Ya. PEVSNER

Progress Publishers Moscow

Translated from tho Russian by Jane Sayer Designed by Boris Kuznetsov

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CONTENTS

Page

INTRODUCTION..............

6

CHAPTER I

The Bourgeois State in the Economy and in

Economic Analysis............

11

1. Marxism-Leninism on the Economic Role of

the Bourgeois State............

11

2. Micro- and Macroeconomic Analysis ....

20

3. "The Grand Neoclassical Synthesis".....

38

4. Neoinstitutionalism...........

46

CHAPTER II

The Multiple Aspects of the Economy and Labour

as a Measure of Value........... 69

1. Multiple Aspects of tho Economy...... 69

2. Labour as a Measure of Value and the Necessary Comparability of the Expenditure of Labour

and Utility............... 76

3. The Social Character of Commensuration and

the Role of the State........... 91

CHAPTER III

Value, the Price of Production and the Market Price................. 106

1. Individual and Market Value. The Price of Production............... 106

2. Value and Surplus-Value as Overall Economic Categories............... 114

3. Marginal Magnitudes as a Means for Quantitatively Comparing Labour Inputs and Utilities 119

4. The Dynamic Nature of Price and Value . . . 131

(5) HsaaTejiBCTBO «Mucjib>>, 1978 r.

English translation ol the revised Russian

text © Progress Publishers 1982

Printed in the Union of Soviet Socialist Republics

10701---704

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ⁿ014(01)-82^^52^^-^^82^^

CHAPTER IV

Contradictions of the Dynamic Nature of Value Relations................ 153

1. Differences in Reproducibility as a Factor in

the Operation of the Law of Value...... 153

2. Some Features of Contemporary Cyclical Crises 163

3. The Tendency of the Rate of Profit to Decline

and Structural Crises........... 176

4. The Contradictions in the Character of Labour Productivity (Productivity and Efficiency) . . . 187

CHAPTER v

The Bourgeois State and Capitalist Enterprise . .

208

1. State Property and the "Third Sector" ....

208

2. State-Monopoly Administration......

220

3. The Influence of the State on the Monopolistic Structure of Private Enterprises and the Role of Anti-Monopoly Legislation.........

227

CHAPTER VI

New Features of the Monetary System and Monopoly Price Formation...........252

1. From Gold Coins to Paper Money..... 252

2. State Regulation of Monetary Circulation and Monopolistic Price Formation........ 265

3. Wages as the Price of Labour and Incomes Policy................. 292

CHAPTER VII

Redistribution of the National Income and Credit Policy................. 305

1. The State's Role in the Distribution of the National Income and in Investment. Fiscal Policy 305

2. State Regulation of Credit........ 321

2. The Uneven Development of Capitalism and State-Monopoly Protectionism. Certain Features

of the Contemporary Export of Capital .... 356

3. Foreign Exchange Problems....... 368

4. The Modern Role of Economic Diplomacy . . 382

CHAPTER VIII

The International Aspect of the Operation of the

Law of Value and State-Monopoly Capitalism . . 341

1. The Law of Value and the Internationalisation

of Economic Affairs............341

INTRODUCTION

When I began research into the economic problems of capitalism in the Academy of Sciences of the USSR shortly before the war, I concentrated on the economy of Japan. I worked under Academician Yevgeni Varga, an eminent Soviet scholar and activist of the Comunist International well known in many countries. He always instilled in his students confidence that political economy was as absorbing a discipline as it was difficult, and that virtually the chief problem consisted in correctly applying the dialectical principle of the interaction between the general and the specific. He taught that anyone undertaking economic research was obliged to understand that economics deals with an infinite variety of social relations---the class struggle, internal politics and international relations, all branches of science and culture, the historical and national specifics of each country, demography and ethnography, sociology and psychology.

The general features of economics arc reflected in the scientific concepts of production and exchange, distribution and consumption. The two centuries over which economics has developed have shown that these concepts become most meaningful when approached from the labour theory of value as interpreted by MarxistLeninist political economy. The scientific signif-

icance of the labour theory of value consists primarily in the way it unifies the above-mentioned categories without ``infringing'' upon the independent role of any of them, while giving each its due place. The labour theory of value provides the basis for the fullest revelation of the content of the development of productive forces, the role of ownership of the means of production, the nature of market relations, and the role of competition and monopoly.

In his famous Philosophical Notebooks, Lenin wrote: "Ordinary imagination grasps difference and contradiction, but not the transition from the one to the other, this however is the most important." ^J This remark was made with respect to the theory of cognition in general, but it probably applies most of all to economics. One of the main features of the labour theory of value is its ability to reflect dynamic interactions and contradictory transitions from one state to another.

Under contemporary conditions of historical development---mankind's turn towards socialism and the scientific and technological revolution--- these aspects of the labour theory of value acquire a special role. During the rivalry and struggle between the two world systems, capitalism does not remain static, but constantly seeks ways and opportunities for resolving the increasingly acute contradictions between economic progress and the domination of private property--- and seeks them in favour of the latter.

A major place in this search belongs to economic theories. In the situation that has currently taken shape, Western economics has undergone a major evolution---from a simple theoretical justification of existing social relations to the elaboration of possibilities for actively defend-

ing them by means of state economic policy; from theories of an automatically forming `` equilibrium'' to the need to create and constantly improve state levers in order to overcome the disequilibrium that has become a permanent feature of all Western economies and is appearing in increasingly dangerous forms.

Nowadays, the various fields of economics have crystallised around the problem of state economic policy---around the question of the extent, forms and methods of interaction between state agencies and private corporations.

The history of Western political economy of the nineteenth and twentieth centuries clearly shows that this very turnabout itself testifies to the virtual capitulation of capitalist economic thought to its implacable opponent---scientific socialism.

Scientific analysis reveals that the merging of the state and monopoly, and state regulation of the economy constitute monopoly capital's reaction to the course of the development, of productive forces, which dictate the need for a transition to socialism. State-monopoly capitalism provides the prop for the outdated mechanism of the private capitalist market economy. How strong is this prop?

History will answer this question, but during the struggle between the opposing ideologies, elaboration of the questions concerning the character of, limits to and prospects for state participation in the economy becomes more and more pressing. The development of state-monopoly capitalism is deeply contradictory in nature. One of its main features is that concrete state regulation measures are constantly subject to the extremely powerful impact of current commercial, socio-political and international political factors.

These factors are always closely linked and interdependent but, at the same time, they not only do not coincide, in many respects they contradict one another. Hence the even greater need in scientific analysis to pinpoint, among the general mass of conflicting factors and contradictory circumstances, that which is most important and retains the key role during any turns or clashes. The author's task is, proceeding from problems that have already been solved, to avoid describing the infinitely diverse factors behind complex and contradictory reality and, at the same time, confining himself to general propositions. It is most important in a study of state-monopoly capitalism on the basis of the labour theory of value to take account of Marx's warnings that it is inadmissible to resolve the contradictions between genera] laws and more developed concrete relations "not by the discovery of the connecting links but by directly subordinating and immediately adapting the concrete to the abstract".² The chief aim of this work is to investigate the correlation between value and non-value factors under the conditions where the state has become an inalienable part of the reproduction process, and this task determines the structure of the book. It begins with a short outline of views on the economic role of the bourgeois state, and of the evohition of these views as the role of the state changes. Next to be considered are the chief aspects of the operation of the law of value, the dynamic correlation between labour inputs and the use-values created with the help of labour. Then there is an analysis of, first, the objective need for state-monopoly regulation engendered by the contradictions of the law of value and intensified during the present stage of development of productive forces; second, the

role of the key element of the superstructure--- the bourgeois state---in the economy, the mechanics of state regulation---how it takes shape as monopolies and the state merge---and in this context, the new laws governing the sphere of competition, price formation and foreign economic ties; third, one of the deepest contradictions of modern capitalism---that between the rapidly increasing objective need for all-- embracing state regulation and the limitations on it owing to the domination of monopoly capital.

CHAPTER I

THE BOURGEOIS STATE IN THE ECONOMY AND IN ECONOMIC ANALYSIS

1. Marxism-Leninism on the Economic Role of the Bourgeois State

In the history of the capitalist social system, the economic role of the state and its impact on the reproduction process have been constantly changing and have passed through a number of stages of development.

Marxism links the very emergence of capitalism as a social system---the period of so-called primitive accumulation---with the invasion of the economy by the bourgeois state. At this time (the seventeenth and eighteenth centuries), the state fulfilled a primarily destructive function in relation to precapitalist structures. The violent destruction of petty commodity production by the state in the metropolitan countries and colo nies, in order to create favourable conditions for the growth and consolidation of capitalist production, was written down in the history of mankind "in letters of blood and fire".^^1^^ For the same purpose, the bourgeois state turned on the privileges of the feudal lords, and often against their property, too. As for the state's "creative function", during this period it consisted mainly in defending the crudest, most forcible and merciless forms and methods of exit

References

~^^1^^ V. I. Lenin, "Conspectus of Hegel's Book---The Science of Logic", Collected Works, Vol. 38, Progress Publishers, Moscow, p. 143.

~^^2^^ Karl Marx, Theories of Surplus-Value, Part III, Progress Publishers, Moscow, 1975, p. 87.

ploitation of the workers, and in such forms of protectionism as high customs duties or the setting up of state-monopoly enterprises in individual branches of the economy.

Once capitalism had taken firm hold in Western Europe, in the first quarter of the nineteenth century, the state began to interfere less in the economy and the free trade period began. It was •'during this period that the main features of the capitalist economy took shape---the dominion of large-scale private property and the principle of capitalist profits as a transformed form of the surplus-value received through the exploitation of wage labour. Another of the main features of capitalism at this time was "free competition", with all its attributes, including gold acting as universal equivalent. "Free competition," Engels wrote in the work The Condition of the Working Class in England, "will suffer no limitation, no State supervision; the whole State is but a burden to it. It would reach its highest perfection in a wholly ungoverned anarchic society. .."² In Capital, Marx abstracted from the state's participation in the reproduction process. At the given stage in the analysis, such an abstraction was necessary in investigating the basic laws of the capitalist social system.

It in no way follows from this, however, that during the period of free competition, the state ceased to play any part at all in the economy. The very fact that the state existed and functioned as an agency of the class domination of the bourgeoisie and included an army, police force and civil service meant that a certain part of the national income had to be concentrated in the hands of the government. Moreover, the government retained major functions in the credit sphere, where it acted as regulator and guaran-

tor of banknote issues by central banks, as well as being a major banker itself, as primarily manifested in the public debt and in operations with government securities.

Although in the countries of Western Europe and in the USA, state share in the distribution of the national income did not exceed 8-10 per cent at this time, and in the overall volume of investment---10-15 per cent, Marx attached major significance to analysis of the state's economic role. In the foreword to his work Zur Kritik der Politischen Okonomie, he wrote, "I consider the system of the bourgeois economy in the following order: capital, landownership, wage labour, the state, foreign trade, the world market".~^^3^^ In the Introduction to the first version of Capital, mention was made of the part covering the following: "the State as the epitome of bourgeois society. Analysis of its relations to itself. The `unproductive' classes. Taxes. National debt. Public credit".^^4^^

The concept of "free competition" is better considered not as a formula precisely representing reality in the nineteenth century, but as a theoretical model facilitating a description of one of the most important specifics of the economy at that time, an aspect that distinguished it fundamentally both from the economy of the period when capitalism was taking shape and particularly from that of the subsequent one--- monopoly capitalism. As early as the end of last century, when the transition to imperialism had only just begun, Lenin wrote that "the state can on no account be something inert, it always acts and acts very energetically, it is always active and never passive .. .''~^^5^^ He returned to this issue many years later, during the imperialist age, and stressed that "state capitalism exists---

in varying degree and form---wherever there are elements of unrestricted trade and capitalism in

general".^^6^^

Marx went so deeply into the problems comprising the main content of Capital, those of capitalist exploitation and the basic laws of reproduction, that he hever had time For his intended special analysis of the economic role of the bourgeois state. Yet the analysis of the fundamental contradictions of the capitalist economy contained in the works by the founders of scientific socialism paved the way for elaboration of these

issues.

In the process of investigating the basic laws of capitalism, Marxist economic science came to the conclusion that the capitalist economy was approaching the limit beyond which the reproduction process could not bo accomplished without increasing state participation. As long ago as the 1870s, Marx noted in Capital that the development of joint-stock companies "establishes a monopoly in certain spheres and thereby requires state interference".^^7^^ "In any case, with trusts or without," Engels wrote in "Socialism: Utopian and Scientific", "the official representative of capitalist society---the state---will ultimately have to undertake the direction of production.''~^^8^^ The founders of scientific socialism foresaw not only the future activation of state participation in the economy, but also the fact that this participation might exercise a substantial influence on the operation of economic

laws.

In his letter to Conrad Schmidt, Engels wrote that, under capitalism, there is an "interaction of two unequal forces: on the one hand, the economic movement, on the other, the new political power, which strives for as much indepen-

dence as possible and which, having once been established is endowed with relative independence".~^^9^^ Even last century, the founders of scientific socialism remarked certain features of state impact on the economy that only subsequently developed to the full, under stale-- monopoly capitalism. In The Origin oj Ilia Futnih/, Private Properly and the State, Engels wrote that, in a democratic republic, "wealth exercises its power indirectly, but all the more surely".¹⁰ "Any country, for instance the United States," Marx wrote, "might even feel the need in production relations for railways; in spile of this, the direct benefit . . . derived by production from the existence of railways might be so negligible that to advance capital for this purpose would be nothing but a loss of money. Then capital transfers these outlays onto the shoulders of the state." Capital, Marx went on, "always strives only to achieve particular conditions for increasing its value, while the conditions that are common for everything it foists onto the whole country as national requirements. Capital only undertakes operations that are profitable from its own point of view." ^1J

These features of state participation, which were of secondary importance during the period of free competition, subsequently acquired a particularly important role. Lenin's teaching on state-monopoly capitalism was a logical development of the views of Marx and Engels on the new role of the bourgeois state in the economy. Lenin saw the fundamental reasons for the emergence of state-monopoly capitalism in the very laws that dictated the transition of capitalism from the stage of free competition to that of imperialism---i.e., the concentration of production and centralisation of capital, the fact

that the monopolies assumed the leading role in all spheres of society in the industrialised capitalist countries. "Monopoly capitalism," he wrote, "is developing into state-monopoly capitalism. In a number of countries, regulation of production and distribution by society is being introduced by force of circumstances.''~^^12^^

The socio-economic role of state-monopoly capitalism was traced by Lenin mainly in the context of the First World War, but his analysis of state regulation during the war is essential for understanding subsequent processes.

Before and after the Second World War the interrelations between the state, the monopolies and the national economy as a whole became closer, more stable and deep, more multifaceted and contradictory. This was primarily because of internal circumstances within the reproduction process itself, the requirements dictated by the contemporary stage in the development of productive forces. Running ahead somewhat, let us mention the conclusion drawn by Antonio Pesenti, a well-known Italian Marxist scholar. He wrote: "Economic contradictions, as well as social ones, increase and the process of the increase in all social capital as a whole becomes more difficult, considering the necessity of reproduction not only of monopoly capital, but also of nonmonopoly capital and that of the middle peasant and artisan production. All this leads to an intensification of the economic contradictions, and hence social ones, too. Entire sectors decline and cannot continue the process of capitalist reproduction; entire regions degenerate, other sectors and regions race ahead and become overheated. "State-monopoly capitalism thus finds its origins as a permanent institution and a necessary element of the structure of modern capitalism,

and not only as economic policy and something super-structural might, in the extreme intensification of the contradictions and in the difficulty of the process of the growth of capital considered in its entirety.''~^^13^^

While taking internal laws as the main and decisive ones, it must riot he forgotten for a minute that the new degree of participation in the economy by the bourgeois state is directly linked with the general crisis of the capitalist system. The formation of state-monopoly capitalism was dictated not only be endogenous factors directly within the sphere of reproduction, but also by exogenous ones, first among which are the success of the socialist countries in the competition with capitalism, the intensification of the contradictions between labour and capital, the strengthening of the working-class movement and the triumph of the national democratic struggle on the basis of their union with the decisive force in the world today---world socialism. The significance of these exogenous factors in the establishment of state-monopoly capitalism under peacetime conditions is given broad coverage in the works of bourgeois scholars. By the early 1930s, the political significance of the economic crisis was seen more clearly in contrast to the major successes that were being scored in the Soviet Union in fulfilling the first five-year plan and in eliminating unemployment. This is what prompted the twentieth century's major bourgeois economist, John Maynard Keynes, to write: "It is certain that the world will not much longer tolerate the unemployment which, apart from brief intervals of excitement, is associated---and, in my opinion, inevitably associated--- with present-day capitalistic individualism."¹⁴ One of Keynes's followers was Evsey Domar, the

2-01768

American economist who originated the modern neo-Keynesian growth theory. He stated that "the present interest in growth is not accidental; it comes on the one side from a belated awareness that in our economy full employment without growth is impossible and, on the other, from the present international conflict which, makes growth a condition for survival".^^15^^ The well-known theoretician of bourgeois planning, the Dutch Social-Democrat Jan Tinbergen, believes that the Soviet Union's experience has been of vital importance for the elaboration of ways and methods of planning in the Western

countries.^^18^^

From this angle, state-monopoly capitalism was (and still is) a defensive reaction on the part of monopoly capital to the world-wide advance of socialism. It would be completely wrong, however, to see only this aspect and forget that state-monopoly regulation of the economy has also acted as an instrument of militarism and aggression against socialism. It should be remembered, that Keynes's ideas were received very favourably by the Nazi economic journals Der deutsche Volkswirt and Die deutsche Volkswirtschaft. Keynes himself, with the situation in Nazi Germany in mind, wrote in the foreword to the 1936 German edition of the General Theory that his theory fitted better the conditions of the totalitarian state than did the theory of production and distribution of output produced under the conditions of free competition and laissez-faire. "

Special research into the economic policies of Nazism (and equally of Italian fascism and Japanese militarism) provides clear evidence that the totalitarian regimes that existed until the end of the Second World War constituted varie-

ties of state-monopoly capitalism and, as such, were geared not to undermining, but to consolidating monopoly private property.^^18^^

This applies not only to the countries of the Nazi coalition during the war. The well-known Labour politician John Strachey, former Minister of Defence in the first Labour government after the war, wrote in his book Contemporary Capitalism about the vicious attack British big capital had made on any attempts by the government to increase outlays for social purposes and about the favour found by a proposal to raise government expenditure on armaments. "It is impossible," he wrote, "to resist the impression that arms-making was the one kind of government expenditure which was considered in orthodox circles (i.e., in financial capital circles---Author) to be really respectable. It was the one sort of government economic activity which had nothing left-wing about it.''~^^19^^ Finally, as far as the current situation in the USA is concerned, here state-monopoly capitalism is inseparable from the military industrial complex.~^^20^^

Thus, analysis of state-monopoly capitalism cannot he exhausted by the simple statement that it was engendered by the objective development course of productive forces. History has shown that, depending on the political situation, on the balance of the various political forces, the necessity of state regulation may be realised either for peaceful purposes, or militaristic and aggressive ones. The actual course of state-monopoly regulation in different countries is the sum of multiple and diverse factors in the spheres of the development of productive forces, historical conditions, the class struggle, internal and foreign policy and, last but not

2*

feast---in that of the ideological struggle, including the theoretical conceptions of economists o! different outlooks.

2. Micro- and Macroeconomic Analysis

In the late 1930s, the concepts of micro- and macroeconomics were born, in a way summarising the many years of development of economic theory. They have since played a major role right up to the present day. Throughout its history, economics as a science has focused primarily on how prices are formed, on what they are based on, the proportions in which exchange takes place, what lies behind expenditures and outcomes, what principles are used to compare them, and how the various forms of income of firms and individuals are created. It is these questions that make up the concept of microeconomics. As for macroeconomics, as Pesenti writes, it is "a branch of political economy that is called on to explain how an economic system in its entirety functions; it isolates, identifies and measures, when this is possible, also mass phenomena or forces that contribute to determining production and employment throughout the system and its variations. These phenomena should therefore be united in a restricted number of categories or `aggregates'. The subjects are therefore no longer `singular', but rather broad categories of `operators'.''~^^21^^

How do micro- and macroeconomics interact? Does microexchange provide for the proportions of macroexchange that result in a more or less complete and even utilisation of the constantly growing productive forces and manpower? No answer can be given to this central question of

economics without a correct understanding of Hie interacting concepts of micro- and macroexchange.

Modern microeconomics rests on all the previous development of bourgeois economics. Its stages are determined not simply by progress in the comprehension of reality, but by the opponents of capitalist property against which this process was directed. The very emergence of bourgeois political economy was connected with the struggle of the bourgeoisie against feudal ownership and the feudal state. In the eighteenth and early nineteenth centuries, bourgeois ideologists set labour, as the creator of wealth, in opposition to feudal privileges, which were standing in the way of economic progress. Adam Smith, David Ricardo, and Benjamin Franklin took this approach to the level at which the foundations were laid for the labour theory of value and the first steps taken in the scientific analysis of capitalist exploitation.

The consolidation of the bourgeois social system in the Western countries where capitalism first grew up, and especially the subsequent intensification of the class struggle between the bourgeoisie and the proletariat, led to the crisis of bourgeois economics. The European bourgeoisie, which had already celebrated its victory over feudalism, but had never faced such mighty opponents as the organised working class and scientific socialism, no longer needed such deep and keen thinkers as those who had paved the way for it in the seventeenth and eighteenth centuries. To the fore came those economists who countered pre-Marxian socialism and the first outbreaks of the struggle of the working class with the thesis of the "natural harmony of interests", in particular the ``triad'', the "the-

ory of three factors", which claimed that, since capital, land, (or, more broadly, natural resources) and labour all participate in the creation of commodities, each of these three factors ' is entitled to a certain ``fair'' part of the value, in the form of interest, rent and wages.

The banality of the first part of the assertion that these three factors participate in the creation of commodities is so obvious that it can hardly be called scientific. The second part concerning "fair distribution" is deeply erroneous, being an apology in the worst sense: it in no way follows from the fact that capital and land are required to produce commodities, that part of the value must go to persons who did not participate in their creation (i.e., landowners and capitalists). As for the quantitative aspect, the Say-Bastia school freed itself from the need to seek an objective basis for exchange: the prices of all types of product and service were explained as the ratio of supply to demand, without going any deeper into the factors influencing these two.

Thus, in bourgeois economics, the final measure of a good or service always remains the price as the bearer of profit, the price of the sold product, minus production costs, also expressed as prices.

The labour theory of value in no way denies the significance of price. The seventeenth-- century's major economist, William Petty, formulated the proposition that "the first thing that one has to do is to calculate", this simple wisdom being fair for all times and systems. Calculation without prices is impossible. "The entire process of capitalist production", writes Marx, "is furthermore regulated by the prices of the products.''^^22^^ For the labour theory of

value, however, the products of exchange are "congelations of labour"^^23^^ which, in the process of exchange, are evaluated and, once evaluated, are distributed among the classes of society and the branches of the national economy; moreover this distribution constitutes one of the major factors influencing market estimates.

After Smith and Ricardo, bourgeois political economy avoided labour as a measure of the value on which the price is based. The search for a quantitative measure of price continued, however, and finally led to the emergence of the bourgeois theory of marginal utility. Initially, the essence of this consisted in quantifying demand and supply as price-forming factors by referring to the utilities of commodities. Right from the start this sort of quantification was based on a subjectivist methodology---- excluding labour, value, and the social conditions forming supply and demand from the analysis.~^^24^^ The main thesis is that the utility of any type of good or service falls as the quantity of it increases, while exchange takes place in accordance with the correlation between the utility of the last goods offered for exchange. It is precisely the utility of the last goods, added to the previous quantity in existence, that determines the price of all the goods of the given type.

The reference to marginal magnitudes constituted a major stage in the development of economics. We shall show below that the use of marginal quantities by the labour theory of value paves the way for perfecting the quantitative analysis of value relations. From the point of view of the quantification of the laws governing exchange, and clarification of how the prices of various factors of production are

formed and in what correlations existing factors come into use and new ones are formed, the use of marginal (incremental) magnitudes constitutes a step forward in economic analysis. Yet, to the extent that it turns from measuring the contribution of various factors to justifying the thesis of imputation, it loses its scientific nature and assumes all the aspects of vulgarisation---defence of the ``right'' of the owners of the means of production to exploit others.

In bourgeois political economy, the application of marginal quantities soon merged with the ``triad'' mentioned above. In "Griindziige der Theorie des wirtschaftlichen Giiterwertes", which came out in 1886, Bohm-Bawerk wrote: "Looking closer, it appears that, in reality, production costs do not constitute the entire mass of costs, since, after all, the plot of land used for production or the activities of the entrepreneur also, as things possessing a value, belong among the 'production costs'---but no, these are only outlays on substitatable means of production of the given substitution value: on wage labour, raw materials, wear and tear of equipment, and so on. The remainder, once these expenditures have been subtracted, being the 'net income', is related to the unsubstitutable members of the group: the peasant relates it to his land, the mining industrialist---to his mining plant, the factory-owner to his factory, the merchant to his entrepreneurial activity.''^^25^^

These words clearly reflect the essence of the bourgeois theory of marginal utility, which consists not in the application of marginal magnitudes, but in using marginal magnitudes to quantify what is to be charged to the credit of each factor, in order, by going over from the general assertion concerning the reimbursement

of the three factors to quantitative determination of it, to give more weight to this determination. In the works of the Austrian school of subjective utility, analysis of the abstract laws of consumption and exchange ousted that of all the historical forms of production and distribution of material benefits.

Thus, bourgeois political economy, in spite of the zigzags in its development, was characterised by an admission that the ideal economy consisted in the domination of private property and that the profits received by the owners of the means of production were reward for their labour and for the risk they took in putting their capital into circulation. Even when this `` reward'' ran into millions over a short period of lime, it was recognised as ``fair'', since it arose, as the bourgeois economists saw it, on the basis of a correct forecast of the market situation. This conception, which emerged at the dawn of economics as a science, persists to this day.^^26^^

As for the macroeconomic approach, its essence consisted in discovering whether `` microexchange'', i. e., that on the market for goods and services, in accordance with the laws of price formation discussed above, leads to proportions in ``macroexchange'' (that between the branches) that ensure the proportional development of the economy, i.e., a more or less full and even utilisation of the limited productive capacities and labour power. Throughout the history of bourgeois political economy, right up to the present day, the following answer to this question has prevailed: such a proportional development is ensured if completely unhindered competition and freedom of exchange are observed as a necessary condition.

In the light of subsequent analysis of Keynesianism and its role in modern bourgeois economics, the assertion that maximum market freedom is still required may seem paradoxical. Yet I believe that, for all branches of bourgeois economics, including those that recognise the inevitability and necessity of state participation, free competition remains the ideal, a sort of paradise for sinners. Paul Samuelson has written: "Where competition is perfect, or nearly so, there results a pattern of order, of efficiency".^^27^^ Elsewhere he states that "any haphazard interference with competitive supply and demand is likely---save in some exceptional circumstances---to be a bad rather than a good thing".^^28^^

In On Keynesian Economics and the Economics of Keynes, written by the American economist Axel Leijonhufvud and widely known in the West, the thesis is put forward that the modern bourgeois theory of state regulation has not departed far from classical concepts. "Keynes," writes the author, ". . .did not take a position substantially different from the traditional one on the effectiveness of price incentives in controlling the behavior of individual transaction units.''~^^29^^

Reflecting the socio-economic conditions of the first half of the nineteenth century, Say, Bastia and their adherents wore the most consistent defenders of the principle of "free competition" and non-interference by the state. The theory of marginal utility attempted to make this general principle of vulgar political economy quantitatively determinate. According to this theory, the marginal productivity of each factor of production determines its price, and the entire product is fully exchanged at an eco-

nomically justified price if all the agents of production are rewarded in accordance with the marginal product of each of them. This is the point at which the microeconomics of the marginal utility school converges with its macroeconomics. If every agent, including the capitalists, in return for their ``contribution'' in the form of capital, receives an income at the price of the marginal [actors, everything runs smoothly and an uninterrupted reproduction process is ensured. "For fifty years before 1914," the British economist Joan Robinson has said, "the established economists of various schools had all been preaching one doctrine, with great selfconfidence and pomposity---the doctrine of laissez jaire, the beneficial effects of the free play of market forces. In the English-speaking world, in particular, free trade and balanced budgets were all that was required of government policy. Economic equilibrium would always establish itself. These doctrines wore still dominant in the 1920s.''~^^30^^

Yet capitalist reality revealed in increasingly bold relief that this approacli did not fit the actual state of affairs. On the microeconomic plane, this was seen in the way free competition, which had always been considered as a necessary condition for "fair imputation", was suffering more and more massed and successful attacks on the part of monopoly.

Although the thesis of "self arrangement" on the basis of the free play of supply and demand had taken firm root in bourgeois economics, it is a rare economist who does not also consider the factors upsetting this "free play"---- primarily those in the sphere of monopolisation. Bourgeois economists saw those disturbances as an external ``evil'', however, as something to be

•11

exposed and overcome. With the consolidation of monopoly and its transformation into the dominant force, the situation changed sharply. Even at the end of last century, the British economist Henry Sidgwick wrote: "Given the proper circumstances ... it might be well to allow industry to function without interference. Yet with economic advancement, the propositions of laissez faire would have to be qualified. Numerous exceptions stemmed from the disparities between the utility accruing to the individual and those accruing to society. Indeed, it could not be demonstrated that the spontaneous efforts of individuals motivated by self-interest would maximize material welfare. Often a private enterprise occasioned social costs which it • shifted to others ... and frequently increased social costs were exacerbated by such developments as monoply.''~^^31^^ Describing the emergence of the Swedish school of political economy, Ben Seligman writes: "Free competition and automatism became legends. The distortions and errors of the economy could be corrected by the action of the state. Economics now was once again political economy. It was infused with an inescapable political content, and such matters as the level of purchasing power became determined by considerations beyond the market itself".^^32^^

In any economy based on the division of labour and on exchange, there can be no question as to whether there should be a market or not. It turned out, however, that the nature of market relations can differ so greatly that the market, as an integral concept, makes little sense: in reality markets of different types succeed one another or coexist---relatively free ones, monopolistic ones and state-monopoly ones.

During the period of monopoly capitalism, all bourgeois microeconomics, with its ``triad'' and "fair distribution on the basis of free market relations" came under attack. Bourgeois theory adapted to the new reality not by rejecting the ``triad'' or the principles of ``imputation'' and market equilibrium, but by developing theories of imperfect competition, bourgeois versions of monopolistic competition, and the mixed economy with the interaction of three active elements---the market economy, monopoly and the state.

The disparity between the theory of market equilibrium and reality manifested itself in the way the flourishing of free competition not only did not ensure equilibrium but, on the contrary, entailed cycles of the reproduction process--- economic crises recurring every nine to eleven years. Using the methods of bourgeois economics, the best that could be done was to explain specific fluctuations in the market situation over a certain period of time, but there was no chance of explaining the basic reasons for the cyclical course of reproduction.

Bourgeois economics could not, of course, ignore the fact of market fluctuations and the overproduction of commodities that began even before the first economic crisis, in Britain in 1825, which initiated the cyclical course of the entire reproduction process. Say and his school explained the disturbances in the reproduction process by the impact of random or subjective factors, such as the defaulting of debtors or the impatience of creditors, errors in estimates of the state of goods markets, and so on. In the first stage of its development the marginal utility school added virtually nothing to the views held by previous bourgeois economists.

Once events had revealed the complete invalidity of the views concerning the chance nature of market fluctuations, another version took shape and this, in different variations, is still around today. Its essence is that cycles are a natural phenomenon, like the changes of the seasons, and that crises are necessary and de sirable in the sense that, during crises, all enterprises are put to the test, their profitability is revealed, as well as their ability to make new investments and their right to continue participating in the process of the production and renewal of capital. The apologetic nature of bourgeois economics is probably nowhere so clearly revealed as in the way that a periodic destruction of productive forces and mass unemployment is recognised as an essential condition for the production process.

The Great Depression of 1929-1933 was, however, a turning point in relation to the positions held by bourgeois economists. In spite of the fact that half a century has passed since this crisis, bourgeois economists, to a man, refer to it as specialists on modern history refer to the periods of the First and Second World wars. Since the Great Depression all previous views that had taken shape over the two centuries of the development of economics have been considered through the prism of the major practical interest---the influence of the state on the reproduction process, in order to endow the latter with the greatest possible stability. This aspect of bourgeois science has become extremely tightly interwoven with the practical activities of the bourgeois state, especially since the last war and the formation of the world socialist system. Bourgeois economics was faced with the question of how state regulation should be exercised

in peacetime, given that private property was retained, but without military control over investment and the product mix, without rationing, without firm prices set by the state for all types of output, i.e., without the means used during the war years. The acute practical need and the development of mathematical economic methods entailed comprehensive research iri,to the various economic parameters and their interaction.

The views of bourgeois economists on these issues have evolved towards the setting of increasingly complex tasks. The aim of former concepts (before the Great Depression) consisted mainly in finding ways out of existing crises. Keynes's ideas set a more difficult task--- that of avoiding the emergence of crises or at least putting a brake on their development. Finally, the neo-Keynesian concepts claim to provide a theoretical justification for the "policy of growth"----the attempts by bourgeois governments to achieve not only stability of the market, but also more or less stable economic growth rates.

The theoretical basis for the research into the problem of state participation in the economy is still the thesis that equilibrium is achieved when the marginal evaluations of various factors of the production process balance out.

As already noted, it is John Maynard Keynes who may be considered the originator of modern bourgeois theories of state regulation.^^33^^ Before briefly describing his ideas, it should be noted that, although Keynes relies considerably on the works of his predecessors and contemporaries, his views were built up on the basis of tremendous practical experience rather than a study oS the literatiire. At the start of his

career, Keynes was a civil servant in the Ministry for Indian Affairs; before the First World War he worked as an editor of the Economic Journal; then he became economic advisor • to the British government under the most difficult circumstances, in particular in connection with the development of the war economy during the First World War, the elaboration of the conditions of the Versailles Treaty, the abolition of the gold standard, the Great Depression, as well as the Second World War, the postwar restoration and creation of a new international system of currency transfers (the Bretton Woods system). It was Keynes himself who, with his British practicism, demonstrated a negative attitude towards the economists of the past.^33a

Whatever the disagreements and clashes over the significance of Keynes's works, it was his book The General Theory of Employment, Interest and Money---partly because of the fundamental nature of the analysis and partly because of the high post held by the author--- that, more than any other, paved the way for consolidating in the bourgeois world the thesis of the end of the age of free competition,^^34^^ of the economy being unable to regulate itself and to function without the participation of a "third force" to constantly correct the inevitable imbalance of production (which he presents as incomes) and consumption (in his version---- expenditures).

Keynes maintained that overproduction arises from people's inherent so-called basic psychological law, to the effect that, as incomes rise, so does consumption, but not as quickly as the former, and consequently, the rise in incomes is accompanied by an increasing tendency to save.

Meanwhile, however, the tendency to invest does not grow as quickly as the tendency to gave, so an unused remainder is formed, this being manifested in less than full employment and less than full use of material resources. Keynes believed this discrepancy to be so serious that it could not he eliminated without state intervention---without a government policy of low interest rates and money issues in excess of the demands of circulation, without the concentration in the hands of the state of part of incomes and public investment.

From this angle, Keynes may be seen as a successor of the theory of underproduction first put forward by the British economist Thomas Malthus in the late eighteenth and early nineteenth century. Keynes believed that Malthus, in contrast to Ricardo, was a great economist and saw him as his own predecessor. In Keynes's conception, the bourgeois state is allocated the same role of "third person" allocated by Malthus to the non-productive classes ( including the clergy, to whom Malthus himself belonged), by Sismondi and the Russian Populists to petty property owners, and by Hobson and many other economists of different schools, to the colonies. According to all these conceptions, the "third persons" are the extra-- capitalist factor that swallows the unrealised surpluses of value created in the process of capitalist production.

Keynes cannot be considered as a mathematical economist, but he did a lot to introduce productive mathematics into economics.^^35^^ His aim was to find out the amount of investment by which the state might influence the market situation in order to avert cyclical disturbances in the reproduction process. In connection with

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his attempts to solve this problem, in his basic work he elaborated the concept of the Multiplier, which is simply a mathematical formalisation of the fact that the total increase in the national income resulting from the initial increase in investment will, in the end, be several times larger than the increase in investment. Later, this concept acquired a practical sense and firmly entrenched itself in economics. Modern economists study the multiplier effect not only of investment as a whole, but also of individual investments in different branches, state, private and mixed, as well as the multiplier effect of foreign trade and capital exports and their various components.

The next step in the same direction was made by John Clark in 1917, but was only elaborated on the practical plane in the late 30s, by Paul Samuelson. This was the accelerator theory of investment. It established that a change in demand induces a change in the amount of investment. With respect to state economic policy, the accelerator theory also acquired a practical significance: it was the basis on which estimates were improved of the influence on investment not only of the entire amount of demand, but also the demand for different types of output and, most important, that by the various strata of society. This opened up an opportunity to calculate more precisely the influence on the national economy of different types of tax, both direct and indirect, and also of the various kinds of saving.

The introduction of the Multiplier and Accelerator into the analysis brought bourgeois economics to the starting point of elaborating theories and models of economic growth.

Later, the development of the theories of

growth branched off in two directions. One of these is embodied in the so-called neo-- Keynesian models of growth, which take account of the interaction between the large and constantly growing number of micro- and macrovariables, marginal and average magnitudes. Parallel to this developed the theories of national economic balances, the aim of which consisted in establishing the approximate indicators of production and consumption by sphere and branch of the economy that would ensure balanced economic growth. The best known is the input-- output theory formulated by the American economist Wassily Leontief. The methodological basis here is provided by improved methods of accounting analysis specially adapted for this purpose. Developed for accounting on a national scale from the accounts of individual firms, these methods require mathematical operations in astronomical numbers, so computers became essential.

Mathematical economic analysis of the dynamic interaction between average and marginal magnitudes has become firmly established in economics. By fixing variables in their interaction, the given directions of growth theories (neo-Keynesian and input-output theories) supplement each other and assist the bourgeois state, as far as is possible, to select the means for influencing the economy that are optimal from the viewpoint of the bourgeois class. The more sophisticated the mathematical economic methods of analysis, however, the clearer becomes the weakness of the functional method, its limitations and the need to clarify cause and effect links. The unsatisfactory nature of the purely functional approach to studying economic phenomena is exposed comprehensively in

3*

the works of Marxist and a number of progressive scholars who criticise the bourgeois social system from non-Marxist positions. Here are some very typical examples of such criticisms. Antonio Pesenti writes as follows: "From the description of the Harrod model and from the mention of the other models, it becomes clear that the possibility exists of creating an infinite number of models, for there are an infinite number of variables that may be introduced into the formulae and a multitude of combinations even with only a few variables. Yet the actual process develops outside these hypotheses on the basis of a choice that, under capitalism, is determined by the class struggle, this necessitating constant changes in the economic strategy of the ruling circles. Since the means of production are virtually completely in the hands of private groups---even if the number of such groups is limited---and although economic levers for running the economy are concentrated in the hands of the state, even so, the decisive choice, i.e., decisions in the sphere of the economy, is made by individual private entrepreneurs on the basis of the well-known laws of the capitalist system of production.''^^36^^

Elsewhere he writes that the ``aggregates'' created in the course of economic analysis are not ``categories'', since "the levels of aggregation" are not conditioned by a precisely denned causal link between them, but are always empirical methods and working tools. In other words, they are only ``macrovariables'' that must serve for the empirical solution of major problems, such as fluctuations in the level of resource use, particularly the level of employment, the general price level, as well as of problems relating to the growth rate of incomes.^^37^^

The Soviet scholar Trina Aleshina writes that, in bourgeois science, "marginal estimates---the result of functional analysis, which has played a role in determining the quantitative correlations between changing values---ousted research into cause and effect links . .. Price, wages, profits, rent and the growth of the economy were represented exclusively as basically functional categories, while capitalism---as a society of equal opportunities for people free from oppression .. . The application of mathematical methods to the principles of scientific methodology, taking mandatory account of the socioeconomic foundations of society, opens up great prospects for the further development of economics. Inherent in the marginalist methodology, however, is a complete substitution of functionalism for causal links".^^38^^ Ben Seligman writes: "The political climate, the basic drives and aims of a society are too complex to be entirely compressed into mathematical equations and marginal curves; the ultimate understanding of a changing economy may very well require the modern theorist to resort to detailed institutioualist analysis, much as he may not want to do so." And again: "Mathematics, queen of the sciences, had been shown to need some additional workers.''~^^39^^~^^40^^

``It is easy enough," writes Joan Robinson, "to make models on stated assumptions. The difficulty is to find the assumptions that are relevant to reality.''~^^41^^

To sum up, it may be stated that the following three directions have combined in bourgeois economics, in micro- and macroeconomics since the last third of the nineteenth century: 1) recognition of free competition as an economic ideal; 2) the principles of "imputation of fair

distribution", in the accordance with the theory of three factors; 3) marginalism, i.e., the use of marginal quantities for determining the utility of goods and services and the contribution made by different factors.

The emergence of monopoly capitalism caused the collapse primarily of the first and second directions: "fair distribution" turned out to be an unprecedented concentration of wealth in private hands. At the same time, major social and national economic defects were discovered in the limits determined by the domination of monopoly capitalism. Intensive searches began in the ideological and political life of the ruling circles of bourgeois society for new approaches. The search was centred on the problem of state economic regulation.

classical synthesis", the aim of which is to combine the various directions and rise above them.

Important in a study of the history of bourgeois economic thought in the twentieth century is analysis of these and a number of other directions, each individually and in their interconnections. Here, however, we shall use another sort of grouping, dictated by the given topic: regardless of whether bourgeois economists belong to the Keynesian, anti-Keynesian or intermediate schools, modern methods of analysis are called on to discover which parameters accessible to state influence the state can and must affect in order to achieve the goals of stability and economic growth (investment, consumption, saving, employment, taxes, credits, monetary circulation, and so on), which development course it should choose and which means it should employ to advance in this direction. In this, there are not only effectiveness criteria but also, and above all, applicability criteria. "Our final task," wrote Keynes, "might be to select those variables which can be deliberately controlled or managed by central authority in the kind of system in which we actually live.''~^^42^^ Translated from the language of scientific abstractions to that of practical realities, this means operating with any models, parameters and curves, but without touching private property and market exchange. This was Kcynes's credo and his legacy to his followers.

Under state-monopoly capitalism, none of the existing theoretical conceptions (including Keynesianism) predominates or is universally accepted in ruling bourgeois circles. The views of key men in state economic policy are pragmatic in nature and they turn to one set of con-

3. "The Grand Neoclassical Synthesis"

In the twentieth century, especially since the First World War, dozens of economists have become internationally renowned. It is impossible to study the views of such a large number of scholars without grouping them, though the principles according to which this is done differ greatly. There is the local approach (the Austrian, Lausanne, Cambridge, London, Swedish and Chicago schools, etc.) and division according to aspects of the analysis (the mathematical school, institutionalism, and so on) and, perhaps the most common way, that connected with the interrelations between the different schools: Keynesianism-neo-Keynesianism against monetarism (and vice versa), ncoliberalism against Keynesianism and the theories of monopolistic competition (and vice versa) and, finally, "neo-

cepts or another depending on the actual situation. It also quite frequently happens that the same circumstances engender completely opposing views and asessments even in people standing on the same social platform, and only later does it become clear which concepts are really applicable. As J. K. Galbraith writes, before the last war, "Keynesian economics was regarded as a discovery, not as an accomodation to change.''~^^43^^ At the beginning of the 30s, i.e., also at the height of the crisis, a trend that has come to be called ``neoliberalism'' emerged at the same time as Keynes's theory in bourgeois economics. Its father was the German bourgeois economist Walter Eucken, but the trend was further developed mainly by the London school, the Chicago school and particularly the West German school of neoliberalism, the head of which should be considered to be Ludwig Erhard, professor of political economy, a major politician in the Conservative camp, and one* of the leaders of the Christian Democratic Union (he was Chancellor of the FRG from 1963 to 1966). The supporters of these trends have either directly or indirectly admitted that the particular destructiveness of the cyclical fluctuations on the market arises from the domination of the giant corporations, which are growing in might and occupy the dominant position on the market. Yet the ways proposed for fighting the pernicious consequences of this domination are totally opposite: Keynes and the Keynesianists, taking the domination of the major corporations as an irreversible fact, call on , the state to exert an influence on the macroeconomic parameters taking shape under the giv- j en socio-economic structure. Meanwhile the neoliberal school demands something else from

the state, i.e., that it apply measures against monopolistic practices.

Just as state policy is never formulated under the influence of a single specific trend but represents the outcome of its assessment by the various circles in the ruling camp, scientific views cannot remain unaffected by the realities of state policy. From this point of view, the evolution of the two schools, neoliberalism and Keynesianism, over the fifty years of their existence, is of considerable interest.

The testing ground for neoliberalism was the FRG where, after the last war, the reaction against Nazism and its maximal strict state control gave rise to a widespread anti-state feeling among bourgeois circles, and an anti-monopoly one among the broad population. A natural consequence of the virtual dismantling of the concerns that had served Hitler's war machine was a temporary rise in competition, during which new monopolies quickly took shape. In the circumstances, neoliberalism, representing the idea of the social market economy and the competitive economy, acquired considerable influence, which makes its rapid decline even more indicative. This was manifested primarily in the practice of state economic policy in the FRG, and then in the evolution of the concepts of neoliberalism. In one of the works on the interrelationship between the state and the corporations, the evolution of the views and positions of the head of West German neoliberalism is described as follows: "In 1965, an election year, Erhard developed the social content of the social market economy in the form of an explicit revision of the official doctrine of the competitive economy. Erhard's point of departure was an emotional expression of his doubts whether

an economy made up of largo concerns and large interest groups was able to achieve an adequate development of its economic and social structures. Accordingly, he was drawn to the idea of a co-operative society, in which conflicts of interest were harmonized in accordance with some nebulously defined standards of group responsibility. But Erhard was not the man to carry out such a program. In 1966 he was deposed as the head of government by his own party, putting off the modernization of German economic policy to the period of the coalition government.''~^^44^^

Thus, neoliberalism withdrew both ideologically and politically before the intensifying objective need for state regulation of the economy given the rapid re-establishment of large corporation domination.

What was happening to Keynesianism at this time?

Bourgeois economic criticism of Keynes took two directions. One was neoliberalism, as we have already seen, which rejects the very basis of Keynes's approach, i.e., the fact itself that the state needs to manipulate the investment process. The second, an incomparably more justified criticism, which led to the emergence of neoKeynesianism, was that Keynes's concepts are static. Keynes is accused of ignoring long-term changes in the reproduction process, in the influence exerted by investment on the mass of output produced. Roy Harrod considers that the refusal to apply the acceleration principle in Keynesian analysis makes the study of the interaction between the rise in incomes and investment one-sidod, in as far as Keynes traces only the dependence of the rise in incomes on that in investment (the multiplier effect), and leaves out the feedback. "The so-called acceleration princi-

pie", Harrod writes, "is essentially a dynamic principle, since it regards the volume of demand for a new capital as a function of the rate of increase of the economy.''~^^45^^

The striving towards mathematical analysis has to a certain extent drawn together the different lines in bourgeois economic theory. At the same time, the main trends still retain major disagreements, which indirectly reflect the contradictions between the various groupings of ruling circles in their internecine struggles to strengthen their positions.

Within the trends of a strictly conservative type, the disagreements exist mainly on the question of which parameters the state should influence and how it should do so in order to achieve maximum effectiveness. On this plane, neo-Keynesians prefer government finances as the most active and effective means for the state to redistribute the national income and participate in investment. Under contemporary conditions, monetarism constitutes the embodiment of the ideas of neoliberalism. This sees the main lever for state influence as money and credit policy. Monetarism constitutes, as it were, the second line of defence behind which neoliberalism has withdrawn from its former positions: if state interference cannot be avoided altogether, its intervention should be limited to exerting an influence through the credit system on the mass of means in circulation, in accordance with the demand for these means that takes shape on the market in the course of competitive relations.

In fact, of course, depending on the circumstances and the specific conditions, first one set of means then the other can be manipulated and a combination of the two used. Just such a pragmatic combination constitutes the essence of the

so-called neoclassical synthesis which, called different things in different countries, is at present the most influential trend in bourgeois economic thought. Describing the emergence of this trend the Soviet economist Irina Osadchaya writes: "The emergence of the neoclassical theory in the analysis of macroeconomic problems meant the appearance of a serious rival to Keynesianism, not only in the theoretical field, but also in that of justifying programmes for economic regulation. The critical duel between the two trends---neo-Keynesianism and neoclassicism--- did not, however, end in either of the opponents being knocked out. The result was a different one: in the course of this criticism ... the socalled neoclassical synthesis process unfolded within bourgeois economics.''~^^48^^

As we see it, neoclassical synthesis as a concept is playing the part of the fig-leaf in relation to modern orthodox Keynesianism. This detail was necessitated by the fact that, among monopoly bourgeois circles (especially in the USA), the idea was widespread that Keynes was overradical, that he attacked the sovereignty of largescale private property.

Actually, however, even the most careful comparison reveals no fundamental differences between the concepts entertained by the neo-- Keynesianists and by the supporters of the neoclassical synthesis.^^47^^ Their common aim is to select the optimal trajectory for development and to ensure the economy's advance along his trajectory with the aid of government measures. J. K. Galbraith writes: "Within a decade (after the Second World War---Author) the belief that the modern economy was subject to a deficiency in demand---and that offsetting government action would be required---was close to becoming the

new orthodoxy . .. Thanks primarily to the powerful and unlettered initiative or Professor Paul Samuelson it was soon to be standard in economic pedagogy.''^^48^^ Yet it is Samuelson himself, a Professor at the Massachusetts Institute of Technology, who (at least in the USA) is recognised as the spiritual father of neoclassical synthesis, as a convinced supporter of pragmatic eclecticism including everything---from certain propositions from the theories of Smith and Ricardo, right up to neoliberalism and neo-- Keynesianism. What Marx wrote in Capital about another ``synthesis'' might also be applied to Samuelson's concepts: "Macleod, who has taken upon himself to dress up the confused ideas of Lombard Street in the most learned finery, is a successful cross between the superstitious mercantilists, and the enlightened Free-trade bagmen.''~^^49^^

The leader of neoclassical synthesis himself appraises synthesis results very highly. In 1967 he wrote the following: "By proper use of monetary and fiscal policies, nations today can successfully fight off the plague of mass unemployment and the plague of inflation. With reasonably stable full employment a feasible goal, the modern economist can use a 'neoclassical synthesis' based on a combination of the modern principles of income determination and the classical truths.''^^50^^ The acceleration of economic growth in the late 50s and early 60s brought about an optimism that, on the sociological plane, was reflected in the ideas of the "postindustrial society" (D. Bell), "the new industrial society" (J. K. Galbraith), the "technotronic society" (Z. Brzezinski), "the affluent society", etc. In economics it was the neoclassical synthesis position that corresponded to this optimism. In this same work, Samuelson calls the conception

Worked out under his prevailing guidance, the "grand neoclassical synthesis".^^51^^ "We may conclude," he finished up, "on a note of optimism... Modern economic analysis does provide us with a neoclassical synthesis that combines the essentials of the newer theories of aggregative income determination with the older classical theories of relative prices and of microeconomics. In a wellrunning system, with monetary and fiscal policies operating to validate the high-employment assumption postulated by the classical theory, that classical theory comes back into its own, and the economist feels he can slate with renewed conviction the classic truths and principles of social economy.''~^^52^^

4. Neoinstitutionalism

The acceleration of the economic growth rate in the 50s and 60s strengthened the positions of neoclassical synthesis as a concept oriented on a combination of state regulation and private enterprise that would be optimal from the point of view of monopoly capital. Yet even at that time, the prevailing theories and that of state regulation were criticised by those members of bourgeois and bourgeois-reformist circles who saw how more and more serious contradictions and disproportions were taking shape in the course of the accelerated growth. This criticism congealed into a new line of thinking called ``neoinstitutionalism'',^^53^^ "social economics" or the "critical trend". Its essence consisted in a more or less serious review of the basic propositions of contemporary traditional bourgeois political economy, which arose and developed during the general crisis of capitalism---Keynesianism, monetarism, and the neoclassical synthesis. It is

characteristic that this trend has proved hard to isolate as a single school: revisionist tendencies have become widespread among a broad circles of the ideologists of the bourgeois world. Even Paul Samuelson has, in the most recent editions of his Economics, come out against the one-sided narrowly economic approach to the problem of growth inherent in the neo-Keynesian and neoclassical trends, and has drawn attention to the ideas of the "institutional-social trend''.

The best-known representatives of this trend in the USA are J.K. Galbrailh and W. W. Leonlief; in Britain, Joan Robinson and Thomas Balogh; in France, Francois 1'erroux; in Japan, T. Utida and N. Namiki. The essence of the given trend consists in recognition of the unsatisfactory nature of state influence on the reproduction process using budget and monetary-credit policy, since such means have proved inadequate for eliminating the disproportions threatening the reproduction process. Hence the need for more radical means---direct intervention in the structure of reproduction and the distribution of incomes on the national scale. This should be achieved on an institutional basis, on the basis of constant and comprehensive cooperation between the different parts of the social organism, especially the state machinery, the corporations and trade unions. Here lies the difference between the given trend and Keynesianism which, as we have already seen, built its conceptions on the assumption of the invariability and stability of existing institutions. The position of modern institutionalism and its critical attitude towards other trends might be expressed as follows: enough time and effort has been spent multiplying the number of variables under study and the correlation between them. It is now time to

find a way to exert a deliberate and more effective influence on the actual state of affairs.

Modern institutionalism includes criticism of other trends, its own analysis and proposals for reforms. Each of the authors mentioned, and others too, lays different emphasis on these three components and presents them differently: they range from a complete rejection of former conceptions to a critical perception of them, from a single proposal to alternatives (open-ended analysis).

Of the most scientific interest is the criticism of the trends that have taken shape and predominated over the last forty odd years. One of the most important representatives of modern institutionalism, Joan Robinson, writes of two crises of economic theory. In her opinion, the first crisis occurred when Keynes's thesis concerning the possibility of maintaining the general scale of employment at a given level proved invalid (as a consequence of the overall opposition of big business to corresponding government policy measures). "The second crisis", she writes, "is quite different. The first crisis arose from the breakdown of a theory which could not account for the level of employment. The second crisis arises from a theory that cannot account for the content of employment.''~^^54^^

This British economist approached a question of cardinal importance---the ability of the bourgeois state to ensure not only the general level of investment set by the requirements of full employment, but also their proportionality, their physical structure. "The whole trouble", she writes, "arises from just one simple omission: when Keynes became orthodox they forgot to change the question and discuss what employment should be for.

``This primarily concerns the allocation of resources between products, but it is also bound up with the distribution of products between people. On the subject of distribution, of course, there is quite a lot in the orthodox textbooks, but it is not at all easy to make out what it means. Keynes did not need a theory of distribution for the long run... He was concerned mainly with the short period, here and now, when only expectations of future profits come into the argument.''~^^55^^ "He had to show," Robinson claims, "that an increase in investment will increase consumption . .. whether the investment is useful or not... As we know, for twenty-five years serious recessions were avoided by following this policy. The most convenient thing for a government to spend on is armaments. The military-industrial complex took charge . . . The system had the support not only of the corporations who made profits under it and the workers who got jobs, but also of the economists who advocated government loan-expenditure as a prophylactic against stagnation... It was the socalled Keynesians who persuaded successive presidents that there is no harm in a budget deficit and left the military-industrial complex to take advantage of it.''~^^56^^

This critical attitude towards Keynes's concepts and some of their advocates is realistic: the entire history of the militaristic direction of state-monopoly regulation has revealed that a mere step-up in government participation in investment is not sufficient, that a rational structure of the economy and investment is also required. This elementary proposition has emerged with extreme clarity in the current structural crises, which we shall analyse in detail later (Chapter 4).

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Criticism of traditional theories is also found in the works of Thomas Balogh, a well-known British economist, Professor at Oxford University and consultant to the Labour I'arty leadership as well as to a number of international organisations and private firms. Balogh's main thesis is that the extreme inequality in incomes and the differences in their origin engender an inevitable imbalance between demand and supply, and, at the same time, underconsumption, which he interprets in a Keynesian spirit.

Yet Balogh also criticises Keynesianism. "The Keynesian `revolution' in economic thought," he writes, "has proved as broken a reed in helping to attain a steady dynamism in our economy as the elegant neoclassical structure of thought it overcame . .. Liberal Keynesian growthmanship did achieve accelerated and sustained growth. But through the social tensions, which were caused by its failure to secure a sense of justice, it undermined its own success through escalating demands for higher money incomes.''~^^57^^

Balogh gives consistent preference to government and public control in the economic sphere, but he sees deep flaws in the way this is exercised in practice. In his view, the efforts geared to curbing excessive growth more often than not lead to a recession rather than normalisation. On the other hand, all-round and energetic intervention during a recession usually brings not simply a halt to it, but a boom that engenders a multitude of disproportions and a threat of another imminent recession. "Liberal Keynesian growthmanship," he writes, "tends to undermine itself by its failure to eliminate dissatisfaction and uncertainty. .. . Both the Keynesian and the monetarist mystery mongers completely neglect the impact of anticipation on the behaviour of specu-

lators and trade unions.''~^^58^^ "Violent variations in savings through consumer credit or repayment, the use of vast idle money reserves, immense accumulations of durable consumer possessions, these can offset---and more than off set---changes in the budget, in taxation, or in monetary policy.''^^59^^

Thus, by turning to social iactors, Balogh comes to the justified conclusion that the state is not capable of attaining its goal---the optimal functioning of the economy. Balogh's criticism is intended merely to reveal the defects and weaknesses in the system, but he ignores the actual forces, capable of breaking the system, with its inherent defects and flaws. Nowhere in his works does he give a scientific analysis of the struggle between the two systems nor criticism of the fact that a large share of the British national incomes is spent on the arms race, nor assessment of the fact that no appeals or persuasion will cause the monopolies to give up the principles of their struggle for maximum profits and that no independence of government bodies from big capital is possible.

On the other side of the Atlantic, the most eminent representative of modern institutionalism is Galbraith. The main content of his many publications consists in reformist criticism of the contemporary system of monopoly capitalism and the presentation of alternatives. Galbraith is a notable figure in modern US intellectual and political life.^^60^^ Like Balogh, Galbraith gives a comprehensive critique of the neoclassical synthesis concept and of Keynesianism. As he sees it, they both err in turning to the market as a balancing factor. He does not himself analyse quantitative economic parameters or elaborate recipes for the government to act upon them, since he consid-

4*

ors this to be a pointless activity under the current social conditions. Galbraith takes a different approach: he establishes the existence and domination of the "planning system" (or the ``technostructure''), by which he means the "world of the big corporations", which are not dependent on the market and, in view of their tremendous might, impose their own conditions and their own goals on the market, and tastes and the nature of demand on the consumers. He counterposes "the planning system" to the " market system" which, in his opinion, is "a world of small firms".^^61^^ Given this, he believes the coexistence of these two systems to be inevitable, since each of them has its own sphere of activity and is necessary for the functioning of the economy.

Galbraith's analysis of the positions of the big corporations, their dominance over the "world of small firms", his detailed and impressive consideration of the means used for implementing this domination undoubtedly constitute a strong side of his research. He does not, however, confine himself to simply stating the existence of the two systems and the specifics of each of them on the plane of market relations. He goes further, clarifying a number of the actual defects in the existing situation. He sees the main one as being the way neither the one nor the other, neither the "planning system", nor the "market system", is capable of ensuring the creation and functioning of a number of spheres of the economy and culture without which proportional development and a growth of general prosperity are out of the question. In Galbraith's opinion, there are industries that are " indispensable as people now view their need for means to move about and for protection from disease

and the woalher. With economic development the contrast between the houses in which the masses of people live, the medical and hospital services they can afford and the conveyances into which they are jammed and the other and more frivolous components of their living standard---- automobiles, television, cosmetics, intoxicants---- becomes first striking and then obscene".^^62^^ Then drawing a picture of a sharp deterioration in people's health engendered by the consumption of products imposed on them by the predominance of the "planning system", Galbraith states that "medical and hospital care is not part of the development which induces these disorders. It lags systematically behind.''~^^63^^ The defects in the infrastructure---overpopulation and crowding, environmental pollution, the bad condition of the transport system---are seen by him as consequences of the inability of both the `` planning'' and the ``market'' system to deal with the tasks involved in eliminating these defects.^M The fact that Galbraith establishes these actual defects and contradictions also constitutes the progressive side of his analysis.

How, exactly, does this Harvard professor propose that the distortions be overcome? The parts of his many works containing programmes for reform provide the answer. In the book A Contemporary Guide to Economics, published in 1972, Galbraith puts forward the idea of public control over prices and wages. "Controls," lie writes, "are not a temporary expedient. There must, alas, be a permanent system of restraint. That is because we will continue to have strung unions and strong corps and a desire to minimize unemployment. The combination, in the absence of controls or serious recession, is inflationary. It will not become otherwise in the future.

``No one who has experience with wartime price control * will be casual about the problems in managing it. Nor is it a formula for popularity; everyone eventually unites in disliking the price-fixer. But economic policy cannot be made as now with a primary eye to the comfort, convenience and general relation of those who guide it. The public interest must also be consulted...

``All price and wage control involves an arbitrary exercise of public power. But this is not an objection, for it replaces an arbitrary exercise of private power and one that has further and exceedingly arbitrary effects for those who suffer from the resulting inflation.''~^^65^^

In the book Economics and the Public Purpose, which came out in 1973, Galbraith presents a programme for reform that must consist of three main lines: first, the power and income of the "market system" must be increased, which should lead to a strengthening of its position with respect to the ``technostructure''; second, means must be found within the "planning system" in order to make it serve public interests, limiting the use of resources in overdeveloped sectors and redirecting these to spheres that are underdeveloped and, finally, the state must assume overall control over the interrelationships between the two systems. Any sphere that is not developed within the framework of the existing systems must be taken over by the state. "The only answer for these industries," he writes, "is full organization under public ownership. This is the new socialism which searches not for the positions of power in the economy but for the positions of weakness".^G6

In other words, Galbraith's "new socialism" ; must consist in retaining both the ``planning'' and the ``market'' systems, but with the shortcomings of both put right by the state, which must assume the function of balancing---- sometimes by expanding state property, sometimes by controlling prices and incomes. Galbraith leaves no doubt about the nature of his conceptions concerning the "new socialism", referring to the experience of Western Europe and Japan where, in his view, socialism is developing within the "market system". This development is seen in the same thing as always---in the more successful functioning of the industries the development of which is not, in the USA, ensured by the "planning system". He writes: "The performance of all these industries in Britain, Scandinavia, Germany (West Germany---Author] and Holland is categorically superior to that in the U.S. In other countries---France, Italy, Japan, Switzerland---the enterprises that have been fully socialized, notably rail and urban transport, are superior. Only those that have not been socialized are deficient. The difference between Americans and Europeans is not that Americans have a peculiar inaptitude for operating public enterprises. The difference is that Americans have been guided by a doctrine that accords a secondrate and apologetic status to such effort".^^67^^

From the example of Galbraith, we see one of the characteristic features of modern bourgeois thought---it counters the experience of some countries of monopoly capitalism to that of others and exaggerates the differences in the systems of state regulation. A similar approach is taken by nnolher outstanding representative of modern instilutionalism in the USA---Nobel prize-winner for economics Wassily Leontief. At

I

55

* 1941-1943, ,T. K. Galbraith was a member of the price control board.

the international symposium in Tokyo in 197(i, Leontief announced that, in his opinion, the 1974-1975 economic crisis in the USA meant the collapse of Keynesian theory. He added that he had always been sceptical about Keynesianism since it deals with economic parameters of secondary importance, while the contemporary economy is so complex that it cannot be managed by simply influencing individual variables such as the bank-rate, deficit financing and money circulation. "The best thing to do now," Leontief said, "is to forget" Keynesian theory.^^68^^

What did Leontief propose to replace Keynesianism? He turned to the idea of permanent cooperation between the government and the corportations, considering that modern Japan presents a good example of this.^^69^^ This reference to Japan reveals the very essence of modern bourgeois reformism and, at the same time, its lack of validity. In Japan, which Leontief presented as an example to be copied, the socio-economic contradictions are no weaker than in the USA and the countries of Western Europe, while the 1974-1975 economic crisis was deeper and more protracted here than in the other countries of monopoly capitalism.

When the comparison of countries comes from extreme reactionary, nationalistic forces, the Hawks, it serves as a propaganda weapon for "national exclusivity", a justification of expansionist policy and militarism. Coming from bourgeois-liberal and reformist ideologists it has another purpose: its aim is, by stressing that "things are better in other countries", to draw attention away from the fundamental, most deeprunning contradictions and defects inherent in the entire capitalist social system as a whole. However great the significance of Galbraith's

analysis of disproportions, no consistent uncompromising scientific analysis of modern capitalism can be based on a comparison of the two systems---``planning'' and the ``market''. This is simply not realistic, primarily because, under capitalism, the "planning system" is also a market system, one involving multilateral monopolistic competition. In his book John Kenneth Galbraith and the Lower Economics, the American economist Myron Sharpe criticises Galbraith, writing justifiably that the American corporations do not plan how to replace the market, but how best to compete on it. In Sharpe's view, it is not a question of what replaced the principle of profit maximisation as the main trend in the corporations' behaviour, but how this trend is modified by the conditions on the market.^^70^^

The distorted nature of the ``technostructure'' is described masterfully by Galbraith as the ceaseless struggle for the "consumer's dollar" between some big corporations and others, between corporations of different sizes, between industries, between manufacturers of similar products or ones of analogous purpose. The consumers also participate in this competition simply because a large share of the national product is intermediary, so it is the corporations themselves that act as consumers.^^71^^

Since Galbraith goes further than Keynes in his criticism of the existing situation, his proposals are naturally more radical: the imperatives he puts forward constitute a synthesis of the most extreme versions of budgetary-fiscal and credit policy, incomes policy, economic planning and currency regulation. It is here that the Utopian nature of bourgeois-reformist institutionalism is most clearly manifested. Galbraith appeals to public opinion which, he suggests, could

achieve changes in legislation, in the structure of the administrative apparatus, in the tax system, in fiscal and credit-monetary policy, and in f the establishment of prices and incomes policy. '• "Government machinery must then be established," he writes, "to anticipate disparity and to ensure that growth in different parts of the economy is compatible.. . This, in turn, will have to be under the closest legislative supervision... That will be to have planning that reflects ... the public purpose. The creation of the planning machinery, which the present structure of the economy makes imperative, is the next major task in economic design.''~^^72^^

In his Contemporary Guide to Economics, Galbraith criticised the then President, Richard Nixon, for coming out against price and wage control, even though he recognised the existence of the wage-price spiral. In Galbraith's opinion, Nixon was like a fireman who, though he was aware of the damage done by the fire, and that it could be put out with water, "on grounds of principle, greatly opposes water as a way of putting the fire out".^^73^^ Yet Galbraith goes not further than such ironical remarks. He remains an ideologist and active member of the Democratic Party in which, like in the Republican Party, as he himself admits, the dominant positions are held by supporters of the "planning system" in its present form.

The clashes between the various schools of modern bourgeois economics and the fierce attacks on one another reveal the depth of the crisis of bourgeois conceptions, the exhaustion of the "theoretical reserves" and confusion in the face of the growing crisis of the capitalist system. Of major significance for understanding the essence of the current crisis is the content

of the latest criticism of Keynesianism---the main trend in bourgeois economics this century. The majority of bourgeois ideologists believe that Keynesianism was applicable at the time, when, given a surplus of manpower and productive capacity, it was possible to fight against unemployment and idling by exerting an influence on the major macroeconomic parameters that, to some extent, are within reach of the state under the given circumstances--primarily on the distribution of the national income, in value terms, between consumption and accumulation. This is no longer enough; something more is needed---direct state influence on the structure of production, too. Influence on individual parameters is ineffective since it is impossible to influence them all at once, and above all the main ones---property, prices, and incomes. Together with the criticism of Keynesianism's shortcomings, new trends emerge that, in many respects, follow on from what went before---demands for the corporations to be broken up in order to revive competition; proposals to strengthen the national (and also international) planning principle on the basis of state control over the big corporations and finally, various incomes polices.

The deterioration in the USA's economic position in 1979, the imminent threat of another recession (which began to develop as early as 1980) with new force drew attention to the views of economists on the general situation. At the end of 1979, The New York Times Magazine questioned the twenty leading American economists; the results showed that economists fall more or less precisely into three groups. The first (or, as the magazine called it, the rightwing group) includes mainly monetarists who assign the leading role in solving economic prob-

lems to the private sector. The role of the government, as they see it, consists in providing a suitable "economic climate" for investment activity by increasing the volume of money by a maximum of four per cent per year. Although the monetarists admit that a strict credit policy would give rise to a temporary increase in unemployment, they believe that, in the longterm, a general improvement in the economic situation in the country would have a beneficial effect on all economic indicators.

The second point of view (the centrists) is held mainly by Keynesianists, neo-- Keynesianists and anti-monetarists, who allot pride of place to government economic policy and an increase in the government's role, proposing, in particular, oil import quotas, taxes on the import of gas and an improvement in the planning of land use. They oppose any stricter money policy on the grounds that this would supposedly have a negative effect on production without halting price rises. Nor do they approve of decisions leading to increased unemployment.

The representatives of the third group (the left-wingers, particularly the left Keynesianists) believe that the government and private sector must interact. In their opinion, strict government control and a planning system, in spite of its shortcomings, would still be better than a recession accompanied by simultaneous price rises. The main content of the government policy they see as holding back investment, together with the pursuance of an incomes policy---- government control over profits and wages. In conclusion the magazine article notes that, however much the views of these three groups may differ, all the economists recognise the unsatisfactory nature of the current situation,^^74^^

The more radical the proposals for changes within the framework of existing social relations, the more obvious it becomes that they are both unrealistic and Utopian. Even so, such proposals are of scientific interest: analysis of the origins and content of myths has often helped in better understanding reality.

Marxist political economy consistently investigates the clash of views between its opponents, since this reveals the contradictions of capitalism. "When one idealist," Lenin wrote, " criticises the foundations of the idealism of another idealist, materialism is always the gainer thereby".~^^75^^ This remark of Lenin's with respect to the history of philosophy is equally applicable to all the other social sciences. Being subordinate to the study of the reality of the capitalist economy, analysis of the disagreements and clashes between bourgeois economists holds pride of place in works on the problems of political economy written by the founders of scientific socialism. The conflicts between the different schools of bourgeois political economy do much to facilitate scientific analysis but cannot, of course, replace it. New phenomena in socio-- economic reality and the way they are reflected in bourgeois concepts can only be appraised on the basis of the labour theory of value, which reflects the basic features of the bourgeois social system as they take shape and develop.

In conclusion, it may be stated that modern bourgeois economics is characterised by a rift between micro- and macroeconomics. The foundation of microeconomic analysis is the thesis that effective growth of the economy is based on distribution of the product between the various factors in production according to how much they contribute, this being realised fullest under

free competition. Since the latter is disturbed, the state must step into the breach. How? By what means? We shall attempt to answer these questions in the course of our subsequent analysis of the theory and practice of state-monopoly regulation.

1917 Resolution on the Current Situation", Collected Works, Vol. 24, p. 309.

~^^13^^ Antonio Pesenll, Manuals di economia politico, Vol. II, Editori Riuniti, Rome, 1970, p. 107.

~^^14^^ John Maynard Keynes, The General Theory of Employment, Interest and Money, Macmillan and Co. Ltd., London, 1936, p. 381.

~^^15^^ Evsey D. Domar, Essays in the Theory of Economic Growth, Oxford University Press, New York, 1957, p. 18.

~^^16^^ Jan Tinbergen, Central Planning, Yale University Press, London, New Haven, 1964, p. 4.

~^^17^^ Quoted from: Klaus 0. W. Miiller, Neokeynesianismus, Akademie-Verlag, Berlin, 1974, p. 72.

~^^18^^ From this point of view, the Nazi Minister Speer's book is of interest in its presentation of the content of Hitler's speech at a meeting of German industrialists on June 26, 1944. According to Speer, Hitler declared that he could not imagine the economy without "private capital, or private property or private possessions... The basis for all real higher development, indeed for the further development of mankind (will therefore be found) in the encouragement of private initiative". Albert Speer, Inside the Third Reich, The Macmillan Company, New York, 1970, p. 360.

~^^19^^ John Strachey, Contemporary Capitalism, Victor Gollancz Ltd., London, 1956, p. 242.

~^^20^^ John Kenneth Galbraith, to whose works we shall refer on several occasions, wrote the following: "The Eisenho_wer-Mills (an American sociologist---Author) contention was, in essence, that defense budgets and procurements were being influenced not by national need but by what served the economic interests of the suppliers" (J. K. Galbraith, A Contemporary Guide to Economics, Peace and Laughter, Houghton Mifflin Company, Boston, 1972, p. 21).

~^^21^^ A. Pesenti, Op. cit., p. 206. The American bourgeois economist Gardner Ackley writes: " Macroeconomics deals with economic affairs 'in the large'. It looks at the total size and shape and functioning of the `elephant' of economic experience... To alter the metaphor, it studies the character of the forest, independently of the trees which compose it.

``More specifically, macroeconomics concerns itself with such variables as the aggregate volume of the output of an economy, with the extent to which its resources are employed, with the size of the national

References

~^^1^^ Karl Marx, Capital, Vol. I, Progress Publishers, Moscow, 1974, p. 669.

~^^2^^ Frederick Engels, "The Condition of the Working Glass in England", in Karl Marx, Frederick Engels, Collected Works, Vol. 4, Progress Publishers, Moscow, 1975, p. 564.

~^^3^^ Marx/Engels, Werke, Vol. 13, Dietz Verlag, Berlin, 1969, p. 7.

~^^4^^ Karl Marx, A Contribution to the Critique of Political Economy, Progress Publishers, Moscow, 1978, p. 214.

~^^5^^ V. I. Lenin, "The Economic Content of Narodism and the Criticism of It in Mr. Struve's Book", Collected Works, Vol. 1, p. 355.

~^^6^^ V. I. Lenin, "The Tax in Kind", Collected Works, Vol. 32, p. 345.

~^^7^^ Karl Marx, Capital, Vol. Ill, Progress Publishers, Moscow, 1977, p. 438.

~^^8^^ Frederick Engels, "Socialism: Utopian and Scientific", in K. Marx and F. Engels, Selected Works in three volumes, Vol. 3, Progress Publishers, Moscow, 1977, p. 144.

~^^9^^ Engels to C. Schmidt, October, 1890, in Marx, Engels, Selected Correspondence, Progress Publishers, Moscow, 1965, p. 421.

~^^10^^ Frederick Engels, "The Origin of the Family, Private Property and the State", in K. Marx and F. Engels, Selected Works in three volumes, Vol. 3, p. 329.

~^^11^^ Karl Marx, Grundrisse der Kritik der Politischen Okonomie. (Rohentwurf 1857-1858), Foreign Languages Publishers, Moscow, 1939, p. 430.

~^^12^^ V. I. Lenin, "The Seventh (April) All-Russia Conference of the R.S.D.L.P.(B). April 24-29 (May 7-12),

income, with the 'general price level'. Microeconomics, on Ihe other hand, deals with the division of (otal output among industries, products, and firms, and the allocation of resources among competing uses. It considers problems of income distribution. Its interest is in relative prices of particular goods and services" (G. Ackley, Macroeconomic Theory, The Macmillan Company, New York, 1961, p. 4).

~^^22^^ Karl Marx, Capital, Vol. Ill, p. 882.

~^^23^^ A "congelation of labour" or "materialised labour" is a definition applied in Marxist political economy to commodities in the form of things. As for services, it is specific of them that utility hero bears a non-material character, but this does not alter its commodity nature. Services "in general is nothing but a term for the particular use-value which the labour provides (i.e., the labour producing the services---Author) like any other commodity; it is however a specific term for the particular use-value of labour in so far as it does not render service in the form of a thing, but in the form of an activity" (Karl Marx, Theories of Surplus-Value, Part I, Progress Publishers, Moscow, 1969, pp. 403-404). In another place Marx points out that "as such services have a use-value and because of their production costs also an exchange-value" (Ibid., p. 168).

~^^24^^ "The price," wrote Bohm-Bawerk, "turns out to be, from start to finish, the product of subject marginal utility... Throughout the entire process of the formation of the price, there is no phase or moment that does not come down to a subjective assessment of the object by the participants in the exchange as its cause" (E. Bohm-Bawerk, "Grundziige der Theorie des wirtschaftlichen Giiterwertes", Jahrbiicher fiir Nationalokonomie und Statistik, 1886, p. 503).

~^^25^^ Ibid. Assessing the role of Bohm-Bawerk, the wellknown Japanese economist Tsuru Shigeto writes: " Almost all the critics of Capital today perch on the shoulders of Bohm-Bawerk ... when one dog bays the moon, a thousand curs follow his example" (Tsuru Shigeto, Towards a New Political Economy, Kadansha, Tokyo, 1976, p. 98).

~^^26^^ The American economist D. M. Nuty writes: "The state of technology and relative factor supplies determine relative income shares. There are classes but there is no room for, nor point in class struggle in a world where everybody, by implication, is getting his `fair' share according to his individual contribution to the

production process. For the sake of simplicity we shall go on calling it neo-classical theory" (A Critique of Economic Theory, ed. by E. K. Hunt and J. G. Schwartz, penguin Modern Economics Readings, Kingsport, 1973,

p 223).

27 paul A. Samuelson, Economics. An Introductory Analysis, McGraw-Hill Book Company, New York, 1967,

p. 601.

as ibid., p. 379.

~^^29^^ Axel Leijonhufvud, On Keynesian Economics and the Economics of Keynes, Oxford University Pr"3S, New York, 1968, p. 394.

so From a speech to the December 1971 Session of the American Economic Association. Quoted from Joan Robinson, "The Second Crisis of Economic Theory", The American Economic Review, May 1972, Vol. LXIII, No. 2, p. 2.

~^^31^^ Quoted from: Ben B. Seligman, Main Currents in Modern Economics. Economic Thought Since 1870, The Free Press of Glencoo, New York, 1963, p. 446.

32 Ibid., p. 586.

~^^33^^ See R. F. Harrod, The Life of John Maynard Keynes, Macmillan and Co. Ltd., London, 1951, p. 294.

33a "For professional economists, after Malthus, were apparently unmoved by the lack of correspondence between the results of their theory and the facts of observation. .. It may well be that the classical theory represents the way in which we should like o^ir Economy to behave. But to assume that it actually does so is to assume our difficulties away" (J. M. Keynes, The General Theory of Employment, Interest ana Money, pp. 33-34).

~^^34^^ As early as 1924, Keynes gave a lecture at Oxford on the theme "The End of Laissez-Faire", which was later published as a book of the same title. In it he wrote: "Wo must aim at separating those services which are technically social from those which are technically individual. The most important Agenda of the State relate not to those activities which private individuals are already fulfilling, but to those functions which fall outside the sphere of the individual, to those decisions which are made by no one if the Stale does not make them. The important thing for Government is not to do things which individuals are doing already, and to do them a little better or a little worse, but to do those things which at present are not done at all" (Quoted from: R. F. Harrod, Op. cit., p. 355).

5-017G8

~^^35^^ During the second half of last century and the first three decades of this, the progress in statistics opened up the possibility of formulating such national economic indicators as the gross national product, the national income, the volume of investment, consumption, profits, savings, the structure of each of these magnitudes, and so on. On the other hand, regardless of the progress in statistics, the application of marginal (incremental) magnitudes engendered the need to turn to mathematics (including differential calculus) as a means for analysis of the functional dependency hetween the different dynamic parameters. Initially this analysis was extremely abstract---taking the form of mathematical formulae, models and curves. Among the attempts to give a concrete meaning to mathematical concepts, one that stands out is that of the Harvard school of economic research in the USA to forecast the business cycle. After the Great Depression put paid to the American economists' optimistic forecasts, however, confidence in the attempt was lost, and it failed.

~^^36^^ A. Pesenti, Op. cit., p. 299.

~^^37^^ Ibid., p. 206.

~^^38^^ Mupoean BKOHOMUKCI u Mejicdynapodnbie omnmaeHun, 1975, No. 2, cip. 57.

~^^39^^ Ben B. Seligman, Op. cit., p. 729.

~^^40^^ Ibid., p. 385.

~^^41^^ Joan Robinson, Economic Heresies. Some OldFashioned Questions in Economic Theory, Basis Books Inc. Publishers, New York, 1971, p. 141.

~^^42^^ J. M. Keyncs, Op. cit., p. 247. ''The enlargement of the functions of government... [is] the only practicable means of avoiding the destruction of existing economic forms in their entirety and ... the condition of the successful functioning of individual initiative". (Ibid., p. 380).

~^^43^^ J. K. Galbraith, Economics and the Public Purpose, Houghton Mifflin Company, Boston, 1973, p. 184.

~^^44^^ Big Business and the State. Changing Relations in Western Europe, ed. by Raymond Vernon, Harvard University Press, Cambridge, Mass., 1974, p. 66.

~^^45^^ R. F. Harrod, Towards a Dynamic Economics, Macmillan and Co. Ltd., London, 1948, p. 12.

~^^46^^ M. M. Ocafliaa, CoapeMennce Keiincuaucmeo. 9 eojmifun KeuHcuaHcmea u neuKjiaccmecKuu, cimmes, MocKBa, ``Mucjib'', 1971, CTp. 12-13.

~^^47^^ The book mentioned above by Axel Leijonhufvud, On Keynesian Economics and the Economics of Keynes,

as well as a number of other works, are devoted to expounding this thesis (on the similarity between the conceptions of Keyuus, monetarism and the neoclassical synthesis).

~^^48^^ J. K. Galbraith, Economics and the Public Purpose, p. 189.

~^^49^^ Karl Marx, Capital, Vol. I, p. 67.

~^^50^^ P. A. Samuelson, Op. cit., p. 581.

~^^51^^ Ibid., p. 351.

~^^52^^ Ibid., p. 793.

~^^53^^ The prefix ``iieo'' means that this school is considered as a successor to the old institulionalism, the most outstanding representative of which was the American economist Thorstein Bunde Veblen (1857-- 1929). Vcbleii considered the drawbacks to economic growth as organic ones, inherent in the big corporations, the predominant institution in the economy. In his opinion, economics should turn not only to the problems of the market and prices, but also to all aspects of social relations which, in turn, depend on the institutional organisation. For more detail, see Ben B. Seligman, Main Currents in Modern Economics, Economic Thought Since 1870, Chapter II.

~^^54^^ Joan Robinson, "The Second Crisis of Economic Theory", p. 6.

~^^55^^ Ibid., p. 8.

~^^56^^ 76id., pp. 6-7.

~^^57^^ Thomas Balogh, Labour and Inflation, Fabian Society, London, 1971, pp. 8-9,

~^^58^^ Ibid., pp. 9, 44.

~^^59^^ Ibid., p. 28.

~^^60^^ In the book John Kenneth Galbraith and His Critics, by C. Hcssion, the author tells that Galbraith, a Harvard professor, writer of bestsellers, diplomat, politician, confidant of a number of presidents and candidate presidents, in the period from 1959 to 1968 alone published eight books on economics, one novel, dozens of journal articles and composed speeches for all three Kennedy brothers and Lyndon B. Johnson. (C. Hession, John Kenneth Galbraith and His Critics, New American Library, New York, 1972, p. 17.)

Galbraith's views are criticised widely in the works of a number of bourgeois scholars. One outstanding example is the work by the American scholar Bob Filch, A Galbraith Reappraisal; the Ideology as Gadfly---A Critique of Economic Theory, Penguin Books Ltd., Harmondsworth, 1973.

5*

(57

~^^61^^ See J. K. Galbraith, Economics and the Public Purpose, p. 131.

~^^62^^ Ibid., p. 279.

~^^63^^ Ibid.

~^^64^^ Ibid. Galbraith criticises modern Keynosianism from the same angle. "Keynes did not foresee that rapid expansion in output which was implicit in his ideas would soon bring us to the time when not total output hut its composition would become the critical matter. Had he survived, he would no doubt have been perturbed by the tendency of his followers to concentrate their policy on the single goal of increased output. He did not lack discrimination. But his followers or some of them will almost certainly continue to protect the Keynesian system, with its concentration on aggregate demand and output, from ideas which Keynes might have been disposed to urge. Such is the fate of anyone who becomes part of the conventional wisdom" (Quoted from Thomas Balogh, The Economics of Poverty, Weidenfeld and Nicolson, London, 1966, p. 49).

~^^65^^ J. K. Galbraith, A Contemporary Guide to Economics, pp. 98-99.

~^^66^^ J. K. Galbraith, Economics and the Public Purpose, p. 349.

~^^67^^ Ibid., p. 281.

~^^68^^ Asahi, June 16, 1976, p. 2.

~^^69^^ This concerns the spread in the West of views holding that the Japanese economy as a whole represents a "Japan Incorporated", a single company in which there is close and smooth co-operation between corporations and government.

~^^70^^ Myron E. Sharpe, John Kenneth Galbraith and the Lower Economics, New York, 1973, p. 77.

~^^71^^ According to data calculated on the basis of intersectoral balances for the USA in 1967, 47.7 per cent of the value of the GNP was accounted for by intermediate production (Survey of Current Business, February 1974, p. 43).

~^^72^^ J. K. Galbraith, Economics and the Public Purpose, pp. 318-319.

~^^73^^ J. K. Galbraith, A Contemporary Guide to Economics, pp. 95-96.

~^^74^^ The New York Times Magazine, December 30, 1979, pp. 12-15, 33-35.

~^^75^^ V. I. Lenin, "Conspectus of Hegel's Book Lectures on the History of Philosophy", Collected Works, Vol. 38, p. 281.

CHAPTER II

THE MULTIPLE ASPECTS OF THE ECONOMY AND LABOUR AS A MEASURE OF VALUE

1. Multiple Aspects of the Economy

Analysis of the production or economic relations between people is unthinkable without a social evaluation of everything that is produced for consumption and exchange. A social evaluation is far more than just a simple sum of the evaluations made by individuals, depending on their requirements and tasles. The relationship between the whole and its separate parts, between the general and the specific is, in this instance, extremely complex. Both elements of the dialectical unity---productive forces and relations of production, on the one hand, and tasles and evaluations on the other, are in constant, contradictory interaction.

The capitalist economy is a system with many links and attributes. These include production, consumption and accumulation, labour and capital, value and surplus-value, price, wages, profit and many more. All these act and interact on the most diverse planes -from the individual person as producer and consumer, through enterprises, industries, classes and social groups, families, agglomerations of population centres, right up to the national economy as a whole, this, in turn, being under the constant influence

of international ties and relations. In a scientific analysis, each of these attributes requires a quantitative measure. If it were impossible to apply quantitative measures to even one of these interconnected links, it would be equally impossible to the entire chain.

Just as an assessment of expenditures is unthinkable without an objective measure of them in the form of the expenditure of abstract, average and simple labour, an assessment of the results requires an objective measure that must be based on a comparison, by consumers, of the utility of the various commodities, i.e., by consumers as they have taken shape given the social relations, the class and social structure, and the distribution of incomes. Indeed, what sense is there in a quantitative assessment of the number of labour hours if there is no way of assessing the quantity of goods and services produced per hour in accordance Avith the requirements and tastes of the consumers? "Since the commodity is bought by the consumer", Marx writes, "not because it has a value, but because it is a ' usevalue' and is utilised for specific purposes, it is natural that: 1) use-values are `evaluated', i.e, their quality is studied (just as their quantity is measured, weighed, and so on); 2) when various sorts of commodities are mutually substitutable for the same consumption purposes, one sort or another is preferred and so on and so forth." ^J We shall return to this issue, but for the meantime let us note that, since each of the attributes manifests itself separately on the general, local (sectoral, regional or the level of the production unit) and individual planes, the economy appears as having multiple or even an infinite number of aspects---after all, any whim in the tastes of any of the consumers acts through

the mass of mediating links to exert an influence on the economy as a whole. Absolute demand (the number of calories required to sustain life, and so on) is a concept applicable only to the animal kingdom, while in human society demand is a relative one in two senses: in that of the tremendous diversity of ways of satisfying one and the same requirement and, in particular, in the sense that satisfaction of requirements is firmly tied to the social laws of production, distribution and exchange.

The infinite number of aspects of the economy is something that has taken shape over its many thousand years of development. It is an infinite variety of forms of labour, attitudes to work, requirements, habits, tastes, views, evaluations, and the like. Being, on the one hand, that which distinguishes Man from animals, at the same time, this infinite number of aspects represents, of course, the original chaos until labour, which created it, makes the next step---produces the necessary grouping and transforms this infinity of aspects into an effective, active multiplicity of them. On the same fertile soil, created by Nature and care, a virtually infinite number of different types of plant can be grown. This potential becomes reality, however, (in the language of philosophy, ``nothing'' becomes ``something'') when it is decided exactly which types of plant are to be grown on the given plot of land and labour is applied accordingly.

Infinity itself is the same tiling as immeasurability. To overcome the contradiction between the need to measure and the impossibility of doing so definitely constitutes ono aspect of the economic process and economics as a science. In the process of reproduction, this contradiction is overcome on the basis of the primacy of pro-

duction: the producers do not, as a rule, submit to the tastes and specific requirements of each consumer individually, but take account of group tastes and impose those. "Hence production," Marx writes, "produces consumption: 1) by providing the material of consumption; 2) by determining the mode of consumption; 3) by creating in the consumer a need for the objects which it first presents as products. . . Similarly, consumption produces the predisposition of the producer by positing him as a purposive requirement.''~^^2^^

As for economic analysis, it becomes scientific only when the infinity of aspects is contained, when abstractions---measures---groupings--and economic parametres---are created that make more precise measurement possible.

From a more practical angle, the following picture emerges: after a new product is created,~^^3^^ it is offered to many millions of consumers, who give an initial evaluation of it from the point of view of its utility and their own tastes and requirements. In this lies the infinity of measures, which exists as a first stage, but itself does not ``work'' at all, for the quantity of the product produced is always limited. Production continues to play an active part in the sense that, through the size of expenditure and through distribution, it puts limits on this infinity and divides its potential consumers (all those who would like to acquire the product) between those able to pay for it and those who are not. In this, solvency with respect to the given product is determined not only by the actual costs of production, but also by the constant comparison of expenditures and utilities, constant competition between use-values of different products (with one another) and their production costs,

Thus, the infinity of aspects is ``overcome'' in the sense that it is crystallised into certain `` operating'' blocks in the form of prices, profits, wages, and so on. All these transformations are essential features of a commodity economy of any type and are always social in character, always connected with social relations.

The most important specific feature of economics (as of all other social sciences) is that it has no constants like the constant speed of light or Planck's constant. Nor can there be any, for in the sphere of the economy, any magnitude always depends to some extent on individual evaluations. To what extent exactly?

This question brings us to the problem of determinism in the social sciences in general, and in political economy in particular. Marxist determinism is the deepest possible penetration into the infinity of interconnections on the basis of the dialectical principle of causality. The absence of constants in the social sciences not only does not exclude a ranking of the causes behind a particular feature of reality, on the contrary, it presupposes such a ranking. Dialectical causality rejects a mechanical mixing of causes and effects, rejects the idea that they are invariably of equal importance. On the other hand, it reveals the untenability of mechanically making the character of the interactions that have taken shape at a given stage into something absolute, reveals the possibility of turning causes into effects (and vice versa), of "causal equilibrium" - of neutral interaction, with none of either two or many interacting factors being defined as causes or effects. Mechanistic determinism (i.e., fatality) is just as alien to Marxism as is mechanistic indeterminism (i.e., the refusal to reveal causal links). "All firm preconditions," Marx wrote,

``themselves become dynamic ones in the course of subsequent analysis. Yet it is only because they are firmly established at the very beginning that the subsequent analysis becomes possible without everything getting mixed up.''~^^4^^

Marxist-Leninist political economy has established that, in the process of reproduction based on commodity relations, the leading variable is value, while it is expenditures of socially necessary labour that act as the measure of it. "Whatever the manner in which the prices of various commodities are first mutually fixed or regulated", Marx wrote in Capital, "their movements are always governed by the law of value.''~^^5^^

Yet, when the variables required for the analysis, their interactions and mutual subordination, are established, we must be full aware that no ideal measure of value exists and to seek one is not only a pointless occupation, it is a Utopian and even reactionary one: in the final count, such a search can lead to nothing but barrackroom ``socialism'' of a Maoist type, under which value is determined by order. Value is the leading variable, but is still variable.

This conclusion arises not only from theoretical analysis, but also from the entire history of political economy. One of the founders of the labour theory of value, David Ricardo, once dreamed of finding a stable standard for the application of value, an ideal, objective measure of it. "The only qualities necessary to make a measure of value a perfect one are that it should itself have value, and that that value should be itself invariable, in the same manner as in a perfect measure of length the measure should have length and that length be neither liable to be increased nor diminished; or in a measure of

weight that it should have weight and that such weight should be constant.

``Although it is thus easy to say what a perfect measure of value should be it is not equally easy to find any one commodity that has the quality required. When we want a measure of length we select a yard or a foot---which is some determined definite length neither liable to increase or diminish, but when we want a measure of value what commodity of value that has value are we to select which shall itself not vary in value?''~^^6^^

While Ricardo expressed such views in the form of a rhetorical question and a wish, after him similar views were given the form of convictions by representatives of Utopian, pettybourgeois schools, particularly by Proudhon, with his programme for "constituted value", which Marx utterly destroyed with his fierce criticism.~^^7^^

To seek an ideal measure of value is to cliaso the wind; it is a departure from the realities of the life of society. Realistic science, dealing with the relations between people and classes during the reproduction of goods and services, cannot set itself the task of seeking a stable, standard, invariable measure of value.^^8^^ Such a measure cannot, of course, be found in the sphere of utilities, comparison of which depends on an infinite number of faclors, the constantly changing and quantitatively incomparable tastes, wishes, intentions, and possibilities of millions of poopie---producers and consumers. The only factor on which science can rely in the search for a measure of value is labour.

2. Labour as a Measure of Value and the Necessary Comparability of the Expenditure of Labour and Utility

Of all the factors influencing price formation, political economy picks out labour as the main one.

Why is it that labour is taken as the factor behind value and price? First, in its universality, in the fact that, among the various factors of production, labour is the one that is fundamental and necessary to any production process.

The specific nature of labour, its dialectical contradictoriness consists in that, on the one hand, it is the primary and necessary condition for the development of human society, Man's first requirement, the process on the basis of which Man came to stand apart from the animal kingdom and became what he is now, the process which gives many people satisfaction and enjoyment. In modern society, the particular attraction of labour lies not only in the fact that it is necessary for satisfying requirements, but also in the social recognition of it---in the material and moral reimbursement for the results of labour on which the participant in the labour process can count. On the other hand, labour is connected with disutility in many senses. Above all, it is often unpleasant owing to monotony, protracted stress, the necessity of being under dirty, noisy, smelly or dangerous conditions. Furthermore, from a particular moment (that of the transition from handicraft to manufactories), labour requires discipline, the need to be at work at a particular time, one that is often most inconvenient for those participating in the production process (transport difficulties, evening and night shifts, and the like), the need to be in al-

most daily contact, for many hours, with people whom one would not voluntarily choose as friends or companions. Finally, modern labour requires the expenditure of long and considerable effort to obtain qualifications and education, this often being accompanied by major limitations on rest and personal life.

In an exploitative society, the disutility of labour is greatly intensified by it being combined with the need to work for exploiters, with alienation of the means of production and all the products of labour from their producers.

Capital's strivings to gain maximum profits are constantly accompanied by measures geared to increasing the negative aspects of labour---the excessive number of hours worked and the intensity of labour. The disutility of labour under the yoke of exploitation engenders an atlitude to labour as to a divine curse ("and thou shalt earn thy bread with the sweat of thy brow"), with the ideal put forward by religion---the heaven of the Christians arid the nirvana of the Buddhists. In some countries of the East, participation in the dirtiest and most unpleasant types of work (tanning, rubbish collecting, and so on) was one factor determining the class of ``untouchables''---people despised by the rest of the population.

As well as eliminating exploitation, the socialist system also removes specific disutility of labour. The stress involved in labour cannot be completely overcome, however, under any social conditions. Marx wrote that, under socialism, people would enjoy working, but that this in no way meant that labour would be nothing but an amusement.^^9^^

Only hopeless hypocrites could really imagine a society of the future where labour would be a

form of entertainment. Socialism is not a society in which labour involves no stress, but one where social conditions foster in people, as a primary vital necessity, a desire to overcome the stress involved in labour and constantly to ease this stress itself from man's point of view. In his speech "The Fiftieth Anniversary of the Union of Soviet Socialist Republics", Leonid Brezhnev said: ". . .We are not building a land of idlers where rivers flow with milk and honey, but the most organised and most industrious society in human history." ^I0 To explain why labour is taken as the basis of value, account has to be taken of .the fact that differences in the various types of labour are less than those in their results. In spite of its many varieties, labour remains a physical process linked with the expenditure of physical and intellectual efforts and, in this sense, is the most homogeneous factor, i.e., one that, in its specific manifestations, differs less than the results of labour do. The labour of the tailor and that of the bricklayer are different, but the processes of their labour, in the sense of the expenditure of energy, the skill and the disutility involved, are still less than the suit and the brick wall that result. "The labour embodied in exchange-- values," wrote Marx, "could be called human labour in general. This abstraction, human labour in general, exists in the form of average labour which, in a given society, the average person can perform, productive expenditure of a certain amount of human muscles, nerves, brain, etc." ⁿ The aspects of labour considered above mean that it constitutes the expenditure on which value is based. Yet the value certainly cannot be determined just by the expenditure of labour hours. The way Marx and Engels saw this point

is absolutely precise and categorical. "In this connection," wrote Marx, "we consider only its (labour's---Author) useful effect.''~^^12^^ Again, in Capital: "Some people might think that if the value of a commodity is determined by the quantity of labour spent on it, the more idle and unskilful the labourer, the more valuable would his commodity be, because more time would be required in its production. The labour, however, that forms the substance of value, is homogeneous human labour, expenditure of one uniform labour-power. .. The labour-lime 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.''~^^13^^ "If we take two workers," Engels notes in Anti-Diihring, "even in the same branch of industry, the value they produce in one hour of labour-time will always vary with the intensity of their labour and their skill.. ." Developing this idea in another place, Engels writes: "In two equal products made individually, social conditions being equal, an unequal quantity of individual labour may be contained, but always only an equal quantity of general human labour. An unskilled smith may make five horseshoes in the time a skilful smith makes ten. But society does not form value from the accidental lack of skill of an individual; it recognizes as general human labour only labour of a normal average degree of skill at the particular time.''~^^14^^

The logic deriving from analysis of the commodity economy on the basis of the labour theory of value and establishing the basic features of this economy consists in the following fundamental propositions:

---the concept of value means a recognition of

labour inputs as the decisive factor of production;

---labour inputs assume a value character in as far as they lead to the magnitude reflecting social necessity;

---this makes it necessary for particular account to be taken of the results of labour and the utility of the goods and services produced with its help;

---comparison of expenditures and results, values and use-values is social in character. Under capitalism, it is carried out on the market in the process of competition and is reflected in the correlation of prices and their dynamics.

Marx intended to devote a special work to the question of competition and price formation, but even so his thorough analysis of the main problem---the law of exploitation---made possible his greatest discovery---the law of surplus-value, and he never found time to develop this idea to the full. Although he did not write a special work on competition and price formation, he did discuss them in the three volumes of Capital and many other works, which made subsequent study of them easier. In the third volume of Capital, talking about the "incessant equilibration of constant divergence", Marx wrote that "further reference to this belongs to a special analysis of competition".^^15^^

Labour lies behind value, but when goods and services enter the exchange process, no one asks their owner how many working hours were spent on producing them. Directly in the course of exchange the price is established in correlation of the mass of goods with different usevalues---according to the correlation between the utilities of different goods and services and to how these correlations take shape, depending on the distribution of newly produced value. In its

analysis of the problems involved in the correlation between prices and value, Marxist political economy does not deny the role of utility, it simply puts it in its true place, considering it in constant comparison with, first, production costs, which are made up primarily of expenditures of labour, both live and embodied, and second, the distribution of the national income.

The main task that Marx set himself in the first volume of Capital was to discover the law governing capitalist exploitation, which naturally made it necessary for him to investigate primarily value and labour, as its essence. He showed that even when the price, paid not for the labour-time spent, but for the utility of the commodity, precisely reflects the average expenditure of simple labour, value has two parts--- the value of the necessary product and surplusvalue. In this case, which reflects a fundamental law of capitalist production, it is expedient to abstract from use-value, from concrete labour and the utility of concrete commodities, from the real correlations between utilities and labour expenditures.

``In reality," Marx wrote in Volume III of Capital, "supply and demand never coincide, or, if they do, it is by mere accident, hence scientifically = 0, and to be regarded as not having occurred. But political economy assumes that supply and demand coincide with one another. Why? To bo able to study phenomena in their fundamental relations, in the form corresponding to their conception, that is, to study them independent of the appearances caused by the movement of supply and demand. The other reason is to find the actual tendencies of their movements and to some extent to record them.''~^^16^^

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One natural and necessary feature of the economy is constant, regular divergencies of price from value.

Later, these divergencies are considered under the conditions of state-monopoly capitalism, but whatever their character, however they might manifest themselves, the economy is constantly based on value relations---the interaction between expenditures and results, the quantity and quality of labour.

The well-known Japanese economist Kozo Uno, who has done much to spread the economic teachings of Karl Marx, is quite right when he notes that "the logical priority of the value relation over the market relation should be obvious, since capitalist production continues to exist as long as its essence is intact, even when its market is thoroughly distorted by monopolistic practices".^^17^^ "Capitalists," he goes on, "would compete with each other under any circumstances; but---there are technological and institutional conditions that support the operations of a perfectly competitive market. These conditions must be maintained in the model of pure capitalism in order for the dialectic of capital as such to construct a self-perpetuating system, even though actual capitalism thoroughly modified these conditions in its imperialist stage of development." ^1S

The equality of demand and supply is seen by Marx as a formula for finding "the fundamental rule (the regulating limits or limiting magnitudes)".^^19^^ "The product as a use-value has a certain inherent limit," Marx wrote, "the limit of the existing demand for it.''~^^20^^ This requirement, in turn, is social in character. "Supply and demand," writes Marx, "determine the market-price, and so does the market-price and

the market-value in the further analysis, determine supply and demand.''~^^21^^

In order to understand value relations better, the fact that the exchange of commodities takes place in accordance with the expenditure of abstract, socially necessary labour, it would be wise to compare the law of value with the discovery Newton made in the seventceth century, i.e., the first law of mechanics, which states that the particle will remain in a state of rest or of any uniform velocity (that is of motion in a straight line at constant speed) until it is compelled to change that state by an impressed force. This law is the absolute basis of modern mechanics, irrespective of the fact that rest is no more than a moment in constant movement. Reflecting the infinite complexity and diversity of reality, right from Newton's second and third laws up to the differential equations of field theory, physics has advanced, and continues to do so, by analysing real movement as a result of the interaction and conflict between different forces on all planes--- from the atomic to the cosmic. The creation of the theory of relativity and quantum mechanics was a revolutionary turning point in the development of physics. It revealed the falsity of many former hypotheses and theories (such as that concerning the existence of a world ether), but rather than shaking Newton's laws, it actually confirmed their eternal role as the basis of physics. Modern physics would not exist without Newton's laws of mechanics, just as it requires all subsequent progress.

Returning to the subject of our analysis, it should be noted that the seeming simplicity of the listed conditions for direct proportionality between the mass of labour and the mass of value conceals something immense both in its

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complexity and in its significance for the reproduction process. Equality of demand and supply is an abstraction, fixing one moment in the course of movement, an abstraction necessary in order to disclose the law of constant deviations of price from value. While recognising labour as the basis of value, the labour theory of value proceeds, at the same time, from the assumption that a constant coincidence of prices and values is not only impossible, it is also unnatural---such a coincidence would indicate the end of any movement.

On the one hand, a situation where everything moves evenly and at the same time does not and cannot exist. On the other, any step in any sphere exerts an influence on the general position. Unevenness, i.e., unequal development rates of the various parts of the social organism (industries, enterprises, countries, regions, classes and class strata, and ethnic communities) is a general law governing social progress. Yet, if development cannot be simultaneous and even, this means that the social need for each type of labour and each of its units is constantly changing.

The great difficulty of comparing use-value prompts some economists either to throw out analysis of use-values from Marxist political economy^^22^^ or, while graciously agreeing to retain use-value as a category of the labour theory of value, to deny that quantitative comparison is not only possible, but also a general truth that constitutes a vital condition for the functioning of the economy based on commodity exchange.

Marx wrote much that shows either directly or indirectly that he recognised the quantitative comparability not' only of values, but also of use-values.

For example, Marx wrote that "in the final

analysis, supply and demand bring together production and consumption, but production and consumption based on individual exchanges.

``The product supplied is not useful in itself. It is the consumer who determines its utility." ²³ "Variations in the duration of labour are the only possible difference that can occur if the quality of labour is assumed to be given.^^1^^''²⁴ "Wherever the demand for a particular use-- value ceases, the use-value ceases to exist. As a use-value, the product is measured through the demand for it.''~^^25^^ "But if the use-value of individual commodities depends on whether they satisfy a particular need then the use-value of the mass of the social product depends on whether it satisfies the quantitatively definite social need for each particular kind of product in an adequate manner, and whether the labour is therefore proportionately distributed among the different spheres in keeping with these social needs, which are quantitatively circumscribed. (This point is to he noted in the distribution of capital among the various spheres of production)... "...Only just so much of it [working time] is required for the satisfaction of social needs. The limitation occurring here is due to the use-value." ^2G

In one of his early works, "Outlines of a Critique of Political Economy", Engels wrote the following: "The value of an object includes both factors, which the contending parties arbitrarily separate---and, as we have seen, unsuccessfully. Value is the relation of production costs to utility. The first application value is the decision as to whether a thing ought to be produced at all, i.e., as to whether utility counter-balances production costs. Only then can one talk of the application of value to exchange. This production

costs of two objects being equal, the deciding factor determining their comparative value will be utility.''^^27^^ In Anti-Diihring, Engels wrote that production and exchange "constantly determine and influence each other to such an extent that they might be termed the abscissa and ordinate of the economic curve".^^28^^ In one of his later works, the article "Marx and Rodbertus", Engels wrote: "One now comprehends why Rodbertus determines the value of commodities simply by `labour' and at most admits of different degrees of intensity of labour. If he had investigated by what means and how labour creates value and therefore also determines and measures it, he would have arrived at socially necessary labour, necessary for the single product, both in relation to other products of the same kind and also in relation to society's total demand. He would thereby be confronted with the question how the adjustment of the production of separate commodity producers to the total social demand takes place....''~^^29^^

The concept of social need or socially necessary labour embodies the necessary link between the quantitative expenditures of labour and its results. The thrust of this concept is turned against the interpretation of value as a concept including only expenditures and taking no account of the results which, in turn, are determined by the social need. With such a one-sided, course and vulgar interpretation (i.e., ignoring the results), the concept of "labour value" is suited to the spiritual interests of idlers and loafers, and has nothing in common with the ideology of the working class.

A scientific solution to the problem of the commensiirability of use-values is, of course, accompanied by tremendous difficulties, but to deny

the possibility of a solution and the need for one, as well as the very fact of its existence, means, instead of the premised critique of bourgeois political economy in such circumstances, to retreat before it, to refuse to take up the challenge thrown to Marxism by the theory of marginal utility.

Apart from the other, purely logical motives, we believe that the discovery of the law of capitalist exploitation and ways to destroy it is the primary and chief goal of the Marxist political economy of capitalism, but in no way exhausts its content. Marxist political economy includes analysis of the entire complex of contradictions between productive forces and relations of production, those of the commodity economy as they emerge, develop and gain in intensity---right up to imperialism and state-monopoly capitalism as the last stages of the capitalist system. In order to carry this out, an analysis is required of the laws of the market, the competition between commodities and between capitals, a constant quantitative comparison, as multifaceted as possible, of expenditures and results, which would be out of the question without quantitative account being taken of the utility of goods and services. The fact that expenditures of labour are constantly adjusted by the utilities of the product created by labour is considered by Marxist political economy as one of its corner-stones. The theoretical reflection of this fact is found, first, in Marx's thesis according 1o which, as already noted, the value of commodities is determined certainly not by just the simple working time spent on their production, but by the socially necessary labour; second, the proposition that the commodity constitutes a dialectical unity of value and use-value. This unity consists in the

fact that, on the one hand, the labour expended is completely useless and cannot be considered as labour if it does not create useful goods and services and, on the other, useful goods and services are created only by labour.

Meanwhile, the contradiction between value and use-value arises from the fact that there is no given proportional dependence between expenditures of labour and utility, nor can there be: two hours of labour create double the usevalue that one hour does only under specific conditions---first, equal labour skill; second, labour of equal intensity and third, labour of equal social need, i.e., given equality of the demand for and supply of the things being compared. (This refers to the most general laws of a commodity type---for the time being we are abstracting from the laws of the capitalist economy, in which value is turned into the price of production. Further on, these laws will be studied in detail.) The problem of the commensurability of usevalues is an extremely acute and pressing one facing the political economy of socialism.

In connection with this, particular attention should be focused on the concept of social utility put forward by Marxist scholars studying mathematical methods of economic analysis. Academician Nikolai Fedorenko writes in the book Optimisation of the Economy that "the existence of an objective goal for the development of society---maximum satisfaction of the material and spiritual needs of its members---in turn presupposes the possibility of and need for comparing various consumer benefits on the basis of their social utility. The need to compare goods on the basis of social utility, like the term itself, was first formulated by the founders of scientific socialism. This has to be noted since the thesis

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that the fundamental proposition of the theory of optimal planning is recognition of the possibility of determining and comparing the social significance (utility) of individual products and resources is interpreted by some economists as a rejection of the Marxist theory of value and even as agreement with the subjective-- psychological bourgeois theory of marginal utility".³⁰ The Soviet economist L. Rodin believes that, under socialism, "social use-value (to be more precise, the degree of the social utility of a product) constitutes the focus of economic and social ties".^^31^^ Yet "the degree of the social utility of a product" is a quantitative concept that can only be established by comparing the magnitudes of the utilities of different goods and services. Indeed, if it is possible (and necessary) for the concept of abstract labour to be a measure of expenditure, determining value, what prevents us from abstracting from concrete utilities as necessary for taking account of the results on the national economic scale? After all, labour hours also acquire the ability to bo summed not in themselves, but only once their effectiveness (in the sense of productivity and social need) has been compared on the market. The concept of abstract labour Marx linked not only with value, but also with abstract wealth,^^32^^ which can only be the sum of the utilities of the commodities that make up this wealth. It is obvious that it is both pointless and inadmissible to sum value and use-value, but to deny the commensurability of one with the other, the functional dependence, the quantitative comparability of expenditures and results on the scale of the national economy and individual industries, means to deny the possibility of reproduction based on the division of labour. On

the other hand, how could utility be measured on the national scale (or even that of a single industry) if the utilities of individual goods and services could not be summed, as some economists claim with an ill-placed persistence.³³ Considering this question in relation to the socialist economy, Alexander Anchishkin writes: "The currently prevalent 'expenditure concept' for measuring the results of production, when price formation is based on production outlays, should be co-ordinated to a greater degree with that of social utility, making it possible to evaluate the results of production through the measure of the satisfaction of needs. Moreover, the inalienable Marxist principle of counting value as socially necessary expenditures of labour has always presumed that these expenditures form while taking account of the correspondence of the output produced to social needs, i.e., its social utility.''~^^34^^

The idea of abstract utility was put forward long by Soviet economists. Although this concept is still far from being universally accepted, we are convinced that it is not only a natural step in the development of Marxist political economy, but also an essential one.

The commensurability of use-values is inherent in any society based on a division of labour and exchange. Before exchanging something, a person must consider, in quantitative terms, that which he will receive in return, i.e., compare the magnitudes of the two exchanged utilities and the expenditures required to produce each of them. The way they are counted and compared depends primarily on social conditions and, under capitalism, is sharply antagonistic and conflicting in character. Even so, the accounting and comparison are carried out

and a study of the laws governing their comparison, including distortions in accounting and measurement introduced by the private property domination (especially private property in the form of monopolies), is one of the most urgent tasks facing Marxist science.

3. The Social Character of Coimnensuralion and the Role of the State

The economy may be compared to a force field in which all the wave-particles arc in constant dynamic interdependence, where a change in any one parameter (mass, charge, spin, coordinates, energy, etc.) of any particle entails a change in the parameters of all the others and of the entire field. Nor is analysis of the dynamic interactions in the sphere of the economy any easier than that of the interaction between the particles of a force field, no general theory for which (synthesising all forms of interaction---gravitational, el oc I ro magnetic, nuclear and weak) has yet been created, in spite of the tremendous progress in physics.

What, then, provides the foundation for the commensurability of utilities? Obviously, the magnitude of utility depends on the strength of the demand, on the degree of necessity that is satisfied by a given product. Yet the requirements themselves and their ranking depend primarily on labour, on the level and character of the development of productive Forces. The char actor of this dependence can only by understood on the basis of the Marxist teaching on abstract and concrete labour, on their contradictory unity. In quantitative terms, the mass of abstract labour means that society lias at it?

disposal a certain mass of labour power capable of working during a given number of hours of average simple labour that is homogeneous in the sense of skills and intensity. The magnitude of the real usefulness of labour far from depends on its overall magnitude alone; it also depends on the forms of concrete labour into which it turns and on the types of goods and services for the production of which it will be distributed.

The laws governing this distribution are a major characteristic of the economy and social relations. The ``concretisation'' of abstract labour depends primarily on the level of development of productive forces, on what part of labour must be spent on satisfying the most vital and necessary requirements (necessary for the simple reproduction of the population at least) and how much will remain once such requirements are satisfied---i.e., how much can be spent on higher-ranking requirements. It depends equally, however, on how newly created value is distributed among the social groups, from classes and to families. The same thousand dollars (as a monetary expression of units of time of abstract average simple labour) can give rise to demand for completely different goods, depending on whether it belongs to one bank or another, one corporation or another, a person with or without savings, married or single, with a high or low income for each family member, and so on. The utility of different goods and services is determined after incomes have been distributed and after the correlation between demand and supply has been established on the basis of this distribution.

The concept of concrete and abstract labour is determined by the fact that, on the one hand,

directly within the production process, people produce specific goods and services of an infinite variety but, on the other, they act as participants in the division of the newly produced value, irrespective of the actual character of their labour. The character of this division depends mainly on social relations. The utility of a unit of commodities produced in quantities insufficient to meet the demand may prove higher than the magnitude corresponding to the expenditure of labour or, on the contrary, if the supply of commodities on the market exceeds the demand, the utility of a unit of the corresponding commodity will be lower than expected from the expenditure of labour.

Utility, its overall magnitude and structure, forming on the basis of the primary factors described above, are essential and vital parameters of the reproduction process. In Anti-Diihring, Engels writes: "Distribution, however, is not a merely passive result of production and exchange; it in its turn reacts upon both of these." ^3r>

Measurement of social need, of the social importance of each particle of labour, takes place in production, exchange and consumption. Of these three phases in the economic process, production is the primary one, while exchange and consumption are secondary and derivative in nature. Secondary and derivative does not, however, mean of secondary importance, nor, of course, passive. One and the same mass of abstract, average simple labour creating value may be distributed for creating different masses of use-values, different masses of goods and services, depending on the demand put forward by consumption which, in turn, is not formed independently, but in accordance with the state of affairs in the primary sphere, in the sphere

of production, with what is and can be produced, how and with which expenditures of labour.

``. .. Before distribution becomes distribution of products," Marx wrote, "it is (1) distribution of the means of production, and (2) (which is another aspect of the same situation) distribution of the members of society among the various types of production ...''~^^36^^

Thus, distribution is, simultaneously, distribution of newly created value among classes and people and distribution of the means of production between different types of production. The principle of the commodity economy consists in the overall volume of value distributed among classes and various social strata forming, with the help of demand, the general consumption structure of goods and services.

``.. .There is on the side of demand," Marx writes, "a certain magnitude of definite social wants which require for their satisfaction a definite quantity of a commodity on the market. But quantitatively, the definite social wants are very elastic and changing. Their fixedness is only apparent. If the means of subsistence were cheaper, or money-wages higher, the labourers would buy more of them, and a greater 'social need' would arise for them.''~^^37^^ Further, "on the other hand it requires an insight into the overall structure of the capitalist production process for an understanding of the supply and demand created among themselves by producers as such." ^3S

``It is a fact that consumption," Lenin writes, "is not the aim of capitalist production. The contradiction between this fact and the fact that, in the final analysis, production is bound up with consumption, that it is also dependent on consumption in capitalist society---this con94

tradiction does not spring from a doctrine but from reality.''~^^39^^

Supply and demand are the two poles of the market mechanism; they cannot exist without each other and they are in constant interaction. The primary factor determining supply is value relations, which take shape directly in the process of the production of individual commodities.

As for demand, its formation is affected by the entire range of social relations---the processes of production and distribution, historical, geographical and national specifics, the development of material and spiritual culture. The macroeconomic function of demand consists in helping to determine the proportions of the mass of commodities and services of different types. Production creates and offers; society evaluates what is offered. This evaluation is also a function of demand, an extremely active function since it is demand that decides whether production should be continued and developed or halted.

In the interrelationship between demand and supply, the contradiction is manifested between value and use-value, which is deeply conflicting and antagonistic in character. Exploitation based on the production of surplus-value may also take place when demand and supply are equal, when the price is equal to value. In reality, however, such equality is nothing but a moment in the course of a movement---in the deviation of prices from values, this deviation being a form of and condition for the existence of the commodity economy.

On the social plane, this deviation entails gains and enrichment for some, loss and ruin for others. This means that exploitation based

on the production of surplus-value and revealed with the help of models of equal prices and values, is inseparable from exploitation that arises as a result of the constant deviation of prices from values. The source of the wealth of people belonging to the class of capitalists, and especially its financial-oligarchical upper echelons, should be sought not simply in the way they receive part of the new value produced in their enterprises, but also in the way they grab part of the value of the entire mass of surplusvalue created in the country during the production and realisation of goods and services. Moreover, although they do this on the basis of their ownership of capital, there is no direct proportionality between the masses of capital belonging to different individuals and the masses of profits they receive. The rapid enrichment of some, the slower enrichment of others, and the ruin of still others, all depend on a multitude of circumstances, a vital one being that which, in capitalist practice, is often called "commercial ability" (meaning, above all, the ability to predict the demand-supply ratio and the movement of prices and to use this to obtain profits at the expense of other capitalists), the magnitude of the capital (personal or borrowed) put into circulation and chance factors, which play a tremendous role in the course of speculation, and the play of spontaneous market forces.^^40^^

The connecting link between production and consumption is exchange. On the broad socioeconomic and historical planes, exchange is not only a phase, but also a form of social production. "Exchange of products as commodities," Marx writes, "is a method of exchanging labour, [it demonstrates] the dependence of the la-

hour of each upon the labour of the others [and corresponds to] a certain mode of social labour or social production.''^^41^^ As for exchange as a phase of the reproduction process, its role is in no way confined to purely technical functionsexchange with the help of signs of value, money. Price formation is not simply information on the comparative utilities of commodities. Exchange is a phase during which values and usevalues are compared, a sort of "social judgement" on the way labour expenditures are distributed and, moreover, under the domination of private property, this judgement is made in such a way that the very constant deviation of price from value appears as a means of enrichment for some at the expense of others. A tremendous role is, therefore, played by the character of exchange and the socio-economic situation influencing price formation. It must be constantly remembered that use-value as a category of political economy is not the physical features of goods and services (which are studied by other sciences), but Man's attitude towards it, this being formed under the influence of labour and the social conditions of distribution. A change in this attitude cannot but affect value, i.e., the evaluation of any expenditures of concrete labour by the measure of the hours of simple, average and socially necessary labour. From this point of view, the utility, too, must, in the political economic sense, be considered not as the direct utility of a given commodity for a particular individual, but as a contradictory unity of value (from the point of view of expenditures and distribution) and usevalue.

The Bulgarian economist Ivan Nikolov wrote on this: "Some economists believe that the price

7-01768

is only a monetary expression of the value of a commodity, and reject the problems of price formation connected with the use-value of the commodity." In fact, the price "is formed under the direct influence of the use-value of the commodity. Assessment of the rational deviation of the price from the value of a commodity, the construction of a mechanism for regulating demand and supply, come down to a solution of the question of the influence of social use-value on the price of the commodity". "The point of departure in creating the dialectical materialistic teaching on use-value," Nikolov goes on, "must be the methodological proposition that requirements are formed objectively, irrespective of individual economic subjects. This makes it possible to set the limits to the production of the given material good (the extrema as V. S. Nemchinov called them).''^^42^^ The "social judgement" mentioned above is determined not by codes of laws, but primarily by who acts as judge ---the nature of the social relations, the positions of the various classes, social strata and social institutions. Utility as a magnitude is revealed by the entire complex of factors of the life of society, including political ones, which can and do introduce major deviations from the proportions depending on the expenditure of labour.

From this point of view, under state-- monopoly capitalism, the state acts as a force exerting a constant and active influence on the utility of the goods and services produced. The influence of the state operates simultaneously in various directions---both the distribution of newly produced value and its impact on the structure of production. From the angle of the labour theory of value, state-monopoly capitalism

should be viewed as a stage in the development of the contradiction between value and use-value, between abstract and concrete labour. Tlie disproportion;!]ity that has always resulted from the spontaneous market distribution of abstract labour among industries has assumed a scale precluding the reproduction process. As a force called on to overcome this disproportion, state-monopoly capitalism became one of the main factors affecting the structure of production, use-value, and consequently, value relations in all their complexity and contradictoriness. The nature of this influence is determined by the fact that state-monopoly capitalism functions under the domination of big private property and the market, based on the principles of monopolistic competition. The influence of state-monopoly capitalism on the distribution of value and the entire structure of production is determined by its social nature and, depending on the concrete circumstances, may include such factors as militarisation, protectionism, employment controls, measures against structural crises, or a combination of these and other factors. Yet, whatever the concrete channels of state intervention, they exert a constant influence on the entire structure of production and use-values, on the whole complex of value relations and, at the same time, are themselves influenced by the latter.

References

~^^1^^ Marx/Engels, Werke, Vol. 19, Dietz Verlag, Berlin, 1962, p. 372.

~^^2^^ Karl Marx, A Contribution to the Critique of Po-

7*

lltical Economy, Progress Publishers, Moscow, 1978, pp. 197-198.

~^^3^^ The usual concept of the commodity is applied only to products with a material character, so, in a number of cases, we prefer to use the word product, meaning that this has a commodity character, and include in this term both goods and seivices. It is, of course, a matter of products of a commodity nature realised through the market.

~^^4^^ Karl Marx, Grundrissc der Krltik dor Politischen Okonomie, p. 702.

~^^5^^ Karl Marx, Capital, Vol. Ill, Progress Publishers, Moscow, 1977, p. 177.

~^^6^^ Quoted from Joan Robinson, Economic Philosophy, Penguin Books, New York, 1966, pp. 33-34.

Arguing with the British economist Maurice Dobb, Tsuru Shigeto writes: "Let us ask Mr. Dobb bluntly whether we could express 'in terms of quantitative entities in the real world' the socially necessary labor time embodied in a particular yard of linen as a commodity. We all know that the socially necessary labor time ^ is the quantitative aspect of 'abstract human labor', as Marx defined it, and that the latter is the substance of value. To that extent, therefore, that value is a specific social relation characteristic of the commodity mode of production, to the same extent ' abstract human labor' is a concept defined in terms of social specificity, and also to the same extent the socially necessary labor time is a concept inseparable from, and characteristic only of, the commodity mode of production. To indicate elements which are needed in the measurement of the socially necessary labor time embodied in a particular yard of linen is not impossible. Actually to measure it, however, is an insuperable task. For such an attempt has to involve factors both apparent and essential, embracing the economic system as a whole. Society is the only accountant of socially necessary labor time" (Tsuru Shigeto, Collected Works, Vol. 13, Kodensha, Tokyo, 1976, p. 103).

~^^7^^ For a critique of Proudhon's views, see Karl Marx, "The Poverty of Philosophy" (Karl Marx, Frederick Engels, Collected Works, Vol. 6, Progress Publishers, Moscow, 1976, pp. 105-212). Marx returns on several occasions to this issue. "Bailey identifies the 'invariable measure of value'," he writes in the Theories of Sur-

plus-Value, "with tho search for an immanent measure of value, that is, the concept of value itself... Variability is precisely the characteristic of value" (Karl Marx, Theories of Surplus-Value, Part III, Progress Publishers, Moscow, 1975, p. 155; see also p. 161). "The labourtime ticket, which represents the average labour-time, would never correspond to the actual labour-time and never bo convertible into it. That is, the labour time objectified in a commodity would never command a quantity of labour money equal to itself, and vice versa. It would command more or less, just as now each fluctuation of market values is expressed in a rise or fall in its gold and silver price" (Karl Marx, Grundrisse. .., p. 58).

~^^8^^ In his last, posthumously published work, Norbert Wiener, the "father of cybernetics", wrote: "Difficult as it is to collect good physical data, it is far more difficult to collect long runs of economic or social data so that the whole of the run shall have a uniform significance. The data of the production of steel, for instance, change their significance not only with every invention that changes the technique of the steelmaker but with every social and economic change affecting business and industry at large....

``Under the circumstances, it is hopeless to give too precise a measurement to the quantities occurring in it. To assign what purports to be precise values to such essentially vague quantities is neither useful nor honest, and any pretence of applying precise formulae to these loosely defined quantities is a sham and a waste of time...." Further on, Wiener makes this judgement somewhat less categorical. "This does not mean," he writes, "however, that tho ideas of cybernetics are not applicable to sociology and economics. It means rather that these ideas should bo tested in engineering and in biology before they are applied to so formless a field" (Norbert Wiener, God and Golem. A Comment on Certain Points Where Cybernetics Impinges on Religion, The M. I. T. Press, Cambridge, Mass., 1964, pp. 90-92).

~^^9^^ K. Marx and F. Engels, "The Condition of the Working Class in England", Collected Works, Vol. 4, Progress Publishers, Moscow, 1975, p. 564.

~^^10^^ L. I. Brezhnev, Following Lenin's Course. Speeches and Articles (1972-1975), Progress Publishers, Moscow, 1975, p. 110.

~^^11^^ Karl Marx, A Contribution to the Critique oj Political Economy, pp. 30-31.

~^^12^^ Karl Marx, Capital, Vol. I, Progress Publishers, Moscow, 1974, p. 49.

~^^13^^ Ibid., pp. 46-47. In his work, A Contribution to the Critique of Political Economy (rough manuscript of 1857-1858), Marx wrote: "Not the labour time incorporated in previous output, but the currently necessary labour time determines values. Take the pound of gold itself: let it be the produce of 20 hours of labour time. Suppose that for some reason it later requires only 10 hours to produce a pound of gold. The pound of gold, whose denomination assorts that it = 20 hours of labour time, would now only = 10 hours of labour time, since 20 hours of labour time = 2 pound of gold. Ten hours of labour time in fact exchange for 1 pound of gold; therefore 1 pound of gold can no long exchange for 20 hours of labour.''

~^^14^^ Frederick Engels, Anti-Diihring, Progress Publishers, Moscow, 1975, pp. 239 and 364.

~^^15^^ Karl Marx, Capital Vol. Ill, p. 196.

~^^16^^ Ibid., pp. 189-190.

~^^17^^ Quoted from The Journal of Economic Literature, . Vol. XIII, No. 3, September 1975, p. 865.

~^^18^^ Ibid., p. 866.

~^^19^^ Karl Marx, Capital, Vol. Ill, p. 363.

~^^20^^ Karl Marx, Grundrisse..., p. 309.

~^^21^^ Ibid., p. 191.

~^^22^^ Such apologies for interpreters of Marx appeared even during his lifetime. Of one of them Marx wrote: "Only a vir obscurns who has not understood a single word in my Capital could conclude that, since Marx in one note in the first edition of Capital rejects the entire foolish chatting of the German professors concerning `use-value' in general and refers the reader wanting to know something about real use-values to 'trade handbooks', use-value plays no part in his theory" (Marx/ Engcls, Wcrke, Vol. 19, p. 369).

~^^23^^ Karl Marx, "The Poverty of Philosophy", in Karl Marx, Frederick Engels, Collected Works, Vol. 6, p. 118.

~^^24^^ Karl Marx, A Contribution to the Critique of Political Economy, p. 30 (my italics---Author).

~^^25^^ Karl Marx, Grundrisse..., p. 309.

~^^26^^ Karl Marx, Capital, Vol. Ill, pp. 635-636.

~^^27^^ Frederick Engels, "Outlines of a Critique of Political Economy", in Karl Marx, Frederick Engels, Collected Works, Vol. 3, Progress Publishers, Moscow, 1977, p. 426.

~^^28^^ Frederick Engels, Anti-Diihring, p. 177.

~^^29^^ Frederick Engels, Preface to the first Gorman edition of Marx's "The Poverty of Philosophy" (Karl Marx, Frederick Engels, Collected Works, Vol. 6, p. 20).

~^^30^^ H. IT. OeflopeHKO, «OnTHMii3ar(Hri SKOHOMHKHO, MocKua, 1977, CTp. 26-27.

31 Hpaeda, 13 HHsapn 1978.

~^^32^^ See Karl Marx, Theories of Surplus-Value, Part III,

pp. 253-254.

~^^33^^ In the article "Theoretical Problems of the Optimal Development of the National Economy" [Planned Economy, No. 5, 1973, (in Russian)] the Soviet economist Ya. A. Kronrod touches on this issue three times. On page 81 ho writes that products as use-values are incommensurable, since "they cannot be summed: boots cannot be added to eggs, cement to butter, and so on". On page 89: "Society, like the individual, does not compare in order to find out what is more useful: sausage---hats---flowers---steel---boots---eggs and so on." On pasje 90: "No one has yet come up with a method for reducing concrete social utility to abstract utility; no one has yet managed (nor, we might add, will ever do so) to compare quantitatively the utility of bread and shoes, cars and flutes, radios and water-melons, and so on and so forth." Repetition does not make an incorrect proposition correct, of course. It has never even occurred to anyone to sum different things, but to sum their use-values, expressed in terms of prices, is not only possible, it is absolutely essential.

The quantitative comparison of the use-values of d iff o rent commodities (which naturally assumes that they are summed) is carried out everywhere and constantly: without it there could be no economy. It is carried out with the help of prices which primarily reflect the utility of goods and services and serve as an instrument for comparing utility with the necessary labour inputs. On the national economic scale, the ability to he summed, which Ya. A. Kronrod declares non-existent, appears in the calculation of the gross national product (in constant prices or using indices), which includes an assessment of the use-value of goods and services of all types. On the personal level, each person with abstract value in the form of money realises this value by quantitatively comparing the utilities presented for him by different commodities, including meat, bread, flutes and boots. Can Ya. A. Kronrod really bo unaware that two commodities on which an equal number of hours of average abstract labour have been

spent can be completely different in terms of their utility both for the individual and for society? In practice, the utility of commodities constantly diverges from the magnitude determined by the expenditure of labour and, following Kronrod's logic, mankind is totally incapable of taking quantitative account of these divergences. In fact, such account is taken constantly and continuously. Without it, a society based on the division of labour simply cannot exist. 3* KoMMynucm, 1976, JVs 14. CTp. 46.

~^^35^^ Frederick Engels, Anti-Duhring, p. 179.

~^^36^^ Karl Marx, A Contribution to the Critique of Political Economy, p. 201.

~^^37^^ Karl Marx, Capital, Vol. Ill, p. 188; see also p. 191.

~^^38^^ Ibid., p. 195.

~^^39^^ V. I. Lenin, "Once More on the Theory of Realisation", Collected Works, Vol. 4, p. 84.

The Marxist thesis on the social character of the evaluations of goods and services came under the fiercest attacks from the supporters of the theory of marginal utility. "Analysis of the conditions of the formation of exchange value," wrote Bohm-Bawerk, "shows that the establishment of exchange value can in no way be assigned the sense of a social decision, and particularly---a decision pronounced on behalf of and from the point of view of all society on the question of the significance of a given thing for human welfare" (E. Bohm-Bawerk, "Grundziige der Theorie dos wirtschaftlichen Giiterwertes", Jahrbiicher fur Nationalokonomie und Statistik, 1886, p. 124). Such a formulation reveals the anti-scientific nature of the theory of marginal utility particularly clearly.

~^^40^^ Paul Lafargue, a scholar who was an associate and friend of Marx and Engols, wrote on the economic role of the stock exchange and the principles behind its functioning: "At first glance, the perpetual movements up and down seem disordered, as they are up to a certain point, and as are the shocks and countershocks of the grains of a mass of sand lifted by the wind. The capitalists who determine these variations, act in a disorderly manner under the single motivation of profits, of a fear of losing it or a desire to gain it. The grains of sand, in spite of the zigzags occasioned by their crashing together, obey in their fall the law of gravity, just as the stock marketeers who, under the peristyle, produce the effect of escapees from the Charen-

ton mad-house, raising and lowering the- price of I heir shares, obey, without knowing it, Marx's law of value '(Paul Lafargue, "La fonclion ('cononiiqm;• de la Bourse . Le Devenir Social, April 1897, pp. 290-291)

*' Karl Marx, Theories of Surplus-Value, Part III,

p. 129.

42 HB3H HlIKOJlOB, «KllGepHeTIlKa II llKOIIOMHKa», Ha-

yKa a HSKycTuo, CO$HH, 1971.

CHAPTER III

the initial and lower stages being retained. This feature must not be forgotten when current conditions are analysed, those determined by the domination of the monopolies and state-- monopoly capitalism. The deviation of prices from value at new stages in the development of production does not cancel out previous deviations, but supplements them, so the contemporary position cannot be understood unless account is taken of the entire history of commodity-money relations and their fundamental features.

In its very essence, the competition between manufacturers is a struggle by each of them for a maximum share in the newly produced value, at the expense of all the others. Success or failure is determined not only in production, but also in exchange. One against all and all against one is the principle of the commodity economy at all stages in its development, and particularly that of monopoly capitalism.

The infinitely diverse forms and methods of

struggle for maximum profits are grouped by

the labour theory of value into the following

categories or transitional stages between them:

---individual labour inputs---individual value;

----individual value---market value;

---market value---market price;

---price of production---market price.

Each of these categories and each transitional stage reflects the particular nature of the links between the whole and its parts at different times in the development of the commodity economy. Individual inputs are transformed into individual value only by comparing individual inputs with those on the basis of simple average labour.

The transitions from individual to market value and from the latter to the market price are

VALUE, THE PRICE OF PRODUCTION AND THE MARKET PRICE

1. Individual and Market Value. The Price of Production

One of the qualities of the commodity economy thus consists in the continuous comparison of inputs and outputs at all levels---from the individual work place to the national economy as a whole---under the constant and extremely contradictory interaction between all stages in the reproduction process and all measuring agents. This interaction presumes specific means of comparison that are inseparably linked with the character of the distribution and redistribution of the newly created value. Methods and means that correspond to the existing social conditions, the nature of property, labour and market relations appear and function at each stage in the commodity economy.

When tracing the development of the forms of value at different stages in the historical process, Marx constantly stresses that the new forms carry on directly from the old ones. The development of forms of value manifests particularly clearly the operation of one of the basic laws of dialectics---the law of negation of negation, development from lower forms to higher ones, with the kinship qualities that arose in

far more complex. "For a commodity to be sold at its market-value," Marx writes in the third volume of Capital, "i.e., proportionally to the necessary social labour contained in it, the total quantity of social labour used in producing the total mass of this commodity must correspond to the quantity of the social want for it, i.e., the effective social want. Competition, the fluctuations of market prices which correspond to the fluctuations of demand and supply, tend continually to reduce to this scale the total quantity of labour devoted to each kind of commodity.

``The proportion of supply and demand recapitulates, first, the relation of use-value to exchange-value, of commodity to money, and of buyer to seller; and, second, that of producer to consumer, although both of them may be represented by third parties, the merchants." ⁱ

In another place in the same volume of Capital, Marx points out that market-value must always be distinguished "from the individual value of particular commodities produced by different producers. The individual value of some of these commodities will be below their market-value (that is, less labour-time is required for their production than expressed in the market-value) while that of others will exceed the market-value".^^2^^ A careful study of Chapter X of Volume III of Capital clearly indicates that Marx considered the laws governing the formation of market-value and the market-price to be analogous: in both cases it is a matter of competition, exerting the decisive influence and the correlation between demand and supply changing. "What competition, first in a single sphere, achieves is a single market-value and marketprice derived from the various individual values

of commodities.''^^3^^ "Should the market-value fall, this would entail a rise in the average social demand (this always taken to mean the effective demand), which could, within certain limits, absorb larger masses of commodities. Should the market-value rise, this would entail a drop in the social demand, and a smaller mass of commodities would be absorbed. Hence, if supply and demand regulate the market-price, or rather the deviations of the market-price from the market-value, then, in turn, the market-value regulates the ratio of supply to demand, or the centre round which fluctuations of supply and demand cause market-prices to oscillate.''~^^4^^

If, however, the factors influencing the formation of the market-price and market-value are the same (i.e., in both cases commodity competition), what is the difference between them? This difference should de sought in the temporal factor---in the way the market-price is influenced by short-term, current factors (often independent of changes in the process of production), while market-value is an average magnitude for a more or less lengthy period. "The value of commodities determined by labour time," Marx writes, "is only their average value. This average magnitude acts as an external abstraction, since it is calculated as the average figure for a specific period (for example, a pound of coffee costs one shilling when the average price of coffee over twenty-five years, say, is taken); but this average magnitude is a real one, if it is understood, besides, as the motive force and principle behind the fluctuations of commodity prices over the given period.

``The reality of it is not only of theoretical significance; it forms the basis for commercial

speculation, for in calculating probability, the latter proceeds from both the usual average prices, which it takes as the central point of the fluctuations, and average high and average low prices diverging to one side or the other of this centre .... Thus, the price differs from the value not only as the nominal from the real, not only because it is denned in gold and silver, but thanks to the fact that value acts as the law behind the movements that the price makes. Yet they are always different and never coincide, or at least only coincide completely by chance and as an exception. The price of a commodity is always higher or lower than its value, and the value of the commodity exists only in deviations of commodity prices up and down.''~^^5^^

The constant deviations of prices from values mean that trade is not only an exchange of different use-values carried out through the medium of money; at the same time, it is a redistribution of the value created in the process of production.

The concept of the ``market-value'' is used by Marx in some instances on the sectoral and sometimes the overall economic plane. In either case, however, it is a matter of the "law behind the movements that the price makes", of the way the "value of the commodity exists only in deviations of commodity prices up and down". In any case, as it is a matter concerning market-value, we are talking about value in general, regardless of whether it is created in the process of simple commodity production or capitalist production.

As far as the latter is concerned, here a new category arises---the price of production. Its emergence is linked to the redistribution of sur-

plus-value, which results from the transformation of surplus-value into profit and profit into average profit. The magnitude of average profit is simply the ratio of the entire mass of surplus-value produced over a given period on the national scale to the costs of production over the same period. Average profit is a scientific abstraction that has visible grounds in reality--- in the way the terms "normal profit", " acceptable profit" and "fair profit" are used in commercial practice. Yet average profit is certainly not the profit obtained by all or the majority of capitalists. In the course of the competitive struggle, some receive a profit above the average, while others receive average profit and yet others a profit that is below the average.

Marx considers a particular aspect of these deviations---that of the difference between the organic compositions of the capitals. The intensive drawing of capital into a sphere with a lower organic composition, where a relatively greater mass of surplus-value is produced, entails a rise in the supply of commodities, a drop in their price and a corresponding drop in the profit rate. All this takes place at the expense of those spheres where the exact opposite is occurring---an outflow of capital as a consequence of a higher organic composition, this engendering a relatively lower mass of surplus-value and profit rate; a drop in the supply relative to demand and a corresponding price rise, which leads to a rise in the profit rate relative to the corresponding ``internal'' rate of surplus-value. "... Capital," Marx writes, "withdraws from a sphere with a low rate of profit and invades others, which yield a higher profit. Through this incessant outflow and influx, or, briefly, through its distribution among the various

spheres, which depends on how the rate of profit falls here and rises there, it creates such a ratio of supply to demand that the average profit in the various spheres of production becomes the same, and values are, therefore, converted into prices of production.''~^^6^^

In quantitative terms, the price of production constitutes the sum of the costs of production and average profit. In terms of its origins, the price of production differs sharply from marketvalue. "What competition, first in a single sphere, achieves is a single market-value and market-price derived from the various individual values of commodities. And it is competition of capitals in different spheres, which first brings out the price of production equalising the rates of profit in the different spheres. The latter process requires a higher development of capitalist production than the previous one.''~^^7^^

The price of production arises as a result of the competition between capitals in their struggle for the highest possible share of the surplus-value received on the national scale. Although the price of production arose later than the market-price did, at a higher stage in the development of capitalism, the former did not engulf the latter, and the two categories coexist rather than being subordinate to each other. The relationship between market-value and the price of production is such that the former exists, first, before the latter, and then together with it. The transformation of profit into average profit takes place under the influence of the movement of capitals from some spheres to others, but in this the stimulus to the movement might be the difference itself between the market-price and market-value (irrespective of the organic compositions of the capitals) and

the difference that explains the transformation of value into the price of production.

Neither market-value nor the price of production constitute the market-price, which forms under the direct impact of demand and supply. At each given period of time, the ratio between them possesses greater or lesser autonomy, a certain independence from the conditions of production, and therefore requires special analysis. In Capital, Marx presents suck an analysis--- analysis of price formation---in connection with his teachings on land rent. The analysis is thus made for specific types of production, for conditions when its expansion is fundamentally limited by the availability of natural resources under private ownership. The combination of private property and the limited nature of resources in this case determines the monopoly nature of the price. "The rent," Marx writes, "can be based only upon an actual monopoly price, which is determined neither by price of production nor by value of commodities, but by the buyers' needs and ability to pay. Its analysis belongs under the theory of competition, where the actual movement of market-prices is considered." ^s

On the other hand, as far as foodstuffs are concerned, since they are so essential to the consumer, the demand for them is relatively inelastic. In spite of these limitations, however, the way is opened for the next step from analysis of the factors of value and its distribution among the agents of production (between classes and within the capitalist class). This step is to analyse the consumer as a participant in competition and price formation, to elucidate the influence of demand on prices and, through them, on the proportions of production.

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2. Value and Surplus-Value as Overall Economic Categories

by sociology and criminalistics, not political economy. The task that political economy sets itself is to study not only the exploitation of the working people by the capitalist class, bul also the principles behind the differentiated enrichment of the owners of capital within the juridical statutes of the capitalist social structure itself---on the basis of the operation of its economic laws. Touching on this issue in connection with the formation of monopolies, Lenin wrote: "They do not confine themselves to economic means of eliminating rivals but constantly resort to political, even criminal, methods. It would be the greatest mistake, however, to believe that the trusts cannot establish their monopoly by purely economic methods.''~^^10^^

What, therefore, determines the share of the nationally produced value received by the owner of a given share of capital in the form of profit? On what basis does he ``seize'' a particular part of the value created in the national economy? ^lf

This question is of primary importance. Unless it is answered, the principles behind the functioning of the capitalist economy, its contradictions in general and in particular those giving rise to the emergence of state-monopoly capitalism and the way it functions, cannot be studied. Further analysis of value relations, and of the laws of price formation in particular, are required before an answer can be given to this question.

In his research, Marx showed the inevitability of differences between Ihe masses and rates of profit, depending on the organic composition of capital---even when the rates of surplus-- value (the degrees of exploitation) are the same. On the other hand, these same conditions (dif-

Analysis of the transformation ol value into the price of production prompts the conclusion that the production oi' surplus-value takes place on the scale of the entire national economy. Just such an approach is required to fully explain the need for Marx's abstraction, according to which value analysis is based on average conditions---the enterprise with the average organic composition of capital, average labour, i.e., the conditions under which there are no deviations in either direction, as is the case on the national scale. Such is the extreme profundity of Marx's thesis to the effect that profit, as a general capitalist category, cannot arise on the basis of deception, on the basis of some capitalists deceiving others, since the entire class of capitalists taken as a whole, cannot deceive itself.^^9^^

It in no way follows from this, of course, that capitalists do not deceive one another. On the contrary, the entire sense of capitalist competition consists in seizing as large a share of surplus-value as possible, irrespective of which enterprises produced it and under what conditions.

In this case, the following question immediately arises: are there any "principles of deception" that exist in the process of the realisation of commodities? In reply, it should be stressed that ``deception'' as such, in the precise meaning of the word, all sorts of forgery and counterfeit, blackmail, elimination of competitors by force (even murder) and other such methods that are the constant companions of capitalist enterprise---all these (like corruption and crime) are the subject-matter of analysis

8*

i'erenccs in the rates of profit under identical rates of surplus-value) give rise to the obligatory participation of all active capitals in the process of exploitation---even when the masses and rates of surplus-value in the given sphere are zero and, consequently, the given capital, as it may appear, makes no contribution to the formation of the average profit.

In the corresponding table in Capital,^iz the sizes of surplus-value received from identical capital under identical exploitation rates vary from 40 to 5, but it follows logically from the argument that even a zero surplus-value is possible. Theoretically, it is quite possible to imagine an enterprise with no employees where, as a result, the organic composition of capital is equal to infinity and so no surplus-value is apparently produced, since there is no one to produce it. With the appearance of automated enterprise, such an abstraction is illustrated in reality. The output produced does, of course, represent embodied labour---value carried over from constant capital (machines, buildings, raw materials, etc.). Yet, if the newly produced value does not exceed that carried over, what is the purpose of such an enterprise for its owner?

Its purpose consists in the fact that, although in the course of the production process in the given enterprise no human hand comes into contact with the machinery and raw materials, the output produced exceeds production costs in value. From the point of view of the bourgeoisapologetic theory of three factors, this example may be used in an attempt to prove the proposition that capital and labour are equal producers of value. With a scientific approach, however, the example of the automated enterprise proves the exact opposite: the production of new

value and surplus-value must be approached not from the angle of the individual enterprise, but from that of the entire process of capitalist reproduction. Each enterprise must be considered as a link in the overall process of reproduction of commodities, the production of value and of surplus-value. The existence and functioning of an automated enterprise simply implies that its output is produced by factory and office workers primarily outside it---those who elaborated the principles of the automated production, designed the given enterprise, produced its equipment, supply it with the necessary energy, raw materials, and so on.

Marx turns to this issue on several occasions. "It is no longer the labour expended on the individual particular commodity," Marx writes, " (in most cases, it can no longer be calculated, and may be greater in the case of one commodity than in that of another) but a proportional part of the total labour---i.e., the average of the total value [divided] by the number of products---which determines the value of the individual product and establishes it as a commodity.''~^^13^^ ". . . In each particular sphere of production," Marx writes in another place, "the individual capitalist, as well as the capitalists as a whole, take direct part in the exploitation of Ihe total working-class by the totality of capital and in the degree of that exploitation, not only out of general class sympathy, but also for direct economic reasons. For, assuming all other conditions---among them the value of the total advanced constant capital---to be given, the averago rate of profit depends on the intensity of exploitation of the sum total of labour by the sum total of capital.''~^^14^^ ".. .Wo treat the capitalist producer as owner of the entire surplus-

value, or, better perilaps, as the representative of all the sharers with him in the booty.''~^^15^^

Turning to the formation of average profit, once again the influence must be recalled of use-values, the fact that the structure of the economy can only take shape from spheres and enterprises with different organic compositions of capitals. National (sectoral and overall economic) parameters form on the basis of the state of affairs "at the bottom", in all operating enterprises, but, once they have formed, they acquire tremendous feedback force---they become, as it were, "command centres". "In the case of supply and demand, however," Marx writes, "the supply is equal to the sum of sellers, or producers, of a certain kind of commodity, and the demand equals the sum of buyers or consumers (both productive and individual) of the same kind of commodity. The sums react on one another as units, as aggregate forces. The individual counts here only as part of a social force, as an atom of the mass, and it is in this form that competition brings out the social character of production and consumption.''~^^16^^

The statement of the overall national character of the production of value is one of the main theoretical foundations of the analysis of the origination and mechanism of state-monopoly regulation. If the economy of capitalism depends on overall national macroeconomic parameters, state influence on these will naturally act as one of the most important factors behind the functioning of the economy.

3. Marginal Magnitudes as a Means

for Quantitatively Comparing Labour Inputs

and Utilities

As noted above, analysis of the deviation of price from value is not exhausted by clarifying the dynamics connected with differences in the organic composition of capital. If one imagines different spheres of production with identical organic compositions of capitals and identical rates of surplus-value, will in this case commodities be exchanged strictly in accordance with the labour inputs and will the owners of the capital receive equal profits for equal production costs?

We have already noted that this question cannot be answered without taking account of the social necessity of commodities, and the latter cannot be evaluated without considering utility and comparing" it with labour inputs. The question of the comparability of the labour inputs and utility is analysed in more detail in section four of this chapter. Towards that analysis, let us note certain methodological specifics.

In the previous section we looked at Marx's discovery of the process of the transformation of value into the price of production---with the process of the deviation of the mass and rate of profit received from a given capital from the corresponding mass and rate of surplus-value received as a result of differences in (lie organic compositions of capital. These deviations cancel one another out, so the sum of prices of production is equal to the sum of values. Yet, irrespective of this deviation, another initial deviation of prices from values exists (discussed in Chapter II), which arises from the very es-

sonco of commodity exchange. Having emerged together with the commodity economy, it penetrates it throughout the history of its development, including modern times.

Deviations of prices from values, irrespective of the organic compositions of capitals, take place today just as they have throughout the history of the commodity economy from its inception. Naturally, therefore, the question arises of the correlation between the first and second deviations, i.e., between those engendered by differences in the organic compositions of capitals (and studied by Marx in his analysis of the price of production) and the constant deviations of prices from values, which are inherent in the nature of the commodity economy. The answer may be formulated thus: in some instances the difference between price and value arising from fluctuations in demand and supply may be added to the difference resulting from differences in organic compositions of capitals and, in some instances, the one difference may cover or neutralise the other. In practice, this may mean that the influx of capital into the given branch, on the basis of a low organic composition of capital (and correspondingly a relatively high mass of surplus-value), may be intensified or weakened as a consequence of the fact that the utility of the output of the given sphere is higher or lower than that determined by the expenditures of embodied and live labour. The most diverse variants are, of course, possible in the correlations between these differences, variants that contain tremendous possibilities for the enrichment of some owners of capital at the expense of others, strictly on the basis of the operation of the economic laws of capitalism, and the redistribution of surplus-

value received as a result of exploitation of the working people.

Second, in reality arid in theory, this difference can only be taken into account if utilities are taken to be quantitatively comparable. Marx stressed that "use-value as such is not immeasurable".~^^17^^ We know that no economic analysis can claim to be scientific unless it seeks and finds ways of quantitatively comparing the utilities of goods, services, and natural riches. The search for ways to quantify utilities, to compare them quantitatively with one another and with labour inputs, brought economics to the idea of using marginal magnitudes.

Marxist scholars see marginal magnitudes as a factor in price formation with the help of which the deviation of market-prices from the prices of production is quantified. This is as logical a step in the development of the Marxist labour theory of value as was Marx's transition from value as studied in Volume I of Capital to the price of production, discovered on the basis of research into the law of surplusvalue and analysed in Volume III. This volume, which considers the transformation of value into the price of production, was criticised by many as indicating that Marx was thus rejecting the concept of value as set out in the first volume of this, his main theoretical work.¹⁸ Present-day critics of the further step in the development of Marxist science---the transition to a quantitative comparison of use-values (the need for this step having been embodied in Marx's intention to devote a special study to the laws of competition and price formation)--- have made little progress compared with the illstarred cxposers of the contradiction between the first and third volumes.

The founders of scientific socialism certainly did not consider their labour theory of value to be complete. In general, from the point of view of dialectical materialism, no scientific theory can be ``complete''. The test of whether any theory is scientific, of whether it corresponds to the principles of dialectics, is the situation when, having advanced a step forward in research, the theory reveals a way towards further progress.^^19^^

In dealing with marginal magnitudes, the point of departure consists in the fact that all benefits used by Man are divided into limited and unlimited ones. The unlimited ones include, for example, air, fresh water (for those who live near rivers and bodies of water), light and heat from the sun, and so on. Such things are not limited and are freely accessible, so are not objects of exchange, property or economic analysis. "The price," writes the Italian Marxist economist G. La Grass, "measures the marginal utility of a boon for each consumer. If the price of the boon is zero, this means that there is an unlimited supply of it relative to the satisfaction of requirements, so it is not an economic boon, in contrast to the situation when a relative short supply exists.''~^^20^^

Natural limitations might be supplemented by ones arising on the basis of monopoly and may intertwine with them. In complete contrast to the views of bourgeois scholars, Marxism proceeds from the assumption that not only the limited nature of resources furthers the emergence of private property, but also that private property constitutes one of the conditions of this limitation and determines its character. For instance, by seizing land on the shores of a lake, the landowners restrict the ac-

cess of others to the water and to the shore, and limit their opportunities for enjoying fresh air and the landscape. It was precisely on the basis of these propositions that Marx turned to analysis of the consequences of the domination of private property in the sphere of natual resources and, having applied marginal magnitudes for this purpose, formulated his teachings on differential and absolute rent. In brief, the essence of this teaching is as follows.

In the process of utilising the land as the main means of agricultural production, the interests of three classes come into conflict---those of agricultural labourers, entrepreneurs and landowners.^^21^^ It is assumed that the first two classes receive incomes in accordance with the laws of capitalist production, i.e., the first--- wages as compensation for the value of their labour power, and the second---average profits. In this case, an answer is required as to the grounds on which and the source from which the landowner receives an income. In other words, the price of agricultural output must cover not only wages and profits, but also rent. Where does this rent come from?

In answering this, the magnitude taken as the point of departure (as being constant) is the mass of effective demand for agricultural produce, i.e., that part of abstract, average simple labour that, being embodied in money, is allocated by the population for the purchase of the given products. A certain area of land is required to produce this required mass, but not all parts of this area can, of course, be of equal quality. With given expenditures on the different plots of land, different harvests are Die result. ". . . Competition establishes one marketvalue for these products, which have varying

individual values. This market-value itself can never be greater than the individual value of the product of the least fertile class.''^^22^^ The price of the entire mass of output produced is determined by the last and worst plot yielding, ceteris paribus, the smallest harvest. This is because demand is given and it can only be met if this worst plot of land is utilised. If, however, the price of all output is determined by the worst plot of land (this being the marginal price received for output from the marginal plot), the additional mass of output received on better plots naturally brings in extra income. If, again, the worst plot covers wages and profits with its output, better ones also bring in rent---differing according to the quality of the plot. This is differential rent. "The mere legal ownership of land," writes Marx, "does not create any ground-rent for the owner. But it does, indeed, give him the power to withdraw his land from exploitation until economic conditions permit him to utilise it in such a manner as to yield him a surphis, be it used for actual agricultural or other production purposes, such as buildings, etc. He cannot increase or decrease the absolute magnitude of this sphere, but he can change the quantity of land placed on the market.''~^^23^^

One more question remains to be answered: how things stand with the worst plot of land. After all, this worst plot must bring the landowner some income, otherwise he will not rent it out. The answer is provided by the doctrine on absolute rent. While differential rent is received as a result of the fact that labour is exploited under different natural conditions, absolute rent emerges on a completely different basis---on that of a lower organic composition

of capital in agriculture compared with industry. In this case, natural conditions, i.e., the limited area oi land, in combination with private landownership, constitute the i'actor hampering the inflow ol capital on a scale that would lead to a rise in output and an outflow of part of the surplus-value created in the given sphere, into other spheres with a higher organic composition of capital.

The same laws provide the basis for analysing the rent received from the given plot of land as a result of the additional capital inputs (i.e., rent may be received as a result of the decreasing productivity of each successive input---with tlie price put at the level of the input that yields the smallest harvest) and for analysing the rent received by owners of natural resources of limited availability, apart from agricultural land, (minerals)---here, too, the price of. the entire output is determined by the worst and least productive of the plots utilised.

Finally, the teaching on differential rent allocates a special place to analysis of the rent by location. Here we are talking about the fact that the price of the realised output contains transport costs and, consequently, must be oriented on the most remote plots of land (in use), since, owing to the lower transport costs incurred by the owners of plots located close to transport routes and consumers (such as large towns), they receive differential rent.

In this case, Marx formulates the economic significance of the differences with regard to requirements---a factor that plays a tremendously important part in analysis of price formation. It is wrong, as is frequently done, to in terprct Marx's use of marginal magnitudes as

applying only to unreproducible natural resources: according to Marx, natural resources can always be ``reproduced''---either by transferring to worse ones or by investing more capital.<sup>z4</sup> Thus, clarification of the laws governing the formation of rent is of more than ``local'' significance, i.e., it applies not only to the sphere of limited natural resources.

What exactly are the features of price formation revealed by analysis of rent, but being of much wider significance? If the individual value in land cultivation, as in other branches, is determined by the average conditions, the price is determined by the worst ones. The price, consequently, proves to be consistently higher than value, which makes it possible for the owners of the means of production to constantly seize more value than they would "be due" if the price were determined by equating it to average profit and the price of production.

It might seem, however, that such consistent deviations of price from value are only evident in the case of natural resources. The entire practice of capitalist economy shows otherwise. In any branch of production, irrespective of monopolies (natural or artificial), there are always enterprises with different levels of productivity and production costs, but this does not mean that there are different prices for identical output. Market-value, Marx writes, "forms the centre of fluctuation for market-prices. The latter, however, are the same for commodities of the same kind".^^25^^

Depending on the specific circumstances (on the skills of the workers, the technological conditions, the total demand deciding which enterprises are the worst), the gap between the best and the worst may be narrowed or widened,

but never, under any circumstances, can all enterprises operate at the same level of efficiency. It clearly follows from all Ibis that Hie price is determined on the basis of the worst enterprise, since, if Ihe price did not cover the production costs of the given enterprise, and did not bring in profits, the enterprise would be unable to function and would be closed down--- the marginal enterprise in this case would be the one that was a single step above the one closed down. This means that, in the given case, as in that of agricultural production, marginality, dictating the price level, is determined by social conditions. The price is based on the labour inputs, through the calculation of which, by comparing demand and supply, account is also taken of the limited nature of all types of resources and of labour itself.

The price is set by the ratio of two aggregated forces---market-value and demand. At the same time, however, it becomes a factor determining which conditions may be retained as the worst---what the maximum outlays are under which the enterprise may continue operating.

The idea is completely false that marginal magnitudes were introduced into economics by the authors of bourgeois apologetic interpretations of marginal utility. In reality, it was David Ricardo, one of the founders of the preMarxist labour theory of value, who clearly asserted in his main work that the price is always regulated by the worst conditions. "The exchangeable value of all commodities," Ricardo wrote, "whether they be manufactured, or the produce of the mines, or the produce of land, is always regulated, not by the less quantity of labour that will suffice for their production under circumstances highly favourable, and

exclusively enjoyed by those who have peculiar facilities of production; but by the greater quantity of labour necessarily bestowed on their production by those who have no such facilities; by those who continue to produce them under the most unfavourable circumstances; meaning---by the most unfavourable circumstances, the most unfavourable under which the quantity of produce required, renders it necessary to carry on the production." 'ⁱ⁶

The scientific approach to marginal magnitudes in economics consists not in denying their role, but in understanding that the limits themselves are social in character, that they depend on the level and direction of the development of productive forces, on the social structure, on the infinite number of diverse factors making up the life of society.

While decisively rejecting bourgeois apologetic concepts, Marxist-Leninist political economy accepts the need, along with average and aggregate magnitudes, which play the main role in analysis of such complex processes as economic ones are, for the application of marginal ones, too. Just as it is incorrect to justify bourgeois theories of marginal utility and marginal productivity by the fact that they apply mathematical methods, it is also incorrect to presume that the use of the latter must lead to an acceptance of the bourgeois concepts that appear in the form of the so-called theory of economic marginalism.

The marginal magnitudes that provide the basis for price formation are the intersections of the demand and supply curves where demand begins to exert a real impact on supply, when the presence of a given mass of commodities, their distribution among people and classes and

their inclination to be exchanged determine, with respect to each inividual commodity, not simply the proportions of exchange, but those marginal proportions under which the possibility of producing the given commodity remains or reappears.

Marginal magnitudes are directly related not to value, but to prices. Values are initially formed within the industries where they are determined not by marginal, but by average magnitudes. By industry, in this case, we mean the production of a given commodity and, consequently, exchange is excluded: a tonne of steel is never exchanged for a tonne of steel. If, however, the value is determined by average inputs, and the latter operate only within the given sphere, should value be considered only within the industry, too? The answer to this is a definite ``no'': value in general would have nothing to do with exchange if it were only an intrasectoral magnitude, rather than a general economic one.

In this case, however, it is very important to determine the point that can be taken as average, as that which should be recognised as `` value-forming'' on the national economic scale. Does such a point exist only in pure abstraction, or can it be found in reality?

By analysing the transformation of profit into average profit and value into the price of production, Marx revealed the influence exerted on profit by the difference in the organic compositions of capital, given a single rate of surplusvalue common to all industries. Marx approached differential rent with two preconditions in mind: first, the existence of average profit and second, the fact that the price in the given industry, in agriculture, is determined by the marginal,

9-01768

worst, limiting conditions of production. The question remains open, however, as to what determines the size of the demand that dictates the given limit to the utilisation of land, and no other.

After all, it is not the number of empty stomachs that decides this limit---the science studying the laws of the commodity economy deals not with philanthropy, but only with effective demand.^^27^^ The price, too, is in no way determined by the fact that the agricultural labourer must receive wages, the entrepreneur--- average profit and the landowner---rent. On the contrary---the existing economic conditions dictate a price that ensures compensation of all three agents of agricultural production.

What, exactly, are these conditions?

No answer can be given by considering the state of affairs in any one or several arbitrarily chosen industries. The point of departure in answering must be the economy as a whole, viewed on the sectoral plane. Moreover, account must be taken of the entire complex of social conditions determining the limits of the price at which production continues (ceases or expands). This complex includes, also, political conditions, which operate through the state. As already noted in Chapter II, the state forms a major part of consumer demand and thus affects its structure. At the same time, the state exerts a continuous influence on supply too, on the structure of employment and the volume of demand. This influence operates both through direct state enterprise (in particular, through public works aimed at limiting unemployment) and through the specific price policy. Later we shall show that the state very frequently sees its task as supporting the worst enterprises, those that, without assis-

tance, would be closed down (thus actively influencing marginal magnitudes).

From the purely economic angle an answer to the given question requires that account be taken of the correlation between all types of good and service: a) their mass and utility; b) their distribution among the different owners and c) their reproducibility. All these three elements are inseparably linked, while each of them is of independent significance.

4. The Dynamic Nature of Price and Value

It follows from the above that, since prices represent the proportions of the exchange of commodities with different use-values, the question of the laws governing price formation cannot, of course, be solved by analysing the particular features of the formation of value in one or several industries (in particular, in ones where the strongest limiting factor is the availability of natural resources and ownership of them).

As already noted, Capital contains many of the ideas that Marxists have since used as the basis for the further elaboration of the problem of price formation. We have already looked at some of Marx's statements on this issue in previous sections of this chapter. Here are some more. "The different spheres of production," Marx writes, "it is true, constantly tend to an equiliribum: for, on the one hand, while each producer of a commodity is bound to produce a use-value, to satisfy a particular social want, and while the extent of these wants differs quantitatively, still there exists an inner relation which settles their proportions into a regular

9*

system, and that system is one of spontaneous growth; and, on the other hand, the law of value of commodities ultimately determines how much of its disposable working-time society can expend on each particular class of commodities. But this constant tendency to equilibrium of the various spheres of production is exercised only in the shape of a reaction against the constant upsetting of this equilibrium. The a priori system on which the division of labour, within the workshop, is regularly carried out, becomes in the division of labour within the society, an a posteriori, nature-imposed necessity, controlling the lawless caprice of the producers, and perceptible in the barometrical fluctuations of the market-price.''~^^28^^

This provides further convincing evidence as to the groundlessness of the claims that Marx denied the quantitative comparability of usevalues. The entire course of his analysis of value is such that the operation of the law of value manifests itself not only in the correspondence of value to working hours, but also in the change in the proportions of the labour inputs and social want, directly connected with social utility.

The quantitative analysis of utilities proceeds from the following presumptions. First, utilities are based on the development of productive forces. People's requirements and tastes are constantly changing, becoming increasingly diverse and complex. Second, given any level of development of productive forces and any social relations, there is a hierarchy of requirements that influences utilities. In first place are the requirements for the vital things---food, clothing and housing and, consequently, for means of producing them, and then come requirements for the same things, but now including special qualities

and on a scale greater than the initial requirements, comfort, and the like. Next is the requirement for medical care, cultural requirements in all their diversity---from entertainment to education, literature, tourism, and so on. Depending on the specifications, the "tree of requirements" may be depicted as having three or four branches or as a mighty, centuries-old oak with thousands of branches and hundreds of thousands of leaves. Third, the utility of goods and services depends on the quantity available. Each successive unit of a particular good or service has a lower utility than the previous one. Depending on the quantity of food a person has at his disposal under particular conditions, the utility of each unit of food can vary from that of the glass of water and piece of bread essential for remaining alive to those of delicacies. The same thing applies to each unit of clothing---beginning with that essential covering nakedness and protecting the wearer from the cold, to that worn on ceremonial occasions, once or twice a year.

The reader will immediately wonder why, since delicacies are much more expensive than a piece of vital bread and evening wear incomparably dearer than that which is basically necessary, the things with a lower utility cost more. This is not only a very logical question, it is also an essential one: it immediately "brings one to one's senses", getting rid of the illusion that utility can be separated from the labour spent on creating it and from the distribution of value among people. Society has a specific number of hours of simple average labour at its disposal, the results of this being distributed according to the laws of social relations. It is quite clear that the "hierarchy of requirements" of a capitalist with an annual income of a million

dollars differs from that of a worker who has trouble making ends meet. On the market, the size of demand and supply constitute a unified, aggregate magnitude. On the market the seller does not ask the purchaser what his income is, nor does the latter ask the seller how much labour he spent on producing the product.

The quantity of labour and the distribution of results in the form of value determine the sequence of the assessments of different goods and services depending on the quantity of them and, at the same time, exert a constant influence on the proportions of production. In the ideal case, reflected by the equilibrium model, each hour of labour of equal quality creates equal utility. In fact, however, as we have noted several times, referring to the works of Marx and Engels, in a society based on private property and spontaneous market relations, a coincidence of the amount of labour inputs with the size of social utility, expressed in the model as an equilibrium of demand and supply, is no more than a single moment in the course of movement, the norm for which is a constant deviation of price ( reflecting social utility) from value (reflecting abstract labour inputs).

The fact that a mass of labour identical in terms of time, qualifications and intensity ( average simple labour) creates different utilities that only quite rarely coincide in size, is illustrated by the following tabular model in which five types of requirement are arbitrarily taken horizontally, and vertically---five degrees of satisfaction of the given requirement with the aid of production increments (i.e., use of a growing number of working hours).

In studying this extremely simple model, we shall primarily have in mind the fact that any

Table 1

UTILITIES CREATED IN ONE HOUR OP LABOUR

Requirements -~-^ Degree

of satisfaction

I

II

III

IV

V

of the 25 entries reflects utility created by one hour of average simple labour, labour of equal productivity. This approach immediately makes the units of account quantitatively determinate. If in A, the unit is taken as 100 kilos of bread produced in one hour of labour, in 6, C, D and E, too, it is the amount of output produced in one hour of labour that is taken as the unit---be it a pair of shoes, or 100 litres of petrol, or a cubic metre of building materials, or a gramme of gold, etc. It is important only to remember at all times what the title of the table reflects---it is always a matter of the utilities of different goods and services created in the course of one working hour.

Second, it must be remembered, too, that the real price on the market of each of the units (vertically) is determined by the utility of the last of the units produced. In practice, this means the following: if there were 100 kilos of bread on the market, its produce would be equal to fifty units of money; if there are 200 kilos of bread on the market, both will cost forty monetary units, if 300 kilos- thirty, if 400 kilos -twenty,

and in the last case, all 500 kilos will cost ten units of money.

In this case, the diagonal that consists of the ``tens'' on the table, assumes particular importance, as it represents the volumes of the production of goods and services of various use-values at which the price reflects the labour inputs.

In studying an economy based on exchange, analysis of the laws governing the deviations of price from value is just as essential as that of equilibrium. As the extreme case, the example is usually given of the beseiged town where a kilo of gold, which took a year's labour to produce, might be paid for a kilo of bread that took only ten minutes labour to produce. On the other hand, there have been many cases in the history of capitalism when, owing to economic crises, first essentials have been deliberately destroyed ---grain burned and milk poured away. Such examples are very important for understanding the essence of the problem---the fact that deviations of utilities from labour inputs really do exist and that, in some instances, determined by socio-political and socio-economic factors, these might be extremely great.

Leaving extremes aside, however, it is still clear that the history of the national economy of any capitalist country is one of deviations of prices reflecting those of utilities from values as determined by labour inputs. This is precisely what is evidenced by the constant fluctuations of the market on which, alongside production factors, a constant influence is exercised by those behind distribution of the national income among classes, social strata, families and individuals.

Thus, in all 25 cases, it is a matter of the input of one hour of simple, average labour, but this input of one hour only receives an iden-

tical evaluation on the market if there are 5 units of commodity A, 4 of commodity B, and so on, available on it. In other words, utility will be strictly proportional to labour inputs only when 5 units of A, 4 of B, 3 of C, 2 of D and 1 of E come on to the market.

Proceeding from this model, it is easy to imagine any instances of deviations from equilibrium exerting an influence on price formation. If, in the production of A, the final fifth unit, (A-5), the utility of which is equal to 10, is stopped, yl-4 will be marginal and the equilibrium of the inputs of one hour of labour and evaluations of its results will join the line of ``twenties''. If in A, unit A-G is produced in excess of the good or service with a utility of ten, its utility will be lower, 5 for example, and the equilibrium is turned in the opposite direction: it will bo established along the line of ``fives''.

These examples that we have just considered as changes in the value equilibrium in reality illustrate the law of motion, the essence of which consists in a constant deviation of prices from values which, in the capitalist market economy, acts in two ways---through requirements and demand, which certainly do not change in direct proportion to the change in supply by sector or overall, and through supply, the conditions of production, which certainly do not change in direct proportion to requirements and demand either by sector or overall.

The point of departure consists in the fact that, in view of the differences in the ratio of supply and demand, the production of equal utilities in the course of one hour is an abstraction that is not, in fact, the rule, but the exception. In The Poverty of Philosophy, sharply cri-

ticising Proudhon's concept of "constituted value", Marx wrote: "What M. Proudhon gives as the consequence of marketable value determined a priori by labour time could be justified only by a law couched more or less in the following terms:

``Products will in future be exchanged in the exact ratio of the labour time they have cost. Whatever may be the proportion of supply to demand, the exchange of commodities will always be made as if they had been produced proportionately to the demand. Let M. Proudhon take it upon himself to formulate and lay down such a law, and we shall relieve him of the necessity of giving proofs. If, on the other hand, he insists on justifying his theory, not as a legislator, but as an economist, he will have to prove that the time needed to create a commodity indicates exactly the degree of its utility and marks its proportional relation to the demand, and in consequence, to the total amount of wealth.''^^29^^ Later, Marx shows the complete absurdity of the proposition that, in an economy based on commodity relations, any unit of labour of equal skill and intensity would always bring equal utility.

In the study of the problems of price formation, economics has now made considerable progress. The application of mathematical techniques makes it possible to solve a system of equations with many unknowns (i.e., to analyse a multilateral functional dependence, taking into account primary and secondary factors, logical and random ones) and to use the methods of analysis of infinitely small magnitudes in studying price formation as a movement. These ends are served by such branches of economics as analysis of input and output, linear program-

ming, regression and spectral analysis, and games theory. Even a brief account of these comparatively new spheres of economics would divert us from our topic, but throughout this work we shall bear in mind that the random nature of the deviations of prices from values is caused by merciless competition, a struggle between capitalists to seize as large a share as possible of the overall mass of surplus-value created by the toiling classes. These deviations arise from the features of economic dynamics that are inherent in the very nature of the capitalist social system and exert a tremendous influence on the entire socio-political situation, as well as providing the basis for cyclical crises and many other disproportions, particularly under the domination of monopolies. For this reason, in studying state monopoly capitalism, the character of economic dynamics and deviations of prices from values must constitute the subject of an independent and special analysis.

Here we intend to illustrate the consequences of deviations of prices from values in their different aspects in aggregate form. In compiling the tables below we proceeded from Marx's propositions concerning the equality of the sum of prices to that of values and of the sum of values to that of prices of production.^^30^^ The tables are compiled according to the method that was used by Marx in analysing the transformation of value into the price of production. They are all interconnected by a common goal---to show the deviation of price from value strictly within the framework of value relations, within the limits of an equality of the sum of prices to that of values. All three tables arc called on 1o illustrate the extremely important proposition formulated in Capital, to the effect that "...this exchange-

13'J

ratio may express either the real magnitude of that commodity's value, or the quantity of gold deviating from that value, for which, according to circumstances, it may be parted with".^^31^^ At the same time, they must illustrate a fact of tremendous significance for the analysis of statemonopoly capitalism; the transition from one stage to another, from one correlation of inputs and outputs to another, must be accompanied by a redistribution of profits, losses for some and gains for others.

Table 2 illustrates the operation of the law of value on the dynamic plane---on that of the constant change^ in the correlations of inputs and outputs, labour inputs and the utilities created by labour. This table shows the main aspects of the operation of the law of value. All the figures (except for those in column F) must be viewed as being hours of abstract, simple, average, socially necessary labour embodied in commodities.

Analysis in two stages is required in order to show the changes taking place as a result of the difference between the ratio of demand to supply in different sectors. Both here and in all subsequent cases, the market-price---the income for each given sector after the good has been sold--- is taken as the constant. The variables, however, are profits, their mass and rate, i.e., precisely that which conditions the movement of value from sectors with lower profit rates into ones with higher rates, with all the ensuing consequences---with the profit rate tending towards the average. The first table, however, gives not the average rate of profit that forms as a result of the movement of capitals, owing to the difference in organic compositions. The other tendency discussed above is shown here---that towards an averaging out, which is of more signif-

Table 2

I. SIMPLE COMMODITY PRODUCTION

(analysis at market-value and profits) First stage

opq

•uM

S

o

a

a '5,

an

O ^

o s-"-; a

w

£5

>§

>B

£S

(JJJj * cS

rtfe-

I

1,500

1,000

2,000

1,000

II

3,000

2,000

1,000

3,000

1,000

III

1,500

1,000

1,000

Total 6,000 4,000 2,000 6,000 2,000

Second stage

Sector (A) (B) (C=A-B) (D) (E=U-B) (F-=E: B)

I

2,000

1,333

2,000

3,000

2,000

1,000

3,000

1,000

III

1,000

1,000

Total 6,000 4,000 2,000 6,000 2,000

icance with respect to the entire commodity economy---the tendency that takes shape as a result of the difference between the price and the market-value.

Here, as in the next two tables, we are abstracting from changes in the productivity of

labour: at the given stage of the analysis, such an abstraction is still necessary---it is still a matter of average and simple labour. Its role is illustrated by the second sector which, as we can see, remains the same in all positions during the transition from the first stage to the second. The given, second sector is a concrete example of the fact illustrated in the previous table by the diagonal of tens picked out in bold figures. In the language of physics, this is the "world line of points" that reflects the coincidence of labour and utilities. The given table, in the transition from the first stage to the second, illustrates the only way that the social necessity of labour may be determined---deviations of prices from values, this reflecting the dynamic character of the operation of the law of value, its complete incompatibility with a static situation, though the latter, as we have seen, can and must serve as the initial theoretical model, otherwise it would be impossible to penetrate deep into the dynamic laws of reproduction.

At any stage in the development of the commodity economy, a deviation of price from value appears as one of the conditions for reproduction. Such a deviation is not only a signal of the social necessity of increasing the production of the given commodity; it is also a means for realising this necessity. A price higher than value brings in additional profits that might become the source for expanding production. Moreover, capital from other sectors strives to enter that which has become more profitable. The reverse occurs in the production of those goods and services the utility of which is lower than the labour inputs. Yet this movement of value essential for the process of reproduction (even simple reproduction, let alone extended) becomes, un-

der the domination of private property, at tho same time a means for concentrating it.

Table 2, referring to the simple commodity economy, illustrates Marx's proposition that a deviation of price from value is universal in character, being, so to say, an inherent feature of it, and applies to the entire commodity economy at all stages in its development, right from its inception. Even before production of surplusvalue became the basis for exploitation, commodity-money relations under private property conditions entailed the possibility of some people gaining at the expense of others, of accumulating wealth later transformed into capital. It is precisely on this basis that, right at the dawn of capitalism, dynasties of rich people emerged who accumulated incalculable wealth by means of trade and money-lending operations, even before enterprise based on the production of capitalist surplus-value emerged.^^32^^

Historically, the deviation of price from value appeared as one of the chief components of the primitive accumulation of capital. Ancient manuscripts testify that, even in the slave-owning society, there were people who became tremendously rich through trade and usury, but without actually owning a large number of slaves, i.e., through the redistribution of the surplus product obtained in the economy based on slave-owning. Concerning the possible emergence of property as a means of exploitation, Engels wrote: "How did this property come into existence? In any case it is clear that it may in fact have been robbed, and therefore may be based on force, but that this is by no means necessary. It may have been obtained by trade or by fraud. In fact, it must have been obtained by labour before there was any possibility of its being stolen.''~^^33^^

The social function of trade and credit consists in accomplishing the exchange of products, commodities and services, or in facilitating this exchange. Merchant's profit arises even if prices and values are equal, but a deviation of prices from values in the hands of private capital inevitably becomes means for the rapid enrichment of a small number of people at the expense of all the others. Even after the socialist revolution and the establishment of the dictatorship of the proletariat, it was still possible to make profits on the basis of private trade and profiteering, until private ownership of the means of production was completely eliminated. Lenin wrote in his work ``Left-Wing'' Communism---an Infantile Disorder, "small-scale production engenders capitalism and the bourgeoisie continuously, daily, hourly, spontaneously, and on a mass scale." ³⁴ On this issue in his article "The Tax in Kind", Lenin stressed that "profiteering, in its politicoeconomic sense, cannot be distinguished from `proper' trade. Freedom of trade is capitalism, capitalism is profiteering.''~^^35^^ "Capitalism," Lenin said also, "will emerge wherever there is small enterprise and free exchange.''~^^36^^

Yet simple commodity production is taken not simply for the historical reflection of the problem. It is, at the same time, virtually of a political significance, since simple commodity production predominates in the economies of developing countries and elements of it, in some instances considerable ones, also remain in the countries of monopoly capitalism. The main thing consists in the theoretical analysis of simple reproduction: with its help those of its features are revealed that penetrate the commodity economy right through, at all stages in its development. After the law of surplus-value begins to dominate, the strug-

£

Table 3

4,

II. CAPITALIST PRODUCTION

^

(analysis in terms of value, surplus-value and profits) ~^^00^^

Firststage

Value Value of Value of Produc- Sur„ , of constant variable tion plus oeccor output capital capital costs value (A) (B) (C) (D=B+C) (E)

Value (F=C+E)

Price Profit ( + ) or loss (-) Profit (income difference between rate after price and production (%) sales) (G) costs (H = G-D) (I = H:D)

I 1 11 3 III 1

,500 1, .000 2, .500 1 ,

000 000 000

250 500 250

1,250 2,500 1,250

250 500 250

1,

500 000 500

2,000 3,000 1,000

500 (-) 250

60.0 20.0 (---) 20.0

Total 6

,000 4,

1,

5,000 1

,000

2,

6,000

1,000

Second

stage

Sector

A

B

C

D = B + C

E

F =

C + E G

H = G-D

I = H : D

I II III

2,000 3,000 1,000

1,

2,

333 000 667

334 500 166

1,667 2,500 833

334 500 166

1,

668 2,000 000 3,000 332 1,000

333 500 167

20.0 20.0 20.0

Total

6,000

4,

1,000

5,000

1,

2,

,000 6,000

1,000

20.0

Notes: of capital

1) in all cases, the rate of (---) is taken as being 4.0.

/ E\ surplus-value \-g) is

taken

as being 100 %;

2) the organic

composition

£ Table 4

~^^05^^ III. CAPITALIST PRODUCIION

(analysis by price of production and profit)

First stage

Sector

Production costs (A)

Deviation of _{p flt t}

Average Price of Market-nrice market-price Profit after after sales profit (B) production ^Ma™t P^e ,_{rom price sales} after sales

(20%) (C) ^{l ;} of production (C + E = F) ^l „/ ' (E = D-C) ^/0

I II III

1,250 2,500 1,250

250 1,500 500 3,000 250 1,500

2,000 500 3,000 0 1,000 -500

750 60 500 20 ---250 -20

Total

5,000

1,000 6,000

6,000 0

1,000 20

Second

stage

Sector

A

B C

D E

F G

I 11 III

1,500 2,500 1,000

300 1,800 500 3,000 200 1,200

2,000 200 3,000 0 1,000 -200

500 33 500 20 0 0

Total

5,000

1,000 6,000

6,000 0

1,000 20

glc for a maximum share of the overall volume of value is continued on the basis of competition and monopoly---deviations of prices from values, above or below. This is demonstrated in Table 3.

The fundamental distinction of this table consists in the way it contains surplus-value. Here, profit is formed not as a labour income (the difference between the price and value of constant capital), the size of which is adjusted by the market, by the deviation of price above or below value, but, as a result of exploitation, from surplus-value. The overall sum of profits (3) is here precisely equal to the sum of surplus-value (E). Yet the profits or losses of each participant in exchange are distributed not in direct proportion to the size of the surplus-value received in his enterprises, but immediately with the adjustment introduced by the market, i.e., the plus or minus resulting from the deviation of price from value. As in Table 2, the transition from the first stage to the second illustrates the fact that the market is an equalising force as much as it is a deviating one: the difference in the profit rates that emerges in the process of the deviations of prices from values urges capital to move out of these sectors bringing in a lower profit rate and into those with a higher one. Ultimately, this, as a consequence of the change in the correlations between the income and outlays, pushes the profit rate towards a common level (this, of course, is just a tendency). Yet this equalised rate of profit becomes the basis for new deviations arising in the process of competition.

Since it is no longer a matter of the simple commodity economy, but of capitalist production, we are ignoring here not only changes in the

10*

147

productivity of labour, but also in the organic composition of capital (C: B is taken everywhere as 4). Thus, the entire analysis is conducted on the strictly value plane---it excludes the factor of the transformation of value into the price of production, which is introduced at the next stage (Table 4).

We have already discussed briefly the role played in Marx's teachings by analysis of the transformation of value into the price of production. Now, in Table 4, the price of production is taken as given. Here we proceed from the assumptions outlined above, concerning the interrelations between the market-value, the price of production and the market-price.

The price of production is formed as a consequence of the fact that capitals identical in size have differing abilities to produce surplus-value. The price of production does not, however, take account of deviations of the market-price from value as a result of changes in the ratio of demand and supply. These deviations are reflected in market-prices, which must be compared with the prices of production according to the same principle as that behind the comparison of prices of production and values, i.e., by analysis of the transformation of one into the other as a result of the movement of capitals in search of a higher mass and rate of profit.

Let us recall the fundamental difference between the Marxist and bourgeois attitudes to the question of divergences of price and value. From the bourgeois point of view, enrichment (in the sense of a rapid rise in the wealth of certain individuals) takes place only as a result of such deviations. Quite typical in this respect is the American economist Frank Knight, who believes that "profits were matched against losses ...

True profit stemmed from uncertainty. Windfalls and speculative gains were won because of this element. If the future were really known in advance, the market would discount any shortages, so that profit could not be obtained. High returns from risky undertakings were simply a premium for unmeasurable risk or uncertainty".~^^37^^ The same thing is being discussed here: a ``normal'' income---this is payment for the labour of the capitalist, for his waiting, risk undertaken, capital invested, and so on, and only that above the norm is considered as real profit. In reality, though, any part of a capitalist's income is a part of surplus-value received on the basis of exploitation. ^K

Moreover, the exploitative origins of profits are completely inalienable not only from the process of production, but also from the laws of the capitalist market---from the continuous, extremely fierce competitive struggle in the course of which deviations of prices from values are not only used by some participants in the struggle against the others, but also gain sharply in intensity on the basis of a high centralisation of capital and monopoly. As a result, the dynamic proportionality of the various parts and aspects of the economy appears as a trend passing through continuous and multilateral disturbances of the proportions. In its nature, the competitive mechanism of the adaptation of prices in relation to value is such that, at each stage in the reproduction process, from individual inputs of concrete labour to market-price formation, the establishment of proportionality with respect to the changing conditions is always accompanied by losses for some owners of capital and gains for others. This furthers the transformation of free competition into monopoly. "The deepest econom-

ic foundation of imperialism," Lenin wrote, "is monopoly. This is capitalist monopoly, i.e., monopoly which has grown out of capitalism, and which exists in the general environment of capitalism, commodity production and competition, in permanent and insoluble contradiction to this general environment.''~^^39^^

The transformation of free competition into monopoly resulted in the former contradictions being multiplied into new ones. Monopoly aggravated the negative aspects of the mechanism by which prices and values interact, and did so to such an extent that a threat arose to the reproduction process. Within the framework of capitalism, this threat can only be averted by means of state regulation. The character and content of the latter are to a decisive extent determined by the specifics of the dynamics---those of the mechanism of adaptation as it has taken shape under the conditions of monopoly capitalism.

~^^11^^ At this stage of the analysis, we are abstracting from international trade and from the processes of the internationalisation of value.

~^^12^^ See Karl Marx, Capital, Vol. Ill, p. 155.

~^^13^^ Karl Marx, Theories of Surplus-Value, Part III, Progress Publishers, Moscow, 1977, p. 113.

~^^14^^ Karl Marx, Capital, Vol. II, pp. 196497.

~^^15^^ Karl Marx, Capital, Vol. I, p. 530.

~^^16^^ Karl Marx, Capital, Vol. Ill, p. 193.

~^^17^^ Karl Marx, Grundrisse. .., p. 308.

~^^18^^ See Bagels' Forward to Volume III of Capital (Karl Marx, Capital, Vol. Ill, pp. 15-21).

~^^19^^ Of particular interest in this connection is the following statement by Paul Lafargue: "From something Engels said to my wife (i.e., Laura Lafargue, Marx's daughter---Author), in Eastbourne, a few weeks before he died, I know that he was preoccupied with this question (the theory of value---Author) during the last months of his life and that ho was counting on completing his supplement. Though weakened by his illness, he elaborated an exposition of a theory that, in its simplicity, he said, would entail the agreement of everyone. Unfortunately, he was unable to write this work.

``It now remains for Marxists to research and interpret phenomena that confirm the theory of value, the only theory that makes the evolution of human production since it assumed the commodity form intelligible" (Paul Lafargue, "La fonction economiquo de la Bourse," Le Devenir Social, April 1897, p. 190).

~^^20^^ Quoted from A. Pesenti, Manuals de economia politica, Vol. II, Editor! Riuniti, Rome, 1970, p. 834.

~^^21^^ In reality, the three agents of agricultural production can act as two persons or a single one, but this is of no significance to an abstract-theoretical analysis of the problems of rent.

~^^22^^ Karl Marx, Theories of Surplus-Value, Part II, Progress Publishers, Moscow, 1975, p. 268.

~^^23^^ Karl Marx, Capital, Vol. Ill, p. 757. "... Differential rent was by its nature merely the result of the different productivity of equal capitals invested in land" (Ibid., p. 674).

~^^24^^ Of major importance is Marx's statement to the effect that differential rent may occur during both the transition to worse land and that to better (see Capital, Vol. Ill, pp. 658-659).

~^^25^^ Ibid., p. 178. In reality, of course, one and the

References

~^^1^^ Karl Marx, Capital, Vol. Ill, Progress Publishers, Moscow, 1977, p. 192.

~^^2^^ Ibid., p. 178.

~^^3^^ Ibid., p. 180.

~^^4^^ Ibid., p. 181.

~^^5^^ Karl Marx, Grundrisse der Kritlk der Politischen Okonomie, p. 56.

~^^6^^ Karl Marx, Capital, Vol. Ill, p. 195. i Ibid., p. 180.

~^^8^^ Ibid., p. 764.

~^^9^^ See also Karl Marx, Capital, Vol. I, Progress Publishers, Moscow, 1977, pp. 154-163. "The capitalist class, as a whole, in any country, cannot over-reach themselves" (Ibid., p. 160).

~^^10^^ V. I. Lenin, "A Caricature of Marxism and Imperialist Economism", Collected Works, Vol. 23, p. 44.

same commodity is often sold at different prices but, at the given level of abstract analysis, we can and must proceed from a single price.

~^^26^^ David Ricardo, On the Principles of Political Economy and Taxation, John Murray, London, 1821, pp. 60- 61. It follows from the context that Ricardo uses the term ``exchange-value'' to mean price.

~^^27^^ "The capitalist system," writes Marx, "does not know any other modes of consumption than effective ones... That commodities are unsaleable means only that no effective purchasers have been found for them, ... i.e., consumers..." (Karl Marx, Capital, Vol. II, Progress Publishers, Moscow, 1978, p. 414).

~^^28^^ Karl Marx, Op. cit., Vol. I, p. 336.

~^^29^^ Karl Marx, Frederick Engels, Collected Works, Vol. 6, Progress Publishers, Moscow, 1976, p. 132.

~^^30^^ Later we shall show that this equality is valid only for reproducible commodities.

~^^31^^ Karl Marx, Capital, Vol. I, p. 104.

~^^32^^ One example might be the dynasty of Fugger and Rothschilds in Western Europe, the Mitsui in Japan, which arose in the period of primitive accumulation, and later became mighty capitalist monopolies.

~^^33^^ Frederick Engels, Anti-Diihring, Progress Publishers, Moscow, 1975, pp. 193-194.

~^^34^^ V. I. Lenin, Collected Works, Vol. 31, p. 24.

~^^35^^ V. I. Lenin, Collected Works, Vol. 32, p. 357.

~^^36^^ Ibid., p. 296.

~^^37^^ Quoted from Ben B. Seligman, Main Currents in Modern Economics. Economic Thought Since 1870, The Free Press of Glencoe, New York, 1963, pp. 661-662.

~^^38^^ Marxist science does, of course, in its analysis, allot a major place to the petty bourgeoisie, which itself participates in the process of production and, in this sense, occupies an intermediate position between labour and capital. Yet this in no way changes the fact that the income of capital, as such, entirely and completely, in all its parts, derives from surplus-value as its source.

~^^39^^ V. I. Lenin, "Imperialism, the Highest Stage of Capitalism", Collected Works, Vol. 22, p. 276.

CHAPTER IV

CONTRADICTIONS OF THE DYNAMIC NATURE OF VALUE RELATIONS

1. Differences in Reproducibility as a Factor in the Operation of the Law of Value

``Market-value," Marx wrote in the rough draft of A Critique of Political Economy, "equates itself to real value through its constant oscillations, never through an equalisation with real value as with some third party, but through constant inequality with itself (as Hegel would say, not through abstract identity, but through a constant negation of negation, i.e., through negation of itself as negation of real value). That real value itself, in turn---irrespective of its domination over the fluctuations of market-price ( irrespective of it as of the law of these fluctuations)---negates itself and constantly sets the real value of commodities in opposition with its own definition, lowers or raises the real value of existing commodities---this I showed in my pamphlet against Proudhon." *

Discussing this issue in Capital, Marx stressed that "the possibility, therefore, of quantitative incongruity between price and magnitude of value, or the deviation of the former from the latter, is inherent in the price-form itself. This is no defect, but, on the contrary, admirably adapts the price-form to a mode of production whose inherent laws impose themselves only as the mean

of apparently lawless irregularities that compensate one another".~^^2^^

The form corresponding to commodity production consequently consists of constant deviations of prices from values. These deviations may appear only in economic dynamics, in the process of the reproduction of goods and services. It follows that the character of value relations is determined by that of the reproducibility of the various parts of the social wealth, by the specific features of the dynamics of their production.

In the initial, abstract model of the simple commodity economy, Marx proceeded from the assumption of complete freedom of exchange of commodities. In a similar model of capitalist production, analysing the transformation of value into the price of production, Marx also justified the possibility of a free flow of capital from some sectors into others. According to him, the transformation of value into the price of production is based "upon the perpetual inflow and outflow of capitals, upon their transferability from one sphere to another, in short, upon their free movement between the various spheres of production, which represent so many available fields of investment for the independent components of the total social capital".^^3^^

The significance of the differences in reproducibility and their link with the operation of value laws appears in particularly sharp relief with respect to the unreproducible parts of the national wealth. If the deviations that are an attribute of the law of value can, as we have seen, appear only in economic dynamics, in the process of the reproduction of goods and services, it follows that unreproducible boons possess no value. "A thing," writes Marx, "can be a use-value without having value. This is the case whenever

its utility to man is not due to labour. Such are air, virgin soil, natural meadows .. .''~^^4^^ Under capitalism, land and all other natural resources are evaluated not according to the abstract ``utility'' attached to them by supporters of the theory of marginal utility, but according to the real benefit they bring in the production of value and surplus-value (and the transformation of the latter into profit).

In Marxist literature, the valueless structure of natural riches is explained by the fact that no labour is invested in them. There can be no doubts concerning this interpretation but, in our opinion, the valueless nature of natural resources should be considered also as a partial case of the valueless structure of non-reproducible boons, which include, as we have just seen, more than just natural resources.

The second large group of boons that are sometimes considered in the literature as not possessing value are services. The thesis concerning the valueless nature of services arises from the division of labour into two types---productive and unproductive. In the course of the discussion of this issue in the Soviet economic literature between 1968 and 1971, the positions held by those who reject the value nature of services and interpret the Marxist labour theory of value in the spirit of "material fetishism" were shown to be groundless.

The uselessness of the "material interpretation" of value was demonstrated, above all, in relation to the service spheres, such as health care, education, tourism, and the sphere of circulation. In general, too, however, the formulation of the question of "non-productive labour" was revealed as being invalid. It is based on a mixing up of labour inputs as creators of value and

use-value. There can be no doubt that, in capitalist countries, a significant part of labour is spent to non-productive ends (maintaining an army, the police, armaments, and so on). Yet to call these expenditures "non-productive labour" is, essentially, to remove one of the most important aspects of the problem of parasitism and the decay of capitalist society. As abstract labour, such labour in no way differs from other types, and the social necessity of it is dictated by the existing social relations. Productive labour is a deliberate activity, resulting in the creation of use-values, i. e., of commodities and services for which there is a demand on the market. Parasitism within the capitalist social system consists, among other things, in the way productive labour, people's deliberate activities, are spent for non-productive purposes. Nor does the service sphere enjoy any ``priority'' in this respect: products hostile to human requirements are also created in the sphere of production (for instance, all types of output meant for military purposes, and so on).

At the same time, it turned out during the discussion that, among the mass of diverse services, some really are non-value in character, but not because so-called "non-productive labour" is spent on them. The reason is the unique nature of the labour that created some types of service (or thing), i. e., they are unreproducible. How can a painting by Raphael, a Beethoven sonata, the playing of Paganini or Lev Tolstoy's novel be valued in terms of working hours? The price of such masterpieces of world culture (i. e., that which millions of people, generation after generation, pay for reproductions and museum visits, for listening to music, for books, and wealthy collectors and corresponding institutions---for orig-

inal paintings and manuscripts) is determined only by the ratio of demand to supply. ".. .The price of things" Marx writes, "which have in themselves no value, i. e., are not the product of labour, such as land, or which at least cannot be reproduced by labour, such as antiques and works of art by certain masters, etc., may be determined by many fortuitous combinations".^^5^^

In what way are such works particular? What distinguishes them from the overall mass of goods and services? What isolates the formation of the prices for them from the sphere of the direct operation of the law of value? There can be only one answer---unreproducibility, the absence of any "upward elasticity" on the part of supply. The emergence of new works of art can, of course, devaluate former ones (and often does so) but, first, in such a case, a transition takes place from a worse thing to a better one that cannot be prepared in advance, for training can develop a talent, but cannot create one. Thus, here, unreproducibility is more inflexible in character. Second, since it is a matter of leading figures, such a devaluation takes place over time periods incomparably longer than those involved in the production process for providing vital necessities. Third, the uniqueness of great works of art lies in their being unrepeatable and in the fact that, even if people turn to new ones, the former ones retain their role as landmarks in the cultural history of mankind.

The valueless character of price formation in the sphere of non-reproducible objects means only that the prices are based not directly on labour inputs, but on the ratio ol demand to supply. In this case, inputs of labour on the corresponding object bear no relation to the quantification of its utility, for in some instances (natural

resources) there are no such inputs at all, while in others, the labour is of such a quality that it cannot be broken down into the simple, average labour that is used as measure of value.

It would seem that all this casts doubt on the thesis concerning the equality of the sum of prices to that of values. After all, if natural resources, having no value, do have a price, how can these two sums be equal?

Yet it in no way follows from the fact that boons without value have a price that price formation here is in no way linked with the operation of the law of value. Marx wrote that "the imaginary price-form may sometimes conceal either a direct or indirect real value-relation; for instance, the price of uncultivated land, which is without value, because no human labour has been incorporated in it.''~^^6^^

Marx illustrates this with the help of the wellknown example of the waterfall. After considering all the circumstances surrounding the receipt of rent from a waterfall, Marx writes: "... This price of the waterfall on the whole is an irrational expression, but behind it is hidden a real economic relationship. The waterfall, like land in general, and like any natural force, has no value because it does not represent any materialised labour, and therefore, it has no price, which is normally no more than the expression of value in money terms. Where there is no value, there is also eo ipso nothing to be expressed in money. This price is nothing more than the capitalised rent. Landownership enables the landowner to appropriate the difference between the individual profit and average profit. The profit thus acquired, which is renewed every year, may be capitalised, and appears then as the price of the natural force itself".^^7^^

In fact, what does it mean that unreproducible boons created by nature or works of art acquire a price? It means that part of the labour embodied in the reproducible goods and services is allocated by their owners for acquiring non-- reproducible goods and services. Thus, demand for reproducible goods and, correspondingly, the prices for the general mass of them, fall below their value, while production with the participation of nonvalue boons is carried out on the basis of an equality of values and prices, achieved by drawing off part of the value from the sphere of reproducible goods into that of non-reproducible ones (in the form of effective demand for them) and having the latter assume an "imaginary value" character.^K

The question of the existence of boons with prices of a non-value origin is not confined to that of the arithmetic sum of prices and values. It is a matter of tremendous social importance. The existence of riches of a non-value origin makes possible the existence of an exploitative stratum that gathers to itself part of the surplusvalue without participating in the competitive process as owners of reproducible resources do. These are rentiers of the worst type, those that receive their incomes not only without participating in the production process, but also without undertaking even the smallest risk---simply on the basis of the right of ownership.

On both the theoretical and political planes, the struggle around rent has been going on for over two centuries. The social essence of the problem of ground rent in its bourgeois formulation of the eighteenth and early nineteenth centuries consisted in eliminating or ousting rent incomes, incomes from natural resources, thus consolidating ``lawful'' property, received from the owner-

ship of capital and embodied in the reproducible parts of wealth. In recent times, a number of quite contradictory changes have taken place in the sphere of landownership in the industrial countries. As economies progress, the use of natural resources way outstrips their natural growth. As a consequence of the population growth and the increasing scale of the economy, and the tremendous growth of urbanisation, more and more new plots of land of worse quality are drawn into economic turnover, the result being that the size of the differential rent, determined by the difference between the incomes from the best and the worst land (in terms of yield and location) is growing.^^9^^

The problem of the rent received from the ownership of land bearing minerals and other natural resources has become particularly serious. This problem is of international importance owing to the interrelations between the industrial countries and the developing ones. In general, the essence of it is that, as a result of the growth of the world economy based on the use of mineral resources, the latter are being gradually exhausted, and a transfer is taking place from land with better mining extraction conditions to worse ones. The result is that the gap between the best and the worst conditions is growing, accompanied by the rent received from the better land. Hence the rapid rise in the prices of land, which have outstripped the overall price rise. On the social plane, the essence of the problem is that, whether it concerns ``pure'' landowners who rent out their land, or people combining landownership with capitalist enterprise, incomes of a non-value origin rise, i. e., in the given case, the incomes from landownership. At the same time, the isolation of landed property

is not, as great as it was in the eighteenth and nineteenth centuries. The bourgeoisie had acquired so much of the land that, today, corporations own land (especially industrial) together with other forms of property, and land acts as one of the means of production in the hands of a capitalist monopoly.

From the angle of the labour theory of value, the difference between reproducible and non-- reproducible wealth not only does not lose its significance; on the contrary, with the emergence of monopoly capitalism, it acquires a new meaning. Although Marx wrote primarily about ground rent, he made his conclusions on a level of abstraction that is applicable not only to the particular case he investigated. "A surplus-- profit," wrote Marx, "may also arise if certain spheres of production are in a position to evade the conversion of the values of their commodities into prices of production, and thus the reduction of their profits to the average profit.''~^^10^^

These words apply to any monopoly. Any capitalist monopoly is able lo prevent an inflow of capital into the sphere of production where price exceeds value and where it therefore receives higher than average profits, as is the case with natural monopoly, where superprofit appears in the form of rent. After all, in the case of natural resources, too, the social character of the limits to their use is evident. The last plot of land is the last, but not in the sense that no more land exists that would yield output (on the contrary, the general rule is the situation when far from all land is used for economic purposes). It is the last in that the profitability of using the land is ensured under conditions of private property only to specific limits---those discussed earlier.

Between the limitations of reproducibility aris-

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ing from private ownership of the land or from the rarity of talents, or from a monopoly of reproducible means of production directly in the sphere of operation of the law of value there is, of course, a considerable difference. In the first and second cases, the differences are in non-- reproducibility; in the third, they are differences in reproducibility dictated by differing degrees of monopolisation. Here, however, we are talking about that which is common to and characteristic of the various limitations on reproducibility. The limitation of competition, which is the essence of monopoly, at the same time, affects the free reproducibility of goods and services. Any monopoly possesses features in common with ownership of natural resources. In its very essence, monopoly consists in certain limitations being placed on the free expansion of production leading to an orientation of price on value on the scale of the whole national economy (i.e., on inputs of average socially necessary labour). The extent to which such limitations are set decides the degree to which the monopoly of the reproducible part of capital gives profits the features of rent. This means a major modification in the operation of the law of value.

The flow of values from some sectors into others, as can be seen from the above, is one of the attributes and essentials for the operation of the law of value and the transformation of value into the price of production. This flow itself, however, is a very complex process, one that depends on social and technological conditions. The nature of this process and the differences in its intensity in various sectors depend on the level of concentration of production and centralisation of capital, on the physical immobility of fixed and, partially, of circulating capital with respect

to location and production sector. That which the foregoing tables illustrated in figures as the transition from one stage to another is, in reality, reflected in such processes as the scrapping of enterprises as a result of their physical ageing or obsolescence, the different extent of the loading of enterprises, depreciation payments and their use through the credit system for new construction. The main thing is that these transitions are accomplished not with rational uniformity, but are spasmodic in character: the chief characteristic of the economic dynamics of capitalism is its cyclical nature, i. c., the fact that extended reproduction is carried out through periodical crises and depressions.

2. Some Features of Contemporary Cyclical Crises

Analyses of the chaotic and disproportionate nature of the capitalist economy, as it forms under the conditions of the general crisis of capitalism, are made in many special Marxist research works. Here we intend to consider the problem of cyclical and structural crises in the briefest possible form and only one aspect of it--- how they determine the need for state-monopoly regulation of the economy, its inevitability and main features.

A constantly growing place in modern economics is held by the problem of lags, which is considered mainly on the technico-economic plane, as a factor connected with the seasonal nature of some types of production or with the fact that the short-, medium- and long-term factors behind economic growth (each individually and, particularly, in their interaction) operate with a considerable degree of dependence, this

11*

resulting in disproportions. Major successes in the study of lags have been scored by mathematical statistics and economics, but, in content, this problem goes far beyond the scope of these sciences and appears as one of the aspects of reproduction, i. e., as a socio-economic problem.

Lags, the temporal backwardness of certain elements, are a natural feature of the reproduction process. Equally natural are differences in these lags for various types of production. In view of the simplicity of the technology and small scale of capital in the production of shoe polish, for example, any new demand can be met in a few days or weeks, as far as the ironand-steel industry is concerned, however, owing to technological factors and the conditions governing the mobilisation of capitals, if existing capacity is fully loaded, the satisfaction of social requirement that has emerged may take from months to years. Natural inertia and the differences in the reproducibility of various types of fixed capital are such that the position here is, in many cases, similar to the unreproducibility of types of wealth considered in the previous section. ^u

Under capitalism, the natural process of the closing of lags, which is one of the sides of extended reproduction and the formation of the social productivity of labour, is firmly tied to the circulation of capital, to its concentration, to the formation of average profit and to synchronising competition and monopoly. In turn, all these factors are organically linked to price formation: price reacts very quickly to changes on the market, but under the domination of private property, this market situation itself is determined primarily by short-term and, to a lesser degree, medium-term factors. "In relation to nature,"

wrote Engels, "as to society, the present mode of production is predominantly concerned only about the immediate, the most tangible result.''~^^12^^ However, the real rationality of the reproduction process depends, first of all, on longterm factors, such as the stability of growth, the rational distribution of productive forces, on demographic factors, and so on.

In the context of the question of lags and the transfer of capitals, it is essential to touch on those of obsolescence, which applies mainly to the active part of fixed assets---to the use-value and the value of each of its elements.

The use-value of any piece of machinery for its owner is determined by the amount of profit he can obtain with its help. As for obsolescence, at each given moment, the value of a machine is determined by the difference between the losses from its going out of service and the profits from the purchase and use of a new machine.

The problem of obsolescence is that of the economic (value) justification of the functioning of fixed assets that have not yet worn out physically. "As a result of this increasing productivity of labour," Marx wrote, "however, a part of the existing constant capital is continuously depreciated in value, for its value depends not on the labour-time that it cost originally, but on the labour-time with which it can be reproduced, and this is continuously diminishing as the productivity of labour grows".^^13^^

Considering this issue in detail in Volume II of Capital, Marx writes: "As the magnitude of the value and the durability of the applied fixed capital develop with the development of the capitalist mode of production, the lifetime of industrial capital lengthens in each particular field of investment to a period of many years,

say of ten years on an average. Whereas the development of fixed capital extends the length of this life on the one hand it is shortened on the other by the continuous revolution in the means of production, which likewise incessantly gains momentum with the development of the capitalist mode of production. This involves a change in the means of production and the necessity of their constant replacement, on account of moral depreciation, long before they expire physically." ^u Obsolescence is manifested only through competition in which, ceteris paribus, the victor is he who possesses the most capital and has most opportunities for manoeuvring, who can give preference to the mass as opposed to the rate of profit.^^15^^ "The average periods," writes Marx, "during which the fluctuations of marketprices compensate each other are different for different kinds of commodities, because with one kind it is easier to adapt supply to demand than with the other".^^16^^

In reality, this process is inseparably linked with crises as the main phase forming the economic cycle. Marxist economics proceeds from the fact that cyclical reproduction, market oscillations, and crises as an inevitable part of them, arise from the basic contradiction of capitalism--- that between the social character of production and private ownership of the means of production. This general basis actually appears in the way the specific demands of extended reproduction and the rise in the social productivity of labour are subordinated to the profit principle. These specific demands consist in the following: first, in a dynamic proportionality of production and personal consumption; second, in proportionality of supply and demand; third, in proportionality of fixed and circulating capital and all

their parts, and fourth, in the smooth interaction of all three agents in the circuit of capital, i. e., the circuits of productive, merchant's and money capitals.

The first of these three proportionalities---that between production and personal consumption, is, of particular significance. The essence of the question is that, since the scale of personal consumption is determined primarily by labour incomes, which are included in the costs of production, it is inversely proportional to profit. This means that, in its struggle for maximum profit, capital's constant interest consists in holding wages as low as possible.

When analysing the reasons for the cyclical course of reproduction, Marx puts forward the following, now classical definition, in which the proportionality of production is linked directly with the proportionality and social characteristics of consumption.

``The conditions of direct exploitation, and those of realising it, are not identical. They diverge not only in place and time, but also logically. The first, are only limited by the productive power of society, the latter by the proportional relation of the various branches of production and the consumer power of society. But this last-named is not determined either by the absolute productive power, or by the absolute consumer power, but by the consumer power based on antagonistic conditions of distribution, which reduce the consumption of the bulk of society to a minimum varying within more or less narrow limits. It is furthermore restricted by the tendency to accumulate, the drive to expand capital and produce surplus value on an extended scale. This is liuv for capitalist production, imposed by incessant revolutions in the methods of

production themselves, by the depreciation of existing capital always bound up with them, by the general competitive struggle and the need to improve production and expand its scale merely as a means of self-preservation and under penalty of ruin.''~^^17^^

In the monopoly capitalist countries, from 60 to 70 per cent of the total volume of demand is made up of personal and public consumption. The rest is productive demand, i. e., for increases in constant capital, including fixed (means of production) and circulating (raw and other materials) capitals. The main source of the increment is profit as a transformed form of surplusvalue. Although this share is a smaller part of overall demand (from 20 to 40 per cent), it is the most dynamic one and, at the same time, that which is disposed of directly by the owners of capital. In addition, it should be remembered that value, when applied to personal demand, has no ability for self-expansion and is embodied primarily in means of consumption, which are mostly consumed over comparatively short periods of time.^^18^^ The other part of value, embodied in means of production, entails a growth of the part of the national wealth that consists of current assets and is the basis of the entire reproduction process. The expansion of fixed capital is accompanied by the scrapping of the worn-out part of it, by its depreciation. This process naturally proceeds unevenly in different sectors and enterprises, with the value of the part of fixed capital that is already partly depreciated, but still operating, being concentrated in banks in the form of the deposited share of the incomes of enterprises. Thus, the correlation between obsolescence and physical wear and tear may be traced by analysing the financial bal

ances of corporations and credit institutions---by comparing the dynamics of depreciation payments and new investment.

The deposited share of incomes does not, at all, have to be spent on recouping the elements of fixed capital from whose depreciation payments it is made up.^^19^^ On the contrary, together with sums set aside from net profit for accumulation purposes, it forms part of the value of the national product that constitutes the financial basis of economic dynamics---extended reproduction with a simultaneous flow of capitals from some sectors into others. Together, these sums form a more substantial part of the national income (from 30 to 40 per cent) and, consequently, their dynamic influence increases.

It has been stated above that the capitalist's constant interest consists in holding wages as low as possible for the sake of maximum profits. On the other hand, in the given case one contradiction that comes into sharp focus is that between the interests of capitals as forces constantly striving foe maximum profit and those of reproduction in general---a specific volume of consumption expenditures, depending above all on the level of labour incomes, is a necessary condition for the normal course of reproduction.

Do forces exist that promote an increase in the mass of labour incomes and, together with them, consumption? Abstracting, for the moment, from the struggle of the working class, which undoubtedly plays a major role, it is clear that, on the purely economic plane, it is the demand for labour power that stands in the way of reductions in wages. The si/e of Ibis demand and changes in it depend lo a derisive extent, however, on the volume of in\cslmenl, on its structure and character. An increase in invest-

ment leads to an expansion of the demand for labour power, the numbers of the employed and the volume of labour incomes. In other words, the growth of productive consumption becomes a factor behind that of the overall scale of consumption.

In economics, all these dependencies are studied in the minutest detail. Particularly important here are the Multiplier and Accelerator discussed in Chapter I. If these dependencies were accomplished on a planned basis, there would be a constant dynamic equilibrium, which would ensure the highest labour productivity and the greatest efficiency of the economy.

Under capitalism, though, all this proceeds in a completely different way---according to the laws of cyclical development. The prospect .of profits arising today for any reason (more often than not, as a result of the appearance of a new technology and spheres of production) engenders a chain reaction of rapidly expanding demand---first productive, and then personal. A particular role in this is played by credit. The circuit of capital is accomplished in such a way that means accumulated in banks, after passing through the form of fictitious capital (securities and the like), are transformed into real capital, both fixed and circulating. The cyclical growth of production is almost always accompanied by an even more rapid growth of credit and here lies the danger of bankruptcies if sales drop. The expansion of production on the basis of credit is spasmodical, boiling over into speculative fever, into a struggle between the capitalists governed by today's high profits and today's high share rates, to invest both their own and borrowed capital as fast as possible. In such periods, the overall growth of demand temporarily out-

strips that of supply, which naturally leads to price rises on all or most commodities. When, however, investment made during the more or less brief periods of speculative fever is transformed into actual capacity, a deep disproportionality is revealed between the increased mass of final consumer goods and the volume of the demand for them. Prices and profits start to drop, indicating overproduction and giving an impetus to the crisis---an overall drop in production. The deterioration might set in heralded by different phenomena---drops in prices or share rates, excessive stocks or sudden mass bankruptcies, but eventually it develops into an interaction of functional disturbances reflecting overproduction and embracing all spheres of the economy (including credit, employment, the incomes of workers and other classes, and many otber factors), into a cumulative deterioration of the economic situation, i. o., crisis. The recession is replaced by depression---with production held at the minimum, accompanied by increased unemployment and idle productive capacity. The depression goes into revival when capital becomes concentrated in the hands of those owners who managed to survive the crisis and when a new impulse appears to renew capital.

Thus, the dynamic comparison of labour inputs and utilities, value and use-value, on the basis of the principles of capitalist profit and operating under conditions of spontaneity, cannot but proceed in the form of cycles, including crises. "But it is solely these fluctuations," Marx writes, "which, looked at more closely, bring with them the most fearful devastations and, like earthquakes, cause bourgeois society to tremble in its foundations---it is solely in the course of these fluctuations that prices are determined by

the cost of production. The total movement of this disorder is its order. In the course of this industrial anarchy, in this movement in a circle, competition compensates, so to speak, for one excess by means of another.

``We see, therefore, that the price of a commodity is determined by its cost of production in such manner that the periods in which the price of this commodity rises above its cost of production are compensated by the periods in which it sinks below the cost of production, and vice versa. This does not hold good, of course, for separate, particular industrial products but only for the whole branch of industry. Consequently, it also does not hold good for the individual industrialist, but only for the whole class of industrialists.''~^^20^^ "But for the capital to abandon one sphere and pass into another," Lenin wrote, "there must be a crisis in that sphere.''~^^21^^

We have considered the question of the cycle, so to say, in its classical form, that in which the cycle and analysis of it took shape over more than a century---from the first crisis of overproduction, which occurred in Britain in 1825, right up to World War II.

In the postwar years, the cyclical character of reproduction underwent fundamental changes. For comparison, we present data on three ``pairs'' of crises: 1907-1908 and 1957-1958 as ``usual'' crises, not involving any particular circumstances (pre- or postwar conditions, etc.); 1920-1921 and 1948-1949, as the first crises after the world wars; 1929-1933 and 1973-1975 as the deepest economic crises of the two periods under comparison (the interwar years and those after World War II). (See Table 5.)

These data show the first peculiarity of the postwar crises---their generally lesser depth and

Table 5

COMPARISON OF THE CHIEF INDICATORS OF ECONOMIC CRISES

(in all capitalist countries)

Duration of drop _{Depth of} Crisis years 'p/oducVion recession (months) ^(%)

Growth of -8 unemployment

1907-1908 1957-1958

12 14

6.4 5.0

N.A. 31.0

1920-1921 1948-1949

14 9

16.4 6.0

N.A.

N.A.

1929-1933 1974-1975

37 14

46.0 5.0*

201.2 86.5

* For the industrial capitalist countries---11.6 %. Sources: Institute of the World Economy and International Relations of the USSR Academy of Sciences, market fluctuations sector, Economic Statistical Information, ed. 28, Moscow

1976, pp. 6, 42, 53, 72, 80, 95; World Marxist Review, No. 1,

1977, pp. 105-107.

duration.^^22^^ The second consists in the significantly lesser synchronicity of the crises as compared to the prewar years. Special analysis reveals not only considerable differences between the start and end of crises in different countries, but also the fact that, during crisis periods in some countries, growth continued in others, or at least only slowed down.^^23^^ With respect to the growth of the division of labour and international trade, such a change might seem paradoxical, but it is explained by the protectionist character of the growing state-monopoly regulation. The third peculiarity consists in the fact that the seven to ten year periodicity of the cycles was upset by frequent intermediate short-term drops in production or sharp falls in its rate of growth. Over the thirty postwar years, apart

from the definite cyclical crises of 1948-1949, 1957-1958, 1970-1971 and 1973-1975, a number of industrial countries experienced critical drops in 1954, 1965, 1966 and 1967.

The reasons for these changes are as follows. First, there is the very course of the development of productive forces and the scientific and technological revolution, bringing accelerated obsolescence of capital (long before it is worn out). At certain stages in development, the advantages considered above of a high concentration of capital come into play. The fact noted by Marx that, for a small number of big capitals, the mass of profit exceeds the rate, means, under contemporary conditions, that monopolistic corporations concentrate in their hands huge masses of capital and that, in many instances, this allows them to overcome obsolescence---with losses, but without risking bankruptcy.

The tremendous size of accumulated credit resources in combination with sectoral and geographical diversification (in particular, with the functioning of multinational corporations) increases the opportunities for manoeuvre---for transferring capitals from some sectors into others, from some countries into others, and also for maintaining solvency with an imposed---and often deliberate (to keep prices high)---reduction in the loading of enterprises. Yet none of these advantages of a high capital concentration could be realised without increased state economic regulation, and even this, as we have seen, cannot save capitalism from cyclical and structural crises.

We noted in Chapter I that, while state economic policy was initially geared to overcoming a crisis that had already set in, after the last war the goal was to avert crises altogether. The spe174

cific content of this policy consisted mainly in measures against ``overheating'' of the economy, i. e., against economic growth being compressed into short periods, and for ati even growth rate over time. This chief goal proved inseparable from two others---the struggle against inflationary price rises and against a deterioration of the currency situation (since, for the majority of industrial countries, rapid economic growth is accompanied by a rise in the imports of raw materials and a worse balance of trade).

The question of the link between economic policy and the struggle against inflation and the currency problem is given special consideration later. For the time being, let us note that, the more diverse, deeper and more stable state economic policy became, the more intense grew the class, political and ideological struggle around it. Joan Robinson wrote: "Unemployment could be overcome by government loan-- expenditure. With very low unemployment, the captains of industry find that discipline in the factories breaks down and prices rise. In this a powerful block is likely to be formed between big business and the rentier interests, and they would probably find more than one economist to declare that the situation was manifestly unsound. The pressure of all these forces, and in particular of big business, would most probably induce the Government to return to the orthodox policy of cutting down the budget deficit. A slump would follow.

``Then the next election looms up and pressure to relieve unemployment grows strong again. So, he * predicted in 1943, after the war we shall

* Michal Kalecki (1899-1970), Polish economist. From the late 30s until the end of Hie Second World

have overcome the problem of the commercial trade cycle and we sliall be living under the regime of a political trade cycle. Just now the political trade cycle seems to be taking a more violent form than ever before.''~^^24^^

Reality proved more complex than Kalecki foresaw: "the commercial trade cycle" did not disappear, but was modified under the impact of political factors engendered by the strengthening of state-monopoly regulation. No economic research has so far been able to explain convincingly and with adequate theoretical depth the actual postwar cycle, with, in spite of its great irregularity, its predominantly four-, five- and six-year periodicity. Such an explanation would have to take account of what Kalecki called the "political trade cycle". The influence of political factors on the cycle manifested itself particularly clearly in Britain, with its postwar ``stop-go'' economic policy and corresponding economic dynamics. Whatever the mathematical economic models and quantitative parameters, explaining the modification of the cycle, however, it is evident that it is to no small extent connected with political factors.

the 60s, with such non-cyclical phenomena as the currency, energy and raw material crises, the intensification of the ecological problem and the closely related one of urbanisation. A special role has been assumed by the problem of inflation---the rapidly acceleraling rise in prices.

In spite of the totally different manifestations and character of these disturbances and crises, they have a common basis: intensification of the problem of lags---temporal and spatial disproportions, which is inseparable from that of the transfer of the mass of value from some spheres into others. The greater the interdependence between the elements of the structure of social production and consumption, the more the condition of the entire structure depends on the proportionality of its separate parts and particularly those that, for some reason or another, are less amenable to development in accordance with the changing requirements of proportionality. A delay in the growth of one sector is a blow to the entire structure.

Above, in the analysis of the dynamic nature of value, we noted the fundamental differences between reproducible and non-reproducible wealth, and the way non-reproducibility applies not only to natural resources, but may, within certain more or less broad limits, also arise on the basis of monopoly. "The incessant equilibration," writes Marx, "of constant divergences is accomplished so much more quickly, 1) the more mobile the capital, i. e., the more easily it can be shifted from one sphere and from one place to another; 2) the more quickly labour-power can be transferred from one sphere to another and from one production locality to another. The first condition implies complete freedom of trade within the society and (lie removal of all monop-

3. The Tendency of the Rate of Profit to Decline and Structural Crises

probably the most important specifics of the contemporary economic development of capitalism consists in the way its cyclical nature interweaves with the structural crises that began in

War lived in Britain. He is the author of the econometrics model ("Kalecki model") characterising the cyclic nature of the capitalist economy---Author.

12-01768

oiies with the exception of the natural ones, those, that is, which naturally arise out of the capitalist mode of production.''~^^25^^

The transfer of value is always and constantly linked with assessment of the comparative profitability of different sectors. In making such an assessment, the criterion for private capital, which accounts for the overwhelming majority of earning assets, is the average rate of profit. In this connection, not only are the prospects for increasing profits in relation to the average of tremendous importance, but also the rate of turnover---the amount of time taken for outlays to be covered and profits to begin flowing in. The impossibility of foreseeing how dangerous a crisis will be and how seriously it will affect a given sphere, and also what its socio-political consequences will be, increases the risk which is naturally higher, the longer the period of time counted on for the circuit of capital. The Swedish economist Knut Wicksell rightly believes that "the yield from long-period investment would have to be greater than the sum of the yields obtained from short ones. Otherwise the commitment of capital would be limited to short but safer time spans".^^26^^ This is precisely what happens and, since long-term investment certainly does not always ensure a higher profit than short-term does (more often, the opposite), longterm investment is naturally largely made by the state.

The problem of structural crises and state participation in averting them or softening their impact is very closely linked with the specifics of the dynamics of capitalist profit.

In Marx's analysis of the average rate of profit, a major place belongs to investigation of its tendency to decline and counter factors. The es-

sence of the problem consists in the fact that, given the rate of surplus-value I---j , with a

growth of the organic composition of capital (-J, the rate of profit on the scale of the entire national economy (-^p^ J must decline and that

this reveals the historically limited nature of the capitalist mode of production.^^27^^ "The rate of profit," Marx writes, "is the motive power of capitalist production. Things are produced only so long as they can be produced with a profit. Hence the concern of the English economists over the decline of the rate of profit. The fact that the bare possibility of this happening should worry Ricardo, shows his profound understanding of the conditions of capitalist production."²⁸ Together with his analysis of the tendency of the rate of profit to decline, Marx showed its contradictory character and revealed the influence exerted by a number of counter factors. Marx gave the following ones: a rise in the degree of exploitation of labour, a drop in wages below the value of labour-power, a depreciation of the elements of constant capital, relative overpopulation, foreign trade and an increase in share capital. Today they have undoubtedly been joined by the influence of the state, which assumes the financing of the least promising parts of social production from the point of view of capitalist profit.

The latest research into the rate of profit reveals the tremendous and constantly growing complexity and contradictoriness of the factors influencing its dynamics. Economic statistical difficulties (connected, inter alia, with changes in prices, military cataclysms and many other

12*

things) are here such that it is virtually impossible to give a clear and convincing picture of the dynamics of the overall rate of profit for a whole country.^^29^^ Though it may be difficult or even impossible to trace statistically the general tendency for the rate of profit to decline, it is still obvious that its influence is manifested in the tremendous differences in the rate of profit in different spheres---depending on the character of the goods and services produced there, on the conditions of their consumption and realisation, and on the character of the circuit of capital. The combination and interaction of the differences in the organic composition of capital and in the rate of turnover of capitals is one of the decisive factors affecting rates of profit in relation to the average. Let us investigate how these differences emerge in the most important spheres of production---on their own and in combination with other factors.

In agriculture, the turnover of most advanced capital takes, as a rule, less than a year. True, there are other factors here that counteract the main tendency---the accelerating growth, in connection with the scientific and technological revolution, of the organic composition of capital, the development of agro-industrial complexes, the special role of climatic and weather conditions. Moreover, since the conditions for the realisation of agricultural output (the prices for producers and consumers) play a major sociopolitical role, the state, as will be shown in Chapter VI, intervenes in reproduction, influencing price formation. On the whole, however, the relatively short turnover of capital acts to ensure an average rate of profit of average incomes and thus the vitality of small-scale production.

The sphere of the manufacturing industry is

extremely diverse with respect to the character of the technology of production and the realisation of output. Here there is a tremendous diversity of organic compositions of capital. Moreover, manufacturing is distinguished by the highest obsolescence of equipment. Overall, the turnover of the active part of fixed capital takes from 12 to 13 years and, since this sphere is the leading one in terms of scale and role, its turnover constitutes the basic factor (though far from the only one) determining the duration of the economic cycle. Yet the differences in the conditions within this sphere are so great that more and more subsectors emerge, ones that do not fit into the framework of the principles of capitalist profits. For example, there is the production of modern supersonic passenger airliners, rocketry and computers---all these branches are either developed totally by the state or with broad and constant state support.

The position with respect to capital turnover in the extractive industry differs fundamentally or sharply from that in manufacturing. Realisation of the finished output takes place very rapidly, but its production requires, as a rule, a very high organic composition of capital and, from the point of view of profitability, is accompanied by considerable risk. In spite of the progress in geological prospecting, the precision of forecasts of deposits, their size and the nature of their location is such that investment in this sphere is often in the nature of a gamble. Moreover, as already noted in the consideration of reproducibility, in connection with the gradual exhaustion of resources, extraction is taking place under increasingly bad conditions -from poorer, deeper and more remote deposits. The take-over of new sources and their development take place

under close co-operation between monopoly and state, state guarantees of profits and other state incentive measures, which constitutes one of the main aspects of state-monopoly capitalism.

Since more than 90 per cent of the energy used in the national economy is obtained from mineral raw materials, the position in power engineering is determined to a considerable degree by that in the extractive industry. That which applies to the extractive industry as a whole appears particularly sharply in the extraction of energy raw materials. Here the universality of the demand for the output, its vital nature and its continuous and rapid growth are combined with the complexity and variability of the world energy balance, with a comparatively rapid transition from some sorts of energy raw materials to others, with a progress of science and technology that, in the more or less near future, within two to three decades, will come up with opportunities for the broad application of fundamentally new methods for obtaining energy--- direct use of solar energy, use of hydrogen as an energy raw material, creation of controllable thermonuclear reactions, and so on. The limited nature of the energy resources in use today ( especially oil and gas) is accompanied by a considerable unevenness in the distribution of deposits over the world, by a tremendous dependence of some countries and regions on others. Characteristic of power engineering is a very high organic composition of capital, which is constantly rising for a number of reasons---in connection with the growth in the cost of land, with the need to increase expenditures on transmitting energy over long distances and with the gradual transition to more expensive forms of production. In addition, a tremendous role is played here

by the reliability with which electric power stations function and the environment is protected, which raises outlays even further.

Overall, the power industry is one in which the contradiction belween the social character of production and consumption, on the one hand, and private property, on the other, appears in particularly bold relief. The difference between the best extraction and production conditions and the marginal ones (i. e., those where the outlay per unit of energy is highest, but production is still essential) is so great that a very fierce struggle between monopolies and countries for the best sources and a constant and increasingly active intervention by the state are both inevitable. The latter is applied not only to the sphere of energy production, but also to its consumption. Life cannot stand still while the monopolies that built production on the basis of cheap raw materials adapt themselves to the new conditions. The transition to energy-saving technology is necessitated not only by the sharply rising prices for raw materials, but also by special state measures, including bans on the construction of energy-intensive enterprises, supervision over the distribution of energy, etc.

The sphere of circulation and services is so diverse and complex in structure that no general description of it is possible from the given angle. It includes retail trade, which is distinguished by a comparatively low organic composition of capital and to which the same applies as to agriculture, and to a lesser degree, wholesale trade, too. It includes the credit sphere, to which the concept of the organic composition of capital is not applicable at all. The state of affairs here is determined by the reliability of credits and, in spite of the certain independence of this sphere,

it depends primarily on the state of affairs in the material spheres of production (which also applies to trade). The chief problem consists in the correlation between credits of various terms and varying degrees of reliability under which insolvency of one debtor would not affect the main links in the chain and thus the system as a whole. The state is very active in this field.

The sphere of circulation also includes railway transport, where the position is quite different from that in trade, being more similar to that in the power industry. Here the initial investment and the organic composition of capital are extremely high, as are the reliability requirements---factors that dictate a comparatively low turnover rate of capital and the unattractiveness of this sphere for private capital in the struggle for maximum profits.

Finally, this sphere also includes education and the theoretical sciences. The incompatibility of the normal functioning of these spheres with the principles of the turnover of capital and private property became evident long ago---the return here is manifested, on the one hand, through the degree of education and through the successes of the theoretical sciences, i. e., through factors that, while being extremely important for the national economy, do not, as a rule, bring profits to the owners of the corresponding educational or scientific institutions. As far as fundamental theoretical research is concerned, since it requires money-consuming experiments, the degree of risk in the sense of useful effect (and, consequently, profitability) is particularly great. For this reason, such research has long since been financed by special funds that, while ultimately bringing the participants big profits, were formed not on the basis of profit calculations for

a given period, but on that of the principles of bourgeois patronage. Since the last war, however, when up to three per cent of the national income has been spent on scientific research (in total), patronage alone has not been in a position to cover the costs, which have run into dozens of thousand million dollars a year. Without increasing state participation, which in different countries of monopoly capitalism constitutes from 40 to 65 per cent of the total financing, the contemporary scope of scientific research would be impossible.^^30^^

Let us now consider the second channel along which the laws of private property and profits contradict social optimisation of the reproduction process. Here we mean disproportions in the regional structure, the regional concentration of the economy (particularly industry) and tho population.

At present, one of the most pressing social problems in literally all countries of monopoly capitalism is the ecological one---especially pollution of the environment and the fight against it. A broad literature has appeared on this problem---both Marxist and bourgeois. Bourgeois ideologists waited a hundred years before raising the question of territorial disproportionality and turned to it broadly only when the storm was already gathering, when pollution of the environment had turned from being a scientific problem into one of the most pressing problems of the class and political struggle.

The fact is that, for the sake of maximum acceleration of capital turnover, natural resources are used rapaciously with no account for the more distant future. Hence the threat arises of a disruption of the very conditions for the survival of human society.^^31^^

The subordination of territorial distribution to the law of profits was disclosed in Marx's teaching on differential rent, where he discusses rent obtained as a result of advantages in the location of plots of land. Rent is considered in economics as a factor capitalising in the price of land, this price, like any other, being interpreted as an indicator of social utility. We have already seen several times that such an approach is acceptable only as an abstract model, as the first step towards analysing reality.

The reality of the price of land is as follows. Under certain conditions (such as when towns or other inhabited areas are located close to major waterways, road junctions, a high concentration of natural resources, etc.), in capital's drive for maximum profits, the existing level of concentration of industry and population becomes the point of departure for a further concentration of them. This goes to such an extreme that a rapid destruction of the environment begins. This process has little impact, however, on the dynamics of land prices. As a general rule to which there are few exceptions, the factors furthering the growth of land prices outweigh those connected with the destruction of the environment. The price of land, and differential rent together with it, continue to rise. Those who receive differential rent never consider the fact that it includes the price of recreation---of restoration of the environment. Superprofits are spent for totally different purposes; are invested in projects bringing in yet more profit. It may, of course, be imagined that the destruction of the environment eventually reaches such a degree that the price of land falls. In fact this does not happen. On the one hand, land prices do not rise quickly enough to halt abnormal excessive territorial

concentration. From this point of view, prices do not fulfil the role assigned to them by bourgeois economists---that of optimising economic proportions. At the same time, however, the rise in land prices appears as one of the factors behind the tremendous concentration of profits in the hands of landowners.

The only conclusion that economics can draw is that the very principle of private ownership of natural resources, including land, and their evaluation according to the principles of capitalisation is deeply defective and must be rejected, as has been done in the socialist countries. Yet bourgeois ideologists and politicians draw another conclusion from this situation: they make the state, i. e., public finances collected from the working people, responsible for recreating resources located mostly in private hands and bringing their owners vast superprofits. Such is the value, economic and social essence of state-monopoly regulation in the spheres of natural resources, ecology and regional concentration.

4. The Contradictions in the Character of Labour Productivity (Productivity and Efficiency)

In analysing the dynamic nature of value, the correlation between labour inputs and utility, we made use of the category of simple average labour. This is shown, in particular, in Table 1, which presents use-values created during an hour of simple labour. In reality, of course, labour of varying complexity is constantly functioning, i. e., labour of different productivity. To reduce complex to simple labour, no arithmetical

operations are used, but the mechanism of competition, the dynamic comparison considered above of labour inputs and utilities of goods and services.

The productivity of labour, being the determining factor in the development of productive forces, is also the most complex parameter in economic analysis. Let us first look at what Marx writes about the link between the productivity of labour and the value of commodities. ".. .The same labour," Marx writes in Capital, "exercised during equal periods of time, always yields equal amounts of value. But it will yield, during equal periods of time, different quantities of values in use; more, if the productive power rise, fewer, if it fall".~^^32^^

``The same value can be embodied in very different quantities [of commodities]. But the usevalue---consumption---depends not on value, but on the quantity.''~^^33^^

On the basis of these theses, economists of non-Marxist schools assert that the concept of value as interpreted by Marx does not take account of changes in productivity. A typical example of such attacks is that made against Marx by one of the leaders of the right-wing Labour Party members, John Strachey. In his book Contemporary Capitalism, Strachey accuses Marx's labour theory of value of being a useless hypothesis since it cannot, so he claims, help in tracing the dynamics of the social product and the national income. "If," he writes, "we take manhours of socially necessary labour time as our unit of value, we shall have no way of expressing changes in the productivity of labour .. . the total must always be the same".^^34^^ " Therefore," Strachey goes on, "with a given working population and given hours of work that total

must always be the same. If we reckon in these terms it is clearly impossible for a community ever, for example, to get any richer except by more of its inhabitants working, or by working longer hours. But this is to fly in the face of experience.''~^^35^^

Strachey considers that Marx's analysis helps in clarifying the distribution of incomes between classes, but that it is not suitable for fulfilling such an important function as measuring the absolute sizes and dynamics of the gross social product. The same thing is written by the Japanese economist Tadao Horio who assorts that, on the basis of the Marxist understanding of the correlation between the value of commodities and the productivity of labour, it is impossible to measure the volume of the social product or the degree of growth of labour productivity.^3S

Such an interpretation of Marx's approach to the question of the correlation between value and labour productivity is completely wrong.

The thesis that the value of commodities is constant as labour productivity rises is put forward by Marx at a specific stage in the analysis---as an abstraction required in order to clarify the contradiction between value and use-- value. Proceeding to the next stage in the analysis, Marx writes: "In general, the greater the productiveness of labour, the less is the labourtime required for the production of an article, the less is the amount of labour crystallised in that article, and the less is its value; and vice versa, the less the productiveness of labour, the greater is the labour-time required for the: production of an article, and the greater is its value. The value of a commodity, therefore, varies directly as the quantity, and inversely as the productiveness, of the labour incorporated in it.''^^37^^

18!)

At first glance, these two theses contradict each other hut, in fact, behind this apparent contradictoriness lies that of the problem in general, the fact that the productivity of labour is in direct relation to both value and use-value, to static and dynamic analysis, on the sectoral and the intersectoral planes, on the social and the economic.

In order to analyse productivity, the concept itself must first be settled. As soon as the question of the concept of productivity is raised, the complexity and contradictoriness of this parameter immediately becomes evident. Above all, proceeding from the value nature of productivity, this concept must be distinguished from that of output per worker. The initial and general concept of productivity is newly created value (v -j- m) per worker in the course of a specific period of time. Immediately the question arises as to the time period that should be taken for measurement purposes: an hour, a day, a month, a year, a decade? In economics and economic practice, analysis of each of these periods has its own specific content and purpose, which itself turns analysis of productivity into an independent branch of economics. On the theoretical plane, however, the most general and important indicator is hourly productivity.

As long as we are dealing with identical organic compositions of capital, the definition of newly created value per worker presents no difficulties. It is clear that, ceteris paribus, (and above all the share of expenditures of the fixed and constant parts of circulating capital per unit of output), the productivity of the labour of someone who produces two units of output per hour is double that of the person who produces only one unit. As soon as we turn to commodi190

ties with a different organic composition (i. e., from the partial case to the general), the question arises as to the correlation between productivity and the amount produced per worker. Marx wrote frequently on this issue in Capital. "It is evident that whenever it costs as much labour to produce a machine as is saved by the employment of that machine, there is nothing but a transposition of labour; consequently the total labour required to produce a commodity is not lessened or the productiveness of labour is not increased." ^ Of particular importance in this proposition are the limiting conditions: if the production of a machine requires the same quantity of labour, and so on. It would seem to be a matter of a partial case, i. e., of that when the progress of technology is not taken into account, nor the position under which an equal amount of embodied labour is spent at a higher scientific and technological level---which leads to a rise in the productivity of live labour. We have now arrived at the point where productivity as a value factor coincides with productivity as a factor directly related to the production of use-value. Marx naturally focuses tremendous attention on this most typical variant, too. "The increase in labour productivity," he writes in the same place, "consists precisely in that the share of living labour is reduced while that of past labour is increased, but in such a way that the total quantity of labour incorporated in that commodity declines . . .''~^^39^^ Can this variant---a rise in the overall productivity of labour given one in the share of embodied labour---be considered as inevitable and universal? There are no grounds for doing so and Marx himself drew no such conclusion. "As large-scale industry develops," Marx wrote in 1857-1858, "the creation of actual

wealth becomes less dependent on labour-time and on the quantity of laboiir spent than on the might of the agents that are brought into action in the course of labour-time and which in their turn (their power efficiency) are not in any correspondence with the direct labour-Lime required for their production, but depend on the overall level of science and on the progress of technology or the application of this science to production.''~^^40^^ Labour time, writes Marx in Capital, "changes with every variation in the productiveness of labour. This productiveness is determined by various circumstances, amongst others, by the average amount of skill of the workmen, the state of science, and the degree of its practical application, the social organisation of production, the extent and capabilities of the means of production, and by physical conditions."⁴¹ "In 1770," Marx wrote in The Poverty of Philosophy, "the population of the United Kingdom of Great Britain was 15 million, and the productive population was 3 million. The scientific power of production equalled a population of about 12 million individuals more. Therefore there were, altogether, 15 million of productive forces. Thus the productive power was to the population as 1 is to 1; and the scientific power was to the manual power as 4 is to 1.

``In 1840 the population did not exceed 30 mln: the productive population was 6 mln. But the scientific power amounted to 650 million; that is, it was to the whole population as 21 is to 1, and to manual power as 108 is to I.''^^42^^

The better to explain the essence of the problem, let us give a very simple numerical example. Let the overall volume of output produced in the course of a year (c -\- v -j- m) be 1,500 units. This volume was produced given an organic

composition of capital (C) of 100%, i. e., the value of the means of production transferred to the product was 500 units and the value of the labour power was also 500 units.^^43^^ Thus, the entire newly created value (v -f- m) over the year constituted 1,000 units.

During the next year, the volume of output was again 1,500 units, but they were created with the transfer not of 500, but of only 400 units of value of constant capital. The value of the labour power remained at the previous level of 500 and the organic composition of capital was

therefore expressed as the magnitude ^-77. = O.S

DUU

or 80 per cent. Now the newly created value was no longer 1,000 units, but 1,100 units, i. e., the productivity of labour increased on the basis of a growth in technology and a lower organic composition of capital.^^44^^

Other examples would be easy to give---a fall in productivity accompanied by a growth or decline in the organic composition of capital. The essence of the matter is that between the dynamics of productivity and those of the organic composition of capital there is no direct proportionality. Adjustments are introduced by technological progress (not only the progress of technology, but also that of the industrial engineering). The corresponding dependencies are studied by the theory of the production function, the purpose of which is primarily to isolate, in analysis of the increase in the volume of output, the role in this growth of extensive factors (which include the volume of all the means of production used, with labour power) from that of intensive factors, including the progress of science, technology and industrial engineering.

Without going into detail on the theory of the

13-01768

production function, let us note that its formulation initiated a very important field of economics. Whatever the difficulties in elaborating the theory of the production function and the arguments about the effectiveness of the different variants, the quantitative difference in the role of extensive and intensive factors must be considered as a step forward in the development of economic analysis.

However difficult quantitative analysis might be, there can be no doubt that an increase in output per worker (as well as an increase in labour productivity) can take place not only if output increases together with a rise in the share of embodied labour, but also when the share of embodied labour drops, either as a result of a drop in the cost of means of production and raw materials, or of improved technology, qualifications and industrial engineering.

In order to understand the role of productivity as a factor influencing only the quantity of usevalues produced (the first of Marx's theses given above), the case where there is a change in the productivity of a single worker (ceteris paribus) may be applied to the entire national economy. Let us assume that, in all industries and all enterprises, productivity has doubled, while everything else has remained constant. This means that society has become twice as rich, but this has introduced no changes into social relations. "Everything else has remained the same" means that there is no change in the division of value between constant capital, variable capital and surplus-value, only value is now embodied in double the quantity of goods and services; the degree of exploitation has remained unchanged

(---) , as have the organic composition of capi-

tal

and the rate of profit ^ i. e., the

doubling of productivity has had no effect on value relations.

However remote from reality such a variant might be, it is a very clear illustration of how productivity influences the quantity of use-values produced. As noted several times already, however, the very essence of economic development consists in the fact that it takes place differentially, with constant differences in the progress of the productivity of various enterprises and sectors. It is this sort of differentiation that is considered by the second of Marx's theses given above, the one about the inverse proportionality of labour inputs and value. This thesis reminds once again that the measure of value is not the number of hours spent on the job, but simple average labour, i. e., labour hours of a given efficiency. Thus, the dual nature of labour determines the dual nature of its productivity.

In Table 1 we were dealing with the utilities of goods and services obtained in the course of an hour of simple labour. Continuing the analysis, it would be easy to compile a table taking account of the utilities created in the course of an hour not of simple labour, but of labour of varying complexity (varying productivity). There is no need for this, however, as it is clear enough that the magnitude of the inputs of both simple and complex labour is adjusted by the market through a comparison of utilities and that the law of value manifests itself more fully, the more freely such an adjustment takes place through a movement of the mass of labour---simple and complex, live and embodied. The productivity of concrete labour is its efficiency in a very narrow section, on the

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scale of the production of a specific good or setvice, a given use-value. It is in the infinite number of such sections that the initial progress takes place, the progress without which subsequent progress---on the scale of the national economy, would be impossible. Yet successes in the growth of the productivity of concrete labour are realised only through their being weighed on the scales of the market---through the transformation of concrete labour into abstract. The interaction between the productivities of concrete and abstract labour (the unity of them and contradiction between them) is one of the manifestations of the contradictory interaction between use-value and value which is, of course, the point of departure for analysing all the contradictions of commodity production at all stages in its development, including state-monopoly capitalism.

This contradiction appears in different ways at the various stages in the development of commodity production. In the simple commodity production, it appears as the contradiction between the commodity as the product of labour and all the other conflicting relations considered above between labour inputs and utilities. This antagonistic contradiction carries over entirely into the next stage of the commodity economy, the capitalist one, but it acquires new features connected with the fact that the commodity acts as the product of capital, while the decisive factor in the assessment of productivity is now profit, on which production of surplus-value is based.

This circumstance introduces very important new features into the assessment of productivity. In Volume I of Capital, Marx points out that the use of a machine "is limited in this way, that less labour must be expended in produc-

ing the machinery than is displaced by the employment of that machinery. For the capitalist, however," Marx goes on, "this use is still more limited. Instead of paying for the labour, he only pays the value of the labour-power employed; therefore, the limit to his using a machine is fixed by the difference between the value of the machine and the value of the labour-power replaced by it. Since the division of the day's work into necessary and surplus-labour differs in different countries, and even in the same country at different periods, or in different branches of industry; and further, since the actual wage of the labourer at one time sinks below the value of his labonr-power, at another rises above it, it is possible for the difference between the price of the machinery and the price of the labourpower replaced by that machinery to vary very much, although the difference between the quantity of labour requisite to produce the machine and the total quantity replaced by it, remain constant. But it is the former difference alone (i. e., the difference between the price of the machine and the price of labour power---Author) that determines the cost, to the capitalist, of producing a commodity and, through the pressure of competition, influences his action.''^^45^^ Engels turns to this question in his insert to Volume III of Capital, where, after a theoretical analysis and numerical examples, he concluded that "the law of increased productivity of labour is not, therefore, absolutely valid for capital".^^46^^

The contradictory character of labour productivity manifests itself very clearly as soon as the question arises of calculating it. This is one of the fundamental questions of economics, on which there is a very wide literature. There arc branches of the economy in which the productivity of labour is determined op the basis of the

gross product (i. e., with the inclusion of the value of all constant capital). These are the branches producing a more or less homogeneous output---such as most types of agricultural produce and raw materials. In some branches, conventional units are used in physical accounting to reflect the qualitative characteristics (for example, tractors in conventional units of a given capacity, some types of fuel, etc.). While being an absolutely essential element of economic calculations, however, accounting in physical units can never, under any circumstances, replace that in terms of value. Even when the productivity of labour in two enterprises producing the same, simple product (such as screws of one and the same type) are being compared, a comparison in terms of numbers produced per worker will reflect the relative productivity of each enterprise only if all other conditions are equal--- especially organic compositions of capital. Since, as already noted, such an equality is, in reality, not the rule but the exception, even in this simplest of cases prices are necessary for comparing productivity, and the prices come under a tremendous impact on the part of the ratio of the sectoral rate of profit to the average rate.

The average rate of profit is a far from abstract magnitude. A businessman knows the sizes of profit that, under the given conditions, may be considered as normal, fair and average from share prices, the level of bank interest and the state of affairs in the leading corporations. The possibility of receiving profits above the average from the sale of the given commodity increases the demand for it on the part of wholesale buyers, which leads to a rise in price. The opposite occurs if realisation of the commodity promises lower than average profit,

The reality under capitalism is, simultaneously, average profits on the scale of the entire national economy and inevitable differences in the amount of profit owing to the different conditions under which surplus-value is produced in the various branches, about which Marx writes in his analysis into the specifics of capitalist assessment of labour productivity. This means that all the contradictions of price formation and deviations of prices from values, as inherent in commodity production and arising from the fact that production is based on the principle of profit as a transformed form of surplus-value, come into play in the assessment of labour productivity, distorting it in the process.

There is no direct proportional dependency between the dynamics of labour productivity and those of the mass of use-values (the mass of the utilities of goods and services). The growth of labour productivity may be realised either given a higher demand for a particular commodity, or on the basis of the given volume of production but a smaller number of workers. It is certainly not out of the question, however, that an opportunity arising for increasing labour productivity is not realised at all or the increase in the given industry leads to some of the workers being made redundant, i. e., it does not bring an overall increase in production. In other words, the market must have its say---whether it will accept the given rise in labour productivity, and if it does, how---by the additional mass of commodities being absorbed or production being curtailed.

In relation to the productivity of labour, the dynamic nature of value appears in the way average profit, which is formed during the movement of capitals from some industries into

others, itself becomes a factor controlling these movements---from industries where productivity brings the given profit rate into ones where the same or a higher productivity of labour promises a higher rate of profit. The national economic productivity level depends not only on the impact of inventions, discoveries, and improvements in the production of given goods or services on the position in the given industry, but also on the movements of capitals from some industries into others---out of those with a lower productivity into ones with a higher productivity. In that case, however, the dynamics of labour productivity on the scale of the entire economy depend on the character of the movements, on the speed with which they take place and the economic justification for them, on the extent to which the interests of the profit that engendered the given movement of capitals (or hampered it) coincide with the national economic optimum.

The productivity of labour is undoubtedly the chief indicator of the development of productive forces but, however important it might be, its social role is determined only when compared with other indicators, such as the per capita output, output per worker, the ratio of live to embodied labour, the rate of surplus-value and the sum total of social problems, beginning from distribution of the national income between classes, the level of employment and of unemployment, to the problems of environmental pollution.

We have now arrived at the problem of the correlation between labour productivity and the efficiency of the economy. Over the last 15 to 20 years, analysis of the problem of the national economic optimum, similar in content to that of economic efficiency, has been acquiring an increasing role in economics. In the course of

Marxist research into this problem, it has become quite evident that the search for some abstract ``suprasocial'' optimum, separated from social relations, is in vain. After all, in the search for the optimum, the point of departure is the goal function that appears as the dominant one with respect to all the variables and to the means for attaining the set goal. This goal function has to differ for different social systems and, in the framework of the given system, for different conditions, circumstances and periods. Academician Stanislav Strumilin wrote on this issue: "The extreme tasks require for their fulfilment only a correct application of known mathematical techniques. When it is a matter of an optimal solution to some economic task, however, it is always necessary, as well, to establish clearly from whose point of view---which particular ``boss'' or other assessor---the sought solution will be optimal, i. e., the best for the given circumstances and at the given time.''~^^47^^

Whereas, under capitalism, the determinant of the optimum is average profit, under monopoly capitalism a new powerful force emerges to correct deviations of actual profit from the average and influence the dynamics of capitals, i.e., the correlation between efficiency and productivity. This force is the monopolies themselves, the domination of which has sharply increased the deviation of prices from values.

From this angle---the correlation between productivity and efficiency---monopolistic concentration of production and capital plays an extremely contradictory part. On the one hand, large masses of capitals concentrated under unified control in the hands of the monopolistic corporations and banks create a potential opportunity for speeding up the transfer of capitals from

some enterprises and branches into others, for the transition from lower to higher productivity. On the other hand, the decisive factor in the movement of capitals is profitability, which is influenced by medium and short-term factors, while efficiency and national economic optimality always presume that all-round account be taken of long-term factors, too.

Efficiency depends not only on change in the productivity of labour (i. e., the amount of newly created value per worker), but also in which specific types of production productivity change, on how the distribution of value and use-value takes shape with the given productivity. Efficiency is determined by proportionality of the development of all economic sectors in the long term--- over several decades.

The fact that, under capitalism, the growth of the productivity of labour comes into conflict in many respects with the public welfare, which can be the only real criterion for efficiency, was established by Marxist science when still in its infancy. Even the Manifesto of the Communist Party described with unusual sharpness the gap between wealth and poverty engendered by the growth of productive forces under the domination of capitalist production relations. Given the current growth of productive forces, the contradiction between productivity and efficiency is constantly increasing in intensity. The significance of the growing productivity of labour as a condition for efficiency is falling sharply as a result of such factors as militarisation, unemployment, the enormous gap between the income levels of different social strata, the low standard of living of considerable groups of the population, the impending pollution of the environment, etc.

In connection with the increasing internationalisation of the economy, one of the chief factors behind the efficiency of national economies is the state of the world economy as a whole. The tremendous rift between the levels of labour productivity in the developed and the developing countries has a detrimental effect on the efficiency of all capitalist economies.

Under monopoly capitalism, the contradiction between productivity and efficiency has become so great and so obvious that, as we have shown in Chapter I, even many bourgeois scholars have now been forced to recognise it. One way in which this is manifested is the criticism heard over the last 15 to 20 years in bourgeois science of such economic indicators as the national income and the gross national product (GNP). The essence of this criticism consists in the way a rise in these indicators conflicts with the growth of the public welfare and hence the latter is not reflected by the GNP. Proceeding from this proposition, bourgeois economists, and recently state bodies involved into economic programming, too, are beginning to elaborate new economic indicators, among which the best known is the net national welfare.

Analysis of the rift between labour productivity and economic efficiency is very symptomatic. The reality of capitalism is demonstrating increasingly clearly the sharply antagonistic character of the uneven development of productive forces, the fact that "the monopoly created in certain branches of industry increases and intensifies the anarchy inherent in capitalist production as a whole". ^K

Investigation of the possibilities for quantifying this rift is indubitably intended to help in closing it, through a further intensification of

state regulation of the economy. Yet the success of attempts in this direction depend little on the research undertaken. The decisive factor determining the future is the actual correlation between the monopolies and the state, the state of the mechanisms of overall state and interstate regulation, as they form in the various spheres of the economy under the domination of private ownership of the means of production and the principle of capitalist profit.

Okinawa) exceeded the GNP 3.32 times, while that in the USA constituted 69.7 per cent of the GNP. As a result of the high cost of land, incomes from its sale exert marked effect on the distribution of incomes in Japan. In 1973, 97 out of the 100 persons with the highest incomes were engaged, in particular, in the sale of plots of land. The considerable wealth derived from land sales is a major reason for the mass demands 1'or control over the rapidly rising prices of land in Japan (Asia's New Giant. How the Japanese Economy Works, ed. by H. Patrick and H. Rosovsky. The Brookings Institution, Washington, 1976, pp. 698-699). The same source notes that, from 1952 to 1973, the price of land within Japanese city limits increased 58-fold, while the GNP in current prices rose 17.7-fold, wages--- 8.6-fold and share prices, on average---19.4-fold (p. 39).

~^^10^^ Karl Marx, Capital, Vol. Ill, p. 199.

~^^11^^ The problem of the differences in reproducibility is closely linked with that of completeness, the essence of which can be illustrated by the following example. Let us assume that a railway bridge is being built. However large or small the intended bridge might be, however simple or complicated, it can only be an operating object once the project has been completed. The usefulness of a bridge which is 90 per cent ready is zero. On the other hand, there are a number of types of enterprise that begin to function and give a return long before their construction is complete.

~^^12^^ Frederick Engels, Dialectics of Nature, Progress Publishers, Moscow, 1974, p. 183.

~^^13^^ Karl Marx, Theories of Surplus-Value, Part II, Progress Publishers, Moscow, 1975, p. 416.

^u Karl Marx, Capital, Vol. II, Progress Publishers, Moscow, 1978, p. 188.

~^^15^^ See Karl Marx, Capital, Vol. Ill, pp. 217-218, 258-259. The role played by the mass of profit compared with its rate can easily be illustrated by the wellknown fact that wholesale prices lower than retail ones, i.e., for the sake of a larger mass of profits, the seller agrees to a lower rate of profit.

~^^18^^ Karl Marx, "Wages, Price and Profit", in K. Marx and F. Engels, Selected Works, in three volumes, Vol. 2, Progress Publishers, Moscow, 1973, p. 54.

~^^17^^ Karl Marx, Capital, Vol. Ill, pp. 244-245.

is p_or igyg^ _Of t_{nc ne}t monetary incomes of the population the following percentages went on nondurable consumer goods and services: in the USA---

References

~^^1^^ Karl Marx, Grundrisse der Kritik der Politischen Okonomie. Rohentwurf (1857-1858), p. 56; see also Karl Marx, "The Poverty of Philosophy", in Karl Marx, Frederick Engels, Collected Works, Vol. 6, Progress Publishers, Moscow, 1976, pp. 131-137.

~^^2^^ Karl Marx, Capital, Vol. I, Progress Publishers, Moscow, 1974, p. 104.

~^^3^^ Karl Marx, Capital, Vol. Ill, Progress Publishers, Moscow, 1974, p. 761.

~^^4^^ Karl Marx, Op. cit., Vol. I, p. 48.

~^^5^^ Karl Marx, Op. cit., Vol. Ill, p. 633.

~^^6^^ Karl Marx, Op. cit., Vol. I, p. 105.

~^^7^^ Karl Marx, Op. cit., Vol. Ill, pp. 647-648.

~^^8^^ In another place in the same work, Marx writes that competition engenders "a false social value" of the produce of land cultivation, since their price, including that for the use of the land, exceeds value (see Ibid., p. 661). Yet in order that this "false social value" might be realised, part of the real value of other products must be allocated to cover the price of agricultural produce. There is no other source of the profits of landowners apart from the labour of the consumers of agricultural products, which create the value that is required for acquiring these products.

~^^9^^ This position may be illustrated by the following example: in 1973, the average price of an acre of land was 225 dollars in the USA and 12,000 dollars in Japan---an approximately 50-fold difference. At that time, the market price of all land in Japan (excluding

78.9; Britain-78.5; France (1974)-74.3; FRG (1974)- 73.3; Japan (1971)---71.6. The remainder was accounted for by consumer durables and savings. (Survey of Current Business, No. 7, 1977, pp. 27, 29; Yearbook oj National Accounts Statistics, Vol. 1, 1975).

~^^19^^ This is why Marx noted that, where there is a lot of fixed capital, its simple reproduction (in value terms) becomes a source for constant improvement expansion, etc. (See Karl Marx, Theories of Surplus-Value, Part II, p. 480).

~^^20^^ Karl Marx and Frederick Engels, Articles from the Neue Rheinische Zeitung, "Wage Labour and Capital", Collected Works, Vol. 9, Progress Publishers, Moscow, 1977, p. 208. See also Karl Marx, Capital, Vol. Ill, pp. 244-245.

~^^21^^ V. I. Lenin, "The Development of Capitalism in Russia", Collected Works, Vol. 3, p. 66.

~^^22^^ Let us note one important detail: the comparison is made in terms of the volume of industrial production, not the GNP. In the prewar years, there were no regular GNP statistics comparable with those for the postwar years. In order to compare GNPs, considerable additional statistical work is necessary. During the 1973-1975 crisis, the GNP dropped by 1.7%. It may be assumed that, in connection with the growth in the share of the service sphere which, as a rule, drops less than industrial production during crises, a comparison in terms of the GNP would confirm even more definitely the thesis of the comparative shallowness of postwar crises.

~^^23^^ An exception is the crisis of 1973-1975. Yet the synchronicity of the crisis in this case was dictated by its specific origins---the impulse common to all countries arising as a result of trie sharp increase in the prices for oil and other raw materials (as well as foodstuffs).

~^^24^^ Joan Robinson, "The Second Crisis of Economic Theory", The American Economic Review, May 1972, Vol. LXII, No. 2, p. 5.

~^^25^^ Karl Marx, Capital, Vol. Ill, p. 196; see also Karl Marx, Capital, Vol. II, pp. 232, 234-235, 318, 361- 362.

~^^26^^ Quoted from: Ben B. Seligman, Main Currents in Modern Economics, Economic Thought Since 1870, The Free Press of Glencoe, New York, 1963, p. 550.

~^^27^^ See Karl Marx, Capital, Vol. Ill, Part III.

~^^28^^ Ibid., p. 259.

~^^29^^ An attempt in this direction was made by the progressive American economist J. M. Gillman in his book The Falling Rale oj Profit, New York, 1958.

~^^30^^ Karl Marx wrote the following: "A country, for instance the United States, can itself in the productive sense feel the need for railways, in spite of the fact that the direct benefit ... derived from the existence of railways may be so negligible that the capital advanced for this purpose would be nothing but lost money. Then capital transfers these outlays on to the shoulders of the state." In Karl Marx, Grundrisse..., p. 430.

~^^31^^ See V. I. Lenin, "Joint Session of the All-Russia Central Executive Committee, the Moscow Soviet of Workers', Peasants' and Rnd Army Deputies and the Trade Unions", Collected Works, Vol. 27, p. 422.

~^^32^^ Karl Marx, Capital, Vol. I, p. 53.

~^^33^^ Karl Marx, Theories of Surplus-Value, Part III, Progress Publishers, Moscow, 1975, p. 119.

~^^34^^.~^^35^^ J. Strachey, Contemporary Capitalism, Victor Gollancz Ltd., London, 1957, pp. 63, 88.

~^^36^^ Waseda Economic Papers, No. 4, 1959, Tokyo, p. 39.

~^^37^^ Karl Marx, Capital, Vol. I, p. 48.

~^^38^^ Ibid., pp. 368-369.

~^^39^^ Karl Marx, Capital, Vol. Ill, pp. 260-261.

~^^40^^ Karl Marx, Grundrisse..., p. 592.

~^^41^^ Karl Marx, Capital, Vol. I, p. 47.

~^^42^^ Karl Marx, Frederick Engels, Collected Works, Vol. 6, p. 158.

~^^43^^ For simplicity of analysis, we abstract from the value of raw and other materials.

~^^44^^ It is assumed that, in the second year, the number of hours worked remained unchanged.

~^^45^^ Karl Marx, Capital, Vol. I, pp. 370-371.

~^^46^^ Karl Marx, Capital, Vol. Ill, p. 262.

~^^47^^ C. T. CTpyMHJiHn, <<Hs6paHHHe npoii3Befleniij'», T. V, MocKna, «HayKa», 1965, cip. 185.

~^^48^^ V. I. Lenin, "Imperialism, The Highest Stage of Capitalism", Collected Works, Vol. 22, p. 208.

CHAPTER V

Functional means also include state finances--- the budget, the public debt and taxes. A special place among the functional means is held by foreign economic policy. Growing significance is also being acquired by such ``subpackages'' as programming and forecasting, and state social policy.

State property, the question of its place in the national wealth and the means of production, the question of the influence of state administration on the structure of corporations, on the character of competitive relations, decisively characterise the entire system of stale-monopoly capitalism and each of its links. The character of competitive relations, the entire modern micro- and macroeconomy, and the specifics considered above of the dynamic interaction between price and value, depend to no small extent on the share of state property.

In assessing the role of state property, account must be taken of the fact that, whatever the wealth society needs, if it does not bring in profits, its price from the point of view of private capital is zero. For private capital, the price is always a capitalisation of the profits that can be obtained if the object being evaluated is realised.

Proceeding from the principle of profitability in evaluating state property, an approach on three planes may be used. The first is all state property, including both profitable and unprofitable. The second approach is only the earning assets, i.e., that part of the property potentially capable of bringing in profits (all types of enterprise participating in the production process--- industrial, agricultural, trade, credit, and soon). Finally, the third approach is the actual share of state enterprises in total profits. The true picture of state property, its size and economic role

THE BOURGEOIS STATE AND CAPITALIST ENTERPRISE

1. State Property and the "Third Sector"

The contradiction between the development of productive forces and economic efficiency is so diverse and deep that, as has been noted several times already, state intervention becomes an essential condition for the reproduction process. The character of this intervention is determined by the interaction of economic necessity and the dominant social conditions.

Modern state regulation of the economy may be imagined in the form of a large ``package'' of economic policy means for the various aspects of reproduction. It includes a number of `` subpackages'', each of which consists of many components and is in constant contradictory interaction with all the other parts of the system. The ``subpackages'' may all be divided into institutional and functional ones. The first group includes state property and state economic management, and participation by the state in the formation of the monopolistic structure of the economy. Institutional means play the decisive role and determine the character of the functional ones, which include, primarily, state policy in the sphere of money and credit, which is directly linked with state means for influencing price formation, including the price of labour---wages.

14-01768

Can only be understood by comparative analysis on all of these three planes. This is particularly important because, in bourgeois literature, attempts are often made to identify state with private companies. "Whether you are a manager in British Gas (nationalised) or in British Leyland (private," writes Neville Abraham, "you are still bound to be concerned with the control of production and the level of costs, the generation of revenue from all sources, the recruitment, training and development of people, the distribution of profits or funding of losses." * This is a purely formal approach, however. In reality there is a fundamental difference in that state corporations are created and function in sectors doomed lo low profitability.

Although the state is a big property owner, in comparison with private capital, the share of its property in the national wealth is comparatively small and, particularly important, against the background of the overall growth of state-- monopoly capitalism, this share nowhere reveals a tendency to rise. In the USA, as R. W. Goldsmith shows, the share of state property in the national wealth, including military assets, dropped from 30 per cent in 1945 to 21.1 per cent in 1958.^^2^^ Subsequently, this share has remained virtually unchanged. Roughly the same share, 20-22 per cent of the overall volume of all the fixed assets in the national economy, is also state property.~^^3^^ Again in 1958, excluding military assets, the state in the USA owned 16 per cent of the national wealth. As far as earning assets are concerned, however, after a significant rise in the prewar years and during the war, their share in the national wealth dropped from 8 per cent in 1945 to 5 per cent in 1958.^^4^^ It is this last figure that reflects most precisely the actual

share of state property in the part of the national wealth that produces surplus-value and profits in the USA; correspondingly, private property accounts for 95 per cent. The ratio is the same in Japan: in 1971, the value of the fixed assets of private enterprises stood at about 112 trillion yen, while those of state enterprises--- 5.7 trillion, i.e., a little over 5 per cent.^^5^^

As for the countries of Western Europe, here we have data on the share of state enterprises in the total numbers employed: in 1967, it was (in percentage terms) 8.7 in the FRG, 12.0 in Britain, 11.2 in France, 11.6 in Italy, 8.0 in Belgium, 8.7 in Holland and 5.0 in Sweden. With minor deviations, these data reflect the share of state property in earning assets, too.

It is characteristic that, in investment, the share of the state is significantly higher than in value added and the numbers employed. In the USA, the average annual share of the state in the total volume of investment between 1950 and 1975 was about 20 per cent; at the same time, during recessions this figure showed a marked increase, and vice versa, varying in individual years between 15 and 23 per cent.^^6^^ In the FRG, this share was about 16 per cent by the early 70s. Characteristic of Japan is a high degree and stability of state participation in the formation of fixed capital. The share of state investment was a virtually constant 30 per cent, dropping to 25-27 per cent in the late 60s. The specifics of state regulation of the economy in France have dictated a significant state participation in national economic investments (43 per cent in 1949, 36 per cent in 1959, and 26 per cent in 1974). The highest state sector share in capital investment is in Britain (43 per cent in 1975). In the 50s, this figure was over

14*

50 per cent.^^7^^ As far as can be told from Italian statistics, which are not published as often for the state sector, as they are in other countries, the share of the state sector in national economic investment is about a quarter (in 1972--- 24 per cent).~^^8^^

The reasons why the stale's share in investment is usually higher than in value added are not open to doubt: state investment is made primarily in low-profit or loss-making spheres of the economy, which include, above all, the power industry, transportation and communications. In the USA, the branch structure of state investment in 1971 was as follows (%): transportation---36.4; education---21.3; health care--- 3.6; space research---0.4; natural resources--- 8.1; the power industry and public amenities--- 11.7; housing construction---5.8; parks and rest areas---1.9; others---10.8.^^9^^ Although the data in Table 6 are for a period nearly two decades ago, they reflect the current situation, too.

Table 6

SHARE OF THE STATE SECTOR BY INDUSTRY (1966, %)

Yet perhaps most important for describing the social essence of state property is the third of the aspects outlined above---the share of state incomes from state enterprises in the national income.

Table 7

SHARE OF INCOMES FROM STATE ENTERPRISES AND PROPERTY IN THE NATIONAL INCOME (%)

Year

Japan

Britain

FRG

France

Italy

1.7

2.8

1.3

i -0.8

2.3

1.7

3.0

1.3

^S -0.5

2.3

1.2

3.1

1.2

-0.6

2.4

0.8

3.2

1.1

---0.5

2.5

0.9

3.2

1.0

---0.6

2.6

1.0

3.3

0.8

-0,7

2.6

0.9

3.7

0.9

---0.7

2.5

1.1

3.9

0.9

-0.6

2.8

1.2

3.3

0.8

-0.2

1.1

3.0

0.8

-0.1

1.2

2.8

0.5

1.3

2.9

0.4

b'.2

0.8

2.6

0.3

0.2

0.5

2.1

-0.4

0.9

4.1

-0.9

-0^4

Sum of turnover

Capital investment

Countries

Power

Industry

Transport & communications

Trade and services

«

c

o <*'%

+J 0

& Se

t. *• as ^s 3 cS

1 I &\

Trade and services

FRG France Italy

74.4 54.6 46.3

3.3 54,4 5.0 61.0 5.4 54.5

1.0 2.9 0.5

81.2 4.1 72.2 91.1 3.3 74.0 85.0 27.0 75.0

14.0 5.0

Source: Kohusni hiha.hu lokei, Tokyo, 1978, pp. 27-28.

As we can see from Table 7, all the data indicate one and the same thing: the share of state property in national income is comparatively small, but it is still much bigger than that in earning assets. In the latter, the state's share is comparatively small again, but it is still incomparably greater than that of incomes from state enterprise in the national income. Theoretically, the essence of the difference between these figures is extremely clear: state property

exists not for limiting the profits of private capital, but for maintaining and increasing them.

The figures given above in themselves tell us nothing about the forms of state property, about how the difference already noted between state participation in the various spheres of property and the share of its profits in the national income arises. This question is so complex that it still requires special comprehensive analysis. Here we shall merely note that enterprises in which the state participates are always of two types---purely state and mixed, semi-state ones. In spite of the enormous national and historical differences, certain common features can be clearly traced in the process of the formation of state enterprises. Those purely (or predominantly) state enterprises that operate at present took their current shape either during the 1929-1933 crisis (in the USA, for instance, the Tennessee River Valley Authority), or during the Second World War and the first ten years after it---on the wave of the anti-- monopoly struggle and with the help of nationalisation, often carried out on the initiative and with the participation of the Communist parties and left-wing Socialists included in governments. In Italy, state capital occupied strong positions in the power, extractive, oil-- refining, metallurgical and motor industries and in electronics. In France, in the late 40s and early 50s state corporations took over the dominant position in the power and extractive industries and transportation, and strong positions in the motor industry.

The fierce opposition put up by the bourgeoisie, which retained political power in its hands, rapidly put a stop to nationalisation. State-- monopoly trends further developed primarily

through state participation in the redistribution of the national income and in investment (see Chapter VII). Yet the inadequacy of this participation and the still growing need for nationalisation of property have manifested themselves in the fact that, from the mid-60s onwards, a compromise form has become widespread in a number of countries. This consists in mixed enterprises, corporations with the joint participation of state and private capital. In Japan, such enterprises are lumped together in economic literature as the "third sector". In Italy, the state has resorted to expanding the various forms of interaction with private capital for existing state organisations. In first place here is the reorganisation of the IRI and ENI companies---specifically Italian organisations, but a form that is now becoming widespread outside Italy. The IRI (Istituto di Ricostruzionc Industriale) was set up in 1933 as a state holding company that bought up the shares of private banks on the verge of bankruptcy. Initially this corporation had a predominance of state capital, but it gradually turned into a concern of the corporations with a predominance of private capital. In the late 60s, only 10 per cent of the TRI's paid up capital belonged to the state~^^10^^---a small share, but sufficient for the purposes for which the organisation was set up, i.e., to lend stability and the prestige of companies supported by the state to the corresponding private companies.

In 1954, in addition to the IRI, the ENI state concern was set up (Ente Nationale Indocarboni), mainly for the development of the power industry and for work on reconstructing the South of the country.

According to 1973 data, the ENI concern ap-

peared as follows in organisational-financial terms. The concern itself (its highest body) exercised general supervision in the sphere of finances and investment, in the formation of the main spheres of activity of the participant corporations. The ENI exercised direct control over four major corporations, each of which in turn controlled a number of subsidiary companies with a greater or smaller share of state participation. In the first of these corporations--- AGIP (the prospecting for and extraction of oil and gas)---84 per cent of the capital belonged to the state, and 100 per cent of that of the corporation's 70 subsidiaries. In the second of the four concerns---SNAM (tanker fleet and gas pipelines)---the state held 100 per cent of the capital, while state participation in its 20 subsidiaries constituted 50 per cent. In the third concern---ANIG (oil-refining and petrochemicals)---70 per cent of the capital belonged to the state and state participation stood at from 17 to 50 per cent in its 24 subsidiaries. Finally, the fourth concern---LANEROSSI (textiles)---with 73 per cent state participation, controlled 11 subsidiaries in which the state held from 50 to 100 per cent of the capital. "

This presents us with a clear example of a state corporation that has turned into a mixed one controlling dozens of other corporations and their subsidiaries with different degrees of state participation.

Following Italy's example, in 1970 France created the Industrial Development Institute---a state holding corporation that, with its financial participation, supports big private corporations. A similar corporation---the Societe National d'Investissements---was set up in 1962 in Belgium. In the FRG, a comparatively weak state

organisation, Vereinige Industrielle Aktien Gesellschaft, was reorganised in 1970 into a powerful state holding corporation (on the IRI model) that established, either directly or through other mixed holding companies, very close financial contacts with private corporations in such industries as power engineering, the oil, chemical and petrochemical industries, glass manufacture, ship-building, the production of lorries, the instrument-making industry, and R and D. In the mid-60s, the Labour government in Britain set up the IRC---Industrial Reorganisation Corporation---the model for which was again the Italian IRI, witli its holding functions in relation to private companies. When the Conservatives took over in 1970, the IRC was dissolved, but when the Labour Party returned to power in 1974 a new corporation---the National Enterprise Board (NEB)---was created in its place. This corporation also functions according to the principles outlined above for the Italian concerns. The Conservative government that took over in May 1979 initially declared its intention to dissolve the NEB. Under opposition pressure it was forced to abandon this idea, but measures are being taken with respect to this corporation that sharply reduce its significance: the most profitable companies are being removed from the corporation and returned to private hands, and the remaining companies deprived of financial support from the state.

The authors of the work edited by R. Vernon, which we have already quoted, put forward the thesis that, from the late 60s onwards, a second generation of state and mixed corporations began to emerge in Western Europe, and that in their origins and purpose they differ

sharply from the first postwar generation. After the last war, hy nationalisation, governments penetrated not only sectors requiring support (such as the coal industry), but also rapidgrowth ones (such as the motor industry) in order to facilitate this growth. Nowadays, a desire on the part of state capital to enter primarily those sectors that cannot develop on a private basis is becoming increasingly manifest. "Various types of social need were addressed," write the authors. "There was the need to undertake long-term investments with a time horizon which private enterprise might not hazard; the need to protect national industry from the challenge posed by foreign direct investment; the need to redress persistent regional imbalances; the need to offset a persistent investment stagnation; and the need to maintain growth in the face of unrestrained threats from inflation and balance-of-payments deficits."^1Z

In his research, Neville Abraham stressed that the state operates where programmes are much greater than those attainable for private capital. Expenditure "is on very large projects which it is not possible for any one industry or corporation to pursue, because of size, complexity, uncertainty and a long time-scale. These projects are not `commercial' in the sense that a private corporation would decide to go ahead independently of government. When they are first considered, estimates are, of course, made of cost and revenue over a certain period of time. But since most of the projects are unique, and some highly advanced technically, the estimates are really no more than guesstimates and, in practice, have rarely borne any resemblance to the actual outcome.

``The benefits of governments investing in,

this type of project are usually seen in terms of economic growth, job creation or maintenance, strategic necessity or just prestige. The benefits to the companies are an assured market and a dilution or absence of risk. Recent examples of such projects considered in Britain are the third London Airport, the Channel Tunnel, and several aircraft projects, including the Trident, the Concorde, and the Multi-Role Combat Aircraft. The aerospace industries in particular have come to depend both on government investment and on government influence on purchases of aircraft. No aerospace corporation in the world can single-handedly take on all the risks of an important new project and have much chance of survival.''~^^13^^

From the early 60s onwards, the problem of nationalisation acquired a somewhat unexpected aspect---the West European countries were presented with a choice: either a transfer of a corporation to state ownership or its being swallowed up by US capital. True, two other possibilities also emerged---unification of national laws within the EEC (i.e., anti-monopoly and other corporation laws), which ought to entail an intensification of the competition between the corporations of different countries, or the creation of "European corporations" on a private basis and on the basis of rules adopted by the EEC bodies as recommendations. Abraham reminds the reader that, in 1973, the Labour Party in Britain put forward new proposals for broader nationalisation. The Labour plan intended the government to take control of a large number of industries, including the aerospace and ship-building industries, shipping repair enterprises, marine engineering, and also---with less determinacy---insurance companies, build -

ing societies and banks. With respect to shipbuilding, the plan envisaged the creation of a ship-building corporation with centralised control over purchases, R and D, hiring of manpower, and so on. In Abraham's opinion, these plans were a classic reaction to the state of affairs in a sector that had got into difficulties, lacked adequate sources of finance and was unprofitable, but on which, at the same time, local bodies depend with respect to employment.^^14^^

Such plans certainly reflect the growing economic need for a transfer of productive forces into the hands of the state. When in power, however, the Labour Party did virtually nothing to put them into practice.

At the current stage in Western Europe, nationalisation proved the least viable of the alternatives. Anything was acceptable, even takeovers by foreign capital (any---American, Japanese, any West European, even Middle Eastern arising on the basis of enormous oil incomes), but not nationalisation---such was the position of state-monopoly capitalism in the West European countries (and not only these).^^15^^

The growing attempts to create or expand the "third sector"---mixed state enterprise---require particular attention, but they do nothing to change the overall picture of a subordinate role of the state, an absolute predominance and domination on the part of big private property.

The entire state machinery, including those sections that have no direct connection with the economy, participate in the system of statemonopoly capitalism. Foreign ministries are active participants in the formulation of foreign economic strategies and in their implementation; ministries of internal affairs and social insurance, to say nothing of military ones, have a considerable part of the national income at their disposal. Yet, speaking of the state-- monopoly administration, we mean above all those bodies that operate either directly in the sphere of the distribution of the national income or at different stages in the reproduction of the mass consumer goods and services required to maintain the standard of living.

The monopolistic character of state regulation of the economy is clearly reflected in the institutional side of it, in its organisational forms. Although, in this, too, major differences exist between countries, they are largely superficial, and there is a marked similarity even in the formal sense. In Imperialism, the Highest Stage of Capitalism, Lenin wrote that "the 'personal link-up' between the banks and industry is supplemented by the 'personal link-up' between both of them and the government".^^16^^ Such "personal link-ups" have nowadays become much more developed and have acquired specific organisational forms. In all countries of monopoly capitalism, the structure of the statemonopoly administration consists of two main parts---the state machinery and quasi-- governmental bodies, i.e., ones without official government status but constituting part of the superstructure of bourgeois society. This second group includes various types of mixed organisation comprised of representatives of the government

2. State-Monopoly Administration

State-monopoly regulation of the economy is carried out mainly through the superstructure--- the state machinery, where a growing place belongs to the state economic administration.

and of big capital, and associations consisting of representatives of the monopolies and broader strata of private capital.

Each of these parts possesses its own internal structure, mobile and adaptable in relation to the changing specific conditions; each of them is responsible for tackling particular tasks. While closely interacting, each is distinguished by a degree of independence which, on the one hand, arises from the necessary difference of functions and, on the other, engenders a multitude of contradictions, conflicts, and frictions in the relations not only between the parts, but also within them.

The general interests of monopoly capital do not, of course, always coincide with the commercial interests of all the big monopolies, and often conflict with them directly. For instance, industrial corporations are always eager to obtain cheap credit, but the general interests of reproduction (given rapid inflation) often dictate high interest rates. Expenditures on purification plant built by corporations are included in production costs and reduce profits, but the general interests, both reproduction and political, often force the quasi-governmental bodies themselves to demand that the government compel the corporations to build such facilities. "Each ministry," write American researchers into the Japanese economy, "in fact has its own special constituency and its own perception of the ' national interest'.. . The Ministry of Agriculture and Forestry focuses on improvement of agricultural incomes by expansion and production, restriction of imports, and higher prices for farm products. The Bank of Japan places priority on price stability and balance of payments equilibrium. The Ministry of Finance seeks a

balanced budget and adequate aggregate demand. The Ministry of International Trade and Industry (MIT1) is the champion of industrial production and productivity improvement, and the Economic Planning Agency is concerned with stable growth, efficient resource allocation, and, recently, social welfare ... Clean industries (and those producing antipollution equipment) favor pollution controls; dirty industries oppose them. These conflicts of interest are inherent in any industrial society." "

What changes are taking place in the superstructure at the present stage of development? As far as the state machinery is concerned, the most important thing is an inflation of economic organisations. The usual, traditional economic organisations, such as ministries of finance, industry, agriculture and foreign trade, are being supplemented by ministries or special departments (sometimes with ministerial rights) lor economic planning, construction, environmental protection, science and technology. The central banks, at one time semi-state bodies, have been completely transformed into state ones, their boards virtually into ministries, and their presidents virtually into credit ministers. It must be noted that almost everywhere, bodies in the form of government commissions and committees have been set up to implement socalled anti-monopolistic legislation.

One characteristic feature of the enumerated links and others in the state machinery consists in that a certain control is exercised over them by organs of bourgeois democracy---either national (parliaments) or local ones. Inter alia, this means changes in government or local authorities, depending on the results of elections and their accountability to parliaments, in par-

ticular on such important issues as the state budget and its implementation, tax rates, and many parameters of the credit system ( including the limits of money issues).

This is why the role of quasi-governmental bodies that are almost completely independent of the organs of bourgeois democracy is growing so rapidly. Quasi-governmental bodies are intermediate ones between the government and private capital; they co-ordinate commercial and political interests for the elaboration of a common position on the chief issues of state-- monopoly regulation and economic growth. The role of such bodies is to formulate tasks---in some cases for all monopoly capital as a whole, in others for individual fractions. The basic function of quasi-governmental bodies, especially the second group of them, i.e., associations of monopolists, consists in constantly making sure the reproduction mechanism functions within the framework of market relations and on the basis of profit. "The associations are nowadays," wrote FRG Minister of the Economy Karl Schiller, "an expression of our group-- aggregated society. Experience shows that whoever gets into a basically negative relationship with these organized groups can no longer govern." Commenting on this, the West German economist Georg N. Kiister writes: "In light of that acceptance, his asserted desire also to put 'the laws of rational economics ... against the demands of the lobbies' might be described as rather quixotic.''~^^18^^ "In Italy," writes the Italian economist Romano Prodi, "as in other countries, despite the intimate ties with the public sector, industrialists and financiers continued to be the leaders in the game; the growing ties between public power and private enterprise, there-

fore, were not directed toward changing existing institutions.''^^10^^ Neville Abraham writes: "Neither central state control, nor laissez-faire, are realistic options for the future . . . Ultimately, it becomes impossible to build a flexible and responsive institutional apparatus, and it would mean the loss of personal and institutional freedom.

``The chances of a return to laissez-faire are clearly negligible .. . The social consequences would be much too unpleasant and no elected government would survive.''~^^20^^

The history of quasi-governmental bodies is a long one: even in the 18th and 19th centuries, there existed everywhere merchants' guilds, all sorts of intra- and inter-sectoral societies of big and petty capitalists. The main task of such societies consisted in elaborating and observing "rules of the game" in the division of markets, maintenance of prices within certain limits, in order to come to agreements on joint protection conditions. Membership of such associations gave prestige ("a merchant of the first guild", "merchant of the second guild", etc.). Many such organisations have long since disappeared without trace; others, after going through a number of transformations, have nowadays acquired a state-monopoly content, i.e., have obtained an opportunity to fulfil the functions discussed above.²ⁱ As a rule, the structure of such very influential bodies, major parts of the superstructure, is as follows. At the head there is a national organisation dealing with general questions of economics and politics; it has considerable authority and sometimes, in its structure, duplicates government bodies, and exerts the most influence on the government. In the USA, this is the National Association of

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Manufacturers, in Japan---the Association of Economic Organisations (Keidanreii); in Britain---the Confederation of British Industries; in the FRG---the Bundesverband des Deutschen Industrie; in France---the Consiel National du Patronat Franc,ais, and in Italy---the Confoderazione Genorale dell'Industria Italiana ( Confindustria). Alongside such organisations are ones, more or less dependent on them, with narrower functions---to a certain degree duplicating the corresponding ministries.

Finally, there are the countless sectoral organisations, hundreds and thousands of them in each country,^^22^^ with similar functions. These are not usual cartels, but associations, the members of which meet at more or less regular conferences (once or twice a year) in order to elect a body that announces information of use to the members and fulfils the functions of a sectoral lobby, putting pressure on , government organisations that influence the state of affairs in the given sector. In practice, such organisations also fulfil the functions of cartels, especially when the latter are prohibited by law.

Without setting ourselves the task of clarifying the national specifics of state-monopoly administration, we shall, however, acquaint the reader with its structure in Britain, which is more or less typical of all countries of monopoly capitalism.

The central state bodies are the Cabinet and the ministries dealing with economic questions: industry, agriculture, trade (internal and foreign), finances (the Treasury), the power industry and the environment.

Under the Cabinet there exists a powerful National Department for Economic Development, which deals with questions of modernisa-

lion and consists of representatives of the government, business and the trade unions. Similar regional and sectoral bodies (for 21 industries) are subordinate to or co-operate with this office, as also do specialised committees (autonomous and ministry ones), for example the Public Expenditure Survey Committee.

Attached to the Confederation of British Industries, already mentioned above, are: the Stock Exchange Council; the National Association of British Manufacturers; the Accepting Houses Committee and others. In addition, there are 1,600 sectoral associations.^^23^^

Such, in its most general outlines, is the complex system of slate-monopoly administration, created so that, in the process of state regulation of the economy, account might be taken both of the common interests of monopoly capital and those of its individual factions.

3. The Influence of the State on the Monopolistic Structure of Private Enterprises and the Role of Anti-Monopoly Legislation

Considering monopoly as the deepest foundation of imperialism, Lenin wrote that capitalist monopoly "engenders a tendency ^to stagnation and decay. Since monopoly prices are established, even temporarily, the motive cause of technical and, consequently, of all other progress disappears to a certain extent and, further, the economic possibility arises of deliberately retarding technical progress.''~^^24^^

In the context of the topic of this work, the most fundamental circumstances are the following: with the establishment of monopoly domi-

15*

hation, one of the functions of the bourgeois slate became actions geared to maintaining competition to the extent necessary for supporting monopoly capitalism. We pinpoint this factor as a constant one. Wars begin and end; militarisation, being on the whole one of the most important factors of state-monopoly regulation of the economy, plays different roles in different countries: in some, such as the USA, an enormous one; in others---a medium or comparatively minor one. The bourgeois state's constant concern is the same everywhere for supporting big private ownership and the domination of monopoly capital. This necessitates state intervention in the reproduction process, including in competitive relations.

We have seen that, although there are substantial national differences between all the countries of monopoly capitalism, the largest part of earning assets is in the hands of private capital and in its predomination appears the social basis of state-monopoly capitalism. One of the main functions of the latter is to further the optimisation of the structure of private enterprise on the social and reproduction planes. In order to understand just how contradictory this goal is, we shall present a few of the features of this structure.

The structure of enterprise is both complex and multiplane. Its basis is enterprises belonging to corporations or individuals. From the legal point of view, a corporation is at once both grouped small property and huge monopolistic companies. In the economic sense, such companies not only predominate, they dominate. This fact has often been thoroughly studied by both Marxist and bourgeois literature. According to data drawn from American statistics, in 1970

in the USA the 200 biggest companies in the manufacturing industry (0.1 per cent of the total) were responsible for 44 per cent of the total volume of production. In 1968, the 100 corporations possessing assets worth 100 million dollars or more accounted for 64 per cent of the assets of all US corporations, which numbered 1,547 thousand. Seligman notes that the sales of 500 major industrial firms in 1969 accounted for almost 1/2 of the GNP and were 8 per cent higher than in 1962. According to Seligman, of the 5 million enterprises in the USA, only about 2,500 can be considered economically significant. Moreover, they were controlled by not more than 0.1 per cent of the registered shareholders. In Japan in 1970, 0.9 per cent of all companies in the country held about 86 per cent of the share capital. In the FRG, just 109 of the largest companies possessed 64.7 per cent of the share capital.

According to Neville Abraham's data, between 1950 and 1970 in Britain, concentration increased twice as fast as from 1909 to 1935. At present, the 100 largest corporations account for 50 per cent of all the newly created value and, if the trend of the last two decades continues, in 25 years time the figure will be 90 per cent. By the end of the century, 21 gigantic national corporations will hold three-quarters of the assets of the entire British non-nationalised sector.^^25^^

This tremendous concentration of production and capital in the hands of the corporations is accompanied by a further concentration of property in those of the financial tycoons. All attempts to refute this thesis with the concept of a "revolution in ownership" (the American economist Simon Cuziiets) or "the domination of

the teclmostructure" (A. Berlo and J. K. Galbraith) are insubstantial. Criticising the claims of these two economists to the effect that the domination of the corporations proceeds from the corporation itself, from its management, and not from outside, the American economist Bob Fitch writes the following: "Several recent investigators, however, have discovered the outside centers of power that Berle, Galbraith & Company were unable to locate. For example, in 1965 the anti-trust subcommittee of the House Judiciary Committee published a study of seventy-four important industrial-commercial companies; in this handful of firms 1,480 officers and directors held a total of 4,428 positions.

``The report concluded that interlocking directorates are as prevalent today as in 1914 when the Clayton Act, prohibiting interlocking directorates, was passed.

``More recently, Fortune reported that in 1966, controlling ownership of 150 of the 500 largest US corporations rested in the hands of an individual or of the members of a single family. And this was admittedly a 'very conservatively' drawn estimate, excluding cases in which businessmen---who are known to wield great influence---own less than 10 per cent of the voting stock.

``In practice, Wall Street experts maintain that the holders of 5 to 10 per cent of the stock can prevail over the unorganized mass of stockholders." ^2e

The monopolistic character of corporate property means that economic means (improvement and expansion of production, cost reduction) constantly intertwine with such actions as the total subjugation of competitors on the basis of an overwhelming predomination in the masses

of capital, this increasing even further with the help of various coalitions, from temporary ones, in the form of cartel agreements, to more or less stable ones, in the form of monopolistic financial groups or conglomerates.

In his book, Imperialism, the Highest Stage of Capitalism, Lenin wrote: "The big enterprises, and the banks in particular, not only completely absorb the small ones, but also `annex' them, subordinate them, bring them into their `own' group or `concern' ... by acquiring ' holdings' in their capital, by purchasing or exchanging shares, by a system of credits, etc., etc." ²⁷ Since the time when this was written, the forms and means of subordination have become even more diverse and effective.

The main conclusion of the second chapter of this work, where the question of the correlation between monopoly and competition was analysed on the abstract-theoretical plane, was that monopoly and competition constantly intertwine and interact.

The domination of financial capital in no way means the domination of one monopoly over the whole industry, let alone the whole economy. Apart from the multitude of other factors, this is evidenced by the structure of the monopolistic corporations and the changes that have taken place in it over the long term. Against an overall tendency towards a rise in the share of (lie big corporation, their industrial structure is distinguished by considerable diversity. The number of corporations that account for a major part of capital and production varies from one industry to another from just a few to several dozen. The reasons for the differences are varied: certainly not the most minor role in this is played by historical conditions, the actual

course of the mutual struggle between the corporations. Yet probably the most important factor is the optimal size of enterprises in different industries and the character of their production and commercial links with other industries. It is no chance that, in all monopoly capitalist countries, irrespective of the specific circumstances of the competitive struggle, the sectors where a "big three", ``four'', ``five'' or ``six'' dominate include banks,^^28^^ most subsectors of the extractive industry, metallurgy, the power industry, the petrochemical industry, the production of computers, the motor industry, shipbuilding, engineering, the pulp-and-paper industry and certain others with a high concentration of capital by enterprise. This clearly reveals the production basis of especially high, monopolistic centralisation. The less or little concentrated industries include housing construction, the food and garment industries, the production of many domestic and art goods, internal trade and agriculture.

At the same time, it is noteworthy that the domination of one corporation has always been ephemeral: isolated monopolies have been broken and monopolies of two, three or more corporations replaced them. This phenomenon is undoubtedly based on economic factors---- isolated monopolies bring such superprofits that they are bound, at the same time, to engender tremendous economic and political onslaughts on the part of other capitals, their success being facilitated by the negative consequences of the supermonopoly's activities.

From the very essence of monopolisation arises the fact that, in the process, a moment arrives when the negative consequences (maintenance of inflated prices, delays to technical im-

provemcnts) facilitate the creation of enormous exogenous forces that ultimately break down the monopoly of one or two corporations and inevitably engender a bigger number of monopolistic corporations in the given sector.^^29^^

In bourgeois economics, the fact of existence of many corporations is set up to counter the Marxist thesis of monopoly. Marxist science, however, resolutely rejects this and insists that monopolisation is a basic characteristic of modern capitalism, yet it still investigates the reasons for which monopolisation does not, as a rule, go as far as complete domination by one or two corporations, and still studies monopolistic competition and its impact on the structure of production.

The optimal degree of concentration, being dependent on the character of production, differs by sector. At the same time, the cost-to-- performance optimum that brings the highest productivity of labour, is the size towards which enterprises and companies are striving, but which they comparatively rarely achieve. Obstacles to the attainment of the optimum are, above all, factors conditioned by private ownership---in some cases excessive concentration as a consequence of monopoly, in others-small sizes of firms. Tho owners of the latter try to retain their independence even at the expense of profits, which might be higher if the shares of big companies were purchased. Under capitalist conditions, there are no forces capable of determining in a planned way I he most rational structure of firms. It is revealed only in the course of the operation of the laws of competition. What, then, is the role of the state in the struggle waged for survival by hundreds of thousands and even millions of small and me

dium-sized companies or firms belonging to individuals, and that waged by dozens or even hundreds of big companies for the maintenance, consolidation and expansion of their domination?

State intervention in the structure of firms is just as dynamic a factor as the technology of production and competition.

As far as small and medium-sized firms are concerned, the opinion is often expressed in the literature that the bourgeois state helps to oust them in the interests of the monopolies. In fact, we believe the situation to be much more complex: the elimination of small and medium-sized firms (just as the emergence of a large mass of new firms of a similar type) is a natural phenomenon arising from the operation of the laws of competition and monopoly. The state does not speed up the destruction of small firms; on the contrary, it retards this process. There is nothing paradoxical in this. Small-scale property everywhere provides the social basis of the bourgeois state and the political domination of monopoly capital. Moreover, small and medium-sized firms play an important role in the structure of the economy as a useful and often effective supplement to big enterprises, especially in terms of employment.

The combination of these reasons (both political and economic) has resulted in the absence of even a single country of monopoly capital in which the state does not support small and medium-sized firms. In the USA, this role is fulfilled by the Small Business Administration. In Japan and the West European countries, in view of the acute socio-political problems, this system is more complicated and plays a greater role in the economy: it includes not only state

bodies and special corporations, but also special state or semi-state banks for extending credit to small non-agricultural firms on comparatively privileged terms. The credits of such special credit institutions nowhere account for more than 10 to 12 per cent of the current financial operations of small and medium-sized firms, but even on this small scale they play a certain part not only politically, but also in the selection of the most efficient small companies to be supported in the interests of the big ones.

The scale of state measures in relation to small and medium enterprise in no way compares with the operations the state carries out with respect to the big monopolistic corporations. Here state structural policy is determined, on the one hand, by the functions of the big corporations and associations in the centralisation of capital and, on the other hand, by the specific way in which concentration proceeds, i.e., the correlation between competition and monopoly.

As already noted (see Chapter 4, section 4), the increase in the size of corporations, abstracting from other conditions, increases the possibility of a rise in labour productivity. On the other hand, however, monopolies arise and operate not outside time and space, but at a specific stage in the development of productive forces. Modern production is distinguished not only by its colossal scale compared with premonopoly capitalism, but also by a constantly changing structure---by the fact that spheres of the economy arose and are still arising that, iu the size of their demand for capital and the duration of its turnover, in the nature of realisation of their output and price formation, go far beymid Ihe bounds of the possibilities of oven the

very biggest monopolies. This is because the latter, as before, are still oriented on profits. The industrial differentiation is accompanied by the emergence of industries necessary for optimisation, but that do not guarantee even average profits, let alone superprofits. In speed and character, differentiation is such that it constantly threatens a depreciation of capital already invested and so hampers new investment. A situation takes shape where whole industries of the economy become obsolete and sometimes even disappear completely (as did, for example, the industry producing horse-drawn carriages and the like, which occupied a significant position in the economy before the 1910 s1920s). More often, however, industries steeply reduce their growth rate (or stop growing altogether) and lose their role as economic growth leaders. Very indicative is the position that took shape in the industrial capitalist countries in the late 60s and in the 70s; the 50s and early 60s saw an extremely rapid growth of such industries as iron-and-steel, non-ferrous metallurgy, oil-refining, the petrochemical and chemical industries, ship-building, the motor industry, the production of television sets, refrigerators and other consumer durables. From the early 70s onwards, their position as growth leaders was taken over by other industries. The core of the emerging industrial structure will apparently form round the science-intensive sectors of a material- and energy-saving type, which can be subdivided into 5 main groups:

1) industries, the development of which demands large outlays on R and D. These include the production of large-capacity, powerful computers, aircraft, battery cars, manipulators, nuclear power, the recycling oi waste (closed

cycles), the exploitation of the resources of the ocean, and so on;

2) complex assembly industries (these partly overlap with the first group), which require sophisticated technology and highly qualified personnel. They include the production of means of communication, office equipment, digitally controlled machine-tools, equipment for controlling environmental pollution, large-scale equipment for heating and air conditioning, teaching aids, panelled housing, construction equipment, and the like;

3) industries satisfying the requirements of fashion and the increasingly complex consumer demand: fashionable clothing, furniture, domestic equipment, etc.;

4) the information and knowledge industry; ini'ormalion services, the production of pocket calculators, publishing, etc.;

5) the transport infrastructure.

The new '``leaders'' of economic growth emerged at the time when the tremendous investments of previous years had not been covered and had not brought the expected profits. Obsolescence outstripped, as it were, not only physical wear and tear, but also ``commercial'', i.e., against the background of a rapid growth in new technology, the contradictions of the recent high rates of economic growth manifested themselves on the broad social plane before the capital concentrated in private hands was ready for the changeover.

In connection with the situation that has taken shape, capitalism's inherent contradiction between monopoly and competition appeared with particular intensity. In The Poverty oj Philosophy, Marx stressed that "monopoly can only maintain itself by continually entering in-

to the struggle of competition".^^30^^ "The monopolies," wrote Lenin, "which have grown out of free competition, do not eliminate the latter, but exist above it and alongside it, and thereby give rise to a number of very acute, intense antagonisms, frictions and conflicts.''^^31^^

We have already, in Chapter I, drawn attention to the fact that the main direction of bourgeois economic thought today consists in elaborating state economic policy means to maintain competitive relations. Government bodies work to the same end.

The most recent research into the economy of monopoly capitalism contains intriguing data showing that monopoly very often takes plant size beyond the limit dictated by the demands of maximum productivity. In her work analysing the economic efficiency of modern monopoly, I. Ye. fiudakova gives figures illustrating the fact that there is no absolute direct proportionality between the concentration of production and labour productivity. Calculations for 25 industries bring her to the conclusion that in monopolised sectors the highest productivity is not always found in the upper group of firms (with 2,500 or more employees). Thus, in the 16 sectors where the highest productivity was observed in firms of the four largest groups (with 250 employees or more), only in 6 of them was the highest productivity ( conditionally net output per worker) achieved in the very largest (2,500 or more employees). This confirms the fact, noted above, that the biggest firms are not always so large from considerations of efficiency.

Considering this problem, the well-known American bourgeois economist J. Bain wrote: "No strong and general theoretical case can be 238

established for or against very large firm size and oligopoly in terms of their effects 011 progress.''~^^32^^ The problem of the correlation between firm size and productivity requires further deep investigation, yet that which has already been carried out prompts the conclusion that concentration of production and capital, achieved on the basis of competition, is becoming less and less a factor behind the progress of production and more and more one of monopoly itself.

The contradictory character of the concentration of production and capital determines the contradictory and complex character of state structural policy, which includes both so-called anti-monopoly legislation and an anti-monopoly administration, as well as one-time measures dictated by the current situation, but having long-term consequences, either to limit the size of corporations and reduce their monopolistic power or, more frequently, to strengthen them.

Let us look at both sorts, beginning with anti-monopoly measures.

The history of anti-trust legislation in its country of origin---the USA---began at the end of the 19th century, when it arose as a result of the struggle waged by the petty bourgeoisie against the dominance of the trusts, against cartel agreements on artificially lowering or raising prices and dividing markets, which created unbearable conditions for small enterprises, irrespective of how efficient they were. The first federal anti-trust act (the Sherman Act), passed in 1890, prohibited monopolies and any limitations on trade by means of open or secret agreements. The actual course of events afterwards revealed the shortcomings of the existing laws, and resulted in the passing of new

23!)

ones or amendments to former ones. Moreover, in 1914 a special anli-lrnst administration was set up in the USA in the form of a federal trade commission. After the Second World War, the USA also introduced a number of amendments intended to specify and expand the concept of monopoly and strengthen tiie measures against it (up to and including criminal sentences---a fine of up to 50,000 dollars or imprisonment of up to one year) and, most important, anti-monopoly legislation in one form or another was introduced by almost all the countries of monopoly capitalism, including Britain, the FRG, France and Japan.

The general spread of anti-monopoly laws and their tightening up is undoubtedly explained not only by political factors, by pressure exerted by small owners; it is also intended to support competitive relations within the framework of the domination of monopolistic corporations.

E. Kanazava, professor at Seikei University, wrote: "Ultimately, the reason for this is the desire to prevent arteriosclerosis of old age in the capitalist economy by supporting and activating free competition.''^^33^^ This comparison of monopolisation with arteriosclerosis, which makes it difficult for the blood to flow and is potentially fatal to the reproduction process, seems very apt.

As for assessments of the effectiveness of this formula, in most cases they are very sceptical. Following a thorough comparison of anti-- monopoly laws as they have developed and the actual state of affairs in the USA, Ben Seligman writes: "Thus antitrust entered into the mythology of American business... There is little proof that governmental action reduced concen-

tration in any sensible way; on the contrary, monopoly in the widest sense increased despite the `concern' of government. All that could be said is that legal action, or the threat of legal action, influenced the shape that mergers have assumed (that is, asset versus stock purchase, or outright amalgamation versus integration). Little effect has been exerted on prices, output, or employment policy. Whatever the form, there has been an undeniable tendency toward control from the center. In many ways, this has been due to the legal philosophy that underpinned antitrust; all too often, real collusion, or behavior close to conspiracy, had to be demonstrated to justify intervention. Yet price maintenance and restricted production can bo achieved without actual collusion. Price leadership, ' moral suasion' and mutual understanding among giant rivals were all acknowledged social forms for establishing monopolistic control, yet in such instances it was virtually impossible to discover conspiracy within the meaning of the law.

``The simple fact was that antitrust had been a failure. The Sherman Act had been emasculated by judicial interpretation, and by 1920, it was useless. The Clayton Act fared no better. The only thing that could be said for antitrust was that it inhibited outright monopoly; business potentates thought it the better part of valor to let a few small rivals stay put.''~^^34^^

In The Rich and the Super-Rich, Ferdinand Lundberg writes: "The antitrust laws, as Justice Oliver Wendell Holmes noted, are a joke. They have signally failed to preserve competition, their avowed intent. While the economists go about vainly seeking perfect monopoly, a single company in a single industry making a single item, and debate among themselves the

16-01708

semantic differences of oligopoly, monopoly and price leadership, we see around us a rising and all-embracing financial monopoly, quasimonopoly... It isn't that there is monopoly in one industry---such as steel, oil or motors---but that industry in general totality is monopolized in ownership, control and direction by a very few people, the rich and the super-rich.''~^^35^^

The anti-monopoly legislation in the other countries of monopoly capitalism is equally ineffective. In their research into modern capitalist competition, the French economists G. Cartel and P. J. Cosse conclude that the current anti-trust policies of the EEC and France have met with failure. In their opinion, the activities of French government bodies on anti-trust regulation are ineffective. Thus, in 1966, a special commission on agreements considered 9 cases, in 1967---4, in 1969---6, in 1970-1971 and 1972---4 cases a year. The decision-making procedure is drawn out and irrational. In spite of the existence of many volumes of official decisions on industrial policy and integration of the economic policies of the EEC countries, the actual contribution made by these documents to the policy of competition is very small.

The reason for the ineffectiveness of anti-- monopoly legislation, admitted by representatives of all lines of economic thought, consists in the social essence of the bourgeois social system and bourgeois state. Capitalist enterprise consists of the following three main links: firms, corporations (companies), and financial groups. Anti-monopoly legislation applies only to corporations---and then to a limited extent, affecting only the structure, not the operational side of their activities. As for groups, in whatever form they may appear, if they are not headed

by companies that formally fulfil tho role of holding companies (the absence of such companies today is virtually the general rule), antimonopoly laws have absolutely no direct relation to them, since groups do not have a legal form and they operate as informal conferences of managers, which no one can prohibit. Yet it is precisely at these conferences that the major questions of the structure and operations of the corresponding companies are decided.

On the other hand, even those limited rights the law gives tho state are used by it with great care and reticence. The course pursued by the monopolies, and often the direct overall interest of ruling circles, consists in supporting and strengthening national corporations against foreign competition. The American economist D. N. Michael wrote: "There has always been tension between big industry, with its concern for profit and market control, and government, with its concern for the national interest. The tension has increased as big business has become so large as to be quasi-governmental in its influence and as government has had to turn to and even subsidize parts of business in order to meet parts of the national interest within a free-enterprise framework. Under these circumstances we can expect strong differences between government and business as to when and where it is socially legitimate to introduce automation.

``Yet some sort of control's going to be necessary. There are, of course, the federal regulatory agencies. However, they have never been distinguished for applying their powers with the vigor sometimes allowed by their mandates, and there is no reason to suppose that their traditional weakness would suddenly disappear." ^3ti

iu*

The fact has already been discussed lhat the competitive struggle (possibly under a certain influence exerted by anti-trust laws) has, as a rule, resulted in the elimination of domination of a single monopoly in an industry and in a transition to an oligopolistic form. On the other hand, however, all special research on this issue states that, since the middle of the century, a growth in the number of large corporations has also been the exception.

Moreover, in the late 60s and early 70s, mergers of corporations took place almost everywhere, as a result of which they grew in size and shrank in number.

Yet anti-monopoly legislation must not be dismissed; it deserves attention as one aspect of state structural policy in which opposing interests conflict---national ones, really demanding a fight against ``sclerosis'', and those of individual corporations, which work for a strengthening of their own monopoly, including through the state. In this context, let us recall that the actions of the state are built not only round antimonopoly laws, but also irrespective of them--- they include current measures engendered by current circumstances, but furthering longterm structural changes.

As already noted, it would be pointless to seek some one single constant government policy, for all periods, all countries and all industries, in relation to the structure of the dominant corporations---an increase or decrease in their size. In some cases, political or economic circumstances (such as the sharp rise in antimonopoly feeling after the last war, or a rapid increase in prices owing to high monopolisation) prompt the government to hamper further size increases or to promote a deconcentration of

firms (then anti-monopoly legislation is brought into action). In other cases, anti-monopoly laws are forgotten and administrative, financial and other means for facilitating mergers of corporations and an increase in their size come to the fore.

Overall, the second group of measures is more successful and its consequences are considerably longer lasting since rather than countering the trends towards monopolisation in the economy, it actually corresponds to them. Big companies that have broken up into smaller ones frequently reunite, while ones that have merged very rarely split up again.

State support for big corporations is so great and so stable that some bourgeois economists of the so-called ``liberal'' or ``neoliberal'' schools link the very emergence and existence of monopolies with state policy. One of the leaders of the old liberal school, F. Hayek, quotes in his well-known book The Road to Serfdom (1944) from a work by the American economist Z. C. Wilcox: "The superior efficiency of large, establishments has not been demonstrated; the advantages that are supposed to destroy competition have failed to manifest themselves in many fields. Nor do the economies of size, where they exist, invariably necessitate monopoly.. . The conclusions that the advantage of largescale production must lead inevitably to the abolition of competition cannot be accepted. It should be noted, moreover, that monopoly is frequently the product of factors other than the lower costs or greater size. It is attained llirough collusive agreement and promoted by public policies. When Ihoso agreements are invalidated and when those policies arc reversed, competitive conditions can be restored.''~^^37^^

The basic reason prompting the state to facilitate mergers is a desire to increase the competitiveness of national against foreign capital. Since the most powerful corporations operating overseas are American, this tendency to promote mergers is naturally more pronounced in the West European countries and Japan. This is reflected in a state policy of creating so-called "corporations of national champions". "The version of the national champion that appeared in the 1960s, however, manifested itself in other ways. In addition to creating some new stateowned or state-financed enterprises, various governments in Europe set about trying to encourage their existing firms to merge into large units as the studies in this volume suggest, the techniques differed from one country to the next, according to national traditions and governmental powers. The French, with few ideological problems and with well-developed machinery for the promotion of mergers, were especially vigorous in developing programs for fusing their national leaders into effective national champions. In Great Britain efforts to generate mergers were more awkward and selfconscious, partly because they ran counter to the traditional grain of government practice. Still, a British Labour government .. . overrode usual practice and created an Industrial Reorganisation Corporation (IRC); and by the middle of the decade the Corporation was trying to cajole, coerce, or bribe weak enterprises to join in large units so that employment could be ensured, efficiency increased, or innovation stimulated. The Italians displayed similar tendencies; in their case, since the government itself was incapable of launching any strong policies, the implementation took place without benefit of

direct government support, mostly in the form of new mergers and alliances between the large private firms and the semi-independent [from the government---Author] public enterprise sector. Germany as usual was odd-man-out, refraining from an official encouragement of mergers; but even in the German case, there was evident satisfaction in official circles at the efforts of leading manufacturers of electrical equipment and leading steel companies to merge themselves into large units. Special legislation to support the German nuclear power industry, the aerospace industry, and the computer industry was placed on the books. Though German officials continued their ideological affirmations [this refers to the official line opposed to state intervention in the structure of the economy---Author], German policies in the advanced-technology industries and in petroleum began to reflect some of the emphasis to be found in France, Britain, and other countries." ³⁸ Of the facts used by special research into the question of "national champions", one deserving particular attention is that the nationalism of the European states proved stronger than ``Europeanism''. Attempts to turn "national champions into European ones" on the basis of inter-national co-operation (according to the example of the Anglo-Dutch Unilever and Royal Dutch-Shell, which have been in existence for many years) brought no great results: such enterprises as the joint Anglo-French work on developing I he Concorde aircraft, the creation of the Anglo-Italian Dunlop-Pirelli corporation (chemical production), the Italo-French FiatCitroen (motor industry) and the West GermanBelgian Agfa-Gewert (films) are exceptions rather than the rule.

Let us stress that the creation of "national champion" corporations in no way meant a total elimination of all other corporations: maybe the monopoly was strengthened, but it was still oligopolistic in form. This became particularly clear in the computer industry, where the " national champions" policy was applied with special intensity. In Britain, for example, the role of the "national champion" was prepared for the International Computers Ltd. corporation, which took over nine other big and mediumsized corporations. Alongside it, however, the powerful British subsidiary of the "world champion"---the American IBM---continued to function. The French "national champion" became the Compagnie Internationale pour 1' Informatique, which arose after a merger of two others. In addition to it, however, there is another subsidiary of IBM---the Anglo-American Honeywell-Bull corporation. By the early 70s, after a number of mergers, two ``champions'' had taken shape in the FRG---the Siemens and Nixdorf firms, alongside which an IBM subsidiary continues to function. The situation in Japan is similar. Here, following a number of accomplished or impending mergers, there will soon be three ``champion'' corporations, probably the merging Fujitsi-Hitachi, Toshiba-NEC, and Mitsubishi-Oki. In addition, the ubiquitous IBM operates here, too.^^39^^

To sum up, it can be stated that impact on the structure of enterprise constitutes one of the main functions of state-monopoly capitalism. This impact is exercised strictly within the bounds of the domination of private property, with a comparatively low share of state properly, and ultimately leads to a strengthening of the positions of the monopolistic corporations,

especially of national

capitals in their struggle

with the competition

from foreign monopolies,

which lias intensified

sharply in the postwar years.

References

~^^1^^ Neville Abraham, Big Business and Government. The New Disorder, The Macmillan Press Ltd., London, 1975, p. 57.

~^^2^^ See Raymond W. Goldsmith, The National Wealth of the U.S. in the Postwar Period. Princeton University Press, Princeton. 1962, pp. 96-97.

~^^3^^ Survey of Current Business, April 1970.

~^^4^^ See Raymond VV. Goldsmith, Op. cit., pp. 96-97.

~^^5^^ Calculated from: Minkan kigyono shihon sutolckuno suikei (Assessment of the Capital Assets of Private Enterprises), Tokyo, 1971; Zaisei Kinyu Tokei Geppo (Financial Statistics Monthly), No. 252, 1973, p. 70.

~^^6^^ Survey of Current Business, July 1970.

~^^7^^ Calculated from: National Income and Exnertditure, 1959, 1904, 1905-1976.

~^^8^^ Calculated from: Annuarlo slatislico italiano, Rome, 1975; Mondo economico, February 1975.

~^^9^^ Statistical Abstract of the 'USA, 1973, p. 415.

~^^10^^ Big Business and the Stale. Changing Relations in Western Europe, ed. by Raymond Vernon, Harvard University Press, Cambridge, Mass., 1974, p. 20; N. Abraham. Op. cit., p. 157.

~^^11^^ N. Abraham, Op. cit., p. 155.

~^^12^^ Big Business and the State.... p. 41.

~^^13^^ N. Abraham. Op. cit.. p. 178.

~^^14^^ Ibid., pp. 107-108.

~^^15^^ With respect to Japan, see the present author's book, «rocyaapCTBo B SKCIIOMHKO HHOHHH». MccKBa, 1976

~^^16^^ V. I. Lenin, "Imperialism, the Highest Stage of Capitalism", Collected Works, Vol. 22. p. 221.

~^^17^^ Asia's New Giant. How the Japanese. Ecmtomi/ Works, ed. by II. Patric and IT. Rosovsky. The l? rookings Institution, Washington, 1970, pp. 49 50.

^1S Big Business and the Slate . . ., p. ,S5.

~^^19^^ Ibid., p. 45.

~^^20^^ N. Abraham, Op. cit., p. 7.

~^^21^^ Of these old organisations, only chambers of commerce remain. Their functions include clarification of the market situation, the search for markets, and provision of economic information to their members.

~^^22^^ The number of such organisations is much greater than that of monopolistic associations represented in national organisations. This is because, first, these organisations are set up not only by big companies, but also by small and medium-sized ones; second, many big and medium-sized corporations are members of several organisations at once. For example, a particular corporation in the petroleum products industiy may, at the same time, be part of a general sectoral association, one dealing with R and D, internal and foreign trade associations, ones dealing with crediting, and so on.

~^^23^^ N. Abraham, Op. cit., pp. 30-31, 75, 79, 113, 117; Big Business and the State..., pp. 89-95.

~^^24^^ V. I. Lenin, "Imperialism, the Highest Stage of Capitalism", Collected Works, Vol. 22, p. 276.

~^^25^^ N. Abraham, Op. cit., p. 177.

~^^26^^ A Critique of Economic Theory, ed. by E. K. Hunt and J. G. Schwartz, Penguin Modem Economics Readings, Kingsport, 1973, pp. 457-458. The book by Ferdinand Lundberg, The Rich and the Super-Rich. A Study in the Power of Money Today (Syle Stuart, Inc., New York, 1968), shows comprehensively and quite convincingly the inseparable link between a high concentration of production and centralisation of capital in the USA, on the one hand, and the concentration of wealth in the hands of the financial tycoons, on the other.

~^^27^^ V. I. Lenin, "Imperialism, the Highest Stage of Capitalism", Collected Works, Vol. 22, p. 211.

~^^28^^ However paradoxical it may seem, one exception from the general rule is the banking system of the USA where, in 1976, there wore 14,659 banks (Federal Reserve Bulletin, Vol. 63, January 1977, p. A-16), while the merchant banks in other countries number only a few dozen (Japan---63) or hundreds at the most (FRG--- about 300, with three Grossbanks dominating). At the same time, however, the US banking system is a clear example of high state-monopoly centralisation accomplished through the Federal Reserve System, which united, at the same date, 5,768 banks (Ibid., p. A-17) and operated under the direct control of the government (the hoard of the FRS is appointed by the President and confirmed by Congress and the Senate).

~^^29^^ According to J. S. Bain, the American researcher into the concentration of production and capital in the USA, in the early 20th century there were 78 concerns each concentrating over 50 per cent of all the production in a given industry, 8 of these being isolated monopolies. By mid-century, there were no such complete masters in any industry (J. S. Bain, Industrial Organisations, Wiley, New York, 1968, p. 192).

There are, however, certain exceptions. The Swedish firm SKF is the only producer of bearings, not only for Sweden (15 per cent of sales), but also for a number of other countries. In Australia, the steel corporation has fully monopolised the production of iron and steel.

~^^30^^ Karl Marx, "The Poverty of Philosophy", in K. Marx, F. Engels, Collected Works, Vol. 6, Progress Publishers, Moscow, 1976, pp. 195-196.

~^^31^^ V. I. Lenin, "Imperialism, the Highest Stage of Capitalism", Collected Works, Vol. 22, p. 266.

~^^32^^ The Oriental Economist, Vol. XXXV, No. 675, January 1967, p. 43.

~^^33^^ Keizat Hyoron, No. 12, 1974, p. 19.

~^^34^^ Ben B. Seligman, The Pulenlates: Business and Businessmen in American History, The Dial Press, New York, 1971, p. 331.

~^^35^^ F. Lundberg, Op. cit., p. 268.

~^^36^^ Views on Capitalism, ed. by Richard I. Melvin Leiman, Glencoe Press, California, 1970, pp. 259-260.

~^^37^^ Quoted from: Views on Capitalism, pp. 20, 48-49.

~^^38^^ Big Business and the Slate..., pp. 11-12.

~^^39^^ Ibid., pp. 215-216.

CHAPTER VI

Marx grouped together as being identical or inseparably linked. ' The significance of these abstractions' content is manifested in the purchasing power of money in the hands of its owner. It is in money that the contradictory features appear most clearly of the abstraction from concrete labour and concrete utility and the subsequent reverse process---the distribution of abstract labour between production and consumption of concrete types of good and service. In these processes, money acts as a means fulfilling the following functions, which are interconnected but differ in nature.

First, money's fulfilment of the basic functions, of a measure of value and means of circulation, immediately suggests its characteristic as a scale of price. This is inherent in money throughout the history of commodity exchange. Second, money is a means of payment, i.e., a credit instrument. Money acts as a means for the distribution of value in the most varied aspects---its division into capital and personal consumption incomes, and its functioning as both of these; its division into constant capital, variable capital and surplus-value, acting correspondingly in transformed forms of investment, wages, and profits; its division into fixed and circulating capital, and so on.

In none of these aspects does money play a passive, secondary role; on the contrary, in eacli of the functions enumerated, money circulation possesses a certain independence and, at the same time, interacts with all the others. As a result, the role of money in the process of repro duction acquires particular weight. "As soon as trade in products," writes Engels, "becomes independent of production proper, it has a movement of its own, which, although by and large

NEW FEATURES OF THE MONETARY SYSTEM AND MONOPOLISTIC PRICE FORMATION

1. From Gold Coins to Paper Money

We have looked at the first of the two systems of state regulation mentioned at the beginning of Chapter V---that which we have called "institutional subpackages"---state property, state administration and its impact on the oligopolistic structure. The unequal strength of monopolies and the state is also manifested to the full in the part described as functional, which we shall analyse starting with the third subpackage---the involvement of the state in changes in money circulation and price formation.

The first few chapters of this work considered the particular nature of objects of measurement, proceeding from differences in use-values and the nature of the competitive struggle. Now we shall begin to deviate from "equilibrium models", proceeding not from the objects of measurement, but from the "unit of measurement" itself, i.e., money. Money is a category of political economy. It is a measure of expenditures and results, value and use-value. At the same time, money constitul.es value in the most precise sense, in the form of the category based on abstract labour and abstract utility. " Abstract wealth", ``value'', ``money'' and consequently, "abstract labour" are all categories that 252

governed by that of production, nevertheless in particulars and within this general dependence again follows laws of its own inherent in the nature of this new factor; this movement has phases of its own and in its turn reacts on the movement of production .. .

``So it is, too, with the money market. As soon as trade in money becomes separate from trade in commodities it has---under definite conditions determined by production and commodity trade and within these limits---a development of its own, specific laws determined by its own nature and distinct phases. Add to this the fact that money trade, developing further, comes to include trade in securities . . . the repercussions of money trading on production become still stronger and more complicated. The money-- dealers become owners of railways, mines, iron works, etc. These means of production take on a double aspect: their operation is governed sometimes by the interests of direct production, sometimes however also by the requirements of the shareholders, in so far as they are moneydealers.''~^^2^^

The most important thing is the functions of money as a medium of exchange and as a means of payment (credit). The problem of state influence on the mass and structure of money circulation and credit is closely related to that of its influence on price formation. The character of state regulation, its evolution, after the establishment of paper money circulation, also constitutes a subject to be considered in this chapter.

Money as a medium of exchange acquired, right from the start, its own laws of movement and followed its own course of development. To say nothing of earlier stages, from the time of

the first European civilisations (Grcoce, Rome), the role of the universal equivalent in money circulation was assumed by gold and silver and, Finally, by gold alone.

With the end of feudal internecine struggles and the elimination of feudal disunity, with the creation of national states, the development of capitalist relations and international trade, major changes took place in the character of the universal equivalent and the way it functioned. The major feature of gold coin circulation was that gold simultaneously fulfilled the functions of measure of value and means of circulation, and that, in this unity, it provided a guarantee of bank-notes. While itself having use-value and value, gold had the virtue of universality and reliability both in internal and international turnover. In the absence of paper money (i.e., money issued by the treasury and not covered by gold), the free exchange of bank-notes for gold excluded the possibility of inflation and currency crises.

Although gold was the best measure of value, it was far from ideal. Its own value, like that of any other commodity, was not and could not be fixed. It changed according to the laws of commodity production, in correspondence with the quantity of socially necessary labour included in a unit of gold. According to the laws of value and gold coin circulation, the value of gold "was distributed" among all the commodities that circulated with its help, thus considerably increasing the costs of circulation. Moreover, in the long term (centuries), the overall growth of the economy outstripped that in the mining of gold. Ceteris paribus (especially a constant correlation of labour productivity in gold mining and in all other sectors), this

should operate to reduce prices (there would he more commodities to every unit of weight of gold).

In fact, things stood completely differently: from the time when gold became a universal equivalent, exchange took place not only with the help of gold coins, hut also with that of other means of circulation. The spoiling of coins (the addition of cheap metals to precious ones), to which monarchs and governments have resorted throughout history, initiated the use of unconvertible paper money, the purchasing power of which was determined by two factors: on the one hand, the strength and prestige of the state authorities and, on the other, the quantity of such money issued relative to the mass of commodities.

Any gain from the second factor was temporary. A given quantity of paper money sufficed for the exchange of a given mass of commodities in accordance with the existing proportions between their utilities (based, of course, on labour inputs---according to the laws considered above).

What does the spoiling of money by the state and the issue of additional paper money against a constant mass of commodities mean? It means that, either through direct purchases, or through an increase in payments to the civil service, the demand for the former mass of commodities is increased. Under free competition, this inevitably leads to higher prices. Yet if prices rise, what does the state gain? First, the rise in prices does not take place immediately, but only once the inertia of current prices has been overcome. Before this happens, the state manages to grab considerable additional sums. Second, in accordance with the laws of the correlation between utilities,

a rise in prices takes place unevenly and under free competition the prices of goods required by the state often rose less than those of consumer goods, i.e., right from the beginning, inflation was shouldered by the working people. Third, even in those remote times, free competition was often disrupted by the sta,te authorities. During wars, for example, an additional paper money issue was, as a rule, also accompanied by demands that the peasants and artisans supply the state with commodities at their former prewar prices.

Another, immeasurably more important change in the universal equivalent was the emergence and development of bank-notes. The difference between paper money and bank-notes was that the latter could be exchanged for gold coins according to an established weight of money for units. The transition to bank-notes, which took place gradually during the 18th and 19th centuries, meant not only a restoration of gold coin circulation, but also an improvement in it. With the appearance of bank-notes, the boundaries previously set by the quantity of monetary gold widened; the fact that the state took control of money issues meant that, in their credit operations, credit institutions received a state sanction, while the state could make use of commercial credit for its own financial needs. The public debt, which had formerly been based on taxes alone, could now, to a certain extent, rest on the credit system and the issue of bank-notes, too. Since the bank-notes were issued not by governments, but by banks on a commercial basis, under governmental control, the "spoiling of money" changed its form and became more refined. This did not, however, last long, as we shall now see.

17-01768

Ultimately, bank-notes could only fulfil their function to the full while they were still freely exchangeable 1'or gold. Meanwhile, as this form of money developed, not only the virtues of gold as a monetary commodity, but also its shortcomings, became increasingly evident. The degeneration of bank-notes to the level of paper money (treasury bills) began long before capitalism entered its monopolistic state.^^5^^ Even in the 18th and 19th centuries, bank-note issues gradually became concentrated in special banks (central emission banks) in the corresponding countries, which were responsible for the freedom with which the bank-notes issued by them could be exchanged for gold coins. In spite of the development of bank-notes, however, the demand for gold continued to grow rapidly for two reasons: an economic one, connected with the increasing scale of production, and an economic-political one. Since gold coin circulation requires a certain proportionality between the mass of banknotes and that of gold, the possibility already mentioned of a rise in the price of gold above its value remained, and in times of economic and political crises increased to such an extent that it brought a sharp rise in the hoarding of gold and a cut in the gold security of all types of bank-notes.

During the period of gold coin circulation, such crisis situations were relatively short-lived, and overall the monetary system was comparatively reliable. In one of the most recent American research works on the Japanese economy, the authors draw an ideal model of a monetary system based on the distant past. "John Stuart Mill," they write, "once said that, so long as its proper functioning was assured, there could be no less important thing than money. In the same

spirit he might have extended his remarks to the entire financial system. The structure of the financial markets, instruments, and institutions that make up the financial system does not supply real resources but only transfers and transforms them. In the common phrase, it mobilizes resources. If it performed this function without friction and other imperfections the result would be what economists, with considerable understatement, refer to as a 'perfect capital market'--- one in which every participant can both lend and borrow any amount he wants to at the same rate.''~^^4^^

The capitalist world has said goodbye forever to such a credit and financial system that functioned "without friction and other imperfections''.

The strongest impetus to the degeneration of bank-notes into paper money was provided by the First World War, when the exchange of bank-notes for gold was halted, while the state greatly increased its issues of paper money. Lenin described such issues as the worst form of compulsory loan,^^5^^ since this operation struck hardest of all at the interests of the working people and facilitated the transfer of the burden of war outlays on to their shoulders. That which seemed an extraordinary measure during the First World War, became the rule, however, as the general crisis of capitalism gained in intensity. After the war, the internal exchange of banknotes for gold was not restored, except in the USA, where the limited exchange of bank-notes for gold in internal circulation remained until the Great Depression. The entire history of the general crisis of capitalism is one of the ousting of gold from the sphere of circulation, first internal and then external. Gold was eventually

17*

259

cast from its pedestal as the universal equivalent and, among the mass of commodities, became at best a first among equals---no other universal equivalent emerged to take its place and value proportions (i.e., those of the labour inputs, adjusted according to utility) and prices are formed on the market through the direct counterbalancing of each commodity with all the others.

This radical change in the character of money circulation was based on economic and political factors. The economic ones consisted in the fact that, given the slow increase in the mass of gold in circulation compared with that of the mass of commodities (and also as a consequence of the rise in the demand for non-monetary gold), the demand for gold increasingly outstripped the supply. This led to its price devaiting more and more from value, and thus to the hoarding of coins and rise in the ``gold'' costs of circulations. On the political plane, the sharp rise in the demand for gold, speeded up by individual states, was conditioned by the general conditions of the crisis of the capitalist system, the intensification of internal and international contradictions (since gold is still the best form of treasure, one of the strongest levers of foreign policy).

Characteristic of the feudal and commodity capital era was gold coin circulation accompanied by the decentralised issue of bank-notes (at the risk of the bankers and their clients) and a substantial issue of paper money. Capitalism left the tribulations of primitive accumulation and the industrial revolution with gold coin circulation in the form of bank-note issues by special emission banks and unconditional compulsory exchange of bank-notes for gold or silver, and with comparatively small public debts and paper money circulations.

The last thirty years of the 19th century, up to the general crisis of capitalism, was a transition period: the exchange of bank-notes for gold still remained, but in money circulation the share of paper money, demand bills, cheques, etc. was beginning to rise. Finally, together with the general crisis of the capitalist system, statemonopoly capitalism brought with it the collapse of national gold coin circulation, which inevitably, sooner or later, had to lead to that of gold security in international trade, too.^^6^^ This collapse set in in the early 70s. Since then, gold has virtually ceased to exert even an indirect influence on the state of affairs in monetary circulation through currency settlements. For the entire process of reproduction and the whole economy this was a change of such dimensions that no analysis of the laws of state-monopoly capitalism is possible without considering it.

Given that gold has ceased to play the role of universal equivalent, that of money as a representative of utility and abstract labour inputs stands out in particular relief. In fact, no given thousand dollars itself constitutes a concrete commodity, use-value or concrete labour. At the same time, it gives its owner the right to acquire any commodity---naturally within the limits of the social costs of production corresponding to this sum which, depending on the payment per hour, may constitute a greater or smaller mass of abstract, average and simple labour inputs.

From the time when hank-note circulation, while still on a metal basis, was brought under the control of central emission banks, which, irrespective of the considerable national differences, were virtually state hanks, the state's main task has been to establish the correlation between the gold reserves of the emission banks, on

the one hand, and the mass of circulating money, on the other. Fierce arguments broke out around the solution of this problem in both theory and policy. During the discussion on actual questions of policy,^^7^^ different approaches and schools of bourgeois political economy took shape---the bank school, which insisted on greater independence of the issue of bank-notes from gold, and the monetarist school, which believed the opposite; the "nominalist theory of money" and its variant, the "state theory", which reject the commodity origins of money and consider it as a function of the state authorities; the opposing "metallist theory of money", which identifies money with precious metals. The arguments between these different lines reflected, to a certain extent, the opposing interests of the different social groups, especially representatives of banking and industrial capital. All arguments carried on with the presumption of the immovability of the exchange of bank-notes for gold, however.

As far as the theories of monetary circulation are concerned, if not the most influential, at least the most active at present is the monetarist school discussed in Chapter I. This school has scored certain successes in elaborating the quantitative links between the mass of money and other economic parameters, especially prices.

Repercussions of former problems and disagreements are easy to find under contemporary conditions, but these arguments themselves seem child's play in comparison with those that have broken out in bourgeois economic theory and practice since gold coin circulation was abolished and began to enter the realm of legend. A characteristic feature of modern monetarist theories is that, irrespective of the form with

which they are invested, be it descriptive or mathematical, monetarist or general economic, they always refer to mixed and general problems of political economy. They are forced to do so by realities: the collapse of the gold coin system strengthened rather than weakened the attachment of money circulation to the general laws of production, distribution and exchange, and the activation of the state required under the new conditions takes place strictly within the bounds of these laws. Whereas, previously, money was tied to gold, and through gold to the entire economy, now it is tied to the economy directly.

In order to understand the character of the current theoretical and political struggle in the sphere of money and credit, let us, first of all, give a brief description of the problems on which

it centres.

As in the past (i.e., in the times of gold coin circulation), in first place is the problem of the correlation between the mass of commodities and that of money. This problem arises from the fact that reproduction requires the constant presence of values in their various phases---productive, commodity and monetary. In this, as in all the other aspects, proportionality of the distribution of values between the three forms of the circulation of capital is achieved through continuous disruptions of it, dictated by the shifts in technology and the technological structure of all links in the reproduction process, and in the value structure. Since prices constitute a correlation of utilities (ultimately---the socially necessary labour input), it might be suggested that they do not depend on the mass of money, and that the latter is no more than a function of these variables (this approach is reflected in the

concept of the ``neutrality'' of money). In fact though, the mass of money (taking into account the speed of turnover) is far from just a simple reflection of the demands of the circulation of productive and commodity capital, and itself acquires a certain inverse influence. The function of the mass of money is largely determined by the role played by liquidity---the potential speed of the reembodiment of use-value in value, of some forms of value in others---and credit as one of the means by which this is achieved.

Money serves for various types of transaction---current, which are carried out in cash, for the payment of past transactions carried out on credit, and for new credit transactions. For each type of transaction there exist specific forms of monetary documents---from bank-notes, cheques and demand deposits to various sorts of security of different duration. Economists are always arguing about which forms of security should be called money, and during these discussions the concept arose of ``near-money''. Whatever the content of these arguments, however, one thing is clear: different forms of payment means exist for different types of payment, and the former are distinguished by enormous elasticity, interaction and interdependence. However monetarist science might refine its elaborations of formulae for the proportionality between the masses of goods and services, on the one hand, and those of means of payment, on the other, however great the successes in this direction might be, reality always contains a higli degree of indeterminacy engendered on the basis of capitalist production and the laws of price formation.

2. Stale Regulation of Monetary Circulation and Monopolistic Price Formation

Even when monetary circulation was still based on gold, Marx stressed that "the entire credit mechanism is continually occupied in reducing the actual metallic circulation to a relatively more and more decreasing minimum by means of sundry operations, methods, and technical devices. The artificiality of the entire machinery and the possibility of disturbing its normal course increase to the same extent.''~^^8^^

This was genuine foresight on Marx's part. Development proceeded just as he had predicted: a reduction in metallic circulation undermined the stability of money circulation as a whole.

Together with bank-notes and paper money, settlements began to be made through bank demand deposits and cheques, the circulation of ``near-money'' in the form of time deposits and various types of security. Recently, there has been a rapid development in so-called "electronic money"---settlements by computer. The efficiency of these means, which are intended to serve as credit, depends decisively on the character of the credit, its scale, duration and reliability.

Credit can act as a factor promoting a rise in prices, though, in this case, a limitation always operates in the form of interest. This occurs because the person receiving the credit's enabled, on the basis of today's prices, to demand goods and services that have not yet been produced and, consequently, to raise demand above the level determined by the current supply of actual values.

Further developments depend on whether the price increase engenders a rise in production. As for the mass of means of circulation, in relation

to credit, it is secondary in character: with gold's loss of its role as universal equivalent and the current multitude of means of circulation, the adjustment of their mass to the changing requirements is no great difficulty for the economy, nor a major problem. Herein lies the limited nature of monetarist conceptions of influence on reproduction. The main thesis of monetarism, to the effect that the state of the economy depends on the mass of the means of circulation, is wrong. First, the efficiency of credit resources depends on their social and sectoral distribution (on whom they belong to), rather than on their overall volume; second, since gold has ceased to be a universal equivalent and there exist a multitude of means of circulation, with the current development of the techniques of credit and money operations, the mass of means of circulation can comparatively easily be adjusted to the given volume settlement operations of any type.

We believe that analysis of functional dependencies is worthwhile only once it has been discovered where the cause and effect lie. This is not possible without analysing new phenomena in price formation as factors of primary importance with respect to money circulation.

One characteristic feature of the dynamics of prices under competition consists in the way they follow the movement of the capitalist cycle. Marx wrote that capitalist production "moves through a state of quiescence, growing animation, prosperity, overtrade, crisis, and stagnation. The market prices of commodities, and the market rates of profit, follow these phases, now sinking below their averages, now rising above them. Considering the whole cycle, you will find that one deviation of the market price is being compensated by the other, and that, taking the av-

erage of tho cycle, the market prices of commodities are regulated by their values.''~^^9^^

A study of price dynamics cannot, however, be confined to analysis of price fluctuations within the bounds of one cycle: it must be supplemented by clarification of the trends over the long term, covering a number of cycles. The 19th century was characterised by a century-long tendency for prices to fall. According to the Gorman economist Zauerbeck, taking the price index on a number of stock-exchange items on tho London market between 1891 and 1900 a? 100, in 1818 it stood at 214 and then, after passing through a series of fluctuations up and down, dropped overall and, by the end of the century, in 1899, was 102. On the basis of the Marxist methodology, the reasons for the century-long tendency for prices to fall have also been carefully studied. The essence of the matter is that, under free competition and gold coin circulation, the rise in labour productivity outstripped that in the mining of gold. Each unit input of labour in gold mining served a growing number of units of labour inputs in all other industries taken together.

The overall tendency for prices to fall during the 19th century was interrupted not only by the impact of market factors, but also by flare-ups of inflation---the excessive issue of paper money, which was a phenomenon engendered by wars. These flare-ups were incidental and relatively short-lived in character. During the first decade of this century, however, a new tendency had already emerged, a long-term, constant one, covering several cycles, towards a rise in prices and the cost of living. In the Gorman Social-- Democratic press, a discussion was hold on the reasons for this tendency. Some of the participants in

the discussion (K. Kautsky, 0. Bauer) connected the rise in prices with factors linked with gold---a drop in its value relative to other commodities. Others (Yevgeny Varga) sought the causes in the conditions of price formation, which were now beginning to change---the emergence and gradual increase in the role of the monopoly factor.

During the First World War, when purely inflationary factors came to the fore, the problem of monopoly as a factor behind the higher cost of living was pushed into the background, but certainly not forgotten. It grew in intensity and acquired new features after the end of the war, when gold coin circulation was not restored. In the bourgeois world the quantitative theory of money became widespread at this time. This was the direct forerunner of modern monetarism. In 1928, in an article entitled "The Role of Gold in the Modern Economy", Ye. Varga, who had participated in the press discussion mentioned above and who later became the founder of the Soviet school of international economists, wrote: "Bourgeois economics, thanks to the absence of a theory of value, is still incapable of solving the problems of the capitalist economy: the magic formula of a shortage of money does not, in fact, provide any explanation. For Marxist political economy, too, the question of the dynamics of prices is still to be solved. As a result of the tremendous technological achievements of recent years the socially necessary labour time contained in a commodity is now considerably less than it was before the war. There can be absolutely no doubt about this. In the mining of gold no technological revolution has taken place that would provide grounds for asserting that the socially necessary labour time spent on mining

gold at the moment has dropped more than the average for other commodities. The fact that gold mining has not regained its prewar level is indirect evidence in this respect, for each technical innovation would entail a rise in output. Whence comes, then, the price rise of 50 per cent, even if we adopt the (we believe incorrect) view that the quantity of labour contained in each part of newly mined gold determines the prices of commodities in terms of gold? Since newly mined gold, in contrast to almost all other commodities, constitutes each time only a small part of the existing quantity of gold, which determines the price level, a drop in the costs of gold mining could only to an insignificant extent find expression in a rise in all commodity prices. Thus, the current high price level can in no way be explained in terms of lower mining costs for gold!

``Marxist science, in this case, faces a very serious problem to solve.''

The main factor that finally led to a rejection of gold coin circulation was that the quantity of monetary gold proved completely inadequate to satisfy the rapidly growing monetary requirements, and the real price of gold rose much higher than the level dictated by the correlation between the inputs of labour on gold, on the one hand, and on all other commodities, on the other. This was furthered by the way a growing part of gold left the sphere of monetary circulation and entered others. Quite characteristic in this respect is the fact that, over the decade following the first devaluation of the dollar (1971), the price of gold rose from 35 dollars a troy ounce at tho official rate and 42-45 dollars at the free rate, to 700-800 dollars! Moreover, it is characteristic that the latter price constantly

oscillates, depending on speculation in gold. Over the same years, the world price index (of the capitalist world) roughly doubled.

Those who believe that gold still retains its role as the universal equivalent should be asked how any commodity can do this when its price is constantly fluctuating and rising further and further above all other prices. Although gold still acts as treasure, even in this function it has lost its monopoly---the commodity reserves of central banks now include not only gold bars, but also items made of gold (especially antique ones), various types of antique, warrants for the purchase of oil and other commodities that are rapidly increasing in price.

In other words, even if the conditions of gold mining did not change, and the same amount of average and simple labour continued to be spent on mining a unit of gold, gold would still be unable to fulfil its role as the universal equivalent, since the demand for it has sharply outstripped the supply and, consequently, its price has risen considerably above value. The function of gold as treasure came into conflict with its function as a means of circulation and then, of course, as a measure of value, too.

The phenomenon noted by Ye. Varga more than 50 years ago---the rise of prices against a background of progress in technology, a drop in the socially necessary labour time contained in each unit of a commodity---has assumed incomparable scale since the last war. This is especially true since the late 50s, when under the conditions of the scientific and technological revolution, the price increase gained impetus and when a new phenomenon emerged, which bourgeois literature has dubbed stagflation---a general rise in prices not only during phases of cyclical reviv-

al but in all phases of the cycle, including crisis (i.e., that which was, in the past, characterised by falling prices). Thus, one of the main postulates of Keynesian theory was refuted---the one according to which an overall price rise takes place once full employment and full loading of enterprises has been attained.

Now let us look at some figures showing the picture for a number of countries (see Table 8).

In spite of the significant differences between countries, they have one thing in common: a rise in prices takes place when the GNP is increasing and simultaneously with a rise in the mass of means of circulation. Since the dynamics of the GNP are calculated in current prices and the rise in prices takes place in parallel with an expansion of the mass of money in circulation, the second factor is often deliberately considered as the reason for the first. No correct answer can be given, however, without clarifying the reasons for both. What comes first and what second must be established---prices rise because the mass of money in circulation increases, or vice versa. In answering this, gold must be immediately and decisively excluded from the analysis since, first, it has ceased to play the part of a universal equivalent; second, even if gold had remained in its former role, analysis of it would explain nothing about the rise in prices, since the second half of the 20th century has been characterised by a serious lag in the growth of labour productivity in gold mining compared with all the leading industries and by a sharp increase in the demand for gold (for technical purposes, for hoarding, etc.). As already noted, this would have led not to a rise, but a fall in "gold prices", if there were such things.

Having excluded gold from the analysis, let us

Table 8

MEAN ANNUAL RATES OF CHANGE IN THE GNP, MONETARY MEANS OF CIRCULATION AND PRICES (%)

turn to the reasons for the increase in the circulation of the mass of money. The latter can play an inflationary role only if the issue of money exceeds the requirements of circulation, i.e., the additional issue of money is not backed up by a growth in the mass of commodities, if the issue is intended to cover public non-productive expenditure. Let us look at data on the ratio of the mass of money to the GNP to help us find an answer.

Table 9

THE "MARSHALL COEFFICIENT"- THE RATIO OF THE MASS OF MONEY TO THE GNP

(%; 1---cash; 2--- demand deposits)

Years

GNP in 1970 prices, th. million dollars

Means of circulation (current prices, th. million dollars)

Wholesale prices

• Retail prices

---loo

_m . , , I'ernand Total Cash _de|,_ositg

USA

1960-1965

4.7

3.75 4.75

3.5

0.3

1.3

1965-1970

3.1

5.1 6.1

4.8

2.7

4.2

1970-1975

2.1

6.0 8.25

5.4

9.75

6.4

1973-1976

0.8

4.5 9.8

2.8

Japan

1960-1965

8.3

19.5 15.4

20.9

0.5

6.2

1965-1970

11.6

15.75 17.6

15.2

2.2

5.5

1970-1975

5.3

18.5 17.8

18.7

9.4

11.4

1973-1976

2.4

11.7 12.1

11.5

12.6

FRG

1960-1965

5.0

9.25 7.4

10.0

1.3

2.75

1965-1970

4.75

7.1 4.5

8.8

2.7

2.4

1970-1975

1.75

10.6 9.1

11.4

6.7

6.2

1973-1976

0.9

9.6 9.7

9.6

• • •

Britain

1960-1965

3.5

3.4 4.8

2.75

3.2

3.6

1965-1970

2.2

4.2 4.7

3.9

3.75

4.6

1970-1975

1.9

12.7 12.2

12.9

11.0

10.4

1973-1976

-0.3

13.5 15.3

12.6

- • •

France

1960-1965

5.75

13.1 11.2

15.3

2.2

3.8

1965-1970

4.7

6.0 4.3

7.6

3.8

4.3

1970-1975

4.1

12.9 8.4

16.3

11.2

8.1

1973-1976

• . .

11.8 9.5

13.4

. . .

Italy

1960-1965

5.2

14.2 12.0

15.3

2.7

4.9

1965-1970

6.0

16.7 9.9

19.5

2.5

3.0

1970-1975

2.75

16.6 14.9

17.1

15.4

10.0

19(59

j i

197G

1 2

USA 5.2

18.7 5.0

18.1 5.0

17.74.7 16.74.9

15.04.8

13.9

Japan 7.024.8 7.2

22.4 7.5

27. 48. 228. 18. 026. 47. 8

26.3

Britain 7.0

13.4 6.4

12.4 6.3

13.1 6.012. 2 5. 7

11.15.4

10.3

FRG 6.3

8.8 5.7

9.7 5.3

9.95.1 9.25.4

10.95.4

10.0

France 12.7

22.910.0

19.2 8.7

20.67.821.27.4

22.57.021.3

Source: Kokusai hihahu to/id, Tokyo, 1976, p. 48; 1977, p. 50.

These data show that, during the accounting period, the Marshall coefficient---the ratio of the mass of money to the GNP---did not tend to rise. In addition, it should be recalled that, however this coefficient might change, the question remains as to why the mass of money in circulation rose. Was it because the price also rose and more money was required to serve turnover or, on the contrary, the state issued money for nonproductive expenditures and this entailed price rises?

Calculated from: International Financial Xtatisficf,

May

1977, pp. 166-169, 174-177, 224-227, 234-23(1, ,'196-399, 400- 403; Keizai tohei nempo 1976, Tokyo, 1977, pp. 13, 281, 285, 297; Kokusai hihahu tohei, Tokyo, 1977, pp. 23-26, 49, 74-76! 1976, pp. 23-26, 48, 72-74: 1974, pp. 21-24, 45, 70-72.

18-01768

The only way to find out is to analyse the situation in the sphere of public finance---state incomes and expenditures. Did the share in the GNP of non-productive public expenditures increase (non-productive in the sense that they raised state demand without a corresponding increase in supply)? The next chapter deals with precisely this question. Running ahead somewhat, we can already answer that, given the large and growing absolute volume of such expenditures (especially in the USA, owing to militarisation) particularly since such expenditures are a serious burden for both the economy and the working people, from 1966 to 1976 no relative growth was, as a rule, observed in them (this being what plays the decisive role in the given case).

Hence, not only gold, but also the disproportionately high growth of the mass of paper money in circulation, are excluded as the factor behind the price rises. By the method of exclusion, we have arrived at the factor actually responsible for the new pattern of price rises---- monopoly.

``Inflation," writes Galbraith, "is a process which reflects the power of the firm. The upward movement in prices reflects ... the ability to offset wage and other cost increases that are not fully controlled.''^^10^^ This extract indubitably reflects a characteristic feature of monopoly (in Galbraith's terminology---"the planning system"), actual impact of the monopoly factor is more complex. In accordance with his general conception considered in Chapter 1 of this work, Galbraith imparts to monopoly price formation aspects of ``voluntarism'', and drags monopoly right out of the market system. Meanwhile, in reality, monopoly price formation takes place within the

framework of market relations and the operation of the laws of supply and demand.

The key to understanding the reasons for the current, almost continuous rise in prices lies in analysis of the state-monopoly system of blocking downward price movements,^u which has taken shape since the war. This is one of the most important consequences of "combining the colossal power of capitalism with the colossal power of the state into a single mechanism".^^12^^

In this context, let us note that the blocking or slowing down of downward price movements, achieved through the actions of big corporations and the state, in no way indicates an immobility of prices. Immobile prices would mean the end of competition, the end of the commodity economy, the end of reproduction based on the operation of the law of labour-value. Since, however, even when downward movements are blocked, prices remain mobile and proportional to labour inputs (adjusted by utilities), this proportionality cannot, of course, appear other than through a differentiated movement of prices upwards, which entails a rise in the overall price index. This idea can be made clearer by the following simple example. Let there be two commodities--- A and B---with a ratio of prices of 2 : 1. After some time, labour productivity in the production of commodity A doubles. Ceteris paribus ( especially the ratio of demand to supply for both commodities), the ratio of their prices should become 1:1. Since, however, downward price movements are blocked (as Western economists put it: the downard elasticity of prices is lost), a new proportionality engendered by the doubling of the productivity of A may only be observed if the price of commodity B doubles, i.e., a ratio of 2 : 2 is established.

18*

If this example is extended to the whole economy, the natural conclusion is that, under paper money circulation and an interaction between monopolies and the state for the purpose of blocking downward price movements, a new law emerges and becomes consolidated---a rise in the overall price index that is continuous, even though it differs for different periods. In relation to the growth of the mass of money in circulation, this law is a primary one, i.e., prices do not rise because the mass of money in circulation has done so, but vice versa.^^13^^

The new law governing price formation is very complex. We believe it totally wrong to interpret the rise in prices as a consequence of the arbitrary rule of the monopolies. Any owner always strives to receive the maximum price possible for his commodity, and the thing is to pinpoint the means by which this is achieved, rather than simply to state it as a fact.

The current rise in prices must not be understood simply as price hikes by major corporations. In fact, the dynamics of prices depend on the interaction between many economic parameters---such as the growth of labour productivity and its differentiation for different spheres of the economy, the increase in the complexity of labour and labour costs, and the interrelationship between this rise and the differentiated movement of the organic composition of capital and productivity, plus cyclical factors.

Specific manifestations of these and other new laws of price formation are a subject for special analysis. It may be noted, however, that special research on this issue has revealed new phenomena contradicting the laws that governed for many decades before the Second World War. One of them is the relatively faster growth of

prices in the service sector, i.e., in the sphere where non-monopolistic small and medium-sized firms predominate. The reason for this should be sought in the dynamics of labour productivity: the service sphere is the part of the economy in which productivity rises considerably slower than in the highly monopolised production sector, where the monopoly factor is seen primarily in that, in spite of the labour productivity growth which ought to entail falling prices, in fact they remain at their former level. This means that a relatively large quantity of commodities at former prices enter the market. It also means a rise in the demand for services, a rise that, given the lagging productivity level in this sphere, inevitably brings price rises. ^u

Marx himself wrote that "the law of value dominates price movements with reductions or increases in required labour-time making prices of production fall or rise".^^15^^ Under modern conditions, the law of value still dominates price movements, but not so much by reductions or increases as by differentiated rises differing in extent.

Given the more or less continuous overall rise in prices, their differentiated growth is based on the same laws as in the past, when price movements followed a different pattern. After all, the fall in prices during crises, their increase during booms, and the overall tendency to fall in the 19th century are all trends that, by the very essence of the commodity economy, could only develop given a differentiated dynamics of prices for different commodities. Nor, of course, can current blocking of downward price movements change the fundamental laws of the commodity economy: after all, under current circumstances, the decisive role belongs not to the

absolute level of prices, but to their correlation, which is still formed under the impact of that between labour inputs and utilities.

In this connection, it should be noted that the blocking of prices itself is not and cannot be all-embracing. The correlation between labour productivity, on the one hand, and demand and supply, on the other, often prompts the monopolies to not voluntarily but compulsorily cut their prices. One of the functions of monopoly is, while maintaining the price level dictated by the conditions in the least efficient firms, to oust the latter and seize their ``quota'', thus raising not only the rate, but also the mass of profit. Success in this depends entirely on the balance of power between monopoly and competition: if today monopoly maintains prices at the level of yesterday's limit, thereby receiving superprofits, tomorrow the inflow of capital into the sector will increase, and this might break up the monopoly of today's mass of capital and create a new marginal price---lower, and corresponding more closely to the new, improved production conditions.

Price statistics for the 60s and 70s show that their overall rise takes place in a situation where the sensitivity of prices, their response to fluctuations in demand and supply, has not decreased over time and where, in a number of cases, prices fall. Characteristic in this respect are the data for Japan given in Table 10.

These data demonstrate a number of cases where prices fell, but the overall tendency is that, even given the rise in productivity of labour, prices do not fall but continue to rise. It may be added that, in subsequent years, this tendency gained impetus.

Thus, not the laws of the correlation of labour inputs and utilities have changed, but the nature

Table 10

DYNAMICS OF LABOUR PRODUCTIVITY AND WHOLESALE PRICES IN JAPAN

Industry

Years

lYican aiijiii« j

rate of labour productivity increase

annual nuctuations in wholesale prices

-------------------

Manufacturing in geni eral

1960-1963 1964-1967

7.4 10.9

-0.3

+1.6

Iron and steel

1960-1963 1964-1967

8.3 15.5

-3.4 +1.1

Non-ferrous metallurgy

1960-1963 1964-1967

8.4 11.6

-3.7

+6.2

Engineering

1960-1963 1964-1967

8.3 14.1

-1.4 +0.3

Chemical industry

1960-1963 1964-1967

12.1 14.0

-2.6 -0.9

i Oil refining and coal processing

1960-1963 1964-1967

14.0 17.2

-2.9 +0.4

Pulp-and- 1900-1963 paper indus- 1964-1967 try

9.4

6.7

+1.0

+0.4

j Textiles

1960-1963 1964-1967

6.3 9.4

+2.2 +2.9

Food

1960-1963 1964-1967

0.3 2.1

+1.2 +1.3

Rubber

1960-1963 5.4 1964-1967 5.1

-1.5 +1.0

Table 10 (continued)

sphere of price formation, has always been characteristic of the monopolistic enterprise. The current loss "of the downward elasticity of prices" is connected, however, not with abuse, but with the high concentration and centralisation of capital. This is such that the major corporations maintain prices at the marginal price level, which does not, of course, correspond to the new, higher level of labour productivity.

Abstract "equilibrium models" are based on the dynamics of prices determined under free competition by the ratio of demand to supply. In reality, as we have seen, there exists a certain inertia of prices: they have acquired a reverse influence on demand and supply. Under monopoly conditions, this influence has become much stronger and turned into a law: in very many instances, demand and supply are determined by prices with, at present, a predominantly unidirectional elasticity.

The blocking of price movements downwards and their differentiated movement upwards have become instruments of anti-crisis policy.

How effective are they? If it is not absolute price levels that are of decisive significance, but the correlation between them, what is the difference whether these correlations take shape according to the previous laws, i.e., in the process of rises and falls, or to the new ones, i.e., in the process of their overall growth?

Tn this context, let us note that the new law governing the dynamics of prices is, like the previous one, a market law and so it cannot save capitalism from economic crises. As was demonstrated by the economic crisis of 1974-1975, a sudden and sharp rise in prices may prove just as dangerous or disastrous to the purchaser as a fall is to the seller. The crisis showed something

Industry

Year

Mean annual rate of labour productivity increase

Scale of mean annual fluctuations in wholesale prices

Leather 1960-1963 9.0 +2.2 1964-1967 2.9 +6.2

Timber processing

1960-1963 1964-1967

2.2 2.4

+7.3 +5.6

China and porcelain

1960-1963 1964-1967

9.1

7.5

+2.3 +1.9

Tobacco

1960-1963 1964-1967

4.1 10.8

-0.2 -0.1

Source: Shigeto Tsuru, Nihon heizai-no hiseki wa owatia (The End of the Japanese Economic Miracle), Mainichi Shimbunshya, Tokyo, 1978, p. 105.

of the dynamics by which this correlation is realised. Following the Marxist methodology, the primary reason for this change should be sought not in money nor state policy, but in the reproduction process under monopoly domination. Apart from its other consequences, the lesson of the 1929-1933 crisis and subsequent disturbances of the capitalist economy has been that, given the contemporary level of production concentration in the hands and under the control of the major corporations, and given the current scale of capital investment and production, price stability and confidence that prices would not fall lower than the profit generating level became one of the conditions for maintaining the entire process of reproduction.

Corruption of all types, and especially in the

else, too, however: for big corporations as purchasers the blow had less impact and danger than for all other purchasers,

The essential thing is how the differentiated growth of prices reflects on the different parts of the economic organism and on the positions of the various classes and social strata. As a rule, big corporations conclude agreements for the fixed price delivery of the goods they need in their activities. Until the expiry of the contract, no price rises bring losses to the customer. All other things being equal, such guarantee periods are more profitable for those who possess more capitals and more croditahility and, consequently, more manoeuvrability with respect to the investment required in order to reorganise themselves, before the expiry of the contracts. In other words, a big corporation is in a privileged position even when the worst thing for it happens---when, because of the market conditions, it cannot raise the price of its own output.

Price formation is one of those spheres in which random movements and anarchy are quite obviously retained. No one wants inflation, an overall rise in prices; everyone curses the situation where money is continuously depreciating, but no one is able to stop the inflation. From a ``microeconomic'' factor, such as price hikes by individual producers, inflation turns into a very serious ``macroeconomic'' problem. Whereas, in the past, the cyclical fall in prices appeared initially as a consequence of the drop in production, and then as an impetus to its further contraction, the lack of (or at least sharp reduction in) elasticity of prices downwards certainly does not, under the domination of private property, act as a factor stabilising the reproduction process. The continuous price rises increase the dis-

proportionality in the development of production. Among other things, the rise in prices sharply intensifies the problem of final consumption demand, since it is difficult to sell an increasingly expensive product if the purchasers' money incomes remain unchanged. This problem brings us directly to the question of the economic role of the working classes' struggle for higher wages and other labour incomes. Later we shall return to this question, but for the meantime we shall simply note the following: the most important role in the differentiated price rise engendered by the new law of price formation is played by the correlation between the prices of all consumer goods, on the one hand, and labour as a commodity, on the other.

The change in the law governing price formation is something the bourgeois state cannot ignore. Concerning the state's role in price formation, it should be stressed that this sphere has always been the realm of private enterprise. Under the current conditions, however, with the rise in prices having become a serious social problem, the autonomy of price formation lias collapsed. Yet, in spite of this change, it is still the sphere in which the state participates directly to the most limited extent. Whatever the degree to which the state participates in price formation today, its new law took shape not on the basis of state intervention, but primarily on that of the development of the monopolies themselves. The main thing the latter are aiming to gain from the state is maximum freedom for private capital. From this angle, the secondary role of the state in price formation seems very active: this is what constitutes one of the most characteristic features of state-monopoly capitalism provision of the monopolies with the right to block

the movement of prices downwards, this inevitably bringing an overall rise in them.

Analysis of the experience of several countries over several decades indicates that, while the bourgeois state operates from a Keynesian position in its influence on investment, in relation to prices it is monetarist---intervenes minimally and mainly indirectly in private monopoly practice. The basic course of state policy consists in not hampering the operation of the new law that has taken shape naturally, i.e., the differentiated overall price rise, but circumstances sometimes force the state to intervene in the process of price formation---to maintain prices or hold them down.

In the sphere of price formation, state policy is just as complex and pragmatic as in other spheres: the state's aim is not high or low prices, but stability of extended reproduction, economic growth based on profitability and, as an essential condition for both of these, socio-political stability. The activeness of the state's participation in the modern system of price formation is determined not only by the fact that it does not stop monopolies raising prices. After all, the state is the major purchaser---in different countries it accounts for from 15 to 25 per cent of the total mass of purchases of goods and services. State orders and purchases are carried out at market prices and at best serve to consolidate them. As for purchases of military items, here the state's participation is part of the militaryindustrial complex, which is the strongest generator of price rises.

In its economic policy, the state tries to take account of the differing interests of small owners and wage-workers. The former, being the owners and sellers of commodities, have a vest-

ed interest in prices for the output sold being as high as possible. The latter, as purchasers, naturally want prices to be as low as possible, especially those for the output produced by small owners, above all in agriculture.

The concrete historical circumstances under which the economy develops in the countries of monopoly capitalism during its general crisis have been such that the contradiction mentioned could only be resolved by state intervention. The first step was made in the USA during the Great Depression. For millions of farms, the agrarian crisis had terrible consequences. In order to put a stop to the mass ruin of farmers, the US government set up an Agrarian Adjustment Administration which, among other things, laid the foundations for the state system for maintaining prices on agricultural produce. The system operates as follows. The correlation of industrial and agricultural prices for 1909-1914 (which is considered as optimal) is taken as the departure level. With the assistance of special statistical services, the state annually calculates the correlation of these prices on the market and, if it is unprofitable to farmers (below the original ratio), purchases part of agricultural output and stores it, thus helping to raise the prices of agricultural output. If the opposite is the case (during bad harvest years, for example), the state releases the produce from its stores on to the market, thus lowering prices. No direct price fixation is practised by the state in either case.

The Japanese system for maintaining agricultural prices is somewhat different. The main types of grain (rice, wheat and barley are bought up by the state at prices determined as costs of production plus a normal profit, after which I he

state sells them (through private merchants) at lower prices, covering the difference out of the state budget. For other commodities (cocoons, raw silk, pork, beef, dairy products) a price maintenance system similar to the American one is used. In addition, comparatively high import duties are set on agricultural output, which also helps to maintain internal prices.

In the countries of Western Europe a combined system is used, similar to the Japanese one, but here a special role is played in the EEC countries by the external factor. Unified prices are set in all the EEC countries for grain and most other agricultural produce. These are flexible, but they change on the Community scale. Moreover, customs duties within the EEC have been eliminated, but a common customs barrier adopted against third countries: when agricultural produce is imported into any EEC country the difference between the common EEC price and the import price is taken in tax. Contributions are made to the common EEC fund for orientating and guaranteeing agricultural production, one aim of which is also to maintain agricultural prices. In spite of the sharp contradictions between the Community's members, frequent conflicts and crises, the "agrarian integration" continues to fulfil the role of a system for maintaining the prices of agricultural output. Summing up, it should be stated that, whatever the motives and specific forms of price maintenance for agricultural produce, they intertwine with the overall, state-monopoly system for blocking downward price movements and constitute a part of it. The need for a state policy with respect to agricultural prices is one of the clearest examples showing the defects, considered above, of free price formation and its lack

of correspondence with the demands of proportional economic development.

We have considered those aspects of state policy that serve to maintain the current system of price formation, entailing a continuous rise in prices. Although the new law, engendered by the present stage in the development of productive forces under state monopoly, in general limits the destructive impact of spontaneous market forces, it continues to operate within the bounds of market relations. It thus not only plays a positive role, but also harbours a number of dangers that the bourgeois state has to take into account.

The bourgeois state has resorted to broad and direct intervention, i.e., to general price iixing by the state, during wars and in connection with wars. The circumstances were then out of the ordinary, but they deserve special attention in order that the nature of the usual, peacetime impact of the state on price might be understood.

In what way are state measures exceptional during wars? By means of money issues limited little or not at all by economic factors, the state put forward additional demand for a variety of commodities (above all weapons and ammunition, but also consumer goods for the armed forces). This demand is obligatory in the sense that the state is obliged to acquire the commodities it requires for waging the war. At the same time, the demand is so great that, even after idle capacity has been brought into production, it can be satisfied only at the expense of civilian demand. Since, however, personal incomes remain unchanged or grow (ceteris paribus, their overall volume drops as a result of part of the labour force being engaged in the armed forces and rises as a result of additional rnan-

power being drawn into production and an increase in overtime), there is a higher demand for a samller mass of commodities, this inveitably resulting in higher prices. If this rise proceeded in a random way, according to the usual laws of the commodity economy, it would be so great (considering the specific circumstances of modern wars) that an expansion of the mass of money incomes would be required, which in turn would pave the way for a headlong rise in inflation. In order to prevent this, the state puts powerful brakes on demand and prices in the form of fixed prices and rationing of consumer goods.

The significance of these state brakes is evident from what often happens once they are lifted after the war. If this is done suddenly without a rapid rise in supplies of consumer goods to the market, hyperinflation is inevitable---a rise in prices that overturns the reproduction process and has serious socio-political consequences for the bourgeois system. More often than not this happens in the countries that lose, or when, irrespective of whether the country is victorious or defeated, the economy has been destroyed, and the state apparatus is unable to cope with the speculation (after the Second World War--- Kuomintang China, Greece and others).

This is what happens in wars. In peacetime, however, as already noted, the state's chief line is minimum intervention in price formation, this in practice meaning support for the overall price rise. Given this general policy, however, certain important circumstances prompt the state to halt price rises.

First, as mentioned above, the rise in prices ,^:affects the interests of the entire mass of consumers and is thus a major social problem. Second, the necessity of restraining the price rise often

appears in connection with the balance of payments deficits: the relatively rapid growth of internal prices is one factor exercising a detrimental influence on exports, so measures to hold back this rise become necessary. The postwar history of economic growth is literally scattered with examples of state measures to limit prices being brought about by foreign economic factors. Finally, the state has to consider that, by encouraging an overheating of the market, price rises constantly threaten another collapse, while restraint on this growth might help to cool the economy down.

What, then, are the methods used by the state to put a brake on price rises? A direct ban on price rises for all commodities is a very rare occurrence. In the USA, such a ban has been applied only once since the last war: on August 15, 1971, President Nixon announced a ban on increases in wages and prices for 90 days, after which the ban was not renewed. In Japan, an attempt at a direct ban was made in February 1974, when the headlong rise in the prices of oil and other imported raw materials instantly spread throughout the economy and threatened to entail the most serious consequences. So-called "administrative prices" were introduced for oil, petroleum products and certain other key commodities (35 to 40 in all). To raise these prices, permission was required from the Ministry of Foreign Trade and Industry. They were little effective, however, the Ministry being compelled to permit hikes. In Western Europe, there is a similar situation: direct bans on price rises have been very rare, shortlived, and lacking any major significance.

Whereas, however, the state comparatively rarely and only for short periods resorts to a gen-

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eral ban on price rises, with respect to certain types of good and service various sorts of temporary (for more or less lengthy periods) price fixing system are used, with participation by the state. This applies above all to goods and services produced in public enterprises (power, railway tariffs, payment for education in state higher educational establishments, etc.). In a number of countries, some sorts of rent are fixed. Although there are considerable differences between countries in their systems and extent of state participation, the state does exercise a certain control over the prices of so-called "base commodities"---steel, coal, oil and petroleum products, etc.

Such control is not very effective, however, since overall, the state follows the market and only slightly slows down the realisation of its demands.

Indirect methods for holding down prices are applied much more frequently than direct ones. When individual corporations are involved, government agencies often resort to persuasion and exhortation, but these would have no role to play at all had not the state certain effective means at its disposal. Such means include threats to make the conditions more strict for the use of public resources (power, railway transport, and so on), which would entail a rise in costs and might cancel out the results of raising the prices of the corresponding output. When it is a matter of overall policy (not relating to individual corporations), the method most often used is for the government to raise the bank rate, thus reducing the amount of credit and means of circulation and, correspondingly, demand. The variables on which the state can exert an influence in order to hold back or speed up price rises in-

elude not only the overall mass of money, but also the correlation between its various parts, the speed of circulation, the structure of state expenditures, the dynamics of the public debt, market factors, state policy in the credit sphere--- credit restrictions or, on the contrary, "credit inflation", arising from cuts in the bank rate and other measures to "warm up" the economy.

It should also be noted that, for the sake of holding down price rises, the state sometimes goes as far as reducing import controls. In addition, since, as is obvious, an increase in prices is connected with monopoly practice, each time that the rise in prices becomes particularly noticeable, the propaganda is stepped up concerning the need for a more intensive and effective application of anti-monopoly legislation. As we have already seen, however, anti-monopoly legislation is little effective.

From the modern practice of state regulation emerged the concept of the "magic triangle"--- the state's drive for economic growth (the first ``angle'') to take place under stable prices (the second ``angle'') and balance of payments equilibrium (the third). This very name admits the low effectiveness of state economic policy. Ultimately, it turns out that, in order to hold back an imminent rise in prices, the state is more often than not forced to abandon measures to speed up economic growth in favour of ones to slow it down.

With the current dynamics of prices, monopoly, on the one hand, and state policy for restraining price rises, on the other, are totally unequal forces. It could not be otherwise, for the state operates within the bounds of spontaneous market relations and considers its primary task as the maintenance of these relations.^^16^^

19*

3. Wages as the Price of Labour and Incomes Policy

Our study of the new laws of price formation has shown us that the overall rise in prices is still taking place under a changing correlation between the prices of different commodities. Under inflation and the overall price rise for goods and services, the question of the correlation between the prices of goods and those of services, on the one hand, and that of labour, on the other, becomes particularly acute. In order to comprehend the theoretical essence of this question, let us turn to Marx's teachings on wages--- the price of labour as a transmuted form of the value of labour-power.

The value nature of labour means that, whatever the mass of use-values in which it is embodied, its owner, the worker, is always subject to capitalist exploitation. In his work Wage Labour and Capital Marx wrote: "A noticeable increase in wages presupposes a rapid growth of productive capital. The rapid growth of productive capital brings about an equally rapid growth of wealth, luxury, social wants, social enjoyments. Thus, although the enjoyments of the worker have risen, the social satisfaction that they give has fallen in comparison with the increased enjoyments of the capitalist, which are inaccessible to the worker, in comparison with the state of development of society in general. Our desires and pleasures spring from society; we measure them, therefore, by society and not by the objects which serve for their satisfaction. Because they are of a social nature, they are of a relative nature.''~^^17^^ "But just as little as better clothing, food, and treatment, and a larger peculium [property put at the disposal of a slave---

Author], do away with the exploitation of the slave, so little do they set aside that of the wageworker." ^is "It follows therefore that in proportion as capital accumulates, the lot of the labourer, be his payment high or low, must grow worse.''~^^19^^ "In contradistinction therefore," writes Marx, "to the case of other commodities, there enters into the determination of the value of labour-power a historical and moral element."²⁰ Lenin wrote: "Poverty grows, not in the physical but in the social sense, i.e., in the sense of the disparity between the increasing level of consumption by the bourgeoisie and consumption by society as a whole, and the level of the living standards of the working people.''~^^21^^

Although an explanation of the nature of the value of labour is necessary, it is not sufficient for an analysis of the laws of motion of wages. The ratio of the value of labour to wages (the price of labour) is at least as complex as that between the value and price of other commodities.

Abstracting from the international aspect of the problem, it should be remembered that the value of labour, like that of any other commodity and like surplus-value (and its rate), being determined by average magnitudes, is a parameter functioning on the scale of the whole economy. This parameter is not, however, preset: like those enumerated above, it is constantly changing, taking shape on the basis of the differences in and changing price of labour. Labour, writes Marx, "must, therefore, pass through the same fluctuations to fetch an average price corresponding to its value. It would lie absurd to threat it on the one hand as a commodity, and to want on the other hand to exempt it from the laws which regulate the prices of commodities.''~^^22^^

Of decisive significance from the point of view of the subject of this book is the question of the nature of the dynamics---the mechanism of the differentiated movement of rates and sizes of the wages of various categories of working people and their deviations from the average. The general rule here is that, like the price of individual types of good and service depends on the ratio of demand to supply, that of the concrete labour producing particular goods and services depends on the ratio of demand to supply, on what Marx called competition among the workers.~^^23^^ In turn, the demand for workers depends on the size of the profits they bring the capitalist, while the supply depends on many factors---demographic, market, social, domestic, on the system of and opportunities for education, and so on.

It is in this connection that the concept developed (in the 19th century---"the iron law of wages", in the 20th century---"the Phillips' curve", and others) to the effect that the relationship of wages to employment is a vicious circle, operating according to the principle: the higher the wages, the lower the profit; the lower the profit, the lower the investment; the lower the investment, the lower the employment; while a fall in the latter increases the competition among those selling their labour and leads to a drop in wages. This argument is based on the principle of ceteris paribus, although events have long since demonstrated its precariousness.

By the end of last century, a trend had already emerged towards the pressure of the working class exerting a certain influence on wages, irrespective of the demand to supply ratio. "The law of wages, then," wrote Engels, "is not one which draws a hard and fast line. It is not in-

exorable within certain limits. There is at every time (great depression exccpted) for every trade a certain latitude within which the rate of wages may be modified by the results of the struggle between the two contending parties.''^^24^^

This trend, which breaks off during crises and in connection with them, later gained constantly in intensity. "The trend," writes F. Burdzhalov, "which, at the end of last century, as a rule, hardly showed, is nowadays becoming a tangible reality. The absolute size of wages is increasingly becoming a function of the class struggle. Whereas previously it was primarily the industrial reserve army that acted as the regulator of wages, at present this role is being fulfilled more and more by the balance of forces between labour and capital.''^^25^^ Meanwhile, the development of the class struggle is to a growing degree coming under the influence of changes in the socio-political situation as a result of state-- monopoly regulation of the economy. Class organisations of working people not only take account of the character of state regulation, they also strive to exert an impact on it; the very content of state economic policy is, therefore, transformed into one of the main channels of the class struggle. A direct economic struggle is conducted around the following spheres: 1) employment; 2) the nominal wage---prices---real wages; 3) working conditions.

Depending on the specific situation, at various times different spheres have come to the fore. Keynes saw encouragement of investment by the state as a way to soften the "employment---- profits" problem, but he attached no major significance to thai, of prices. "A movement by employers," he wrote, "lo revise money-wage bargains downward will be much more strongly resisted

than a gradual and automatic lowering of real wages as a result ol rising prices.''^^26^^

This cynical advice from the founder of the bourgeois theory of state regulation of the economy may have had some significance in the immediate prewar period, when the problem of unemployment was the most acute, but during the 60s and 70s things changed. The continuous overall rise in prices since the last war, in combination with the strengthened positions of the working class, created a completely new situation. In the late 50s, the concept of the "wage--- price spiral" emerged in the bourgeois world. The essence of this is that price rises result from the exorbitant demands made by the trade unions for higher wages, for which the employers can compensate only by raising prices, this resulting in further wage demands, and so on. This concept is thoroughly apologetic in nature and is totally erroneous, since it is based on a false interpretation of cause and effect. We have already seen that the state-monopoly tendency in price formation, with its organically inherent price rises, arose and developed independently of the dynamics of wages. If the concept of the spiral is applied, it should be the "price---wage spiral", rather than the reverse. The working class has no means for retaining its share of the national income apart from the struggle for a rise in nominal wages that would maintain or heighten real wages.

Yet an interdependence does exist between price and wage rises. That which, in Keynes's time, appeared as the "incomes---savings---- accumulation---employment" problem, now appears in the form of the much more complex "incomes ---investment---employment---labour productivity ---prices" problem. In other words, the last two 296

parameters that (despite a number of reservations) Keynes took as independent variables have now ceased to be so.

The new essence of the problem can only be explained by the fundamental laws of the capitalist economy---the combination of monopoly and competition under the domination of private property. We have seen that the overall rise in prices takes place as a result of their differentiated growth on the basis of monopolistic competition. Neither is the general rise in wages organised in character, regulated on the scale of the whole country---it takes place on the basis of the working people's struggle in different industries in different ways and to a tremendous degree depends on changes in the socio-- economic structure of the labour force, ou the power of individual trade unions, on many concrete conditions. The changes in individual industries sooner or later, however, influence the general situation---the value of labour power, the rate and mass of surplus-value and profits, the overall level of investment and prices.

The class antagonism of the bourgeois society is manifested in far from just exploitation, reflected by average data on the rate of surplusvalue. It is seen in the way the bourgeois system is unable to provide for distribution according to labour not only of all the newly created value (since part of it is appropriated by the bourgeoisie), but also of the necessary product---Ihat part of value that the working people receive. Wages depend tremendously, if not decisively, on the performance of a firm, on the position on the market, and certainly not on the character of labour and its inputs. For one hour's labour of equal skill and intensity, office and factory workers in different industries and firms receive

different wages, this naturally making those who receive less particularly dissatisfied and eager to struggle for higher wages. The French bourgeois economist L. Stoleru writes that, instead of "fair distribution", in real life there exists "a totally different law that runs not 'each according to his labour', but each in accordance with the value created by his labour. This difference means that eight hours of work in a mine, digging and drilling under the earth, are not the same, depending on whether their result is expressed in the lifting to the surface of a tonne of coal, of iron ore or several carats of diamonds. Yet this harsh law of life is usually badly understood and, in any case, not accepted. .. How can a miner for coal agree to earn less than one for iron ore, on the pretext that coal is harder to sell than iron ore? How can a draftsman working at a shipyard agree to a wage freeze when the wages of his colleagues in the electronics industry are increasing by 15 per cent per year, simply because television sets are easier to sell than ships?''~^^27^^

From the point of view of the dynamic theory of equilibrium, which also includes analysis of the laws of the movement of labour power, in contrast to slaves or serfs, a factory or office worker can go to work in a firm paying higher wages. For the overwhelming majority of working people, however, this is a purely formal freedom. The movement of the labour is even more difficult than that of capitals. Given all these hindrances to such a movement of capital, the owners can, with the help of depreciation payments and the credit system, transfer their capital from one sector to another. As for the working people, to say nothing of unemployment and the difficulties involved in changing one's

place of residence, a change of job is hampered by the simple fact that there are no vacancies in the firm with higher wages. The movement of the labour force which, on the abstract theoretical plane can influence the size of wages, in fact depends on macroeconomic factors that are under the decisive influence of capital.

This situation, typical of capitalism, became more vivid in connection with the new law of price formation- the overall price rise, with its enormous differentiation which increases both the difference in wages and that in the size of the burden shouldered by various categories of worker in connection with the rise in prices. The overall price rise has made the political struggle and the problem of economic growth even more acute. In this lies the reason of the emergence of the "incomes policy" concept, the socio-economic essence of which is that the bourgeois state tries to isolate the dynamics of incomes (mainly wages) from the influence of the opposing competitive and class forces and to include it in the system of state-monopoly regulation. If incomes policies were really effective it would indicate a transition of the system of state-monopoly regulation of the economy to a new and higher stage.

How realistic is this prospect? In the special research, mentioned above, into this problem, F. Burdzhalov writes that "incomes policies are put forward by bourgeois-reformist economists in connection with the practical solution of the fundamental socio-economic problems of modern bourgeois society. The results might affect the development of the national economy, the distribution of the national income and the people's well-being. This is probably why no other sphere of stale-monopoly regulation in recent years has aroused such fierce discussion and disagreement

among the various groups of researchers, state and public figures, as has incomes policy.''~^^28^^

There is a very broad literature on incomes policies. Special committees on incomes---- governmental and non-governmental, employer and trade union, party and academic---have been set up in virtually all capitalist countries. For all the tremendous diversity, the chief concrete content of the proposals made by bourgeois economists comes down primarily to making the rise in nominal wages dependent on an increase in labour productivity. Since such proposals presume the "wage---price spiral", their authors proceed from the assumption that the introduction of an incomes policy (together with other measures) would lead to stability of the overall price level, and they therefore oppose any agreed dependence between wages and prices.

Even in such a ``valueless'' variant, however, incomes policy projects arouse disagreement in the ruling circles themselves. The objections coming from various social strata reflect the internally contradictory nature of state-monopoly capitalism that we have already noted. In the given case, on the one hand, bourgeois-reformist factions in the government, concerned with the general interests of the capitalist class, see a growing need for overall state regulation. On the other hand, the direct representatives of individual monopolies, with the active support of many state figures and bourgeois scholars, do not want to permit state interference in the incomes sphere, especially since such projects also include various measures for regulating profits. In support of incomes policies, Stoleru writes: "An incomes policy can only be a policy of all incomes, otherwise it will be ineffective and extremely harmful, since it will put those who ag-

reed to bear its burden in unfavourable conditions, to the benefit of those who manage to wriggle out of it.''~^^29^^

In the elaboration of different incomes policies, the irreconcilability of the basic principles of bourgeois economics with the interests of the working classes becomes increasingly manifest: bourgeois variants are always based on the "three factors" principle reviewed in Chapter I, i.e., on the fact that the owners of the means of production are to receive their share in accordance with the ``contribution'' made to the production process by capital and natural resources. The additional income received on the basis of a rise in labour productivity must be distributed so that part of it becomes the property of or is controlled by persons not participating in labour. There are even greater objections to projects including proposals for nominal incomes to be made dependent on prices. If such proposals are implemented, the inevitable result is that not only incomes, but prices too, will be fixed on the basis of state legislation and agreement between corporations, the government and trade unions. Such co-ordination is beyond the capabilities of state-monopoly capitalism.

The question of the correlation between incomes and prices, given the overall growth of the latter, has one more very complex social aspect: price rises for consumer goods are general in character and affect everyone, while any incomes policy is highly differentiated: being linked to a rise in labour productivity, it affects factory and office workers in major firms more than in small ones; persons employed in the non-productive sphere less than those who work in production, and in no way affects pensioners or people living on their savings.

Considering that, given existing social relations, incomes policies pose a threat of the working people being deprived of the rights they have won to defend their interests, democratic forces come out against such policies in any form.

Current concepts of incomes policies emerged in the early 60s as alternatives to inflationary price rises and as a possible means for fighting the latter. The theoretical basis of this concept was the theory of the "wage---price spiral". The failure of incomes policies has not only shown this theory to be invalid; it has also revealed that, under monopolistic competition, no alternative to price rises exists.

Japan typically had high exchange rates, though its central bank reserves were negligible.

~^^7^^ One example in this respect is the discussion on the Bank Act of 1844 in Britain (the Robert Peel Act), which set limits on bank issues in Britain with strict rates of metal security. A serious critique of this Act is contained in Volume III of Marx's Capital (Progress Publishers, Moscow, 1974), pp. 540-564.

~^^8^^ Karl Marx, Capital, Vol. II, Progress Publishers, Moscow, 1974, p. 504.

~^^9^^ Karl Marx, "Wages, Price and Profit", in K. Marx and F. Engels, Selected Works, in three volumes, Vol. 2, Progress Publishers, Moscow, 1973, pp. 69-70.

~^^10^^ J. K. Galbraith, Economics and the Public Purpose, Houghton Mifflin Company, Boston, 1973, pp. 191- 192.

~^^11^^ Galbraith writes: "When prices for a particular product are set by a few large firms, there is little danger of price-cutting. This part of the control is secure. There does remain a danger of uncontrollable price increases" (Views on Capitalism, ed. by Richard I. Molvin Leiman, Glencoe Press, California, 1970, p. 195).

~^^12^^ V. I. Lenin, "War and Revolution", Collected Works, Vol. 24, p. 403.

~^^13^^ Of major interest in this context is the following remark made by Marx: "But continued investigation of the history of prices compelled Tooke to recognise ... that increases or decreases in the amount o£ currency when the value of precious metals remains constant are always the consequence, never the cause, of price variations, that altogether the circulation of money is merely a secondary movement" (Karl Marx, A Contribution to the Critique of Political Economy, Progress Publishers, Moscow, 1978, p. 186).

~^^14^^ The Italian Marxist economist C. Caracosa writes: "In modern economic systems, a flexibility of prices in connection with a rise in productivity is rather an unusual phenomenon and, in any case, never completely swallows the entire rise in labour productivity. The distribution of the fruits of technological progress takes place, as a rule, through higher incomes of the production factors in industries or firms where there is a rise in labour productivity" (A. Pesenti, Manualc di economia politico. Vol. II, Edilori Riuniti, Rome, 1970, p. 521).

~^^15^^ Karl Marx, Capital, Vol. Ill, p. 179.

References

~^^1^^ See Karl Marx, Theories of Surplus-Value, Part III, Progress Publishers, Moscow, 1975, p. 253.

~^^2^^ "Engels to Conrad Schmidt in Berlin, London. October 27, 1890", in Marx, Engels, Selected Correspondence, Progress Publishers, Moscow, 1975, pp. 397, 398.

~^^3^^ Even David Ricardo wrote: "Experience, however, shows, that neither a State nor a Bank ever have had the unrestricted power of issuing paper money, without abusing that power: in all States, therefore, the issue of paper money ought to be under some check and control (David Ricardo, On the Principles of Political Economy and Taxation, John Murray, London, 1821. p. 426).

~^^4^^ Asia's New Giant. How the Japanese Economy Works, ed. by H. Patric and H. Rosovsky, The Brookings Institution, Washington, 1976, p. 251.

~^^5^^ See V. I. Lenin, "The Impending Catastrophe and How to Combat It", Collected Works, Vol. 25, p. 357.

~^^6^^ Since gold still fulfils the role of treasure, a country with large gold reserves, all other things being equal, has a high credit capacity, this promoting a higher exchange rate for its currency. In fact, the opposite might happen: for example, in the 60s and 70s

~^^16^^ "We are going to continue to slow down the rate of inflation in the middle of an orderly expansion," promised President Nixon in early 1971, adding: "We are going to do it by relying on free markets and strengthening them, not by suppressing them.'''' Quoted from: J. K. Galbraith, Economics..., p. 196 (my italics---Author).

~^^17^^ Karl Marx and Frederick Engels, "Wage Labour and Capital", in Collected Works, Vol. 9, Progress Publishers, Moscow, 1977, p. 216.

~^^18^^ Karl Marx, Capital, Vol. I, Progress Publishers, Moscow, 1974, p. 579.

~^^19^^ Ibid., p. 604.

~^^20^^ Ibid., p. 168.

~^^21^^ V. I. Lenin, "Review. Karl Kautsky. Bernstein und das sozialdernokratische Programm. Eine Antikritik", Collected Works, Vol. 4, p. 201.

~^^22^^ Karl Marx, "Wages, Price and Profit", in K. Marx and F. Engels, Selected Works, in three volumes, Vol. 2, p. 70.

~^^23^^ See Karl Marx, Capital, Vol. I, p. 514.

~^^24^^ Frederick Engels, The Wages System, Progress Publishers, Moscow, 1975, p. 11.

~^^25^^ BypflHtajiOB CD. 9. «rocyaapCTBeHHO-- MOHonoJiHCTHqecKaH nojiHTHKa ^OXO^OB: KOHD,enn;HH H npaKTHKa», MocKBa, 1973, cip. 27.

CHAPTER VII

REDISTRIBUTION OF THE NATIONAL INCOME AND CREDIT POLICY

1. The State's Role in the Distribution

of the National Income and in Investment.

Fiscal Policy

After analysis of the two closely interconnected functional ``subpackages'' of state-monopoly regulation, money and price, we come to the most important one---state participation in distribution of the national income and credit resources.

One of the main points of discussion in the theory and practice of state-monopoly regulation is which means should be applied first---fiscal or monetary---and how they should be combined; under what circumstances each of the levers should be applied, and when both at once. The American economist Frank Zahn defines the situation as follows: "The extreme fiscalist position can be summarized by 'money doesn't matter' (or 'only fiscal policy matters') as an effective means of demand management. The extreme monetarist position can be summarized by 'only money matters' (or 'fiscal policy doesn't matter') as an effective means of demand management." *

In bourgeois economics textbooks, both forms of state economic policy -fiscal and monetary-- are often lumped together. In reality, however,

~^^26^^ J. M. Keynes, The General Theory of Employment, Interest and Money, Macmillan and Co. Ltd., London, 1936, p. 264.

~^^27^^ L. Stoleru, L'Equilibre et la Croissance Economiques. Principes de MacroSconomie, Dunod, Paris, 1967, p. 473.

~^^28^^ EypfljKajioB O. 9. TBM ate cip. 5.

~^^29^^ L. Stoleru, Op. cit., pp. 477-478.

20-01768

there is a tremendous difference between them: fiscal policy is concerned with redistribution of the national income, enforced acquisition by the government of part of value from its initial owners and its use for ends defined by the government. Meanwhile, monetary policy is primarily credit policy. With its help (by regulating interest rates), the government influences the price of liquidity and, within limits, the mass of credit resources and the purposes for which they are used. The public debt should be viewed in this context as an intermediate means between fiscal and monetary policies---it means only a temporary acquisition of part of value and its use for the goals necessary to the government with the debt later being paid oft (together with interest, of course).

In this case, the government does not remove part of value from its original owners and does not "produce money". Instead, by exerting a centralised influence on interest rates, it affects the intensity with which value moves from some spheres of the economy into others.

As already noted, in practice, state-monopoly regulation is pragmatic in character, bourgeois states applying different methods, depending on the actual situation.

In theoretical models, all means by which the state participates are considered according to the principle of "highest multiplier and accelerator effects", which means a maximum freedom of capital turnover on the macroeconomic plane. This means that government incomes, financial and credit resources must be drawn from the most ``inert'' sources, those that, if they remained in the hands of their former owners, would either not be spent at all on investment or consumption, or would be spent with an insignifi-

6ant multiplier and accelerator effect (for example, on the consumption of goods that have already been produced and are stored, awaiting consumption; on investment in industries where there is idle capacity and, consequently, investment hardly acts as an incentive to new construction, and so on). On the other hand, government funds must be channelled into those industries where the effect of the Accelerator and Multiplier is higher---on such forms of wage, pension and other income as are either spent in their entirety immediately or, if part of them is saved, are rapidly put into investment---in the industry with the highest multiplier effect ( primarily connected with new construction). In modern bourgeois economics, all such dependencies have been elaborated in detail by suitable mathematical means.

In practice, the application of the acceleration principle and multiplier effect is inseparable from social and political factors. In state economic policy, the account taken of the multiplier and accelerator effects depends mainly on which part of the national income or the national wealth is affected by state participation. As far as public finances are concerned, the first and the main limiting magnitude is indubitably government revenues: after all, the main source of revenue at all times, in all capitalist countries, has always been direct and indirect taxation.

Table 11 gives figures for 1977, but since the respective shares are distinguished by relatively small mobility, they give a picture accurate for at least the entire previous decade.

Below we shall consider the features of the tax system in more detail, but shall mention at this point that there are limits to raising taxes: in relation to earned income tax (direct and in-

20*

Tablejll

THE SHARE OF GOVERNMENT AND LOCAL TAXES IN THE NATIONAL INCOME (1977, %)

of government policy, especially during wars and war preparations. In the 20th century, most of the public debt has been distributed on a semi-compulsory and often compulsory basis, irrespective of the process of reproduction. By imposing securities on central banks or other credit institutions, the state gets hold of bank-notes not backed up by a rise in the mass of goods and services, and puts them into circulation. In addition, the government securities themselves act as a means of circulation, thus the increase in the public debt becomes one of the reasons for inflation. Because of this, since World War II there has been strong opposition to using the public debt as a source of government revenues.

The chief indicator of the economic role played by the public debt is its ratio to the GNP (see Table 12). As the data show, for all the considerable differences between countries, in the USA, Britain and France there has been a tendency for the share of the public debt in relation to the GNP to fall. In these countries, although deficit financing (i.e., increasing government incomes by borrowing) has indeed played a fundamental role in individual periods, it, has been intermixed with government purchases of its own securities and so, in the long term, has not been of any major significance as a means for distributing the national income.

Whereas there are upper limits to government revenues, in relation to non-investment government expenditures it is the lower limits that are most important, these being determined primarily by the fact that the chief function of public finances is to maintain the state apparatus, including the armed forces. Also of major importance is the increase in the role of the state in the education and social insurance systems.

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-= cc^3 R tXJ o-*-»-^I

t/3 OJ -H .S fli

°C^C« 0 S" Q)

SiS«8 gfcl^g

USA

16.5

12.2

28.6

99.1

Japan

11.7

6.6

18.3

67.0

Britain

32.6

4.7

37.3

88.3

FRG

26.3

4.3

30.6

80.2

France

27.1

3.5

30.6

91.4

Italy

23.0

------

-----

70.2

Source: Kokusai hikaku tohei, Tokyo, 1978, p. 71.

direct) these limits are set by the value of labour and the resistance put up by the working classes, while in relation to profit---by the social nature of the bourgeois state, which exists for the very purpose of leaving the greater part of profits in the hands of private owners.

Another ancient method of state policy in the credit sphere is the public debt. "The public debt," wrote Marx, "becomes one of the most powerful levers of primitive accumulation. As with the stroke of an enchanter's wand, it endows barren money with the power of breeding and thus turns it into capital, without the necessity of its exposing itself to the troubles and risks inseparable from its employment in industry or even in usury.''~^^2^^ At different stages in the history of capitalism, the public debt has played a varying role: in the 19th century, its relative size and significance in the economy decreased, while in the period of imperialism, it again became a very powerful instrument for the implementation

S£ Table 12

o

RATIO,OF THE PUBLIC DEBT TO THE GHP (%)

USA

Japan

Britain

FRG

France

Italy

-- a »

M^P ^

aci 2

ijji 5

hfA CO

ic Ji 2

Year

cd

= o c

0 .0

's

go|

cti

cog

§°S

ctf

2°-2

OJ

II

0 a> ttf

C -tJ---• .rt 1---<

ga

o3

O o3 feO

ga

oS

• S«

O OJ tlD

c ^.p-v

gs

0 g

• " «

o QJ be S*^

|a

oS

oil •ST---

§B

OM

O OJ tifl

46.9

38.1

5.6

3.1

87.6

67.4

7.2

6.0

17.3

4.7

19.0

6.3

41.4

32.7

9.4

6.1

79.3

59.8

8.8

6.6

15.5

3.2

16.0

8.3

39.4

30.7

9.2

6.0

72.5

56.7

7.5

6.6

13.9

2.6

16.1

9.1

39.6

30.7

8.8

6.0

65.1

53.5

6.9

6.2

12.2

2.1

15.9

8.2

39.9

30.7

9.6

6.9

62.7

52.3

6.4

5.8

10.7

1.8

17.9

9.0

38.4

29.5

12.9

8.4

58.2

49.8

6.6

6.3

8.6

1.5

20.1

8.5

36.0

27.7

11.8

8.4

55.1

44.2

6.6

6.1

7.5

2.6

22.8

7.0

35.0

26.5

11.9

8.9

55.7

42.6

7.2

6.6

7.2

3.3

29.9

7.6

38.0

27.6

15.7

12.8

54.3

39.5

10.4

9.2

9.0

2.5

33.9

9.2

38.3

28.7

19.9

16.8

51.6

38.1

11.4

10.5

8.3

1.8

36.6

8.2

38.0

29.5

23.3

17.1

12.6

11.8

Source: Kokusai hikahu tokei, Tokyo, 1971, p. 75: 1976, p. 69; 1977, p. 71; 1978, p. 73.

As far as state investment is concerned, as we have seen, it is mainly directed into loss or low profit industries. Yet there are also limits to the amount of state investment that can be made in individual industry. These limits are set by the fact that industries bringing in average profits or superprofits are in the hands of private capital. The progressive American economist James O'Connor writes that state finance "is not as politically `neutral' an approach as would appear at first glance. It places the burden of promoting economic growth on the state, which, however, is forbidden to acquire and reproduce productive assets.

``The State economic policy is necessarily directed toward promoting private capital accumulation and hence raising the profit share of national income. . . It is readily understandable why the 'growth school' of public finance is so popular among bourgeois economists".~^^3^^

What, then, is the role of the state in the expenditure of the final social product?^^4^^ Before answering, let us first look at how the structure of the expenditure of the final social product looks in general (see Table 13).

In this table, we are interested mainly in the item "Public consumption expenditure", i.e., government expenditures of a non-investment character. Table 14 shows that the share of public non-investment expenditure reveals, for different countries, either a high degree of stability or a tendency to grow slowly. The comparative stability of the share of taxes and public consumption expenditures is an important feature for characterising the entire system of state regulation. On the one hand, as already noted, these expenditures provide the basis for state participation in the economy. On the other hand, in view of

Table 13

STRUCTURE OF EXPENDITURE OF THE FINAL PRODUCT (1977, %)

their low mobility, they cannot play the decisive role in the state's impact on the market situation. Moreover, during crises and depressions, i.e., when the government is in particular need of financial resources for conducting its anti-- crisis policy, the absolute size and share of taxes actualy falls. The reasons are, first, a drop in the mass of incomes subject to tax; second, the predominance usual in state policy of the opinion that, during crises, a reduction rather than an increase in profit tax is required in order to restore private investment, and that the government, in such cases, must make use of the credit resources mentioned below.

Now let us take a look at the state's share in investment outlays. In relation to the GNP, this share varies from 3.2 to 9.0 per cent between countries. Of more importance is the share of the state in the overall volume of gross investment (see Table 15).

Although there are considerable differences between countries and individual periods, it is obvious that government capital investment has become one of the foundations of the reproduction process and that, even given possible and probable fluctuations, it will retain this role in the future.

Following the method adopted in this work, we shall attempt to at least partially touch on the question of physical indicators, without confining ourselves to overall national value ones. We shall try to show how the fact that, in the USA, the state share is over a fifth of the final social product affects the position in individual industries and what the share of state purchases is in its total volume.

In the early 1970s, the share of purchases made by the Federal Government in the realisa-

Expenditure item

USA

Japan

Britain

FRG

France*

Italy

Personal consumption

64.1 56.6 59.5 55.7 62.0 64.1

Public consumption expenditure

20.9 11.0 20.8 20.1 14.7 13.8

Formation of fixed capital 14.6 28.9 17.9 20.8 23.0 19.8

Inc. share of public investment

---

9.1 6.7 3.3 3.6 3.5

Increase in reserves

1.0 1.9 0.9 1.1 1.1 1.4

Difference between exports and imports---0.6 1.6 0.8 2.3---0.8 1.0

* 1976.

Calculated from: Kohusai hikahu tohei, Tokyo, 1978, pp. 25-28, 35-38.

Table 14

SHARE OF PUBLIC CONSUMPTION IN EXPENDITURE OF THE FINAL SOCIAL PRODUCT (%)

Year

USA

Japan

Britain

FRG

France

Italy

20.9

8.6

17.0

14.8

13.0

12.3

22.6

8.6

17.9

16.4

12.3

13.4

21.6

9.0

18.6

17.7

12.3

14.5

20.7

9.1

18.3

18.2

12.2

14.0

21.4

10.0

20.3

19.9

12.4

13.9

22.1

11.2

?22.1

21.5

14.4

13.6

21.6

11.0

21.6

20.7

14.7

13.7

20.9

11.0

20.8

20.1

...

13.8

Source: Kohusai hihahu tohei, Tokyo, 1977, pp, 24-26; 1978, pp. 28, 28.

S2 Table IS

*•

SHARE OF THE STATE IN GROSS INVESTMENT (USA, JAPAN AND THE FRG)

Indicators 1960 1965 1970 1971

1972 1973 1974 1975 1976

USA

A. All investment in fixed capital, th. million dollars 85.9 119.8 166.6 185.1

209.8 236.0 250.0 246.3 ...

B. Inc. government 13.5 21.8 34.9 36.7

37.9 40.7 54.7 48.0 ...

B:A in % 15.7 18.2 20.9 19.8

18.1 17.3 19.3 19.5 ...

JAPAN

A. All investment, trillion yen 5.4 9.8 24.8 27.2

31.3 40.7 45.5 44.7 49.3

B. Inc. government 1.9 2.9 5.8 7.3 B:A in % 34.4 29.4 23.4 26.9 Share of government investment in equipment in the overall volume of investment in it, % 13.9 18.3 12.8 14.9

8.8 10.2 11.9 13.8 15.0 28.3 25.0 26.2 30.8 30.5

16.5 14.5 14.9 18.6 ...

Table 15 (continued)

Indicators

FRG

A. All investment, million marks

B. Inc. government

72.7 122.2 180.0 203.1 217.4 228.6 223.0 221.1 237.0

9.5 20.2 29.1 31.3 31.0 32.8 39.4 41.3 39.7

13.1 16.5 16.2 15.4 14.3 14.3 17.6 18.8 16.8

Share of government investment in equipment in the overall volume of investment in it, %

3.7 4.2 3.4 2.76 2.65 2.84 3.8

Share of government investment in construction in the overall volume of investment in it, %

20.7

25.7 26.8 38.3 33.4 32.9 39.4

Sources' Mupoean SKOHOMUKI u MexcdyHapodtitte omnoiiisHU.1, No. 12, 1971; Yearbook of National Accounts Statistics 1975, Vol. 11, New York, 1976, p. 812; Kokusai hikaku. tokei, Tokyo, 1969, p. 32; Survey of Current Business, No. 7, 1976, p. 24.

tion of US industrial output was (as % of annual production): about 100 in arms; 86.7 in the aerospace industry; 40.7 in the production of radio equipment and means of communications; 39.1 in that of engines and turbines; 38.9 in computers; 35.6 in non-ferrous metal ores; 30.2 in scientific, controlling and measuring instruments; 27.1 in building equipment; 22.3 in nonferrous metals; 20.9 in transport engineering (apart from cars and aircraft); 20.6 in metal processing equipment; 15.2 in special engineering and 6.2 in new construction. To this must be added the share of purchases by state authorities in the realisation of industrial output and services in the USA (as % of annual production): new construction---23.0; repair work---21.9; building materials---17.5; building equipment--- 15.6; paints and varnishes industry---15.0; furniture manufacturing---12.6; lighting equipment---11.7; production of hoisting and transport equipment---11.6.

A comparison of these data with the shares of the respective industries in the economy prompts the conclusion that the state's true role in the reproduction process is greater than indicated by average data on the part it plays in the expenditure of the final social product. Given the overall interconnection between the industries of the economy, a blow to those in which the state accounts for a large share of purchases would mean, until the state was replaced by the private sector, a major blow to the economy as a whole. This is why the reconversion process observed since the last war, i.e., a transition from government military orders to peacetime ones, was accompanied by a temporary substantial drop in the volume of production.

This is also why the "institutional approach"

which so rapidly gained currency in bourgeois economic theory and assumed such a major place in it (see Chapter 1) is also reflected to some extent in the practice of state fiscal policy. The changes that took place in the 70s proceeded from legislative establishment of the overall size of state revenues and outlays, with aggregate groupings, to the fixing of a detailed structure of expenditures under parliamentary control.

The content of state financial policy is determined not only by the state's share in the national income, but also by the form in which this share is received and from whom. We have already noted that the main source of state revenues is taxes. In whatever form and no matter from whom taxes are directly exacted, they constitute the part of surplus-value that is concentrated in the hands of the bourgeois state. Yet their specific form is far from being of no significance, from either the social or the economic angle, whether direct or indirect taxes are concerned, taxes on juridical persons (above all corporations) or individuals, and whether they are based on gross turnover or newly produced value, etc. (Table 16).

The general features concealed behind tremendous national differences in the correlation between the various types of tax and in tax rates are as follows. Indirect taxes (sales taxes, excise taxes, etc.) are one means by which the state participates in raising prices.^^5^^ In as far as they are levied on mass consumer goods and services (such as tobacco, alcohol, petrol, restaurant service, theatre tickets, etc.) and not on necessities, they limit the availability of such goods and services mainly for low and average income groups. A quite considerable share belongs to income tax, levied on wages and salaries paid ac-

Table 16

THE SHARE OP TAX REVENUES OF VARIOUS TYPES IN THE SUM OF TAXES* (1972, %)

tern of tax exemptions that open up very broad opportunities for all sorts of tax avoidance. According to data for the USA, if the sum of individual incomes subject to tax in 1970 is taken as 100, in fact only 59.2 per cent were taxed. For Japan, the corresponding figure is a mere 32.7 per cent.^G There are hundreds of ways of getting round paying taxes, the most widespread being a fictitious division of incomes--- operations that are virtually beyond control. Characteristically, in the overall sum of taxes, those on property hold a very minor place, the largest part of these being on land.

Although corporation tax is quite a small part of total taxes (apart from in Japan, where it constitutes 24 per cent of the total), it plays a very important role in state economic regulation. Profit tax rates are between 25 and 40 per cent, with only minimal differentiation according to the size of the profits. Yet it is corporation tax that allows the greatest privileges and exemptions, the most widespread form of these being exemptions connected with privileged conditions for depreciation charges.^^7^^ Moreover, there are privileges independent of depreciation charges: on scientific research, the development of minerals, funds for philanthropic purposes, and many more. The aim of all these is to encourage particular forms of investment. Also of importance is the fact that taxes are not levied on loans received through the banking and credit network or on the interest paid on them. This means that the use of loan capital has certain advantages in relation to taxation compared with the use of capital received from the sale of shares.

It would be natural to presume that, if there is a system of tax privileges for encouraging

Subject of taxation

USA

Japan

Britain

France

FRG

Italy

Incomes

individual

corporate Wages and sala-

ries by pay-

roll

Sales of goods

and servi-

ces**

Property

Inheritances

and gifts

***

***

* Including overall and local taxes.

** Including sales taxes, VAT, customs duties, taxes on the transfer of various types of property and on various types of transaction.

*** Less than 0.5%.

Source: Asia's New Giant. How the Japanese Economy Works. p. 319.

cording to payrolls. These are direct taxes imposed on the vast majority of factory and office workers, and they constitute from 5 to 20 per cent of the sums taxed. This is the most stable part of tax revenue in the sense that it is comparatively little dependent on fluctuations of the market and is most amenable to control by the tax offices.

The part belonging to the category of individual incomes is very complex. It includes both the incomes of small property owners in town and village, and those of share-holders, including multimillionaires. According to the tax laws, the rates of this part are extremely differentiated but, alongside this, there exists a sys-

particular types of activity, there must also be a system allowing taxes to be used to prohibit or limit certain activities, i.e., higher taxes than usual. Yet no such system exists. From time to time, proposals are put forward (for instance, for levying higher taxes on firms located in zones of superhigh regional concentration, in order to reduce sucli concentration), hut they are never passed.

At the same time, tax privileges are broadly used by the bourgeoisie as a means of tax avoidance. There are several other means, among which, since the last war, so-called "tax oasis" or "tax havens" have become widespread. These are countries which have turned low taxes into big business. They include Puerto Rico, Venezuela, Brazil, Lichtenstein, Bermuda, the Bahamas, Jamaica, Liberia and Costa Rica. "In these countries," writes the Soviet researcher G. P. Solyus, "the American corporations have set up independent holding companies with subsidiaries in other countries. As a result of such machinations, instead of paying 52 per cent of profits in corporation tax, the companies get by with paying only 12 per cent. For tax reasons, a considerable part of the US merchant fleet sails under the Liberian flag of convenience.''^^8^^

The ``subpackage'' considered in this section---public finance, fiscal means for redistributing the national income, based primarily on taxes---constitutes, in the long term, the basis of the entire system of state-monopoly regulation. Its weakness, however, lies in its poor ability to adapt, in the way it reveals its shortcomings as a policy for regulating the market situation: as a rule, the sum of tax revenues drops during crises and depressions, i.e., precisely when the state is in particular need of

funds for finding a way out of the crisis. The greater the disproprtionality of economic growth, the more manifest become the weaknesses of the state fiscal policy.^^9^^

2. State Regulation of Credit

The main objection put up by supporters of the credit and monetarist conception against fiscal means is that they lack the necessary adaptability to changing conditions of reproduction. The socio-political sense of this objection is to prevent a rise in taxes, especially on profits. On the purely economic plane, it rests on the fact that fiscal means provide tbe state with 20 to 40 per cent of the national income. This is considerably less than the volume of credit resources reflecting the entire national wealth. According to data for the end of 1974, the total volume of the financial assets and liabilities of all enterprises, establishments and private persons in Japan stood at 483 trillion yen,^^10^^ which is roughly equal to the entire national wealth at the time.^li The same year, the GNP was 132 trillion yen.^iz Such a correlation is more or less typical of all countries of monopoly capitalism.

This means, in fact, that all parts of the national wealth, from land to domestic property, are reflected in insurance policies, mortgages and various other credit documents which, all together, represent an accumulated value considerably greater in magnitude than the national income. The possibility for the state to make use of this mass of fictitious capital, which is constantly in movement, for exerting an impact on the reproduction process depends, however, primarily on where it is located. Data on this are given in Table 17.

21-01768

Table 17

DISTRIBUTION OF FINANCIAL ASSETS IN JAPAN AS OF MARCH 31, 1977

lie debt, the excess of budget revenues over outlays) occupies a subordinate position.

The central link in the network of credit institutions belongs everywhere to the private /norchant banks which, either directly or indirectly (through other credit institutions), absorb various free funds arising in the reproduction process, from personal savings to depreciation charges. Hence the extremely important role of the banks in the system of monopoly capitalism, about which Lenin wrote in Imperialism, the Highest Stage of Capitalism: "As banking develops and becomes concentrated in a small number of establishments, the banks grow from modest middlemen into powerful monopolies having at their command almost the whole of the money capital of all the capitalists and small businessmen and also the larger part of the means of production and sources of raw materials in any one country and in a number of countries. This transformation of numerous modest middlemen into a handful of monopolists is one of the fundamental processes in the growth of capitalism into capitalist imperial-

Trillion yen

%

Total

712.9

100.0

Including:

Private enterprises and individuals

632.5

88.7 Merchant banks and other

private financial institutions 237.1

33.2

Non-financial corporations

195.0

27.3

Individuals

201.4

28.2

The state

80.4

11.3 Bank of Japan

15.8

2.2 Public finance agencies

59.3

8.3 Public corporations and local authorities

5.3

0.8

Calculated from: Keizai tokei nempo J977, Tokyo, 1978, pp. 23-24.

The distribution of financial assets between various owners reflects the distribution of the national wealth considered above.

As in the entire volume of earning assets, the state accounts for only a small share in the overall mass of financial assets. The total forms on the basis of the annual savings structure, in which the lion's share belongs to private capital (the profits put aside by private corporations, depreciation charges and personal savings) in all countries of monopoly capital, while the state (the profits of public corporations and financial institutions, the increment in the pub-

ism.

~^^1^^ 13

We have already seen how great the role of external financing is in the USA. In Japan, according to 1973 data, the total sum of financing of all firms in all industries was about 33.3 trillion yen. Of these, about 13 trillion were the firms' own means, and 20.3 trillion---those received from foreign sources. Of this last sum, only 1.8 trillion were obtained through the sale of shares and securities, while the rest (18.8 trillion) came in the form of credit from financial institutions, including about 17 trillion from private ones and only 1.6 trillion from state ones.^^14^^ These data for Japan are more or less

21*

typical of all countries, and it follows that actual financial means of state influence on the credit system are important, but still not great in total.

Hence the considerable role played by non-- financial administrative means of state control in the credit sphere. These can be divided into two groups: the first concerns the structure of credit institutions, the second---the nature of their operations.

The private property nature of credit under the conditions of growing concentration has greatly exacerbated the problem of liquidity. Liquidity is the ease with which a bank or any other credit institution can turn its assets into cash. If the bank cannot satisfy the demands of its depositors in accordance with the deposit conditions, it reveals its insolvency and has to declare itself bankrupt.

The history of credit business is littered with bankruptcies, the number of which always increases sharply during crises. In the past, however, when there were hundreds or even thousands of banks in every country, each of these operating predominantly on the local capital market, the collapse of one bank or another was only of local significance. Things changed completely, however, once the concentration of banks reached the monopoly level, when banking "Big Fives", "Big Sixes", etc., arose everywhere. Moreover, each of the major banks is connected with dozens of big corporations in all spheres of the economy both within the country and beyond. Under such conditions, the collapse of a major bank may act as a spark setting off a chain reaction of economic crisis and mass bankruptcies. The initial reason for economic crises lies, of course, not in the credit

sphere at all, but the particular instability of this sphere, the difficult state of affairs brought about by speculation, the financing of inflated fictitious firms and the like make crises more serious and protracted. This was manifested especially clearly during the Great Depression of 1929-1933, when the wave of bankruptcies embraced such major banks as the Banque Nationale de Credit, Banque d'Alsace et de Lorraine, and the Banque Syndicale de Paris in France, Kredit Anstalt in Austria and Danat Bank in Germany. In the USA in 1933, a bank catastrophe that had been building up since the beginning of the crisis was finally precipitated when the government announced a bank moratorium and hundreds of banks were closed--- either temporarily or permanently.

In the hands of private capital, the credit sphere turned out to be one of the weakest links in reproduction, and so drew the particular attention of the government. The 1929-1933 crisis either brought into being or accelerated the following major changes in the structure of credit institutions.

First of all there was the institutional division between long-term and commercial crediting. In virtually all countries, state banks were set up to provide long-term credit, especially in foreign trade (export-import banks in the USA and Japan; in France, the Banque Francaise pour le Commerce Exterieur, and so on). In some cases, such banks (like the Bank of Development in Japan) finance long-term investment in export industries. The banks for external settlements (or currency departments of other banks), irrespective of llieir official status (i.e., when they are considered to be private), operate under the supervision or control of

central banks or corresponding ministries (of finances, foreign trade, foreign affairs). The same applies to certain other banks carrying out long-term operations (the Industrial Bank in Japan, Credit foncier---the chief French loan bank, five so-called public law banks in Italy, etc.).

Of considerably more importance, however, is the fact that the government demanded of all private credit establishments an institutional division between long-term and commercial crediting, and a formal separation of deposit and loan operations from emission and investment ones. Under current laws, long-term crediting must not be carried out on the basis of the bank's short-term liabilities (especially demand deposits), in order that the bank might, in case of a ``rush'' by depositors, rapidly demand and receive cash from its debtors (this is only possible if the corresponding bank assets consist of short-term or other rapidly realisable, liquid liabilities).

Banking legislation changed everywhere in such a way as to make liquidity less the private affair of the individual bank. The laws adopted after the 1929-1933 crisis demand that merchant banks separate their investment operations (above all long-term crediting) from current ones for commercial crediting. This policy is pursued not only organisationally---the division of functions of short- and long-term crediting between different departments of banks---but primarily by control being exercised over the liabilities of the various departments. Whereas short-term credit can be extended from demand deposits, medium- and long-term credit requires the backing of deposits made for a specific, more or less lengthy period.

When the various laws (such as the GlassSteagall Act of 1932) proved inadequate, in 1960 in the USA the Law of Banking Mergers was passed, under which any such mergers, and especially takeovers of them by holding companies, must first be approved by the Federal Reserve System. In 1975, 150 banks, including such major ones as First National City and Chase Manhattan, were put under the special supervision of the state controller of monetary circulation, who watches over the movements in bank liquidity and the level of their indebtedness. The list of the state federal corporation for insurance deposits numbered 986 banks in financial difficulties in 1976.

Lenin stressed the sharply growing role of the banks and the way they were gradually ousting the stock exchange and taking its place. "The change from the old type of capitalism," he wrote, "in which free competition predominated, to the new capitalism, in which monopoly reigns, is expressed, among other things, by a decline in the importance of the Stock Exchange." He later quoted the following: " 'Every bank is a Stock Exchange', and the bigger the bank, and the more successful the concentration of banking, the truer does this modern aphorism ring . .. 'The domination of our big banks over the Stock Exchange ... is nothing else than the expression of the completely organised German industrial state. If the domain of the automatically functioning economic laws is thus restricted, and if the domain of conscious regulation by the banks is considerably enlarged, the national economic responsibility of a few guiding heads is immensely increased,' so writes the German Professor Schulze-- Gaevernitz, an apologist of German imperialism, who

Table 18

ASSETS OF THE MAIN GROUPS OF

________ „. ---- ^ ^i ^r>jauii AINU F1INANCE INSTITUTIONS OF THE USA

16 Type of credit

60 1900

I960

and finance th. institution naillion $

% of "V ">*«! lfon$

% of total

th. -3 million $

% of total

th. -3 million $

% of total

th. -3 million $

% of total

th. -3 million $

% of total

Federal reserve

banks---

Merchant banks 0.80 Branches of for-

71.4 10.0

53.5

5.5 66.2

3.4 41.4

50.0 155.5

11.4 35.5

53.0 257.6

5.6 27.5

97.5 739.0

4.0 30.2

eign banks---

Bank trust

-----

-----

1.6

0.4

3.6

0.4

22.5

0.9

funds and

trust compa-

nies--- Mutual savings

---3.0

16.0

30.2

18.9

62.8

14.3

158.4

16.9

337.7

13.8

banks 0.20 Loan and sav-

17.9 2.4

12.8

9.9

6.2

20.7

4.7

40.6

4.3

100.6

4.1

ings asso-

ciations--- Credit unions---

- 0.5

2.7

7.4

4.6

13.1

3.0

71.5

7.6

243.1

9 9

Finance com-

~

-----

0.7

0.2

5.1

0.5

21.7

0.'9

panies---

------

---

2.5

1.6

5.7

1.3

27.5

2.9

78.0

3.2

Table 18 (continued)

Type of credit and finance institution

th. -3 million $

% of total

th. -3 million $

% of total

th. -3 million $

% of total

th. -3 million $

% of total

th. -3 million $

% of total

th. -3 million $

% of total

Investment companies

------3.0 1.9 3.6 0.8 24.0 2.6 59.8 2.4

Investment banks, broker and dealer firms for operations with securities

0.6 3.2 10.0 6.3 2.9 0.7 7.4 0.8 26.1 1.1

Life insurance companies

0.02 1.8 1.7 9.1 17.5 10.9 56.0 12.8 119.9 12.8 239.7 9.S

Property insurance companies

0.10 8.9 0.5 2.7 5.5 3.4 12.2 2.8 32.2 3.4 64.6 2.6

Table (continued)

Type of credit and finance institution

th. -3 million $

% of total

th. -3 million $

% of total

th. -3 million $

% of total

th. -3 million $

% of total

th. -3 million $

% of total

th. -3 million $

% of total

Private pension funds

State credit institutions and agencies

Federal social insurance funds

Pension funds of states and local authorities

------------0.5 0.3 4.6 1.0 36.9 3.9 152.3 6.2

0.4 0.2 12.5 2.8 31.1 3.3 120.9 4.9

1.0 0.6 32.6 7.4 49.6 5.3 76.2 3.1

------------0.5 0.3 4.3 0.9 20.9 2.2 71.8 2.9

Total

1.12 100.0 18.7 100.0 160.1 100.0 [438.8 100.0 939.3 100.0 2,451.5 100.0

is regarded as an authority by the imperialists of all countries, and who tries to gloss over the 'mere detail' that the 'conscious regulation' of economic life by the banks consists in the fleecing of the public by a handful of 'completely organised' monopolists." ^K

Major shifts have taken place in the structure of credit institutions since these words were written, their essence being a decrease in the role of the merchant banks and a simultaneous rise in that of other credit institutions. A clear idea of this with respect to the USA is given by Table 18.

There can be no doubt that such changes, which are actively furthered by the state, have somewhat increased the stability of the credit system. In essence, credit institutions backed up by deposits that are more or less long-term in nature and in relation to which there is no great risk of them suddenly being withdrawn on a mass scale (investment banks and companies, life and property insurance companies, pension funds, and others) have come to play a greater role in long- and medium-term crediting.

Yet the merchant banks, the financial backbone of the monopolies, are still the chief and decisive link in the entire crediting system--- including in the sphere of medium-term and, to a considerable extent, even in long-term crediting.

In spite of substantial national differences, the data for Japan are more or less characteristic of all countries (Table 19). These data are indicative in two respects. First, it is obvious that, overall, special long-term credit banks account for only 16.1 per cent of the total credits; second, in the sphere of long-term crediting, these banks account for a much smaller share

Table 19

JAPAN. DIFFERENCES IN THE SUMS AND PERIODS OF CREDIT IN CREDIT INSTITUTIONS OP DIFFERENT TYPES AS OF THE END OF 1977 (%)

In general, the institutional changes introduced since the 1929-1933 crisis have increased the stability of the credit and banking system, and have heightened the level of liquidity of the merchant banks. Yet such measures have not eliminated the threat of bankruptcy. This can be judged from the actual state of affairs. Although, since the Second World War, there have been no bank collapses on the scale of those of the inter-war period, in a number of instances bankruptcy was averted in a very original way: if a bank found itself close to bankruptcy, the government brought pressure to bear to bring about bank mergers, i.e., the threatened bank was taken over by another, solvent one. Only mergers implemented with the participation of the FRS made it possible to avoid, in 1974, the collapse of the Franklin National Bank, the twentieth biggest in the USA in the size of its deposits. Only government intervention saved the following from bankruptcy: Lloyds Bank---one of the Big Four in Britain; the Yamaichi---one of the major ``city'' banks in Japan; the Banque de Bruxelles, the second biggest in Belgium, which had to merge with the Banque Lambert. Yet even today's greatly increased government intervention does not always help: in the FRG in 1974, the J. D. Hurshtatt bank, which had a substantial capital, went bankrupt, as did the US National Bank of San Diego and the Bank of Commonwealth (Detroit), both large banks on the state level. In Italy in August 1974, as a result of a merger of two Milan banks, a new bank was created---the BPI (Banco private italiano) with a capital of 18,000 million lire and deposits of over 1,000 thousand million lire. Only a few weeks later, the BPI went bankrupt. It is char-

•3 c

2 1

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- ---------------------------- , ----------- Time period

^••^•^^i^ +J

0 *

*«.fl ^c

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Is

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e P

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All banks 107,729 100.0 12.8 19.43 28.5 38.1 1.3 "City"

banks* j.58,418 54.2 16.0 22.2 31.5 28.6 1.8 Local

banks*

31,944 29.7 11.9 19.8 32.9 34.3 1.0

Trust banks 3,978 3.7 9.3 22.6 30.7 36.8 0.5 Long-term

credit

banks

13,388 12.4 2.0 5.0 4.4 88.6 0.0

* ``City'' banks - the thirteen larcest private merchant banks; local banks---63 smaller private merchant banks (mostly on the scale of the prefecture). Source: Keizai tokei nempo 1977, Tokyo, 1978, pp. 114-116.

than do merchant banks. In absolute terms, the sum of loans granted for periods of over one year in 1977 was 27.7 trillion yen for merchant banks (``city'' and local), and 13.3 trillion for special long-term credit banks.

In the 60s and 70s, as crises developed, the long-term credit banks, with their special government backing, became increasingly responsible for financing unprofitable or low profit enterprises. First, however, the resources of these banks are inadequate to meet the growing demand for them and, second, ultimately a large share of the credit goes not to economic bottlenecks, but for financing long-term investment by private corporations.

acteristic that the losses from the collapse of the BPI, which amounted to almost 200,000 million lire, were assumed by a consortium of three state banks---the Banco di Roma, Gredito Italiano and Banco Commerciale Italiano, which were financed specially for this purpose by the Banco d'ltalia, the country's central bank. In 1977, only as a result of state intervention, was one of the three biggest Swiss banks, the Schweizerische Kreditanstalt, which had become enmeshed in financial speculation, escaped bankruptcy. Given the enormous and constantly growing role of credit, as described above, and its high degree of concentration in private banks, the government cannot confine itself to merely influencing the structure of the system; it also has to intervene in the functional side---directly in banking operations. The techniques of banking operations that have been created over centuries are very complex. Suffice it to say that the material in the national yearbooks published by the banks includes the dynamics of 120-150 per cent interest rates which differ greatly, depending on their period and magnitude, the nature of the deposits or loans, and also on the type of credit institution.

The tremendous differences in rates show that, behind the overall ratio of demand to supply for credit there lie enormous differences in the demand and supply for individual types, and credit which, in the politico-economic sense, is taken as an integral concept, is, in reality, a trade in credit resources of totally different origins, nature and purpose.

Under modern conditions, however, all these differences, like all credit and banking enterprise, are permeated through and through by monopolistic practices, constant and extreme

discrimination. Even the merchant banks only accept deposits from ``serious'' clients, while small-scale depositors have to make use of the state post office and savings network and other credit institutions that pay lower interest rates. As for loans, the discrimination here is particularly great: the merging of bank and industrial capital is manifested in the way credit is extended mainly to big corporations connected with the given bank, holding current accounts in it and sometimes a block of its shares. Credit policy, Galbraith writes, "works by reducing or increasing, directly or indirectly, the amount of money available for lending. Those who least need to borrow and those who are most favored as borrowers are in the planning system. Those who most rely on borrowed funds or are least favored at the banks are in the market system. The planning system is the most highly developed part of the economy, the market system the least developed. Monetary policy thus favors the strongest and most developed part of the economy, discriminates against the weakest and least developed part.''~^^16^^

The situation with the loan operations of banks is somewhat different. The constraint here is the loan interest, and one of the chief factors strengthening state intervention in the credit sphere is the state's concern with fixing the bank rate. The degree to which it is involved in this and the forms its participation takes differ greatly between countries, periods and the various types of loan operation. One common feature, however, is that, irrespective of legislation, changes in interest rates take place with the constant participation of central banks, which are always in contact with all government bodies dealing with the economy. Depend-

ing on the market situation, government bodies make recommendations for higher or lower bank rates and, for the main mass of operations, these recommendations are virtually obligatory. (Let us note that, when such recommendations are followed, this also affects the deposit situation: after all, when the bank rate falls, banks themselves have to lower their interest rates on deposits---otherwise new or even old deposits might prove unprofitable.)

In the ``subpackage'' of state measures of credit and monetary policy a certain role belongs, also, to such as the regulation of bank reserves and open market operations. Obligatory reserve norms vary depending on the category of the bank and the nature of its operations. In the USA, for instance, for 12 reserve banks in the FRS, the legal reserve level is between 10 and 22 per cent of the sum of demand deposits and from 3 to 10 per cent of time [savings] deposits. For all other banks, the FRS reserve norms are lower.~^^17^^ The range of the required levels plays a very important part in state credit policy: depending on the market situation, ministries of finance and central banks will raise or lower them, thus influencing the volume of bank operations and their structure.

We have seen that, in the USA, Britain and France, there has been no rise in the share of the public debt in relation to the GNP (see Table 12) and, in this sense, in these countries, the public debt during the 60s and 70s cannot be regarded as having been a strategic means of government economic policy. This does not, however, apply to Japan and Italy, nor (though to a lesser extent) to the FRG, where there has been a tendency for the share and significance of the public debt to rise. Moreover, given the

constant or falling share in the GNP, the total size of the state share is rising everywhere and is very great.^1S Third, as in the past, a large part of state securities are held by state or semi-state credit institutions. According to data for the end of 1974, in the USA private corporations and persons held 32.5 per cent of all state securities (moreover, 16.3 per cent were held by the twelve reserve banks of the FRS), the figures for Japan, Britain and Italy being 13.3, 49.4 and 45.8 per cent respectively. Correspondingly, the remaining, greater part was in the hands of the state.

Irrespective of its share in the GNP and its total size, the public debt possesses considerable internal mobility in the sense that the state is able to buy up large numbers of its own securities or, on the contrary, sell ones that were issued previously but are still at its disposal. The sale and purchase of state securities by government bodies is the main content of openmarket operations. These are one of the basic tactical means by which the state influences the credit and monetary sphere. By buying up its own securities, the government introduces additional masses of money in circulation; by selling them it, on the contrary, takes some of the circulating means into its own hands. The purchase of state securities often acts as one way for the government to exert pressure for a reduction in the bank rates of merchant banks. The FRS of the USA carries out such operations on the broadest scale.

To sum up, it may be staled that the credit and monetary system is one of those in which the social essence of state economic policy is particularly evident. The credit and monetary system is one of the major components of the

22-01768

reproduction process, so intervention by the state here is especially broad, multifaceted and active. The main result of this intervention consists, however, in consolidation of the positions of monopolistic merchant banks and other monopolistic private credit institutions, which control the predominant mass of credit resources.

On the national economic plane, the `` subpackage'' of state policy means in the credit sphere holds a weighty position in the overall ``package'' of state economic policy means, the aim of which is to limit the destructive impact of spontaneous forces and to provide more propitious conditions for extended reproduction on the basis of capitalist production relations. The advantage of regulation by credit and monetary means compared with fiscal ones is that they are not accompanied by indirect intervention in labour incomes or the profits of non-financial corporations (in the sense of cuts in either of these, as happens when taxes are raised). In this, also, lies a strong side of the credit and monetary concept of state regulation.

It is hardly an exaggeration to say that the state plays the role of price leader for credit, i.e., the same role that the biggest monopolies play in the corresponding industries. The state's leadership cannot, however, change the fact that the development of credit means of circulation (such as demand deposits and others), by weakening, on the one hand, the dependence of the mass of means of circulation on the issue of bank-notes, on the other hand, weakens its dependence on state regulation. The state credit and monetary system finances the rise in prices and acts as part of the mechanism of modern monopoly price formation. From this point of view, it is quite logical that many re-

searchers of different schools describe the current price rises as credit inflation.

The role of the state can be no other, given the domination of the capital market by private capitalist credit institutions. Here lies the Achilles' heel of the credit and monetary approach to state economic regulation.

In spite of the fact that the government's control in the sphere of credit has gained in strength and become more diverse, the contradiction between the social character of the credit system and its private capitalist structure is fully retained. Thus, one of the first requirements of the anti-monopoly programmes put forward by Marxist-Leninist parties consists in the nationalisation of the banks and the establishment of democratic control over the entire credit and monetary system.

References

~^^1^^ Frank Zahn, Macroeconomic Theory and Policy, Prentice-Hall, Inc., New Jersey, 1975, p. 305.

~^^2^^ Karl Marx, Capital, Vol. I, Progress Publishers, Moscow, 1974, p. 706.

~^^3^^ A Critique of Economic Theory, ed. by E. K. Hunt and J. G. Schwartz, Penguin Modern Economics Reading, Kingsport, 1973, p. 392.

~^^4^^ The Final Social Product is the sum of the newly created value plus depreciation in the course of a year. Quantitatively, this figure is similar to the national income. In the statistics of the capitalist countries it is called the Gross National Product---GNP.

~^^5^^ According to 1975 data, in the sum of overall state taxes in Japan, indirect taxes accounted for 30.7 per cent; in the USA---11.8; in Britain---37.1; in the FRG--- 47.2; in Italy---60.8, and in France---43.6 per cent (see Kokuzeicho tokei nempo [Statistical Annual of the Tax Authorities], Tokyo, 1977, No. 101, p. 8).

~^^6^^ Asia's New Giant. How the Japanese Economy Works, ed. by H. Patric and H. Rosovsky, The Brookings Institution, Washington, 1976, p. 340.

22*

~^^7^^ The fact is that depreciation charges are not considered as profit and not taxed, so exceeding of the established depreciation rate is one form of tax subsidy. The importance of state policy in relation to depreciation charges can be judged from the following data: in the USA, in 1970 internal sources of investment financing accounted for 59.4 thousand million dollars or 59 per cent of the total (the other 41 per cent being from external sources---loans, credit, security issues). Of these, 53.6 thousand million dollars were depreciation charges.

~^^8^^ COJIKC F. n. «rocy,n,apcTBeHHiae (jwiHaHcu B cospe-

M6HHOM KanHTajIHCTHieCKOM BOCnpOH3BOflCTBe», MOGKBa,

1974, CTp.78.

~^^9^^ In the book On the Correspondence and Discussion Between Willy Brandt, Olaf Palme and Bruno Kreisky, the following words are quoted, written in 1975 by the Social-Democrat Kreisky, Chancellor of Austria: "If we continue increasing our social policy today, then, possibly, we will not be able to finance it at all. We must find the courage to declare that no new social policy exists" (cited from: World Marxist Reviaw, Vol. 20, No. 3, March 1977, pp. 116-117).

~^^10^^ Keizai tokei nempo (Economic Statistics Annual), Tokyo, 1975, p. 20.

~^^11^^ Robert Goldsmith, the well-known American scholar and author of works on the national wealth, has calculated that, in 1973, the value of the national wealth in Japan (including the value of land) stood at 475.4 trillion yen (The Review of Income and Wealth, No. 2, 1975, p. 126).

~^^12^^ Kokusai hikaku tokei, Tokyo, 1976, p. 23.

~^^13^^ V. I. Lenin, "Imperialism, the Highest Stage of Capitalism", Collected Works, Vol. 22, p. 210.

~^^14^^ Keizai tokei nempo, Tokyo, 1975, pp. 43-44.

~^^15^^ V. I. Lenin, "Imperialism, the Highest Stage of Capitalism", Collected Works, Vol. 22, p. 218.

~^^16^^ J. K. Galbraith, Economics and the Public Purpose, Houghton Mifflin Company, Boston, 1973, p. 308.

~^^17^^ Dictionary of Modern Economics, USA, McGrawHill, New York, 1973, p. 502.

~^^18^^ In the USA, the public debt rose from 345 thousand million dollars in 1967 to 493 thousand million in 1974; in Britain---correspondingly from 34 thousand million pounds sterling to 46 thousand million; in the FRG from 43 thousand million marks to 72 thousand million (Kokusai hikaku tokei, Tokyo, 1976, p. 69).

CHAPTER VIII

THE INTERNATIONAL ASPECT OF THE OPERATION OF THE LAW OF VALUE AND STATE-MONOPOLY CAPITALISM

1. The Law of Value and the Internationalisation of Economic Affairs

In the first chapters we showed that, in his analysis of the laws of value and surplus-value, Marx resorted to a series of abstractions, the most important of which were equality of supply and demand and completely free competition. This having heen the only possible approach at a specific stage in the research, Marx carried out his analysis abstracting from national differences. "The difference in the rates of surplus-value in different countries, and consequently the national differences in the degree of exploitation of labour, are immaterial for our present analysis." *

In his analysis, Marx turned to the "live model" of England, which at the time when he was writing Capital was closer to his abstract model than was any other country. At the same time, Marx resohitely stressed that the laws studied in Capital were of universal significance. "In this work I have to examine the capitalist mode of production, and the conditions of production and exchange corresponding to that mode. Up to the present time, their classic ground is England. That is the reason why England is used as the chief illustration in the de-

velopment of my theoretical ideas. If, however, the German reader shrugs his shoulders at the condition of the English industrial and agricultural labourers, or in optimist fashion comforts himself with the thought that in Germany things are not nearly so bad; I must plainly tell him, 'De te fabula narratur!' " Marx then went on: "Intrinsically, it is not a question of the higher or lower degree of development of the social antagonisms that result from the natural laws of capitalist production. It is a question of these laws themselves.''^^2^^

The results of the abstract analysis that led to the discovery of the law of capitalist exploitation as a universal law operating in all capitalist countries, irrespective of national differences, constitute the theoretical basis of proletarian internationalism---the strategy of the socialist struggle by the working class of all countries and its Marxist-Leninist vanguard. The vitality and applicability of the methodology, the main aim of which is to reveal common features, were manifested particularly clearly later on, when free competition capitalism developed into monopoly capitalism and the revisionism of the leaders of the Second International reached chauvinistic proportions and turned into ``social-defencism'' and a countering of the imperialist policies of some countries with the supposedly ``non-imperialist'' ones of others.

When studying the transformation of free competition capitalism into monopoly capitalism, Lenin looked at how things stood in a number of countries (especially Germany, where this process was most rapid) and on this basis demonstrated its universal character. "The facts show," he wrote, "that differences between capitalist countries, e.g., in the matter of pro-

tection or free trade, only give rise to insignificant variations in the form of monopolies or in the moment of their appearance; and that the rise of monopolies, as the result of the concentration of production, is a general and fundamental law of the present stage of development of capitalism.''~^^3^^

While concentrating mainly on general laws, the founders of scientific socialism not only did not ignore differences between countries and the interrelations between them; on the contrary, they paved the way for scientific analysis of them on the basis of general laws. The specifics of national economic systems and international economic relations constitute separate sections of Marxist economics.

The original plans for Capital show that one task Marx set himself was to clarify the international aspect of the operation of the laws he had discovered. Of the five parts of the research outlined by Marx in his introduction to The Critique of Political Economy, two sections of the third part ("Colonies. Emigration") and the entire fourth and fifth parts ("Four, international condition of production. International division of labour. International exchange. Export and Import. Rate of exchange. Five, world market and crises") were devoted to analysing international economic relations.~^^4^^

In the plan later drawn up for the sixth volume of Capital, the last two books ("5) On Foreign Trade; 6) On the World Market") were also intended to cover these same problems.

The works named relate to the part of the plan for Capital that Marx never actually completed, but major sections of Ms works do cover the foreign economic aspects of the operation of

the law of value. It could not be otherwise: after all, even during Marx's time there existed a world market, and the international division of labour had reached such an extent that, as Marx wrote, "large-scale industry, detached from the national soil, depends entirely on the world market, on international exchange, on an international division of labour".^^5^^ "Capitalist production," Marx wrote in Theories of SurplusValue, "rests on the value or the transformation of the labour embodied in the product into social labour. But this is only [possible] on the basis of foreign trade and of the world market. This is at once the pre-condition and the result of capitalist production.''~^^8^^

While considering international economic relations as "secondary and tertiary phenomena, in general derived and transmitted. I.e., nonprimary, conditions of production",^^7^^ Marx, at the same time, stressed on several occasions that international relations depend mainly on internal ones, on the laws of social development in the countries involved in the relations. "The relations of different nations among themselves," Marx and Engels wrote in The German Ideology, "depend upon the extent to which each has developed its productive forces, the division of labour and internal intercourse.''^^8^^

The law of value governs the capitalist process of reproduction in all its manifestations, including in the sphere of international economic relations. "The industrial capitalist," Marx writes, "always has the world-market before him, compares, and must constantly compare, his own cost-price with the market-prices at home, and throughout the world. In the earlier period such comparison fell almost entirely to the merchants, and thus secured the predomi*

nance of merchant's capital over industrial capital.''~^^9^^ In the process of international exchange appear such features of the law of value considered above as differences and contradictions between labour inputs and utilities, between the productivity of labour and efficiency, between the rates of profit depending on the rates of exploitation and the organic compositions of capitals, between the correlations of reproduced and non-reproduced wealth.

The profitability of using capital depends on three factors: the ratio of demand to supply, entailing a deviation of prices from value in either direction; labour productivity; the rate of exploitation, depending on the correlation between the productivity of labour and the wage level. The enormous sectoral difference between these three factors is exacerbated by that between countries in each of these parameters and the combinations of them. We have seen that, on the national scale too, such a movement constantly and inevitably comes up against hindrances inherent, on the one hand, in the nature of the reproduction process (the attachment of value to the functioning means of production) and, on the other, in monopoly. Between countries, the hindrances to the movement of goods and capitals are incomparably greater.

The historically formed differences between countries in labour productivity, the structure of production and consumption automatically engender a considerable unevenness, a conflict of interests, and a nationalism in foreign policy which, on the economic plane, is expressed in the highly protectionist nature of the state economic policy. Its true goal is not simply to protect the domestic market and to seize foreign markets, but something more---to protect inter-

nal exploiters' value relations, the rights of the national bourgeoisie to monopoly exploitation of the working classes within the country and, at the same time, the striving of the bourgeoisie in each country to penetrate the markets of those countries, which promise higher profits. "The favoured country recovers more labour," writes Marx, "in exchange for less labour, although this difference, this excess is pocketed, as in any exchange between labour and capital, by a certain class.''~^^10^^

For all the tremendous national differences in exploitation and rates of profits, the barriers raised by the state to the movement of goods and capitals which, as we have seen, are a necessary condition for value relations, are so great that a single value determined by abstract, simple, average, socially necessary labour is a somewhat arbitrary concept.

This is particularly true of economic relations between developed and developing countries. Despite the enormous differences in labour productivity, competitiveness of the commodities of developing countries on foreign markets is ensured mainly on the basis of extremely low, genuinely poverty-level wages. On the other hand, the developing countries hold a special, monopoly position with respect to the production of such an essential commodity as oil, as well as certain other raw materials. On the basis of high prices and high rents, these countries receive huge incomes, yet the use of these incomes (petrodollars) reveals quite clearly the particular features of value relations. The massive share of precapitalist structures, the level of culture and skills are such that only a small proportion of the petrodollars is used to overcome internal economic and cultural backward-

ness, while most of them are exported as capital to the developed countries.

Yet in the 60s and 70s, in the developing world a group of countries and territories had an average or nearly average level of development, and became known as industrialising countries. These included Mexico, Brazil, Argentina, South Korea, Taiwan, Hong Kong and Singapore. The point was that, partly on the basis of imported foreign capital and partly on that of local internal development, these and certain other countries saw a considerable rise in labour productivity, which has well outstripped the rise in wages. Thus, the competitiveness of the expanding manufacturing industries of these countries on the world market has increased so much that, for a number of commodities, they have become serious rivals to the national industries of the industrialised countries.

The manifestation of value relations on the international scene is, therefore, particularly complex in character.

In any case, the spread of national laws to the international sphere does not imply a simple reproduction of them on a broader scale. The international aspect of the operation of general laws gives rise to new features that intertwine with the general chain of the world capitalist economy and, as links in this chain, . exert an inverse influence not only on the laws governing the national economies, but also on the entire life of society in the countries participating in the international division of labour. Whatever the nature of the laws behind international economic links, however, the latter have developed to a level at which the international division of labour has become a necessary condition for the functioning of the econo-

mies of almost all capitalist countries. In order to understand the vital importance of foreign economic links for the economies of monopoly capitalist countries, the first thing to do is to look at data on the role of foreign trade in the value aspect, i.e., the share of the value of exports and imports in the GNP,

Table 20

THE SHARE OP EXPORTS AND IMPORTS IN THE GNP (1976, %)

confirms that, since the end of the 50s, the growth of the physical volume of exports has outstripped that of industrial production throughout the capitalist world.

Table 21

INDICES OF INDUSTRIAL PRODUCTION AND THE PHYSICAL VOLUME OP THE EXPORTS OF THE CAPITALIST COUNTRIES (1913=100)

Year

Pro -3 duction

Exports

Year

Pro -3 duction

Exports

21*

1921 1929

17* 32

25 43

1968 1970

137 151

1932 1938 1948

21 30 45

30 38 36

1972 1974 1975

167 183 173

213 253 236

Share of the

Country

Imports

[Exports

GNP realised 'on the home

market

USA

Japan

Britain

France

FRG

Italy

Canada

Holland

Belgium

6.3 11.8 23.2 18.9 17.7 22.1 23.0 44.0 48.8

7.1 11.4 19.1 16.3 21.2 20.0 21.4 43.4 45.6

92.9 88.6 80.9 83.7 78.8 80 0 78 6 56 6 54.4

* Manufacturing industry.

This table confirms the thesis concerning the growing role of the international division of labour. It should be added that, with the growth of the transnational corporations (and independently of them, too), production co-operation is constantly expanding within the international division of labour, i.e., the production, export and import not only of finished items, but also of semi-finished ones, which further accelerates the increase in international specialisation and international trade.

Further analysis of the significance of international links brings us to the need to take account of use-values---physical indicators, the structure of imports and exports in relation to that of the national economy. This is also important because, sometimes, dependence on the foreign market is less than should follow from

Source: Kokusci hihahu tohei, Tokyo, 1977, p. 97.

These figures show that the chief role in the realisation of the GNP belongs to the home market. It is important to note, however, that, dynamically, the role of exports is rising. According to calculations based on UN statistics, if the correlation between the growth rates of exports and those of production in all capitalist countries in 1913 is taken as 100, in 1937 the figure was 64, in 1963---72, in 1968---89, and in 1973---109, i.e., it is changing in favour of exports. All special research without exception

value indicators, but in the majority of cases the opposite is true.

In relation to the material product, which is the basis of the economy, the share of exports is higher than in relation to the GNP, and it is continuing to rise. From 1960 to 1972, it rose (in percentage terms): in the USA from 11.6 to 14.4; in Japan from 25 to 37; in the FRG from 31 to 39; in Britain from 38 to 52; in France from 23 to 30. These data reveal the fact that, in the economies of a number of countries, there exists an export sector that is so powerful and occupies such an important place that, considering the multiplier effect, any substantial contraction in this sphere would be a severe blow to the entire economy.

In the history of capitalism, the value aspect of foreign economic ties considered above (i.e., the ratio of exports-imports to the GNP) has been the chief factor making economic crises worldwide in character, and critical phenomena cumulative on the international scale. Given a more differentiated approach, however, one that takes account of physical indicators for countries, a more precise picture is revealed of mutual economic dependence. In Canada, for example, the ratio of the value of imports and exports to that of the GNP is comparatively great, but analysis of physical indicators prompts the conclusion that, for this country, foreign economic ties are not as important as they are for Japan and the West European countries. With its low population density, Canada has large and diverse deposits of natural resources, while the substantial level of the value indicators presented is mainly determined by the high degree of co-operation between the Canadian economy and that of the USA. Meanwhile, this co-operation

is not just a necessary condition for the development of a weaker neighbour; on the contrary, it is a hindrance to it in some respects.

Having the lowest share of imports relative to the GNP of all the countries of monopoly capitalism, the USA, with its large territory rich in minerals, favourable climatic and soil conditions, imports about 30 per cent of its oil and fuel oil requirements, i.e., the chief energy raw material. As for other products of importance to the economy, such as manganese and chromium ores, the ores of certain non-ferrous and rare metals, the figures are even higher. Overall, however, a combination of analysis in value and use-value terms reveals that the USA is less dependent on the world market than are its overseas partners.

As far as Japan and Western Europe, the other two centres of developed capitalism, are concerned, physical indicators demonstrate that they are involved much deeper in the international division of labour than is indicated by average value indicators. The share of imports in the expenditure part of Japan's energy balance increased from 54.5 per cent in 1961 to 74.3 per cent in 1965 and 98.0 per cent in 1971. Japan imports almost 100 per cent of its oil. In value terms, the share of oil and fuel oil in the early 1970s was only 1.5 to 1.8 per cent of the GNP, but the significance of this magnitude in physical, utility terms can be judged from the fact that in October-November 1973 a halt to oil imports and a threat of a cut in them were in themselves sufficient to panic the country and this, in combination with other factors, brought a crisis of many months and depression to the entire Japanese economy. Also indicative is the position with respect to food-

stuffs: in value terms, food imports account for less than one per cent of the GNP, but 1975 data show that Japan is only 60 per cent selfsufficient in foodstuffs (in nourishment value). The remaining 40 per cent in utility terms is of much greater significance than, for example, a one hundred per cent dependence on bauxite and nickel imports: a halt to the latter would be a heavy blow to the economy, but not a catastrophe. Considering, however, that the per capita consumption of foodstuffs in Japan is already moderate compared with the Western countries, any substantial cut in imports would entail hunger on a mass scale. These examples alone show that the Japanese economy depends not 11 per cent an imports, as macroeconomic value indicators suggest, but incomparably more. The same applies to exports. On average, 10 to 11 per cent of the value of the Japanese GNP is realised on foreign markets, but the picture for certain individual products is totally different: in 1973, in value terms, exports accounted for 29.6 per cent of the gross product of the manufacturing industry, 88 per cent of the photo and cinecamera production, 86 per cent of ships, 75 per cent of tape-recorders and stereophonic systems, 46 per cent of synthetic fabrics, 43 per cent of televisions, 38 per cent of cars, 37 per cent of steel tubes, etc.^ll We have listed the industries that occupy a more or less substantial place in the Japanese economy, so a cut in the exports of any of them would have very detrimental consequences for the economy as a whole.

There is a similar situation in the West European countries. Not one of them has an economy that is anything but extremely dependent on imports of output vitally necessary for the

reproduction process. Suffice it to say that the share of imports in the expenditure part of the energy balance of all West European countries, in percentage terms with respect to overall consumption, increased from 36.5 in 1961 to 65.5 in 1972.^^12^^ Such countries as Britain, Belgium, Holland and Italy are even more dependent on food imports than Japan is.

From all this follows a very important conclusion: the international division of labour has reached such a degree that foreign economic ties are now essential conditions for the reproduction process in all or at least the overwhelming majority of countries of monopoly capitalism. An obvious consequence of this is that foreign economic ties are a must for the economy to function.

Moreover, these ties are a sphere in which the state, in the sense of property and the direct conducting of commercial operations, occupies an insignificant place and, correspondingly, private capital in the form of monopolistic corporations is the absolutely predominating force. Even in domestic trade, which is everywhere almost totally private in character, the participation of the state is more significant than in foreign trade. Foreign economic ties thus belong to those parts of the economy where the main contradiction of capitalism---that between social production and the principle of private property and capitalist profit---manifests itself particularly sharply and conflictingly. For this reason, too, state-monopoly capitalism in the sphere of foreign economic ties appears in its most patent form: without touching private property, the state pursues a very active policy, the essence of which is protectionism intended to support and expand foreign economic ties on

23-01768

the basis of a universal consolidation of national monopoly capital against that of other countries.

In order to study the character of state-- monopoly regulation in foreign trade, let us consider the third aspect (after the macroeconomic ones---value and physical) of international economic relations---the commercial one. If, as we have seen, competition means a constant struggle to receive the largest possible share of the total surplus-value, international competition, while being in no way distinguished from domestic in nature, in its organic attachment to the laws of value and surplus-value, has always been so fierce, tense and conflicting that the seizure of sales markets and raw material sources has often gone beyond the bounds of trade relations and developed into wars. Even for the 17th to 19th centuries, i.e., the period when capitalism and free competition were becoming established, the value, physical and commercial aspects of foreign economic ties were inseparable from a fourth aspect---the political and militarypolitical. From the 17th and 18th centuries onwards, two types of relations took shape: on the one hand, between countries capable of countering each other in the international arena. The main content of economic relations between countries with more or less equal development was foreign trade, its profitability being determined by the same parameters that were characteristic of internal trade, i.e., the difference between prices and costs of reproduction. The participants in such trade were thousands of merchants who, though united into various types of national organisation, operated at their own risk on the basis of free competition, this being, by the way, always relative---the history of capital-

ism has known only very rare instances when equal countries have not protected their markets with customs duties. Protectionism was one of the chief elements of foreign policy and of the reasons for acute international conflicts.

The second type of relations were those between the rapidly advancing European countries and the USA, on the one hand, and, on the other, those countries that, for a number of historical reasons, were considerably behind in their economic development. These relations were characterised by dominance and subordination, colonial seizures and the establishment of various forms of dependence.

In value and commercial terms, the relations between the different economic parameters of the metropolitan countries, on the one hand, and of the colonies and dependent countries, on the other, were such that in the latter, despite their extreme economic backwardness, there were opportunities for a higher rate of profit. With their large human and natural resources, these countries were sources of cheap raw materials and foodstuffs and a sphere for the application of European capital. Politically, relations of domination and subordination in all their diversity were characteristic here: for some dependent countries purely colonial or semi-colonial status, for others---economic dependence with formal sovereignty, for yet others---a transformation into migration colonies with a gradual acquisition of partial, more or less significant independence.

Thus, the internationalisation of economic affairs has always developed in the closest intertwining of value and non-value factors in the sphere of international relations, foreign and home policy.

23*

2. The Uneven Development of Capitalism and State-Monopoly Protectionism. Certain Features of the Contemporary Export of Capital

Today, international economic relations cannot be analysed in isolation from the operation of the law of unequal economic and political development. The export and import of goods and capital are under a constant and very strong impact from foreign and home policy, while value relations make their way round considerable barriers raised by international political and military-political crises. Value factors are constantly clashing with non-value and non-economic ones: these are in very sharply contradictory and constantly changing interaction. Politics and economics, diplomacy and commerce, industrial production and trade are all intertwined in foreign "economic ties.

In accordance with the topic of this work, we shall consider only one of the problems involved in uneven development---state-monopoly protectionism. This problem is so complex, however, that a brief acquaintance with the historical aspect and with the modern balance of power in the arena of international imperialist rivalry is necessary before the problem itself can be discussed.

During the world wars, a temporary bourgeois state monopoly arose in foreign economic ties. Under this system, the main mass of operations was carried out by private corporations, but under the strictest, almost absolute state control. After the First World War, the abolition of external control brought back the previous, prewar mechanism of foreign economic ties. From the Great Depression onwards, the situation changed

sharply. Together with customs duties, means of currency control (currency dumping) began to be applied, as well as direct quantitative limitations (quotas), state financial and credit backing for export industries and state encouragement of export cartels.

The international situation that took shape after the Second World War was such that the abolition of military control entailed a further development of the forms of state-monopoly protectionism that began to appear after the Great Depression.

A considerable impact was exercised on the forms of state-monopoly protectionism and its specific channels by the balance of power that emerged after the last war---on the one hand, the war-damaged economies of the West European countries and Japan, and, on the other, the USA, which accounted for about 60 per cent of world capitalist industrial production after the war. The international political situation, and primarily the appearance of the world socialist system, and the collapse of the colonial system, prompted US imperialism to come to the aid of the bourgeoisie in the West European countries and Japan (the Marshall Plan for Western Europe, similar plans for Japan and other areas). In return for this aid, the USA took the leading position in establishing the postwar currency system and international economic organisations set up under its auspices---the International Monetary Fund (IMD) and the International Bank for Reconstruction and Development (IBRD), the Organisation for Economic Co-operation and Development (OECD), the General Agreement on Tariffs and Trade (GATT). On the other hand, while exercising a great influence on the nature of its partners' protectionist measures

through these organisations and on a bilateral basis, the USA was forced to accept the fact of strengthened protectionism as a necessary condition for restoring economies.

The present situation is characterised by persistent attempts by the leaders of monopoly capitalism in various countries to seek ways of drawing together and co-ordinating their actions.

A specific expression of this sort of tendency was the creation of the system of military-- political and economic blocs, which directly or indirectly embrace the majority of countries of monopoly capitalism and many developing ones. The central place in this system belongs to the North Atlantic Treaty Organisation (NATO), with which even Japan, though not a member of NATO, is connected through a military-- political union with the USA. There can be no doubt that the combining of capitalist countries into blocs and unions, which are in potential military confrontation with one another, has a major impact on the overall world situation. It testifies to the fundamental changes in the operation of the law of uneven economic and political development compared with the time when unevenness made military clashes inevitable.

The centripetal trends in the world capitalist economy were conditioned not only by foreign policy, but also economic factors, the main one being the progress in the international division of labour. Second in importance is the industrialisation of exports---the fact that the share of finished goods, including machinery and equipment, in the commodity structure of exports is growing, i.e., the share of commodities requiring large investments for their production that are impossible without a certain stability of sales conditions.

These centripetal trends in economic relations were reflected in the fact that, from the end of the 50s, the idea of ``liberalisation'' of foreign economic ties gained currency. This took the concrete form of bilateral and various multilateral talks (the Dillon round, the Kennedy round, the Nixon round---the last usually called the Tokyo round, since the talks were held in that city). In the course of these talks agreement was reached on lowering tariffs, removing quantitative limitations, removing and reducing restrictions on the import of foreign capital, and so on. ``Liberalisation'' was intended to subject the economies of the participating countries to the gale-force winds of international competition, and thus strengthen the position of the most powerful monopolistic corporations.

No centripetal tendency, however, can alter the main fact that the decisive role in the imperialist camp is still played by the principle of domination and subordination, distribution and redistribution by force. Every step forward in economic growth in the capitalist countries is regarded as taking up positions for new engagements in the continuous process of international monopolistic competition.

In his work, Imperialism, the Highest Stage of Capitalism, Lenin stressed that "an essential feature of imperialism is the rivalry between seve

ral gre

jai puwcio in unv/ ^v_i»..,.₀ __

r hegemo-

ny

.^J" In this context, it is necessary to note that,

even after the First World War, when the USA came to the fore in terms of economic development levels, the concept of a "great power" had already undergone certain changes---in relation to the USA, no single West European country on its own could be regarded as great.

After the Second World War, US imperialism

occupied very particular positions in the capitalist world. In the late 40s and early 50s, it was the USA that initiated the creation of the blocs and unions already mentioned, where it easily assumed the dominating position. Despite the marked superiority of the USA, however, even then Marxist scholars had revealed the contradictory and unstable nature of international unions based on the dominance of US imperialism.

Indeed, from the mid-50s onwards, factors connected with the gradual turnabout in the balance of power at the expense of the USA and in favour of other countries of monopoly capitalism began to penetrate the sphere of interimperialist relations. In spite of substantial deviations, the general course of development consisted in an evening out of the labour productivities and per capita GNPs of the USA, on the one hand, and the West European countries and Japan, on the other (see Table 22).

Yet the levels of development themselves depend to an enormous extent on the size of markets on which the firms and industries of individual countries are oriented. The difference in size of market exerts a major influence on the level of production concentration, on the optimal size of firm ensuring the lowest possible production costs and highest competitiveness. This factor is of particular significance for the West European countries. Eor many industries that play a decisive role in the economies of these countries, the limited absorptive capacity of the home market (owing to the considerably smaller population compared with the USA or Japan) means that they can only achieve the highest possible efficiency and competitiveness under contemporary conditions if they are guaranteed the opportunity to realise a larger part of their output abroad.

Table 22

RATIO OP THE PER CAPITA ONI' IN CERTAIN

CAPITALIST COUNTRIES TO THAT OF THE USA

(calculated according to the actual purchasing power of currencies, in 1970 prices) (USA---100)

All developed

capitalist countries

apart from

the USA 37

48

62

Canada

72

75

89

Sweden

69

78

86

FRG

40

66

75

France

47

58

77

Japan

17

30

65

Britain

60

65

62

Italy

28

40

49

The fact is that modern major corporations cannot operate for a chance, non-guaranteed market and, since a large part of their market is situated outside the countries in which the corporations themselves are located, the struggle for external markets for goods and capitals has become an integral part of monopoly enterprise. This struggle is waged on protectionist basis, i.e., with the constant support of the corresponding states, and the course of the struggle to a considerable extent depends on the positions taken by individual countries of monopoly capitalism in world production and on the world capitalist market.

In section 1 we saw how great the difference is between the shares of exports and imports of different countries. Now let us look at data on the shares of individual countries or regions in world industrial production and in foreign trade turnover.

Table 23

THE SHARE OF THE USA, WESTERN EUROPE AND JAPAN IN WORLD INDUSTRIAL PRODUCTION AND FOREIGN TRADE TURNOVER (%)

1) the export of capital and its interaction with that of commodities;

2) the foreign trade system, taking into account all types of protectionism (including customs, tax, credit, currency, open and hidden state subsidies, etc.);

3) currency problems;

4) the relations between the countries of monopoly capitalism and the developing ones.

In this work we shall touch on only one aspect of these problems---that of the influence exerted on them by state-monopoly regulation. From the angle of the owners of private capital, incentives to export capital are always synonymous: capital races to those countries where higher profits can be obtained from a given mass of capital, i.e., where, given the productivity of labour, the costs of production, and especially labour costs, are lower.

From the point of view of the state, the attitude towards the export of capital is considerably more complicated: the state is interested in capital being exported either in order to create stable sources (above all for raw materials), or to speed up the export of commodities that follow in the wake of the capital or, finally, to achieve certain political goals. In recent years, yet another incentive has been taking increasingly clear shape: to relocate industries that pollute the environment to places outside the country.

Capital exports belong to those spheres of the economy where, irrespective of legislation and international agreements, the broadest and most comprehensive state intervention is practised. One of the chief functions of state-monopoly regulation in the sphere of foreign economic ties consists in state guarantees of the export of cap-

USA

Western Europe

Japan

1950 | 1977

Share in industrial -6 production

53.4 37.0 31.6 33.1 1.6 9.6

Share in foreign trade turnover 16.5 13.7 38.6 46.8 1.6 7.5

Source: Calculations by the Institute of World Economy and International Relations of the USSR Academy of Sciences from UN statistics and national statistics.

These data reveal the economic basis for the creation, alongside the USA, of two other centres of imperialism---Western Europe (the core of this centre being the European Economic Community, otherwise known as the Common Market) and Japan. Yet just the fact that the levels are evening out does not reveal the conflict of interests between the countries that have consoldated their positions in relation to the others. The character of protectionism and its concrete content cannot be understood unless account is taken of the fact that the positions of the countries (national economies) and those of national capitals coincide in far from everything and in very many respects contradict one another. The contradictions that have now taken shape are concentrated around the following main spheres:

ital. This function is fulfilled strictly within the bounds of the political interests of the corresponding countries' ruling circles. Typical in this respect are the activities of the US Overseas Investment Corporation, which was set up in 1976. The Corporation guarantees only those investments that are approved by the government agencies of the developing countries and only on the basis of previously concluded agreements between the USA and these countries on compensation by the latter to the American companies for any losses incurred.

At the same time, there are a number of factors operating in the economy that encourage the state to limit and sometimes even call a temporary halt to the export of capital. These include: a desire for a balance of payments, which might be upset, since net capital exports are on the debit side; a fear that the export of capital will make the situation in the home country worse, hold back a growth in employment, and so on; a fear that it will have a detrimental effect on the political situation---will arouse a negative political reaction on the part of the recipient countries, prompting them to demand that the exporting countries open their doors wider for the import of capitals and commodities, and so on. Equally complicated are the motives behind the state policy with respect to capital imports. In reality, different motives predominate depending on the specific circumstances. In the long term, however, the first and main incentive---the struggle for maximum profits---is of decisive significance.

The equilibrant of all these factors is reflected in the real dynamics of the export of capital in the postwar period. During the Second World War and after it, the system of capital exports

that had taken shape in the late 30s collapsed: the countries of the fascist Axis lost all their foreign investments, Britain lost two-thirds, France, Belgium and Holland at least threequarters of theirs.

From the end of the war up to the early 70s, the restoration of capital exports was characterised by three particular features. First, US capital exports greatly predominated. At the end of 1970, direct investments by the USA in other countries stood at about 80,000 million dollars. Britain had about 20,000 million dollars invested abroad, while the FRG and Japan---5,300 million and only 3,600 million dollars, respectively.~^^14^^ Second, there was a sharp change in the industries into which the capital was exported. Whereas, before the war, about 60 per cent of the total was invested in the extractive industries, after it about two-thirds went into manufacturing. Third, there was an equally abrupt change in the geographical direction of capital flows.

In the prewar years, about two-thirds of capital exports went from the countries of monopoly capitalism into colonies and semi-colonies; after the war, the same share moved from some countries of monopoly capitalism into others.

These specifics are all closely interconnected: the bulk of world capital exports consisted of exports from the USA into manufacturing in the countries of Western Europe and Japan, where, as a result of their technological lag and given the presence of skilled manpower and lower wages, as well as the favourable political climate, suitable conditions took shape for American capital. It was the commercial motive that predominated here: the majority of the output of foreign firms with the participation of American

capital was not exported to the USA, but realised locally or in other countries.

In the 60s, very different trends began to emerge. From 1965 to 1970, the mean annual increment in Japan's direct investments abroad stood at 29.8 per cent, the figures for the FRG, Britain and the USA being 20.4, 14.6 and only 9.6 per cent, respectively.^^15^^

The export of capital has always been the scene of tense struggle. It is incomparably more difficult to oust foreign capital embodied in existing, operating firms than to regain lost positions on commodity markets. The struggle for the firmest possible positions gains in intensity as a consequence of the extremely rapid growth of the international corporations compared with national ones and the sharp increase in their role, both in the economies of capital-importing countries and in international trade. According to 1971 data, 650 international corporations with foreign investments of 165 thousand million dollars produced, in their overseas firms, output to a total value of 330.1 thousand million dollars--- 18.1 thousand million dollars more than the value of world exports.

In describing the nature of international corporations one major feature must be remembered: although, for the last ten to fifteen years, multinational corporations have developed somewhat, their number and overall might are negligible compared with those of the transnationals, i.e., corporations that rely on the capital of powerful head national corporations, were set up by the latter and, wherever they might be situated, serve primarily the interests of the capital of their country of origin.

In the legal sense, the national corporations of the corresponding countries have equal rights

with international ones, but in practice the latter have such weighty privileges that some researchers interpret the position of the international corporations as ``extraterritorial''. If the conditions are for some reason unfavourable (for instance, pressure is brought to bear by one particular state), they can, by relying on the might of the head company, sell their enterprises, transfer funds from some banks into others (foreign ones), and so on. Thus, the broad scale of the international companies' activities greatly complicates the position of individual states in their economic policy.

Returning to the question of the struggle between countries over the export of capital, it should be noted that the international corporations are still to a large extent monopolies of American capital. Of the 650 international corporations discussed earlier, 358 with foreign investments of 86 thousand million dollars (out of a total of 165 thousand million) and producing output worth 172 thousand million dollars (out of a total of 330 thousand million) were American. In 1971, the aggregate output of overseas firms dominated by US capital exceeded total US exports by 260 per cent, while the corresponding figures for the FRG and Japan were 30 per cent and 40 per cent.^^18^^ It is hardly probable that such an ``inequality'' will last for long. More than likely, the growth of capital exports from countries apart from the USA will prompt them to struggle to consolidate their positions within the transnational corporations or to act against those where American capital already dominates. Yet this cannot be done without the support of individual states (or the EEC, for its members). We have already seen that a growing place in the structural policy of the West European states

belongs to the creation of national "corporation champions" capable of standing up to the international corporations. In the future, increased state-monopoly national protectionism is to be expected with respect to the export and import of capital.

Since the early 70s, important changes in capital exports have clearly started to emerge, their essence being, first, an acceleration of their overall growth; second, an increase in the share of countries apart from the USA and, third, a probable new expansion of the role of the developing countries as recipients of capital exports from the countries of monopoly capitalism. Such changes will inevitably entail a further intensification of the struggle for foreign markets for capital.

ton Woods system was created, its basic principle being for the dollar---US paper money---to be equated with gold according to an agreed fixed rate of 35 dollars per troy ounce. The link with gold (through the dollar) was already weak, but was maintained.

This system functioned more or less satisfactorily until the mid-60s, while the USA had a positive balance of trade and payments, while there was a dollar shortage and the real gold content of the dollar more or less corresponded to the nominal one, and sometimes even exceeded it. The situation then changed fundamentally, however.

The defects of the Bretton Woods system became evident when the restoration of the positions of the other countries on the world capitalist market, in conjunction with the tremendous growth in the USA's outlays abroad (the Vietnam war, the siting of American armed forces on the territories of other countries, and so on), led to a drop in the real exchange rate of the dollar below the nominal one.^^17^^ The nominal rate could then only be maintained through a revaluation of the other currencies, especially those of countries where, on the basis of a positive balance of payments, large reserves of dollars were being accumulated. In the late 60s and early 70s, this applied mainly to the FRG and Japan.

The revaluation of the currency of a given country is the same thing as the devaluation of the currency of its partner. This is why US pressure \vas geared to achieving, in fact, a devaluation of the dollar at the expense of other countries, and thus, for the sake of political prestige, avoiding a nominal devaluation.

As a result of the 1971-1973 monetary crises,

3. Foreign Exchange Problems

In itself, the rejection of the free exchange of bank-notes for gold within a country and the transition after the First World War to the gold standard meant the introduction of state control over the movement of monetary gold. By the end of the Second World War, more than 70 per cent of all the reserves of monetary gold belonging to the capitalist countries were concentrated in the USA, i.e., the country that least needed monetary gold since its balance of payments was in the black for several years after the war. Meanwhile, most West European countries and Japan, i.e., the countries that, at that time, were least able to cover the cost of their required imports through exports, were left without monetary gold. This contradiction was foreseen, so in 1944, even before the end of the war, the Bret-

1/2 24-01768

369-

a number of countries---Japan, Britain, France, Italy, Ireland, Norway ar.d Sweden (and later others, too)---rejected a fixed exchange rate in favour of a floating one. This step reflects a further weakening of the USA's position in relation to the other two centres of imperialism. At the same time, however, the transition to a floating exchange rate is also of considerable theoretical interest. After gold coin circulation came the gold standard; then followed, first, its partial, and later full (the Smithsonian agreements of 1971) abolition, but fixed arbitrary exchange rates, set on the basis of inter-state agreements, were maintained. Finally came the new step--- the rejection of such agreements, of fixed correlations between currencies, and the transition to a system of fluctuating ones (floating exchange rates), none of them being exchangeable for gold.

Describing the implications of these changes, the representative of the IMF in Greece, Professor Xenophon Zolotas, wrote the following in his book International Monetary Issues and Development Policies: ''The frail bark of the international monetary system has been launched into the unknown world beyond the Pillars of Hercules lacking any agreed-upon rules of navigation.''~^^18^^ He believes that the IMF should dot the i's and cross the t's and announce that the gold standard is a thing of the past and will never be restored. He adds: 'Experience has shown, that whenever it was announced that 'The king is dead' without the simultaneous exclamation of 'Long live the king', a period of chaotic developments was most likely to en-

settlements is accepted by virtually all modern bourgeois economists. Statements to this effect are usually followed immediately by calls for moderation in mutual claims, for unity and cooperation. Xenophon Zolotas, for example, calls for a struggle against "anarchy and irresponsibility" and for close and fair co operation to be established, "so that all members of the international community share the obligations and benefits deriving from it".^^20^^

In order to better understand the unrealistic nature of such wishes, at least a brief description is required of the actual content of the problems arising in the context of the collapse of the system of "gold guarantee" in international settlements.

The main thing here is that I rust between countries in monetary relations has been undermined. Let us take a closer look at exactly what a fixed exchange rale means when the holder of paper money cannot exchange it for gold. After all, one of the functions of the free exchange of bank-notes for gold on the international plane was to provide a certain insurance against a sudden rise or drop in prices. There could not, of course, be any full insurance against this since, first, as we have already seen, the value of gold itself is a variable. Second, the exchangeability of gold provided no protection against II actuations in prices themselves, especially against drops in them during economic crises and depression, drops that are ruinous for many. Even so, the possibility of exchanging bank-notes for gold at a fixed exchange rate provided some insurance against possible losses.

With the end of gold coin and gold standard circulation, this insurance is lacking. It is replaced, first, by the existence of a fixed exchange

sue.

`` 19

The thesis concerning the inevitability of the disruption of the entire system of international

24*

rate as a partial guarantee. The fact that, for every US dollar, the Japanese seller could receive (at the rate that existed from 1949 to 1971) 360 yen was, if not a guarantee against losses, at least a point of orientation for settlements. This insurance is not, however, adequate, for the simple reason that, in contrast to gold, it is not universal. Given the tremendous differences in the correlations of prices and fluctuations in the correlations of internal prices for individual commodities, a "zone of commercial danger" inevitably takes shape, i.e., a group of commodities in relation to which, at the given official exchange rate, profitability is marginal and where even a small rise in costs will entail a danger of enormous losses for exporters.

In his research into the problem of currency exchange rates, the American economist F. Machlup notes that there cannot possibly be a complete equilibrium of exchange rates (meaning a correspondence of exchange rates to the changing correlation of prices in different countries), since the situation on the foreign exchange markets changes daily and not a month passes without the government, by means of some of its methods or others, changing the intentions or behaviour of the participants in the economic process; moreover, the rates of economic growth and the depreciation of money are constantly •changing. Economic agents cannot predict either the course of the adjustment to changes that have already taken place on these markets or the new changes that will upset the development of these processes and bring new ones into being. -^^1^^

Such a microeconomic turnabout as the rejection of the exchange of bank-notes for gold has serious macroeconomic consequences. Above all, it spread to the sphere of balances of payments,

their interaction with exchange rates, the economic role of positive or negative balances. This was to be expected primarily because the further money became separated from gold, the more actual exchange rates diverged from official ones and the greater was the volume and role of currency speculations, especially that in gold.^^22^^ Even before the possibility of exchanging reserve currencies for gold finally disappeared (in the early 60s), widespread in the practice of international relations was the concept of "hot money", a term used to describe speculative and flight movements of capital which are generally motivated by the anticipation of a change in exchange rates. "Speculation," writes the Soviet economist G. G. Matyukhin, "is nourished by the fact that its participants assess the situation differently. It emerges only because opposite forecasts are made, though only one of these can be correct. Speculation with hot money makes use of the fluctuation of the exchange rate about parity and interest about the average rate of profit. It is thus a mechanism for the redistribution of part of surplus-value and an instrument for the concentration and centralisation of capital. The fact that an intensification of the process of concentration and centralisation of capital is accompanied by a rise in the volume and scale of speculation can thus be considered an objective law." '^a

Hot money is important not only in itself, but also because its existence, the increase in its mass and role, reflect radical changes for the worse throughout the sphere of international settlements. Under the gold standard, things stood as follows: country A's balance of payments deficit meant that more of its currency was being ``forced'' abroad than the currency of partner

country B being ``absorbed'' by it, this promoting a drop in the exchange rate of currency A with respect to B. This drop strengthened country A's positions as a commodity exporter and weakened it as an exporter of capital. At the same time, the positions of the given country as an importer of commodities were weakened, while it became more attractive to foreign capital.~^^24^^ The profitability or otherwise for the country of a negative or positive balance of payments depended on what was most important, at the given time, for its economy---imports or exports of commodities or capitals. Here, in this sphere, as in all others, national economic interests very frequently conflicted with the interests of the private monopolies operating in the foreign trade sphere, but the "scale of deviations" was determined by the fact that, even after the abolition of internal exchange, special banks for foreign operations bad specific obligations in relation to the exchange of currency for gold at the official exchange rate. More often than not, a positive balance of payments resulting from " currency dumping" and a depressed currency exchange rate relative to the gold parity was of more benefit to a country.

It is important to remember, however, that until the Great Depression, the corresponding correlations formed spontaneously, while the crisis initiated the deep penetration by the state into the sphere of currency relations. "The currency system," writes the Soviet economist 0. S. Bogdanov, "based on paper money and inter-state monetary and credit tools, better meets the requirements of state-monopoly capital than does a gold standard, since it possesses more flexibility and creates the condition for increasing the effectiveness of state regulation.''~^^25^^

In what do the changes in the system of monetary relations consist?

First, given floating exchange rates, the limits to their fluctuations are considerably wider than those (hat were observed under the conditions of even partial gold guarantee, and this has a seriously negative effect on the commercial aspect of foreign economic relations, on their stability, and on the conclusion of longterm agreements. Second, the role of the balance of payments depends to a tremendous degree on what currency it is embodied in---one with a falling or rising exchange rate. For instance, as a result of the positive balance of payments of Japan (especially with the USA), the country's hard currency reserves had readied tremendous sums by the end of 1076---about 17,000 million dollars. In the past, when the dollar was backed by gold, such a sum would probably have been considered a good thing. Matters are different now-, though: Japan accumulates US dollars, the exchange rate for which is falling, and this is bound to meet with a negative reaction from Japan. On the other hand, the USA's balance of payments deficit in its trade with Japan, which is a factor reducing the exchange rate of the dollar in relation to the yen, as the former floats, does nothing to strengthen the USA's export positions. In this it should be remembered that, first, the former law of the lag in the price rise entailing an "export premium" in the case of a drop in the exchange rate has, to a considerable extent, ceased to operate: the market reacts very rapidly with a rise in the prices of exports to corresponding changes in the monetary sphere. Second, in this given instance, the negative balance of payments means nothing for the USA but an accumulation of indebtedness

in yen, i.e., in a currency against which the dollar was falling.

In this work, the following is of decisive significance: under the current system of floating exchange rates, developing on the basis of new laws of price formation, international competitiveness, which is based on value relations, the correlations of expenditures and utilities, depends to a tremendous degree on the state of affairs on the monetary markets. In practice, this means that the advantages gained as a result of improvements in the production sphere can be cancelled out for the corresponding group of producers as a consequence of a deterioration in the currency position and, on the contrary, speculative operations can bring in enormous incomes without any progress in production.

The foreign exchange problem very clearly reflects a conflict between two trends that is typical of modern capitalism: between the centrifugal trend, engendered by the fundamental change in the laws of price formation, and the centripetal one---by attempts to smooth over the intensifying contradictions.^^28^^

In practice, the conflict between these two trends is manifested, first, in the multitude of plans for reforms of the international monetary system; second, in the constant failures of these plans; third, in the fact that, with the collapse of the proposed plans, objective necessity still engenders palliatives, temporary solutions that, besides, play a substantial role in the modern system of international settlements.

After the inevitable collapse in the 60s of the well-known French plan for restoring the role of gold in international settlements (the Rueff Plan, supported by Charles de Gaulle), all projects have been of an institutional nature, i.e.,

have envisaged the elaboration of a code of behaviour for states when balance of payments equilibria are upset, exchange rates deviate from the set parities, existing international control bodies are reorganised or new ones set up to strengthen international liquidity and the stability of currency parities.

A report made in February 1974 to the President by the US Council of International Economic Policy stressed that the main task was to balance balances of payments. As a criterion for this, the indicator of the change in the country's currency reserves was proposed, and as the means for balancing them---automatic changes of the currency's parity, as well as other measures connected with regulation of internal demand through changes in tax and monetary policy,- a reduction in the control over imports of commodities and foreign capitals, etc.

This report was typical in the sense that, like other such documents, it links the question of maintaining parities with inter-state agreements on domestic economic policy. Yet it is just such agreement that has also come up against insurmountable barriers. "In political terms," the well-known American economist Charles Kindleberger, an expert on currency problems, has declared, "the provision of the world public good of economic stability is best provided, if not by a world government, by a system of rules. However, it is difficult to obtain agreement on an adequate system of such rules or the means of enforcing them.''^^27^^ Professor Zolotas, quoted above, is thus fully justified in declaring that currency problems cannot be solved unless that of internal inflation is solved first.^^28^^

The most famous of the projects that have emerged is the American Triffin Plan, which

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was intended to improve the Bretton Woods system by strengthening the IMF and transforming it into a mighty export-import organisation for the purpose of supporting the dollar as an international reserve currency.

Neither the Triffin Plan, nor the many other subsequent proposals for reforms based on a strengthening of the IMF and IBRD, have been implemented. In fact, the collapse of any plans for global currency reforms was predetermined and inevitable. Any version of- reform (gold, semi-gold, or paper) would automatically bring advantages to some countries at the expense of others, so matters came to a head, as they had to---by IMF decision of April 1978, the system of floating exchange rates was finally legalised.

As far as the IMF is concerned, the plans to turn it into a sort of international central bank could not be realised, not only as a consequence of the operation of the general laws of international economic relations, but also for the special reason that, in the postwar years, a market emerged and expanded for the foreign currency (especially US dollars) held by national monopolies and other international credit organisations independent of or only slightly dependent on the IMF. Here we have in mind mainly the market for Eurodollars, Asiatic dollars and petrodollars. The emergence of this phenomenon has the following implications: while internal settlements are made in the currencies of the corresponding countries, international ones may be made either in national currencies or with the help of dollar accounts in the banks of the corresponding countries; what is more, in a roundabout way, these accounts may also partially service internal circulation. In legal terms (from the point of view of international law

and the principle of the convertibility of currencies), no one has the right to freeze these accounts, close them or force their holders to exchange their dollars for national currency. They exist because it is profitable for their holders, especially for speculation with hot money. Whatever decisions the IMF might pass, or any other inter-state organisation, the holders of these accounts, acting in their own interests, can always undermine or at least reduce the effectiveness of such decisions---by transferring their accounts from one bank to another they can escape any inter- or intra-state control that does not suit them.

Even so, in spite of the failures, the search for a solution to the foreign exchange problem--- the creation of a system of at least minimally stable exchange rates---is still going on, as it must do. The persistent and inevitable striving to reduce the negative influence of exchange rate fluctuations is reflected in attempts to create an international currency on the global (for the capitalist market) or regional level. At present, a number of supra-national currencies are already in existence. Among these, those of any significance are Special Drawing Rights (SDR) ---the international currency that the IMF initiated in 1976, EURCO---the European unit of account, and ARABCO---the Arab unit of account.

The essence of such units is based on the principle of the "basket of currencies". Each national currency is represented in this `` basket'' by a specific share. For instance, in each SDR unit, the US dollar represents 33 per cent, the Deutsche mark---12.5 per cent, and so on, depending on the shares of the sixteen individual countries participating in the SDRs, in in-

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ternational trade. A devaluation or revaluation of one of the currencies making up the SDRs thus exerts an influence on its value, but only to a degree corresponding to the weight of the given currency in the SDRs. For example, if the US dollar is devalued by 9 per cent, in accordance with the USA's quota the SDR unit will be devalued by 3 per cent. If the Austrian schilling is devalued by 10 per cent, the SDR will be devalued by 0.1 per cent, since the former constitutes only 1 per cent in the "basket of currencies". Precisely the same principle applies to the EURCO, which operates within the Common Market.

Theoretically, international monetary units, both world-wide and regional, are an invention of the bourgeois theory and practice of international settlements, their purpose being to reduce the influence of exchange rate fluctuations for national currencies.

When deciding the real possibilities and prospects for new means of international settlement, it must be remembered that an international currency is applied only in bank operations connected with international settlements. A new international currency is created as a surrogate for gold in international settlements, but certainly not in internal ones. In both cases, with either international or national currencies, it is a matter of bank-notes, of means relying not on gold, but on credit resources, on the liquidity of the corresponding credit institutions. At first glance it might appear that, considering the principles outlined above, an international currency is firmer than a national one. In reality, however, it has many weaknesses: first, an international currency competes with the national one and no one can know which will win: per-

haps, some day, the USA or some other major country (with a large weight in the ``basket'') will leave the SDR, just as the USA unilaterally rejected its obligations to exchange dollars for gold. Second, in view of the fierce competition, the sphere of application of an international currency remains very limited and is unlikely to expand. Account must be taken of the fact that the advantages of an international cur<sub>:</sub> rency relative to national ones are one-sided in character: an international currency reveals its advantages over the national one only if the exchange rate for the latter falls. If, on the contrary, it rises, this is reflected in the international unit in which the national currency participates (whether SDRs, EURCOs or others) only to the extent that the given currency is represented in the corresponding ``basket'' and thus it might prove more profitable to use the national currency. The most characteristic thing for the current situation is that, from the very first steps taken in the formation of an international currency, a struggle broke out between the latter and national currencies (especially in their function as hot money), a struggle that reflects the contradictions of state-monopoly capitalism in the monetary sphere.

To sum up, let us state that, with the elimination of gold backing (i.e., when the exchange of reserve currencies for gold was halted), the money in international circulation acquired the same features as credit documents do in national circulation: their exchange rate depends on the correlation of demand, supply, and the mass of money. Yet the fundamental difference is that internal money circulation is regulated by governments and central banks, while no such international bodies exist. The new laws of

price formation considered above mean an inevitable difference in the growth rates of prices in different countries, the result always being changes in the actual correlations between currencies and an inevitable floating of exchange rates.

Thus, under capitalism the foreign exchange problem is one of the most serious problems in international economic relations.

ic policy constitutes a very complicated complex, including special programmes relating primarily to the sphere of foreign economic ties itself (customs duties, monetary relations, etc.). A detailed consideration of this complex is not our aim here, so we shall merely note that, as has already been shown in the analysis of monetary relations, the fundamental difference between state-monopoly regulation in the sphere of foreign economic ties and internal regulation consists in that, in the first case, there are no bodies like banks, etc., i.e., political, legislative or executive ones powerful enough to exercise a constant effective influence on the state of affairs, on the conditions, scale and structure of foreign trade and the migration of capitals. A new element in international relations, which since the last war has come to be known as economic diplomacy, is a palliative for such bodies, a form of compromise between the objective necessity of inter-state regulation and the national character of state-monopoly capitalism. When judging how new this element is, it must be remembered that, up to the Second World War, at least 90 per cent of foreign economic ties were implemented through the action of representatives of private firms. As for diplomatic bodies, with respect to economic ties they fulfilled primarily information functions (embassies usually had a commercial attache). The Soviet experience of implementing foreign economic ties with the help of special state trade representations was viewed in the capitalist countries as totally unacceptable and incompatible with the bourgeois principles of foreign

trade.

Present-day bourgeois economic diplomacy is complex and diverse in character. One of its

4. The Modern Role of Economic Diplomacy

In 1916, in his article "A Caricature of Marxism and Imperialist Economism", Lenin wrote that "it is fundamentally wrong, un-Marxist and unscientific, to ... counterpose foreign policy to home policy".^^29^^ This applies equally to economic policy---both internal and external. Inherent in state-monopoly protectionism in the sphere of foreign economic ties are the same features that are characteristic of state-monopoly capitalism in general. As in the past, the international division of labour is developing primarily on the basis of a very fierce competitive struggle between capitals for maximum profits and the greatest share of surplus-value, no matter in what country it is produced. This struggle is taking place in conjunction with state foreign economic policy, which is now inseparably linked to all the basic fields of internal economic policy considered above---in the spheres of property, the structure of enterprises, the budget, taxes, credit, money circulation and price formation. In each of these spheres, regular account is always taken of foreign economic affairs. In general, however, state foreign econom-

forms is the functioning of such permanent international bodies, already mentioned, as the Organisation for Economic Co-operation and Development (OECD), the General Agreement on Tariffs and Trade (GATT), the UN economic organisations, i.e., ones charged with not only information functions, but also the elaboration of specific "codes of conduct" and supervision over observance of these codes. In the monetary sphere, as we have seen, a major role belongs to the IMF, and also to the International Bank for Reconstruction and Development (IBRD).

Since 1952, when the European Coal and Steel Community, the first integrational association in the world, was set up, and especially from the time when the EEC was established (1958), a growing place in the system of economic diplomacy has been occupied by regional inter-state organisations. The formation of the EEC provided the impetus for the emergence of bilateral inter-state organisations---regular economic committees and conferences at ministerial and deputy-ministerial level, of which there are today many dozen. Such bodies meet at least once a year to discuss the contradictions that have arisen in the spheres of trade, the balance of payments, and monetary issues. Embassies now always include a large and powerful section dealing specially with aspects of economic relations. One of the chief functions of economic diplomacy is economic reconnaissance ( analysis of the lines of economic policy in partner countries and the possibilities for influencing this policy), which is closely intertwined with military and political spying and the commercial spying by corporations. The intensification of the contradictions in

the context of the 1973-1975 crisis entailed a new step in the development of economic diplomacy---periodical consultations between the heads of state and government of the major monopoly capitalist countries, devoted specially to economic issues. Such consultations, in which the highest government representatives from the USA, Japan, the FRG, Britain, France and Italy took part, were held in November 1975 in Rambouillet (France), in June 1976 (with the participation of Canada, too) in Puerto Rico, in May 1977 in London, in July 1978 in Bonn, in June 1979 in Tokyo, in June 1980 in Venice and in July 1981 in Ottawa. As far as economic problems are concerned, the results of the conferences were confined to published declarations of the most general nature, with promises to strive for a stabilisation of the monetary system, to fight unemployment and inflation, to avoid applying protectionist measures, and to assist countries with balance of payments deficits.

The fact that conferences at such a high level were unable to come to any practical decisions reflects the great anxiety felt by the ruling circles of the leading countries of monopoly capitalism and their obvious concern that economic contradictions should not undermine militarypolitical blocs.

Thus, the system of economic diplomacy is becoming increasingly complicated and is undergoing a certain evolution. Initially, after the last war, international economic organisations were created on the initiative of the USA and functioned under its virtual control. Later, with the change in the balance of power, matters came to a certain division of functions: at broad international forums loyalty to the principles of

liberalism and equality is demonstrated; at conferences and associations of countries dominating the world capitalist market, the general principles are agreed for actual measures, while these measures themselves are specified in bilateral negotiations. The latter take account of the general situation, common interests against third parties, and especially the real balance of power between the parties participating in the talks. It is at just such bilateral talks that the decisions are made which later appear in the form of "voluntary limitations" on the export of individual commodities or obligations with respect to imports. The essence of the matter is that, on the basis of the principle of `` liberalisation'', unilateral quota systems are prohibited. Speaking figuratively, however, the setting of quotas is shown the door, but it climbs back through the window: "voluntary limitations" consist in country A assuming an obligation not to exceed a specific sum in its exports of individual products to country B. If there is an imbalance of payments, country A, showing a deficit with respect to country B, seeks an increase in purchases from the latter, often of a fixed product range. Although decisions concerning changes in currency exchange rates are most often taken within the IMF, they are usually preceded by bilateral talks, with one side bringing pressure to bear on the other for it to devalue or revalue its currency. In spite of the formal liberalisation of capital imports, transactions of any significance concerning long-term investment are, as a rule, co-ordinated at government level, while the most important are discussed by the bilateral committees mentioned. For the countries of monopoly capitalism, the bilateral nature of talks is of major signif-

icance in their relations with the newly independent states, this being seen, in particular, in the character of so-called "economic aid", which is mainly spent on maintaining pro-imperialist forces and regimes and for which the developing countries have to pay with concessions that lead to the continuation or restoration of their economic or political dependence.

Throughout the history of capitalism, there have been clashes between protectionist and liberalist trends in the economic relations between the industrialised countries. If the formal content of foreign economic policy in the postwar years is meant, it takes place under a facade of the predominance of Kberalist trends, as is manifested primarily in the abolition and reduction of quantitative restrictions, in mutual reductions of import duties, etc. The real content of the changes in international economic relations is different, however: the world energy crisis, the intensification of the problem of the environment, the new laws in monetary relations, the consolidation of the positions of the developing countries, the shifts in the export of capital and the development of multinationals have all sharply heightened the significance of non-value factors, above all political ones. No economic diplomacy can bring about the elimination of such protectionist means as open or hidden tax concessions, state credit or other support for the development of export or importsubstituting industries, as state support for the dumping of export capital, as the functioning of open or secret cartels directed against foreign competitors, and so on and so forth. In other words, no ``liberalisation'', no declaration of the principles of the "open economy" can eliminate or even considerably weaken the profoundly na-

tionalistic character of state-monopoly protectionism, which arose from national means of state regulation of the economy and is an inalienable part of it, Economic diplomacy appears as a form, developing on the basis of modern international relations, of the struggle for sales markets and sources of raw materials, for a new division of spheres of economic domination and influence.

value may be trifling in comparison with the gross national product. In 1955 imports of raw cotton, for instance, accounted for only 0.5 per cent of Western Europe's GNP, imports of all nonferrous ores and metals combined for 0.8 per cent; even the value of crude oil and refined petroleum imports barely exceeded 1 per cent of aggregate European GNP. But if the supply of only one of these or of certain other goods were cut off, the European economy would be threatened with a serious breakdown" (Europe's Needs and Resources. Trends and Prospects in Eighteen Countries. Twentieth Century Fund, Macmillan and Co. Ltd., New York, 1961, p. 637).

~^^13^^ V. I. Lenin, "Imperialism, the Highest Stage of Capitalism", Collected Works, Vol. 22, p. 269.

~^^14^^ Oriental Economist, June 1972, pp. 20-21.

~^^15^^ Ibidem.

~^^16^^ Ibidem.

~^^17^^ "The chronic balance of payments deficit [of the USA---Author]" wrote the French economist L. Stoleru, "shows that no individual country must be allowed to issue money that must, at the same time, serve for settlements of its own debts and as a reserve currency... The reserve currency cannot be the result of the issue of money by the central bank of a certain country, since this country, when using such a currency, acts both as judge and interested party. Why not, therefore, entrust a 'world bank' with this task?" (L. Stoleru, L'Equilibre et la Croissance Economiques. Principes de Macro economic, Dunod, Paris, 1967, p. 194). This is a formulation of the fact that central banks are not simply technical institutions for the issue of money, but bodies with very important political functions. This is why the establishment of a "world bank", i.e., an international credit institution with the might and functions of central banks, is most unlikely.

~^^18^^ Xenophon Zolotas, International Monetary Issues and Development Policies, Bank of Greece, Athens, 1977, p. XIX.

~^^19^^ Ibid., p. 97.

~^^20^^ Ibid., p. 70.

~^^21^^ F. Machlup, Der Aussenwert des Dollars, Mohr, Tubingen, 1974, p. 47.

~^^22^^ At the time when the so-called gold pool existed (i.e., up to the early 70s), Xenophon Zolotas wrote the following: "The conclusion to be drawn is that gold profiteers have become the masters of the international

References

~^^1^^ Karl Marx, Capital, Vol. Ill, Progress Publishers, Moscow, 1974, p. 143.

~^^2^^ Karl Marx, Capital, Vol. I, Progress Publishers, Moscow, 1974, p. 19.

~^^3^^ V. I. Lenin, "Imperialism, the Highest Stage of Capitalism", Collected Works, Vol. 22, p. 200.

~^^4^^ Karl Marx, A Contribution to the Critique of Political Economy, Progress Publishers, Moscow, 1978, p. 214.

~^^5^^ Karl Marx, "The Poverty of Philosophy", in K. Marx, F. Engels, Collected Works, Vol. 6, Progress Publishers, Moscow, 1976, p. 187.

~^^6^^ Karl Marx, Theories of Surplus-Value, Part III, Progress Publishers, Moscow, 1975, p. 253.

~^^7^^ Karl Marx, A Contribution to the Critique of Political Economy, p. 215.

~^^8^^ Karl Marx and Frederick Engels, "The German Ideology", in Collected Works, Vol. 5, Progress Publishers, Moscow, 1976, p. 32.

~^^9^^ Karl Marx, Capital, Vol. Ill, p. 336.

~^^10^^ Ibid., p. 238.

~^^11^^ Tsusan tokei, No. 10, 1975; Tsusan hakusho. Kakuren, 1975.

~^^12^^ Here is what is written on this in an American book Europe's Needs and Resources: "The over-all ratio of trade to GNP is, of course, a very crude measure. It does not bring to light the fact that certain goods imported from overseas are, like vitamins or hormones to the human body, indispensable to the smooth functioning of the European economy, though their money

thonetary system and dominate our economic destinies" (Xenophon Zolotas, Op. cit., p. 111).

~^^23^^ MaTjoxiiH T. T. «ropHmie Aeni>rn», Mocnaa, 1974, cxp.100.

~^^24^^ These qualities were connected with the lag in changes in internal prices with respect to those resulting from exchange rate changes. For clarity, let us lake an example from before the war: let a Japanese corporation sell 1 million dollars' worth of its commodities in the USA and, at the exchange rate of the time, change them into 2 million yen. If, tomorrow, the yen exchange rate with respect to the dollar drops by 10 per cent, the corporation will receive 2,200 thousand yen for its million dollars and, before prices rise in Japan, it will have time to rake in quite a bit, thus strengthening its position on foreign markets.

~^^25^^ BorAanoB 0. C. «BanroTHaH cncTeina coapeMeHnoro KanHTajiH3Ma», MocKBa, 1976, cip.204.

~^^26^^ The authors of one special piece of research into currency problems write: "Two general factors are central to the delineation of alternative monetary regimes: first, the trend toward international market integration, as it serves paradoxically both to enhance and to restrict in different ways the attainment of specific goals of national policy; second, the trend toward greater national assertiveness in efforts to buffer national economies from increased interdependence" (F. Hirsch, M. Doyle, E. Morse, Alternatives to Monetary Disorder, McGraw-Hill Book Company, New York, 1977, p. 73).

~^^27^^ Ibid., p. 137.

~^^28^^ Xenophon Zolotas, Op. cit., p. XXV.

~^^29^^ V. I. Lenin, "A Caricature of Marxism and Imperialist Economism", Collected Works, Vol. 23, p. 43.

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