Exchange and Abstract Labor

If labor only becomes abstract labor through the process of exchange as the
monetary approach insists, how can it be said that the magnitude of value is
determined solely by the expenditure of labor in production? This quandary first
appears in the English language literature in the writing of I. I. Rubin (1973). Rubin
distinguishes two aspects to the concept of abstract labor and struggles to provide
an account of how exchange effects a reduction from concrete private labor to
abstract social labor. Subsequent theorists attempt various methods of resolving
the quandary each of which encounters difficulties integrating the two aspects of
abstract labor Rubin identifies. The recent work of Roberts, however, resolves these
difficulties and demonstrates how exchange effects a reduction from concrete to
abstract labor without implying exchange is a source of value.
The first aspect of abstract labor identified by Rubin is familiar. Abstract labor
is homogenous labor – labor considered apart from its particular characteristics
as a specific type of labor – spinning, weaving; shoe-making. “This generally
accepted definition can be reduced to the following, very simple statement:
concrete labor is the expenditure of human energy in a determined form (cloth-
making, weaving, etc.). Abstract labor is the expenditure of human energy as such,
Exchange, Demand and the Market-Price of Production 171

independently of the given forms. Defined this way, the concept of abstract labor is
a physiological concept, devoid of all social and historical elements” (Rubin, 1973,
p. 132).
Rubin identifies a second meaning of the term “abstract labor” which serves
to preserve the social and historical specificity of the concept of abstract labor
and to avoid the problems which result from interpreting abstract labor in a
physiological manner. He argues that labor only becomes abstract labor in the
process of equalizing qualitatively different concrete labors in the context of
commodity exchange. Abstract labor in this sense is social labor – an aliquot
part of the total labor expended in the economy. Only in commodity exchange is
a social division of labor effected through the exchange of commodities on the
market. It is through this process of equalization that private independent labor is
articulated into a social division of labor. Abstract labor is therefore not simply
undifferentiated labor; it is a specific type of social labor which has been equalized
through the process of commodity exchange.
Rubin emphasizes the socially contingent nature of abstract labor with a quote
from Marx in which he compares the characteristics of labor in commodity
production to communal labor:
The very nature of production under a communal system makes it impossible for the labor of
the individual to be private labor and his product to be a private product; on the contrary, it
makes individual labor appear as the direct function of a member of a social organism. On the
contrary, labor which is expressed in exchange-value, at once appears as the labor of a separate
individual. It becomes social labor only by taking on the form of its direct opposite, the form of
abstract universal labor.
(Cited in Rubin, 1973, p. 143)

According to this view, abstract labor does not exist independently of the process
of the equalization of labor which occurs in commodity exchange. The specific
way in which this equalization occurs in capitalism is through the exchange
of commodities against money. It is monetary exchange which effects the
equalization of labor and reduces individual concrete types and quantities of labor
to homogeneous abstract labor.
Subsequent theorists, who came to be known as the Rubin School, reinforced
Rubin’s claim that exchange is central to the determination of value. They argued
further that because value only appeared in the act of exchange it could only
be measured in money units. Two main advantages of Rubin’s approach were
highlighted. First, by identifying the second aspect of abstract labor, Marx’s
distinctions between private verses social labor and concrete verses abstract
labor no longer appear empty of content. “Lacking any conscious assignment or
distribution on the part of society, individual labor is not immediately an articulation
of social labor; it acquires its character as a part or aliquot of aggregate labor
172 DAVID KRISTJANSON-GURAL

only through the mediation of exchange relations or the market” (Colletti, 1973,
p. 462, emphasis in original). Indeed, there appears to be no other way to effect
the reduction.
[I]t is precisely the social nature of abstract labor that makes it invisible in the process of
production, which in the capitalist mode of production takes the form of an individual activity,
for the process of commodity production is not directly social . . . [As a result] there is no way
to reduce observable concrete labor to social abstract labor in advance, outside of the market
which actually effects the reduction.
(Gerstein, 1976, p. 52)

Second, Rubin’s analysis helped to integrate Marx’s theory of money with his
theory of value and prices. Money is recognized as the form of appearance of value
and integrating the theory of money with the theory of prices becomes vital to the
understanding of Marx’s analysis. By assuming abstract labor to be homogeneous
labor prior to exchange, the important role money plays in the theory of value is
overlooked.
The following problem, identified by Rubin, remained unresolved. If exchange
effects the reduction of concrete to abstract labor, then the magnitude of value
is determined not by the expenditure of labor in production, but only through
exchange. Changes in the exchange ratios appear to imply changes in the quantity
of value each commodity represents, changes which are independent of the
expenditure of labor in production. Rubin argued against this conclusion claiming
that that while labor expended in production can not be considered fully abstract
prior to exchange . . . “This does not prevent us from ascertaining a series of
quantitative properties which distinguish labor in terms of its material-technical
and its physiological aspects and which causally influence the quantitative
determination of abstract labor before the act of exchange and independent of it”
(1973, p. 155). Rubin was not able, however, to provide a method for determining
the magnitude of abstract labor prior to exchange.
The Rubin school theorists, however, abandoned the attempt to provide a
quantitative measure of value. They argued that since “abstract labor can be
observed in only one place – the market – . . . [where it] takes the form of money . . .,
abstract labor as such can be measured only when it takes the independent form
of money, a form that poses it against the ‘bodily form of the commodity in which
it is embodied’ ” (Gerstein, 1986, p. 53; see also DeVroey, 1981, p. 189). On
this basis Rubin School theorists concluded that Marx’s theory of value cannot
provide the basis for a quantitative theory of price determination. Because the
market itself determines the magnitude of abstract labor and because the actual
relations of exchange are subject to contingencies which lie outside the purview of
theory, “. . . in principle, Marx’s theory of value cannot be used to obtain prices”
(Gerstein, 1976, p. 53). Furthermore, the determination of value with reference to
Exchange, Demand and the Market-Price of Production 173

exchange ratios in the market implies that value cannot be the only determinant of
prices (DeVroey, 1981, p. 193).
A similar conclusion is reached via a different route by a group known as
the value-form theorists. Eldred and Hanlon (1981) defend the necessity of
expressing value in money units on the basis of the dialectical development of
the form of value in Capital. According to this interpretation, the contradiction
between the use-value and the exchange-value of the commodity-form of value
results in the development of the money-form as the expression of the essence of
value. Two conclusions follow from their analysis. First, the value of a commodity
can only be expressed in units of money. “Just as the value of a commodity is only
expressed in exchange relation, so can the magnitude of value only be expressed
in these relations” (Eldred & Hanlon, 1981, p. 35). Second, value can not be
considered to exist prior to the exchange of commodities. “[T]he labor content of
commodities deserves the name of value of a certain magnitude only insofar as it
proves itself to be such through being sold. Only then (that is, post facto) can we
properly speak of the labor performed in the immediate process of production as
value-creating labor” (Eldred & Hanlon, 1981, p. 26).
Thus, both the Rubin School and value-form theorists argue that value is
only determined through exchange and that the magnitude of value can only be
expressed in money. In so doing, however, they encounter difficulties maintaining
a quantitative determination of value and prices. They cannot in other words,
resolve Rubin’s problem of “ascertaining a series of quantitative properties which
distinguish labor in terms of its material-technical and its physiological aspects and
which causally influence the quantitative determination of abstract labor before the
act of exchange and independent of it” (1973, p. 155). Theorists working within
a monetary approach to exchange have continued to grapple with the problem.
Bellofiore (1989) argues that the monetary approach implies that Marx’s theory
is suitable only for analysis of value flows at the macro level and is not suitable
for micro analysis of price determination. Mohun (1994) argues, however, that it
is possible to construct a theory of price determination by utilizing the concept of
the monetary expression of labor-time to translate between values and exchange-
values.1 It is helpful to take a closer look at Mohun’s argument.
In Mohun’s view the key to the development of a consistent theory of price
determination lies in properly understanding the relation between value and
exchange-value. Mohun defines value as socially necessary labor-time – the
average labor required to produce a commodity taking into account different levels
of work intensity, skill and productivity (p. 395). This labor value differs from the
commodity’s exchange-value (or value-form) which is the quantity of abstract
labor the commodity exchanges for expressed in units of money. Because money
represents abstract labor and can be converted into a definite quantity of abstract
174 DAVID KRISTJANSON-GURAL

labor-time using the monetary expression of labor-time, the value of the commodity
can be compared with the exchange-value to see how the process of exchange
acts to redistribute existing value among industries. The difference between the
abstract labor determined by exchange and the socially necessary labor expended
in production represents a redistribution of labor-time as the result of the process
of exchange (p. 403).
Mohun goes on to argue that any number of exchange regimes is possible but
that Marx explicitly interested two particular regimes – exchange at values and
exchange at prices of production. In the case of exchange at values, no redistribution
of value occurs since the abstract labor represented by the commodity in production
is equal to the amount assigned to it in exchange. In the case of exchange at
prices of production, however, there is redistribution according to the compositions
of capital across industries. Mohun refers to this as a case of unequal exchange
since the commodity exchanges at an exchange-value above or below its value.
Exchange at market prices represents a third important possibility according to
Mohun. Here value is redistributed according to the level of demand and supply
existing in each industry. “This distribution is a distribution of labor-time across the
individual commodities aggregated as net product and is effected by prices. This
is the fundamental meaning of ‘price’; ‘price’ is a representation of a proportion of
society’s total labor-time allocated to a particular commodity. In this sense prices
are forms of value, of abstract labor (1994, p. 403).”
Mohun’s approach has the merit of providing a quantitative determination
of prices and values from the perspective of the Rubin School. It distinguishes
value from exchange-value (or value-form), provides a role for exchange in the
determination of the value-form and recognizes the importance of the different
assumptions Marx introduces concerning exchange. However, as I will argue in the
next section, Mohun’s interpretation conflates the effect of exchange and the effect
of demand and attributes them both to the determination of abstract labor. Value,
according to Mohun, is a magnitude of socially necessary labor-time determined by
the conditions of production of a commodity prior to and independent of exchange
(1994, p. 394). It is “measured in terms of socially necessary time (standardizing for
different work intensities, productivity levels, skills and so forth)” (1994, p. 395).
The process of exchange, therefore, is not implicated in the determination of value:
value is determined entirely in the process of production according to the labor
required on average to produce the commodity. Value is therefore constituted
by concrete private labor and not abstract labor as Rubin argues. Exchange then
determines only the exchange-value of the commodity; not its value. Furthermore,
by defining value according to average labor expended in production, Mohun
overlooks a second, or macro, aspect of socially necessary labor Marx introduces
– production in accordance with existing social need. It is this second meaning that
Exchange, Demand and the Market-Price of Production 175

is related to the role of demand in the determination of value and exchange-value


as I will argue below.
Roberts (2004) produces an interpretation of the role of exchange in the
determination of abstract labor that successfully resolves the difficulties identified
by Rubin.2 He uses the distinction between the commodity’s value and its value-
form or exchange-value to argue that exchange serves to redistribute value created
by labor in production according to the prevailing rule governing exchange.
Three interrelated elements of Roberts’ approach together serve to resolve the
quandary of how exchange can affect the determination of value without itself
representing a source of value: the relationship between value and exchange-value,
the measurement of both value and exchange-value in both labor and money units
and the use of a net product normalization to maintain the aggregate equality
between values and exchange-value and to translate between magnitudes of labor
and money. Each of these will be considered in turn.
The value of a commodity is determined by the new labor expended in production
and the value transferred to the commodity by the constant capital. According to
Roberts, it is the exchange-value that is relevant for determining the amount of
value transferred to the commodity via the means of production since the latter
are not produced in the production process but are acquired through exchange
(Wolff et al., 1984). When commodities exchange at their values, this distinction
is unimportant; once commodities exchange at prices of production however,
continuing to use the embodied labor of the means of production rather than
the abstract labor misrepresents the way in which production and exchange are
articulated in capitalism.
Roberts argues that the exchange-value of the commodity, its price of production,
is the amount of abstract labor the commodity represents in equivalent exchange
given the assumption that competition tends to equalize rates of profit across
industries. It is no longer viable to assume exchange according to values once
inter-industry competition is introduced into the analysis. Since producers must
obtain the means of production at their exchange-values, it is necessary to measure
the abstract labor contributed by the means of production at their exchange-values
rather than their values. The value of the commodity is thus the new labor expended
in production plus the abstract labor transferred to the commodity by the means
of production.
For example, suppose a commodity requires two hours to produce, one hour
of new labor and one hour represented by material and equipment used up in
production. Suppose this composition of capital is higher than average so that
equivalent exchange – the exchange ratio that equalizes the rate of profit in the
industry with the general rate of profit – implies that the commodity exchange for
the equivalent of three hours of value. If this commodity is used as constant capital
176 DAVID KRISTJANSON-GURAL

in the period in question, it transfers three hours of value since that is the amount of
value necessary to part with in exchange for this element of constant capital.3 The
difference between the value and the exchange-value, here one hour, represents a
redistribution of value due to the higher organic composition of capital (relative
capital intensity) of the industry. This value is not created by exchange: it comes
from industries with low compositions of capital in which the exchange-value is
less than the value.
This insight has the benefit of resolving the problems associated with the
traditional approach to transforming values into prices. Further it answers the
question of how abstract labor can be quantitatively determine prior to exchange
– a question that Rubin struggled unsuccessfully to answer. Value and exchange-
value are both constituted as quantities of abstract labor; the difference between
them represents a redistribution of value according to the respective compositions
of capital that results from the equalization of rates of profit.
This explanation has the further merit of integrating a role for money in the
determination of value and exchange-value without abandoning a quantitative
determination of value and prices. Both value and exchange-value can be expressed
in units of abstract labor and both can be converted into units of money using the
monetary expression of labor-time – the ratio of the price of the net product to new
value created in labor units. If in the preceding example the monetary expression
of labor time is assumed to be $50/hr, the value of the commodity would be $100
and the price of production would be $150. Each unit of the commodity used
up in production would contribute $150 or 3 hours of value to production in the
period.
In Roberts’ analysis, then, abstract labor is not simply homogeneous labor;
it is also labor considered as an aliquot part of the total labor attributed to each
commodity according to the prevailing rule of exchange equivalence. Whatever the
particular quantity and type of concrete labor employed, the commodity, through
exchange, becomes the bearer of a certain proportion of the total labor. The portion
of the total is not determined on the basis of the labor expended in the production
of the commodity itself, nor can it be. Because the labor gets distributed through
the process of exchange in proportion to the total capital advanced in each industry,
the quantity of abstract labor attributed to each commodity can only be made with
reference to the totality.

Each commodity is not only the product of its own industry specific conditions (as such it is a
value), it is also, as a bearer of exchange-value, simply the product of a specific aliquot share of
the aggregate means of production and concrete labor employed. And as such . . . it represents
a particular magnitude of abstract labor, the simple sum of the concrete labors it contains when
viewed, not as itself but as a part of the whole . . .
(Roberts, 2004, p. 129, emphasis in original)
Exchange, Demand and the Market-Price of Production 177

Each unit of abstract labor is therefore comprised of a proportion of each type of


concrete labor employed in the whole economy. It is thus homogeneous, in that it
is not representative of any one type of labor, and it can be considered as an aliquot
part of the total social labor because it is comprised of a portion of each particular
type of labor expended. Exchange is the means by which the determination of
abstract labor is effected but this does not imply that exchange affects the overall
magnitude of value. Since the total concrete labor expended in the period defines
the magnitude of total abstract labor, exchange can never augment nor detract from
value. It merely redistributes this labor to each industry on the basis of the quantity
of capital advanced. The existence of inter-industry competition is thus necessary
to integrate the two meanings of abstract labor identified by Rubin.

2.2. Demand and Socially Necessary Labor-Time

Roberts’ explanation of how exchange affects the determination of abstract labor


does not consider the effect of changes in demand on the determination of the values
and exchange-values of commodities. The question of how changes in demand
affect value requires the reconciliation of two aspects of socially necessary labor-
time. The next question to address, therefore, is whether variations in demand
affect the determination of values and exchange-values directly and if so do they
represent an independent source of value?
Rubin raises this question by examining the two meanings Marx attributes
to socially necessary labor-time. The first is a technical meaning having to do
with the degree of skill and intensity of the labor expended in production. The
labor-time socially necessary is “that required to produce an article under the
normal conditions of production, and with the average degree of skill and intensity
prevalent at the time” (Marx, 1954, p. 47). Labor of below average skill or intensity
does not create correspondingly more value: the product of that labor has only the
same value as commodities produced with average skill and intensity. I will refer
to this aspect of socially necessary labor as the micro sense – the labor required
on average to produce the commodity. It is used to distinguish the commodity’s
market-value from its individual value once the existence of different techniques of
production is explicitly taken into consideration (Rubin, 1973, p. 173). The second,
or macro, sense of socially necessary refers to the possibility that, although labor
is expended with average skill and intensity, the total quantity of labor expended
on a particular commodity does not correspond to that which is necessary to
satisfy the existing social need. Insufficient demand for a commodity implies that
some of the labor expended is not socially necessary in this second sense, and
it follows that demand may directly affect the commodities value – the socially
178 DAVID KRISTJANSON-GURAL

necessary abstract labor time the commodity represents. This second sense of
the term is referred to by Marx in several passages throughout Capital and is
implicit in his discussion of the determination of market-value in Chapter 10 of
Volume 3.
The question of whether demand directly affects the values and exchange-values
of commodities therefore hinges on whether the second sense of socially necessary
labor is valid. I will first present Rosdolsky’s (1977) interpretation of Marx’s
analysis of how demand affects the determination of value in which he argues
that demand does have a direct role in the determination of the market-value. I will
then offer Rubin’s (earlier) argument that this second meaning should be rejected,
in part on the grounds that it implies that labor is not the sole source of value.
He offers an alternative interpretation of how demand affects the determination
of values and exchange-values that excludes a direct role for demand. Several
contemporary writers follow Rubin and I will offer two alternative interpretations
of how demand only indirectly affects value and exchange-value. I will then argue
that, by limiting his analysis only to the determination of market-value, Rosdolsky
is unable to show how demand can affect the determination of value directly without
representing an independent source of value. It is necessary to apply Rosdolsky’s
arguments concerning the effect of demand on the determination of value to the
case of inter-industry competition. Once this is done, the objections of Rubin and
subsequent writers are overcome.
Rosdolsky’s claim that demand has a direct affect on the determination of value
relies on his interpretation of Marx’s analysis of the effect of demand on market-
value in Chapter 10 of Volume 3 of Capital. Because this analysis is crucial for
the argument concerning how demand affects the determination of exchange-value
and for the development of the category “market-price of production” in the next
section, it is necessary to examine this argument in some detail.
Marx begins the analysis of the determination of market-value, by identifying
three categories of producers according to the labor requirements for the production
of the commodity – those whose production conditions allow the individual value
of their output to be lower that the average, those whose individual value is above
average and those whose individual value is equal to the average for the industry
(Rosdolsky, 1977, p. 91). He then considers two supply conditions in the industry.
In the first, which I shall call balanced supply, the distribution of output for the
above and below average groups is equally divided. In the second, the distribution
of output is skewed: one of the extreme categories provides more output than
the other such that the individual value of the commodities produced by the
middle group of producers is not equal to the average value (Marx, 1959, pp. 182,
183). With this starting point, Marx then considers three possibilities concerning
demand.4
Exchange, Demand and the Market-Price of Production 179

The first possibility is market clearing: demand is just sufficient to absorb the
supply at the average value for the industry as a whole. The second is what I will
call a normal variation in demand. Here, quantity demanded exceeds or falls short
of quantity supplied when the market-value is determined by the average value for
the industry. However, demand is equal to supply at a value which lies somewhere
within the range determined by the least and most efficient producers. The third
possibility I will call extreme or abnormal variations in demand: demand exceeds
or falls short of supply at a value determined by one of the two extreme categories.
The question that Marx addresses is this: how is the market-value determined in
each of these three cases?
Market clearing is the demand condition that applies to the determination of
prices of production in the long-run. Assuming balanced supply, the market-value
equals the individual value of the average group of producers. However, in the
case of a skewed supply, Marx argues market-value can never equal the individual
value of either of the extreme groups of producers as long as the market clearing
assumption is maintained. The market-value thus lies above or below the individual
value of the middle category of producers but within the range determined by the
individual value of two extremes and does not coincide with the individual value
of any of the three techniques (1959, pp. 183, 184).
Marx then proceeds to analyze the possibility of a normal variation in
demand (1959, p. 184). To illustrate how normal variations in demand affect
the determination of market-values he takes the example of a skewed supply
– specifically an industry in which the less efficient producers predominate. In
this case, when demand and supply coincide, the market-value lies above the
individual value of the middle group of producers and below the individual
value of the less efficient producers in the industry. Here, Marx argues that
when demand deviates from supply, the market-value can equal the individual
value of one of the two extreme groups of producers. In order for the market-
value to equal the individual value of the less efficient group of producers (the
predominant group), the demand for the commodity at the average value need
only slightly exceed supply. However, in order for the market-value to equal to the
individual value of the most efficient producers, supply must significantly exceed
demand.

If demand is only slightly greater than supply, the individual value of the unfavorably produced
commodities regulates the market-price . . . Should demand be weaker than supply, the favorably
situated part, whatever its size, makes room for itself forcibly by paring its price down to
its individual value. The market-value cannot ever coincide with this individual value of the
commodities produced under the most favorable conditions, except when supply far exceeds
demand.
(1959, pp. 184, 185)
180 DAVID KRISTJANSON-GURAL

This passage indicates that variations in demand directly affect the magnitude
of the market-value itself. The market-value can not be considered a fixed
magnitude given by the average conditions of production. As Rosdolsky argues,
the “. . . determination of market-value appears [fixed] in this way . . . [only] . . . if
we look exclusively at the mass of commodities thrown onto the market, ignoring
the possibility of an imbalance between supply and demand” (Rosdolsky, 1977,
p. 91). Once variations in demand are introduced, the market-value varies within
the range defined by the extreme techniques of production.
According to Rosdolsky, only in the special case of market clearing is the market-
value determined by the industry average. This special case is, of course, very
important for the analysis of many questions concerning how changes in production
conditions affect long-run conditions of reproduction. However the general case
is also important: it is necessary for the analysis of distributions of value that
occur in the short run when it is not warranted to assume that demand is just
sufficient to absorb the supply. The market clearing assumption must therefore
be dropped in order to assess the value under these more general conditions of
demand and supply imbalances. Marx’s analysis in Chapter 10 provides a way
to analyze how the market-value is determined when the possibility of excess or
insufficient demand is introduced and profit rates must be assumed to differ across
industries. In this case, the market-value moves within the range determined by
the conditions of production according to the strength of effective demand for the
commodity in question, “provided the demand is large enough to absorb the mass
of commodities at values so fixed” (Marx, 1954, p. 185).
At this point in the text Marx considers extreme deviations of demand – how
market-value is determined when demand exceeds or falls short of supply when the
market-value is equal to the individual value of one of the two extreme techniques.
In order to ask this question, it is necessary to consider the relationship among
competing industries. It can only then be asked whether the labor expended in
the production of a given commodity is in proportion to the total demand for the
commodity or whether relatively too much or too little of society’s labor is devoted
to the production of one or another commodity (Horverak, 1988, p. 281).
So long as we dealt with individual commodities only, we could assume that there was a need
for a particular commodity – its quantity already implied by its price without inquiring further
into the quantity required to satisfy this want. This quantity is, however, of essential importance,
as soon as the product of an entire branch of production is placed on one side, and the social
need for it on the other. It then becomes necessary to consider the extent, i.e. the amount of this
social want.
(Marx, 1959, p. 185)

Until this point in the text, the effective demand for the commodity has been
assumed to be sufficient to absorb the supply at the market-value “no matter
Exchange, Demand and the Market-Price of Production 181

which of the three aforementioned cases regulates this market-value. This mass
of commodities does not merely satisfy a need, but satisfies it to its full social
extent” (Marx, 1959, p. 185). In other words, as long as the market-value lies
within the range defined by the techniques of production, the labor expended
on the commodity satisfies the full social extend of the need for it. However,
with the introduction of the existence of competing industries, the question of the
distribution of demand arises and the possibility of a divergence between demand
and supply must be taken into account.
The existence of excess or insufficient demand creates a deviation of market-
price from market-value. However, the following passage makes explicit that there
are two distinct deviations that occur – a deviation of the market-value from the
average labor requirements and a deviation of the market-price from the market-
value.

Should [the quantity produced] be smaller or greater, however, than the demand for them, there
will be deviations of the market-price from the market-value. And the first deviation is that if the
supply is too small, that market-value is always regulated by the commodities produced under
the least favorable circumstances and, if the supply is too large, always by the commodities
produced under the most favorable conditions; that therefore it is one of the extremes which
determines the market-value, in spite of the fact that in accordance with the mere proportion of
the commodity masses produced under different conditions, a different result should obtain. If
the difference between demand and the available quantity of the product is more considerable,
the market-price will likewise be considerably above or below the market-value.
(1959, pp. 185, 186, emphasis added)

This passage clearly indicates that market-value is not a fixed magnitude


determined solely with reference to the conditions of production independent of
demand; neither does the market-value vary independently of the conditions of
production according to the level of effective demand. Instead, the market-value
varies with the market-price according to the strength of effective demand within
the limits imposed by the conditions of production. Outside these limits there is a
deviation of market-value from market-price. The conditions of production in the
industry thus impose a definite limit to the range in which the market-value can
move, “[f]or, according to Marx’s conception, market-value can only move within
the limits set by the conditions of production (and consequently the individual
value) of one of the three categories of producers” (Rosdolsky, 1977, p. 92).
Once demand is entered into the analysis, the market-value is determined by
the ratio of the total demand for the commodity to the number of units produced.
Total demand is expressed in money units and can be converted to labor units
to determine the amount of labor-time considered socially necessary. The total
demand is the expression of the total labor-time deemed socially necessary by
the market. The conditions of production provide a limit to the range within
182 DAVID KRISTJANSON-GURAL

which the market-value can move with the variation in demand. Outside of this
range the market-price will deviate from the market-value as in the traditional
interpretation.5
A number of theorists have followed Rosdolsky’s interpretation of the two
aspects of socially necessary labor-time and the effect of variations in demand
on the determination of market-value. Horverak (1988) models the effect of a
change in demand on market-values over a number of periods and shows the long-
run adjustment that occurs. However, because he does not incorporate the effect
of exchange on the determination of abstract labor, he is unable to translate the
analysis of a single industry into a more general framework utilizing prices of
production rather than market-values. As a result he is unable to break out of the
determination of value with reference primarily to the conditions of supply. While
he successfully shows the case of deficient demand, he is unable to explain the case
of excess demand, since, in the context of a single industry it seems to indicate
that an increase in demand causes an increase in value. Furthermore, variations in
demand themselves become irrelevant since, in the absence of technical change,
the most efficient technique of production becomes generalized in either the case
of excess demand or insufficient demand.
Indart (1990) recognizes the importance of framing the question in terms of
prices of production and but he is unable to integrate the effect of exchange on
the determination of abstract labor and is therefore unable to show how changes
in demand redistribute value across industries. Indart ends up ascribing the effect
of demand only to cases involving rent as does Marina-Flores (2000).
Giussani (1996) also distinguishes the micro and macro senses of socially
necessary and argues that shifts in demand affect the magnitude of market-value
directly. He does not, however, consider the case of extreme shifts in demand and
therefore does not allow for the possibility of deviations between market-value and
market price. He does attempt to analyze the case of two industries over a number
of periods. In the latter case, however, he reverts to the assumption of a single
technique of production in each of the industries. His analysis does not show a
redistribution of value between the two industries but focuses on the determination
of market prices and rates of profit.6
Rosdolsky’s interpretation succeeds in integrating the macro sense of the term
“socially necessary,” but it has met opposition from traditional theorists on the
grounds that it implies that the market-value of the commodity can be greater than
the amount of labor required for its production. It will help then to examine the
arguments raised first by Rubin, and reiterated by contemporary theorists, as to
why such an interpretation is flawed.
Rubin offers the following reasons for rejecting the idea that demand directly
affects the determination of commodity values: the price and value are conflated,
Exchange, Demand and the Market-Price of Production 183

equilibrium is confused with disequilibrium, the concept of socially necessary


labor is destroyed and the connection between the micro and macro senses of
socially necessary is severed (1973, p. 183). Rubin offers an alternative method
for defining the market-value in the context of variations in demand. He argues
that when demand does not equal supply the market-value is determined by the
individual value of the technique capable of responding to the necessary adjustment
in the quantity produced rather than the average labor requirements. Any other
determination of market-value would, in Rubin’s view, destroy the condition of
equilibrium which is assumed to exist between branches. For Rubin, the market-
value thus serves to define the value which maintains a state of equilibrium between
the various branches of production. If the market-value were determined by the
average technique, but the more efficient technique were capable of expanding
production, this would lead to an expansion of the more efficient technique and a
breakdown in the condition of equilibrium between industries. The determination
of market-value by the average technique when another technique is capable
of expanding supply can not, in Rubin’s view, correctly represent the socially
necessary labor. The sale of the commodity at a market-value determined by the
average technique would imply a higher (or lower) than average rate of profit for the
technique capable of expansion (or contraction). It would thus imply a breakdown
in the condition of equilibrium since the quantity produced in the industry would
be subject to change. Thus the ability of the various techniques to expand alter
the level of output must be considered in determining the socially necessary labor
required for the production of each commodity.
Alternatively, if the market-value is directly affect by the variations in demand,
demand represents an independent source of value. The connection between
the micro sense of socially necessary, production according to average skill
and intensity, and the macro sense, production in proportion to existing social
need, is severed. Market-value becomes conflated with market price and the
quantitative determination of value according to labor expended in production is
lost. According to Rubin then, the second sense of socially necessary cannot refer
to the determination of market-value itself; rather, it must refer to the deviation of
market price from market-value. For Rubin, a consistent interpretation of Marx’s
theory of value depends upon maintaining this distinction.
Rubin thus rejects the view that the two senses of socially necessary are necessary
to determine the market-value of a commodity. Changes in the effective demand
for a commodity can only affect the value of a commodity by changing the
amount of labor socially necessary in the first sense. For example, if the demand
for a commodity should rise, this may bring about a change in the conditions
determining the market-value of a commodity as the quantity produced of the
commodity increases. However, the value in this case continues to be entirely
184 DAVID KRISTJANSON-GURAL

determined by the quantity of socially necessary labor defined in the first sense:
a quantity determined with reference to the various techniques of production
for the commodity or the conditions which restore equilibrium between supply
and demand among industries.7 In this way the dominance of the conditions of
production in the determination of value is maintained.
Rubin is concerned that allowing a direct role for demand on the magnitude
of value will undermine the claim that value results only from the expenditure
of labor in production. In order to protect this position however, he substitutes
his own interpretation of the determination of market-value in place of Marx’s
own suggestion of how changes in demand affect market-value. He defends the
substitution in part by an appeal to the need to maintain a condition of equilibrium
and applies the second sense of socially necessary labor not to the value category
itself, but to the relationship between market-value and market-price.
Rubin has influenced a number of contemporary theorists. Itoh (1988) and
Shaikh (1981) following the work of Uno, argue that the integration of demand
affects the determination of the market-value and price of production in the way
that Rubin suggests. The determination of market-value and price of production in
conditions of excess demand or supply requires the identification of a “regulating
capital” in each industry – a technique of production which is responsible for
changes in the level of output. Unlike a linear production approach, they assume a
skewed distribution of output in which one of the three techniques of production
dominates.8
The exchange-value is defined with reference to the most efficient generally
available technique of production since it is this technique that determines the
price at which there is no incentive for producers to enter the industry. Since
new production must be assumed to be undertaken by the most efficient generally
available technique, if the rate of profit offered by this technique is higher than
average, an expansion of production in the industry will be expected to occur. A
dynamic theory of price adjustments should therefore consider this “regulating”
technique of production as defining the market-price of production in order to
theorize market processes.
The regulating capital approach has some advantages for empirical study of
price changes in the long run. Specifically, it is able to take into account the
specific industry structure when analyzing the long run trajectory of prices. There
are, however, some difficulties in applying this interpretation of market-values
to the analysis of price dynamics in the short run. Sekine (1980) argues that the
assumption of a single regulating capital is restrictive; it rules out cases in which
more than one technique of production may respond to changes in demand. He
provides an interpretation of market-value that incorporates multiple techniques in
each industry responding to changes in demand. The market-value in this approach
Exchange, Demand and the Market-Price of Production 185

is defined by the technique or combination of techniques capable of expanding or


contracting output in response to a change in demand. At this more concrete level
of analysis it is necessary to define the marginal response ratios of the existing
techniques to determine the market-value since, in general, it will be a combination
of a number of producers operating with different techniques that will respond to
a change in demand in a given circumstance. According to Sekine, it is therefore
not possible a priori to define the market-value or price of production because
the actual response ratio are contingent on particularities that cannot be known in
advance. Swanson (1989) goes further and argues that the technique capable of
responding to a change in demand need not be presently in use; it is sufficient that
it be generally available to producers for adoption.
None of these interpretations, however, successfully integrates the second
meaning of socially necessary labor-time. Shaikh (1981) attempts to integrate the
second meaning in the way suggested by Rubin – that “socially necessary” in the
second sense applies only to deviations of market prices from exchange-values.
However, in order to preserve the idea that demand does not directly affect the
determination of a commodity’s exchange-value, the two meanings of the term are
treated inconsistently. Shaikh argues that while the first sense of socially necessary
refers to the labor-time expended on the commodity and thus affects the magnitude
of its value and exchange-value, the second sense does something entirely different:
it specifies a relationship between the commodity’s exchange-value and its market
price. For example, if a commodity is produced using labor of average skill and
intensity this labor is considered socially necessary in the first sense of the term
and thus contributes to the commodity’s value and the determination of its price of
production. If the commodity is produced in a quantity which exceeds the existing
social need (the effective demand for the commodity at its price of production)
the labor-time is not socially necessary in the second sense. However, in this case
the magnitude of the value and price of production are not affected; instead, the
magnitude of the market price changes. So while the first sense of socially necessary
modifies labor-time, the second sense of the term does something entirely different:
it “defines the relation between [price of production] and market price” (Shaikh,
1981, p. 278). The question is: How can an adjective in the definition of value at the
same time modify labor-time and specify a relation between two theoretic terms it
does not modify – price of production and market price? In order consistently to
incorporate both senses of the modifier “socially necessary” the supply approach
needs to explain how the modifier “socially necessary” can refer both to labor-
time expended with average skill and intensity and labor-time necessary for the
satisfaction of existing social need.
It is important also to note that while Rubin provides a rationale for a regulating
capital approach on the basis of defining a condition of equilibrium among sectors,
186 DAVID KRISTJANSON-GURAL

it is not evident that this question is the only relevant one that can be addressed using
Marx’s value framework. Prices of production are clearly important for examining
the effects of changes in technology, rates of exploitation and turnover time on
the long-run supply prices. However, the specification of multiple techniques
within industries both implies and permits the analysis of the distribution of value
among producers and among industries that result from short-run fluctuations in
demand. This redistribution of value is interesting in its own right as it opens up
the question of the efficacy of efforts to alter the distribution of demand on the
ability of producers to realize surplus value. It also bears directly on the question
of the long-run dynamics of prices since the availability of surplus value directly
affects the accumulation process itself. By focusing on the regulating capital, these
short-run variations in demand and the redistributions of value they engender are
obscured. It is worthwhile therefore to ask whether Rosdolsky’s interpretation of
the impact of shifts in demand on market-value does, in fact, allow an analysis of
the distribution of value in the short-run.

2.3. Rubin’s Contribution

Rubin’s work has the merit of clearly identifying the two senses in which labor can
be considered abstract labor and while he does not reconcile how abstract labor can
quantified prior to exchange, he lays out the problem in a way that permitted later
theorists to do so. By including the exchange-value as a constituent element in the
value of a commodity at the level of inter-industry competition, and by showing
how value and exchange-value are both aliquot shares of homogenous labor-time,
Roberts (2004) successfully integrates the two senses of abstract labor identified
by Rubin. In so doing the thorny question of the relationship between these two
important categories is resolved. Exchange acts to commensurate independent
private labor as homogeneous social labor. It expresses this labor as an aliquot part
of the social whole without augmenting or detracting from the total quantity of
value created by the expenditure of new labor in production.
Rubin also clearly identifies two senses in which labor can be considered socially
necessary. Here, I argue that his interpretation of the second meaning overlooks
an important aspect of Marx’s theory of value – the analysis of the redistribution
of value among producers and industries resulting from short-run variations in
demand. Rosdolsky’s interpretation succeeds in integrating the second sense of
socially necessary and provides a promising interpretation of the role of demand
in the determination of value. His analysis, however, is limited to the context of the
single industry. In this context, his interpretation appears to imply that demand is
a source of value. The traditional objection, raised by Rubin and others, is that by
Exchange, Demand and the Market-Price of Production 187

allowing demand to affect the magnitude of value directly, the claim that only labor
creates value and only surplus labor creates profit is undermined. I argue in the
next section that this objection can be overcome by analyzing the role of demand
in the context of competing industries. In this context, it is evident that demand
acts to redistribute value from industries with excess supply to those with excess
demand by changing the determination of the exchange-values of the commodities
to incorporate the existence of excess demand and supply. When the determination
of abstract labor is used to theorize the relationship of value and exchange-value,
changes in demand can be integrated in a way that utilizes both senses of the
term socially necessary. The discrepancies between the traditional and monetary
approaches are reconciled.

3. EFFECTIVE DEMAND AND THE


MARKET-PRICE OF PRODUCTION
Marx indicates at the end of his discussion of market-value in Chapter 10 of Volume
3, that everything said concerning the effect of changes in demand on market-value
should be applied to the price of production with the appropriate modifications.9
By combining the insights of Roberts concerning the role of exchange in the
determination of the value and exchange-value, with Rosdolsky’s interpretation
of the effect of changes in demand on the determination of the market-value, this
task can be completed. In so doing it is possible to integrate the meanings of
abstract labor and the meanings of socially necessary labor in such a way that
the key insights of the traditional interpretation as well as the monetary approach
are retained. A full algebraic treatment of the problem is presented elsewhere
and is summarized in the appendix.10 Here, instead, I will describe the method
for integrating demand in the context of competition among several industries
and explain how this approach overcomes the difficulties encountered by earlier
attempts to integrate demand. I will then point out several advantages of integrating
demand in this way.
The concept of price of production developed by Roberts above defines the
socially necessary abstract labor that each commodity represents in equivalent
exchange under competitive capitalist conditions. The prevailing conception of
equivalence is simply that industry-average profit rates are equalized, but for actual
market prices to fulfill this condition would, of course, require that the level of
demand for each commodity is just sufficient to absorb the actual quantity of output
at these exchange-values. Once variations of demand are explicitly introduced into
the analysis, the condition for equivalence in Roberts’ sense cannot be satisfied and
for that reason is no longer relevant in defining the categories of interest to Marx
188 DAVID KRISTJANSON-GURAL

in Chapter 10. The quantities of labor-time represented by (Roberts’) prices of


production are not socially necessary in the sense of being expended in accordance
with social need. Instead, it is necessary to consider the extent of the social need for
each of the commodities produced by introducing the effective demand for each of
the commodities into the analysis. Excess demand for a given commodity signals
that more labor is socially necessary than has been expended by the producers
in that industry; deficient demand suggests the opposite. The price of production
is therefore no longer relevant as the exchange-value of the commodity and it is
necessary to define the market-price of production. An increase in demand leads
to a rise in the market-price of production above the price of production in just the
same way that market-value exceeds the average value in the context of a single
industry. In the same way the range within which the market-price of production
can vary is defined by the techniques of production. It is possible to solve for
the range by specifying the composition of capital of two or more techniques of
production within each industry and weighting these according to the share of
industry output that they produce. In this way it is possible to take into account the
effect of demand on the exchange-value at the level of abstraction of inter-industry
competition.11
Once the range within which the market-price of production can vary is defined,
it is possible to determine the market-price of production that would result from a
given distribution of demand. Here a number of possibilities exist. The simplest is
a redistribution of demand among industries with the aggregate level of demand
held constant. Provided that the shift in demand is not extreme, the market prices of
production will vary within the limits set by the conditions of production. A vector
of effective demand shows the number of hours of abstract labor-time socially
necessary in the sense of being required to meet the existing social need. Dividing
the level of demand in each industry by the output produced in each industry will
give the market-prices of production for each commodity. For those industries
with excess demand the market-price of production will lie above the price of
production signaling that more labor than was expended in production is socially
necessary for the production of that commodity.
The most efficient technique of production provides an upper limit to the quantity
of value each commodity can represent in exchange. If excess demand persists
at a market-price of production defined by the extreme technique, the market-
price will rise above the market-price of production. This deviation, however,
only occurs in the case of extreme variations in demand. In the case of normal
variations in demand the additional exchange-value is distributed from industries
with insufficient demand where the market-price of production lies below the
price of production. Normal variations in demand do not create value; instead they
redistribute value across sectors. This result resolves the main objection of Rubin
Exchange, Demand and the Market-Price of Production 189

and others to the idea that demand directly alters values and exchange-values.
Demand does not create value but it does redistribute value within the economy.
The market-price of production becomes the key value category for analyzing the
effect of changes in demand on the distribution of value.
It is important to notice that the introduction of demand does not imply that
market prices are themselves forms of value. The distinction between value and
exchange-value continues to apply and is used to theorize the distribution of value
among producers provided demand remains within the limits of normal deviations.
Abnormal demand shifts however, do imply deviations of market prices from
market-prices of production in the same way market-prices deviate from market-
values in the context of a single industry. A closer look at the relationship between
value and exchange-value makes this apparent. It is helpful first to compare the
relationship between prices of production and values and then compare it to the
case of market-prices of production and values.
The difference between value and price of production shows how profit rate
equalization across industries redistributes value among the different industries
according to their organic compositions of capital. Within those industries value
is distributed among the various producers operating with different techniques of
production at varying levels of efficiency. While average profit rates are assumed
to be equalized, profit rates vary among the producers operating with different
techniques of production: some producers enjoy super-profit at the expense of
the less efficient producers who have below average rates of profit. Value and
surplus value are thus distributed throughout the productive sector of the economy
in accordance with the conditions of supply prevailing in each industry and in the
productive sector as a whole. The exchange-value (the price of production) defines
the aliquot share of the total homogenous average labor-time (the socially necessary
abstract labor) each unit of output represents in exchange when exchange occurs
at specific ratios consistent with profit rate equalization. Notice that only the first
(micro) sense of socially necessary labor-time is relevant because for this profit
rate equalization to occur we assume market-clearing – all output is purchased at
these ideal prices.
The value of each commodity is the aliquot share of the total average
homogenous labor-time (socially necessary abstract labor) needed to produce a
unit of the commodity given that the inputs much be acquired through exchange and
assuming exchange occurs at these ideal prices. The inputs to production must be
valued at their prices of production because they are not produced by the producers
of the final output but purchased at their prices of production. The difference
between value and exchange-value shows how this socially necessary abstract
labor-time is redistributed as a result of the tendency toward profit rate equalization.
The prices of production of commodities with low organic compositions of capital
190 DAVID KRISTJANSON-GURAL

will be below their values and this value gets siphoned off to those industries
with high organic compositions of capital whose prices of production are above
their values. For each commodity the difference between the value and price of
production defines the per unit gain or loss in value that results from exchange on
the basis of equal rates of profit.
With the introduction of demand the market-price of production replaces the
price of production as the relevant exchange-value. The market-price of production
takes the analysis a step further by asking how the distribution of value is affected
by variations in demand such that profit rates are not equalized. The exchange-
value is now defined by the market-price of production: it is the quantity of socially
necessary abstract labor that each commodity represents in equivalent exchange
where the conditions defining exchange equivalence now incorporate the second
(macro) sense of socially necessary labor-time and thus take into account the level
of effective demand for each of the commodities in addition to the conditions of
supply. Labor-time that is not socially necessary does not count fully as exchange-
value; commodities that are overproduced count for less of the total abstract labor
than they otherwise would. Commodities for which there is excess demand, on
the other hand, represent more socially necessary labor-time in exchange. The
market-price of production is the further development of the exchange-value that
takes into account this second sense of socially necessary at this more concrete
stage of the analysis.
The value is the socially necessary abstract labor-time required for production
where the inputs must be obtained under the prevailing conditions of exchange,
i.e. with the prevailing distribution of demand for output in each industry. Both
production and exchange in this way affect the commodity’s value. On the
production side, the compositions of capital within the industries and the weights
accorded to the different producers according to their level of output help to
determine values. On the exchange side, the value is a quantity of abstract labor
because exchange ratios are used to determine what the inputs into production are
worth. At the same time, it is a quantity of socially necessary labor-time because
the quantity of labor-time represented by the inputs to production is affected by
the level of effective demand. This quantity is only given once the techniques of
production, levels of output and distribution of demand is specified.
The difference between a commodity’s value and its market-price of production
defines the per unit gain or loss in value accruing to the industry as a result
of the conditions of production and the prevailing distribution of demand. This
gain or loss in value is shared among the individual producers in the industry
according to their respective techniques of production and levels of output. Access
to additional value, whether resulting from changes in the technique of production
or the existence of excess demand, represents an important advantage for firms in
Exchange, Demand and the Market-Price of Production 191

the industry in their competitive struggle. It will affect the decisions of these firms
concerning output levels and accumulation and therefore ramify throughout the
productive sector of the economy. The analysis of competition therefore needs to
take into account the effect of changes in demand on the distribution of value in the
short run. The market-price of production is the category that allows this analysis
within Marx’s carefully developed theory of production and exchange. Marx refers
to this further development of exchange-value necessary to incorporate demand in
the following passage:
This quantitative limit to the quota of social labor-time available for the various particular
spheres of production is but a more developed expression of the law of value in general, although
the necessary labor-time assumes a different meaning here. Only just so much of it is required
for the satisfaction of social needs. The limitation occurring here is due to the use-value. Society
can use only so much of its total labor-time for this particular kind of product under prevailing
condition of production.
(1959, p. 636)

The integration of the double meanings of socially necessary applied in this way
provide a method of taking into account the effect of both conditions of production
and exchange on the determination of value and exchange-value. Value and
exchange-value can be defined under conditions of excess and deficient demand
in the short run and the shifts in value that occur as a result of these changes can
be theorized in the short run.
The major difficulties encountered by the abstract labor approach to value are
overcome. Exchange is integrated into the process of determining abstract labor:
it is the prices of production of the means of production which determine how
much labor is transferred to the final product. While the total value in the period
is determined by the total labor expended in production, the distribution of that
labor to specific commodities occurs only through the process of exchange. The
claim that abstract labor is determined through exchange but some quantitative
determination of value can be made prior to exchange is demonstrated.
Secondly, demand is given a role in the determination of value and exchange-
value without itself representing a source of value. Once the solution to the problem
of abstract labor is resolved, Rosdolsky’s interpretation of how demand affects
the determination of the market-value can be generalized to competition among
producers in different industries. The second macro sense of socially necessary
labor-time – labor expended in proportion to the expressed social need for the
product, is incorporated. As with the process of exchange, demand itself does not
alter the total value created in the period; instead it redistributes that value to the
various producers according to the strength of effective demand for their output.
The integration of demand has several advantages over the traditional and
monetary interpretations. First, in the case of normal shifts in demand, the
192 DAVID KRISTJANSON-GURAL

market-price of production is fully defined even when demand and supply are
not assumed to coincide at the commodity’s price of production. Since the
market-prices of production are used to define the revenues and costs of the produc-
ers, their rates of profit are also defined. Value categories can therefore be used to
analyze the distribution of value due to variations in demand in the short run.12 This
analysis augments the use of prices of production to analyze long-run tendencies
by showing how short-run changes in demand affect the distribution of value within
the economy. While much work needs to be done to apply the concept of market-
price of production to the analysis of competition in the short run, the way is now
open to analyze changes in the short run using the value categories themselves.
Second, this approach offers some interesting insights into the inter-temporal
redistribution of value caused by changes in aggregate demand from one period
to the next. In order to explore these insights, two further possibilities concerning
fluctuations in demand need to be theorized. First, extreme shifts in demand that
imply a deviation of the market price from the market-price of production need
to be examined. These extreme divergences are not necessarily offsetting and
it raises the possibility that more or less exchange-value will be realized in a
period than was created in the period. The question of how this effective demand
is financed raises important questions concerning the transfer of value between
periods. Second, aggregate demand may exceed or fall short of aggregate supply
in the period with a similar result. In this case the question of the existence of
stocks of inventory needs to be examined. The present analysis by abstracting
from changes in inventory implies the restrictive assumption that the elasticities of
demand for all commodities are unity. While this assumption does not affect the
overall argument concerning the conceptualization of market-prices of production
and the transfer of value among industries due to the variations in demand that
they imply, a more developed analysis would allow for the specification of different
elasticities of demand.

4. CONCLUSION
By distinguishing the effects of exchange on the determination of abstract labor
from the effect of demand on the determination of socially necessary labor a
consistent Marxian microeconomic theory of value results. Demand and supply
conditions act together to determine the value and exchange-value attributed
commodities in production and exchange. The theory provides a framework for
analyzing how changes in the supply conditions or demand conditions affect the
distribution of value among producers within an industry and across industries in
the short run.
Exchange, Demand and the Market-Price of Production 193

The key insights of both the traditional and monetary approaches to the question
raised at the outset have be retained. Since neither exchange nor demand affect
of overall magnitude of value, the important claim of the traditional approach
that labor is the sole source of value is maintained. Because exchange and
demand both serve to distribute that value among producers in the productive
sector, the idea that private labors are articulated into a social division of labor
through commodity exchange is likewise preserved. Both the theory of exploitation
and the theory of commodity fetishism remain central to the analysis of how
values and prices are formed. A rich analysis of capitalist competition is made
possible by the multifaceted concept of value defined as socially necessary abstract
labor-time.

NOTES

1. The monetary expression of labor-time is defined as the ratio of the price of the
net product in a given period to the hours of new labor expended (Foley, 1982, 2000).
For an analysis of issues concerning the use of the monetary expression of labor-time see
(Saad-Filho, 1996).
2. See also the article by Roberts in the present volume.
3. Algebraically, this implies that Eq. (1) from the appendix replaces the traditional
formulation of the value equation V = VA + L. Equations 1–3 in the appendix represent
a formal expression of the relationship between value and exchange-value proposed by
Roberts. The value of the one hour of material and equipment used in production in the
above example is thus given by the prices of production of those components of constant
capital and not by their direct labor requirements.
4. In fact, Marx considers both supply conditions only in the first case of just sufficient
demand. In the case of normal and extreme variations in demand he uses only the skewed
supply although his argument would apply equally well to the case of balanced supply.
5. Returning to the simple example from the previous section, suppose now that three
producers are responsible for the total production of the commodity. The less efficient
producer produces it with an individual value of 2.5 hours, the more efficient 1.75 hours and
the middle producer 2.25 hours. Suppose that 50 units are produced in total and the more
efficient producer produces a greater proportion of the output such that the average value
or market-value is 2 hours. One hundred hours of social abstract labor are expended in the
production of the commodity. Using the monetary expression of labor time of $50/hr from
the previous example and assuming demand is just sufficient to purchase the output at its
market-value the one hundred hours exchange for $5000 or $100 per unit. All one hundred
hours are socially necessary for the production of the commodity.
Now suppose that demand varies. If demand greatly exceeds supply, the market-value
can equal the individual value of the less efficient producer. If the 50 units sell for $6250
then the market-value rises from $100 to $125 and 2.5 hours per unit or 125 hours are
“socially necessary” for the production of the commodity. Here, the market-value equals
the individual value of the less efficient producers and the upper limit to the variation in
194 DAVID KRISTJANSON-GURAL

the market-value is reached. This outcome implies that although 100 hours went into the
production of the commodity, 125 hours were, in fact, socially necessary after taking into
account the effective demand. If the output sells for more than this amount the market-price
will rise above the market-value of $125 or 2.5 hours. Alternatively, if demand only slightly
falls short of supply it will equal the individual value of the more efficient producer in this
case. If the total output is sold at only $4375 then 87.5 hours were “socially necessary.”
Each of the 50 units is worth only 1.75 hours or $87.50. A further reduction in demand
would lower the market price below the market-value. In this way the conditions of supply
determine the range within which the market-value can vary and the demand determines
the magnitude of the market-value within that range.
6. Carchedi (1996) argues that market-prices are affected by variations in demand and
that these market-prices act to overdetermine prices of production. Lianos and Droucopoulos
(1992) do not address the question of socially necessary labor-time.
7. Even the conditions leading to the original change in demand can, according to Rubin,
be explained on the basis of changes in the productive forces in society. He gives the example
of a campaign against the use of alcohol as an example and argues that the conditions for
such a campaign can be explained “in the last analysis” with reference to changes in the
productive forces (1973, p. 194).
8. Semmler (1984) analyzes the relationship between market-prices and prices of
production using a linear production approach in with the industry average defines the price
of production and demand affects only the magnitude of the market-price. He concludes
that this approach is unable to analyze either the distribution of value or the dynamics of
prices in the short-run.

By using linear production models for depicting the Marxian theory of value, we might
encounter some problems with regard to the economic adjustment process, or the market process
that leads to the new values as derived above as centers of gravity for market prices . . . Such
an adjustment process . . . may be hard to imagine, since not only does it presuppose a perfect
mobility of capital and labor and very high flexibility of prices and quantities in industries, to
allow the market process to establish the new centers of gravity; it also presupposes that during
the adjustment process no new technical change is initiated by the prevailing market prices. We
can conclude from this that long-run relative prices derived from linear production models, in
certain cases, might not be very relevant as centers of gravity for market prices.
(1984, pp. 30, 31, original emphasis)

See also Hollander (1981) for a further discussion of the use of the linear production
approach.
9. “What has been said here of market-value applies to the price of production as soon
as it takes the place of market-value” (1959, p. 179). Our analysis has revealed how the
market-value (and everything said concerning it applies with appropriate modifications to
the price of production) . . . (1959, p. 198).
10. The effect of a shift in demand between two industries on the determination of value
and exchange-value and the resulting redistribution of value among producers within and
across industries is developed in Kristjanson-Gural (2003).
11. Algebraically the matrix of technical coefficients and the vector of new labor inputs
are partitioned to include two or more techniques of production for each commodity. The
techniques are weighted according to the quantity of the total output they contribute. For
further elaboration see appendix.
Exchange, Demand and the Market-Price of Production 195

12. Further, since market prices of production are defined with reference only to total
demand and quantity of output, they are easily measured and amenable to quantitative work
using existing data.

ACKNOWLEDGMENTS
The author would like to thank James Crotty, Julie Graham, Stephen Resnick,
Bruce Roberts, Richard Wolff, Paul Zarembka and two anonymous referees for
comments on earlier drafts.

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APPENDIX
The following two industry model of simple reproduction is sufficient to define
the market prices of production in the limited case of a shift in demand between
two industries prior to changes in output. The model abstracts from changes in
aggregate demand, the existence of stocks of fixed capital and assumes zero
inventories. It is further assumed for simplicity that the determination of the market-
price of production in Industry 2 lies within the conditions defined by the extreme
techniques of production in that industry; only the average technique in Industry
2 is therefore defined.
Equation (1) defines the value of commodities and Eq. (2) the prices of
production under the assumption of just sufficient demand subject to the net product
normalization expressed in Eq. (3):
V = PA + L (1)
P = PM (1 + r) (2)
PY = LX (3)
Where: V = 2 × 1 row vector of labor values; A = 2 × 2 matrix of commodity
inputs per unit output; L = 2 × 1 row vector of new labor inputs per unit output;
P = 2 × 1 row vector of production prices in units of labor time; M = [A + BL];
B = 1 × 2 column vector of wage goods advanced per hour; r = general rate of
profit; Y = 1 × 2 column vector of net output; X = 1 × 2 column vector of gross
output.
Exchange, Demand and the Market-Price of Production 197

To incorporate the extreme techniques of production, the vectors and matrices


of Industry 1 in the above system are partitioned and expanded to include the
two techniques of production. Output in Industry 1 is divided between these two
techniques such that the more efficient technique (X1+) uses more constant capital
and produces more output than the less efficient technique (X1−).
Vx = PAx + Lx (4)
x x
V = PM R
⎛ ⎞
X1+
 
x x A11 + A11 − |A12
Where X = ⎝ X1− ⎠ A =
A21 + A21 − |A22
X2
Lx = [L1 + L1 − |L2] (5)
Assuming no product differentiation, the price of production for both producers
in Industry 1 is given by P1 from Equations 1–3 above. The extended price vector
Px = [P1 P1 P2] can be used to determine the individual rates of profit for the two
firms in Industry 1. These are contained in the diagonalized matrix R where:
⎛ ⎞
1 + r1 0 0
R=⎝ 0 1 + r2 0 ⎠
⎜ ⎟

0 0 1 + r3
The magnitude of the market prices of production within the range defined by
the techniques of production is determined by introduction of a vector of effective
demand (D) that defines the total quantity of the two goods demanded, i.e. the
amount of labor-time socially necessary in the second sense. The market prices of
production are given by PM = [PM1 PM2 ] as follows:
PM = DX−1
(6)
Subject to rIb ≤ rg ≥ rIa

where D = 1 × 2 row vector of effective demand; X = 2 × 2 diagonalized


matrix of total output in physical units.
The constraint on the rates of profit of the two producers in industry one defines
upper and lower limits of the movement of the market-price of production as
demand shifts between Industry 1 and Industry 2. Once the rate of profit of one of
the producers reaches the general rate of profit, the market-price of production has
reached the limits imposed by the techniques of production. Any further variation
in demand in that industry will cause a deviation of the market-price above the
market-price of production.
198 DAVID KRISTJANSON-GURAL

The limit of the market-price of production in Industry 1 (PL1 ) is found by solving


for PL = [PL1 PL2 ] subject to the constraint that the rate of profit of one of the extreme
techniques of production in Industry 1 is just equal to the general rate of profit.
The profit rate of the more efficient technique is denoted rIa and the less efficient
technique is denoted rIb . In the case of deficient demand, it is the more efficient
technique 1a that provides the limit and in the case of excess demand it is the less
efficient technique. Hence:
rIa = rg (7)
where rIa = [PL1 Xx1 − PL Mx1 ]/PL Mx1 ; rg = [PL Xx − PL Mx ]/PL Mx ; PL = [PL1 PL2 ];
Xx1 = 1st row of vector Xx ; Mx1 = 1st column of matrix Mx .and
rb = rg
where rIb = [PL1 Xx2 − PL Mx2 ]/PL Mx2 .
To solve for PL we can apply an aggregate demand constraint as follows:
PL X=PX (8)
Since P, the vector of production prices is known, there are now two equations
with two unknowns and the limits can be determined.
TESTING OKISHIO’S CRITERION
OF TECHNICAL CHOICE

Cheol-Soo Park

ABSTRACT

Okishio’s theorem plays an important role in modern discussions of Marx’s


argument on the long-run tendency for the rate of profit to fall. Even though
there is substantial literature dealing with Okishio’s theorem, there has been
little discussion of Okishio’s theorem from an empirical perspective. This
paper makes an attempt to empirically test Okishio’s criterion of technical
choice, which is an important assumption of Okishio’s theorem. By using the
World Penn Tables data on selected OECD countries, I will consider how
well Okishio’s criterion of technical choice predicts the evolution of actual
capitalist economies.

1. INTRODUCTION
In Volume III of Capital, Marx proposes the theory of the tendency for the rate of
profit to fall. Marx attempts to show how the development of the social productivity
of labor is accompanied by the tendency for the rate of profit to fall. He considers
the tendency for the rate of profit to fall as one of the general laws of capital
accumulation.
Marx’s theory of the tendency for the rate of profit to fall has been extensively
discussed in connection with the concrete behavior of individual capitalists. In
this discussion, the primary concern is to analyze whether competitive behavior

The Capitalist State and Its Economy; Democracy in Socialism


Research in Political Economy, Volume 22, 199–208
Copyright © 2005 by Elsevier Ltd.
All rights of reproduction in any form reserved
ISSN: 0161-7230/doi:10.1016/S0161-7230(04)22007-7
199
200 CHEOL-SOO PARK

of individual capitalists can lead to the falling rate of profit. The discussion has
mainly developed through Okishio’s theorem (Okishio, 1961).1 Okishio’s theorem
asserts that if an individual capitalist chooses a technique that gives a higher profit
under a given prevalent price system, the rate of profit will not decrease even when
the adopted technique becomes prevalent throughout the capitalist economy.
Okishio’s theorem has been discussed by several authors from various
perspectives. For example, Shaikh (1978, 1980, 1999) criticizes Okishio’s criterion
of technical choice on the basis of his own interpretation of Marx’s concept of
competition. Dumenil and Levy (1995, 1999) and Foley (1999) build a framework
on the evolution of potential technical change in which new technologies are
generated by a random process and develop the Classical/Marxian theory of
technical change by exploring various conditions under which capitalists’ pursuit
of higher expected rate of profit would induce a specific pattern of technical change
and movement of the rate of profit.
However, there seems to be less effort to discuss Okishio’s theorem itself from
an empirical perspective. The main purpose of this paper is to examine whether
the evolution of actual capitalist economies is consistent with Okishio’s criterion
of technical choice, which is an important assumption of Okishio’s theorem.
The rest of this paper proceeds as follows. Section 2 presents a proof of Okishio’s
theorem in a simple framework that we will use throughout this paper. Section 3
tests Okishio’s criterion of technical choice empirically. Section 4 discusses the
main results of this paper.

2. AN EXPOSITION OF OKISHIO’S THEOREM

We need to begin with a few definitions and assumptions in order to discuss


Okishio’s theorem. At given period t, the rate of profit is defined as follows:

Q t − wt L t
rt ≡ (1)
Kt

where rt : rate of profit at period t; Qt : quantity produced at period t; wt : real wage


rate at period t; Lt : labor expended at period t; Kt : capital at period t.
In this paper, we use a production system with one output and two inputs. Capital
is regarded as a stock of output used in production and labor-wage is compensated
from output. We need to characterize “a technique” for production. Let xt denote
the level of labor productivity. That is, xt is equal to Q t /L t . Next, let kt denote the
ratio of capital to labor. This means kt is equal to K t /L t . I am going to use a pair
of xt and kt , (xt , kt ), in order to characterize a technique.
Testing Okishio’s Criterion of Technical Choice 201

In the above simple production framework, we can easily prove Okishio’s


theorem. For this purpose, let us introduce three measures of the rate of profit.2
The first measure is the “old rate of profit” (rold ), established when all individual
capitalists adopt an old technique. The second measure is the “transient rate of
profit” (rtra ), which is expected to accrue to an individual capitalist using a newly
available technique when s/he assumes all others will keep the old technique and the
real wage rate will not change. The third measure is the “new rate of profit” (rnew ),
established when all individual capitalists utilize a newly available technique.3
With these measures, we can explicitly specify three different rates of profit as
follows:
Q old − wold L old x old − wold
r old ≡ = (2)
K old k old
Q new − wold L new x new − wold
r tra ≡ = (3)
K new k new
Q new − wnew L new x new − wnew
r new ≡ = (4)
K new k new
Okishio’s theorem asserts that if individual capitalist chooses a new technique
when r tra > r old , the rate of profit will not decrease under the same real wage rate
(wold = wnew ) even when the adopted technique becomes prevalent throughout
the capitalist economy. We will call the viability condition of choosing the
technique giving higher transient rate of profit “Okishio’s criterion of technical
choice.”4 In this simple production framework, Okishio’s theorem can be proven
in a straightforward manner since r tra = r new by the assumption of wold = wnew .
That is, if r tra > r old (Okishio’s criterion of technical choice), then r new > r old .
In this simple production system, we may not notice the analytical depth of
Okishio’s theorem. In fact, Okishio’s theorem states, with the criterion of technical
choice, the rate of profit will not decrease under a general n-commodities
production system.
Okishio’s theorem plays a very important role in the debate over Marx’s theory
of the tendency for the rate of profit to fall. According to the theorem, individual
capitalists would not choose any technique leading to the falling rate of profit
when the real wage rate is constant. Therefore, Okishio’s theorem itself is often
used as a means of refuting Marx’s theory of the tendency for the rate of profit to
fall.5 On the other hand, Okishio’s theorem provides a theoretical background for
the profit-squeeze theory of the crisis of the capitalist economy. We may easily
conjecture that the change in the real wage rate could lead to the tendency of the
falling rate of profit even though individual capitalists follow the behavioral rule
for technical choice as Okishio’s theorem assumes.6
202 CHEOL-SOO PARK

3. AN EMPIRICAL TEST OF OKISHIO’S CRITERION


OF TECHNICAL CHOICE
It is not difficult to build a framework to test the validity of Okishio’s criterion of
technical choice.7 First of all, let me rewrite the rate of profit (1) as follows:
Q t − wt L t x t − wt
rt ≡ = (5)
Kt kt
As defined before, x t (≡ Q t /L t ) is the index of labor productivity and k t (≡ K t /L t )
is the index of capital intensity. In order to test the validity of Okishio’s criterion

of technical choice, let us denote r et as the difference between the expected rate
of profit with a new technique (r et+1 ) and the expected rate of profit with an old
technique (r et ). That is,
′ x t+1 − wet x t − wet
r et ≡ r et+1 − r et = − (6)
k t+1 kt
Here we may note that the new technique (xt +1 , kt +1 ) and the old technique (xt , kt )
are available for the next period. An individual capitalist will take a new technique
(xt +1 , kt +1 ) if it leads to a higher expected rate of profit. That is, the capitalist will

take a new technique if r et > 0.8
Okishio’s theorem assumes that, in deciding whether or not to adopt a new
technique, an individual capitalist expects the real wage rate not to change
(wet = wt ). Then, we can express the condition of choosing new technique as
follows:
′ x t+1 − wt x t − wt
r et ≡ r et+1 − r et = − >0 (7)
k t+1 kt
But, if we assume that the real wage rate would change over period of time and
individual capitalists correctly predict the change in the real wage rate (wet =
wt+1 ), the condition of choosing new technique will be as follows:
′ x t+1 − wt+1 x t − wt+1
r et ≡ r et+1 − r et = − >0 (8)
k t+1 kt
I am going to empirically test the validity of Okishio’s criterion of technical choice
by using (7) and (8), respectively. For this purpose, I will use the “Extended World
Penn Tables Data” compiled by Adalmir Marquetti (1997). I have selected 22
OECD (capitalist) countries9 for which the relevant data are available from 1963
to 1990.
Since technical choice would be made in the long-run trend of the capital
accumulation, we need to extract from the original data the long-run trend.10 In
Testing Okishio’s Criterion of Technical Choice 203

Fig. 1. Long-Term Trend of Main Economic Variables (USA) (Qa , wa , La : Original Data;
Qf , wf , Lf : Filtered Data).

this paper, I am going to filter out the original data by using the method developed
by Hodrick-Prescott (Hodrick & Prescott, 1997).11 Figure 1 gives an example of
the long-run trend extracted from the original data through the filtering method.12
Figure 2 shows that technology has constantly changed over periods of time.
Table 1 summarizes the main result of the empirical testing. I define the “Okishio-
success-ratio” as number of years not violating Okishio’s criterion of technical
choice over total sample years. In other words, the ratio is obtained by dividing
number of years satisfying condition (7) or (8) (depending on the concrete form
of the expectation of the change in real wage) by number of sample years. As
the Okishio-success-ratio becomes lower, it is less likely that the actual capitalist
economy has evolved by abiding by Okishio’s criterion of technical choice.
204 CHEOL-SOO PARK

Fig. 2. Long-Term Trend of Technical Change (USA) (xa , ka : Original Data; xf , kf :


Filtered Data).

Table 1. Okishio-Success-Ratio.
Country Ratio Country Ratio Country Ratio

(A) wet = wt
Australia 0.704 (19/27) Greece 0.593 (16/27) Norway 0.963 (26/27)
Austria 0.704 (19/27) Ireland 0.778 (21/27) Spain 0.556 (15/27)
Belgium 0.926 (25/27) Italy 1.000 (27/27) Sweden 0.667 (18/27)
Canada 0.852 (23/27) Japan 0.741 (20/27) Switzerland 0.519 (14/27)
Denmark 0.519 (14/27) Luxembourg 1.000 (27/27) UK 0.704 (19/27)
Finland 0.889 (24/27) Mexico 0.296 (08/27) USA 0.704 (19/27)
France 0.704 (19/27) Netherlands 0.852 (23/27)
Germany 0.926 (25/27) New Zealand 0.259 (07/27)
(B) wet = wt+1
Australia 0.741 (20/27) Greece 0.593 (16/27) Norway 0.963 (26/27)
Austria 0.815 (22/27) Ireland 0.852 (23/27) Spain 0.593 (16/27)
Belgium 0.926 (25/27) Italy 1.000 (27/27) Sweden 0.667 (18/27)
Canada 0.852 (23/27) Japan 0.778 (21/27) Switzerland 0.593 (16/27)
Denmark 0.519 (14/27) Luxembourg 1.000 (27/27) UK 0.704 (19/27)
Finland 0.963 (26/27) Mexico 0.296 (08/27) USA 0.704 (19/27)
France 0.778 (21/27) Netherlands 0.889 (24/27)
Germany 0.963 (26/27) New Zealand 0.259 (07/27)
Testing Okishio’s Criterion of Technical Choice 205

Table 1A shows the Okishio-success-ratio of each country when the expected


wage rate is assumed to be equal to the current wage rate (wet = wt ). If capitalists
as a whole have strictly abided by Okishio’s criterion of technical choice, Okishio-
success-ratio should be near 1. We can see that Mexico’s Okishio-success-ratio is
0.296 and Italy is one of the countries whose Okishio-success-ratio is one. The
average Okishio-success-ratio including all the countries is 0.721 (=428/594). It
casts doubt about the validity of Okishio’s criterion of technical choice. The 95%
confidence interval is (0.683, 0.757). When the expected wage rate is assumed to
be equal to the new wage rate (wet = wt+1 ), the Okishio-success-ratio (0.747) is
slightly improved as shown in Table 1B but does not show a significant difference.
Table 2 shows how well Okishio’s theorem can explain the tendency of the
rate of profit to fall. Table 2A shows the relation between Okishio’s criterion of
technical choice and the falling rate of profit when the expected real wage rate is

Table 2. Okishio’s Criterion of Technical Choice and Falling Rate of Profit.


Country Falling Rate of Profit Country Falling Rate of Profit
(1) (2) (3) (1) (2) (3)

(A) wet = wt
Australia 17 8 9 Japan 24 7 17
Austria 21 8 13 Luxembourg 15 0 15
Belgium 17 2 15 Mexico 19 14 5
Canada 25 4 21 Netherlands 16 3 13
Denmark 17 13 4 New Zealand 15 12 3
Finland 17 3 14 Norway 17 1 16
France 19 8 11 Spain 20 12 8
Germany 18 2 16 Sweden 18 9 9
Greece 21 11 10 Switzerland 27 13 14
Ireland 19 6 13 U.K. 18 8 10
Italy 12 0 12 USA 20 8 12
(B) wet = wt+1
Australia 17 7 10 Japan 24 6 18
Austria 21 5 16 Luxembourg 15 0 15
Belgium 17 2 15 Mexico 19 14 5
Canada 25 3 22 Netherlands 16 2 14
Denmark 17 13 4 New Zealand 15 12 3
Finland 17 1 16 Norway 17 1 16
France 19 6 13 Spain 20 11 9
Germany 18 1 17 Sweden 18 9 9
Greece 21 11 10 Switzerland 27 11 16
Ireland 19 4 15 U.K. 18 8 10
Italy 12 0 12 USA 20 8 12
206 CHEOL-SOO PARK

equal to the current real wage rate (wet = wt ). Column (1) records the total number
of the falling rate of profit in each country.
The total number of periods showing the falling rate of profit over total sample
periods turns out to be 0.694 (=412/594). Column (2) shows how many times
the falling rate of profit is accompanied with violation of Okishio’s criterion of
technical choice. Finally, column (3) counts how many times the falling rate of
profit is accompanied with non-violation of Okishio’s criterion of technical choice.
The ratio between column (2) and column (1) is 0.369 (=152/412). This ratio
may imply that any theory of the falling rate of profit accepting Okishio’s rule of
the capitalist behavior has a limited explanatory power. When the expected wage
rate is assumed to be equal to the new wage rate (wet = wt+1 ), the result is not
significantly different as shown in Table 2B.
At this point, I think it is appropriate to discuss potential problems that the
empirical result of this article may have. First, the result of this empirical testing
must be somewhat affected by the specific smoothing method, not to mention the
accuracy of the original data. In principle, if the data is absolutely correct and
the Okishio-success-ratio is less than 1, one could reject the validity of Okishio’s
criterion of technical choice. In realty, we may not expect the data to have such
a level of accuracy. Second, the empirical testing is based on the assumption that
we can view individual capitalists’ behavior through the aggregate data. In other
words, it admits a representative agent whose behavior is assumed to be reflected
in the aggregate data. Certainly, the assumption limits the reliability of the result
of this paper. Third, even though we allow for a representative agent, the data
used in this article still may not be fully satisfactory. If the data had more detailed
information on aggregate economic agents, capital and taxes, etc., we certainly
could use more sophisticated defined rates of profit in order to measure more
accurately capitalists’ behavior in choosing technology. In sum, we must note the
empirical result may significantly change as different and/or more detailed data is
used.13

4. CONCLUDING REMARKS

In this paper I have attempted to test an important aspect of Okishio’s theorem


empirically. For this purpose, I examined whether the empirical data are consistent
with the capitalist behavior derived from Okishio’s criterion of technical choice
and whether the empirical data of the falling rate of profit can be explained
within Okishio’s theorem. This paper finds there are substantial cases in which
the empirical data violate Okishio’s criterion of technical choice and the empirical
data of the falling rate of profit cannot be explained within Okishio’s theorem.
Testing Okishio’s Criterion of Technical Choice 207

Again, I should mention that the result of the empirical test does not
automatically lead to the clear-cut conclusion that actual capitalist economies have
not evolved under the rule of the capitalist behavior assumed in Okishio’s theorem,
especially for the reason that the data used in this article are not without problem
as previously noted. Clearly, as more detailed data is obtained, the result will be
more reliable.
Nevertheless, I hope this paper helps supplement ongoing theoretical discussions
of Okishio’s theorem and contributes to the relatively neglected empirical research
on this important topic.

NOTES

1. See Cullenberg (1994, pp. 3–12) for a chronological review of the debate on Marx’s
theory of the tendency for the rate of profit to fall.
2. For convenience, I remove the time index.
3. The real wage rate may change.
4. If the old rate of profit is not less than the transient rate of profit, the capitalist will
maintain the old technique.
5. van Parijs (1980) criticizes the falling-rate-of-profit theory of crisis on the basis of
Okishio’s theorem.
6. We may understand from the simple proof of Okishio’s theorem above that if the
real wage rate increases, the new rate of profit can be less than the old rate of profit even
though r tra > r old (and accordingly the capitalists take the new technique). Therefore, the
profit-squeeze theory of the crisis of the capitalist economy can be combined with Okishio’s
theorem.
7. It is reasonable to assume that capitalists will choose a new technology if it raises
the expected rate of profit. The principle would be widely accepted by Classical/Marxian
schools. But, as Shaikh argued, specific criteria for choosing new technology in anticipation
of a higher expected rate of profit can be diverse, especially depending on the interpretation
of Marx’s concept of competition. (In fact, Shaikh suggested his own criterion.) In this
article, I use the terminology “Okishio’s criterion” in this sense, in order to test only the
Okishio criterion among several possible criteria. For further discussion, refer to Shaikh
(1978, 1980, 1999) and Park (2001).
8. For simplicity, let us assume that individual capitalists adopt the old technique if

r et ≤ 0.
9. Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece,
Ireland, Italy, Japan, Luxembourg, Mexico, The Netherlands, New Zealand, Norway, Spain,
Sweden, Switzerland, United Kingdom and the United States.
10. One of the distinct points in the original data is that there exist substantial cases
where both the labor productivity and the output-capital ratio simultaneously decrease.
While these cases violate Okishio’s criterion of technical choice, it is somewhat difficult
to consider that they could occur as a direct result of the capitalist technical choice. This
apparent abnormality might be caused by the short-run cyclical aspect of the evolution of
the capitalist economies, which should be distinguished from the long-run evolution that
we need to investigate in this paper.
208 CHEOL-SOO PARK

11. This is a popular smoothing method to obtain a smooth estimate of the long-term
trend component of a series by minimizing the variance between the original series and the
smoothed series.
12. The dotted line (for example, Qa ) represents the original data and the solid line (for
example, Qf ) shows the filtered data. I set t = 1 for 1963 and t = 28 for 1990. It should be
noted that y-axis of each panel has different scale.
13. In fact, one of the reviewers reported that the result has significantly changed when
more detailed US-data was used.

ACKNOWLEDGMENTS

I would like to thank Duncan Foley and two anonymous referees for their helpful
suggestions and comments on previous versions of this paper. I also want to express
my appreciation to Adalmir Marquetti, who constructed the data used in this article.
The usual disclaimer applies.

REFERENCES
Cullenberg, S. E. (1994). The falling rate of profit: Recasting the Marxian debate. London: Pluto Press.
Dumenil, G., & Levy, D. (1995). A stochastic model of technical change: An application to the U.S.
economy. Metroeconomica, 46(3), 213–245.
Dumenil, G., & Levy, D. (1999). The classical-Marxian evolutionary model of technical change. Paper
presented in the URPE session of the ASSA meetings.
Foley, D. (1999). Simulating long-run technical change. Mimeo. New York: New School University.
Hodrick, R. J., & Prescott, E. C. (1997). Postwar U.S. business cycles: An empirical investigation.
Journal of Money, Credit, and Banking, 29(1), 1–16.
Marquetti, A. (1997). Extended Penn world tables.
Okishio, N. (1961). Technical changes and the rate of profit. Kobe Univ. Economic Review, 7, 85–99.
van Parijs, P. (1980). The falling-rate-of-profit theory of crisis: A rational reconstruction by way of
obituary. Review of Radical Political Economics, 12(1), 1–16.
Park, C.-S. (2001). Criteria of technical choice and evolution of technical change. Research in Political
Economy, 19, 87–106.
Shaikh, A. (1978). Political economy and capitalism: Notes on Dobb’s theory of crisis. Cambridge
Journal of Economics, 2, 233–251.
Shaikh, A. (1980). Marxian competition vs. perfect competition: Further comments on the so-called
choice of technique. Cambridge Journal of Economics, 4(1), 75–83.
Shaikh, A. (1999). Explaining the global economic crisis. Historical Materialism, 5.
TESTING FOR THE
MARXIAN-CLASSICAL CRITERION
OF TECHNICAL CHOICE

Gérard Duménil and Dominique Lévy

The purpose of Cheol-Soo Park’s article, published in the present issue of this
Research, is to empirically verify what he calls the “Okishio’s Criterion of
Technical Choice,” that is: at going prices and real wage, the new technology
is more profitable than the one prevailing at the previous period.
A preliminary remark is that the phrase “Okishio’s criterion” is abusive. The
notion that new technologies are adopted if they are more profitable is part of
Marx’s framework (as well as of Adam Smith and David Ricardo). In the analysis
of the tendency for the rate of profit to fall, Marx assumes that an individual
capitalist adopts a new technology because it appears more profitable at going
prices and wages. Marx’s point is that when the new technology is generalized
to the industry and new prices of production prevail (with a uniform profit rate
throughout the economy), the average profit rates may be diminished because
of the higher composition of capital of the new technology. What is specific to
Okishio’s theorem is not the criterion, but the proof of the rise of the profit rate,
under the assumption of a given and constant real wage. A further assumption
of Okishio’s theorem is that prices of production do prevail, a rather satisfactory
approximation.1
Park’s conclusion is that the test is negative: “It casts doubt about the validity
of Okishio’s criterion of technical choice.” In our opinion, this conclusion is
not convincing. It actually results from the limitations of the data set used.
In this note, we contend that more adequate data for the U.S. economy,

The Capitalist State and Its Economy; Democracy in Socialism


Research in Political Economy, Volume 22, 209–214
© 2005 Published by Elsevier Ltd.
ISSN: 0161-7230/doi:10.1016/S0161-7230(04)22008-9
209
210 GÉRARD DUMÉNIL AND DOMINIQUE LÉVY

over the period 1948–2002, actually vindicates the Marxian-Classical criterion.


We believe this result is important for economists working in a Marxist
perspective.
No “perfect” measure is available, but a minimum is required. Adalmir
Marquetti’s “extended Penn World Tables,” used in Park’s article for 22 countries,
can be very useful in various fields of investigation (such as historical profitability
and technological trends) but, whatever the field, it is important to be aware that
they are limited in several important respects:

(1) The tables cover the entire economy: Government, Self-employed persons,
and Corporations. Various sectors can be considered, but at least Government
and Self-employed persons should be excluded.
(2) The tables do not allow for the determination of profit rates as they impact
on the behavior of enterprises. Profits should be measured after indirect
business and corporate taxes, after paying interest. The use of fixed capital
is not appropriate. At least inventories should be included, though financial
mechanisms are also at issue.
(3) The time period is short: 1963–1990 (27 years).

1. METHODS
Below we use data from the National Income and Product Accounts (NIPA) and
Fixed Assets Tables of the Bureau of Economic Analysis (BEA); and the Flow
of Funds Accounts of the Federal Reserve (for financial variables and tangible
assets). We consider the U.S. non-financial corporate sector for which appropriate
data is available (and the U.S. domestic private economy for a comparison with
Park’s calculation).
The notation is:  = Profits; Q = Net Product; W = Labor Compensation; and
K = Capital. (All variables are in current dollars.) The profit rate is:
t Q − Wt
rt = = t
Kt Kt
Each variable is deflated by the GNP deflator, p, and is also divided by the total
number of employees, L:
x t − wt
rt =
kt
For example, Q in the first expression of the profit rate becomes x = (Q/p)/L,
that is labor productivity. In a similar manner, w denotes the unit real labor
Testing for the Marxian-Classical Criterion of Technical Choice 211

compensation (real wage), and k, the capital-labor ratio.2 Technology is defined


by the two variables x and k.
The three variables x, k, and w are affected by short-term fluctuations, reflecting
in particular the phases of the business-cycle. In the analysis of technical choice, it
is necessary to abstract from these fluctuations. This is performed using Hodrick-
Prescott (HP) filter. The trend variables are denoted: x̄, k̄, and w̄. The profit rate,
thus determined, is:
x̄t − w̄t
r̄t =
k̄t
The test compares r̄t to the profit rate:
x t+1 − wt
r et = ,
k t+1
expected in period t for the new technology of the following period, x t+1 , k t+1 ,
and the wage of the present period, wt . The criterion is satisfied, in period t, if:
r et > r t .
Three categories of options are at issue in this calculation:
(1) The sector (domestic private economy, private business, corporations, non-
financial corporations . . .).
(2) The definition of profits (before or after taxes and/or the payment of interest,
with “adjustments” or without), and the definition of capital (fixed capital,
tangible assets, net worth).
(3) The value of a parameter in the HP filter, ␭.3
Below we consider three alternative sets of options:
(1) Sector: Domestic private economy.
Profits: Net product minus labor cost.
Capital: Fixed capital.
This first case is close to Park’s calculation.
(2) Sector: Non-financial corporations.
Profits: Net product minus labor cost.
Capital: Tangible assets (fixed capital plus inventories).
(3) Sector: Non-financial corporations.
Profits: Profits after taxes (PAT, interest and all taxes are deducted), with
adjustments.4
Capital: Tangible assets (fixed capital plus inventories).
The period is 1948–2002, that is 54 years.5 We use three alternative values of
␭: 1, 10 and 100.
212 GÉRARD DUMÉNIL AND DOMINIQUE LÉVY

2. RESULTS

The results are summarized in the following table:

Number of years for which the test is satisfied (over a total of 54 years)

Options ␭=1 ␭ = 10 ␭ = 100

1 41 42 47
2 46 50 54
3 51 54 54

Other options lead to similar results:

(1) Using Net worth instead of Tangible assets for the third option, the result is
unchanged. This is also true using Tangible assets in the first option, instead
of Fixed capital.
(2) Using Profits before (profit) taxes instead of Profits after taxes in the third
option, the result is similar though slightly less satisfactory (The numbers of
successes are 48, 53 and 54 instead of 51, 54 and 54).

The main conclusions are as follows:

(1) The results depend on the parameter, ␭, used in the filter: a more rigid trend
(larger ␭) increases the number of periods in which the test is positive (the
profitability criterion is vindicated).
(2) The years in which the test is negative are always concentrated between 1965
and 1975, when the profit rate declined sharply. Actually, the number of years
in which the criterion is not met is not larger when the period 1948–2002 is
considered than the period 1963–1990.
(3) A comparison of the first and second sets of options shows that the choice
of the sector matters: results are improved when the non-financial corporate
sector is considered instead of the domestic private economy.
(4) A comparison of the second and third options shows that the choice of a
definition for the profit is important. Results are better for Profits after tax
than for the difference “product minus total labor cost.”
(5) For ␭ = 10 (or 100), the non-financial corporate sector, and the ratio of profits
after taxes to tangible assets, the results are 100% positive over the period
1948–2002.
Testing for the Marxian-Classical Criterion of Technical Choice 213

Fig. 1. rt , r t and r et (%).

(6) The choice of an appropriate definition of the profit rate is important. The third
options yields better results than the second; the second option yields better
results than the first.
(7) Considering the first case, for the same period (1963–1990) as Park, and ␭ =
100, the test is satisfied for 20 years over 27, what is very close to Park’s result
of 19 years. For the third option the results are 100% positive This is where
the limitation of the data used by Park questions the validity of any conclusive
assertion.
The fifth result above, which fully vindicates the Marxian-classical criterion, is
illustrated in Fig. 1. The dots denote the profit rate, rt , in the definition used. The
dark line is the trend, r t , after filtering, which sets aside the peaks and troughs.
The dashed line describes the other rate of profit used in the test, r et . This figure
illustrates the fact that the condition r et > r t is satisfied continuously (an average
difference of 0.5%). One can also notice the reduction of the gap during the decline
of the profit rate from the late 1960s to the early 1980s.6

NOTES

1. Duménil and Lévy (2002).


2. The expression r = (x − w)/k requires that the capital stock, K, be deflated by the
deflator of the product.
3. Parameter ␭ determines the distance between the variable and the trend. For ␭ = 0 the
variable is not altered; for a small value of ␭, the trend is close to the variable; for ␭ = ∞,
214 GÉRARD DUMÉNIL AND DOMINIQUE LÉVY

the trend is a straight line. When annual series are considered, a frequently used value is
␭ = 100.
4. We define Q by Q − W = PAT. Thus, Q = PAT + W, and x = (Q/p)/L refers
simultaneously to technical and institutional mechanisms.
5. For 1948, we compare the technologies of 1948 and 1949 for the wage of 1948 . . . In
2001, we compare the technologies of 2001 and 2002 for the wage of 2001.
6. These trends are analysed in Duménil and Lévy (2004).

REFERENCES
Cheol-Soo, P. (2004). Testing Okishio’s criterion of technical choice. In: P. Zarembka (Ed.), Research
in Political Economy (pp. 199–208, Vol. 22). JAI Press/Elsevier.
Duménil, G., & Lévy, D. (2002). The field of capital mobility and the gravitation of profit rates (USA
1948–2000). Review of Radical Political Economy, 34, 417–436.
Duménil, G., & Lévy, D. (2004). Capital resurgent. Roots of the neoliberal revolution. Boston: Harvard
University Press.
PART III:
SOCIALISM
REFLECTIONS ON ECONOMIC
DEMOCRACY

W. Paul Cockshott and Allin Cottrell

ABSTRACT

We revisit the model of socialism proposed in our Towards a New Socialism


(1993) and attempt to answer various questions that have been raised
regarding the connection between our view of socialism and our perspective
on capitalism, the process of transition to socialism, the failings of the
Soviet model, the relationship between socialism and communism, the role of
direct democracy under socialism, and the use of labor-time calculation in a
socialist economy. We argue that the contradictions of capitalist property
relations, and of the accumulation process on a world scale, are set to
present once again the necessity of the abolition of private property during
the 21st century, and offer some thoughts on transitional forms that could
implement this abolition. We defend the ideas of direct democracy and
economic calculation in terms of labor time, and argue that these elements
distinguish our proposals from the Soviet model. We trace the demise of the
latter both to specifics of the Russian situation and to more general problems
of Leninism, notably Lenin’s conception of the council state, and of socialism
as a long period during which the productive forces are built up in preparation
for an eventual communism.

The Capitalist State and Its Economy; Democracy in Socialism


Research in Political Economy, Volume 22, 217–258
© 2005 Published by Elsevier Ltd.
ISSN: 0161-7230/doi:10.1016/S0161-7230(04)22009-0
217
218 W. PAUL COCKSHOTT AND ALLIN COTTRELL

1. INTRODUCTION
A century ago, pressing for the establishment of the Russian communist party,
Lenin wrote that “without revolutionary theory there could be no revolutionary
movement.” We can generalize this to say that without adequate theoretical
understanding no social group can constitute itself as a class in the political sense.
One and a half centuries ago, on the foundation of the German communist party,
Marx wrote that “the immediate aim of the Communists is the same as that of all the
other proletarian parties: formation of the proletariat into a class.” The formation
of the Russian and German workers into classes was linked to the propagation of
the revolutionary interpretation of political economy in Marx’s Capital. The social
democratic parties that grew to strength in the late 19th and early 20th centuries
had Capital as their bible. It was not, of course, read by every member, but through
the mediation of party intellectuals its outlook shaped the social democratic press
and the speeches of socialist politicians. Socialist educators, such as John Maclean
in Glasgow, taught Marxist economics to workers in Labour Colleges.
By the mid 20th century, things were looking grim for capitalism. Facing
Stalinism’s triumph in the USSR then Eastern Europe, and salami-slicer socialism
in Western Europe, right-wing economists like Hayek feared for the very survival
of liberal capitalism. In response their theoretical project aimed to do for capital
what Marx had done for labour – to provide it with a coherent political economy
adequate to the needs of the age. Where Marx’s Capital was, to paraphrase Bordiga,
as much a manifesto for communism as a work of economics, Hayek’s Road to
Serfdom was a manifesto for counter-revolution. In the following half-century
the ideas of neo-liberalism moved from the back shelves of libraries to dominate
economic policy around the world.
They did this because they both met a class need and provided a plausible
critique of an existing social order. They became hegemonic, defining the terms
of reference of debate. They were openly adopted by politicians such as Thatcher,
but they also exercised an influence at one remove in the socialist movement. They
created an intellectual climate in which left-wing theorists lent a sympathetic ear
to critiques of planned economy and advocacy of the market. Both in the West and
the East, socialist economists like Brus, Kornai, Aganbegyan and Nove started to
advocate models of market socialism.1
A successful revolutionary movement needs both a guiding economic theory and
a guiding political theory. The old communist movement had Marx’s economics
and Lenin’s theory of the state and party as its twin pillars. Neo-liberalism has
free market theory and the idea of representative government. In responding to
neo-liberalism our aim must be to update Marxist economic ideas and Leninist
ideas about the state. At the start of the 21st century we cannot be content with
Reflections on Economic Democracy 219

applying the labour theory of value to the analysis of capitalism, we have to apply
it to socialism. Ninety years after Lenin’s State and Revolution we have to re-
write and radicalize Lenin’s critique of representative government. We believe
that one must combine three key ideas – the labour theory of value, cybernetic
coordination, and participatory democracy – as an alternative to the liberal trinity
of prices, markets and parliament. We have developed these themes in a number of
publications (Cockshott, 1990; Cockshott & Cottrell, 1989, 1993a, b; Cottrell &
Cockshott, 1993), but most fully in our book Towards a New Socialism (Cockshott
& Cottrell, 1993a).
Our emphasis on participatory democracy may owe something to the specific
political circumstances of Scotland in the 1980s, when the country was treated
almost as a colony by the Thatcher government. This led to a broad national
democratic movement both of the working classes and the mass of the intelligentsia
against Thatcherism and for self-determination. This movement was broadly
“socialist” and in favour of constitutional reform. It encompassed umbrella groups
like the Scottish Socialists, to which we belonged (as did Nove), and the more
bourgeois-democratic Scottish Constitutional Convention. We found ourselves
working with the far left wing of this movement, believing that only direct
participatory mass actions could defend the people against the government. This
wing of the national movement was responsible for initiating the campaign of mass
civil disobedience against the Poll Tax which the English government had imposed
on Scotland. We advocated that this tax on the right to vote be met by a refusal to
pay. At the height of the campaign about half of the working-class population of
Glasgow were withholding their taxes, and mass pickets were defending working-
class homes against tax collectors. Our book was written in the midst of this
campaign. The mass movement was completely successful: opposition to the tax
spread to England and led to Thatcher’s demise.
Our publications on socialism so far leave many questions unanswered. The
editors of a new Czech edition of Towards a New Socialism have asked us a
number of these:

(1) Does our perspective rest upon any particular assumptions about the dynamics
of capitalism?
(2) What is our view of the transition process between existing economic systems
and a socialist economy?
(3) What is our view of the failings of the Soviet model of socialism?
(4) How do we answer the criticism that our advocacy of direct democracy is
naive and would not allow a socialist state to survive any serious internal or
external political pressure?
(5) How do we conceive of the relationship between socialism and communism?
220 W. PAUL COCKSHOTT AND ALLIN COTTRELL

In addition others have asked us to justify why we make labour-time calculations


the basis of our proposals for a socialist economy. We attempt to answer some of
these questions in this article.

2. CAPITALISM AND SOCIALISM


2.1. Intellectual Background

The conjuncture of the 1980s was the immediate condition of existence of our
perspective, but that perspective had an intellectual history which went back a
decade earlier. We drew intellectual influences from the French Althusserian, and to
some extent the Italian Bordiguist traditions. By the late 1970s we were convinced
on the one hand that further development of communist politics in Western Europe
required advances in Marxist theory and, on the other, that such theoretical advance
could only occur in the context of questions posed by the needs of the political
movement. In particular we were concerned with the programmatic questions
posed by the transition to socialism in Western Europe and the nature of socialist
economy.
One of our starting points was the work of Charles Bettelheim (1971) on
socialist economy, but we were unsatisfied with the positions he had arrived at. He
seemed better at posing questions than providing answers. Despite the merits of his
historical work on the USSR in the 1920s and 1930s he failed to develop a coherent
economic theory of socialist society. For instance in his last English-language
publication (Bettelheim, 2001), he wrote that the concept of a socialist mode of
production was a theoretical innovation of Stalinism. This is partly right. But the
idea of socialism as a transitional phase prior to communism is earlier: it is there
in Lenin, it was not there in Marx. If this transitional period exists, the question
inevitably arises as to what mode of production it has. But all that Bettelheim
said was that the concept of a socialist mode of production was an innovation of
Stalinism, which by implication he disagreed with. What was missing was:
(1) an account of what the mode of production in the “socialist” countries in fact
was, and what its laws of motion actually were; and
(2) a conception of the mode of production of communism and its laws of motion.
If he had filled these gaps this there would be some real theory with which one
could come to grips, but it never seemed to come.
Bettelheim wrote that “capitalist ownership is not a juridical category, it is a
social category that denotes the set of conditions of capitalist production.” This is
fair enough, but very ambiguous unless one specifies things in much more detail.
Reflections on Economic Democracy 221

In the absence of such detail it is hand-waving, not theory. He goes on to point


out that the official Soviet Manual of Political Economy speaks of socialist price
and socialist wage. The official doctrine was that these were instruments or forms
which had a new content in socialist economy. This Soviet theory can now be seen
to be quite problematic, but rather than producing a real analysis of these issues
Bettelheim just says that it “leads to a rejection of the fundamental thesis of Marx
that the forms of social relationship cannot be separated from their nature.”
It is not clear that this is a fundamental thesis of Marx. At any rate, what is
missing here is any analysis of the system of reproduction in the USSR, analogous
to the analysis of capitalist reproduction in Vol. II of Marx’s Capital, that would
enable one to say whether these forms were or were not playing the same role as
before.
Our contention is that the forms in question were not playing the same role, and
in particular that the value of the money wage was not the same as the necessary
labour time. A significant portion of the real consumption of the working class
in the USSR came in the form of goods that were distributed either free or at
subsidized prices significantly below their labour values. Thus one of the key
components of Marx’s analysis of capitalism, the reproduction of labour power
through wages, no longer fully held. In our analysis, this had significant effects on
the development of the economy.

2.2. Contradictions of Private Property

Bettelheim was dismissive of the idea that economic planning was a significant
feature distinguishing the USSR from capitalist economies. He held that plan
objectives were often not met, that “planning exerts an effective but blind action
on reproduction,” and that “it does not shield the process from the exigencies of
capital accumulation and its inherent contradictions” (Bettelheim, 2001). This is a
statement of an attitude rather than any sort of argument. We need some account of
how planning operated to bring about reproduction, of the “exigencies of capital
accumulation,” and of the “inherent contradictions” from which planning failed
to shield the USSR. He does not elaborate on this, but let us look at some of the
“inherent contradictions”:

(1) Contradictions due to the possibility of formation of money as a hoard


interrupting the circuit M-C-M′ at the M phase. This was the major
contradiction of the capitalist world economy after the crash of 1929, but there
was no possibility of this contradiction operating in a planned economy, and
the USSR was completely unaffected by the downturn in the world economy
222 W. PAUL COCKSHOTT AND ALLIN COTTRELL

in the 1930s, the period studied by Bettelheim. This was obviously a major
ideological influence on the support for communism elsewhere in the world
at the time.
(2) Contradictions due to a rise in the ratio of past to present labour in production.
In a capitalist economy this appears as a rising organic composition of
capital and a falling rate of profit. A falling rate of profit is contradictory
for capitalism if profit rates fall below prevailing interests rates and inhibit
further accumulation (see the following subsection). Since the planners in the
USSR were not inhibited from re-investing the surplus because of low rates
of profitability this did not stop re-investment there the way it would in a
capitalist economy. This became evident after the restoration of capitalism
when huge parts of the economy shut down since their rate of return was too
low for private capital to support.
(3) Contradictions due to the growth of unproductive expenditures, such as
advertising and financial services, consuming an ever greater share of the
surplus product. These contradictions did not operate in the USSR. A glance
at the architecture of an average Soviet as opposed to a U.S. city would have
confirmed that the proportion of office workers was much lower in the former.

One is left wondering what are the exigencies and what are the contradictions to
which Bettelheim refers.
In writing Towards a New Socialism, we had a definite conception of what
modes of production were and how transitions between them occurred. Some of
these ideas are working in the background of the book, laying the path along which
the overt ideas are explained.
Our analysis was that the tendency of the development of capitalism has been
towards the abolition of private property and thus towards communism. This
development is manifested initially at the level of property relations, where a
sequence of property forms arises reflecting the increasing socialization of the
means of production: petty commodity producers, capitalist enterprises, joint stock
companies, state capital, socialist property. At the same time as these developments
in property forms take place, the accumulation of capital starts to meet internal
limits. The working class population stabilizes and becomes better able to defend
its conditions of life. Capital meets barriers to accumulation associated with falling
rates of profit. The establishment of universal suffrage allows the working class
some leverage on politics. The combined effects of these developments lead to
periodic restructuring crises. These crises can be resolved either in a progressive
or a reactionary manner. Crucial to the outcome is whether there is a working-class
movement with its own distinctive political economy and approach to economic
transformation. Without a distinctive and progressive economic program, there is
Reflections on Economic Democracy 223

no possibility of resolving the restructuring crises in favour of the working class.


In the crises which arise, the transformation of property relations towards or away
from communism is the key political question.2
Our approach to analysing the problem of socialist property relations started
out with a critique of empiricist readings of what property relations mean. An
empiricist account holds that the essence of capitalist property relations is the
private ownership of the means of production; the essence of the communist
revolution is its abolition. This formulation has two theoretical effects: it removes
the distinction between different forms of capitalist property (e.g. individual
ownership, limited liability property, state property and cooperative forms of
ownership) and their economic and political articulation; and it reduces the question
of the construction of communism to a single act of “abolition.” In contrast one
needs to see the process of abolition of capitalism as something which goes through
a sequence of property forms which in themselves tend to abolish private property.
To understand the transition from capitalism to communism it is not the
invariant property relations of capitalism that one must understand, but the range
of their variation under capitalism and in the transition to communism. Such an
investigation is essential to an adequate comprehension of any current conjuncture,
the elaboration of a communist programme, and hence the specification of the
objectives of communist intervention.
In examining property relations, one does not start with property as it appears,
with the legal expression of property relations. Instead one recognizes property
relations to be particular types of reproduction relations. In consequence, property
relations must be understood in the context of the form of social reproduction to
which they belong. Social continuity depends upon the ever-repeated production of
the material goods needed for survival. Social unity arises from the interconnection
and interdependence of the different aspects of social production. Thus, the starting
point of any study of society must be its process of material reproduction, just as
scientific biology makes its starting point the reproduction of the species. The
material reproduction of a society must take place in an organized way, within the
framework provided by one or more forms of social reproduction, which Marx
termed modes of production.
A mode of production needs a coherent structure of productive forces, that
is, a specific technical organization of the elements of the labour process. This
organization sets up definite technical relations between the various elements of the
production process. Raw materials and other objects of labour require appropriate
means of labour if they are to be worked up into finished products. The type of
technical relations that make up the system of productive forces is determined
mainly by the implements used. These determine what resources are available as
objects of labour, what types of physical operations the workers must carry out, and
224 W. PAUL COCKSHOTT AND ALLIN COTTRELL

what types of cooperation and division of labour are possible. Most importantly,
the system of productive forces determines the size and properties of the basic
units of production, and in doing so it determines which forms of exploitation are
compatible with the continuation of production.
Units of production are central to understanding property relations. Units of
production are aggregations of workers and means of production within which
certain organically linked labour processes take place. Within the unit of production
the various different labour processes are directly connected, and stand in definite,
technical relationships, the output of one process becoming the immediate input
of another. As Bettelheim states,

The material base of the unit of production is a grouping of means of labour serving to reproduce
a determinate labour process. A unit of production exists only so long as the reproduction of
an aggregate of labour processes is continued; the existence of the unit of production through
time is nothing other than the existence of successive cycles of the same labour process using
the same means of production (Bettelheim, 1971, p. 94).

We distinguish three functions which property relations perform:


 Level 1 property relations act to ensure the reproduction of the units of
production.
 Level 2 property relations act to ensure the extraction of surplus labour.
 Level 3 property relations act to govern the distribution of surplus labour.

Although these functions are analytically distinct it does not follow that a particular
type of property relation will perform only one function.
At any given moment, changes to an existing concrete set of property relations
are limited to those compatible with the continued material reproduction of society.
It is only within such a range of variation that effective political struggles can
change property relations. Movements within this range are the resultant of two
kinds of forces: the system of productive forces, particularly in its technological
aspect, and the class struggle. Changes in the system of productive forces act to shift
the limits or margins of the range of variation. For example, the development of
large-scale machine industry is a precondition for either limited liability companies
or state capitalism becoming the dominant form of capitalist ownership.
The range of variation of dominant forms changes over time. It now includes
limited liability companies and state capitalism, but the present configuration of the
productive forces excludes domination by sole proprietorship. The impossibility
of a return to this form of dominance is attested to by the repeated defeats of the
reactionary populist movements of the petty bourgeoisie since the development of
machine industry. This points to the second force that enters into the transformation
of property relations, namely, the class struggle. Once a new system of productive
Reflections on Economic Democracy 225

forces and relations is established the variations within that field are determined
by politics. Political class struggle is always a struggle around and about state
power, but state power is the means by which particular property relations may
be changed or abolished. Changes in property relations are the strategic objectives
of conscious class struggle. They give the struggle strategic content. Without a
concrete understanding of the range within which this struggle is waged, and the
significance of the various possible transformations, no scientific practice of the
class struggle is possible.
The immanent tendency of the capitalist mode of production is towards the
abolition of all personal private property. First the direct producers are expropriated
and reduced to the status of propertyless proletarians. Then the centralization of
capital and the formation of joint stock companies dissolves the personal property
of the private capitalist. With the limited liability company, ownership is separated
from control: the capitalist as organizer and controller of the production process
is reduced to a paid functionary (albeit well paid) while the capitalist as owner
is reduced to a functionless rentier. The personal ownership of the rentier, in its
turn, becomes a juridical fiction, a pure level 3 relation concerned only with the
distribution of surplus value and carrying with it no effective control over the
means of production. Being functionally redundant to the operation of capitalism,
rentier property can wither away. This “withering away,” however, is not the same
as an abolition. The dominance of rentier property is reduced to make way for new
forms of capital, but shareholding persists because:
(1) The development of technology and the concentration of capital are uneven
processes. Some areas concentrate more slowly: capitals arising for the first
time in new areas of technology recapitulate the development of capital as a
whole. Some capitals at earlier stages of development still continue to exist.
(2) Share ownership remains the standard juridical form of capitalist property.
In this capitalism shows conservatism, retaining the same juridical form with
changed economic content. Companies remain constituted as objects of private
property through the ownership of their shares, but the concrete personalities
who constitute the subjects of this property relation change. Into the place of
the rentiers there steps a handful of big financiers, and a still smaller group of
impersonal financial institutions, banks, insurance companies and investment
trusts. The private shareholder is not abolished outright or expropriated, just
progressively displaced.
The continuous depersonalization of capital ownership, however, does not
undermine the capitalist character of production. It ushers in no new age of
managerialism or technocracy, it just proves the impersonal character of the
laws governing the mode of production. Modern capitalism retrospectively proves
226 W. PAUL COCKSHOTT AND ALLIN COTTRELL

Marx’s thesis that the personalities who walk the economic stage are personalities
only as agents or personifications of objective functions laid down by the mode of
production. Capitalism as a mode of production remains legally feasible without
joint stock companies or sole owners. So in the abstract Bettelheim’s claim that the
USSR was capitalist is not ridiculous. But the crucial issue is whether the units of
production reproduce themselves via commodity relations. For this to be the case
– for the law of value to regulate – there must be the possibility of bankruptcy. A
shift of ownership from private owners to the state undermines bankruptcy as a
regulator; indeed, this was one of the key objections to socialism by the Austrians.
Closing down a firm becomes a political decision, subject to political pressure by
the workers, not the automatic act of an autonomous economic domain.
As capitalism progresses, an increasing share of the assets of firms consists
of “intellectual property”: patents, copyrights, trade-marks. This rise in the
importance of intellectual property is a consequence of technological changes.
Information technologies, conceived in the broadest sense as those technologies
that facilitate the copying and transmission of information, have been the most
dynamic field of technical development in the last 40 years. Telecommunications,
photocopying, faxing, software, the internet, digital games, digital cinema, have
all vastly driven down the cost of copying and distributing information. As
the distribution of information has become cheaper, an increasing fraction of
the population has been drawn into occupations that involve the production of
information: writing software, making TV and video material, publishing. What
all of these have in common is that while the labour required to produce the
information in the first place may be considerable – millions of person hours for a
blockbuster film – the labour required to replicate it becomes vanishingly small.
An analogous case exists with the pharmaceutical and biotechnology industries.
Here the labour required to discover and test a drug can be large, but once the
chemical formula and its usage are understood the incremental costs of mass
producing tablets is typically very low.
Let us call the information required to replicate these products “embodied
information.” This embodied information has a value, namely, the work required to
produce that information in the first place. Under capitalist property relations the
reproduction of firms engaged in these industries is possible only if they are given
legally enforced monopoly rights that allow them to recover the costs of producing
or discovering the embodied information. They do this by selling the product well
above its value. This is an inherently unstable situation. Capitalist juridical property
relations here come into sharp conflict with the potential of the forces of production.
The enforcement of the property relations becomes problematic.
This is seen in more and more areas. The explosion of file-copying over the
internet allows people to evade the monopolies of the film and recording industries.
Reflections on Economic Democracy 227

The producers of cheap generic drugs potentially allow AIDS patients access to life
saving drugs that the pharmaceutical monopolies would deny them. In most cities
there are shops selling nothing but bootleg software disks. Attempts by big media
firms to encrypt pay-TV stations and recording formats are almost immediately
broken by black-market hacking devices. The basic problem for capitalism now
is that the evolution of technology militates against private property. In the past,
property inhered ultimately in physical objects whose ownership is much easier
to police than an ownership of information. Yet unless private ownership of
information can be enforced, it brings no revenue and its production is unprofitable.
At the same time we see nascent communist forms of anti-property brought into
existence by the same revolution in technology – the open-source movement and
the copyleft movement. Much of the internet now runs on open-source software
such as the Linux operating system and the Apache web server. This software,
written not for profit but for the simple satisfaction of producing a useful product,
prefigures a future in which productive social labour becomes an end in itself.
These are harbingers showing that private property has become a constraint on
the development of technology. Within a continental scale socialist economy the
overhead costs of producing information – whether it be videos, software or new
pharmaceuticals – could be met out of general taxation, allowing the information
itself to be disseminated free of charge.

2.3. Contradictions in the Accumulation Process

In addition to the changes in property relations discussed above there are long term
structural developments which encourage the progressive incursion of socialist
elements within the capitalist system.
Capitalism is built around the accumulation of property values. The aim of all
firms is to increase the value of their capital stock, and increase the value of their
turnover. But there are inherent limits to this process, limits which mean that any
long period of capitalist growth ends in stagnation and recession. There is a huge
Marxist literature on this, which we cannot go into here, but some of the key
concepts are relatively simple to understand.
Consider a “typical” firm in a developing capitalist economy. Let us suppose that
the firm makes a 10% profit on turnover. Suppose half of the profit is consumed
by the owner and the other half retained for internal investment. Then ideally
the firm should be able to grow at 5% a year. In a rapidly developing capitalist
economy like China, this is what happens. The capitalist sector of the economy
can show sustained growth rates of this order for a few decades. As the typical
firm grows, it takes on more staff, buys additional stocks of raw materials and
228 W. PAUL COCKSHOTT AND ALLIN COTTRELL

purchases larger premises. Let us suppose that the number of workers it employs
grows in line with its turnover at 5%. Now if something grows at 5% a year,
it doubles in size roughly every 14 years. Suppose that in 1990 there were 200
million people employed in such Chinese firms. By 2004 the figure would have
grown to 400 million. Clearly even in the most populous country in the world
this kind of growth rate could not continue much longer. Such rapid growth in
employment depends upon the existence of a surplus population drawn in from
agriculture. Historically, peasant populations have had a relatively high birthrate,
necessary for survival in the face of severe infant mortality. The first phases of
modernization have typically been accompanied by public health measures which
reduced infant mortality, such as inoculation campaigns, measures to restrict inset
pests and provision of clean water supplies. This has, across the world as a whole,
created an enormous surplus population that can potentially be drawn into capitalist
employment.
As people move into cities and become wage workers instead of peasants there
are changes in the family structure. The family is no longer a unit of production in
which children figure as additional labour. Industrial society demands that children
go to school and be financially supported by their parents. After a generation or so,
working-class families end up being smaller, the population growth slows down
and migration to the cities becomes less significant. Figure 1 shows how this

Fig. 1. Growth of the Non-Agricultural Percentage of the Chinese Working Population.


Note: Figures after 2001 are projections using a logistic curve. Original data from
Maddison (1998).
Reflections on Economic Democracy 229

process is developing in China, where the historical shift has been accelerated by
the one-child family policy, but if we look at earlier capitalist countries we can see
the effects of this demographic transition.
In Britain the migration from country to town was effectively complete 100
years ago. As the proletarian population became more stable and hereditary, trades
union organization spread, and strikes and labour disputes became more common.
It became harder for employers to expand their workforce at the old level of wages.
The rising cost of labour and the limitations on new employment forces investment
to be more capital intensive. Capital accumulation shifts from an extensive to an
intensive mode. The capital to labour ratio rose (Cockshott, Cottrell & Michaelson,
1995).
Suppose we transport our “typical” firm back a century to England in 1904.
On an annual turnover of £100,000 the boss paid out wages of £20,000, paid
£60,000 for raw materials and depreciation on his factory, and was left with a
profit of £20,000. That gave him a rate of profit of 20% on his turnover and
25% on capital advanced. Being unable to hire more workers he decides that he
will invest £10,000 a year in new machinery and buildings. By 1912 he had a
capital of £160,000, and much more modern plant, but what had happened to his
profitability?
He was still likely to only be earning £20,000. Why? Because the profit that a
firm makes tends to depend not on the capital that they employ but on the number
of workers they employ. The value added in production comes from employing
people not machines. This value added is then divided between wages and profits.
The share of value added going as profits fluctuates between firms and from year to
year, but the mean share of profits tends to be roughly 50% of value added (Farjoun
& Machover, 1983). In consequence as the capital to labour ratio rises firms tend
to earn lower percentage profits on their capital. Our capitalist would still have an
annual value added of roughly £40,000, split £20,000 profit and £20,000 in wages.
Of course he might be lucky and sell his goods at a somewhat higher price, or
defeat a strike and pay lower wages. But he might be unlucky and be forced to sell
cheap, or lose the strike. If we take a representative firm these possibilities tend to
cancel out.
The general point is illustrated by Fig. 2. This shows, for the USA, how industries
with high capital to labour ratios tend to earn low rates of profit. Similar data are
available for the U.K., exemplifying what Marx termed the law of the falling
tendency of the rate of profit. As intensive capital accumulation leads to higher
capital labour ratios the rate of profit tends to decline. This holds both across time
and across industries. The more capital-intensive industries are less profitable, and,
as more and more industries become capital-intensive the expected profit rate of a
“typical” firm tends to decline over time (see Fig. 3 and Table 1).
230 W. PAUL COCKSHOTT AND ALLIN COTTRELL

Fig. 2. Relationship Between Organic Composition of Capital and Profit Rate for 47
Industries in the USA, 1987. Note: The downward-sloping line is the rate of profit we would
expect if industries’ profits were proportional to the labour they employ. The horizontal line
is what we would expect if all industries earned the same rate of profit on their capital.
The rate of profit tends to be lower for firms with a higher organic composition. Source:
Cockshott and Cottrell (2003).

The decline in the rate of profit with increasing organic composition is an early
indicator of the incompatibility of private property with the long-term development
of technology. It is one reason why 20th century capitalism was so poor at
developing highly capital-intensive industries like railways. Their chronic low
profitability forced many capitalist states to take these into public ownership.
Attempts by British Tory governments in the 1980s and 1990s to reverse this trend
– for example, the privately built channel tunnel and the privatization of the rail
network – bear this out. The channel tunnel company repeatedly ran into insolvency
and the project only survived after the original shareholders had lost most of their
investment and public subsidies were provided to complete the project. In the case
of the railway industry as a whole in Britain, it is only viable in private hands
through the provision of massive public subsidies. Without this, the rate of return
on the vast sums of capital involved would be too low to attract private capital.
The basis of the law of the declining rate of profit was famously questioned by
Okishio (1961). This objection was raised within the context of an argument over
whether a rising organic composition of capital will occur for reasons of technical
Reflections on Economic Democracy 231

Fig. 3. Time Series Plot of the Evolution of the Organic Composition of Capital and
the Rate of Profit for U.K. Industry as a whole, 1924–1973, from Cockshott, Cottrell and
Michaelson (1995).

economy under conditions of profit-rate equalization. We reject the assumption


of profit-rate equalization as being directly applicable to real capitalist economies
(Cockshott & Cottrell, 2003) and we also reject the notion that the mean rate of
profit is available as a benchmark to firms making investment decisions. Instead we
see the rate of interest playing this role, and argue for falling profit rates purely on
the basis of the dynamics of accumulation compared to the dynamics of population
growth. We assume that if interest rates are lower than the rate of profit of a
significant fraction of capitals, accumulation will continue. The trend terminates
when interest rates have to be held close to zero to sustain the economy, as in
contemporary Japan.

Table 1. Rising Organic Composition of Capital: Swedish Data, Figures for


Manufacturing and Mining.
1871–1900 Average (%) 1971–2000 Average (%) % Change

[c/(s + v)] 184 305 66


[(s + v)/c] 54 33 −40
[s/(s + v)] 34 21 −38
[s/c] 19 7 −61

Note: c = constant capital, v = variable capital, s = surplus value.


Source: Edvinsson (2003, Table 7.5).
232 W. PAUL COCKSHOTT AND ALLIN COTTRELL

The temporal decline in the rate of profit only occurs during sustained periods of
capital accumulation, but at the same time acts as a limiting factor upon the ability
of capitalism to sustain accumulation. If accumulation is sustained the rate of profit
declines, tending to precipitate a long-term recession. This imposes on capitalist
social development a long-term cycle of crisis and prosperity. Periods of economic
crisis such as the 1930s or the 1970s and 80s interrupt the continued accumulation
of capital and precipitate political and class struggles over the restructuring of the
economy. Depending on politics these crises can be resolved in a progressive or
reactionary way. Examples of progressive restructurings were the New Deal in
the U.S. during the 1930s and the post-war reconstruction of the main Western
European economies. Examples of reactionary restructurings include European
Imperialism in the 1890s, National Socialism in Germany in the 1930s, and
Thatcherism in the U.K.
A progressive restructuring tends to amend the property relations against the
rentier interest. Reactionary restructurings move things the other way. For instance
the neo-liberal policies of the 1980s tried to solve the problem of low profit
rates by:
(1) Raising the share of the population subject to capitalist relations of production
by privatizing state services. This allowed a period of extensive capital
accumulation into activities with a relatively low capital to labour ratio.
(2) Generally weakening trades unions to hold down wages.
(3) Allowing whole capital-intensive industries to close.
(4) Changing international trade rules to allow greater international capital
mobility.
(5) Setting the overthrow of socialism in the East as a major political objective.
The first three of these options are relatively short-term in their effects, being
effective for perhaps a couple of decades at the most. Points 4 and 5 however,
give a longer span to the forces of reaction. They effectively opened up a
huge scope of extensive capital accumulation, drawing whole new continental
populations under the exploitation of capital. With the globalization of capitalism
the previous national historic processes of capitalist development no longer
constrain accumulation. It does not matter so much to the British or American
rulers if their domestic populations are growing slowly if there is an elastic supply
of labour in China, India, Romania, or elsewhere.
The great political strength of reaction today is based on the fact that while in the
metropoles capitalism has outlived its progressive historical role, this is not true on
a world scale. Unless new socialist revolutions again take continental economies
out of the capitalist world system, extensive capital accumulation can continue for
a few more decades. But eventually the law of the rising organic composition of
Reflections on Economic Democracy 233

capital will impose itself as a world-historical constraint. This will occur unevenly.
The areas of Eastern Europe now being incorporated into the EU will be affected
long before India, for example, since they are already relatively urbanized and
industrialized. But even in China one can see from Fig. 1 that the point at which
capitalist maturity will arrive is only a few decades into the 21st century. It is thus
inevitable that a new restructuring crisis will occur. But this time it will occur in
without the option of capital export. The objective necessity of the abolition of
private property will re-present itself.

3. ECONOMIC TRANSITION TO SOCIALISM

One of the most obvious gaps in Towards a New Socialism is the lack of any
systematic discussion of the process of transition from capitalist to socialist
economy, that is, the transition from an economy regulated by the exchange of
commodities for money and the extraction of surplus as surplus value, to one
regulated in natura by the plan and with a plan-governed extraction of the surplus
product. In this section we attempt to remedy that deficiency.
Broadly speaking we see the transition as occurring through the intermediary
forms of cooperatives and state-owned capitalist enterprises, in a three-stage
process.
A first stage of transition involves moving from a system of shareholder
capitalism to a combination of state capitalism and worker-owned enterprises.
A second phase involves a transition to a fully planned economy.
What has to be ensured here is the continuity of material production while
the property relations change. Since it is commonplace for enterprises to change
ownership in a capitalist economy, the mere change in ownership need not directly
threaten the continuity of production. There is a substantial history of orderly
transitions of enterprises from private to state ownership and back. All that is
required for a smooth transition at the level of commodity production is for the
staff of the enterprises to remain at work, and for a clear line of state-guaranteed
credit be provided to pay commercial bills falling due for the supply of raw
materials. A recent example of this was the effective re-nationalization of the
railway network in the U.K., where almost overnight and without any special
legislation the government had the private company running the railways declared
insolvent, and its assets passed to a new “not for profit” company. In the process,
the shareholders found, like the shareholders in any liquidated company, that they
were entitled to only a fraction of what they thought they had owned. This was a
special case, however, since the enterprise being taken over was almost insolvent
and dependent on government orders.
234 W. PAUL COCKSHOTT AND ALLIN COTTRELL

Turning to the formation of workers’ cooperatives, it would be relatively easy


to legislate that the board of limited companies was to be elected either entirely
by employees or, say, 75% by employees. In such circumstances the enterprises
remain liquid, retain their assets, but change their board of management.
In the formation of both “not for profit companies” and employee-managed
companies, the losers are the original shareholders. In the case of the enactment
of a law allowing the formation of worker-managed companies the issue is fudged
somewhat: the rights of shareholders are restricted without being completely
abolished. But it is clear that a board elected by the employees would be likely to
pay lower dividends than one elected by shareholders. The inevitable consequence
would be a drastic fall in the price of the shares of the companies.
Where the state directly takes companies into its ownership the question of
compensation for shareholders inevitably arises. It was the practice of Labour
governments in the U.K. to fund the nationalization of companies by issuing
government bonds to former shareholders. The net cost to the exchequer both on the
revenue and capital account can be negligible. On the capital account the increase in
state liabilities is offset by the shares acquired, while on the revenue side the obliga-
tion to pay interest on the bonds can be offset against the expected profits of the new
state-owned firms. One can envisage an analogous provision in legislation creating
worker-owned enterprises, whereby equity shares are converted to debentures.
Measures like this would enable the transition from rentier-owned capitalism
to state- and employee-owned capitalism to be relatively smooth, but would have
the disadvantage in the medium term of burdening both the worker-owned and
state-owned firms with annual interest payments to the rentier class. It is clear that
substantial differences in income and wealth would persist in such a scenario.
During the period in which these transitional forms dominate the economy,
some alternative would be needed for the limited real role that the stock market
continues to play as a source of new investment funds. The obvious recourse here
would be an expansion of the role of the banks, perhaps particularly the state bank,
as a source of investment funding.
After this phase of transition the economy would still be capitalist, but the
ownership role of individual capitalists would be greatly reduced. The most serious
economic disruption would have been to the financial sector, where the profitability
of stockbroking and investment banking firms would drastically decline. But this
decline would be manageable, being no worse than the structural changes to many
heavy industries that occurred during the last twenty years.
A second phase of transition involves the development of the capacity for
detailed planning – setting up of the administrative system, establishment of the
democratic control mechanisms and construction of the computer networks and
software that would be required to carry out the sort of planning we discuss in the
Reflections on Economic Democracy 235

book. Initially these plans would be indicative, becoming mandatory as the system
bedded down.
A third phase involves the actual abolition of monetary exchange and the move-
ment to payment in labour tokens. At this point the class interests of the residual
rentier class and the mass of the employed population come into sharp conflict. The
installation of a system of payment by labour tokens is incompatible with paying
interest, since the money in which the interest payments were made will cease to be
legal tender. By this point, the essentially parasitic nature of the rentier class will be
generally evident, since they would have lost any remaining productive function.
The major complication that arises here is the extent to which the pensions system
of a country depends upon financial assets – stocks and shares. If many people are
dependent upon pension schemes whose assets might suddenly become worthless,
then the political opposition to a movement to labour tokens would be serious. How-
ever, pension schemes based on the stock market are encountering serious liquidity
problems anyway. It should be possible to make a transition to a non-stock market
based public pension scheme attractive provided that prospective pensioners can
transfer pro rata. If this were done prior to the transition to labour tokens, then the
prospective losers would be limited to the capitalist class properly speaking.
The political appeal of the final abolition of money among the bulk of the
population would be based on two prospects. First, it would simultaneously abolish
all debts. Since a very large part of the population are net debtors – whether on credit
cards or on house mortgages – this would create a strong constituency of gainers to
outvote the minority who would lose under the scheme. Second, the transition to an
egalitarian payment system would produce a significant improvement in income
for the majority of the population.

4. HISTORICAL FAILINGS OF SOCIALISM


The collapse of socialism of the Soviet type was due to identifiable causes
embedded in its economic mechanism, but which are not inherent in all possible
socialisms. In this section we will examine some of the well known contradictions
within the economics of “previously existing socialism” and highlight some key
ways in which our proposals differ from the policies and practices of the Soviet
type.

4.1. The Extraction of a Surplus Product

In the latter days of the USSR under Gorbachev the mechanism for the extraction
of a surplus product progressively collapsed. This debacle underlines a key point:
236 W. PAUL COCKSHOTT AND ALLIN COTTRELL

Marxist economics views the method of extracting a surplus product as the


distinguishing feature of a mode of production.
The specific economic form, in which unpaid surplus labour is pumped out of the direct
producers determines the relationship of rulers and ruled, as it grows directly out of production
itself and, in turn, reacts upon it as a determining element. Upon this, however, is founded the
entire formation of the economic community which grows up out of the production relations
themselves, thereby simultaneously its specific political form. It is always the direct relationship
of the owners of the conditions of production to the direct producers – a relation naturally
corresponding to a definite stage in the development of the methods of labour and thereby its
social productivity, – which reveals the innermost secret, the hidden basis of the entire social
structure, and with it the political form of the relation of sovereignty and dependence, in short,
the corresponding specific form of state (Marx, 1972, p. 791).

In a socialist economy the extraction of a surplus product takes place by means of


a politically determined division of the material product between consumer goods
and other products in the state plan. This is socialism’s “innermost secret, the
hidden basis of the entire social structure.” The system of extracting a surplus is
quite different from that under capitalism in the following respects:
 The division of the product is determined directly in material terms rather then
indirectly as a result of exchange relations.
 The division is determined centrally rather than through numerous local bargains
over the price of labour power, hours worked etc.
 The actual level of money wages is irrelevant because the supplies of consumer
goods are predetermined in the plan. Higher money wages do not necessarily
result in increased real wages. In addition, a large part of the real wage is in the
form of free or subsidized goods.
This form of extraction rises out of the highly integrated and socialized character of
production under socialism. From it is developed the absolute necessity of individ-
ual factories being subordinated to the center, and the comparative irrelevance of
their individual profitability. Following on, it determines the centralized character
of the state and the impossibility of local authorities having an autonomous
disposition over resources. All these are invariant characteristics of socialism.
This “innermost secret” determines the relationship of rulers and ruled as
follows. Consider two possibilities: either the rulers and the ruled are distinct
groups, or they are one and the same. If, as in hitherto existing socialism, they
are distinct, then whoever controls the planning authority is both the effective
owner of the means of production, and a ruler. These rulers (in practice the Central
Committee of the Communist Party), though often venal, cannot fulfill their social
function by the shameless bourgeois pursuit of self-interest. They are compelled
instead to take on the highly social and public role of so organizing the political
Reflections on Economic Democracy 237

and ideological life of the society as to ensure compliance with the plan. One of
the most effective ways of doing this is through the cult of a charismatic leader,
backed to a greater or lesser extent by state terror.
Personality cults, in which the leader is presented as the General Will incarnate,
are no accident, but an efficient adaptation to the contradictory demands of a
socialist mode of production (which dictates the dominance of political over civil
society), combined with institutions of representative government.
It may seem odd to speak of representative government in the context of Soviet-
type socialism, but the concept is quite applicable. Representative government
selects certain humans, commonly called politicians, to stand in for, or represent,
others in the process of political decision making. This is just what the Leninist
party does in power. It acts as a representative of the working class and takes
political decisions on its behalf. As such, it is no less representative a form of gov-
ernment than the parliamentary system. There are differences in respect of who is
represented and how they are represented, but the representative principle remains
the same: decisions are not taken by those affected but are monopolized by a group
of professional rulers, whose edicts are legitimized in terms of some representative
function. The selection of such rulers via multi-party elections cannot diminish
their representative character nor abolish the distinction between rulers and ruled.
The contradictory character of socialist representative government is clearly
evident. The representatives of the proletariat – through their control of the plan,
and thus the method by which unpaid surplus labour is pumped out of the direct
producers – become effective controllers, pro tem, of the means of production.
As such their individual class position is transformed and their ability to go on
representing the proletariat is compromised.
Only when the distinction between ruler and ruled is abolished, when the masses
themselves decide all major questions through institutions of participatory democ-
racy, does the totalitarian inner secret at the heart of socialism cease to be contradic-
tory. Only when the masses in referenda decide the disposition of their collective
social labour – how much is to go on defence, how much on health, how much on
consumer goods, etc. – can the political life of socialism cease to be a fraud.
But to return to the question of surplus extraction. Under socialism this is an
inherently totalitarian process, a subordination of the parts to the whole, the factory
to the plan, the individual to the collective. Production is not for private gain but for
the totality of society. Under a system of participatory democracy, this totalitarian
conformism might take on a Swiss democratic rather than German fascist air, but
it would be no less real.
Gorbachev undermined the whole surplus extraction process by attacking the
totalitarian principle. One of his first measures was to allow factories to retain the
greater part of their profit. At a stroke, he introduced an antagonistic bourgeois
238 W. PAUL COCKSHOTT AND ALLIN COTTRELL

principle of surplus extraction: the pursuit of profit by individual enterprises. He


threw the whole system into chaos. From the establishment of the planned economy
in the USSR up to the time of Gorbachev, the turnover tax was the main the
juridical form under which the state was financed. In capitalist language this was
equivalent to meeting most state expenditure (new investment in infrastructure,
education, welfare, defence, scientific research, pensions and so on) out of the
profits of nationalized industries. Another big source of revenue was the vodka tax.
Together these provided a stable tax base until Gorbachev’s teetotalism campaign,
and his simultaneous decision to allow enterprises to retain most of their profits,
destabilized state finances and debauched the Rouble.
But these taxes were (as Keynes would have realized) just an administrative
measure necessary to maintain monetary stability.3 The taxes neither ensured the
production of a surplus nor determined its magnitude. The real magnitude of the
surplus was determined by the plan, when it laid down how much social labour was
to be allocated to producing consumer goods and how much was to be allocated
to other activities. Once the plan specified how many workers were to build new
steel plants, new railway lines, mines, tanks and bombers, the ratio of surplus to
necessary labour time was given. The production of a surplus product at the societal
level was the result of conscious and explicit political decisions. The socialist state,
unlike the “nightwatchman” state of capitalist society, could not be content simply
with collecting taxes on an autonomously produced surplus. The state had to turn
itself into a mechanism for actually producing and directing that surplus. This is
the inner logic of the socialist mode of production, its basic law of motion.
Just as the production of surplus value through the purchase and exploitation of
labour power is the inner secret of capitalism, ultimately determining the whole
character of capitalist society, so the public, planned social appropriation of the
surplus is the inner secret of socialism. From the exploitation of wage labour
spring the class contradictions of capitalism. From the necessary appearance of
the surplus in money form spring the financial crises, recessions and economic
cycles that punctuate capitalism’s history. From the planned appropriation of the
surplus under socialism spring the class antagonisms and class struggles of the
socialist period. From the necessarily political form of surplus extraction spring
socialism’s political cycles: Stakhanovism, the great purges, de-Stalinization, the
Great Leap Forward, the Cultural Revolution.
After Gorbachev had undermined the tax base, the state, deprived of its main
form of revenue, resorted to the printing press. The factories had extra money, but
since the division of the social product was still determined by the plan they could
not act as private firms would and convert this new money into productive capital.
The socialist system of surplus extraction was sabotaged without a bourgeois
system to replace it, and the economy spiraled into an inflationary decline.
Reflections on Economic Democracy 239

4.2. Prices and Economic Calculation

Previously existing socialism was limited by a deficient system of economic


calculation. This point is made by all right-wing critics. They point out, with
justification, that the price system operating in the USSR made rational economic
calculation impossible. Numerous anecdotes tell of this:

Here is one of many examples. Some time ago it was decided to adjust the prices of cotton and
grain in the interests of cotton growing, to establish more accurate prices for grain sold to the
cotton growers, and to raise the prices of cotton delivered to the state. Our business executives
and planners submitted a proposal on this score which could not but astound members of the
Central Committee, since it suggested fixing the price of a ton of grain at practically the same
level as a ton of cotton, and, moreover, the price of a ton of grain was taken as equivalent to
that of a ton of baked bread. In reply to the remarks of the members of the Central Committee
that the price of a ton of bread must be much higher than that of a ton of grain, because of the
additional expense of milling and baking, and that cotton was generally much dearer than grain
was also borne out by their prices in the world market, the authors of the proposal could find
nothing coherent to say (Stalin, 1952).

Some forty years after Stalin made this observation pricing policy had improved so
little that Gorbachev could cite the example of pigs being fed bread by collective
farmers because the price of bread was lower than that of grain.
When the relative prices of things differs systematically from their relative costs
of production, it becomes impossible for people to choose cost-effective methods
of production. Following from this, we may say that, unlike capitalism, previously
existing socialism lacked an inbuilt mechanism to economize on the use of labour,
and thus to raise its productivity.
The fundamental economic justification of any new production technology has
to be its ability to produce things with less effort than before. Only by the constant
application of such inventions throughout the economy can we gain more free time
to devote either to leisure or to the satisfaction of new and more sophisticated tastes.
This implies that in socialist production workers must seek always to economize on
time. Time is, as Adam Smith said, the “original currency” by which we purchase
from nature all our wants and necessities; a moment of it needlessly squandered
is lost for ever. A socialist system will be historically superior to capitalism only
if it proves better at husbanding time.
The wealth of capitalist societies is of course unevenly divided, but its
inbuilt tendency to advance the productivity of labour underpins the continuing
progressive role of capitalist economic relations. Had capitalism lost this potential
– as some Marxists believed it had in the 1930s – then it would long ago have lost
out in competition with the Soviet block.
240 W. PAUL COCKSHOTT AND ALLIN COTTRELL

In a capitalist economy, manufacturers are driven by the desire for profit to


try to minimize costs. These costs include wages. Firms often introduce new
technology in order to cut the workforce and reduce labour costs. It is a very naive
form of socialism that criticizes technical change under the pretext that it causes
unemployment. The real criticism that can be levied at capitalist economies in this
regard is that they are too slow to adopt labour-saving devices, because labour is
artificially cheap.
But in this respect the USSR was even worse. The state subsidized food, rent,
children’s clothes and other necessities. The subsidy on basic goods compensated
for low money wages. But subsidies and social services had to be paid for out of
the profits of state-owned industries. For these industries to make a profit, wages
had to be kept low, and low wages meant that the subsidies had to be retained!
The worst aspect of all this was that enterprises were encouraged by the
cheapness of labour to be profligate with it. Why introduce modern automated
machinery if labour was so cheap?

4.3. Planning Mechanisms: Orthodoxy and Conservatism

The Soviets, for reasons both ideological and technical, did not come close
to building the sort of systems we identified as essential in Towards a New
Socialism. Of course the Soviet planning system was quite effective at first.
The Soviets were able to build a heavy industrial base, and in particular an
armaments industry capable of defeating the Nazi war machine, in a much shorter
time than any capitalist economy, albeit at a very high cost. At that stage of
development, crude planning methods were adequate: the economy was much
less technologically complex than at present, and the plans specified relatively few
key targets. Even so, there are many tales of gross mismatches between supply
and demand during the period of the early 5-year plans; a huge expansion of the
inputs of labour and materials meant that the key targets could be met despite such
imbalances.
The early Soviet plans were not drawn up according to the schema described
in our book. Working backwards from a target list of final outputs to the required
list of gross outputs, consistently and in detail, was quite beyond the capacity of
Gosplan. Often, instead, the planners started out from targets that were themselves
set in gross terms: so many tons of steel by 1930, so many tons of coal by 1935,
and so on. This early experience arguably had a deleterious effect on the economic
mechanism in later years. It gave rise to a sort of “productionism,” in which the
generation of bumper outputs of key intermediate industrial products came to be
seen as an end in itself.4 In fact, from an input-output point of view, one really
Reflections on Economic Democracy 241

wants to economize on intermediate goods so far as possible. The aim should be


to produce the minimum amounts of coal, steel, cement, etc., consistent with the
desired volume of final outputs.
At any rate, it became increasingly evident after the period of post-war
reconstruction that the sort of planning system inherited from the 1930s was
incapable of developing a dynamic, technologically progressive economy that
would satisfy consumer demand. Certain priority sectors such as space exploration
showed remarkable successes, but it seemed to be an inherent feature of the system
that such successes could not be generalized. The converse of the priority given to
the privileged sectors was the relegation of the production of consumer goods to
the role of residual claimant on resources. Over the course of the 1960s and 70s,
repeated attempts at reform of one kind or another were basically a failure, leading
to the notorious stagnation of the later Brezhnev years.
Why this outcome? One technical point that suggests itself is the state of
Soviet computing and telecommunications facilities at the time. We have argued
that effective, detailed planning is possible using current Western computing
technology, but the technology available to Soviet planners in the 1970s was very
primitive by comparison. This point is important, and we shall return to it, but it
is only part of the story and some other considerations deserve emphasis.
It is well known that official Soviet adherence to “Marxist” orthodoxy placed
obstacles in the way of the adoption of rational planning methods. New approaches
to planning were generally regarded with suspicion, even those which had nothing
to do with the introduction of market relations. As regards the input-output method,
Augustinovics (1975, p. 137) has pointed out the double irony whereby this
method “was accused of smuggling the evil of Communist planning into the
free democratic economy and the evil of bourgeois ideology into the socialist
economy.” Treml (1967, p. 104) also suggests that the very idea of starting the
planning process from final output targets was seen by the official guardians
of orthodoxy as consumption-oriented and therefore somehow “bourgeois.”
Similarly, Kantorovich’s path-breaking work on linear programming was for long
rejected.
It would appear that the worst of this sort of ideological rejection of theoretical
innovation had been overcome by around 1960. But although input-output analysis
and linear programming eventually received some degree of official blessing, these
techniques remained marginal to actual Soviet planning procedures. This was due
in part to the computational problems alluded to above, which meant that input-
output methods could not replace the much cruder “material balance” calculations
for the full range of goods covered by the latter (which was itself only a relatively
small subset of the complete list of goods produced).5 Some other reasons are
noted below.
242 W. PAUL COCKSHOTT AND ALLIN COTTRELL

First, there was a damaging “disconnect” between the routine activities of the
state planning agencies Gosplan and Gossnab (lacking an adequate theoretical
basis, and driven by ad hoc political pressures from the Politburo) and the growth
of unworldly high-mathematical theorization of planning in the research institutes.
This disconnect has two sides to it. On the one hand the “practical planners” seem to
have been resistant to innovation even when their resistance was not rationalized
in ideological terms. Moving to a system of planning final outputs in the first
instance, as we have recommended, would have marked a substantial change from
the traditional Soviet pattern, a change that Gosplan was apparently reluctant to
make. As Kushnirsky notes, “since the demand for goods and services in the Soviet
economy is substituted with ‘satisfied’ demand, which is derived from the level of
output, planners believe they can determine production plans more precisely than
they can components of final demand” (Kushnirsky, 1982, p. 118). Translation: It’s
easier for the planners if they produce whatever they like, rather than what people
actually want. Examples of this sort of attitude could be multiplied; see Cottrell
and Cockshott (1993) for details.
The other side of the disjunction lies in the abstracted nature of much of the work
done in the research institutes. The latter produced some good ideas for planning
at the micro level (e.g. Kantorovich’s linear programming), but much of the work
done on “optimal planning” of the system as a whole was hopelessly abstract, in
that it required a prior specification of some sort of “social welfare function” or
general measure of “social utility.”6 While making little headway on this quixotic
task, the “optimal planning” theorists contributed to the “cooling of interest” in
input-output methods described by Tretyakova and Birman (1976, p. 179): “Only
those models and methods that would lead to optimal results were worthy of
attention. Inasmuch as it became clear almost immediately that an optimal model
could not be built on the basis of input-output, many simply lost interest in the
latter.”
It is noteworthy that S. Shatalin – author of the briefly celebrated but absurdly
impractical “500 Days” plan for the crash introduction of capitalism in the USSR
in 1990 – was in a previous incarnation the author of an equally impractical notion
to optimize the plan. (See the account in Ellman, 1971, p. 11, where Shatalin is
cited as discussing both input-output and “optimal planning,” and claiming that
only the latter is “really scientific.”)
The point is that our own proposals in Towards a New Socialism – although
they certainly depend on sophisticated information systems – are relatively robust
and straightforward. There is no attempt to define a criterion for social utility or
optimality a priori; rather “social utility” is revealed: (a) via democratic choice
on the broad allocation of resources to sectors; and (b) via the pattern of ratios of
market-clearing prices to labour values for consumer goods.
Reflections on Economic Democracy 243

A further reason for the failure of attempted reform of the Soviet planning
system in the period from the 1960s to the early 1980s was the idea – apparently
held by the leadership of the CPSU – that the application of new mathematical or
computational methods offered a “painless” means to improve the functioning of
the economy, a means that would not fundamentally disturb the existing system
(as opposed to the widespread introduction of market relations). In fact, advanced
technical methods could yield real dividends only in the context of an overhaul
of the economic system as a whole, involving, inter alia, a re-examination and
clarification of the goals and logic of planning, as well as reorganization of the
systems for assessing and rewarding the performance of enterprises.
Consider the sort of planning scheme we outline in Chap. 8 of Towards a
New Socialism, in which production is expanded for those products showing
an above-average ratio of market-clearing price (expressed in labour tokens) to
labour value, and reduced for those products showing a below average ratio. Such
a system effectively rewards (with an increased allocation of labour and means
of production) enterprises making particularly effective use of social labour. So
enterprises should have an incentive to employ any methods which enable them to
economize on labour input (both direct and indirect) per unit of output. Some such
scheme would be required to break out of the traditional Soviet pattern whereby
enterprises merely aimed at securing easily attainable plan output quotas, and had
no interest in improving their own efficiency.

4.4. Computing Technology

We have argued for the feasibility of our planning proposals by reference to


the latest generation of Western supercomputers, and there is no doubt that the
computing technology available to the Soviets was primitive by comparison.
Goodman and McHenry (1986, p. 329) describe the state of the Soviet computer
industry as of the mid-1980s, noting that the substantial lag behind the West was
in part the result of that industry’s isolation: “no computing community, including
that of the United States, would be able to move at its current pace if it were to
have its contacts with the rest of the world severely restricted.”
Nonetheless, although we found it convenient to take supercomputers as a
benchmark in our calculations, we have argued elsewhere (Cockshott & Cottrell,
1989, Appendix) that the same object could be achieved – more slowly, but
still on a time scale useful for practical planning purposes – by means of a
distributed network of personal computers at enterprise level, in communication
with a relatively modest central computer. From this perspective, the most
serious technical limitation in the Soviet case was the backwardness of the
244 W. PAUL COCKSHOTT AND ALLIN COTTRELL

telecommunications system. Goodman and McHenry (1986) draw attention to


the slow speed and unreliability of the Soviet phone system, and the problems
of finding links that are good enough for data transmission. They also quote the
striking statistic that as of 1985 only 23% of urban families had phones.
Once again, however, we do not wish to over-emphasize technology. The
economic information systems developed by Stafford Beer in Allende’s Chile
(described in Beer, 1975) show what could be done with modest resources, given
the political will and theoretical clarity on the objectives of the system. If the Soviets
had been equally clear on what they hoped to achieve via the computerization of
planning, then even if it were impossible at first to implement all that they hoped for,
they would have been in a position to exploit new developments in computer and
communications technology as they appeared. In fact, of course, it would seem that
Soviet economists – or at any rate, those who had the ear of the political leadership
under Gorbachev – were little interested in developing the sorts of algorithms and
computer systems that we have discussed. By the mid-1980s they had apparently
lost their belief in the potential of efficient planning, and many had jumped on
the bandwagon of resurgent free-market economics epitomized by the Reagan and
Thatcher administrations.

5. DEFENDING DIRECT DEMOCRACY


The process of surplus extraction via planning is a potentially contradictory
process, that can give rise to class antagonisms pitting a state aristocracy against the
working class. The process of struggle between these classes is characterized by a
complex dynamics in which tendencies towards capitalist restoration are constantly
generated. The state aristocracy, while prone to corruption and the private use
of state resources, was only able to personally consume a small portion of the
surplus. This contrasts with the situation in mature capitalist countries where a
large share of surplus value ends up funding the personal consumption of the upper
classes. The state aristocracy had the opportunity to consume public resources only
by virtue of their public position in an avowedly egalitarian state. Their private
consumption thus appeared inherently shameful and could only be justified, if at
all, by their record as patriots and revolutionary veterans. As the revolutionary
generation passed, their successors looked longingly at the capitalist world which
provided people like them not only with a much better life-style, but one in which
luxury was legitimate, not shameful.
The tendencies towards capitalist restoration were held in check by politics –
whether “soviet power,” tyranny, the dictatorship of the Communist Party, or mass
revolutionary enthusiasm. Our view is, quite bluntly, that the revolutionary classes
Reflections on Economic Democracy 245

in socialist society failed to discover a state form adequate to the task of preserving
and developing socialism in the long run. The characteristic socialist state forms
have, up until now, been the revolutionary tyranny or the revolutionary aristocracy.
Tyranny is functional so long as the original hero-king survives. As Castro shows,
that can be quite some time, but it is a hard act to follow. Revolutionary aristocracy,
or the “leading role of the Communist Party,” independent of individual mortality,
survived longer. Rule by the Leninist party starts out as the rule of the most
conscious and self-sacrificing representatives of the oppressed, but by the iron
law of aristocratic decay, transforms itself into a self-serving oligarchy.
Against these forms, reformers and revolutionary enthusiasts have advanced two
alternatives:
(1) From the social democratic right came the advocacy of regularized
parliamentary “democracy.” This has been the consistent and honourable
position of social democrats, dating back to Karl Kautsky’s critique of the
nascent USSR. Instead of socialist monarchy, or party dictatorship, they have
advocated free and open parliamentary elections.
(2) From the extreme left came an advocacy of a Paris Commune type of state. In
this delegates were to be elected by districts, subject to recall by their electors,
and in receipt of only average workers wages.
We believe there are good grounds, both of reason and experience, for rejecting
both these alternatives in favour of direct democracy.
Parliamentary government, legitimized by regular elections, is presented to the
modern world as “democracy” plain and simple. We view it differently. We think,
as Lenin did, that it is the most perfect form of rule by the rich. We think, as Aristotle
taught, that elections are always and everywhere the mark of an aristocratic rather
than a democratic state. Experience teaches that those elected to parliaments are
always, everywhere, unrepresentative of those who elect them. Whatever indicator
one looks at – class, gender, race, wealth or education – those elected are more
privileged than those who vote for them. The elected are always socially more
representative of the dominant classes in society than they are of the mass of
the population. Once elected they will always tend to represent the interests of
the classes from whom they are drawn. There are 101 detailed circumstances to
explain this fact, but they all come down to the same thing. Those features which
mark you out as one of society’s “elect,” one of its better sort, are also the features
that help you get elected.
It did not, therefore, surprise us that the institution of free and fair elections
in Eastern Europe led to the immediate establishment of bourgeois power,
symbolically marked as it was by the new Hungarian government’s disarming of
the factory militias. The USSR was a different case. There, the strange preference
246 W. PAUL COCKSHOTT AND ALLIN COTTRELL

of the population for communist candidates meant that the road to “democracy”
had to go via Yeltsin’s banning of the CPSU and subsequent use of tanks to shell
the Russian parliament into oblivion.
Those advocating open parliamentary elections in the socialist bloc were in
the main conscious advocates of capitalist restoration who drew behind them a
few naive social democrats. Those advocating a Commune-type state, in contrast,
wanted to reform and secure the socialist system. Their only problem was that
Stalin had got there before them. The Stalin constitution of the USSR was already
modeled on the Commune state: it was a council state, with peoples’ delegates
elected and subject to recall. This constitutional form was of course nothing but a
mask for Communist Party rule. Why else had Lenin been such a strong advocate
of the Commune style state?
Just as Lenin saw the parliamentary republic as the ideal form of bourgeois
rule, he saw the council state, the Soviet Republic, as the ideal form of workers’
dictatorship. But central to his revived Blanquist slogan of the workers’ dictatorship
was the Blanquist-Leninist revolutionary party. Just as the dominance of the Paris
Commune by the Blanquists and Internationalists was the key to its bid for power,
so the dominance of the Soviets by the Bolsheviks was the sine qua non of effective
Soviet Power. Proto council-states are thrown up in most revolutionary crises, the
most recent European example being Portugal in 1975. Their existence produces
a profound crisis of legitimacy which must be quickly resolved, either in favour
of parliament or in favour of the councils. If the councils are dominated by a
revolutionary party and there are simultaneous military mutinies, this can lead
to socialist revolution. Without the mutinies or without the revolutionary party’s
dominance, parliament wins.
The leftist suggestion that a council state be used to overpower the aristocracy of
an existing socialist state has, to our knowledge, been attempted only once, by the
Shanghai left during the Cultural Revolution in China. Although this produced the
biggest shake-up ever experienced by a socialist aristocracy, in the end the attempt
failed. The revolutionary committees set up during the Cultural Revolution ended
up being dominated by the Communist Party (CP) just as much as the Russian
soviets had been. We think that it is inevitable that in a socialist country with a
well established CP, grass-roots representative bodies will either be dominated by
the CP or by representatives of reaction. The overwhelming majority of convinced
socialists will be in the CP, and their political experience and discipline will enable
them to easily dominate grass-roots organizations where the general tenor is pro-
socialist. Occasions when grass-roots organizations became consistently anti-CP
tended to coincide with occasions when they were dominated by pro-capitalist
sections of the intelligentsia and middle classes, the signal example being Solidarity
in Poland. Those advocating an ideal council state as against the actual Soviet
Reflections on Economic Democracy 247

state were attempting to occupy a political ground that could not exist: for the
council state to exist the CP would have to be abolished. Trotsky had the good
sense to see the implications of this at Kronstadt. Some 70 years later some of his
self-proclaimed followers with less sense found themselves cheering on Yeltsin’s
suppression of the CPSU.
To make headway one must recognize the hollowness of the claims of elective
institutions to the title of democracy. It does not matter whether the institution
calls itself a parliament or a council, if its members are chosen by election you
can be sure that the representatives will be unrepresentative. It will be packed by
the dominant social group in the society – the business and professional classes in
bourgeois society, or the revolutionary aristocracy and party in a socialist society.
We believe the only viable alternative is direct democracy.

6. SOCIALISM VERSUS COMMUNISM

Our book was titled Towards a New Socialism, but it was essentially an elaboration
of what Marx called the first stage of communism. That the title referred to
socialism rather than communism was an accommodation to the political climate
of the times. The English edition came out at a nadir for socialism. In the decade
since then the advance of neo-liberalism has slowed down. An international anti-
capitalist movement has come into being, although not yet an new international
socialist movement. It is inevitable that there will be a growing readership for a
coherent alternative to capitalism. But it was difficult enough in the early 1990s
to find a publisher willing to print a book advocating socialism. We judged that a
title explicitly advocating communism would have made it impossible to place or
would have reduced the readership. Socialism was a sheepskin for our communist
wolf. But this now leaves us with an obligation to explain what we understand by
socialism and communism.
To repeat, what we advocated in the book was the first stage of communism. We
called it socialism for political expediency. We reject the orthodox Soviet view of
socialism as a prolonged period during which the productive forces are built up in
preparation for an eventual communism. Our objection is not to the idea that the
Soviet system was socialist, nor to the attempt to rapidly develop the productive
forces, but rather to the conception of communism that is involved in this. The
CPSU and western Trotskyist parties shared a common problematic when it came
to thinking of communism. Communism is seen as a stage following socialism,
a stage predicated upon material plenty with the free distribution of consumer
goods. The sequence of development here is seen as capitalism → socialism →
communism. This is not the same as the formulation put forward by Marx, which
248 W. PAUL COCKSHOTT AND ALLIN COTTRELL

was capitalism → dictatorship of the proletariat → first stage of communism →


second stage of communism. In State and Revolution Lenin equated the first stage
of communism with socialism (Lenin, 1964), and treated both as synonymous
with the public ownership of the means of production. This formulation was then
adopted by all the traditions that base themselves on Leninism. In our opinion this
is unfortunate since it represents an oversimplification of what Marx was saying.
Socialism, defined as public ownership of the means of production, is not
equivalent to Marx’s first phase of communism, because the latter presupposed
the elimination of money and a movement to calculation in labour time. Socialism
as defined by Lenin can be quite compatible with the continued existence of money.
The USSR after collectivization was socialist in Lenin’s sense but money persisted,
as did wages and the commodity form. This continuation of money was not seen
as a short-term phenomenon lasting maybe 5 or 10 years, but as something that
was to persist for decades, and did indeed persist for half a century. The effect
of Lenin’s formulation was to make the specific features of Marx’s first phase of
communism invisible. The notion of calculation and payment in terms of labour
time vanished, and with it any programmatic concept of achieving the first phase
of communism as a distinct task.
It should be clear that payment in money terms allowed for significant disparities
in hourly pay. People’s incomes could all be ideologically presented as “payment
according to labour,” albeit differentiated by the quality of the labour. While
these economies did not have forms of property income such as interest, rent
or dividends, the notion that widely differing money wages were all “payments
according to labour” was just as much an ideological fiction as the idea in bourgeois
economics that wages, prices and profits are all equivalent as payments to “factors
of production.”
What remained of communism in the Leninist view was Marx’s second phase:
“from each according to their ability, to each according to their need.” The path to
this goal was seen as leading through the provision of free or subsidized consumer
goods, moving eventually to a situation where all distribution would be free and
unlimited.
We strongly disagree with this conception. We think that it rests on
a misunderstanding of distribution according to need and had pernicious
consequences.

(1) When combined with monetary payment for labour, it installed a system of
economic calculation that systematically held back the productivity of labour.
(2) It made communism an ever receding mirage, since however much the
productivity of labour did rise, it was never sufficient to allow the free
distribution of all goods.
Reflections on Economic Democracy 249

Distribution according to need is not the same thing as unlimited free distribution.
In the British National Health Service, medical treatment is free at the time of need.7
But this free distribution only works because there is some relatively objective
assessment of need by doctors, combined with waiting lists for treatments (plus an
element of privatization). This is quite different from saying that free distribution
of clothes, for example, would be a case of “to each according to their need.” If
consumer goods in general were distributed free this would lead either to profligate
waste, or alternatively to military-style uniformity of consumption if waste were
curtailed.
Marx does not talk about free distribution, he talks about “to each according to
their need.” This is more compatible with the model followed by social-democratic
welfare states of making supplementary payments to those with disabilities, to
students, to large families etc. Payment according to need presupposes some
procedure for socially assessing need. In this, welfare-state capitalism prefigures
communism, but it does so in a monetary economy with wide income differentials.
The gap between the first and second phases of communism is now much less
than in Marx’s day, when no welfare state existed. The principle of distribution
according to need has already been accepted for some sectors of the economy
in Canada and most European capitalist countries, and much of this would be
carried over into communism. Those with special needs would either receive
gratis specific goods and services for which they had a need, or would be
credited with additional labour time to acquire what they needed from the social
stores.

7. WHY LABOUR TIME?


At a conference in 1992 organized at the instigation of Waclaw Klaus at the
Pareto Institute in Lausanne we were the only economists defending the idea
of a planned economy. Our use of the labour theory of value was criticized
as a form of “naturalism.” It was argued that it made no more sense to say
labour was the basis of value than it did to say oil was the basis of value. One
element of our research program over the last decade has been to contribute
to re-establishing the scientific validity of the labour theory of value. There
is now an increasing body of empirical research that validates the labour
theory of value, and we are more confident than ever of the soundness of this
approach.8
In this section we address various objections to our advocacy of labour time as
a basis for socialist economic calculation. First we briefly examine Mises’ critique
and then we consider two arguments “from the left.”
250 W. PAUL COCKSHOTT AND ALLIN COTTRELL

7.1. Mises on Labour Time and Value

It is noteworthy that one of the best-known critics of socialist economic


planning, Ludwig von Mises, recognized clearly that rational planning required
an “objectively recognizable unit of value,” and that the only plausible candidate
for such a unit is labour content, as in the theories of value of Ricardo and Marx.
Mises, however, ends up rejecting labour-time as an appropriate unit. He has two
relevant arguments, each purporting to show that labour content cannot provide an
adequate measure of the cost of production. These arguments concern the neglect
of natural resource costs implicit in the use of labour values, and the inhomogeneity
of labour.
For our response to the first of these points, we refer to the reader to Chaps 5
and 14 of Cockshott and Cottrell (1993a). We will say a little about the second
point here.
In Mises’ words, “the second defect in calculation in terms of labour is the
ignoring of the different qualities of labour” (1935, p. 114). Mises notes Marx’s
claim that skilled labour counts as a multiple of, and hence may be reduced to,
“simple labour,” but argues that there is no way to effect this reduction short of the
comparison of the products of different labours in the process of market exchange.
As he poses the problem:

What must be conclusive in deciding the question whether reckoning in terms of labour is
applicable or not, is whether it is or is not possible to bring different kinds of labour under
a common denominator without the mediation of the economic subject’s valuation of their
products (ibid.).

Mises maintains that this is not possible. Wage differentials might appear to offer
a solution, but the equalizing process in this case “is a result of market transactions
and not its antecedent.” Mises assumes that the socialist society will operate an
egalitarian incomes policy, so that market-determined wage rates will not be
available as a guide to calculation. The conclusion is then that “calculation in
terms of labour would have to set up an arbitrary proportion for the substitution
of complex by simple labour, which excludes its employment for purposes of
economic administration” (Mises, 1935, p. 115).
True, labour is not homogeneous, but there is no warrant for the claim that
the reduction factor for complex labour has to be arbitrary under socialism.
Skilled labour may be treated in the same way that Marx treats the means of
production in Capital, namely as a produced input which “transfers” embodied
labour to its product over time. Given the labour time required to produce skills
and a depreciation horizon for those skills, one may calculate an implied “rate
of transfer” of the labour time embodied in the skills. If we call this rate, for
Reflections on Economic Democracy 251

skill i, ri , then labour of this type should be counted as a multiple (1 + ri ) of


simple labour, for the purpose of “costing” its products. Of course the labour input
required for the production of skills is likely to be a mixture of skilled and simple,
which complicates the calculation of the skill multipliers. An iterative procedure
is needed: first calculate the transfer rates as if all inputs were simple labour, then
use those first-round transfer rates to re-evaluate the skilled labour inputs, on this
basis recompute the transfer rates, and so on, until convergence is reached.9
Aside from the issue of skills which require labour for their production, we
also recognize that not all workers of a given skill level accomplish the same
work in an hour. In cases where it is possible to assess individual productivity
with some degree of accuracy, labour of a given skill level might be graded
into different productivity categories (say, above-average, average and below-
average) and appropriate multipliers could be determined empirically for these
grades. Workers might, for instance, be evaluated periodically (by themselves and
their peers) and assigned a productivity grade. Unlike the case of skilled versus
simple labour, the multipliers in this case might reasonably be used for determining
differential rates of pay. Not every worker need be a stakhanovite; one might choose
an easier pace of work while accepting a somewhat lower rate of pay.
Mises’ objections to the use of labour-time accounting are less than compelling.
In addition, there is a marked asymmetry in Mises’ treatments of market prices
and labour-time calculation. When discussing market prices he is quite willing to
concede that “monetary calculation has its inconveniences and serious defects”
– he even discusses some of these at length – yet he concludes that “for the
practical purposes of life,” such calculation “always suffices” (1935, p. 109). When
discussing labour-time calculation he draws attention to two defects, but instead
of concluding that such calculation is then only approximately valid, or that there
is a need for further thought on how the issues he raises might be dealt with in the
context of labour-time accounting, he takes these defects as grounds for complete
dismissal of the idea and claims that the socialists therefore have no means of
economic calculation whatever. In the light of these arguments from Mises we
devoted considerable space in Towards a New Socialism to demonstrating that
labour values were feasibly computable and that their use would would provide
an effective alternative to market prices.

7.2. Objections from the Left

Two other issues have been raised, this time by left-wing economists. First there
is the question of whether it is valid to use the category labour value in a socialist
economy. Should we not see value, and the “abstract labour” on which it is based,
252 W. PAUL COCKSHOTT AND ALLIN COTTRELL

as something specific to capitalism? Second, wasn’t Marx a severe critics of the


idea of “labour money,” and aren’t we proposing just what Marx attacked?
As regards the first question, the idea that the concept of labour value is specific
to capitalism has some initial appeal. One does not want to make the error of
classical and neo-classical economics and mistake transient historical forms such
as wages and capital for eternal features of all economies. With the abolition of
commodity production under socialism, will value itself not disappear?
We think this idea confuses transhistorical categories with their historical form
of appearance. Instruments of production are a transhistorical category; capital is
a historically specific form in which these can be represented. We see abstract
human labour as a similar transhistorical category. It is the adaptability of human
labour that distinguishes us from other animals. Unlike worker ants or bees, we are
not born to a task: we learn our roles in life and can learn to move between roles.
It is this abstract, polymorphous potentiality of human labour that makes human
society possible. All societies are constrained by the hours in the day and the size
of the population. They differ in the means by which human individuals are taken
from being undifferentiated infants to being productive agents fulfilling concrete
roles. In caste-based societies the abstract potentiality of each individual may not
be realized but the potentiality is there. There is no significant genetic difference
between an untouchable infant and a brahmin one, but the fixed nature of social
customs may make it appear to the actors in such a society that such differences
exist.
Capitalist society, which in principle allows any person to be hired for any
job they can be trained to do, brings out the abstract polymorphism of human
labour more clearly than previous modes of production. Of course we know
that discrimination on grounds of skin colour, religion or gender exist in such
countries, but such discrimination is in contradiction with the underlying principle
of labour mobility, and the tendency in capitalist society is towards reducing
such discrimination. The abstract fluidity of human labour is further held back
in capitalist society by class divisions which restrict education and training to
working class families. But it is just these remaining restrictions on abstract labour
that socialism will abolish allowing all children the same choices of occupations.
This is an essential feature of socialism: it transforms the abstraction of human
equality into a social reality.
To return to the second question noted above, are we guilty of proposing in
Towards a New Socialism a “labour-money” scheme of the sort criticized by
Marx? The short answer is, No. Nonetheless Marx’s (and Engels’) critiques of such
schemes have been misread by writers from Karl Kautsky to the anti-communist
historian of economics Terence Hutchison, so we think it is worth trying to set the
record straight.
Reflections on Economic Democracy 253

The basic object of Marx and Engels’ critique might be described as a naive
socialist appropriation of the Ricardian theory of value. If only, the reformers
argued, we could impose the condition that all commodities really exchange
according to the labour embodied in them, then surely exploitation would be
ruled out. Hence the schemes, from John Gray in England, through a long list of
English “Ricardian socialists,” to Proudhon in France, to Rodbertus in Germany,
for enforcing exchange in accordance with labour values.10 From the standpoint
of Marx and Engels, such schemes, however honourable the intentions of their
propagators, represented a utopian and indeed reactionary attempt to turn back
the clock to a world of simple commodity production and exchange between
independent producers owning their own means of production.
The labour-money utopians fail to recognize two vital points. First, capitalist
exploitation occurs though the exchange of commodities in accordance with their
labour values (with the value of the special commodity labour-power determined
by the labour content of the workers’ means of subsistence). Second, although
labour content governs the long-run equilibrium exchange ratios of commodities
under capitalism, the mechanism whereby production is continually adjusted in line
with changing demand, and in the light of changing technologies, under the market
system, relies on the divergence of market prices from their long-run equilibrium
values. Such divergences generate differential rates of profit, which in turn guide
capital into branches of production where supply is inadequate, and push capital
out of branches where supply is excessive, as analysed by Adam Smith and David
Ricardo. If such divergence is ruled out by fiat, and the signalling mechanism of
market prices is thereby disabled, there will be chaos, with shortages and surpluses
of specific commodities arising everywhere.11
One point which emerges repeatedly in the Marxian critique is this: according
to the labour theory of value, it is socially necessary labour time which governs
equilibrium prices, and not just “raw” labour content (Marx, 1963, pp. 20, 21, 66,
204–205). But in commodity-producing society, what is socially necessary labour
emerges only through market competition. Labour is first of all “private” (carried
out in independent enterprises), and it is validated or constituted as social only
through commodity exchange. The social necessity of labour has two dimensions.
First, we are referred to the technical conditions of production and the physical
productivity of labour. Inefficient or lazy producers, or those using outmoded
technology, will fail to realize a market price in line with their actual labour input,
but only with the lesser amount which is defined as “necessary” (with respect
to either average productivity or best-practice technique – Marx is not always
consistent on precisely which). Second, there is a sense in which the social necessity
of labour is relative to the prevailing structure of demand. If a certain commodity
is over-produced relative to demand, it will fail to realize a price in line with its
254 W. PAUL COCKSHOTT AND ALLIN COTTRELL

labour value – even if it is produced with average or better technical efficiency.


The proponents of labour money want to short-circuit this process, to act as if all
labour were immediately social. The effects within commodity-producing society
cannot but be disastrous.
Now the lessons which Marx and Engels read to the labour-money socialists,
concerning the beauties of the supply/demand mechanism under capitalism and the
foolishness of the arbitrary fixing of prices in line with actual labour content, are
rather pleasing to the critics of socialism. Terence Hutchison (1981, pp. 14–16), for
instance, lauds Engels for his recognition of “the essential role of the competitive
market mechanism” as displayed in his critique of Rodbertus. “Mises and Hayek,”
writes Hutchison, “could hardly have made the point more forcefully.” But as
Hutchison’s praise is merely a preface to his denunciation of Engels for failing
to realize that the very same critique cuts the ground from under his and Marx’s
own proposals for socialist planning, we must be careful to define the limits of the
Marxian critique of labour money.
Of greater importance for the history of the debate, it appears that Kautsky
also read the critique of labour money as casting doubt on the Marxian objective
of direct calculation in terms of labour content, so that by the 1920s the figure
widely regarded as the authoritative guardian of the Marxian legacy in the West
had effectively abandoned this central tenet of classical Marxism.12 Against this
background, one can appreciate why Mises was able to get away with a brief and
rather offhand dismissal of planning by means of labour values.
From the account of the critique of labour money we have given above, the limits
of that critique should be apparent. What Marx and Engels are rejecting is the notion
of fixing prices according to actual labour content in the context of a commodity-
producing economy where production is private. In an economy where the means
of production are under communal control, on the other hand, labour does become
“directly social,” in the sense that it is subordinated to a pre-established central
plan. Here the calculation of the labour content of goods is an important element
in the planning process. And here the reshuffling of resources in line with
changing social needs and priorities does not proceed via the response of profit-
seeking firms to divergences between market prices and long-run equilibrium
values, so the critique of labour money is simply irrelevant. This is the context
for Marx’s suggestion for the distribution of consumer goods through “labour
certificates.”
This suggestion appears in its fullest form among Marx’s critical comments on
the Gotha Programme of the German Social Democratic Workers’ Party of 1875
(Marx, 1974, pp. 343–348). First, against the claim that each worker should receive
“the undiminished proceeds of labour,” Marx points out that a socialist society must
allocate a substantial part of the total product to cover depreciation, accumulation of
Reflections on Economic Democracy 255

means of production, social insurance, administration, the communal satisfaction


of needs (schools, health services, etc.), and for the needs of those unable to work.
Nonetheless, this leaves a portion of the total product for distribution as means
of personal consumption. As to the nature of this distribution, Marx talks of two
stages in the development of communism. At some future point, when “all the
springs of cooperative wealth flow more abundantly” it will become possible to
“cross the narrow horizon of bourgeois right” and institute the famous principle
of “from each according to his abilities, to each according to his needs,” but in the
first stage of communism Marx envisages a situation in which the individual gets
back – after the deductions noted above – what he has given to society.
What he has given it is his individual quantum of labour. For instance, the social working day
consists of the sum of the individual hours of work. The individual labour time of the individual
producer thus constitutes his contribution to the social working day, his share of it. Society gives
him a certificate stating that he has done such and such an amount of work (after the labour
done for the communal fund has been deducted), and with this certificate he can withdraw from
the social supply of means of consumption as much as costs an equivalent amount of labour
(Marx, 1974, p. 346).

The labour certificates Marx talks of here are quite different from money. They do
not circulate, rather they are canceled against the acquisition of consumer goods of
equivalent labour content. And they may be used for consumer goods alone – they
cannot purchase means of production or labour power, and hence cannot function
as capital.
The logic of Marx’s position is clear: “labour money” in a commodity-producing
society is a utopian and economically illiterate notion, but the allocation of
consumer goods via labour certificates under socialism is quite a different matter.
It is a possible mode of distribution of a certain portion of the social product
in a system where the mode of production has itself been changed through
the socialization of the means of production and the institution of planning.
Furthermore, it is a mode of distribution which Marx himself advocates.

NOTES

1. Alec Nove’s Economics of Feasible Socialism (1983), in particular, stimulated us to


start work on our Towards a New Socialism (Cockshott & Cottrell, 1993a).
2. Whether or not the crisis leads to revolution, in the sense of the forcible overthrow of
the state power, is a relatively independent question relating to the balance of political and
military forces in the state.
3. The reference to Keynes here relates to his pamphlet “How to Pay for the War”
(Keynes, 1940) where he made a similar point regarding the financing of the war effort in
Britain.
256 W. PAUL COCKSHOTT AND ALLIN COTTRELL

4. It is noteworthy that Stalin (1952) felt obliged to take issue with the idea that the basic
purpose of economic activity under socialism was production itself (see his criticisms of
Comrade Yaroshenko). As with his criticism of the “excesses” of forced collectivization in
agriculture in “Dizzy with Success” (1930; reprinted in Stalin, 1955), this is surely a case
of Stalin belatedly attacking a view or practice that he had earlier encouraged.
5. For the limitations on the size of the input-output systems which the planners reckoned
themselves able to deal with at various times, see Treml (1967), Ellman (1971), Yun (1988),
Treml (1989).
6. Besides this sort of problem, Kushnirsky notes the poor quality of the studies of
existing planning technology conducted in the research institutes in the context of the
ASPR project. He found that the accounts produced in the institutes were not amenable to
algorithmic presentation, and “it was difficult to ascertain the purpose of these materials”
(1982, p. 124).
7. With the exception of charges for medical prescriptions outside of hospital. These are
levied at a flat rate unrelated to the commodity value of the drugs dispensed.
8. See Ochoa (1989), Petrovic (1987), Shaikh (1984), Valle Baeza (1994), Cockshott and
Cottrell (1997), Cockshott, Cottrell and Michaelson (1995), Cockshott and Cottrell (2003).
9. This procedure is discussed at greater length in Cockshott and Cottrell (1993a,
Chap. 2).
10. Marx criticizes Proudhon’s scheme in his Poverty of Philosophy ([1847] 1963),
and deals with John Gray in his 1859 Contribution to the Critique of Political Economy
(the relevant section of which is reprinted as an Appendix to Marx, 1963), while Engels
tackles Rodbertus’s variant in his 1884 Preface to the first German edition of The Poverty
of Philosophy (again, in Marx, 1963). Between Marx in 1847 and Engels in 1884 we find
a consistent line of attack on such proposals.
11. Direct quotation is hardly necessary to establish these points. See for instance Marx
(1963, pp. 17–20, 60, 61, 66–69, 203–206).
12. In his book The Social Revolution (1902, pp. 129–133), Kautsky offers a brief
and rather ambiguous discussion of the “law of value” and socialism, which combines
statements of the classical Marxian theses with strangely incongruous comments on the
“indispensability” of money. In his later work, The Labour Revolution (1925, pp. 261–270)
the formulations of Marx and Engels are dropped in favour of a general argument for the
necessity of money and prices. This argument appears to owe something to the “critique of
labour money” discussed above; it also draws on the idea that the measurement of labour
content is impracticable – it “could not be achieved by the most complicated State machinery
imaginable” (p. 267). Incidentally, Kautsky (1925) is highly critical of Neurath’s “planning
in kind” on very much the same grounds as Mises and Hayek.

REFERENCES
Augustinovics, M. (1975). Integration of mathematical and traditional methods of planning. In:
M. Bornstein (Ed.), Economic Planning, East and West. Cambridge, MA: Ballinger.
Beer, S. (1975). Platform for change. London: Wiley.
Bettelheim, C. (1971). Calcul économique et formes de propriéte. Paris: Maspero.
Bettelheim, C. (2001). Stalinist ideological formation. Research in Political Economy, 19, 233–289.
Reflections on Economic Democracy 257

Cockshott, W. P. (1990). Application of artificial intelligence techniques to economic planning. Future


Computing Systems, 2, 429–443.
Cockshott, W. P., & Cottrell, A. (1989). Labour value and socialist economic calculation. Economy
and Society, 18, 71–99.
Cockshott, W. P., & Cottrell, A. (1993a). Towards a new socialism. Nottingham: Bertrand Russell
Press.
Cockshott, W. P., & Cottrell, A. (1993b). Calculation, complexity and planning: The socialist calculation
debate once again. Review of Political Economy, 5, 73–112.
Cockshott, W. P., & Cottrell, A. (1997). Labour-time versus alternative value bases: A research note.
Cambridge Journal of Economics, 21, 545–549.
Cockshott, W. P., & Cottrell, A. (2003). A note on the organic composition of capital and profit rates.
Cambridge Journal of Economics, 27, 749–754.
Cockshott, W. P., Cottrell, A., & Michaelson, G. (1995). Testing Marx: Some new results from UK
data. Capital and Class, 55, 103–129.
Cottrell, A., & Cockshott, W. P. (1993). Socialist planning after the collapse of the Soviet Union. Revue
Européene des Sciences Sociales, 31, 167–185.
Edvinsson, R. (2003). A tendency for the rate of profit to fall?” Presented at the economic-historical
meeting, Lund, 17–19 October.
Ellman, M. (1971). Soviet planning today: Proposals for an optimally functioning economic system.
Cambridge: Cambridge University Press.
Farjoun, E., & Machover, M. (1983). The laws of chaos. London: Verso.
Goodman, S. E., & McHenry, W. K. (1986). Computing in the USSR: Recent progress and policies.
Soviet Economy, 2(4).
Hutchison, T. W. (1981). The politics and philosophy of economics: Marxians, Keynesians and
Austrians. New York: New York University Press.
Kautsky, K. (1902). The social revolution. Chicago: Charles Kerr.
Kautsky, K. (1925). The labour revolution. London: George Allen and Unwin.
Keynes, J. M. (1940). How to pay for the war. London: MacMillan.
Kushnirsky, F. I. (1982). Soviet economic planning 1965–1980. Boulder, CO: Westview.
Lenin, V. I. (1964). The state and revolution. Collected Works, Vol. 25. Moscow: Progress Publishers.
Maddison, A. (1998). Chinese economic performance in the long-run. Paris: OECD Development
Centre.
Marx, K. (1963). The poverty of philosophy. New York: International Publishers.
Marx, K. (1972). Capital, Vol. III. London: Lawrence and Wishart.
Marx, K. (1974). Critique of the Gotha programme. In: D. Fernbach (Ed.), Karl Marx: The First
International and After (Political Writings, Vol. 3). Harmondsworth: Penguin/New Left Review.
von Mises, L. (1935). Economic calculation in the socialist commonwealth. In: F. A. Hayek (Ed.),
Collectivist Economic Planning. London: Routledge and Kegan Paul.
Nove, A. (1983). The economics of feasible socialism. London: George Allen and Unwin.
Ochoa, E. M. (1989). Values, prices, and wage-profit curves in the U.S. economy. Cambridge Journal
of Economics, 13, 413–429.
Okishio, N. (1961). Technical changes and the rate of profit. Kobe University Economic Review, 7,
85–99.
Petrovic, P. (1987). The deviation of production prices from labour values: Some methodology and
empirical evidence. Cambridge Journal of Economics, 11, 197–210.
Shaikh, A. (1984). The transformation from Marx to Sraffa. In: A. Freeman & E. Mandel (Eds), Ricardo,
Marx, Sraffa (pp. 43–84). London: Verso.
258 W. PAUL COCKSHOTT AND ALLIN COTTRELL

Stalin, J. V. (1952). Economic problems of socialism in the USSR. New York: International Publishers.
Stalin, J. V. (1955). Works, Vol. 12. Moscow: Foreign Languages Publishing House.
Treml, V. (1967). Input-output analysis and Soviet planning. In: J. P. Hardt (Ed.), Mathematics and
Computers in Soviet Economic Planning. New Haven: Yale University Press.
Treml, V. (1989). The most recent Soviet input-output table: A milestone in Soviet statistics. Soviet
Economy, 5(4).
Tretyakova, A., & Birman, I. (1976). Input-output analysis in the USSR. Soviet Studies, XXVIII(2).
Valle Baeza, A. (1994). Correspondence between labor values and prices: A new approach. Review of
Radical Political Economics, 26, 57–66.
Yun, O. (1988). Improvement of Soviet economic planning. Moscow: Progress Publishers.
PART IV:
ON THE PRODUCTION OF
KNOWLEDGE
ON THE PRODUCTION
OF KNOWLEDGE

Guglielmo Carchedi

ABSTRACT

This article aims at contributing to the development of a Marxist theory of the


production of knowledge, and in particular of natural sciences and techniques
(NST), under capitalism. It rejects the double critique that the labor theory
of value has become obsolete under modern capitalism and that Marx’s
theoretical structure cannot accommodate mental production. The paper
starts with two preliminary sections. First, some relevant aspects of dialectics
as a tool of social research are submitted. Then, notions such as Information
Society or Service Society are debunked. On this basis, the production of
individual and of social knowledge is inquired into and the conditions for
knowledge production to be production of (surplus) value are analyzed. Next,
the question is tackled as to why and how this knowledge (and in particular
NST) is functional for the interests of the capitalist class, even though in
a contradictory way. Several examples are provided. Particular attention is
paid to the computer and to biotechnology and genetic engineering. The most
common objections against the thesis of the class determination of knowledge
are dealt with. It is argued that class determination of knowledge can explain
why the science and techniques developed in one society and by one class
can be used in other societies and by other classes. Examples are provided of
trans-class and trans-epochal elements of knowledge. Finally, the last section
submits that a radically different type of NST can originate only from a

The Capitalist State and Its Economy; Democracy in Socialism


Research in Political Economy, Volume 22, 261–298
Copyright © 2005 by Elsevier Ltd.
All rights of reproduction in any form reserved
ISSN: 0161-7230/doi:10.1016/S0161-7230(04)22010-7
261
262 GUGLIELMO CARCHEDI

radically different type of society, based on radically different production


relations.

1. INTRODUCTION
There is nowadays a widespread awareness that in contemporary capitalism a
specific type of knowledge, natural sciences and techniques (from now on, NST),
has become increasingly important for economic purposes.1 Yet, the theorization
of the production of NST both in general and in particular under capitalism, has
been impaired by the acceptance of two epistemological dogmas, i.e. that the mind
(knowledge production) is somewhat independent of the body as well as of society
(Ferretti, 2004). Marxist theory provides a framework within which to theorize
three interrelated aspects, i.e.: (a) the production of NST both as an individual
and as a social process; (b) the production of NST under capitalism as an aspect
of the production of value and surplus value; and (c) the social, ideological, and
moral impact of the specific type of NST being produced nowadays. Yet, most Left
theorizations have disregarded these possible avenues of research – by overlooking,
to begin with, Marx’s scarce, but key, epistemological hints – and have relied,
consciously or not, on the two above mentioned dogmas. Not surprisingly, then,
the Left (both Marxist and not) has been caught unprepared by the explosion of what
has been called the Information Society and the digitalization of the labor process
(which are seen basically as purely technological, rather than class determined,
processes) and by certain developments in biotechnology and genetic engineering
(like animal – and, since short, human – cloning). It can be safely stated that at
present this is one of Marxism’s black holes. This article aims at contributing to the
development of a Marxist theory of knowledge production under capitalism, and
in particular of NST, adequate to the 21st century. But, given Marxism’s condition
of theoretical backwardness in this field, what follows cannot but be partial and
incomplete.

2. ON TEMPORAL DIALECTICS
The present approach is based on dialectics as a tool of research of the social world
(including the social production of NST) rather than as a law of development
immanent in nature. On the basis of the observation that social reality is
continuously changing, it submits a notion of dialectics explaining this changing
reality in a way consonant with Marx’s theory.2 Here, only a brief summary of
some relevant aspects will be submitted.
On the Production of Knowledge 263

Social reality is perceived as a dialectical relation among its component parts,


or instances, in the sense that each instance is either determinant or determined
and either realized or potential. The determinant instance is such because it is a
condition of existence of the determined one while at the same time transferring to
the latter its social content (to be defined in a moment). The determined instance’s
social content reacts upon and modifies the determinant instance’s social content
so that the determined instance becomes a condition of further reproduction,
supersession or destruction of the determinant one.3
An instance is either determinant or determined only analytically, i.e. according
to the level of abstraction considered. For example, at a level, distribution
determines consumption but at another level distribution is itself determined by
production. But in reality, all instances are both determinant and determined. It is
in this sense that all instances are mutually and existentially interrelated. Given
this mutual interrelation, each instance is not only a conditions of existence but
also of reproduction, supersession, or termination of all other instances and thus
(possibly in a very indirect way) of society. This is the social content, both what
is transferred and what reacts upon after having been transferred.
The analysis of the relation between the realized instances explains the dynamics
of the world in its actual manifestations (the form taken by that social content).
But, at the same time, all realized instances (both determinant and determined) are
also determinant of the world of potentials because they contain within themselves,
and thus are the conditions of existence of, and give their social content to, those
potentials. The analysis of the relation between realizations and potentials gives
the coordinates for an analysis of possible future developments of the actually
realized world. All of this in a temporal dimension, i.e. the potentials can become
actual conditions of reproduction, supersession, or destruction of their determinant
instance only after the moment of realization of their determinant instance.4 Or,
while the realized world is the present condition of existence of the potential
world (it encompasses the realm of potentials into itself), the potential world is the
condition for the future reproduction, or supersession or destruction of the present
realized world. Within a temporal setting, a determined instance can never precede
temporally its own determinant instance, it exists either simultaneously with it (if
it is realized) or as a future possibility (if it is still a potential).
We can now tackle the question as to the origin of the social instances’ social
content. The thesis is that it derives from the capitalist production relations. Let
us first dwell on the notion of relations. A relation is an interaction between two
or more people. A process is an activity and therefore a transformation. Relations
determine processes because every relation contains in itself a transformation,
be it of the relation itself (relational transformation), or of material reality
(material transformation), or of the persons engaging in that relation (personal
264 GUGLIELMO CARCHEDI

transformation), or of knowledge (mental transformation).5 Then, relations transfer


their social content to processes and the processes’ social content reacts upon that
of the relation thus becoming a condition for the reproduction, or supersession, or
destruction of that relation and thus of society. Relations and the processes they
determine are the ever changing, existentially interdependent, building stones of
society.6
The thesis that all relations and processes get ultimately their social content
from the capitalist production relations rests on the notion that, under capitalism,
the owners of the means of production (and thus of the laborers’ labor power)
can determine what to produce (surplus value), how to produce it (through the
control and surveillance of the laborers by the capitalists and their agents), and for
whom (the capitalists themselves). Since production is prior to distribution and
consumption and thus to all other aspects of society, the ownership of the means
of production determines all other social relations and processes by not only being
their condition of existence but also by transferring to them its own social content
(functionality for the reproduction, supersession, or destruction of those relation
and processes and thus of society).7
This social content is inherently contradictory. To see this, we must briefly
tackle the notion of human nature. This is our biological make-up, and thus some
permanent traits, capacities, needs and powers which are characteristic of each and
all human beings and which set apart human beings from other living creatures –
e.g. the capacity to create their means of production (Marx & Engels, 1970, p. 42)
or of creating, and communicating through, languages (Geras, 1983, p. 48). But it
is also the necessarily social form through which these traits, capacities, needs and
powers must manifest themselves. Thus, human nature is the ensemble of specific
human potentialities which must realize themselves as historically specific and
socially determined human features. It is thus neither a pure social construct nor
a biologically immutable given. Rather, it is the interpenetration of both. Society
molds those very potentialities, it not only gives them a historically specific form
but penetrates them and adapts them to itself. It is within these socially given
boundaries that humans, if let free, tend to develop those potentialities to the
utmost.
Under capitalism, this need is double and contradictory. On the one hand, the
capitalists need to deal with the producers (the non-owners) as abstract individuals,
as carriers of the capitalist production relations, as producers of surplus value
(i.e. as the source of the maximum feasible quantity of unpaid labor) rather than
as concrete individuals (individuals considered in their uniqueness, as specific
individuals) for whom the production process should be the means for a full and
all round development of their potentialities. On the other hand, the producers
have an equally objective need, but of an opposite nature. Their objective need,
On the Production of Knowledge 265

which they have in common with all humans, is their free and full development,
the realization of their human nature, of their specific potentialities, in that specific
social setting. Within the capitalist context, the non-owners’ objective need is that
of resisting their alienation not only from their own products (which they must
alienate to the owners of the means of production) but also from themselves. If
classes are defined as groups of people carrying certain production relations, the
basic classes under capitalism are the capitalists and the laborers.
The contradictory social content of the capitalist production relations, then,
is both a class’s objective need to exploit another class and the objective need
the latter class has to resist that exploitation, both the need to thwart human
development and the need to expand it to the maximum. The satisfaction of the
former need (by the class of the owners of the means of production) is functional
for the reproduction of the capitalist system, the satisfaction of the latter need
(by the class of the non-owners of the means of production) is functional for
the radical change of that system. It is this contradictory social content which is
transferred to the rest of society. But, while this basic intrinsic contradictoriness
constitutes each social phenomenon’s ultimate social content, each specific social
phenomenon is functional for the reproduction, supersession, or destruction of
other social phenomena and of society in its own specific way. The capitalist
production relations, thus, are both determinant and determined. But they are
ultimately determinant because it is their own social content which pervades the
rest of society.
Finally, if this social content is contradictory, social phenomena are not
only contradictory to each other but also inherently contradictory. Thus, those
phenomena which are conditions of reproduction actually both foster and at the
same time hinder that reproduction. They are conditions of reproduction because
this is their dominant, rather than being their only, function at each particular
time and under each specific historical conjuncture. The same holds for those
phenomena which are conditions of radical change or of termination. It is because
of this that an instance can change from a condition of reproduction to a condition
of radical change or termination and vice versa.8

3. INFORMATION SOCIETY, SERVICE SOCIETY


OR CAPITALIST SOCIETY?
One more preliminary step is needed. This article aims at the development of
a theory of knowledge both in general and, above all, under capitalism. But it is
fashionable nowadays to hold that capitalism has been replaced by the Information
Society or by the Service Society, i.e. by a world system in which, supposedly,
266 GUGLIELMO CARCHEDI

the developed countries are not dependent any longer on material production.
Rather, allegedly, their main activity has become the provision of services which
– confusedly – are made to include the production of NST as well. The production
of wealth (value, in Marxist terms), then, is ascribed principally to the service and
NST sectors in these countries. Concomitantly, these two sectors are seen as either
the new working class or the new middle class. These theses catch some elements
of novelty but are nevertheless erroneous and highly ideological.
First, capitalism is still capitalism. Its essence, the ownership of the means of
material production by the capitalists, and thus the division between capital and
labor, is unchanged even though the forms of appearance of the capitalist ownership
relations, and thus of the two basic classes, have indeed undergone dramatic
changes. If anything, the owners/non-owners divide is growing, as indicated by
capital’s unprecedented freedom to room the world and to subject labor to old and
new forms of domination (e.g. displacement by automation, de-skilled, flexible,
temporary, casual, off the books, and on call jobs), by capital’s penetration of
realms of activities previously not subjected to capitalist (ownership) relations (e.g.
the commodification of previously free activities and the taking over of activities
previously performed by the state), and by the growing sector of mental labor
(to be defined later on) employed by capital. Contrary to notions such as the
“New Economy” and the “Information Society,” which are based on a supposedly
generalized “empowering” and creative mental work, most mental laborers are not
self-employed but subjected to the rule of capital and thus to the just-mentioned old
and new forms of domination to which all labor is subjected. For example, mental
labor, just as material labor, is subjected to continuous waves of technological
innovations and restructuring that, tendentially, de-qualify positions.9 This is far
cry from self-fulfillment through work. The so-called Information Society, or better
said this new stage of capitalism, is far from having made class relations redundant.
Second, while it is true that the production of NST is highly concentrated in
the imperialist world, material production has not become less important. It has
only been partly shifted to the dependent countries. The developers as well as
the beneficiaries of this shift are mainly the capitalists in the advanced capitalist
countries: “At present, only 1% of patents are owned by persons or companies in
the Third World and, of those, 84% are owned by foreigners and less than 5% are
actually used for production in the Third World” (Mihevc, 1995, p. 172). Contrary
to the apologetic version of the international relocation of productive activities, the
shift of some material production to the dependent countries is a new and crucial
aspect of the continuing domination of those countries by the imperialist ones
through the retention by these latter of the production of advanced NST.
This affects mental labor in the imperialist countries as well. Its less
qualified sectors are threatened by international relocation and thus by increased
On the Production of Knowledge 267

exploitation.10 Moreover, given the high concentration of unproductive, financial,


and speculative activities in the service sector of the developed countries and
given the appropriation of value from the dependent countries by the imperialist
ones, the Information Society thesis reduces both the value produced by the
dominated countries and inflates the value produced by the dominant ones. It
is thus a rationalization of capitalism and imperialism. Finally, as May (2000)
has pointed out, certain tasks, which used to be carried out within processes of
material production, such as security and advertising, are now undertaken by firms
specializing in those activities. Statistically, what used to be categorized as an
industrial activity is now defined as a service. But this is a statistical change, not
a real, economic, one.
Third, the Information Society thesis rests on an impairing confusion between
knowledge (NST) and services. They are usually lumped together not only because
they, allegedly, are both immaterial (supposedly, they lack physicality) but also
because, especially after the recent spate of privatizations of public services, they
both are said to be “produced” as commodities. But, first, by collapsing mental
production into the service sector and by considering the former as a highly skilled
and “empowering” activity, the “still Taylorised ranks of the service class” are
swept under the rug (May, 2000). Second, both mental labor and the provision
of services are considered to be (immaterial) production and these two branches
of activity are ascribed a productive role simply because they are “production.”
But they are productive (of value) only under specific circumstances. Thus, the
productive nature of the “new economy” is highly inflated and the ideological grip
of this new form of capitalism is strengthened.
Fourth, the category “services” is both spurious and highly ideological.
Supposedly, the capitalists provide a service to the workers, by supplying them
with the means of production, and the workers provide a service to the capitalists
by making available to these latter their labor power. The exchange of services
replaces exploitation. This is why Marx says “A service is nothing other than the
useful effect of a use value, be it that of commodity, or that of labor. But we are
here dealing with exchange value” (Capital I, pp. 300, 301). As for its spurious
nature, it encompasses activities with radically different economic nature. Let us
review them, keeping in mind that we refer here to the provision of services by
private capital.

(A) Public utilities. There are two categories.


(A1) The labor used for the provision of water, electricity, gas, etc. Let us
recall that for Marx labor is productive of (surplus) value if employed
by capital and if it transforms use values into new use values. Given
that a labor process is split in a number of sub-labor processes, the same
268 GUGLIELMO CARCHEDI

criterion applies to all those sub-processes that are sub-elements of the


transformation of use values. It is for this reason that the transportation
of material goods is productive labor. For the same reason, the use value
of water, etc. is not ready for consumption, i.e. it has not been finished
yet, until it has been delivered to the place of consumption. This is then
an example of material production. Without this final step, it could not
be used and would not be a use value. The labor needed for the provision
of material public utilities is thus productive of value.
(A2) The labor used for the provision of postal services, telephone and
telegraph, etc. on the other hand is an example of the transmission of
knowledge. It too is similar to the transportation of material products.
But this is mental production (see below). That knowledge has to be
transmitted if it has to realize its use value. The labor needed to transmit
this knowledge (not to be confused with the knowledge being transmit-
ted) results in the production of value because this is the last step in the
transformation of knowledge under capitalist production relations.
(B) The labor used for social services, i.e. for the provision of social insurance,
health care (e.g. hospitals, family help, etc.), entertainment, old age pensions,
etc. This labor participates in material production for the same reason as
that adduced by Marx in discussing the maintenance of machinery, etc.
Maintenance prevents the deterioration of use values and thus is equivalent
to their production. The difference here is that the use value preserved is the
collective laborer’s labor power.
(C) The labor used for financial services, mainly those provided by banks and other
financial institutions. They are often referred to as immaterial production.
However, they pertain to the realm of exchange, i.e. to the redistribution of
value. This, for Marx, is unproductive labor.
(D) The army (e.g. mercenaries) engages in the destruction of use values. Thus,
its labor can be neither productive nor unproductive of (surplus) value, it is
an example of what has been called elsewhere “labor destroying value” (see
Carchedi, 1991).
(E) The police and more generally the “services” provided by repressive
apparatuses are examples on a societal level of what Marx calls “non-labor”
i.e. the work of control and surveillance within the production process.
Since their function is that of extracting (surplus) value, they cannot create
(surplus) value. However, the police is productive of value inasmuch as it helps
preventing the destruction of use values (which is similar to transformation
of use values).
(F) Tax collection too is an example of non-labor, the extortion of (surplus) value
from the working class as a whole after surplus value has been produced and
On the Production of Knowledge 269

realized. It should not to be confused with the subsequent redistribution of the


taxed (surplus) value which, being a redistributive activity, is unproductive
labor, rather than non-labor.
(G) Finally, knowledge. Marx mentions only two possible cases of knowledge
production, the production of books, works of art, etc. and teaching (and
thus by extension modern educational services). Thus, for him, immaterial
production and production of knowledge resulting into the production of value
are the same (1976, pp. 1047, 1048).

Thus, services comprise a whole range of economic processes under capitalism,


i.e.:
(1) processes of production of (surplus) value based on the transportation of
material goods (case A1), or on the transportation of knowledge (case A2), or
on the preservation of labor power (case B);
(2) processes of redistribution of (surplus) value, i.e. unproductive processes (case
C);
(3) processes of destruction of (surplus) value based on the destruction of material
use values (case D);
(4) processes of extraction of surplus value (cases E and F);
(5) processes of production of knowledge which, as the next section will argue,
can be production, redistribution, extraction, and destruction of value.

Given this heterogeneity, the category services hinders analysis and should be
banned from value theory.11
To end this section, a few words on value theory’s supposed inadequateness
to deal with NST production. Four arguments can be made. The first is based on
the assumption that the production of NST relies increasingly on free information
(which has no value). But then, first, how can an input that has no value create
value (NST as a commodity)? And, second, given that “free social knowledge is
appropriated and turned into a source of private profit” . . . “direct exploitation is
becoming less important as a source of profit” (Morris-Suzuki, 1997b, p. 64). On
both accounts “we have moved away from Marx’s picture of classical capitalism”
(ibid.). These objections can be challenged on three accounts.
To begin with, suppose that the mental laborers’ knowledge were increasingly
acquired for free. In this case the value of their labor power would decrease
proportionally. If, for sake of argument, all of the workers’ knowledge were to
be acquired for free, the value of their labor power would be determined only by
the value of their socially determined means of reproduction, except knowledge.
The workers would still be exploited. There would be a tendential disappearance
of exploitation only if all means of reproduction lost their value, in which case the
270 GUGLIELMO CARCHEDI

capitalists would not have to pay wages any longer. But then the (mental) laborers
would have to live on thin air.12
Moreover, it is not true that the production of information (NST as an output)
relies increasingly on free knowledge (as an input). If anything, the movement
seems to go in the opposite direction. Suffice it to think of the privatization
of education, from kindergartens to universities, not to speak of the increasing
use of intellectual property rights. More precisely, the production of information,
nowadays as well as in Marx’s times, relies on a dialectical process of deskilling
and reskilling of (the mental laborers’) labor power within an increasing level of
knowledge for labor power as a whole. This too is one of the centerpieces of Marx’s
analysis of the labor process.
Finally, Marx’s “classical picture” does take into account the free appropriation
of knowledge (e.g. the appropriation of the knowledge imparted by parents to their
children when, later on, these latter will sell their labor power; or the assimilation
by workers of cultural and traditional elements, two cases Marx does not deal with
explicitly) just as it takes into account the free appropriation of natural resources
(something he does deal with explicitly). Both types of appropriation are a free gift
for the capitalists, they increase their laborers’ productivity, the production of use
values per unit of capital invested, but they do that without increasing the value
produced. Similarly to the case of improved techniques, this increased physical
productivity makes possible a greater appropriation of value by some capitalists
(those who benefit from these gifts) from some other capitalists.
The second argument is advanced by Hardt and Negri (2000). As they submit,
“As labor moves outside the factory walls, it is increasingly difficult to maintain the
fiction of any measure of the working day and thus separate the time of production
from the time of reproduction, or work time from leisure time” (pp. 402, 403).
Consequently, “The object of exploitation and domination tend not to be specific
productive activities but the universal capacity to produce, that is, abstract social
activity and its comprehensive power” (p. 209). But, first, the thesis that labor
moves increasingly outside the factory walls is, just as so many of these authors’
assertions, empirically unfounded. If anything, the opposite is true. Second, as
pointed out by Callinicos (2001), they simply confuse exploitation in the Marxian
sense with different forms of domination in different spheres of society, all of
which can be shown to be ultimately determined by exploitation proper.13
The third argument focuses on the supposed impossibility to measure value
under modern circumstances. It stresses that while it is possible to measure the
value of (a unit of) material product, it is impossible to measure the value of (a
unit of) knowledge because of this latter’s immaterial nature. Let us disregard for
the present purposes that the value of a commodity is given also by the means of
production and let us focus only on the new labor expended. In material production
On the Production of Knowledge 271

the value of the whole product is given by the labor expended within the productive
unit, considering the intensity of labor and the level of skills (see below). This value
can be subdivided into units of output, so that the unit value is the value of the
total output divided by the total output. The same applies to the production of
knowledge, whose value is given by the hours of labor needed to produce it within
a certain enterprise. Given that knowledge is always contained in a material shell
(be it a book, a computer, or simply a piece of paper), the unit value is the value
produced divided by the quantity of the material shells in which it is contained.
While these three arguments focus on the supposed obsolescence of the labor
theory of value under modern capitalism, a broader critique holds that Marx’s
theoretical structure cannot accommodate mental production. The remaining of
this article counters this critique by submitting a (value) theory of knowledge
production focused on NST, both in general and under modern capitalism. This
theory is based on the bearing walls, while being at the same time a development,
of Marx’s own (value) theory.

4. INDIVIDUAL KNOWLEDGE
The notion of temporal dialectics submitted in Section II above will now be
applied to knowledge. This section will examine how concrete individuals, either
in isolation or together, produce knowledge, i.e. individual knowledge.
The notion of abstract and concrete individuals has been submitted above. Let us
elaborate on it, keeping in mind that the distinction between concrete and abstract
individuals is only analytical because in reality individuals are always both concrete
and abstract.14 Individual relations are forms of interaction among concrete
individuals, i.e. individuals considered in their uniqueness, as specific individuals.
An individual relation depends for its inception, continuation, transformation, or
termination only on the uniqueness of those individuals and on their capacity
and will to engage (either freely or not) in that relation. An individual process
is then a process determined by individual relations and at the same time the
specific form of that relation. Individual relations ad processes will be called
individual phenomena. Given the uniqueness of concrete individuals, they are
not replaceable in individual phenomena. Social relations, on the other hand, are
forms of interaction among abstract individuals, i.e. individuals considered as
possessing some socially significant common features (for example, they are all
catholic), irrespective of the specific, individual, forms taken by those common
features (e.g. my specific way to be a catholic). It is because of these common
features that these individuals are considered to be members of a certain group.
Social processes are then processes determined by social relations and at the same
272 GUGLIELMO CARCHEDI

time the form of existence of those relations. Social relations and processes are
called social phenomena. Given the common features defining abstract individuals,
abstract individuals are replaceable in social phenomena.
This general scheme can now be applied to the production of knowledge.
Individual knowledge is the view of reality from the perspective of concrete
individuals. It is different for each one of them. Social knowledge is the view
of reality from the perspective of abstract individuals, i.e. of social groups, and is
common to the abstract individuals belonging to a social group. This section will
tackle the production of individual knowledge.
To begin with, characterizations such as “intellectual labor” versus “manual
labor” are inadequate and theoretically unfounded, given that any labor is
both manual, i.e. the result of physical activities, and intellectual, the result of
conception. To avoid this impasse, we must change perspective and introduce the
notion of transformations. Material transformations (MAT) are the outcome of
the combination of the material means of transformation (MMT), of the material
objects of transformation (MOT), and of labor power (LP). Mental transformations
(MET) are the outcome of the combination of existing knowledge, i.e. knowledge
as an input (K), and of LP.15 If + indicates combination and if = indicates the
outcome of that combination

MAT = MMT + MOT + LP (1)


MET = K + LP (2)

Since knowledge is part of labor power, in Eq. (2) K refers to the knowledge existing
outside the agents of mental transformation (books, etc.). This K is incorporated
by the agents of MET who will transform it. But this is not the only input in
(2). The other input is their LP and thus the knowledge they already have. The
knowledge contained in LP thus transforms itself by incorporating K. It becomes
thus clear how mistaken is the dogma, mentioned in the introduction, that the mind,
i.e. knowledge, is independent of the body. Knowledge is the result of the activity
of labor power and not only of the mind, brains.
The separation between MAT and MET is only analytical: labor, and thus a
labor process, is always the combination of both types of transformations. That
is to say, these two types of transformations cannot exist independently and can
realize themselves, as a labor process, only conjointly and contemporaneously. A
labor process, then, is either material (MAL) or mental (MEL), i.e. it produces
a material product or knowledge, depending upon which type of transformation
is determinant. Given that it is not possible to observe which of the two types of
transformation is determinant during the labor process, we can trace back the nature
of this process only by considering the determinant aspect of the outcome. Usually
On the Production of Knowledge 273

the dominant aspect of a product is empirically given. Thus, in the production of


a car it is the material aspect which is empirically given (and on this basis we
know that the production process has been a material one) and in the production
of a concert it is the mental aspect which is empirically apparent (so that we can
deduce that it is the mental aspect which has been determinant). However, this
rule is not always accurate. What decides the material or mental nature of a labor
process is the social validation of the outcome.16 This social validation occurs at
the moment of exchange. Thus, for example, a book is produced and exchanged
primarily because of its mental content and its materiality (it must be clearly
printed, graphically attractive, with as few printing mistakes as possible, etc.) is
necessary but subordinate to the mental content carried by the book. In symbols,
if the bold type denotes the determinant and dominant aspect, if P indicates the
material aspect of the output, and K∗ indicates the knowledge aspect of the output,

MAL = MAT + MET = P + K ∗ (3)


MEL = MET + MAT = K∗ + P (4)

Notice that the product of a labor process has always a double aspect, the physical
and the mental one, irrespective of whether that product is the output of a MAL
or of a MEL. K∗ is the dominant aspect of the output of a MEL (because in a
MEL the MET are determinant) and the secondary aspect of the output of a MAL
(because in a MAL the MET are determined). Similarly, P is the dominant aspect
of a MAL’s output and the secondary aspect of a MEL’s output. As a short-cut we
can say that the outcome of a MAL is a physical object, a material product (P),
and that the outcome of a MEL is knowledge (K∗ ). But we should we aware that
these are the dominant, and not the only, aspects of that outcome.

5. SOCIAL KNOWLEDGE

We must now inquire into how concrete individuals, who produce individual
knowledge, can originate social knowledge. Individual knowledge has also a
social dimension in spite of its being produced by (concrete) individuals. As Marx
puts it:

when I am active scientifically, etc. – when I am engaged in activity which I can seldom perform
in direct community with others – then I am social, because I am active as a man. Not only is
the material of my activity given to me as a social product (as is even the language in which
the thinker is active): my own existence is social activity, and therefore that which I make of
myself, I make of myself for society and with the consciousness of myself as a social being
(Marx, 1971, p. 137.)
274 GUGLIELMO CARCHEDI

The production of knowledge, then, even if it is the result of a concrete individual’s


activity, is never disassociated from society because the inputs, the material of that
activity are socially given and because the concrete individual has been formed
through a process of socialization. Let us elaborate on Marx’s hint.
Individuals undergo, from the first moment of, and throughout, their life, a
process of socialization. This is a personal transformation (see Section 2), it is
the internalization, for the whole span of a person’s life and for each individual
in his or her own specific way, of social phenomena, individual phenomena, and
chance occurrences. It is in this way that social phenomena become elements
of the concrete individuals’ consciousness and individuality and that their social
content is reduced to a potential state, i.e. that concrete individuals’ functionality
to be agents for the reproduction, or for the radical change, or for the cessation
of society is only potentially present in them. It follows that not only abstract
individuals but concrete individuals as well possess a social nature: the former
are the actual carriers of social relations and agents of social processes, the latter
are so only potentially. Having thus received their potential social content through
socialization, concrete individuals can transfer it back, in its realized but modified
form and possibly content, to social phenomena either by generating (participating
in) new social phenomena or by transforming existing ones (whether they are
aware of it or not). By so doing, through their purposefulness and volition, concrete
individuals contribute to the reproduction, or the radical change, or the termination
of society.17 To sum up, the logical chain goes from the realized social content of
social phenomena to socialized concrete individuals (socialization), to the potential
social content of individual phenomena, to the realization of the potential social
content.
Some aspects should be highlighted. First, social groups contribute to the
reproduction, radical change, or termination of society, whether they know it or not,
by pursuing their economic, political, and ideological interests. This means that
the production of social knowledge is at the same time the transformation of those
interests into that view of reality. There is no ideologically neutral knowledge.
Second, not all members belonging objectively to a group share necessarily
that group’s knowledge. Since the different groups’ interests and needs are
contradictory, the formation of social knowledge is at the same time an ongoing
attempt by each group to impose its own view upon that of other groups. Thus,
the knowledge produced by a group’s intellectual representatives can incorporate
elements of different social knowledges (representing the interests of other groups)
up to the point where the social content of their mental production undergoes
a radical change. In this case, that social knowledge becomes the theoretical
expression of a different group’s or class’s interests (false consciousness, in the
case of the collective labourere).
On the Production of Knowledge 275

Third, social knowledge is produced by concrete individuals but from the


perspective of the group they belong to, i.e. as abstract individuals. They give the
view of reality of a group their own personal features and in so doing they become
that group’s ideological, or intellectual, representatives. In class divided societies
only some concrete individuals have the possibility to become the intellectual
representatives of some groups, whose specific (and often paid) function is that of
being an intellectual representative. This function often requires a special system
of rewards so that they develop vested interests in this specific function.
Fourth, an individual knowledge becomes social knowledge only if it is accepted
by a number of persons sufficiently great to transform it into a social phenomenon,
i.e. if that knowledge can continue to exist without its original producer (given
his or her replaceability as an abstract individual) and if it can affect other social
phenomena (but see next paragraph).

6. KNOWLEDGE AND VALUE


We can now inquire into the conditions for knowledge production to be productive
of (surplus) value. This applies to mental producers employed by capital,
irrespective of whether their knowledge becomes a social phenomenon or not.18
Let us recall that for Marx a material capitalist process is the combination of a
material labor process and of a surplus value producing process (the performance
of the work of control and surveillance). This process is productive of (surplus)
value only if, as a labor process, it transforms material use values. If we apply this
concept to the production of knowledge:
(a) the production of K∗ produces (surplus) value if it is the outcome of a
MEL conceptualizing the transformation of material use values or if it is the
secondary aspect of a capitalist MAL transforming material use values into
new material use values;
(b) the production of K∗ redistributes or destroys (surplus) value if it is the
secondary outcome of a MAL redistributing or destroying material use values
or if it is the outcome of a MEL conceptualizing the redistribution or destruction
of material use values;
(c) the production of K∗ extracts surplus value if it is the secondary outcome of
that part of a capitalist MAL which extracts surplus value from the laborers or
if its is the outcome of a MEL conceptualizing the extraction of surplus value
(e.g. management techniques).
But there is a fourth type of knowledge production. This can be called open-ended
knowledge because it does not conceptualize any of the three above-mentioned
cases. Consider teaching on a secondary school, for example. Inasmuch as it is
276 GUGLIELMO CARCHEDI

imparted within a capitalist setting, it produces (surplus) value. In fact, similarly


to material production, the object of mental labor (the pupils’ labor power) and
the means of mental production (the teacher’s knowledge, buildings, books) are
transformed in the pupils’ different labor power. The value of the pupils’ labor
power is increased by the amount of the constant capital (buildings, books), plus
the variable capital (the teacher’s labor power), plus the surplus value (the surplus
labor provided by the teacher).
The production of knowledge, then, can result in the production of (surplus)
value, in its distribution, in its destruction or in its extraction. This knowledge
can be subsequently applied to a further production but also to the distribution,
extraction, or destruction of value.19 But this concerns the following period, not
this one. It is thus possible that, say, the knowledge developed in the process of
destruction of value can be subsequently applied to the production of value and
vice versa. The time dimension is essential.
A few differences and similarities between MAL and MEL follow. First,
knowledge as an output enters immediately the mental laborer’s labor power.
Thus, knowledge is both absorbed into the mental laborers’ labor power and,
upon its incorporation in a material shell, appropriated by the capitalist. Physical
commodities, on the other hand, are either appropriated by the capitalists or are
consumed by the laborers.
Second, knowledge, just as material commodities, is produced by the laborers
and appropriated by the capitalists. But, as submitted in the previous point, the
same knowledge is also incorporated in the laborers’ labor power, i.e. the individual
mental laborers are not deprived of their knowledge. However, due to the technical
division of labor, the vast majority of mental laborers does not have a general view
of the knowledge they have collectively produced. It is then the collective laborer
who is deprived of the knowledge produced. Capital’s ideologists turn this upside
down. For them, the employees’ minds “are repositories of knowledge accumulated
over untold hours of listening and talking while not delivering any goods or services
to paying customers . . . [they, G. C.] carry a share of the company’s knowledge
capital” (Strassmann, 1999).
Third, due to its immateriality and thus contrary to material commodities, K∗ ,
to be a capitalist commodity, needs a material shell, be it the material product in
which it is incorporated as the secondary aspect of the output or a material shell
incorporating it as the dominant aspect of the output (e.g. a piece of paper or
a magnetic tape). It is through this material shell that K∗ , similarly for material
commodities, can become an input of the next production period. However, the
difference is that knowledge, as the output of a production period, cannot become
the input of a subsequent production period without being incorporated in the
laborers’ labor power.
On the Production of Knowledge 277

Fourth, it is not necessarily true that mental laborers (those who engage in a
MEL) produce more value than material laborers (those who engage in a MAL).
It all depends on the value of their labor power. If the value of a mental laborer’s
labor power is less than that of a material laborer, the value created by the former
is less than that created by the latter, ceteris paribus.

7. ALIEN KNOWLEDGE

Let us now apply the above to the case of NST. Since the capitalists own the material
means of mental production (libraries, schools, research institutes, computers,
etc.)20 and can purchase the mental laborers’ labor power (which incorporates
their knowledge). This means that they own also knowledge as the mental means of
mental production, i.e. they can decide, or let decide, which knowledge to use, and
how, in order to (let) define and solve problems to their own advantage (irrespective
of whether the capitalists themselves are able to do this or delegate the formulation
and solution of these problems to others, scientists and technicians). It is for this
reason that this knowledge is functional for the interests of the capitalist class,
even though in a contradictory way.
There are three ways this result is achieved, according to the position of natural
scientists and technicians in the capitalist process of mental production. The first
category is that of natural scientists working for a capitalist enterprise. They
define and solve problem of specific interest for the capitalist who employs
them. This mental production is either carried out by business as “in-house”
research or as a business in itself. Universities too increasingly adopt a more
commercial approach to their research by seeking research contracts with industry,
by patenting inventions, by licensing technologies, by forming joint-ventures with
the business world and by offering training courses for industry. Governments
too shift funds to research of more strategic value to business. These are so
many ways in which the production of knowledge is influenced and steered by
business.
It is important that natural scientists internalize norms, values, etc. which lead
“naturally” to a certain type of knowledge rather than to another. This is the
case of medical science, which for obvious economic reasons on the part of
the pharmaceutical industry, de-emphasizes prevention and alternative techniques.
Genetic engineering is another example. As we shall see, it aims at preventing, or
curing illnesses before they manifest themselves but the research is based on the
belief that the scientific approach mandates that life should be decomposed into
its essential particles which must then be recomposed into medicines or even life
forms whose sale must be a source of profit. More generally, the mental laborers are
278 GUGLIELMO CARCHEDI

spurred and directed in their research by the notion of efficiency which they have
internalized and which they build into techniques and material instruments. This is
of course capitalist efficiency. Given that labor’s control is by definition not efficient
for capital, any technique which seriously and effectively weakens capital’s control
over labor will be perceived by the researcher as a non-starter. Whenever more
techniques and material instruments can achieve the same purpose (e.g. increased
productivity), the choice will fall on that which increases capital’s control more
than the others. The separation between material and mental labor, the application
of the capitalist technical division of labor to the production of knowledge, and
the recomposition of the different segments into a body of knowledge is the way
the individual laborers can produce a class determined knowledge.
Noble (1978) has provided a classic example of the social determination
of numerically controlled machines. This author has shown that the choice of
numerically controlled machines, instead of the alternative technique of record
playback, was due not to some ineluctable technological imperative but to two
orders of motives. First of all, it favored large firms rather than small ones. In
fact, since the market for this technique was initially created by the Air Force, the
builders of numerically controlled machines had no incentive to develop a type
of less expensive machine which could be acquired by smaller firms. Moreover,
since the Air Force favored a certain type of program (APT) needed to run the
machines, and since this program required expensive computers and experienced
programmers, those who could not afford this program (basically, smaller firms)
were deprived of government (Air Force) commissions.
Secondly, numerical control was chosen instead of record playback because in
this latter method the machine repeated the notions of the machinist which were
recorded on a magnetic tape. The preparation of the magnetic tape thus implied
that the machinist retained control over the machine and thus over production.
Numerical control, on the other hand, did allow a far greater management, as
opposed to workers’, control, by transferring the knowledge needed to operate
the machines from the shop floor to production engineers and managers. This was
achieved by translating the specification needed to make a part into a mathematical
representation of that part, then into a mathematical description of the path of the
cutting tool, and finally in a large number of instructions which could be read by
the machine. This type of knowledge was outside the reach of the machinist and
became the prerogative of the planning office.
The second category is that of those natural scientists engaging in capital-
financed or state-financed “applied science” programs (e.g. space programs). As
concrete individuals, these mental laborers internalize the interests of capital as a
whole and thus produce the knowledge needed for the reproduction and further
development of the capitalist economy as a whole. They represent these interests
On the Production of Knowledge 279

by posing and solving problems which they perceive as obstacles on the road
towards progress, rather than on the course of capitalist expansion and domination.
Since the development of capitalism is identified with the course of progress,
any new theory or technique which makes possible the further development of
capitalism is perceived as a further step in scientific progress, and this might
just as well be the basic motive and satisfaction behind natural scientists mental
production. The motivation for natural scientists as concrete individuals may be
their personal “dreams” but these latter arise from a culture which at the same
time also draws the limits (of which the scientists are mostly aware) of what is
achievable.
In these first two cases, the natural scientists employed by capital need not be
aware of the social content of, and of the social interests served by, the knowledge
they produce. This lack of awareness is imposed through first the separation of
mental labor from material labor within the social labor process; second, through
the subjugation of mental labor to specific forms of the work of control and
surveillance; and third through the technical division of labor within the process of
production of knowledge, so that most mental laborers have only a limited, partial,
and isolated exposure to the collective process of the production of knowledge.
The recomposition of these partial elements of knowledge into a vaster body of
knowledge can then be functional both for the mental laborers’ domination by the
capitalists and for the formers’ production of value for the latter. This casts a light
on the question of Intellectual Property Rights different from what capital would
have us believe. Intellectual property is actually the capitalist’s appropriation of
the outcome of other people’s mental labor rather than being the product of the
capitalists themselves. The capitalists can not only decide which knowledge should
be produced, how it should be produced, and for whom. They can also make a profit
out of it.
Finally, the third category is given by those mental laborers engaging in “pure
science” without being employed by capital. The social content of their production
is accounted for in the same way as for the previous category. As an example, I
shall mention the social determination and social content of Newton’s theory, as set
forth by Hessen’s classic study.21 As I argue in my 1983 work, based on Hessen’s
work (1931): “It is Hessen’s merit to have shown, in his classical study of Newton’s
‘Principia’, that both the new technological needs and the non-teleological view
of science . . . were functional for (determined by) the rise and development of
capitalism. Hessen shows very clearly how Newton’s work addresses itself to
solving those technical problems whose solution was a necessary condition for
the development of manufacture and merchant capital, and that the solution to
those problems (Hessen analyses the three areas of communication, industry, and
war) required a new type of science, a science based on the knowledge of causes,
280 GUGLIELMO CARCHEDI

i.e. a science able to reproduce phenomena experimentally and thus industrially”


(Carchedi, 1983, p. 19).
Moreover, “since most of these problems were of a mathematical nature,
the image used by Newtonian science was that of our planetary system as a
huge mechanism. Often the basic features of the determinant instance impress
themselves on the determined one (in this case the new natural sciences) translated,
as it were, in the language of the latter, i.e. in this case as mechanicism. But, as
Hessen stresses, the interpretative scheme in the ‘Principia’ is both mechanicist
and religious and these two aspects are inseparable: a mechanism can be set in
motion only by external forces, i.e. by God. Newton embodies the philosophical
view of the English bourgeoisie of his time which waged ideological class struggle
in the form of religion” (ibid.). “The social effects of Newton’s theory consists thus
in reinforcing the capitalist production relations not only on the economic level,
because it fostered a tremendous growth in the capitalist productive forces, but also
on the ideological level because – aside from the legitimation of those relations
through the growth of these forces – belief in the existence of God, a belief which
is condition of class domination also under capitalism, seemed now to be grounded
in the most advanced form of science” (ibid).
In all three above mentioned cases, a whole system of institutions
providing status, monetary and other rewards (or threatening disciplinary
measures, as unemployment), research facilities, the prerogatives associated with
professionalization, technical education, and the ideology of technical “progress”
are needed to stimulate the production by individuals of a type of knowledge which
is ultimately consonant with the social nature of the capitalist production relations.
Particularly relevant are the specific features of the social content of new
technologies. If by old technologies we mean those technologies developed before
the rise of the “computer society” and by new technologies those developed after
it, are there qualitative differences between them? The thesis submitted here is that
there are, but not as in the commonly accepted views. Let us review some of them.

(1) “Knowledge has become a commodity.” But this has always been the case
under capitalism, starting from the production and popularization of the printed
book. The difference is only quantitative, even though extremely significant.
(2) “New technologies require the separation of software from hardware.” But this
is also the case for old technologies, in the form of manuals for the operation
and maintenance of machines, etc. Again the difference is only quantitative,
even though of major importance.
(3) “Software,” as opposed to material output, “can never wear out,” since the
value of the labor embodied in the software becomes subdivided between a
potentially infinite number of products (Morris-Suzuki, 1997a, p. 18). There
On the Production of Knowledge 281

might not be physical wear out, given that knowledge is immaterial. But the
material shell in which knowledge is embedded does wear out. Moreover,
knowledge is subjected to technological obsolescence. Actually, in this phase
of capitalism, knowledge loses value due to obsolescence more than in previous
stages of capitalism or modes of production.
(4) “Information, unlike material goods, needs to be produced only once and
can then be copied and transferred.” But information too has costs associated
with its reproduction. The difference between the reproduction of a physical
commodity and of knowledge is that, given a certain technology, the former
needs the same inputs (means of production and labor power) each time again;
the latter needs a cheaper sets of inputs because it costs less to produce
that knowledge for the first time than to reproduce it afterwards. This is a
quantitative, rather than a qualitatively decisive, difference.
(5) “Knowledge can realize its value only if its owner has a monopoly of it.” But
this is common to all commodities, including the physical ones, whose owner
must be their exclusive owner in order to realize their value.
(6) “New technologies represent the ‘absolute limit’ of capitalism” (Mandel, 1978,
pp. 207, 208) or mark the “end of labor.” Such opposite views disregard
the cyclical pattern of capitalist development, i.e.: (a) that today’s new
technologies will be obsolete tomorrow; (b) and that the replacement of
people by machines is only a tendency, one of its counter-tendencies being
the development of new products and the opening up of new, low organic
composition of capital, branches.22
(7) “It is the knowledge embedded in a commodity that creates its value.”
Knowledge does not create value. Rather, it is labor that creates value and
it is the value of the laborers’ labor power, which is partly determined by their
knowledge, which determines the quantity of value created.
(8) “The production of knowledge relies on a constant improvement of the
intellectual capabilities of workers and technicians.” This disregards the
constant dialectical process of tendential dequalification and of counter-
tendential requalification of mental labor.
(9) “Knowledge is the product of capitalism’s productive powers.” This is
capitalist self-deception, masterly spread among all social classes. In reality,
as always under capitalism, knowledge is the product of labor’s productive
powers. It is the social, economic and ideological content of knowledge that
bears the imprint of capital even though knowledge itself is the product of
labor.

These notions reveal a perception that key new developments have altered and
continue to alter the configuration of the countries of the imperialist centre.
282 GUGLIELMO CARCHEDI

Nevertheless, they do not catch the essence of these new developments and
technologies. Let us first consider the computer.
The computer shares with all other machines the feature of increasing labor’s
productivity (either immediately, if applied to material transformations, or in the
future, if applied to mental transformations when they will be incorporated into
computers applied to material transformations). At the same time, it “reduces
operating costs,” i.e. causes unemployment and furthers both de-skilling and the
control over labor. The computer shares also two further features with other
machines, but in its own specific way. First, it incorporates knowledge (as books
do), but it does this in an interactive way. Second, direct personal relations between
concrete individuals are increasingly substituted by relations between concrete
individuals and a machine through its language. It has been argued that the
increasing role played by the computer in the early formative years may allow
the acquisition of new skills and forms of knowledge but at the same time it
may imperil the development of the child’s social skills (Baran, 1995). This
contributes to the formation of a collective worker whose individual components,
as concrete individuals, lose those social skills which are necessary for them to
acquire consciousness of their social position and function. All these features
emerge in the computer’s specific applications.
Consider telecommuting. When people work from their homes on their
computers, great savings are realized not only on fixed capital (lower costs for
office buildings) but also on variable capital (no medical benefits and no vacation
allowances, higher labor “flexibility,” etc.). At the same time, telecommuting
increases the extension of communication, but also the separation, between
workers. Another example is virtual reality. Here, it is the computer which perceives
for and with us. The perception of reality is both extended and restricted to
only what can be processed through a computer. Virtual reality might be the
first step towards the fusion between humans and machines. Another step in the
same direction is given by thought-controlled devices, i.e. devices which can be
controlled by brain waves. “The brain produces electrical signals which are known
as electroencephalograms. In the 1960s, it was shown that subjects could modify
one type of brain waves known as the alpha rhythm by closing their eyes and
relaxing. This is the basis of biofeedback. Electrodes are attached to the subject’s
scalp and by using relaxation techniques they can be taught to move an on-screen
cursor or activate a buzzer” (Cole, 1995). This is the beginning of a line of research
into “certain types of electronic equipment [which, G. C.] seem to be susceptible
to mental intervention” (ibid.). Researchers hope that in 20 to 50 years it will be
possible to use these techniques to move, for example, artificial limbs. But the
possibility to control human brains through these techniques are the other side of
the coins.
On the Production of Knowledge 283

These and other similar techniques separate the workers from each other, thus
bringing the process of isolation and seclusion one step further. They also promote
the fusion of people and machines, thus creating a positive image of Robocop-like
“humans.” Further, they extend the reach of communication, while at the same
time restricting both the content of that communication and creating the “digital
divide.” And finally they promise an easy and equal access for everybody to an
increasing quantity of information while they foster the increasing concentration
of the mass media and of information technology in a few hands. All this, it could
be argued, concerns the capitalist use of these machines and techniques and it could
be avoided if the computer were to be used in a different way. This is true. The
social content of these machines and techniques, of the “Information Society,” is
another.
The real, qualitative difference between old and new technologies can be
more easily grasped if we focus on the precursor of the computer, Turing’s
machine, first theorized by Turing in 1936. It “can replicate the behavior of any
human ‘worker’ who is following (consciously or not) any fixed, definite decision
procedure, whether it involves manipulating numbers, discrete physical objects
or well-defined, publically identifiable environmental conditions” (Caffentzis,
1997, p. 51). In short, it is “capable of computing any function a human . . . can
compute” (op. cit., p. 49). This machines, then, mimics the working of the human
brain, it mechanizes thinking through programming, a new feature and itself a
commodity.23
Thus, while old technologies force human functions to adapt to the motion of
machines (think of the conveyor belt), new technologies replicate human functions
in a machine-like fashion (i.e. only insofar as they are moved by fixed decision
procedures) and thus replicate in a machine-like fashion both bodily movements
and the production of knowledge, including the self-reflexivity of thought (think
of robots). Ultimately, they mechanize creativity and human life itself. This
mechanization of human thought and of human creativity makes possible the
substitution of humans not only by machines (as in previous techniques) but also
by human-like machines. This is the economic aspect of their social content. At
the same time, on the one hand, these machines propagate a view of humans as
highly skilled machines. This view, as Morris-Suzuki has aptly put it, “catches
only fragments of the original cosmos of meaning” (1997b, p. 69). On the other,
they elevate the machine-like mimicking of human functions to the ideal and most
complete form of these functions. Since these machines can perform computational
tasks that are impossible for humans, they propagate the notion that machines are
the most perfect form that can be reached by humans. This notion, that a perfect
human is a machine-like human, is the ideological aspect of the social content
of this type of NST. It is this social content in its double aspect that sketches
284 GUGLIELMO CARCHEDI

most vividly the new contours of modern capitalism in its developed, imperialist
centre.
Nowadays, as in previous phases of its development, capitalist development is
undermined by its constant attempt to substitute people with machines while only
people can create value and surplus value. It is as if nowadays capital thinks it
can solve this contradiction by creating human-like machines and machines-like
humans.
If the perfect human is a machine, nature itself is a machine too and thus subject
to mechanical reproduction. The mechanical reproduction of human life achieves
its greatest success with biotechnology and genetic engineering (agribusiness,
pharmaceutical chemical, medical business, animal and human cloning, etc.). The
reason is two-fold. First, as Yoxen aptly puts it, biotechnology views “nature as
programmed matter” (quoted in Schiller, 1997, p. 114), i.e. nature becomes a Turing
machine. Second, mechanization means standardization of procedures and thus of
products. In biotechnology, it means the standardization (through the replication)
of biological make-ups.
The concrete form taken by biotechnology and genetic engineering under
capitalism is many-shaped. It can be human cloning for profit (the first of which
seems to have already taken place), i.e. the standardization and patenting of human
biological make-ups, the creation of parts of the human body for sale, etc. Or, it can
be the genetically engineered manipulation of our biological make-up to produce
humans moved by fixed and programmable decision procedures (imparted, of
course by capital), who (which?) can then by substituted for real humans. Or, it
can be some sort of a productivity-enhancing fusion of machines and human life.24
Or, it can be some sort of mixed form of life, both human and non human.25 These
(and other similar) techniques might never become actualized. But this is irrelevant
within this context. What counts is that capital, through their scientists, is seriously
considering them, i.e. that they have become part of capital’s dream. Its dream is
the standardized and the mechanization of human life and thought. It is the Turing
machine brought to its perfection; it is, in short, the perfect monstrosity. The social
content of this standardization and mechanization of human life is that it makes
possible the perfect subjugation of life to capital.
Nowhere is this clearer than in the transhuman and potshuman movement. They
posit that, through the development and use of techniques such as biotechnology,
cybernetics, robotics, nanotechnology, etc., human beings are in a state of transition
towards a posthuman condition where our physical and biological limits (and
perhaps even death, through cyber-immortality) will be overcome. Humans will
be able to “upgrade” themselves and their offspring by choosing sex, skin color, and
more generally by consciously and freely redefining and redesigning themselves
(Rikowski, 2003). The social content of these and similar possible developments
On the Production of Knowledge 285

is that, as Rikowski rightly points out, they abstract from the social conditions
within which these techniques have developed and thus from the social content
of these technologies. If the posthuman society is a prolongation of capitalism,
something which seems to be taken for granted by these movements, if it is
a different technological world based upon the same production relations, only
those with sufficient financial and other means will be able to “profit” from them.
Secondly, only those forms (techniques) of self-expansion will be allowed that will
be functional for capitalism. Individual will be able to choose among those and
only those form.
And thirdly, just as the organization of production based on the capitalist
technical division of labor first fragments the labor process in its constituent
elements and then recomposes them in order to produce identical and cheaper
products and thus, through the production of relative surplus value, cheaper
labor power, similarly capitals’ need to generate profits implies that genetic
engineering seeks the basic elements of life so that they might be recomposed
in life forms which are amenable to be reproduced in identical and cheaper
copies (clones). In short, these forms of life would have a built-in biological
impoverishment (“specialization”). This would bring the capitalist technical
division of labor into life itself thus impeding the free and full development of
those life forms. This impossibility would be built into those life forms themselves.
True, biotechnology has therapeutic advantages. But never as nowadays these
therapeutic qualities have become inextricably intertwined with de-humanizing
potentials.26

8. TRANS-EPOCHAL AND
TRANS-CLASS KNOWLEDGE
The most common objection against the thesis submitted here is that it supposedly
cannot explain why the science and techniques developed in one society and by
one class can be used in other societies (the trans-epochal elements of knowledge)
and by other classes (the trans-class elements of knowledge). These issues are dealt
with in detail elsewhere (Carchedi, 1977, 1983, 1991). Only a few remarks will
be submitted here. Consider first the trans-epochal elements of knowledge. The
reason why certain elements of knowledge can be passed over from one society to
another is that they can be functional for the furtherance of the interests of other
classes and social groups in other types of societies. However, these elements of
knowledge are applicable to other societies because they are immersed in a different
context of meaning ultimately determined by different production relations: these
different context and relations change both their cognitive and their social content.
286 GUGLIELMO CARCHEDI

The trans-epochal nature of these elements of knowledge is explained not in spite


of, but thanks to, their social determination. Take, for example, the notion on the
number “one.”27
For the ancient Greeks, “one” was not a number. Since “one” generates both
odd and even number, they argued, it must stand above this dichotomy and thus
cannot be a number. But it can also be argued, as it is indeed argued nowadays,
that just because “one” generates both odd and even numbers it must itself be a
number. As Bloor remarks, both lines of argument are internally coherent. For the
ancient Greeks, the world was a well-ordered arrangement of things. The order of
numbers, then, was a succession of discrete entities. It was then natural to conceive
of numbers as numbers of some things, as discrete numbers which could be ordered
and counted. Given their discrete nature, numbers could be represented as dots and
thus ordered in triangular, square, etc. shapes. Accordingly, the Greeks developed
the notion of triangular, etc. numbers. Numbers had “visible and tangible bodies.”
Moreover, since numbers could be ordered, their position revealed their being
and nature, things had arithmetical properties and these properties concerned the
being of things. The classification of numbers was then a means to grasp the true
meaning of life. In this view, a number’s relation to its prior or posterior concerned
not only its being but also the order of its being. Within this context, an abstract
idea of numbers was incompatible with the ancient Greeks’ ontology (Bloor, 1976,
p. 106).28
The modern interpretation of “one” arises in the sixteenth century, the birth of
capitalism, through the work of Simon Stevin, the Dutch mathematician. With
the advent of capitalism, numbers came to perform a new function by indicating
the properties of moving, active processes of change. For example, number and
measurement became “central to an intellectual grasp of ballistic, navigation and
the use of machinery” (Bloor, 1976, p. 104). The point is not only that Stevin
was an engineer and that he was interested in applied mathematics and in the
solution of practical problems. His theoretical preoccupations were also those
upon which the development of capitalism depended. But this required the search
for general relations, which in turn required that numbers become abstract number,
separated from the things they measure. This implies that number be likened to
a continuous straight line of homogeneous entities, rather than to a succession of
discontinuous and heterogeneous dots. If the whole is homogeneous, its constituent
parts (numbers) must all have the same nature and one must also be a number.
There is thus a connection between the development of capitalism, of sixteenth-
century technology, of symbolic algebra, and of the notion that one is a number.
Capitalism required a new notion of the number “one.” Or, this notion, as well as
that of numbers, survived the advent of capitalism only because capitalism changed
their cognitive and social content.
On the Production of Knowledge 287

Consider now the trans-class elements of knowledge, i.e. those elements of


science and techniques that can be used both for capitalist domination and to
resist that domination. This too can be explained in terms of class determination
rather than in terms of class neutrality. Recall from Section II that, given that the
social content of social phenomena is internally contradictory, those phenomena
not only can either further or resist capitalist domination but also that it is
their dominant content that does that, in spite of their contrary secondary, anti-
reproductive, content. Applied to science and technology, this means that they
are never pure forms of domination of the capitalist class over other classes.
Their functionality for capitalist domination is their dominant aspect while the
possibility to use those sciences and techniques to resist capitalist domination
is their secondary function. The use of their anti-reproductive aspect does not
cancel their dominant, reproductive, aspect. Rather, the reproductive aspect (the
functionality for the reproduction of capitalism) keeps affecting society even if
that element of knowledge is used to limit and resist that functionality. This
implies neither that the trans-class elements of knowledge should not be used (an
impossibility) nor that their dominant aspect neutralizes whatever emancipatory
effect their alternative use might have.
As an example of a trans-class element of knowledge consider the notion of
time.29
Our perception of time is strictly determined by the type of society in which we
live. Previous societies’ concept of time was cyclical – i.e. tied to nature’s cycles,
as the succession of days, seasons, and years – and concrete, or qualitative, i.e. tied
to the specific tasks pertaining to the different parts of the day, of the week, of the
month, of the season, and of the year. Whether hunters or land tillers, those societies
were strictly tied to these and other recurrent and specific events. While hunting so-
cieties were regulated by biological events, agricultural societies found in the con-
stellation of planets and stars their reference points to compute time. If the notion
of clock had existed, nature would have been their clock (Rifkin, 1989, pp. 64, 65).
Under capitalism, on the other hand, time has become linear – i.e. proceeding
from past through the present to a future which is not a repetition of the past, as if
flowing along a straight line – and abstract, i.e. quantitative, because time periods
are no longer associated with specific activities: any activity can be performed
during any fraction of time.30 Time is thus dividable into increasingly small parts.
It is only within this notion of time that the concept of progress, unthinkable within
traditional religions and world views stressing the cyclical repetition of history,
could arise. The future is not any longer pre-fixed and a repetition of the past but
is open ended.
Of fundamental importance for the emergence of this new perception of time
was the clock. The clock splits time into hours, minutes, seconds and fractions
288 GUGLIELMO CARCHEDI

of seconds. The mechanical clock was introduced by the Benedictine order in the
seventh century after Christ. The Benedictines differed from other religious orders
in that they were expected to pray and pursue religious activities every moment
of the day. Time was scarce and could not be wasted. There was a time to pray, a
time to eat, a time to bath, a time to work and a time to sleep. The Benedictines
re-introduced the hour as a unit of time (as a unit of time the hour was little used
in medieval society). Every activity was tied to a specific hour. For example, the
first four hours of the day were reserved for the necessary activities. The following
two hours were devoted to reading, etc. This could be interpreted as if the modern
notion of time already existed in the Benedictine monasteries. But these hours
were still hours of concrete time: each hour was to be used only for a specific task.
Under capitalism it has become irrelevant which specific activities are carried out
in which specific hours: time has become abstract.
It is within this context that the clock was found out. It is because it introduced
a mechanical rhythm in daily life that the clock could be used later on under
capitalism, when the rhythm of the machines began informing people’s daily work
and life. Marx’s notion of abstract labor, an idea which emerges in the capitalist
system, i.e. the expenditure of human energy irrespective of the specific labor
carried out, finds its correspondent in the notion of abstract time. It is not by
chance that the clock reached regularity of movement and precision only after
Galileo discovered the pendular motion in 1649, whose practical applications to
the clock were perfected by Huygens in 1656. Minutes and seconds become part
of daily experience when they appeared on the dial of the mechanical clock.
The social content of this notion of time and thus of the clock, i.e. their
functionality for the reproduction of the capitalist economy and society, can now
be discerned. The increasingly complex commercial and industrial activities could
now be profitably organized thanks to a restructuring of the day in abstract time
units so that each activity, no matter which, could be squeezed in increasingly
smaller units of time, just like money. Actually, time became money. The economy
had become an economy of time too. People’s lives, and to begin with the working
people’s lives, began to be ruled by the rhythm of the mechanical clock first and then
of the machines, whose rhythm was as regular as that of the clock. The biological
and cosmic notions of time had been replaced by the formal and empty ticking of
the clock.
But this notion of time at least refers to periods which can still be experienced.
The computer introduces units of time which cannot be experienced any longer,
nanoseconds, i.e. billionths of a second. This notion of time is unrelated to human
experience and can be “perceived” and counted only by machines (nanoseconds).
As submitted above, the social content of this notion is that it introduces a new
ideal of perfection, a machine-like human or a human-like machine able to perceive
On the Production of Knowledge 289

time just as a computer can. Whatever remains of human life is standardized,


impoverished, suitable to manipulation through genetic engineering and ultimately
completely and irrevocably subjected to capital.
Even the last residue of the cyclical notion of time, the dial in which the two
hands make a recurrent complete revolution every 12 hours, has been replaced by
digital clocks and watches indicating only the present time which can be read as
numbers. Any reference to the past and to the future is erased in the digital watch.
Only the present exists. At the same time, the ticking of the mechanical clock is now
being replaced by the pulse of the electronic watch. As Rifkin rightly remarks, the
digital clock is a fitting metaphor for a society in which the past and the future exist
only functionally to the present: the past is a collection of information which can be
retrieved from data banks and the future is any of the many possible combinations
of those bits of information. The universe is not seen any more as an immense
clock, as in the Newtonian tradition, but is now perceived by many scientists as a
sort of immense self-developing information system, a sort of gigantic computer.
Life itself is now perceived as a code of billions of information bits which can
be re-arranged at will to produce new life forms. These are the cultural roots of
genetic engineering.
Thus, the original social content of the modern notion of time was its
functionality for the emergence of capitalism and its consonance with the interest
of capitalism. This is still the case. Nevertheless, due too the inner contradictoriness
of social phenomena, this notion is incorporated in conceptualizations which
are functional both for capitalist domination and for resisting that domination.
But even in this latter case, resistance against that domination spreads also a
notion (that of time) functional for the continuation of that domination. The
reproductive function of the notion of time can be lessened through not only
its anti-reproductive use, through its incorporation in anti-reproductive strategies
and tactics, but also by exposing the dominant aspect of this notion’s social
content. More generally, counterhegemonic knowledge production arises (can
arise) because of knowledge’s innerly contradictory nature rather than in areas
which are (wrongly considered to be) outside the domain of capitalist domination
(e.g. concrete individuals working with personal computers). This is why it is
capitalism which generates its own supersession, communism.
Disregard of the contradictory nature of the social content of NST opens the
way to the myth of the social (class) neutrality of NST. It follows that it is thought
that the “rational” aspects of science and techniques can be separated from their
“capitalist” or “anti-capitalist” use. Supposedly, then, an alternative society can
then be built upon these NST.31 The thesis submitted here, on the other hand, rejects
this possibility without rejecting the opportunity to use the trans-class elements
of knowledge to fight this system, not because these elements are class neutral
290 GUGLIELMO CARCHEDI

but just because they are class determined. A different system will have to build
its own natural sciences and techniques (and more generally, knowledge), just as
capitalism generated its own natural sciences and techniques.

9. KNOWLEDGE AND EGALITARIANISM


The above has argued that a radically different type of natural sciences and
techniques can originate only from a radically different type of society, based
on different production relations. Following a suggestion by Marx, these would be
egalitarian production relations in the sense that each and everybody would have
the same chances to realize their potentialities to the fullest.32 This implies
co-operation, because competition generates inequality, and self-management,
because this is the only real basis for freedom. Egalitarianism, co-operation,
and self-management are the conditions for a free association of producers who
themselves decide what to produce, for whom, why and how. It implies the abolition
of the production for profit and its replacement by an economy based on the
production of use values for the satisfaction of human needs as defined by the
producers themselves. This society implies also a different concept of human
nature. While the notion fostered by capitalism pushes “specialization” to its
extreme and makes of people caricatures of themselves, the alternative, egalitarian,
notion stands for the largest possible feasible development of the individual, for
the unfolding of all the facets of the individual’s personality together with, rather
than at the cost of, everybody else. This thesis has been challenged on a variety of
grounds. Here I shall briefly mention only four of them.33
First, there is the question of the presumed impossibility to achieve a different,
egalitarian, division of labor. This objection rests on a carefully cultivated and
endlessly repeated misunderstanding: the impossibility, it is said, for everybody
to be able to do everything.34 But the question is not the abolition of any form of
technical division of labor. Rather, the question is how to restructure the division of
labor in such a way that all positions (jobs) are “balanced” in the specific sense that
they all, while requiring different tasks, offer roughly the same possibility for self-
realization (including a balanced “mix” between material and mental labor).35 This
new structure of positions should be complemented by their flexible nature (the
internal composition of positions should be changed whenever the exigencies of
the individuals so require) and by the possibility for individuals to move from
one position to another (again, whenever the exigencies of the individuals so
require). Maximum feasible balancing within positions, flexibility of positions,
and rotation among positions should be the three basic principles of an egalitarian
technical division of labor. This implies constant re-qualification of labor. It is
On the Production of Knowledge 291

on this basis that first new techniques and then new natural sciences can be
developed.
Second, it is argued that if “specialization” enhances “productivity,” less
specialization also implies less production and productivity. The question
then would become one of a trade-off between production, productivity and
specialization on the one hand and human self-realization on the other. But the
opposite is true. Productivity will increase if the producers will really be in charge of
their own lives rather than having to be either forced or convinced to do unrewarding
and alienating jobs. Moreover, as far as production is concerned, an egalitarian
society would do away with the gigantic waste inherent in the capitalist mode of
production, e.g. in advertisement, in the production of weapons, in economic crises
and unemployment, in the public and private institutions of repression, etc. This
would free sufficient labor power and time for the production of a quantity of use
values adequate for all to satisfy their socially determined needs.
Third, it is also argued that specialization enhances the possibilities for
human self-realization. For example, Taylor, the father of ‘scientific management,
submitted that:

The frontiersman had to be not only a surgeon, but also an architect, house-builder, lumberman,
farmer, soldier, and doctor, and he had to settle his law cases with a gun. You would hardly
say that the life of the modern surgeon is any more narrowing, or that he is more of a wooden
man than the frontiersman. The many problems to be met and solved by the surgeon are just as
intricate and difficult and as developing and broadening in their way as those of the frontiersman
(1985, pp. 125, 126).

In this example, the task of the surgeon has indeed replaced all other activities
but at the same time it has been greatly expanded, not narrowed. The Tayloristic
division of labor, on the other hand, implies that the surgeon would be reduced
to, say, manning a machine which has incorporated the surgeon’s qualities so that
the surgeon would have been reduced to an unskilled laborer performing a de-
qualified, repetitive, etc., task. Moreover, there is absolutely no reason why in an
egalitarian society the surgeon could not perform also (some of) these other duties,
with the exclusion of course of settling his law cases with a gun. More generally,
under capitalism, as opposed to an egalitarian society, specialization is time saving
but, aside from counter-tendencies, the extra free time is used neither to reduce the
working day nor to increase the possibilities for self-realization of those operating
those machines.36
Fourth, the critics submit, undesired tasks will always exist, also in an egalitarian
society. Thus, it will always be necessary to force somebody to perform those tasks,
even if on a rotation basis. The answer resides not only in the above principles of
balanced positions and flexibility of positions. Only on this basis can rotation be
292 GUGLIELMO CARCHEDI

meaningful for an egalitarian society. It resides also on a type of social interaction,


to begin with at the level of production, based on altruism, as opposed to the egoism
inherent in the capitalist production relations.
In short, it is possible to argue that for Marx “another world” is a socio-economic
system based on co-operation (solidarity), egalitarianism, and self-management in
planning, allocation, production, distribution, and consumption in harmony with
nature. The specific forms of this radically alternative systems cannot be forecast.
They will emerge from each country’s specific history, including the history of
its struggle to move from a capitalist society to an egalitarian one. However, just
as there are general principles of capitalism which apply to all specific capitalist
countries, so there are general principles which should apply to all egalitarian
countries. If labor does not use this compass, it will never achieve its liberation
from capital. Faced with these questions, the Left needs answers; it needs them
badly and it needs them sooner rather than later. But to get the right answers it
must ask the right questions. To this end, it would do well to revert to Marx’s
epistemology and value theory and develop them rather than denying them in a
constant but vain pursuance of ever new fads.

NOTES
1. In what follows, the term knowledge will refer to all types of knowledge, including
NST, unless differently specified.
2. Even if Marx did not deal explicitly with this question, he thought it would and
should be possible to “make accessible to the ordinary human intelligence, in two or three
printer’s sheets, what is rational in the method which Hegel discovered and at the same
time mystified” (Marx to Engels, 14 January, 1858, quoted in Bhaskar, 1983). What follows
is based on Carchedi, 1983 (ch. 4), 1987 (ch. 3), and 1991 (ch. 2), to which the reader is
referred for a more detailed analysis.
3. Supersession, differently from destruction, means that something continues to exist
but in a transfigured form and radically changed content.
4. For example, once one accepts that, given a production process P1, the price of its
outputs becomes the potential value of the same commodities as inputs of the following
production process, P2, (potential because the value of those inputs of P2 can realize itself
or not as part of the output of P2, depending upon whether the output of P2 will be sold or
not, at what price, etc.), the so-called “transformation problem” disappears. This requires
that a distinction is made between potentials and realizations and that their interrelation is
spelt out.
5. Critics could submit that we must first postulate individuals before we can postulate
any relation between them. But individuals are carriers of social relations because they
have been formed within society. Even when individuals are temporarily isolated from
social relations and processes, even when they are isolated from society, they still carry
suspended relations and thus can re-engage in relations and processes at a later date. The
On the Production of Knowledge 293

tale of Robinson Crusoe, the folkloristic foundation on which orthodox economics is based,
is useless as a starting point for an inquiry into society. Robinson Crusoe did not lose his
social nature together with most of his material belongings when he shipwrecked on a desert
island. Before that unfortunate event, he had been socialized in a class society, a fact which
surfaces forcefully as soon as first Friday and then Fridays’ father and “a spaniard” join
him. On that occasion Robinson Crusoe observes “First of all, the whole country [the island,
G. C.] was my own meer property; so that I had an undoubted right of dominion. 2ndly, my
people were perfectly subjected: I was absolute lord and lawgiver” (Defoe, pp. 240–241).
And, to make matters perfectly clear, in a second book, The Farther Adventures of Robinson
Crusoe, our hero goes back to his island, only this time as a colonist.
6. Given that we can observe a relation only by observing what people do when they
engage in a process, a process is also the specific, empirically observable, form taken by
that relation.
7. It could be held that distribution and consumption can precede production. But,
within a temporal approach, given a certain time period, production is always prior to
distribution and consumption. The latter can precede the former only if a succession of
periods is considered, so that distribution and consumption at the end of one period can
precede production at the beginning of the following period. It could also be held that
the social relations of production are preceded by a-historical needs, like the biological
ones, which seem to be impervious to social determination. But a-historical needs cannot
determine the socially and historically specific way to satisfy them. As Marx illustrates,
“Hunger is hunger, but the hunger gratified by cooked meat eaten with a knife and fork
is a different hunger from that which bolts down raw meat with the aid of hand, nail
and tooth” (Marx, 1973, p. 92). Finally, it could be held that it is consumption which
is ultimately determinant because people realize their potentialities through consumption
rather than through production (Holton, 1992, p. 174). But this does not hold given that
consumers are also, at a different level, producers and given that production precedes
consumption.
8. What submitted here, thus, is neither a theory of simple mutual interrelation (given
the ultimately determining factor) nor a deterministic theory of determination (given the
variety of different and contradictory potentials contained in the actualized world and their
actualization through the interrelation of the already realized factors). Differently from
this view, Resnick and Wolff (1987) stress the “mutual constitutivity among entities” and
reject “essentialism” i.e. the notion that economic phenomena “are the essential cause of
historical change” (p. 3). Laclau takes a different view. This author submits that social
phenomena (he considers explicitly ideological elements), “taken in isolation have no
necessary class connotation . . . this connotation is the result of the articulation of those
elements in a concrete ideological discourse” (1977, p. 99). But the problem is here simply
shifted one step back. Where does the class content of the “articulating principle,” of the
“ideological discourse,” come from? Certainly not from (any of) the articulated elements,
if they get that content from that principle.
9. This is a tendential movement. While existing positions are dequalified (the tendency),
new and qualified positions might be created (the counter-tendency). The former, tendential,
process continues until the skills are incorporated into the machines, while the new, qualified
positions will sooner or later be subjected to dequalification. A new wave of technological
innovations will repeat the process. The debate on the labor process that followed the
publication of Braverman’s Labor and Monopoly Capital (1974) suffered from the sterile
294 GUGLIELMO CARCHEDI

opposition between the dequalification and the requalification thesis. In fact both theses
are part of the dialectical view highlighted here (see Carchedi, 1977). The same negative
feature affects present-day debates on the spatial distribution of skills following the shift of
some material production to the dependent countries.
10. This does not exclude that some dependent countries might achieve, in some
branches, levels of production of knowledge and technological development comparable
to those of the imperialist countries. But this, in and of itself, is not sufficient for those
countries to break free of their condition of dependency.
11. In the 1960s and 1970s “services” were basically provided by public institutions. The
question, thus, was whether state institutions could produce value and surplus value. On this
point see Carchedi, 1977, ch. 2. Nowadays, “services” are being or have been privatized.
The point is thus under which conditions they are productive when provided by private
capital.
12. Also Davis and Stack (1997) reach the erroneous conclusion that “With replacement
of human labor by digitally rendered productive knowledge comes the beginning of the end
of the distribution of the social wealth on the basis of time worked” (p. 137).
13. See Carchedi (2003) and Panitch and Giddins (2002) for a critique of Hardt and
Negri.
14. The notion of concrete and abstract individuals is modeled upon Marx’s distinction
between individual and social value.
15. Marx distinguishes two steps in mental transformations. The first is observation, the
socially filtered sensory perception of the real concrete. The result of observation is the
imagined concrete, a “chaotic conception of reality” (Marx, 1973, p. 100). The second step
is conception. Once observation has given reality (the real concrete, in Marx’s terminology)
a mental shape, this imagined concrete is transformed by the conscious application of the
previous knowledge of reality. The outcome is the concrete-in-thought, which, compared to
the imagined concrete, is a more structured view of reality. The distinction is analytical. A
mental transformation is always both observation and conception, i.e. it is the transformation
of the socially filtered sensory perception of the real concrete and of the already existing
knowledge of the real concrete.
16. just as what decides the worth of a material product for society is not its value
contained but the value it realizes.
17. Socialization is no homogenization. At each moment of our life, we internalizes,
in our unique way, a unique combination of social phenomena, individual phenomena and
chance occurrences.
18. The object of this paper is knowledge under capitalist production relations. Topics
such as “tacit knowledge,” knowledge that cannot be formalized, written down or
consciously communicated, are not dealt with, given that these types of knowledge are
a type of individual knowledge, produced by concrete individuals, outside the sphere of
those relations. They too are important but only as potential forms of social knowledge and
inasmuch as they can be incorporated in some material shell. The knowledge produced for
capitalists must be saleable and thus cannot be tacit.
19. A capitalist process is not based necessarily on wage labor in all segments of the
labor process. Schiller (1997, p. 111) submits that it is sufficient that wage labor is the
norm. But the point is that the capitalists can buy the produce of small independent farmers,
or of artisans, as inputs of their production process (see Carchedi, 1991). When this takes
place, the labor produced outside the capitalist production relations counts as if it had been
On the Production of Knowledge 295

performed under those relations. Similarly, in a publishing company, the writer need not be
a wage laborer.
20. Nowadays, the ownership of these material means of mental production is extremely
important in the field of the mass media.
21. For another example, that of the social determination of the development of physics
and chemistry at the turn of the nineteenth century, the reader is referred to the work of
Baracca (in Carchedi, 1983, Appendix to Chapter 1).
22. A fully automated economy cannot be a capitalist one by definition. The Sraffian
argument that privately owned machines could both produce the surplus and reproduce
themselves, i.e. that a capitalist economy could exist without wage labor (Steedman, 1985),
is based on this view’s fundamental weakness, its theorization of capitalism as an economic
system producing use values. A fully automated economy based on the private ownership
of the means of production would be a specific form of simple commodity production. See
Carchedi, 1991, pp. 259–261.
23. Kenney (1997, p. 90) remarks that, in Marx’s time, workers were called machine
minders, something that implied that machines had no mind. This changes with the Turing
machine which has a mind, even though a mechanized one.
24. As King puts it, “As our understanding of biochemical processes increases, organisms
will be used to produce molecular machines as sophisticated as electronic components . . . In
the longer run, these developments will end the separation between the self-replicated, self-
assembled products of organisms, and the mechanical, electronic, and plastic products of
human manufacture” (1997, p. 48). A first step has already been made by the development
of protein-based computer chips (Davis & Stack, 1997, p. 138).
25. In 2000, patent EP 380646 has been granted by the EU Patent Office to the Australian
enterprise Amstrad for the creation of “chimaeric animals,” i.e. beings made up of human
and animal cells. In that patent “The following are claimed: (A) a method for the isolation
of embryotic stem (ES) cells from animal embryos in vitro which comprises deriving and
maintaing the embryos in a culture medium contg. A leukaemia inhibitory factor (LIF) for
the development of the ES cells; (B) a method for maintaining animal ES cells in vitro while
retaining their pluripotential phenotype which comprises culturing the cells in a culture
medium contg. LIF to maintainm the cells; (C) ES cells derived from animal ambryos in
vitro isolated by deriving and maintaining the embryos in culture medium contg. LIF for
development of the ES cells; (D) a chimaeric animal or transgenic progeny of it generated
using ES cells which have been isolated as in (A) or maintained in vitro as in (B).”
26. The feminist critique submits, correctly, that inherent in this project there is the
possibility to expropriate women of their reproductive power by creating, for example,
artificial wombs (see Heymann, 1995). Artificial wombs would be strikingly apt to be
produced industrially and could produce life also industrially, possibly for profit.
27. What follows has been taken from Carchedi, 1983, pp. 16–20, which in its turn
relies on Bloor (1976) and Klein (1968). That work provides also the example of the class
determination of the notion of inertia (pp. 27 and ff).
28. The unknown solution to a specific problem was a specific number to be determined,
not a variable.
29. Much of what follows on this point is taken from Rifkin (1987).
30. It has been argued that the notion of concrete time is abstract too, because it is the
result of human abstraction. This is obviously true. But concrete vs. abstract here refers to
time to be spent for specific activities versus time which can be spent for any activity.
296 GUGLIELMO CARCHEDI

31. There is a great affinity between the thesis of the neutrality of knowledge, that of the
neutrality of the productive forces, of which knowledge is a fundamental element, and that
of the neutrality of the organization of the labor process. Both Lenin and Gramsci subscribed
to the neutrality thesis. This made it possible for the former to theorizing the socialist use
of Taylorism (Lenin, No. 18, pp. 594–559; Nr. 20, 152–154; No. 27, pp. 235–277; and No.
42, pp. 68–84) and for the latter to theorize the use of coercion into the labor process (1971,
p. 301), i.e. the extension of the proletarian condition to the whole society rather than the
supersession of that condition (1975, p. 412). For a well-balanced assessment of Taylorism,
see Linhart (1976).
32. In the 1970s, the radical science movements in many countries engaged in the
critique of existing science and technology and provided assistance to a variety of social
movements. See Werskey (1975). This period lasted long enough to offer a preview of some
radically different, but it never got the chance to produce even a distant view of a radically
different type of science. The opposition between bourgeois science and proletarian science
subscribed to by many groups and movements in the 1970s was flawed at its core, given
that the USSR – which supposedly had to generate this new type of science – was anything
but an egalitarian society.
33. For a refutation of other partly similar objections see Mobasser (1987).
34. In observing that nearly a decade after the fall of ‘Communism’ no ‘Western
style’ capitalism has been created in the former ‘Communist’ countries, A. Greenspan,
the Chairman of the FED, discovered that “much of what we took for granted in our free
market system and assumed to be human nature was not nature at all, but culture” (Hoagland,
1997). What for a first year Sociology student is a plain fact, becomes for the neo-classical
economist a revelation.
35. See Albert and Hahnel (1981, 1991a, b).
36. In considering whether the working day has been shortened or not, it is the collective
laborer on a global scale (with situations in the Third World reminiscent of the English
Industrial Revolution) which should be considered, rather than only the laborers of the
developed capitalist countries.

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