PROGRESS
Guides to the Social Sciences
Guides to the Social Sciences
__TITLE__ THE TEACHINGTHEORIES
Edited by
Prof. A.D. Smirnov, D.Sc. (Econ.), Prof. V.V. Golosov, D.Sc. (Econ.), and V.F. Maximova, C.Sc. (Econ.)
Translated by H.Campbell Creighton, M.A. (Oxon.)
Progress Publishers Moscow
Translated from the Russian Designed by Vadim Kuleshov
Contributors: L. A. Alexandrov, C.Sc. (Econ.); S.B. Alpatov, C.Sc.
(Econ.); O. N. Antipova; Prof. E. M.Bukh, C. Sc. (Econ.); Prof. Y.L. Dostova-
lov, D.Sc. (Econ.); Prof. A. P. Goleva.C.Sc. (Econ.); Yu.P.Goleva, C.Sc.
- .. „ „_,----- „ Q/, nr.cnn.V N. M. Kaltakhchian, C. Sc.
CONTENTS
A. M. Kogan, D. Sc. (Econ.); Prof. K.. U. n.orneev», w. .*».. \^~....,, .. .._. rina, C. Sc. (Econ.); V. N. Lebedev, C. Sc. (Econ.); G. A. Ligay, C. Sc. (Econ.); E. A.Maryganova, C.Sc.(Econ,); V.P.Matveev, C.Sc.(Econ.); V.F.Maximova, C. Sc. (Econ.); T. Y. Mikhalkina, C. Sc. (Econ.); M. V. Minaeva, C. Sc. (Econ.); G. G. Mokrov, C. Sc. (Econ.); M. V. Pashkovskaya, C. Sc. (Econ.); A. S. Pikin, C. Sc. (Econ.); K. M. Radaeva, C. Sc. (Econ.); Prof.M. N. Ryndina, D. Sc. (Econ.); M.F. Shchagina, C.Sc.(Econ.), Prof. A.D.Smirnov, D.Sc.(Econ.); Prof. G.N. SorvinavD. Sc. (Econ.); Prof. F. M. Volkov, C. Sc. (Econ.).
Preface Prof. A. D. Smirnov, D. Sc. (Econ.)
9
Parti
THE METHODOLOGICAL APPROACH TO
ANALYSIS OF NON-MARXIAN ECONOMIC THEORIES
12
Chapter 1 The Majn Features of Contemporary Western Political Economy, Right-wing Socialist Theories, and Revisionism. Prof. M.N. Ryndina, D. Sc.(Econ.) 12
1. The crisis of capitalist political economy
12
2. The main trends of-modem political economy
17
3. Right-wing socialist and revisionist economic theories
22
Chapter 2 Definitions of the Subject Matter of Political
Economy. Prof. A. D. Smirnov, D. Sc. (Econ.)
25
1. The definition of political economy as the science
of wealth, business, and satisfaction of needs
25
2. The subject matter of 'economics*
28
3. Bourgeois objectivism and its class essence
33
Part II CRITIQUE OF NON-MARXIAN ECONOMIC CONCEPTIONS OF CAPITALISM
3 5 Chapters The TreatmemSof Value and Money
35
1. Principal concepts of the theory of margianl utility. Prof. A. M. Kogan, D. Sc. (Econ.), V. F. Maximova,
C. Sc. (Econ.)
35
2. The methods of the capitalist critique of Marx's theory of value. Prof. A. M. Kogan, D.Sc. (Econ.) 40
3. Present-day ideas of the essence of money. Prof.
V. V. Golosov, D. Sc. (Econ.)
45
4. Western ideas of inflation. V. F. Maximova, C. Sc. (Econ.)
51
Chapter 4 Definitions of Capital and Surplus Value. Prof. A. P. Goleva, C. Sc. (Econ.) and Yuv P. Goleva, C. Sc. (Econ.)
60
1. Non-Marxian definitions of capital
60
2. The interpretation of capitalist exploitation
65
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Chapter 5 Western Views of Wages and Unemployment
1. The 'productivity theory of wages. T. Y. Mikhalkina, C. Sc. (Econ.)
2. The `social' interpretation of wages. V. N. Lebedev, C. Sc. (Econ.)
3. The 'inflationary spiral' theory. V. N. Lebedev,
C. Sc. (Econ.)
4. Present-day Western ideas about unemployment. E. A. Maryganova, C. Sc. (Econ.)
Chapter 6 Ideas of Profit and Interest
1. The Marxist and non-Marxist approaches to the analysis of profit. O. N. Antipova
2. Neoclassical theories of profit. O. N. Antipova
3. Institutional-social theories of profit. O. N. Antipova
4. Views on interest. Prof. V. V. Golosov, D. Sc.
(Econ.) Chapter 7 Bourgeois and Reformist Agrarian Conceptions
1. Views on rent. E. I. Karpikov, C. Sc. (Econ.)
2. Notions of types of agricultural undertaking. A. S. Pikin, C. Sc. (Econ.)
Chapter 8 Interpretations of Reproduction
1. Views of social product and national income. Prof. E. M. Bukh, C. Sc. (Econ.), L. A. Alexandrov, C. Sc.
(Econ.)
2. Keynes' and the Neokeynesian theory of the trade cycle. V. N. Lebedev, C. Sc. (Econ.)
3. The monetarist theory of the business cycle. V. N. Lebedev, C. Sc. (Econ.)
Chapter 9 The Interpretation of Monopoly Capitalism
1. Concepts of monopoly. Prof. V. V. Golosov, D. Sc. (Econ.)
2. The interpretation of finance capital. Prof. V. V. Golosov, D. Sc. (Econ.), V. P. Matveev, C. Sc. (Econ.)
3. The export of capital. Prof. V. V. Golosov, D. Sc.
(Econ.)
4. The treatment of international monopolies. Prof. V. V. Golosov, D. Sc. (Econ.)
5. Non-Marxian definitions of imperialism, Revisionists' views of the character of today's epoch. Prof. K. G. Korneeva, C. Sc. (Econ.)
ChapterlO The Role of the State in the System of State Monopoly Capitalism. Prof. G. N. Sorvina, D. Sc. (Econ.)
1. State monopoly processes as reflected in capitalist economic thought
2. The place of the state in the system of state monopoly capitalism
3. The apologia for the socio-economic consequences of state interference in the economy
Chapter 11 Theories of Economic Growth. Prof. M. N. Ryndina, D. Sc. (Econ.)
71 71 73 77
80 88
88 89
97 100110 S110
114 118
118 126
133 137
137 144
150 158
167171 171 172 175 180
1. Neokeynesian theories
2. Neoclassical theories
3. The crisis of theories of economic growth Chapter 12 The Interpretation of Neocolonialism and the
Economies of Developing Countries
1. The theory of neocolonialism. Prof. Y. L. Dostovalov, D. Sc. (Econ.), S. B. Alpatov, C. Sc. (Econ.)
2. Concepts of socio-economic underdevelopment Prof. Y. L. Dostovalov, D. Sc. (Econ.)
3. Interpretations of liberated countries' paths of socio-economic development. S. B. Alpatov, C. Sc. (Econ.)
180 184 187
190 190 200
208Part III CRITIQUE OF NON-MARXIAN ECONOMIC
VIEWS OF DEVELOPED SOCIALISM
215
Chapter 13 Non-Marxian Views of the Establishment of Socialist Society
215
1. Ideas of the transition period between capitalism
and socialism. M. F. Shchagina, C. Sc. (Econ.)
215
2. Theories of 'co-operative socialism'. T. Y. Mikhalkina, C. Sc. (Econ.)
221
Chapter 14 Capitalist Views on Socialist Properly. T. M. Kosterina, C. Sc. (Econ.), M. V. Pashkovskaya, C. Sc. (Econ.)
225
Chapter 15 Notions of the Economic Laws of Socialism, and
Economic Interests. G. A. Ligay, C. Sc. (Econ.)
233
1. Views of the economic laws of socialism
233
2. Interpretations of economic interest under socialism
237
Chapter ^Interpretations of Planned and Balanced Development of the Socialist Economy. N. M. Kaltakhchian, C. Sc. (Econ.) .
243
1. Planning in the notions of the 'impracticability of socialism' and of 'command economy'
243
2. The theorists of the 'industrial society' on planning 246
3. Balanced development and planning in the ideas of 'Frankfort School' and right-wing revisionists
248
4. Views on improving planned management in socialist countries
250
Chapter 17 Non-Marxian Ideas of Money-Exchange Relations.
Prof. S. A. Khavina, D. Sc. (Econ.)
253
1. The treatment of the substance, functions and theory of money-exchange relations
253
2. Conceptions of the 'second economy' and the interpretation of real socialism as a 'mixed economic system'
257
Chapter 18 Notions of the Distribution of Material Wealth and Incomes under Socialism. Prof. Y. L. Dostovalov, D. Sc. (Econ.)
263
1. Western economists on the distribution of consumer
goods in socialist society
263
2. The Western interpretation of social consumption
268272 272
276282 282 287
293Preface
funds
Chapter 19 Non-Marxian Conceptions of Management Accounting. K. M. Radayeva, C. Sc. (Econ.)
1. The treatment of the socialist enterprise
2. Distortion of the essence and principles of Soviet management accounting
Chapter 20 Non-Marxian Notions of Price and Profit under
Socialism
1. The treatment of prices and price formation.
M. V. Minaeva, C. Sc. (Econ.)
2. Ideas of the substance and role of profit under socialism. K. M. Radaeva, C. Sc. (Econ.)
Chapter 21 Western Economists on the Patterns of Socialist
Extended Reproduction
1. The categories of reproduction of the gross social
This critique of non-Marxian views and ideas in the teaching of economics in the West has been written by a group of professors and teachers at the Moscow Institute of Economics and Statistics and other Moscow colleges. The critique is not a history of economic theory, nor an exposition in detail, or as a whole, of the views of the economists whose work is considered. Attention has been paid mainly to contemporary ideas, which are treated mainly on the logical rather than the historical plane.
The structure of the book has been dictated by the nature of the course of political economy in the higher schools of the USSR, and Western economic views are examined in line with the themes of the Soviet syllabus. It is therefore not so much designed for the general reader as for the student of economics and anyone following a course in Marxist political economy.
Allowance has been made for the fact that the views and ideas of individual economists and economic schools include related ideas on a number of problems of political economy. Keynes' theory of 'full employment", for example, is closely bound up with the theory of reproduction and his ideas on money, credit, and finance; certain general features of his theory are consequently dealt with in different chapters of our book.
Today the ideological battle of labour and capital, and of the two world social systems of socialism and capitalism has become very acute, which makes it particularly important to make a critical analysis of non-Marxian economic views both when teaching political economy and other economic disciplines, especially the economy of socialism, and in research. The point is that there is a great gap and difference between the ideas developed in Western economic journals and the treatment they are accorded in the textbooks commonly used in university and college courses. It must also be noted that the writers of economics textbooks vary their ideas, adapting them to the new conditions evoked by the deepening general crisis of capital-
293product as treated by Western economists.
L. A. Alexandrov, C. Sc. (Econ.)
2. Western authors' views on the reproduction of
labour power in socialist society. Prof. F. M. Vol
296kov, C. Sc. (Econ.)
3. The problem of the ratio of accumulation and
consumption under socialism. G. G. Mokrov, C. Sc.
300Chapter 22
(Econ.)
'. Non-Marxian \~uuv.&puv«.u------ the World Socialist Economic System
-• • •-------1~«~~ ^f Wolline i
evelopment of
3061. The false interpretation of levelling up and convergence hi the community of socialist nations; N. M. Kaltakhchian, C. Sc. (Econ.)
2. Conceptions of socialist economic integration. N.M. Kaltakhchian, C. Sc. (Econ.)
3. Interpretations of the economic co-operation of socialist and capitalist countries. Prof. V. V. Golosov, D. Sc. (Econ.)
Appendix. Western Economists of the Twentieth Century. V. F. Maximova, C. Sc. (Econ.)
306 308
313 324
ism and the steadily increasing impact of the world system of socialism on social development. Our book demonstrates how they endeavour to justify and embellish exploitation and to discredit Marxist-- Leninist theory. The lecturer's analysis of various concepts has an important bearing on the development of progressive views and the tackling of topical problems of social science. It therefore calls for consistent application of a number of methodological principles. One of these is the criteria for selecting the theories to be considered. It has seemed undesirable, for instance, to try and evaluate all the existing anti-Marxian economic theories. A main criterion has been to concentrate attention chiefly on contemporary theories. Earlier views are referred to only in so far as is needed to clarify the sources of
current conceptions.
A second criterion by which we have been guided is how widely theories (i. e. modern theories) are held, and how far and to what extent they affect minds. When ideas are contemporary, but not widely held, they are usually hardly worth bothering about,
A third criterion for choosing theories to examine is closely linked with the foregoing one; it is the place the author of a view holds in the economic literature, and his influence on the development of modern views. We analyse the ideas, in particular, of such leading teachers as Paul Samuelson, John Kenneth Galbraith, Milton Friedman, Gregory Grossman, Raymond Barre, Franfois Perroux and Peter Wiles. It has also been found desirable, from this angle, to analyse the propositions contained in textbooks written by wellknown economists and enjoying considerable popularity in economics teaching (e. g. Samuelson's textbook).
Yet another criterion has been the significance of certain problems for political economy. We have concentrated primarily on views related to such key topics as property, planning, distribution, and commodity-money relations. This is particularly important in teaching, since students become acquainted with the main features of the economic system through their study of political economy and other economic disciplines. It is also improtant to counterpose the MarxistLeninist treatment of these matters to the non-Marxist.
The main principles guiding criticism of economic theories in teaching are methodologically extremely important. They are, basically, to bring out the unsoundness of the methodology of the theories analysed; to criticise the subjective idealist approach of authors to economic phenomena, and the falsity of their unhistorical interpretation of economic processes; and to demonstrate that a number of theoretical constructs are based on a mistaken exchange conception and have either an idealist or a vulgar-materialist character. We have paid special attention to authors' rejection of the determinant role of production, and of the relations of production, in society's economic affairs, and their denial of the operation of objective economic laws. Bourgeois methodology has been countered by a Marxian one that
emphasises the superiority of the method of materialist dialectics.
' Our analysis of non-Marxian economic theories brings out their class essence and socio-political meaning. It was not sufficient for that just to demonstrate the apologist character of one theory or another; it has also been necessary to expose the new methods employed by today's apologists, which are glaringly demonstrated, for example, in the opposing of young Marx to mature Marx, and of Marx's theories to Lenin's, and in the various versions of the theory of the `transformation' of capitalism. We also deemed it important to show that a characteristic feature of modern capitalist political economy is its anti-communism. We have not, of course, completely identified capitalist and petty-bourgeois conceptions when giving students an understanding of their common features.
Certain real facts of economics are treated in a distorted way in Western views, the significance of some being exaggerated and hypertrophied and that of others, on the contrary, minimised or even altogether ignored. Our criticism of this approach brings out the unscientific character of such ideas on the one hand, while making it possible on the other to demonstrate that it is Marxist-Leninist political econoiny that adequately reflects the objective correlation of economic phenomena and processes.
It is becoming methodologically more and more important to criticise economics syllabuses, since they play a big role in modern ideological affairs, and in moulding the outlook of the intellectuals of both developed and developing capitalist countries. Many of the propositions of `Economies' courses provide the theoretical basis of Western propaganda against socialism.
Criticism of the syllabuses helps clarify which capitalist theories are most popular these days, which most mould the class outlook of the intelligentsia, and which play the maximum role in Western propaganda and are the foundation for new economic schools and trends.
The methodological basis of our critique is to be found in the works of Karl Marx, Frederick Engels, and V. I. Lenin. Economic phenomena have been examined, in accordance with this, in their interconnection and mutual dependence, and continuous movement, change, and development, in their contradictory essence, and in the growth of gradual quantitative changes into radical, qualitative ones. When analysing economic processes, and bringing out their deep connections, Marxist-Leninist political economy proceeds from the simplest categories to more complicated ones, and to the concrete whole in all its variety and diversity. Such is the approach we have employed in examining Western views in the teaching of economics.
10PART I
State management of the capitalist economy has not led, either, to the elimination of unemployment. At the same time it has gone hand in hand with growth of the public debt and inflation. The bankruptcy of capitalist political economy has thus become obvious in both theory and practice.
Many Western economists placed great hopes on the scientific and industrial revolution, thinking it would lead to mass production of cheap goods, an improvement in standards of living, and elimination of social conflicts. Their hopes, however, were not justified. Ideologists of capitalism have been forced to recognise that the consumer society has landed up a blind alley, and that technique is being mobilised to increase the prosperity of who are not in need of it, to the detriment of those who are in need of everything.
There are few economists now who think capitalism an ideal system, but ideologists of capitalism still look for the reasons for its shortcomings in ideology, or engineering and technology, or relations between society and nature, rather than in the mode of production. Some, including the American economist J. K. Galbraith, think the defects of the capitalist economic system to be organic. Galbraith writes, for example, about the American system:
Unequal development, inequality, frivolous and erratic innovation,
environmental assault, indifference to personality, power over the state,
inflation, failure in inter-industry coordination are part of the system as
they are part of the reality. Nor are these minor defects, in the manner
of a misshapen wheel on a machine, which once identified and isolated
can then be corrected. They are deeply systemic. *
These admissions by a leading Western economist in themselves
present a certain interest, for they are evidence that the position in
the capitalist world can no longer be veiled, and that it is becoming
more and more difficult to blame capitalism's defects on human nature.
Much attention is being paid in contemporary Western literature
to the fate and fortunes of capitalism.
There are many versions of its prospects: e. g., ideas about a postindustrial society; a series of myths about the 'transformation of capitalism'; theories of convergence of every possible kind. In all cases, however, there is a single characteristic feature, namely the impossibility of frankly vindicating and defending the principles of capitalism, and forced recognition that the future is not its. Features are ascribed to capitalism, it is especially important to note, that are not in fact inherent in it, namely socialisation of property, equalisation of incomes, elimination of class differences, abolition of exploitation, and so on. These theories reflect both the crisis of capitalism and the crisis of bourgeois ideology. Spokesmen of various currents of futurology suggested that the 70s would be a time of reformation of
THE METHODOLOGICAL APPROACH TO ANALYSIS OF NON-MARXIAN ECONOMIC THEORIES
THE MAIN FEATURES
OF CONTEMPORARY WESTERN POLITICAL ECONOMY,
RIGHT-WING SOCIALIST THEORIES,
AND REVISIONISM
1. The crisis of capitalist political economy
Bourgeois ideology, political economy included, is undergoing a deep crisis that is nothing else than an expression of the general crisis of capitalism.
The essence of the crisis of capitalist political economy is comprehensively defined in the Programme of the Communist Party of the Soviet Union, as follows:
Bourgeois doctrines and schools have failed in the test of history. They have been and still are unable to furnish scientific answers to the questions posed by life. The bourgeoisie is no longer in a position to put forward ideas that will induce the masses to follow it. More and more people in the capitalist countries are renouncing the bourgeois world outlook.'
An important factor deepening this crisis has been the new qualitative shifts that have taken place in today's stage of the general crisis of capitalism, above all the continuing changes in the balance of power of the two world systems in favour of socialism, the increasing economic and socio-political instability of developed capitalist countries, the growth of the national liberation movement into a fight against all forms of exploitation whatsoever, the intensification of inter-- imperialist contradictions, and the monetary and financial crisis.
One important way in which the crisis of capitalist political economy is manifested is forced recognition of the shortcomings of capitalism. In the 1930s the British economist John Maynard Keynes wrote that the capitalist economy could not generate full employment of people and resources without state direction. In the 1960s and 1970s it had become evident to Western economists that state intervention in economic affairs, though it influenced the character of declines in production, could not, however, eliminate them and ensure steady growth.
~^^1^^ The Road to Communism (Foreign Languages Publishing House, Moscow, 1961), p 497.
12' John Kenneth Galbraith. Economics and the Public Purpose (A Signet Boole, New York, 1973), p 204.
13capitalism in which its basic contradictions and ills would be overcome. But the 70s were marked by a further deepening of its general crisis.
Some economists, really evaluating the threat from the revolutionary forces, switched from general theoretical arguments to working out concrete programmes and reforms designed to save capitalism. An example is Galbraith's book mentioned above, and his The Age of Uncertainty. He advocates socialisation of certain essential but unprofitable industries, and buying out of the shareholders of arms firms, introduction of progressive taxation, provision of a guaranteed income for everyone, and equal opportunities for education. He does not, however, indicate what social forces could carry out these reforms. He places his main hopes on eliminating false ideas of the essence and functioning of the economic system. His arguments are evidence that his programme does not envisage any radical changes in capitalism, above all, changes in property relations. He does not go beyond certain patching ups and readjustments aimed at softening and mitigating the conflicts of contemporary capitalism, which once more reaffirms that it is impossible to work out a positive programme to save capitalism.
Reformism more and more brings contemporary bourgeois theory closer to the ideologies of right-wing Socialists and Labour, and of right-wing revisionists of Marxism. There is a certain interpenetration of their ideas with the aim of building a united front against MarxismLeninism. At the same time this is a form of social manoeuvring intended to deceive the workers and divert them from revolutionary struggle. Socialist phraseology is also employed to this end. Western ideologists have been forced to allow for the fact that socialist ideas are becoming more and more popular among the masses of the people. Galbraith himself calls his recommendations in the book mentioned above The New Socialism.l
When we trace the history of capitalist political economy of the epoch of the general crisis of capitalism, it becomes obvious that it is a history of retreat before the success and advance of socialism. Recognition of the success of socialism, however, by no means implies a weakening of the fight against capitalist political economy; on the contrary, anti-communism has become the capitalists' main ideological and political weapon; its main content is slander and calumny of the countries of world socialism, falsification of Marxist-Leninist theory and of the policy of Communist and Workers' Parties. Today many Western economists can no longer deny the outstanding advances of the socialist countries and concentrate their efforts on minimising them.
While admitting the achievements of socialism, though in an understated form, non-Marxian ideologists present the reasons for them in a distorted light. They deny that socialism's progress rests on the prole-
tariat's winning of power, socialist ownership of the means of production, and the planned, proportionate development of the economy conditioned by that, and the other advantages of socialism. And they often develop their own models of socialism, and preach a pseudo-- socialism, endeavouring, in order to deceive the masses, to exploit the workers' sympathy for socialism so as to divert them from struggle for scientific socialism.
A feature of the present stage is the spread of veiled and disguised forms of fighting Marxism, ideologists sometimes talk about Marx's contributions to the solution of certain problems of economics. Some even come out in `defence' of Marx, accusing Communists of falsifying Marxism. Others turn to Marx for answers to issues being brought to the fore by historical development, or even try to employ certain tenets of Marxian theory to elaborate recommendations for economic policy, while rejecting the revolutionary conclusions of MarxistLeninist theory.
Because of the growth of the forces of socialism and triumph of Marxism-Leninism, some Western economists are beginning to under^ stand the historical doom of capitalism, and are gradually coming to recognise the inevitability of socialism. They are striving to reach an understanding of Marxist-Leninist theory and to make a proper appraisal of the changes taking place in the world. Their striving to analyse the facts objectively leads them to a change of class position, and to rejection of apologies for capitalism. These phenomena are evidence, in themselves, of the disintegration of capitalist political economy and the deepening of its crisis.
An important expression of this crisis is the frequent change in the forms of the apologia for capitalism, the more so that it embraces a broad range of problems and contains a repudiation of several basic tenets and conceptions as well as of certain secondary ones. The reason for this frequent change is primarily that these theories are regularly refuted by life and are not popular among the broad masses of the public. Since modem capitalist political economy is closely linked with economic policy and the working out of advice and recommendations in that area, and with substantiation of economic policy and analysis of its results, the failure of its theories is not only manifested in their having become unpopular with the masses, but is also to be seen in the sphere of economic policy, and in the growth of economic and sociopolitical instability in capitalist countries. The bankruptcy of state monopoly management of the economy, which was glaringly demonstrated in the mid-70s, is most typical in this respect. The deep economic crises of 1974-5 and the early 80s, mass unemployment, inflation, the structural crises of the world capitalist economy, the intensifying monetary and financial crisis, all struck a body blow to capitalist political economy.
In this connection there have been new qualitative swings in its development that have found expression in Western economists'
15i
John Kenneth Galbraith. Op. cit., p. 213.
14having to recognise the critical state of their subject and to suggest a need for a radical review of its basic dogmas and main kernel. Doubts have arisen, as well, about the methodology of the prevailing trends and schools. The clashes and discussions among the leading economists are also penetrating university lecture rooms. The point concerns a, radical restructuring of present-day Western political economy. As an, example, we may cite the lecture of Prof. Joan Robinson, of Cambridge University, at the 1971 meeting of the American Economic Association 'The Second Crisis of Economic Theory', in which she said that the first crisis had been in the 1930s, when capitalist political economy had proved incapable of dealing with the problem of employment. It was overcome by the appearance of Keynes' theory. After World War n, however, in new conditions, many of his ideas lost their significance. A thesis was advanced that a certain amount of unemployment was necessary in order to maintain a certain level of prices. In fact, however, prices rose together with the rise in unemployment. Nor did military spending help combat unemployment. Economic growth led to an increase of material wealth but did not lead, as many economists had thought, to the eradication of poverty. And a new problem had arisen, namely, pollution of the environment. Quite contradictory ways of tackling these matters were being proposed. And so far a theory of distribution had not been developed. There was an
evident bankruptcy of economic theory which for the second time has nothing to say on the questions that, to everyone except economists, appear to be most in need of an answer.1 While correctly characterising the present state of capitalist political economy, Mrs. Robinson, like other bourgeois economists, did not see the underlying causes of these phenomena in capitalism's antagonistic contradictions, over-rated the role of economic theory, and hoped that all these ills could be cured through the development of new theories and a new methodology. Great hopes were placed, in this respect, on mathematical methods of research and on the development of econometrics and economic mathematical modelling. It has become evident, however, that the economists' hopes have not been justified; that was not the fault of mathematics, but because mathematics was employed on the basis of an unscientific theory. That, however, is not the main point. The main point is that none of the means proposed can lead to removal of the difficulties being experienced by capitalist political economy in either the ideological or the practical field.
A characteristic feature of the present stage of this crisis is its progressing decay, the appearance of new trends calling for revision of the fundamentals of orthodox political economy rather than of its separate propositions. The attempts to make a new theory 'from the shreds and patches' have proved fruitless.
2. The main trends of modern political economy
An extreme eclecticism, effacing the boundaries between trends and schools, is typical of modern capitalist political economy. Nevertheless, when we take as our basis the character of the theoretical explanation (if economic processes, and the prevailing method of investigating and bating the ways of effecting economic processes, we distinguish two rflain trends in the Western literature: viz., theories of regulated capitalism and theories of free enterprise/or neoclassicism). Since the war an institutional-social trend has also taken shape and acquired increasing significance.
The advocates of regulated capitalism (primarily followers of Keynes, but also including the French dirigistes), while recognising capitalism's shortcomings, have lost faith in an automatic self-- regulating of capitalism. They have brought `macroanalysis' to the fore, i. e. take a survey of the economy as a whole as their basis and of such matters as national income, accumulation and consumption, aggregate supply and demand, and so on. They consider the capitalist state to be the main directing force of economic development. The principal defects of these theories are their ignoring of the class essence of the capitalist state (which is depicted as a national one), their overestimation of its economic role, and the idea that the ailments of capitalism stemming from its essence can be healed by means of the state.
The other trend asserts that balanced growth, i. e. equilibrium between supply and demand, can be ensured through the mechanism of the market and competition. They start from microanalysis, i. e. begin study of the economy with a survey of the motives of the individual firm's or enterprise's behaviour and of the prices of individual commodities, in order later to draw conclusions about the whole economy, which is pictured as nothing more than the aggregate of the business units linked through the market. These economists suppose that the state's role should be reduced simply to supporting and maintaining conditions favouring free competition. The name of this trend also follows from that. Western economists call all authors of the eighteenth and early nineteenth centuries classical, beginning with Adam Smith, who stood for economic freedom and opposed government interference in the economy, putting forward the idea that natural, universal laws operate in society. Among the classical truths they include, above all, the theories of marginal utility and marginal productivity. The adherents of this trend do not take into account the changes that have taken place in capitalism, and the deepening of the contradictions of capitalist reproduction, as a result of which its economy has lost the property of self-regulation. The best-known spokesmen of this trend are the economists of the Chicago school, above all Milton Friedman in the USA, the economists of the London School of Economics in Great Britain,and the neoliberals in West Germany.
A modern version of the theory of free enterprise is the moneta-
17~^^1^^ Joan Robinson. The Second Crisis of Economic Theory. The American Economic Review, 1972, 62, 2:9-10.
16rism preached by the Chicago school. Its essence is the claim that the main focus of capitalism's instability lies in the monetary sphere, and that regulation of this sphere is the way to eliminate disturbances of the reproductive process. The global strategy of monetarism for rehabilitating capitalism is to restore confidence in its efficiency, and in the possibility of economic growth withdut stimulating injections
from the national budget.
Representatives of the institutional-social (sociological) trend are sceptical of attempts to find patterns of the development of production in the relationship between incomes, savings, and investment. These economists also question the universal character of the `eternal' dogmas and social values of the neoclassicists. The institutionalists bring to the fore people's social relations and the role of these relations in understanding economic processes, but they interpret them in their own way, and distort them in order to defend capitalism. They omit, for instance, to mention the main point, viz., the relations between classes, relations in the production process, and capitalists'exploitation of workers. The sphere of exchange, forms of organisation of the market, and moral principles are stressed, so that it is concluded that capitalism can be improved by passing to an organised market and perfecting moral and ethical standards.
The supporters of this line also include theorists who make direct changes in the technology of production the basis of society's development, i. e. the technocrats (theories of 'stages of economic growth', 'the industrial society', and the many other theories of the transformation of capitalism). An ignoring of capitalist relations of production and a striving to find some alternative to communism is characteristic of all of them. Some draw conclusions, from their reasoning, about `convergence', i. e. about a coming together of the two world systems of capitalism and socialism. The spokesmen of this trend include th6 American economists J.K.Galbraith, Walt Rostow, and Peter Drucker, and the French scholars Francois' Perroux and Jean
Fourastie.
Thus none of the main trends reflects the real state of the capitalist economy, though each starts from certain real processes. They treat these processes, however, in a one-sided, distorted way, without penetrating to their essence.
Because of the objective developmentof state monopoly capitalism, theories of regulated capitalism have a leading role. But the significant increase in the influence of the institutional-social trend needs, at the same time, to be noted. This is linked (1) with the sharpening of the class struggle and growth of the national liberation mevement and the impossibility of ignoring social relations and social factors and their role in the development of society; (2) with the current scientific and industrial revolution, which is serving as the basis for a whole series of technocratic theories; and (3) with the crisis of the subjective-- psychological approach characteristic of Keynes and his followers, by which
the roots of economic processes are sought in people's psychology.
In the 1970s and 19,80s the neoclassical or neoliberal trend became popular once again, this being brought forth by the crisis of state monopoly regulation. Many of its spokesmen completely support all measures of state interference aimed against the workers. Their objections concern such forms as price control, increase of appropriations for social needs, and so on. Although there are disputes and debates among these trends, it should not be forgotten that they all pursue the same end, viz., defence of capitalism, and a search for new ways of propping it up. Their differences boil down, in the main, to the forms and methods of achieving that end.
The ideologists of the national middle class of liberated countries have a special place in Western political economy. They endeavour to work out ideas of development that would provide the theoretical basis for economic policy in these countries. For that purpose they employ both the theories of regulated capitalism and certain propositions of the theorists of free enterprise, trying to adapt them to the conditions in these countries. As a rule these ideologists pass the interests of the national middle class off as those of the whole country and nation, concealing the worsening position of the masses of the working people. The combination of anti-imperialist and narrow class tendencies reflects the contradictory, dual nature of the national middle class of developing countries.
In the 1970s the differentiation within the trends of capitalist political economy became greater, which reflected the mounting aggravation of the contradictions between monopoly capitalists on the one hand and small to middling businessmen on the other. These disagreements concern both theoretical issues and practical propositions. The most reactionary currents aimed at justifying state monopoly capitalism include neofascist theories.
The influence of left Keynesianism, represented by the British economists Joan Robinson, Piero Sraffa, and Nicholas Kaldor, it must be noted, grew (they are called neo-Marxists in the Western literature). They actively criticised the neoclassical trend. Sraffa, for example, exposed the bankruptcy of the thesis of the predominance of free competition, refuted the neoclassicists' claim that the striving to maximise profit ensured optimum use of resources and a `fair' distribution of national income. Basing himself on Ricardo's theory of value, Sraffa criticised the theories of marginal utility and marginal productivity and the neoclassicists' theory of distribution. While not, in principle, refuting the mistaken idea of the productivity of the factors of production, he pointed out the inner contradictoriness of neoclassicists' ideas and also examined the main dogmas used both by neoclassicists and the other trends, especially in treating such categories as prices, wages, profits, capital, etc.^
~^^1^^ See Pieto Sraffa. Production of Commodities by Means of Commodities. Prelude to a Critique of Economic Theory (C.U.P., Cambridge, 1960).
19 18The ideologists of free enterprise, who express the interests of the monopolies, act as apologists of Big Business, call for a lowering of corporation taxes, and justify anti-labour legislation. The spokesmen of small and middling business criticise the dominant influence of the monopolies. Freedom of enterprise, in their conception, is limitation of the monopolies' power, and freedom for small business. At today's stage of the general crisis of capitalism the ideologists of the nonmonopoly bourgeoisie have been considerably revitalised. They expose the monopolies and adduce interesting facts that can be quite well employed to expose the monopolies' apologists. At the same time, however, their critique of the monopolies is limited in character. They also attack socialism and stand for the maintenance of free-- competition capitalism, without realising that free competition gives rise at a certain stage to monopoly.
The growing differentiation within the main trends is accompanied with tendencies for them to come together; that applies in particular to the ideologists of monopoly capital, i. e. to the right wing of both trends. The objective basis for this convergence is the further growth of state monopoly capitalism. In these circumstances the apologists of free enterprise are forced to recognise the necessity of state interference in the economy, albeit on a limited scale.
The possibility of a convergence of the trends in political economy lies in the eclecticism characteristic of all Western economics. Economists of both trends often start from one and the same theories in their treatment of many theoretical problems, e. g. prices, wages, profits. The basis of their tendency to converge is also the aggravation of the ideological struggle, and the fact that' no one trend satisfactorily explains the acute problems or can suggest effective means for achieving stable growth rates.
The clearest expression of this tendency is the American economist Samuelson's theory of neoclassical synthesis. In his view this synthesis will eliminate the gap between macroeconomics and traditional microeconomics. Like all advocates of theories of regulated capitalism, Samuelson assumes that free competition leads to underemployment both of people and of resources. Governmental interference should overcome crises and unemployment, and create full employment, but at the same time keep competition within reasonable limits. As a result a mixed economy is obtained, a combination of private and public enterprise. Given full employment the classical principles formulated in marginal utility and marginal productivity theories (which he takes as the basis of his theory of value and distribution) get full force. In fact, Samuelson employs propositions of the both trends, starting from market conditions.
The rise of a neoclassical synthesis is due to the endeavour of the monopolies' ideologists to mobilise the whole arsenal of capitalist political economy to fight Marxist-Leninist economic theory and save capitalism. The neoclassical synthesis is not some new theory but an
eclectic combination of the main principles of the first two trends above, with a leading role for theories of government regulation of the capitalist economy. Samuelson also includes Galbraith's main propositions in his neoclassical synthesis; the latter attaches great significance to scientific innovation and such forms of regulating the economy as long-term contracts between government, big corporations, and trade unions. The aim of his proposals is to strengthen state monopoly control, and more broadly to employ methods of social manoeuvring to soften social conflicts.
The neoclassical synthesis consequently contains all the defects characteristic of each of the three trends in capitalist political economy considered above. Samuelson also disdained to analyse the whole set of socio-economic relations and elements of today's capitalist system. The crisis of the mid-70s signified the complete collapse of the neoclassical synthesis as a theoretical foundation for capitalist countries' economic policy.
Radical political economy, which arose in the mid-60s and became particularly popular in the USA, is a comparatively new trend in the economic views of capitalist society. Its spokesmen are the American economists Donald Gordon, Earl B. Hunt, and Howard Sherman. The rise of this trend is itself evidence that the crisis of capitalist political economy is deepening and differentiation growing among economists. This trend is not a united one, either in its class nature or in its theoretical ideas. Two wings are distinguishable, viz., bourgeois radical liberals and left radicals expressing the interests of the petty bourgeoisie; among the latter a New Left is distinguished that represents the ideology of that part of the petty bourgeoisie who have been pulled into the ranks of wage labour but have not yet acquired a proletarian ideology. On the whole, radical political economy occupies a position intermediate between capitalist and proletarian political economy. The ideological and theoretical sources of its views are Marxian economic theory, the ideas of Proudhon, Bakunin, and Kropotkin, the Utopian socialism of Fourier and Robert Owen, and bourgeois reformism.
A general feature of all shades of radical political economy is their critique of capitalism and orthodox capitalist political economy. A special critique is made of big corporations as the embodiment of all the negative features of capitalism. These economists consider the market economy unable to provide full employment and a human way of life for the majority of the people. A significant feature, too, is their recognition of the valuable contribution made to economic science by Karl Marx, whose work they consider to be one of the sources of the radical school's critical spirit.^^1^^ They cannot, however, be called Marxists. They have not penetrated deeply into the substance of
~^^1^^ Raymond S. Franklin. American Capitalism. Two Visions (Random House, New York, 1977), p 157.
21 20Marx's theory; for instance, they introduce a category of 'economic surplus' instead of the concept 'surplus value', and give their own erroneous interpretations of exploitation, labour power, and so on.
The New Lefts, unlike the bourgeois reformists who look for a way out in implementing reforms while retaining the basis of the capitalist system, call for its full demolition. Their ideal is a decentralised co-operative society with a hierarchical structure in the spirit of the theories of Fourier, Proudhon, and Owen. Their positive programme, however, is weakly developed, and they do not see the roads to implementing it. By basing themselves on petty-bourgeois ideas of egalitarian communism, they oppose both the theory of scientific socialism and real socialism. Some of their spokesmen think revolutionary strategy should be based on a fight between rich and poor both within a country and in the international arena, rather than on the fight between working class and capitalists. The workers of imperialist countries (`rich'), however, are not enemies of the working people of the former colonies, but their allies. The New Lefts' theory of the `bourgeoisification' of the working class of industrially developed countries does not differ from the views of imperialism's ideologists, and helps them attack trade unions by declaring their 'excessive demands' the main cause of price rises. The opposing of the 'new working class' (in which white collar workers, students, and intellectuals are lumped together) to other contingents of the working class also does great harm, since such ideas are aimed at disrupting the unity of the labour movement.
These theories enjoy the special support of imperialism's ideologists, who see propaganda for them as an obstacle to the spread of Marxist-Leninist theory. Nevertheless the rise of radical political economy reflects the development and sharpening of capitalism's antagonisms.
3. Right-wing socialist and revisionist economic theories
Right-wing Social Democracy is the main conduit of capitalist influence on the proletariat. Its policy objectively helps the monopolies and the capitalist state to resist the proletariat's revolutionary actions.
Right-wing Socialists and Labour propagandise the latest ideas of the ideologists of monopoly capital (the Neokeynesians, Galbraith, and others) in conjunction with the dilapidated, ramshackle dogmas of the Second International. The ideological forerunners of today's Right-wing Socialists (Bernstein, Kautsky, Hilferding, and Otto Bauer) fought Marxism on the soil of formal recognition of it, and raised the banner of a renewal of Marxism while rejecting its main theses and revolutionary conclusions. After World War II social reformists went even further to the right, renouncing, in essence, formal recognition of Marxism. But they continue to employ socialist phraseology, and say that their parties' aim is the Socialist Alternative or Democratic
Socialism. Pleading such processes as the increase in the number of joint-stock companies, development of state monopoly capitalism, and technical innovation, Right-wing Socialists claim that modern capitalism has radically altered in nature and has been converted into a new social system. Right-wing Labour leaders call it the first phase of socialism; other theorists claim it to be something intermediate between capitalism and socialism, i. e. a 'mixed economy'. They consider the driving force of the transition to the new system (Democratic Socialism) to be a strengthening of the role of the capitalist state and the contemporary scientific and industrial revolution, rather than class struggle. In the 70s, especially after the 1974-5 economic crisis, social reformists were forced to modify their theories, and the activisation of the left wing of Social Democracy, reflecting the growth of antimonopolist moods among the masses, played no small role in that. Interest in Marxism has now revived in the ranks of Social Democracy. A new variety of 'legal Marxism' has arisen, whose aim is to block growth of the influence of scientific socialism among the masses. Left-wing Social Democrats, citing the works of Karl Marx, recognise class struggle and talk about the need for revolutionary activity.
Right-wing Social Democrats, while sticking on the whole to the standpoints of a 'mixed economy', now advocate extension of the public sector through the founding of new enterprises and partial nationalisation of private firms, but the right-wing reformist leaders in fact block realisation of these proposals, putting forward a demand for a strengthening of public control over the monopolies' operations and the passing of anti-monopoly legislation. In actual fact that means maintenance of monopoly property, and in those conditions the financial oligarchy exercises a determining influence on the government machinery, and.uses it in its own interests.
In recent years there has been an increase in propaganda for modernised ideas of 'social partnership', `workers' participation' in the management of capitalist firms, `profit-sharing', and so on, all of which are apologetically depicted as a means of transforming property relations.
The leaders of the Socialist International now cannot deny the crisis of world capitalism, and capitalism's inability to deal with the problem of employment. They are calling for reform in the area of social insurance and health services, democratisation of the educational system, and improvement of working conditions, proposals that correspond to the workers' everyday needs, although they cannot radically improve their position. But the fact is that capitalist governments have no interest in financing these measures, as is shown, above all, by the experience of countries where the government is headed by Social Democrats. The incomes policy pursued by them serves the interests of the capitalists.
The progress of socialism is helping increase the influence of socialist ideas among broad strata of the workers. Many Social Democrats
23 22recognise the achievements of real socialism, but the leading ideologists of Social Democracy, being supporters of capitalism, oppose real socialism. They have taken up the capitalist idea of a plurality of models of socialism so as to mask the historical inevitability of a revolutionary transition from capitalism to socialism; by citing certain features they mask the general characteristics of socialism and its radical difference from capitalism.
Revisionist theories that distort Marxism and Leninism have also appeared in some countries that have taken the socialist road. In the latter they take the form, mainly, of a denial of the general patterns of building socialism, of a playing up of national peculiarities, of a counterposing of plan and market, and of developing models of 'market socialism', 'humane, democratic socialism', which right-wing revisionists depict as a third path between capitalism and communism. Ota Sik, for instance, considers the economic basis of 'humane socialism' to be the play of market forces, which assumes a de-socialising of production, i. e. a transition to small private enterprises, which is regarded as equalising property on the basis of individual businesses. This latter-day economic romanticism is aimed against socialist society and in defence of capitalism, private ownership of the means of production, and all the consequences stemming from that.
Rejection of the general patterns of the building of socialism does immense harm to the actual building of socialism, hampers use of the experience of other countries, and leads to isolation from the world community of socialist countries.
The bankruptcy of capitalist political economy, and of modern reformism and revisionism, becomes particularly clear when we compare their conceptions with the development of Marxian economic thinking. The resolutions of the international meetings of Communist and Workers' Parties, and of the Congresses of the CPSU, and the works of Marxist-Leninists provide a truly scientific analysis of modern capitalism, the world system of socialism, and other root issues of modern times.
DEFINITIONS OF THE SUBJECT MATTER OF POLITICAL ECONOMY
1. The definition of political economy as the science of wealth, business, and satisfaction of needs
Political economy arose as the economic doctrine of a new class, the capitalist class. It developed along with the capitalist mode of production, and views on its subject matter, purposes, and methods of investigation also altered with that development.
The mercantilists, for example, devoted their main attention to the sphere of circulation, and political economy was accordingly treated as the science of the balance of trade, which envisaged an excess of exports over imports. The physiocrat school considered the creation of surplus value (net product) in agriculture to be the main subject of political economy. Adam Smith defined it as the science of wealth in his Inquiry into the Nature and Causes of the Wealth of Nations (1776). This understanding of political economy was also inherent in Ricardo. The petty-bourgeois critics of capitalism, like Sismondi and Proudhon, saw the main purpose of political economy in the search for ways of a fair, just distribution of wealth rather than in investigation of its sources.
Paul Samuelson's textbook of economics, widely used at the present time, defines `economies' as 'the study of wealth'.^^1^^ In recent years, however, we must note, this formulation of the subject matter of political economy is very seldom met.
The definition of political economy as the study of wealth cannot be considered correct methodologically. Wealth, of course, is the aggregate of things, of material goods. Political economy-'the study of wealth'---consequently becomes study of the aggregate of things, in the views of some Western economists, study of their production, distribution, and consumption. But political economy, being a social science, does not study things or material goods (that is the business of other sciences), but economic relations, the relations of production between people. In all circumstances production takes place in some
Paul A. Samuelson. Economics, 9th ed. (McGraw-Hill, New York, 1973),
p3.
25social form. People do not exploit nature to produce material goods in isolation from one another, as lone individuals, but do so jointly, in groups and societies. As Karl Marx wrote:
In production, men enter into relation not only with nature. They produce only by co-operating in a certain way and mutually exchanging their activities. In order to produce, they enter into definite connections and relations with one another and only within these social connections and relations does their relation with nature, does production,
take place.l
By wrongly defining the content of political economy, bourgeois economists leave economic relations and the real contradictions in capitalist society aside, above all the contradiction between labour
and capital.
The definition of political economy as study of wealth, moreover, ignores its historical character. Wealth, i.e. the aggregate of things, is produced, distributed, and consumed, as we know, in various historical circumstances; the relations of production, however, have not been the same at the different stages of development of human society. In some conditions they are relations of comradely co-operation and mutual help; in others, when society is divided into classes and one class is dominant and exploiter, and the other subordinated and exploited, they are relations of exploitation. Bourgeois definitions of the subject matter of political economy, however, speak of wealth in general, irrespective of the concrete forms in which the aggregate of
things is created.
Definitions of political economy as study of the national economy, and of business activity in general, are often met in Western economic literature along with its definition as study of wealth. The economists who take this stand, beginning with Wilhelm Roscher, Karl Biicher, and Pyotr Struve, argued about the essence of the national economy, the individual (single) business, and the social economy. The Russian bourgeois economist Struve wrote:
We define an economy as a subjective, teleological unity of rational
economic activity or the running of business. Ridiculing this definition, Lenin wrote:
This sounds 'awfully learned', but it is really a mere juggling with words.
Economy is defined as economic management! A statement of the
obvious...
Samuelson includes the following, however, among the definitions of
political economy that are often given to students:
the study of men in their ordinary business of life, earning and enjoying a living.^^3^^
~^^1^^ Karl Marx. Wage Labour and Capital (Progress Publishers, Moscow 1978)
p28.
~^^2^^ V. I. Lenin. Socialism Demolished Again. Collected Works, Vol. 20 ( Progress Publishers, Moscow, 1964), p 198.
~^^3^^ Paul A. Samuelson. Op. cit., p 3.
26Scientifically speaking this definition is unsound.
(1) To define political economy as study of the national economy, or of business activity, is to ignore its true subject matter, namely relations of production.
(2) Such definitions emasculate the historical and class character of political economy. When Western economists speak of business activity in general they in fact have capitalist business in mind. This approach makes it possible to treat the capitalist system as eternal and natural, outside history, which is an apologia for it. In Lenin's
words it is
a denial of science, a tendency to despise all generalisations, to hide
from all the `laws' of historical development, and make the trees screen the wood. l
(3) The national economy cannot be the subject matter of political economy because 'national economy' is a broad, variously interpreted concept. Some economists even include phenomena of the superstructure in it that go beyond the framework of the productive forces and relations of production (ethics, morals, and so on).
A definition of political economy as study of the satisfaction of 'human wants'^^2^^ is also common among Western economists, i.e. they study the forms of human behaviour in dealing with scarce goods, concoct universal formulas of the rational management of business and of the practical behaviour of economic agent operating in isolation from concrete socio-historical conditions, and take as an example the `economy' of Robinson Crusoe. Lone Crusoes, we would note, are also employed by the upholders of other Western definitions of the subject matter of political economy. In the words of the American economist Heinz Kohler,
He [Robinson Crusae-Auth. | is tree to make his own adjustment to this reality. Within the limits of the possible,... he has the power to determine his own life. He is his own master, self-governing, going his own way, choosing his own path, and doing his own thing. No one judges his choices or has to approve his actions.^^3^^
In considering the main job of political economy to be to study the wants and needs of the individual and the means of satisfying them, these authors conclude that consumption has priority over production, and that people's actions are motivated by the psychology of the individual. The psychological factor is thus converted into the main one in economic affairs, while economic laws ultimately become psychological ones.
This definition is also unconvincing from the methodological angle. Above all it substitutes the economic agent's behaviour and
~^^1^^ V. I. Lenin.Op. cit., p 199.
~^^2^^ R. Lipsey and P. Steiner. Economics, 5th ed. (Harper & Row, New York, 1978),p6.
~^^3^^ Heinz Kohler. Scarcity and Freedom. An Introduction to Economics (Heath & Co., Lexington, Mass., 1977), p 17.
27attitude to things for the relations of production between people, and conceals the historical and class character of political economy. The satisfaction of man's needs takes place, as we know, in concrete historical circumstances, in accordance with certain social relations, but Western economists treat it unhistorically, abstracted from social
relations.
This definition is also unconvincing because economic processes are regarded from an idealist position rather than a materialist one, and from the psychological aspect; the main point becomes the subject's enjoyment of worldly goods. This definition, by pushing the individual's wants to the foreground, ignores the production of material wealth, which is the foundation of society's affairs and determines the opportunities for and degree of satisfying wants of one kind
or another.
A common feature of all the definitions considered above is the absence of any indication of the specific object studied by political economy, i.e. of production or economic relations. Another common feature is their unhistorical character. Instead of investigating changing systems of production relations historically in their connection with development of society's productive forces, general, universal categories of human activity are considered. Finally, these definitions do not mention that political economy elucidates objective laws governing the production, exchange, distribution, and consumption of material wealth. Western economists cannot provide a scientific definition of the subject matter of political economy because a scientific approach presumes recognition of the historical character of each mode of production and consequently of the replacement of the capitalist mode of production by a new, communist one.
2. The subject matter of 'economies'
Today, in the colleges of the USA, Britain, and a number of other capitalist countries, the main economic discipline studied is the course in `Economies'. Dozens of textbooks have been published with this title, some running to ten editions. Attempts to introduce a more diffuse, and in the opinion of bourgeois authors, more neutral, course, `Economies', instead of a course in political economy, were already being made at the beginning of the century. In encyclopaedias published in the past 30 or 40 years you will seldom find the term ' political economy'. Everything relating to the content and history of this science is put into articles entitled `Economies'.
The rise of `economies' was due to new moments in the development of political economy. As we have already remarked, Western economists and schools, not having stood the historical test, could not give a scientific answer to the issues being brought up by life. Capitalist political economy now faces an insoluble problem, namely
28how to prove the viability, stability, and harmonious character of a mode of production that has reached a stage of parasitism and decay, and is torn by antagonistic contradictions.
Western economists try to determine means of regulating the economy, methods of programming, and ways of analysing economic processes, and to study problems of business organisation, means of enhancing their operations, and ways of coping with practical economic issues. `Economies' serves as the theoretical basis for government control of the economy, being adapted to the practical and ideo. logical needs of state monopoly capitalism, and striving to express the interests of Big Business in the most successful way. In capitalist countries, however, works also appear whose authors, while often using the term 'political economy', invest it with a new content-'the political economy of prosperity',^^1^^ 'radical political economy'.^^2^^ Samuelson, moreover, uses 'political economy', 'economic science' and ' economies' as synonyms at the beginning of his book.^^3^^
Sometimes, when defining the subject matter of `economies', Western economists remark that it is a social science, but what aspect of the affairs of human society it studies, and what its subject matter is, are formulated very vaguely. There used not to be a more or less common element in definitions of the subject matter of `economies', but there has been a tendency of late to develop integrated principles and to give a single treatment of its subject matter. More and more often, one finds the notorious law of scarcity underlying definitions of its subject matter. Kohler, for instance, writes:
Since economists are forever going around telling people that ours is a world of scarcity wherein people can never have all they want, economics is often called 'the dismal science'.^^4^^
The 'law of scarcity' is employed to define the substance of economic systems. As Kohler puts it, an economic system is
the institutional mechanism through which people in a society cooperate with each other in allocating scarce resources and apportioning scarce goods among themselves.5 In Samuelson's definition
economics is the study of How men and society end up choosing, with or without the use of money, to employ scarce productive resources that could have alternative uses, to produce various commodities and distribute them for consumption, now or in the future, among various people and groups in society.^^6^^
~^^1^^ Arthur Okun. The Political Economy of Prosperity (The Brookings Institution, Washington, 1970).
~^^2^^ Howard Sherman. Radical Political Economy. Capitalism and Socialism from a Marxist-Humanist Perspective (Basic Books, New York, 1972).
~^^3^^ Paul A. Samuelson. Op. cit., p 3.
~^^4^^ Heinz Kohler. Op. cit., p 8. 5/W</., p513.
~^^6^^ Paul A. Samuelson. Op. cit., p 3.
29L
Tucker writes that
economics as a subject recognizes the problem of scarce resources.
In fact, economics is the study of how to allocate scarce resources
among competing and alternative uses.^^1^^
These definitions indicate that Western economists are endeavouring to lead economic science away from study of social and production relations, and consequently away from study of the decaying, dying relations of production of modern capitalism. Yet, in spite of their striving to give them a uniform interpretation, economics courses have no clearly defined subject matter. Their authors themselves recognise that 'there is no completely satisfactory definition of economies'.^^2^^ The dividing line between its subject matter and that of other theoretical social disciplines is very vague. As Samuelson,
for example, says,
Economics borders on other important academic disciplines. Sociology, political science, psychology and anthropology are all social sciences whose studies overlap those of economics.^^3^^
In the words of Ben Seligman, author of the entry in the American encyclopaedia Marxism, Communism and Western Society,
An increasing stress on technical analysis has been the predominant feature of recent Western economics. This has been by the extraordinary development of input-output studies, econometrics, operations research, game theory, linear programming and certain aspects of contemporary welfare theory. A significant part of current economic theory, however, has been captured by the more technical aspects of these developments, with the consequence that its practitioners appear to have forgotten that economics is a social science the viability of which depends not only on mathematics, but on psychology, anthropology, history, geography, technology, and political science as well.4 While criticising the enthusiasm for the technical aspect of a number of theories, and calling for reflection of the specifically social, Seligman, himself, however, gives a very amorphous definition of
economics as
one way of looking at the total complex of social behaviour. In this sense it is a branch of a general theory of social systems and has as its primary task the study of those processes that are specifically economic, as well as the forms of behaviour that stem from them.^^5^^
Lipsey and Steiner suggest that 'economics today is regarded much
more broadly than it was even half a century ago'.^^1^^ While Bradley
says economics
deals with nearly every aspect of our individual daily lives-from buying a car to taking a vacation, to getting married and having children.^^2^^
And Baumol and Blinder
prefer to avoid any attempt to define the discipline in a single sentence or paragraph.^^3^^
One can, of course, agree that 'it is always hard to compress into a few lines an exact description'^^4^^ of the discipline that would clearly mark it off from allied ones, but when an economist with a great reputation in the West, like Samuelson, asserts that there is no need, essentially, for one,^^5^^ he thereby, in fact, registers the liquidation of the science itself, while Nutzinger's statement even seems quite strange, when he affirms about the subject of economics that
it is perhaps advisable to follow the tautological definition attributed to Blaug or Viner: 'Economics is what economists do.'^^6^^
To define the subject matter of a science is to distinguish the object it studies. The subjects of a science and objects of study can and must be delimited, although there are, of course, interconnections between sciences, since such connections exist between processes in nature and society. Western economists confuse the problems of political economy with those of the economics of sectors (e.g. industrial economics, agricultural economics, transport economics, etc.). But while political economy elucidates the laws governing the production, exchange, distribution, and consumption of material wealth in human society, sectoral economics studies their manifestation in a given, concrete field, and so has its own specific tasks, and means and methods of dealing with them.
Attempts to build eclectic constructs in `Economies' lead to the courses lacking a rigorous system, and being turned into a set of various sections or divisions not always organically linked with one another. Samuelson's admission that he tried to set out the material in such a way that the order of study could be altered at will is characteristic.^^7^^ The American economist Lewis Solmon, for example, writes that instructors can resequence chapters in whatever order they choose.
~^^1^^ R. Lipsey and P. Steiner. Op. cit., p 12.
~^^2^^ Michael Bradley. Economics (Scott, Foresman & Co., Glenview, 111., 1980), p 2.
3 W. Baumol and A. Blinder. Economics. Principles and Policy (Harcourt Brace Jovanovich, New York, 1979), p 3.
~^^4^^ Paul A. Samuelson. Economics. An Introductory Analysis (Me Craw-Hill New York, 1961), p 6.
~^^1^^ James F. Tucker. Essentials of Economics (Prentice-Hall, Englewood
Cliffs, N.J., 1975), p 4.
~^^2^^ John A. Perrow. Economics (University Tutorial Press, London, 1975),
Pi- ,
~^^3^^ Paul A. Samuelson, Op. cit., p 6.
4 Ben B. Seligman. Systematic Presentation. The Character of Western Economics. In Marxism, Communism and Western Society. A Comparative Encyclopaedia.Vo\. 3,(Herder & Herder, New York, 1972), p 37.
5 ihid
.
~^^6^^ Hans Gottfried Nutzinger. Economic Theory. In Marxism, Communism and Western Society, Vol. 3, p 64.
~^^7^^ See Paul A. Samuelson. Op. cit., p vii.
31 30 1The micro and macro sections have been designed as self-contained units, so that the order in which they are studied can be reversed at the instructor's discretion.1 He says he is
well aware that there are many differing views regarding a number of economic doctrines, and that each of these views has its ardent supporters, who can present well-documented studies to back up their case. In so far as is possible, this text tries to let each of these opposing groups speak for itself, without any editorializing.^^2^^
Other economists also confuse political economy with other sciences, and combine various schools and trends.
The definitions given above have inherent subjective, idealist features; they are based on a metaphysical and not a materialist method of analysing society's economic affairs, i.e. are unsound methodologically speaking. They ignore the role of social production in the development of human society, and the role of the mode of production and significance of relations of production. Even if economists talk about production (though not always) they predominantly have technological tasks in mind, that arise incidentally, and production in general. But political economy does not deal with `production' but Vith the social relations of men in production, with the social system of production'.^^3^^ It clarifies the 'conditions and forms' in which the production, exchange, and distribution of products take place.^^4^^
A striking example of how analysis of 'production in general' is included in the subject matter of `economies', rather than of historically determined forms of social production, is Samuelson's treatment of this science. In his words
any society, whether it consists of a totally collectivized communistic state, a tribe of South Sea Islanders, a capitalistic industrial nation, a Swiss Family Robinson, a Robinson Crusoe-or, one might almost add, a colony of bees---must somehow confront three fundamental and interdependent economic problems: 1. What commodities shall be produced?... 2. How shall goods be produced?... 3. For Whom shall goods be produced?... These three problems are fundamental and common to all economies.s
The differences in social and production relations and in the forms of property have thus been ignored which reflects a non-materialistic and unrealistic character of this approach.
Many definitions of economics do not, in general, mention production, or the laws governing production, i.e. that which is the main
thing determining the development of a society. As for the distribution and consumption of material wealth and the necessities of life, they speak of that out of context of the concrete historical forms.
3. Bourgeois objectivism and its class essence
When economists deny the Marxian thesis of the class and partisan nature of political economy, they zealously stress their `impartiality'. Back at the end of the nineteenth century John Neville Keynes wrote
that he had
endeavoured to avoid the tone of a partisan, and ... sought, in the treatment of disputed questions, to represent both sides without prejudice.' Samuelson has written roughly the same thing:
To succeed we must make an effort to cultivate an objective and detached ability to see things as they arc, regardless of our likes or dislikes.2 Obviously going against the facts, he declares:
There is not one theory of economics for Republicans and one for Democrats, one for workers and one for employers.3 One must agree that there really cannot be economic theories different in principle for Republicans and Democrats, who are members of different parties of one and the same class, the capitalists. But the working class has its own class interests opposed to those of the capitalists. The working class is interested in abolishing exploitation, and in victory of the new, communist system. The capitalists, on the contrary, are interested in preserving and intensifying exploitation and in saving dying capitalism. The aims and interests of the two are obviously diametrically opposed. That is why the working class has its Marxist-Leninist political economy that is not afraid of the truth and is interested in comprehending and understanding the regularities of economic development of society.
Capitalist economists gabble about being above classes and that 'economics is a somewhat technical subject'.^^4^^ It is here that the capitalist class approach to society's economic affairs comes out, an approach based on an ignoring of relations of production that is good for the capitalists, and on employing a subjective psychological method.
Some economists, while recognising the existence of economic laws, interpret them incorrectly, basing them on people's psychological motives, when it is objective economic conditions, i.e. really existing relations of production, that play the determinant role. In
~^^1^^ J.N. Keynes. The Scope and Method of Political Economy (Macmillan and Co., London, 1891), p vi.
~^^2^^ Paul A. Samuelson. Op. cit, p 7
~^^3^^ Ibid.
~^^4^^ W. Baumol and A. Blinder. Op. cit., p v.
~^^1^^ Lewis C. Solmon. Economics (Meredith Corp., New York, 1972), p xvi.
2 Ibid.
^^3^^ V.I. Lenin. The Development of Capitalism in Russia. Collected Works, Vol. 3 (Progress Publishers, Moscow, 1977), p 63.
4 See Frederick Engels. Anti-Duhring (Progress Publishers, Moscow, 1975), Pl81.
~^^5^^ Paul A. Samuelson. Economics, 9th ed., pp 17-18.
32---455
33Samuelson's textbook such laws are taken to be the law of scarcity, the law of increasing costs, and the law of diminishing returns.
Capitalist political economy defends and justifies the capitalist system, and that is its vital function. Lenin wrote that 'not a single one" of these bourgeois professors of political economy 'can be trusted one iota' in the field of theory, whatever valuable work he might do in special, factual studies, because,
taken as a whole, the professors of economics are nothing but learned
PART II
CRITIQUE OF NON-MARXIAN ECONOMIC CONCEPTIONS OF CAPITALISM
salesmen of the capitalist class.
It is characteristic of the authors of many economics textbooks that they do not hide their class bias. Samuelson, for example, when summing up, was forced to talk about the possibility of improving the working of the market (capitalist) economy.^^2^^ Some have been obliged to admit the impossibility of complete objectivity when analysing economic processes. Solmon, for instance, while noting that
economics is the study of the way man meets the problem of limited resources, choosing among alternative uses as he attempts to maximize his own satisfaction, has, all the same, to admit that it
is limited as a science because complete objectivity is often more difficult for the economist than for the physical scientist.3 Western economics, while defending the capitalist system, at the same time attacks socialism and has a clearly expressed anti-- communist bias. Capitalist class positions, and a standing aside from study and comprehension of the laws of social development are also manifested in definitions of the purposes of economics courses. Solmon answers the question Vhy study economics?' as follows:
Your study of economics can be useful in helping you to understand the causes of many situations you encounter personally, and it can also help you to determine the reasons for events that occur nationally. FQT example, do you know how much it really costs for you to take this economics course? How did the publisher of this text set the price at $10.98 that you paid for it at the bookstore?4 Only scientific, Marxist-Leninist political economy gives a correct answer to why one should study economic theory. Its study is immensely important for workers because study of the economic laws of capitalism equips the masses of the people to fight this exploiter system, while knowledge of the economic laws of socialism is needed so as to apply them successfully in the practice of building socialism and communism.
THE TREATMENT OF VALUE AND MONEY
1. Principal concepts of the theory of marginal utility
Value is the category underlying commodity prices and the deepseated regulator of their movement. It is quite natural, therefore, that theoretical study of value has an important place in capitalist political economy. Western economists who study prices and their content without even using the term `value' are in fact concerned with the concept of value. There are several capitalist theories of value: the labour theory of value of classical capitalist political economy ( according to which only labour creates value); the theory of factors of production, according to which value is created by labour, capital, and land; the theory of marginal utility which in essence is the theory of value of marginalism, one of the commonest trends of the present time. Marginalists interpret the basis of price (value) by means of marginal magnitudes, especially marginal utility. The Italian economist Alessandro Roncaglia stresses that marginalist theory
has been for the past century, and still is, the dominant academic pAradigm... Within such a framework, the objective approach to value (based on the physical costs of production) which prevailed in classical political economy was supplanted by a subjective approach, based on consumers' tastes (utility maps).l
By concentrating on facts appearing on the surface of phenomena, and precisely that commodity producers give a greater preference on the market to some commodities, in accordance with their needs, and less to others, the exponents of marginal utility theory consider subjective utility to be the ultimate basis of value, the regulator of prices. This idea had already been expressed by Fernando Galiani in the eighteenth century, and was developed in the second half of the nineteenth century and early twentieth in the work of the Austrian school (Carl Menger, Eugen von Bohm-Bawerk, and Friedrich von Wieser), and by Leon Walras and William S. Jevons, who made wide use of a
A r- !,AIessandro Roncaglia. The Sraffian Contribution. In A. Eichner (ed.). Ai,uide to Post-Keynesian Economics (M.E. Sharpe, White Plains, N. Y., 1979,
35~^^1^^ V.I. Lenin. Materialism and Empirio-Criticism (Progress Publishers, Moscow, 1977), p 322.
~^^2^^ See Paul A. Samuelson. Op. cit., p 885.
~^^3^^ Lewis C. Solmon. Op. cit., p 15.
d., p!4.
L
mathematical apparatus to substantiate the theory of marginal utility. The theory underwent a certain evolution: theories of choice, preference, games, and a marginal rate of substitution appeared. The latter, in the view of Baumol and Blinder, is the most modern approach to the analysis of consumer preferences.^^1^^ But this evolution mainly concerned the quantitative aspect, namely measurement of marginal utility or consumer preferences. At bottom, however, it retained the former postulate, and the economic essence of utility remained undisclosed. As Baumol and Blinder put it, 'it is marginal not total utility that is directly related to price'/
The main initial premise of the theory of marginal utility reflects a surficial subjective relation of the consumer to the consumed good: as wants are satisfied, the satisfaction from consumption diminishes. Accordingly the last unit of a given type of good consumed has the least utility for the consumer, compared with other units. The least pressing need satisfied by the last of the consumed units of a good of a given kind is called its marginal utility. It is this, in the view of advocates of the theory, that is the main regulator of commodity prices, and figures as the ultimate basis of prices, i.e. as the value of commodities. Hence the name of the theory.
In this section we shall criticise the interpretation of marginal utility theory in present-day Western economics textbooks for college courses (mainly in economics faculties).
The American economist James Tucker writes, characterising the content of the categories `utility' and 'marginal utility':
Utility, itself, means the ability or power of a good to satisfy a want. In other words, utility involves some quantitative measure of how much satisfaction an individual gets from drinking a can of beer or taking a ride on a roller coaster. If an individual drinks five cans of beer or takes five rides on the roller coaster, presumably we can measure the total utility of either act. Marginal utility is the change in total utility resulting from a unit change in the quantity of the product consumed, and may be measured by the following formula:
.. • IIT.-I-* Change in total utility
Marginal Utility =---------:---------:-----------------. 3
Change in quantity consumed
The first thing that strikes one is the absence of arguments justifying the content of the most fundamental concept of this theory, viz., `utility'. Bradley, for example, writes: 'Utility ... is the economist's term for ``satisfaction''.'^^4^^ Since the utility of a commodity is defined as its capacity to satisfy an individual's want, the question naturally arises, what is the economic (and not the biological, aesthetic, etc.) sense of the category Vant'. The writers, how-
ever, in fact avoid answering that. Tucker, having postulated that utility is the ability of a good to satisfy a want, declares by way of explanation: 'in other words, utility involves some quantitative measure'. Instead of an explanation of the qualitative definiteness of utility, the main concept of the theory, a quantitative determinacy is substituted for the qualitative one. But while the economic sense of `utility' is quite unclear, 'marginal utility' is left hanging in the air. The degree to which any edible dish, for example, satisfies, of course diminishes. But this ordinary notion, fixed by the term 'marginal utility', by no means brings out the sense of marginal utility as the regulator of economic processes, as the connecting link between sectors of the national economy.
Let us turn to two other contemporary authors, Richard Lipsey and Peter Steiner. They wrote in their textbook:
The satisfaction someone receives from consuming commodities is called his or her utility... Total utility refers to the total satisfaction from consuming some commodity... Thus, for example, the total utility of consuming ten units of some commodity is the total satisfaction that those ten units provide.^^1^^
Like Tucker, they do not say what is the economic sense of the main concept of their theoretical system, i.e. the satisfaction obtained by the separate individual from consuming a good. Furthermore, their definition of total utility is itself tautological: to begin with they say that satisfaction and utility are identical, then say that the total utility is the total satisfaction.
Defining marginal utility, they write:
Marginal utility refers to the change in satisfaction resulting from consuming a little more or a little less of the commodity... The marginal utility of the tenth unit- consumed is the satisfaction added by the consumption of that unit-or, in other words, the difference in total utility between consuming nine units and consuming ten units.2 The Wonnacotts formulate this idea with greater clarity:
Marginal utility is the satisfaction an individual receives from consuming one additional unit of a good or service.^^3^^
They consider that 'indeed, marginal utility is the key concept underlying demand'.^^4^^ Allowing for the fact that marginal utility, in the view of these economists, is the direct regulator of prices, we need to draw attention to the following proposition of Karl Marx's:
In the case of supply and demand ... 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,
~^^1^^ R. Lipsey and P. Steiner. Op. cit., pp 109-110. I Ibid., p 110.
J P. Wonnacott and R. Wonnacott. Economics (McGraw-Hill, New York 1979). p 396. ~^^4^^/AW.
37~^^1^^ See W. Baumol and A. Blinder. Op. cit., p 351.
2/WA, p355.
3 James F. Tucker. Op. cit., p 67.
~^^4^^ Michael Bradley. Op. cit., p 84.
36L
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.1 Marginalists, however, do not bring out the main thing, i.e. how and by what mechanism the subjective attitude of the separate individual to consumption exerts (in their view) a determining influence on the relations of the commodity producers, grouped in an industry, i.e. the relations that directly mould prices.
The attention of advocates of marginal utility theory is not concentrated on the relations through which the separate individual acts in the market 'as part of a social force', but on the separate individual himself and his subjective sensations. Following the main argument, illustrative examples and analogies are given based on 'common sense'. The Wonnacotts' textbook is indicative in this respect. Having given the definition of marginal utility quoted above, they write:
To illustrate, consider Lori Escaf, a student who is considering how many skiing lessons she should purchase this month. We ask her to evaluate how much utility or satisfaction she would receive from one lesson, from a second, and a third. Her reply might be: 'The first lesson would clearly give me the most satisfaction... The second would give me considerable pleasure, but not quite so much. And less again for the third, since my appetite for skiing gets a bit jaded after a while.' ...Since eventually this must be true for every good or service, it is sometimes referred to as the law of diminishing marginal utility. 2 Employing these premises, they explain price formation as follows: We ask her [Lori Escaf-Auth.], 'What would you be willing to pay for the first lesson?' When she replies, 'Oh.-SlO', we continue: 'And what would you be willing to pay for the second?' (More precisely, we might ask, 'How low would the price have to fall before she would be willing to buy two lessons?') In this case, her reply is $17.3 The methodological flimsiness of this kind of argument will be seen when we take the following into consideration. As we know, systems analysis has become very common in the twentieth century. Its main methodological principle is that a system is not reducible to the sum of its elements and has a special systems quality that none of its elements has. Today's proponents of marginal utility theory base themselves on a long-outmoded methodological premise that the market is a simple sum of elements, an aggregate of individuals like Lori Escaf. Accordingly, they consider that, knowing the behaviour of the individual in the market, based on his or her commonsense, they can disclose the patterns of market forces and the dynamics of prices. They do not contemplate the point that it is the relations of the commodity producers that convert each of them into part of an
integral system and generate a regular relation in price formation, i.e. the relation of value.
The appeal to the reader's commonsense, fixing the results of direct observation, makes the marginalists' argument very understandable and easily taken in. But understandabih'ty of exposition is not identical with persuasiveness, In this connection we would recall the comprehensibility (based on direct observation and commonsense) of the false thesis that the Sun rotates around the Earth.
When the arguments of modern exponents of marginal utility theory are being considered, the Vicious circle' that Marxist critics of Bohm-Bawerk, Menger, and von Wieser had already pointed out, strikes one. Tucker, the Wonnacotts, Lipsey, and others define the quantity of value by the marginal utility of commodities, while utility itself (including marginal utility) depends on their scarcity. But the volume of production of goods, and correspondingly the degree of their scarcity, depends on value: a high value limits me consumption of commodities and converts them into relatively scarce goods. It thus turns out that value depends on marginal utility which, in turn. depends on scarcit ndscarcli'rP^P^"^^^8^^ nn
must, when criticising marginal utility theory, draw attention
to Lenin's following methodological thesis:
Philosophical idealism is only nonsense from the standpoint of crude, simple, metaphysical materialism. From the standpoint of dialectical materialism, on the other hand, philosophical idealism is a one-sided, exaggerated ... development (inflation, distention) of one of the features, aspects, facets of knowledge into an absolute, divorced from matter, from nature...^^1^^
The theory of marginal utility makes an absolute of the external,
subjective appearance of a need, masking its deep, objective content.
The Italian Marxist Antonio Pesenti remarked, when criticising this
theory:
A first, elementary observation, on which subjectivists' treatises on economics insist, but which, on the contrary, it is sufficient simply to mention, is that the needs of the individual represent a different degree of intensity. Although evaluation of the intensity of a need is subjective, it is also possible to distinguish primary and urgent needs, which correspond to the physiological necessity of life objectively from less urgent ones. In any case each of us has needs according to a scale or gradation on the basis of an evaluation that will differ from individual to individual, but which all the same have certain common characteristics in the mass.~^^2^^
j^
are
1 V.I. Lenin. On the Question of Dialectics. Collected Works, Vol. 38 (Progress Publishers, Moscow, 1976), p 361.
~^^2^^ Antonio Pesenti. Manuale di economia politico, Vol. 1 (Editori Riuniti, Rome, 1970), p 95.
39rarx. Capital, Vol. 111 (Progress Publishers Moscow, 1977), p 193.
2 p Wonnacott and R. Wonnacott. Op. at., p 396.
3 Ibid., p 397.
38L
determined by their class .affiliation, the phase of the capitalist businessj:ycle. and sojm.j.e^bv exclusivelvjihi££tiye_tactojs.
It is important to note that marginal utility theory is also a distorted picture of the natural process of the effect of needs on price formation. This effect, as Marx showed in his theory of differential rent, operates primarily in the sectors of agriculture and the extractive industries, in which the possibilities of producing goods and correspondingly of fully meeting needs are limited. In his tables of differential rent, enterprises located on the worst land as a rule produce the least proportion of the produce of a sector (compared with other groups), and consequently do not express the mean conditions of the production of commodities; the individual outlays of labour in these enterprises, however, figure as socially necessary labour, because of the need for the product, and determine the magnitude of value. The theorists of marginal utility, however, by treating value as a subjective category, completely divorce it from labour, and do not understand that need is one of the factors moulding the social significance and social necessity of labour.
At the same time, adherents of marginal utility theory, when studying the state of the market, structure of consumer demand, etc., by mathematical methods, reflect and systematise certain real aspects of price formation associated with the effect of needs. That, in turn, makes it possible to propose certain practical recommendations to corporations and capitalist governments, that produce an economic effect when carried out. But a certain success that this theory has had in applied research is not in itself evidence of the correctness of theninitial theoretical premises. By analogy^ for example, the progress made in applied astronomy before Copernicus, and used in navigation, cannot be considered evidence of the correctness of the basic thesis of Precopernican fundamental astronomy, namely that the Sun rotates around the Earth.
Marginal utility theory, like other capitalist economic theories, is, naturally, not limited to practical advice for corporations and governments, but also performs a social, ideological function, combating Marxist-Leninist political economy, and above all the labour theory of value. The stress, moreover, is laid on the weakest link in marginal utility theory, namely the determination of value by utility, which (as we showed above) operates as an unproven postulate reflecting the very surface of economic phenomena. It is therefore quite natural that neither the fathers of marginal utility theory nor its modern interpreters have succeeded in refuting the labour theory of value.
2. The methods of the capitalist critique of Marx's theory of value
The apologists of capitalism battle fiercely against Marx's theory of value. The initial technique of their attack on Marxian work, includ-
ing the theory of value, is a distorted interpretation of the theses of Capital. The most sophisticated distortion amounts to the following: to treat the separate propositions of Capital as something absolute, while taking the truth contained in them beyond its actual application.
Any truth, if`overdone' (as Dietzgen Senior put it), if exaggerated, or if carried beyond the limits of its actual applicability, can be reduced to an absurdity, and is even bound to become an absurdity under these conditions.'
This technique was widely used, for example, by Schumpeter, who devoted the first paper in his Ten Great Economists to Marx. While recognising the genius of Marx and his great impact on the development of economic science in the nineteenth and twentieth centuries, Schumpeter at the same time distorted the theses of Capital, and then tried to refute them.^^2^^
Schumpeter focused attention on what is common in the theories of value of Marx and Ricardo, ignoring the difference of principle between them. In particular, he wrote:
Both Ricardo and Marx say that the value of every commodity is (in perfect equilibrium and perfect competition) proportional to the quantity of labor contained in the commodity, provided this labor is in accordance with the existing standard of efficiency of production (the 'socially necessary quantity of labor'). Both measure this quantity in hours of work and use the same method in order to reduce different qualities of work to a single standard.^^3^^
This point of view is shared by the American economist Landreth, who remarks:
As an advocate of a labor theory of value, Marx worked through the various problems inherent in the formulation of a labor theory of value, as Ricardo had before him, and, in essence, followed the Ricardian solutions. Marx was able to give a clearer presentation of the difficulties of a labor theory of value, but he was no more able to solve the problems than Ricardo.^^4^^
When identifying Marx's definition of the value of commodities with Ricardo's, Schumpeter did not even ask what content they gave to the concept `labour'. And it is that question which is decisive.
According to Ricardo the labour that creates value is the process taking place between man and nature, which he treated as outside the system of social relations. Unlike Ricardo, Marx regarded value as a relation between commodity producers, concealed beneath a mate-
~^^1^^ V.I. Lenin. `Left-Wing' Communism-an Infantile Disorder. Collected Works, Vol. 31 (Progress Publishers, Moscow, 1974), p 63.
~^^2^^ See Joseph A. Schumpeter. Ten Great Economists. From Marx to Keynes (Allen & Unwin, London, 1951), pp 3-73.
~^^3^^ Ibid., pp 27-28.
~^^4^^ Harry Landreth. History of Economic Theory. Scope, Method and Content (Houghton Mifflin, Boston, Mass., 1976), pp 165-166.
41 40rial envelope,^^1^^ and the labour that creates it-as equalised social labour. He showed that only expression of the equivalence of commodities of various kinds brings out the specific character of the labour that forms value.^^2^^ This approach led him to discovery of the dual character of the labour embodied in a commodity. Marx differentiated labjw^as^Jfaejjrocess ^carried pjLJietwFpn man -and-, oatifre in a~cfirtain concrete fonrHctmcnrt? labour) and p^iali^d so-
points of departure for further development of the theory contained in Capital as a negative feature of Marx's economic theory. When examining one category or another, including value, from the angle of the economic law of the movement of capitalism, Marx specially analysed certain, the most important, aspects of value and only touched on others in passing. The various definitions of value correspondingly serve as the starting points for further development of the theory. Western economists see the various definitions of value and of the law of value as evidence of the flimsiness of Marx's theory. Cutler et al., for instance, write:
There is no simple, comprehensive and unambiguous treatment of Value' or of the 'law of value' (the form of its operation and its different modes of expression) in `Capital'... This concept [value-Auth. ] and the concepts and the problems dependent on it should be rejected.^^1^^
From that standpoint the ideal of scientific character is an ' unambiguous' treatment of value. But such a treatment would only be legitimate if value---the initial category of the whole capitalist systemwere considered to be structurally undifferentiated. Such a presentation of the initial category, however, is refuted by the whole twentieth century development of the science. The ambiguity of the definitions of value, and its characteristic as a structurally complex category, are evidence that Marx had started from the twentieth century level of the science already in the nineteenth. The critics, however, consider this a weakness of his theory of value, and even declare that
many of the central concepts and problems in `Capital', far from constituting a point of departure, are actually obstacles to the new kinds of theoretical work...^^2^^
These economists endeavour above all to refute one of the fundamental, underlying theses of the theory of value, i.e. the equality of commodities in exchange. Its importance is due to the fact that Marx, by relying on it, disclosed the content of Value' in the first chapter of Volume I of Capital, so that, if it could be demonstrated to be erroneous, body blow could be dealt thereby to the whole theory of value. Cutler et al. write in this respect:
It is by no means inevitable that exchange be conceived as an equation. Exchange can be conceived as being equivalent, in the juridical sense, that is, that both parties to it agree to the equity of the terms of the exchange and receive what they were promised, but not as an equation... Likewise, in marginalist theories exchange rests neither on the identity of some property of the things exchanged nor on an identity of the esti-
cial labour (abstract labour), which directly creates value. SchumpeterrTTowever, did not mention this very important and fundamental feature of Marx's theory of value, and ignored the main thing that qualitatively distinguished Marx from Ricardo.
Heilbroner takes essentially the same stand, writing that Values, in Marx's scheme, reflect only the outpouring of labor energies, reduced to some common denominator'.^ Schumpeter, by stating that the capitalism of free competition is theoretically reflected in Capital, ruled out the possibility of employing the Marxian' theory of value in conditions when free competition was limited. Attacks of that kind on Capital are based on complete misunderstanding of Marx's method, i.e. of rising from the abstract to the concrete. As we know, the final aim of Capital was to disclose the economic law of the movement of capitalism.^^4^^ To do that it was necessary to investigate capitalism in the conditions of free competition because that was equivalent to the capitalist mode of production. In making this investigation, Marx disengaged it from the numerous factors, limiting free competition. But not only were the most important problems of the theory of value tackled in Capital, but others were also posed whose solution related to the successive stages of the rise from the abstract to the concrete. His way of viewing things, Engels wrote, was not
a doctrine but a method. It does not provide ready-made dogmas, but criteria for further research and the method for this research.^^5^^
The effect of competition on commodity relations, taken in all its diversity (allowing for the factors that Marx abstracted in his main work), is one of these problems. Schumpeter made absolutes of the theses of Capital and correspondingly assumed that they should directly explain the whole diversity of capitalist commodity relations without the introduction of supplementary theoretical links. By basing himself on this distorted interpretation of Capital, he attacked
Marx's great work.
Cutler et al. resort to a similar methodology, misinterpreting the
~^^1^^ See Karl Marx. Capital, Vol. I. Translated by S. Moore and E. Aveling and edited by F. Engels (Progress Publishers, Moscow, 1974), p 79.
2 Ibid., pp 57-58.
3 Robert Heilbroner. Marxism: For and Against (Norton & Co., New York,
1980), pill.
4 See Karl Marx. Op. cit., pp 20-21.
5 Frederick Engels. Letter to W. Sombart. In Karl Marx and Frederick Engels. Selected Works, Vol. 3 (Progress Publishers, Moscow, 1976), p 506.
42~^^1^^ Anthony Cutler, Barry Hindess, Paul Hirst, and Athar Hussain. Marx's `Capital' and Capitalism Today, Vol. 1 (Routledge & Kegan Paul, London, 1977), pp 9-10.
~^^2^^ Ibid., p 3.
43mations of utility concerning them. Exchange is possible because the utility of the things exchanged is different for the parties to the exchange-these different utilities intersect in a definite ratio, say a willingness to part with 1 cwt of iron for the utility of 1 ton of coal and vice versa.^^1^^
The methodological unsoundness of this argument is (1) that solution of the problem of exchange is transferred from the field of economic relations to the juridical field; (2) that it attempts to treat the relations of exchange from the standpoint of subjective utility.
In order fully to disclose the method of the critique of Marx, we would draw attention to two remarks by Mrs. Robinson. She writes:
The contribution that he [Marx-y4uf/i.] made was the conception that labour power also is sold for its value?
and at the same time considers that the definition of value as labour time and of wages as the metamorphosed form of the value of labour power does not make it possible to explain the rise of real wages under capitalism.^^3^^ Her first comment actually ignores the fact that it was Marx, in contrast to his predecessors, who characterised value as a social relation, and boils down the innovation of his analysis merely to application of the labour theory of value to analyse labour power. In her second remark, she cast doubt on the scientific worth of Marx's thesis of the value of labour power. Her statement that his thesis about the value of labour power cannot explain the growth of real wages under capitalism is unsound. According to Marx, the amount of the necessaries of life required for equivalent compensation of labour power expended rises with growth of its expenditure; the value of these necessaries can alter in various ways, but real wages will have to increase in accordance with the law of the value of labour power.
The methods that are employed to misrepresent Marxian methodology can be judged from the argumentation of Richard Carson and Mrs. Robinson. Carson, declaring that the value of a commodity determined by socially necessary time cannot explain price fluctuations occurring through the action of supply and demand, draws the following conclusion:
the existence of a labour-value theory is based entirely on faith. Mrs. Robinson, criticising Marx's theory of value, writes:
According to Marx's own argument, the labour theory of value fails to provide a theory of prices.^^5^^
The `argument' .they have in mind can only `appear' through misunderstanding of Marx's methodology.
Marx characterised price as the money form of value, and showed that value is 'the law of price'. At the same time he revealed the inevitability of deviations of price from value, having abstracted a whole number of complicating circumstances linked with supply and demand and conditioning the deviation itself. He meant to continue investigation of market prices in a special theory of competition.^^1^^
In Marx's plan this theory was to have been treated after completion of Capital, and based on it. Mrs. Robinson and her disciples are quite wrong in concluding that Marx's theory of value is not the basis of his theory of prices, and that the former is an incorrect theory.
Western economists distort Marx's theory of value, ignoring the points of departure contained in it for further research.
3. Present-day ideas of the essence of money
In the conditions of modern capitalism more and more attention is paid to the problem of money in Western economics, since an analysis of the money sphere has become an indispensable prerequisite for building models of the capitalist economic mechanism. At the same time the theory of money has been persistently altered for purely apologetic purposes in order to substantiate the 'inner stability' of capitalism.
The rudiments of many modern ideas of money stem from theories that existed back in the seventeenth and eighteenth centuries. That applies primarily to the nominalist and quantity theories of money, whose development covered several centuries. The old theories of money, however, are now reappearing in a substantially modified form. Whereas Western economic thought gave its main attention, under pre-monopoly capitalism, to problems of the origin, essence, and formation of the value (or purchasing power) of money, under contemporary state monopoly capitalism, theories of money have shifted more and more (in connection with the marked aggravation of the antagonistic contradictions of capitalist reproduction) toward study of its effect on the development of the capitalist economy.
Attention is mainly focused today, especially in textbooks, on study of the mechanism of money's interaction with other factors of the reproduction process, rather than on its essence and function, and on its place in the system of state monopoly management of the economy. Since economists cannot provide answers to the many root problems of the theory of money, they are trying to get away from them and to substitute purely quantitative, empirical research for them.
~^^1^^ Anthony Cutler et al. Op. cit., pp 13-14.
~^^2^^ Joan Robinson. Contributions to Modern Economics (Blackwell, Oxford, 1979), p 183.
3 Ibid., pp 71-72.
~^^4^^ Richard L. Carson. Comparative Economic Systems (Macmillan Publishers, New York, 1973), p 440.
~^^5^^ Joan Robinson. An Essay on Marxian Economics (Macmillan Ltd., London 1949), p 17.
See Karl Marx. Capital, Vol. Ill, p 764.
44 45First of all, Western economic thought cannot say what money is. The American economist Thomas Cargill, for instance, writes:
We have been using the terms money and monetary policy as if everyone knew exactly what they meant. Unfortunately, these terms have no clear and concise definitions...'
The economists in fact give very indefinite, vague definitions of money, that in no way reflect its nature. In most cases they define it as something that makes it possible to buy goods and services, or as assets by which demand for commodities is financed. The American economist Johnson, for example, explains what money is as follows:
Money is anything that is widely accepted in payment for the purchase of goods and services or in payment of debts. Like beauty, money is as money does. Money is property that the owner can use to pay off a definite amount of debt with certainty and without delay. The Indians used beads, the Eskimos used fishhooks, and we use checks and currency.^^2^^
With such an interpretation money is confused in one fell swoop with the universal equivalent in a definite material form (beads and fishhooks) that existed in the primitive stages of the development of commodity exchange; money proper; and the credit money arising from deposits on current account in commercial banks. At the same time the nature of money and its essence are not brought out at all: the expressions 'money is property', and even more *money is as money does', mean absolutely nothing.
The British economists Newlyn and Bootle give another definition of money:
We define money as consisting of those assets the use of which by the owner to finance an excess demand in the market for commodities or factors of production, necessarily has zero in the market for loans.^^3^^
Here money is directly confused with money capital, which can function in the form of various financial assets represented by different securities.
Money, in a scientific definition, is a universal equivalent whose special function is to express the value of all other commodities. The form of the external manifestation of the universal equivalent has altered, of course, with the development of capitalism, which came about primarily through the enormous development of credit and the usurpation of money's place by credit, and the conversion of banknotes into inconvertible money. But such a modification of mon-
ey relations, linked with the very dying of capitalism at its highest stage of development, by no means signifies liquidation of the commodity character of capitalism, and consequently of the commodity character of money itself.
Western economists deduce the essence of money today, as traditionally in the past, from its function. But there is no unanimity among them either on the definition of the number of its functions or their interpretation. In some cases it has three functions---a unit of account, a medium of exchange, and a store of wealth^^1^^; in other cases it has four functions:
a (1) medium of exchange, (2) standard unit of account or standard of value, (3) standard of deferred payments, and (4) store of value.2 They characteristically replace the standard of value by the function of the unit of account, i.e. the scale of prices, and pay exceptional attention to the so-called function of store of value (wealth). This was particularly characteristic of Keynes, who considered money's decisive property to be precisely that of a store of value, i.e. its ability always to preserve ready purchasing power. On this point he disagreed with supporters of the quantity theory, who thought the function of medium of exchange decisive. Beginning with Keynes, economic thought assiduously developed the idea of money's ability constantly to preserve purchasing power, which consisted in its liquidity.
Attempts to deduce the essence of money from its functions inevitably stand the problem oh its head; its functions turn out, in these interpretations, to be not the external manifestation of its essence but, on the contrary, the condition from which its nature is itself deduced. The reason for that approach to bringing out the nature of money is rooted in the vulgar methodology of Western economic science, which studies only the external manifestations of economic processes and sees the substance in these external manifestations themselves. When the essence of money is deduced from its functions, that inevitably leads precisely to vague, amorphous definitions like those cited above emerging in place of a disclosure of the nature of money: money is `something' that can be accepted in payments, take part in exchange, and so on.
The principal methodological mistake of the `functional' approach is that it makes an absolute out of some one aspect of money expressed by a given function. Historically that is how the metallic and nominalist theories of money were demarcated. The advocates of the first, the mercantilists, made an absolute of money's function as treasure and as world money, and on that basis identified it with the noble metals. They consequently made a fetish of the noble
~^^1^^ Thomas F. Cargill. Money, the financial System, and Monetary Policy (Prentice-Hall, Englewood Cliffs, N.J., 1979), p 7.
~^^2^^ Dudley W. Johnson. Macroeconomics. Monev, Prices, and Income ( Wiley-Hamilton, Santa Barbara, 1976), p 3.
3 W.T. Newlyn and R.P. Bootle. Theory of Money (Clarendon Press Oxford, 1978), p 32.
46~^^1^^ See Thomas F. Cargill. Op. cit., p 7.
~^^2^^ John A. Cochran. Money, Banking and the Economy (Macmillan, New York, 1979), p 6.
47metals, which are not money by their nature and fulfil money functions only in certain historical conditions. There were recurrences of this theory in the form of `neometallism' in the 1950s and 1960s, when several economists-Jacques Rueff (France) and Michael Heilperin (USA)-advocated a return to the gold standard that existed before World War I. The `neometallists' did not understand that the system of gold exchange was historically limited by certain conditions of the development of capitalism, and that those conditions had already disappeared under state monopoly capitalism.
The making of other functions of money into absolutes-as medium of exchange and means of payment---caused the appearance and development of the nominalist theory of money, which identifies money with symbols of value lacking any material content, with purely accounting units without value in themselves. The fathers of this theory, the English philosopher Bishop Berkeley and the Scottish economist James Stuart, declared money to be a purely arbitrary symbol employed only in order to fix relative values and exchange ratios in the exchange of goods. When disclosing the mistakes of nominalism, Marx demonstrated that they were rooted in a denial of the value basis of money and of its links with the commodity world, on the one hand, and with gold as the universal equivalent, on the other hand. Money is not a 'social convention' but a product of the spontaneous development of commodity exchange and exchange value, and the external form of the manifestation of commodities' value. It pushed its way out of the world of commodities and opposes it primarily as a standard of value.
Elements of nominalism are very typical of all Western conceptions of money today. Just as in the past economists now link money primarily with the functions of a medium of exchange and a means of payment.
The essential function, which enables us to identify money, is that it is generally accepted as a means of payment... Anything is money which functions generally as a medium of exchange.1 From that springs the fetishisation of paper money as the most perfect and completely independent form of money. The essence of money,' Samuelson, for example, says, 'its intrinsic nature, is typified by paper currency.'^^2^^ In fact, of course, paper currency is only one variety of money, and one which, by virtue of the momentary role of money as medium of exchange, arises from that function. Paper currency consequently expresses the intrinsic nature of money only in so far as its nature finds reflection in money's function as medium of exchange.
The fetishisation of money as means of payment and store of value generated another typical feature of Western conceptions of
money, viz., its unusually extended interpretation. Any credit document begins to be treated as money; as modern capitalism's credit system rapidly extended, economists began to look upon money simply as one of the elements of 'liquid assets' of intrinsically the same type, which store value, hi this family of 'liquid assets' money is depicted as the one with the highest liquidity. With that approach, money as the universal equivalent ceases in fact to be the object of independent economic analysis and begins to be considered purely empirically from the standpoint of its finks with other 'liquid assets'. The American economist Fred Leonard, for example, writes:
Money is defined empirically in seven different ways, and the eminent logic of economics gives these empirical definitions the names Mj, M2, and so on through M7. The most widely used definitions, however, use Mj, M2 and M3-'
The cash aggregate M. is regarded as the most acceptable currency medium, which includes banknotes, coins, and the cheques of commercial banks; M2 is regarded as the sum of M j plus short-term and savings deposits in commercial banks; M3 is the sum of M2 plus savings deposits in savings banks and savings and credit associations. Liquidity itself is treated, from the standpoint of these aggregates, as ability to convert assets rapidly into aggregate Mt and without loss of income. Cargill, for example, writes:
M] can be regarded as the most liquid of the financial assets in that it represents immediate command over goods and services...2 Economists thus search for a definition of money mostly by way of a kind of inventory of credit assets and a formal comparison of their liquidity. The whole business of defining money is reduced to a purely quantitative comparison of how far various credit media can be converted into the most liquid form. Money's qualitative side as an economic category is completely ignored with this approach.
This empirical, inventory approach is particularly characteristic of the exponents of modern monetary theory, the best known of whom is the American economist Milton Friedman, who, making an absolute of the function of store of value, considers that the concept 'stock of money' can, at any moment, include financial assets that enjoy a steady demand on the market. Leonard explains that
Friedman uses a different definition of money because he sees the function of money as a temporary abode of purchasing power. In this theory, money is anything that (1) can be held at a fixed market value and (2) can be converted into a medium of exchange with no cost associated with the transformation.
1 Fred H. Leonard. Macroeconomic Theory. Static and Dynamic Analyses (Random House, New York, 1978), p 218.
~^^2^^ Thomas F. Cargill. Op. cit., p 10.
~^^3^^ F.H. Leonard. Op. cit., p 219.
~^^1^^ W.T. Newlyn and R.P. Bootle, Op. cit., pp 1, 2.
~^^2^^ Paul A. Samuelson. Op. cit., p 276.
48 49That interpretation is a quite conscious abstraction from the essential properties of money, because practically any financial asset that is in demand on the money market is reducible to money.
The quantity theory of money has a leading place in Western economics as regards the value basis of money. It was very popular in the seventeenth to nineteenth centuries and the first third of the twentieth, until the advent of Keynesianism. And even now it continues to hold strong positions as the basis of modern neoclassical theory's treatment of the influence of money on the capitalist economy. Its supporters consider that the value of the monetary unit and the commodity price level are governed by the amount of money in circulation. The more money there is in circulation, the higher the prices of goods should be and the lower the value of the monetary unit. Karl Marx, exposing the unsoundness of this theory, wrote:
The erroneous opinion that it is... prices that are determined by the quantity of the circulating medium, and that the latter depends on the quantity of the precious metals in a country; this opinion was based by those who first held it, on the absurd hypothesis that commodities are without a price, and money without a varue, when they first enter into circulation, and that, once in the circulation, an aliquot part of the medley of commodities is exchanged for an aliquot part of the heap of precious metals. *
The founder of the modern quantity theory of money is taken to be the American economist Irving Fisher, who gave it a mathematical form. From his mathematical 'equations of exchange' he concluded that the value of money is in inverse proportion to its quantity, and prices are directly proportional to the quantity of circulating money. His methodologically erroneous position stemmed from the fact that he, like 'the supporters of the quantity theory preceding him, on the whole considered the link between money and commodities solely as regards the sphere of circulation and completely ignored the processes taking place in the sphere of production where the value of commodities is, in fact, formed. Arthur Pigou, a member of the Cambridge school, also gave the quantity theory a mathematical form, and he, too, ignored the function of money as standard of value and its role as universal equivalent.
The most typical representatives of the quantity theory today are the monetarists headed by Milton Friedman. While basing themselves on Fisher's conception, they have introduced several new points into the theory: they reject Fisher's idea of the proportionality between the mass of money and market prices, on the one hand, and try to tie up the dynamics of the mass of money with fluctuations of the economy in the process of reproduction, on the other hand. But, while taking their stand on the quantity theory, the monetarists also make an absolute of the role of the mass of money in the
determination of prices and, by abstracting monopoly price formation as it really happens, completely ignore the possibility that monopoly prices themselves make growth of the mass of money in circulation necessary. The monetarists also exaggerate the role of money in the process of capitalist reproduction, ascribing a decisive influence to it on the dynamics of national income and cyclic fluctuations. In fact, however, these processes are governed by quite other factors, lying in the sphere of material production.
4. Western ideas of inflation
All capitalist countries have been engulfed in recent years by mounting inflationary processes. In the 50s and 60s the relatively dynamic development of the capitalist economy was accompanied with a growth of prices of 3 to 4 per cent a year. This was regarded as a moderate price for economic growth and was taken as the normal level of inflation which was labelled `creeping'. In the mid-60s, and especially in the 70s, inflation became `galloping'; and the average annual rates of price rises began to be expressed in double figures. It has not yet become hyperinflation, with a rate of increase of 1,000 per cent per month, disrupting the economic and monetary system,^^1^^ but an unprecedented combination of inflation and deterioration of all the most important indicators of the economic situation has become the rule. The term `stagflation' has been adopted in the Western literature to describe this phenomenon. Stagflation has struck a considerable blow at existing capitalist economic theories and is forcing economists and politicians both to expose the reasons for the steep worsening of inflation and to work out appropriate deflationary measures.
The British economist Lord Kaldor writes:
Nothing of this kind has ever occurred before in peacetime-I mean an inflation of that magnitude encompassing not just one or two countries, but all the leading industrial countries of the world. The other unique feature of this inflation was that it was accompanied by a marked recession in industrial production...
This combination of inflation and economic recession is a new phenomenon, the explanation of which presents an intellectual challenge to economists.^^2^^
Stagflation has revealed the deep reciprocal conditionality of the process of continuing price rises and deterioration of the general conditions of reproduction. There is an aggravation of capitalist contradictions through the stagflation processes, while social tensions are
~^^1^^ See Thomas F. Cargjll. Op. cit., p 495.
~^^2^^ Nicholas Kaldor. Further Essays on Economic Theory (Duckworth, London, 1978), p 215.
~^^1^^ Karl Marx. Capital, Vol. I, pp 123-124.
50 51getting worse, and (in the view of Western economists themselves) there is a growing threat to the existence of capitalist society. As Fred Hirsch and John Goldthorpe have remarked:
In the past decade, the problem of inflation has escalated from a continuing irritant to a blight on the stability and efficient performance of the leading economies and to a potential threat to the preservation of democratic societies.^^1^^
Some economists consider the problem insoluble. The American Robert Solow, for example, says:
I do not, however, have an alternative solution to offer. Indeed, I rather doubt that there is a Solution.^^2^^
The growth of inflationary processes, and the incapacity of Western governments to contain inflation are leading to a quest for new theoretical conceptions in order to work out measures adapted to the changing economic circumstances.
There is a host of theories of inflation in Western economic science, the best known of which are the monetarist, Keynesian, and Neokeynesian conceptions; `social' interpretations of inflation have also become common.
The monetarist conception of inflation has become increasingly popular of late among both economists and politicians. The Thatcher Government in Great Britain employed monetarist recipes in its inflation-containing policy, while monetarist recommendations underlay the economic programme of the Reagan Administration in the USA.
Monetarists consider the capitalist system internally stable, in equilibrium, and tending to a `natural' level of employment over a lengthy period of time. All phenomena connected with disturbance of this stability, in their view, are caused by exogenous factors, inflation, in particular, arising from disturbances of the mechanism of money circulation. The chief American monetarist, Milton Friedman, says:
Inflation is primarily a monetary phenomenon, produced by a more rapid increase in the quantity of money than in output.3 Monetarists suggest that short-term price changes can be caused by various factors, while long-term ones are generated only by an excessive injection of money into circulation. Allan Meltzer, a leading monetarist, stresses that inflation depends on the `maintained', or long-term, growth rate of money.^^4^^ He analysed price changes and the
amount of money in the 70s in the leading capitalist countries, and found that inflation was marked by high rates in countries with high rates of expansion of money, from which he concluded that
the average rate of inflation will be governed mainly by the average growth of money, just as it has been here and elsewhere in the past. * Growth of money leads to an increase of its supply over demand. Subsequently inflation develops in connection with a change in the amount of money and the public's demand for it.
Changes in the amount of money the public chooses to hold-changes in the demand for money-may cause prices to rise faster or slower than the difference between the growth rates of money and output.2 Certain supporters of monetarism admit the indirect influence of other factors, as well, on the development of inflation, presenting them as a transmission link in the chain of inflation. Phillip Cagan, a pupil and follower of Friedman, suggests in particular that such factors as trade unions and inflexible prices play an essential role in the development of the initial inflationary impulse, saying:
labor unions do not initiate inflation,... but they exacerbate the problem by perpetuating inflation once it gets started.3 He says further:
inflexible prices do not initiate inflation; but they play a crucial role in transmitting it and in delaying the success of policies to curb it.4 In the models of the `hard-line' monetarists (Milton Friedman, Allan Meltzer, Harry Johnson, and others) growth of money is generated in the USA by the monetary and fiscal policy of the Administration and the Federal Reserve System. The `soft'monetarists ( Friedrich Hayek, Gottfried Haberler, arid others), however, consider that the Administration has resorted to expansion of money under the pressure of the trade unions, which they allege to be trying to raise general wage levels and forcing the government to expand money supply in order to counter the growth of unemployment consequent on excessive wage increases. The spokesmen of monetarism have pushed the idea of 'accelerated inflation', or a continuing speeding up of the rate of inflation, which is linked with their idea of the existence of a firmly established `natural' rate of unemployment under capitalism. At the `natural' rate of unemployment the economy is in equilibrium and no market forces exert pressure on the price level. Given higher demand, which happens in their view when unemployment falls below the `natural' level, inflation accelerates. The mechanism of the development of accelerated rates is presented as follows. A monetary and fiscal policy is followed to raise aggregate demand and reduce unemployment. Firms begin gradually to raise prices, while workers,
~^^1^^ Fred Hirsch and John Goldthorpe (Eds.). Prologue. The Political Economy of Inflation (Harvard U.P., Cambridge, Mass., 1978), p 1.
^ R.M. Solow. The Intelligent Citizen's Guide to Inflation. In R. C. Puth (Ed.). Current Issues in the American Economy. 1980-1981 (Heath & Co., Lexington, Mass., 1980), p 77.
3 Milton Friedman and Rose Friedman. Free to Choose:A Personal Statement (Harcourt Brace Jovanovich, New York, 1980), p 264.
~^^4^^ See Allan H. Meltzer. Money Growth and Inflation. In R.C. Puth (Ed ) Op. cit., p 94.
521 Ibid., p 95.
^^2^^ Ibid., p94.
~^^3^^ Phillip Cagan. Persistent Inflation. Historical and Policy Essays ( Columbia U.P., New York, 1979), p 26
~^^4^^Ibid., p 29.
53after a certain time lag (usually on expiry of a former collective agreement or contract and the concluding of a new one), demand increased wages to allow for expected price rises or anticipated inflation. The acceleration of inflation is determined by the time lags 'brought about by the influence of expectations derived from past experience'.^^1^^
In the 70s the monetarist conception of 'rational expectations' developed by Lucas, Sargent, and Wallace,^^2^^ became quite common. Its supporters link the movement of prices with all the information available rather than with past experience. Accordingly, the individuals involved in business transactions, and firms, when taking economic decisions, rationally select information, a^^5^^" crucial element in which is estimates of the state of the economy and monetary and fiscal policy. Phelps and Taylor put it as follows:
The information-based reconstruction of employment and inflation theory ... led to the conclusion that... prices and wages adjust... to changes in perceptions and estimates of the current state of the economy.^^3^^
According to the theory of 'rational expectations', the effect of changes in the quantity of money on production, unemployment, and inflation depends on information about these changes. By utilising this information the economic agents of capitalist production can reduce stabilising policy to nought. This policy therefore has to be introduced suddenly, in monetarists' view, without publicity.
An expansionist monetary and credit policy cannot, in the long term, introduce essential changes in the level of unemployment and output. Its sole result is inflation. The monetarists therefore oppose price control. Friedman says:
Don't try to suppress the manifestations by price control, by rigid exchange rates, or by other methods of a similar nature. These measures do not eliminate the basic source of inflation.^^4^^
They see the way to successful curbing of inflation in pursuing a stabilising policy that would limit increase in the amount of money to constant rates, allowing for changes in the velocity of circulation. Fiscal policy should be aimed at balancing the budget; government expenditure should be covered by tax income. The monetarists advocate reduction of the government's economic functions, contrac-
tion of the public sector of the economy, and a lowering of the proportion of the budget in the gross national product by cutting expenditure on social needs.
The monetarist conception of inflation springs from the interaction of commodities and money in the circulation process. It wholly ignores the production processes in which the foundations of value relations are laid, relations realised through money in the price of commodities. It also ignores factors that are rooted in the sphere of the social reproduction, distribution and redistribution of national income. Monetarists do not take account of such a crucial factor as monopoly price formation. Friedman, for example, writes:
What produces the inflation is not trade unions, nor monopolistic employers, but what happens to the quantity of money. Anything else that affects the quantity of money will have the same effect.' Monopoly price formation is characterised by the big monopolies' creation of a system of more or less uniform prices for similar output. For that purpose the practice of 'price leadership' is employed, aimed at providing stable profits for all the major monopolistic companies of an industry. Support of high, stable rates of profit, and sometimes even an increase with growth of production costs, leads to a raising of the general price level. In many cases monopolies resort to secret agreements to keep up prices. A 'special US Congress hearing on the practice of monopoly price formation exposed monopoly associations' deliberate raising of prices, which made for an intensification of inflation.^^2^^
The bankruptcy of monetarist theory has been shown in practice in Great Britain, where the rate of inflation is still running high. Western economists, however, in particular James Lothian, thought the monetarist policy of Mrs. Thatcher's Government had a positive result over a certain period, and that the high British rates of inflation in 1979-80 were a consequence of the policy of the preceding Labour Government.^^3^^
The postwar development of the capitalist economy has shown that the rise of commodity prices took place when there was a critical overaccumulation of capital and considerable unemployment. The bankruptcy of the Keynesian theory of inflation,based on the movement of aggregate money demand and general use of production resources, has been even more marked. Attempts to explain the steady growth of prices with a high level of unemployment and a simultaneous fall in production from a Keynesian position gave rise to theo-
1 David E. Laidler. Essays on Money and Inflation (University of Chicago Press, Chicago, 1975), p 139.
~^^2^^ See Robert E. Lucas. Expectations and the Neutrality of Money. Journal of Economic Theory, Vol. 4, April 1972, pp 102-124; Thomas Sargent and Neil Wallace. Rational Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule. Journal of Political Economy, Vol. 83, April 1975, pp 241-254.
~^^3^^ Edmund S. Phelps and John B. Taylor. Stabilizing Powers of Monetary Policy under Rational Expectations. Journal of Political Economy, 1977, 85, 1: 163.
~^^4^^ Milton Friedman. Inflation. Causes and Consequences (Asia Publishing House, New York, 1963), p 38.
~^^1^^ Milton Friedman. Unemployment versus Inflation? (The Institute of Economic Affairs, London, 1975), p 33.
~^^2^^ See Hearings on Administered Prices Part 9, Senate Subcommittee on Antitrust and Monopoly, Washington, 1959.
^^3^^ See James R. Lothian. Britain's Economy Lesson for the United States: To Lower Inflation, Cut Monetary Growth. Money Manager, 1981, 10,11:5-6.
54 55ries of 'demand-pull inflation' and 'cost-push inflation'. `Demand-pull' was imputed to an increase in aggregate demand in relation to available goods and services. 'One major cause of inflation,' Baumol and Blinder write, 'though not the only one, is excessive aggregate demand.'l Many economists, it must be noted, consider demand-pull inflation as the most dangerous, because with an increase in output there is a rise in expenditure. While increase of output, moreover, is limited by the resources available and the technology employed, there is no such limitation on outlays. With a continued rise in demand there is inevitably a rise of prices.
Economists often link the raising of aggregate demand with growth of the public sector. The British economists Alan Peacock and Martin Ricketts, for example, say that a common view of the cause of inflation is the idea that it is rooted in excessive expenditure by the public sector. Since difficulties also arise in financing public expenditure there is also
the fear that covering such spending by non-inflationary borrowing will raise interest rates and discourage private investment, and that governments will 'take the easy way out through recourse to note-printing'.^^2^^ These economists, however, do not focus attention on what is and remains the main source of the swelling of the budget, viz., military spending, which rose particularly in the mid-70s in connection with expansion of the arms race. NATO countries took on obligations to increase military expenditure by 3 per cent annually, allowing for inflation.
The advocates of 'cost-push inflation' trace the rise of prices to growth of production costs. The Wonnacotts, for example, write:
Cost-push inflation occurs when wages and other costs rise and these costs are passed along to consumers in the form of higher prices. Prices are 'pushed up' by rising costs.^^3^^
Western economists often blame trade unions for the inflationary growth of prices, claiming that they have a monopoly market power and that their demands for wage increases cause a rise in costs and correspondingly of prices. In this interpretation the movement of prices is not governed by objective economic laws but by the monopoly power of trade unions, while the true culprit of the impetuous jacking up of prices-capitalist monopolies and Western countries' arms race policy---is ignored. It is also wholly incorrect to identify wages and other costs. While constant capital passes its value to the product, wages form only part of the newly created value. The worker advances labour power to the capitalists and receives wages only after the value created has been realised.
The workers of capitalist countries manage, through bitter struggle, to win a certain increase in wages, but it does not exceed the growth of productivity, on which Western economists insist. The cost of living in capitalist countries outstrips productivity. The rise of money wages has to outstrip the rise of prices considerably in order to raise real wages. The rise of money wage rates is eroded by inflation. Even when inflation is anticipated money wage rates are only regulated with a time lag in relation to the rise of prices. In the 70s real wages fell as a result of the considerable rise of prices; the rise of wage outlays in the unit cost of output also fell substantially in the late 70s and the early 80s, which is all evidence of the bankruptcy of the thesis that wages are the 'triggering factor' in inflation.
Some economists suggest that external factors play a significant role in increasing production cost and, correspondingly, in the inflationary rise of prices. 'One cost-push culprit stood out in the mid1970s,' the Wonnacotts write: 'the Organization of Petroleum Exporting Countries (OPEC).'l Such views reflect the striving of the ruling circles of the industrial countries of the West to foist the blame for the accelerated growth of prices onto the developing countries that are suppliers of primary products. It would be wrong to deny the influence of external factors on domestic prices. Since the mid-70s there has been an increased `import' of inflation which has been intensified because of the rise of world prices for primary products, farm produce, and energy sources, but it is not the developing countries, which also suffer from inflation depreciating their currency receipts, that are to blame for this.
Supporters of the Neokeynesian approach have developed different variants of incomes policy in the fight against inflation. Experience has shown that the versions that used to be employed ( wageprice guideposts; wage-price controls; wage freezes) did not yield palpable results; so that steps were taken to work out new version's. Great attention has been paid in recent years to the new form of incomes policy developed by Weintraub, Wallich,^^2^^ and Okun,3 which amounts to a lowering of taxes on firms that keep wage rises within the guidelines established for a country, and a raising of taxes on firms that break the established standards. There are already several versions of this type of policy, but none have yet been tried out in practice.
Some Western economists see the road to a solution of the inflation problem in `indexing', i.e. in establishing definite annual indices of wages, pensions, and other fixed income. Economists of the Keynesian trend think that 'a moderately inflationary trend of aggre-
~^^1^^ P. Wonnacott and R. Wonnacott. Op. dr., p 276.
~^^2^^ See Henry C. Wallich and Sidney Weintraub. A Tax-Based Incomes Policy. Journal of Economic Issues, 1971,5:1-19.
~^^3^^ See Arthur M. Okun. The Great Stagflation Swamp. The Brookings Bulletin, 1979,54:1-7.
57~^^1^^ W. Baumol and A. Blinder. Op. cit., p 275.
~^^2^^ A. Peacock and M. Ricketts. The Growth of the Public Sector and Inflation. In F. Hirsch and J. Goldthorpe (Eds.). Op. cit., p 118.
3 P. Wonnacott and R. Wonnacott. Op. cit., p 275.
56gate demand (involving, say, 1 or 2 per cent inflation) can contribute to a high rate of employment.^^1^^ So they propose a programme of government job provision for those who cannot find work in the private sector, but such a programme gives rise to doubts. The Wonnacotts, in particular, consider it would raise production costs and contribute to developing inflation and also 'might weaken incentives to work in the private sector'.^^2^^
In the 1970s `social' conceptions of inflation became common. Their authors tried to explain it by social rather than economic factors. The English economist Peter Wiles considered attempts to explain the growth of the general price level by economic causes to be mistaken in principle. He associated growth of prices with control of wages. Control of wages in turn was governed by the subjective state of 'trade union mood' and 'trade union jealousy'.^^3^^ In his view the price level depends on
what numbers the trade union leaders pick out of the air when they
make wage claims.4 Another British economist, Andrew Tylecote, thinks that
we must look deeper and wider than a few superficial, economic variables like the rate of unemployment or the supply of money. When we do, we begin to find answers to the most important and mysterious questions about inflation.^^5^^
In his view price rises are generated by wage increases. The essence of wages springs from social rather than economic factors. It would be absurd, he argues, to think that a worker sells labour and receives a wage for it. He receives a wage as a result of the balance of bargaining power between trade unions and managements. The raising or cutting of wages depends on which way the balance tips, and that depends on 'concessions costs and resistance costs'.^^6^^ Corporation managements, he suggests, are obliged to make concessions to trade unions because a cut in wages would lead to a fall in productivity, a rise of absenteeism, hiring difficulties, and so on. The main culprit, he concludes, is the trade unions; consequently it is necessary to wage a relentless struggle against them. 'It seems clear,' he writes,
that anything which tended to increase racialism, and so set workers against one another, would weaken the unions, and tend to reduce inflation. (So the National Front in Britain, the NDP in Germany and Ku Klux Klan in the United States, can proudly call themselves anti-
inflationary organisations, the consumer's friends.) I daresay one pogrom would do more for price stability than a dozen Price Commissions.1 Tylecote's ideas, which are frankly reactionary, reflect the interests of monopoly capital, which is driving to exploit the most ultra-right political forces of modern capitalist society, bordering on neofascism, to fight the labour movement.
John Goldthorpe also tries to explain inflation by social rather than economic factors. He thinks that economists, by treating inflation as a monetary phenomenon, focus attention on the technical aspect, but should treat it as a special manifestation of the 'social division' and 'social conflicts'.
The current inflation is grounded in changes in the form of their [societies'-v4«f/i. ] stratification-in other words, in their structures of social advantage and power.^^2^^
These changes, in turn, are due to the interaction of social forces causing the stratification of society. Since social strata have become freer in their actions in recent years, he thinks, the social conflict between them has been greatly intensified. In Great Britain there are, in his view, three stratified forces; the workers and persons living on wages and claiming an increase in them represent one stratum, whose interaction with the other two leads to a rise in prices. He therefore concludes that inflation has
the advantage of tending to diffuse the efforts of organized labour: a wages `free-for-all' encourages sectionalism rather than solidarity.3 Inflation is thus directly and frankly depicted, in Goldthorpe's conceptions, as good for monopoly capital because it encourages dissociation of the working class and a weakening of it« resistance to the diktat of the capitalist class.
All theories claiming to explain inflation by social factors link up with cost-push theories, because their authors see the source of price rises in a growth of wages caused by the subjective claims of trade unions. These theories have a clearly expressed class character, and their authors unanimously lay the blame for the development of inflation on unions and the working class.
The sterility of Western economists' and politicians' attempts to check inflationary price rises is evidence that the underlying inner causes of this process are grounded in the structure of the modern capitalist economy and are not reflected in a single non-Marxian theory because of their apologetic, class character.
~^^1^^ See P. Wonnacott and R. Wonnacott. Op. cit., p 286. *~^^2^^ Ibid., p 292.
~^^3^^ Peter Wiles. Cost Inflation and the State of Economic Theory. Economic Journal, 1973, 83, 330:392.
~^^4^^ Ibid.
~^^5^^ Andrew Tylecote. The Causes of the Present Inflation. An Interdisciplinary Explanation of Inflation in Britain, Germany and the United States (The Macmillan Press, London, 1981), p 189.
~^^6^^Ibid., p 16.
58llbid.,pm.
^^2^^ John H. Goldthorpe. The Current Inflation: Towards a Sociological Account. In F. Hirsch and J. Goldthorpe (Eds.). Op. cit., p 196. d., p 208.
DEFINITIONS OF CAPITAL AND SURPLUS VALUE
with free funds, while explaining its self-growth by J.B. Say's vulgar, apologetic theory of `productivity' and Senior's `abstinence', declaring that 'the accumulation of wealth is generally the result of a postponement of enjoyment or of a wafting.for it'.^^1^^
Most Western economists today base their definitions of capital on a conception that is an eclectic mixture of the ideas of Marshall and Bohm-Bawerk. In accordance with Marshall's views it is treated as the aggregate of things needed for production, as
elaborate machinery, large-scale factories and plants, stores and stocks of finished and unfinished materials,^^2^^
as the means of production 'that the economy has accumulated as a result of its productive efforts'^^3^^; as the man-made instruments of production'.^^4^^ The main fault of such definitions is that they mask the class content of capital and the antagonism between it and wage labour. To reduce capital to an aggregate of things, to means of production, is to adopt a fetishistic stand. No things, means of production included, are in themselves capital. They become the material embodiment of capital only within the context of capitalist relations of production. Capital is a historical category which arises where there is exploitation of the hired labour of workers, and which disappears together with abolition of exploitation of man by man. Non-Marxian definitions of capital have a class sense, namely to perpetuate the capitalist system. At the same time this interpretation is exploited today to mask the radical differences between the capitalist and communist systems.
'Productive service' is drawn by Western economists from the concept of Vaiting' and Bohm-Bawerk's idea of the influence of the length of the production period on the self-growth of capital. Samuelson, for example, considers that the deepening of the social division of labour connected with growth of the production of intermediate products-raw materials, semi-manufactures-leads to an increase in the length of the production period and is dictated by the subjective willingness of income-receivers to sacrifice their current interests in order to Vait' for future ones, which provides the allegedly independent productivity of capital.s In fact, capital has no independent productive power; it is only the productive power of labour that it disposes of. And however its role in the process of social reproduction is defined, its nature consists primarily in its being a certain class' monopoly of the means of production, namely the
1. Non-Marxian definitions of capital
The Marxian theory of capital discloses the inner nature of capitalist relations of production, and demonstrates the historical character of the capitalist mode of production. As Marx himself stressed:
capital presupposes wage labour; wage labour presupposes capital...
capital and wage labour are two sides of one and the same relation.' Capital expresses the relations of production between the two antagonistic classes of capitalist society, i.e. the capitalists and wage labourers, and so is a historically transient category.
The apologists of capitalism take an opposite stand, and see in capital an eternal category. At the turn of the century there were two lines in economic literature on the problem of its essence, headed respectively by Eugen Bohm-Bawerk and Alfred Marshall. BohmBawerk tried to create a 'positive theory of capital' without socioeconomic content. He looked upon capital as the aggregate of means of production created by man and nature, and explained its selfgrowth by subjective-psychological and technological factors. In the first factors he included the following properties of human psychology: (1) always to hope for a better future and so to value future goods less than present ones; (2) systematically to underestimate future needs, since they are not so urgently felt as existing ones. As a technological factor he put forward the `roundabout' method of production, which he linked with the use of means of production, division of labour, and lengthening of the time taken to produce the end product. The longer the roundaboutness of production, the bigger was the end product and its value; and the shorter it was, the smaller the end product's value.
Marshall defined capital as the things that formed the prerequisites of production. Demand for capital he derived from the production services that capital could render. The supply of capital he linked
~^^1^^ Alfred Marshall. Principles of Economics. 6th ed. (Macmillan & Co., London, 1910), p 233.
~^^2^^ Paul A. Samuelson. Economics, 9th ed. (McGraw-Hill, New York, 1973), pp 49-50.
3 Daniel Fusfeld. Economics (Heath & Co., Lexington, Mass., 1972), p 715.
~^^4^^ Lewis C. Solmon. Economics, 2nd ed. (Addison-Wesley Publ. Co., Reading, Mass., 1976), p 21.
5 See Paul A. Samuelson. Op. cit., pp 50-51.
61~^^1^^ Karl Marx. Wage Labour and Capital (Progress Publishers, Moscow, 1978),
p31.
60capitalist class, which receives unearned income in this way through the exploitation of wage labour. The social division of labour under capitalism, too, is not the result of capitalists' subjective aspirations, sacrificing their current needs, but a consequence of the interaction of a host of objective factors stemming from the level of development of the productive forces reached.
Time conceptions of the grounds for capital's self-growth, taken from Bohm-Bawerk, are common in Western economic literature. The line of the 'Neoaustrian theory of capital', represented by Hicks (Great Britain), Faber (West Germany), and others, became fashionable. Its spokesmen made a fetish of time as an independent source of the growth of capital. The English economist Christopher Bliss says:
The essential ingredient, it might be argued, is time. All outlays of labour or consumption foregone have a date and the benefits will accrue at different dates. What we must capture in our theory to have it encompass capital is this intertemporal aspect of production and consumption. In this view time is the essence of capital. * Such an interpretation, depicting time as an independent factor of business affairs and the essence of capital, is directly opposed to the Marxian theory of capital and surplus value.
Capital is represented in the interpretation of the modern followers of the Austrian school as a phenomenon outside society, capable of yielding an income by virtue of the `productivity' of time itself and an unequal valuation of present and future goods by individual subjects. Marxist-Leninist political economy does not deny the significance of time in the process of capital's movement, because the production process, in the course of which certain use values are transformed into others, the process of the creation and growth of value, takes place in time. But Marxist-Leninist political economy decidedly rejects any explanation of the self-growth of value either by making a fetish of time or by a subjective-psychological evaluation of material goods at various periods of time.;-.
The scientific unsoundness of the various psychological evaluations of present and future goods is very obvious when we examine the form of market relations (the buying and selling of labour power) that is fundamental for the theory of capital. Workers and capitalists are guided by quite different motives in their behaviour from those imputed to them by this theory. Workers cannot compare the utility of the consumer goods purchased by them from their earnings with their expenditure of labour. Work in a capitalist enterprise, both its quantity and quality, is an urgent necessity, an inevitability to which they are resigned so that they can exist. After sale of their labour power to the capitalist they completely lose control over the output
produced by them. Furthermore, they are deprived of the chance to take part in fixing the value of the enterprise's output. Hence the thesis that the individual worker can determine his share in the value of the product, which includes the value of the various means of production, materials, and labour power of others involved in the labour process, is unsound by virtue of the above objective reasons. The subjective evaluation of the difference between present and future consumer goods also does not trouble the capitalist much. He is more interested in the money form of capital and output than in their natural forms, and he wants, moreover, to obtain a greater amount of money now than in the future, because ready cash gives him the chance to obtain an even greater amount of money in the future, through the appropriation of unpaid labour.
The conception of 'human capital', which has become quite common today with the current scientific and industrial revolution, is closely linked with Western ideas of capital. It has come to the fore because of the need to tackle several problems associated with the creation of qualitatively new labour power. By 'human capital' is meant the knowledge, skills, and capacities of a person that raise his productive power. A propos of this the American economist Schultz writes:
It is a form of capital because it is the source of future earning, or of future satisfactions, or of both of-them. It is human because it is an integral part of man.^^1^^
Western authors class the main forms of investment in man as education, production training, medical services, migration, the search for information about prices and incomes, and the birth and raising of children. Education and production training they consider to be means of raising man's level of knowledge, which leads to growth of the volume of human capital. Concern for health, and a lowering of morbidity and mortality, increase the length of man's service. Migration and the quest for information create conditions for the transfer of labour power to industries where work is higher paid, i.e. raise the price for the services of human capital. The birth and raising of children create human capital for the next generation.
These factors of investment in human capital are nothing other than separate aspects of the process of reproducing labour power. Yet, this classification suffers from a number of drawbacks. (1) It does not allow for the fact that the value of labour power depends on many other factors, above all on the value of the worker's means of existence needed 'to maintain him in his normal state as a labouring individual'.^^2^^ (2) It does not allow for the point that most of the
~^^1^^ Theodore W. Schultz. Human Capital: Policy Issues and Research Opportunities. In Human Resources (National Bureau of Economic Research Columbia U.P., New York, 1972), p 5.
~^^2^^ Karl Marx. Capital, Vol. I. Translated by S. Moore and E. Aveling and edited by F. Engels (Progress Publishers, Moscow, 1978), p 168.
63~^^1^^ Christopher John Bliss. Capital Theory and the Distribution of Income (North Holland Publ. Co., Amsterdam, 1975), p 4.
62factors adduced belong to stages of the reproduction of labour power of a different order and do not affect its value and price in the same way. Education and health care, for example, are long-term factors. Qualitatively new labour power is created by the effect of education; its qualifications and skill are raised, and also its capacity to perform more complicated work. Health protection increases the intensity and length of the worker's labour. These factors are separate moments in the reproduction of labour power and increase its value and price. In contrast to them, migration and the quest for information are short-term factors that reflect fluctuations of the price of labour power around its value, and are processes of a distributive order.
Western economists try to identify the forming of labour power (human capital) and the forming of the material means of production (physical capital). The Wonnacotts, for instance, write in their textbook:
This human capital has two of the important characteristics of physical capital... During the training period, waiting is involved; the individual cannot directly produce consumer goods or services while occupied in learning. Second, human capital, like physical capital, can increase the productive capacity of the economy, since a trained worker can produce more than an untrained one. * Such a definition, however, does not allow for the fact that the economic and social nature of physical and human capital have a difference in principle, which is that human capital (labour power) creates value, while physical capital (means of production) transfers it. And while the former is the object of exploitation, the latter is the instrument of it.
The concept 'human capital' is employed in modern capitalist economics as a substantiation of the eternity of the capitalist mode of production and a justification of capitalist exploitation. The Swedish economist Assar Lindbeck, for instance, writes that
the return on human capital today is already more, important as an explanation for inequalities in income in the United States than the return on physical and financial capital.^^2^^
From that he draws two crucial conclusions for the defence of capital. (1) People's inequality in modern developed capitalist countries is due to the very uneven distribution of human capital rather than to the fact that most of them receive only wages and a minority rent, interest, and profit. (2) Nationalisation of physical and financial capital does not lead to essential changes in the distribution of income, wealth, and power, since that is now determined by the distribution of human capital. Such a formal approach to identifying human capi-
tal and physical capital leaves this decisive fact aside from which it follows that ownership of the means of production is not simply ownership of a certain quantity of capital goods. The economic dominance of the owners of capital over those who have none, and the subordination of one class to another, i.e. the relationship of exploitation, are ignored. In contrast to ownership of means of production, possession of skills and qualifications, a certain sum of knowledge, and ability is not linked with the exploitation of others' hired labour. The idea of man's capacity as capital distorts the inner nature of the capitalist mode of production.
2. The interpretation of capitalist exploitation
The capitalist class' apologists have been trying for ages to prove that exploitation does not exist under capitalism. J.B. Say asserted that workers were not subjected to exploitation; they could not claim the whole of the product made because two other factors of production (capital and land) were involved in making it. The postulate of the three factors of production and their functions, which is still propagated in modified form by contemporary Western economists, is based on a number of premises with a quite definite class bias.
(1) The theory of factors of production is illegitimately abstracted from the qualitative difference between the `services' of labour and capital. These differences are, in fact, very substantial. Man's labour serves as the source of material wealth, while wages converted into the means of subsistence needed by the worker are a means of compensating him for the physical and mental energy he expends in the process of capitalist production. The capitalist, the possessor of capital, does not in fact expend any efforts in the production process. He may hand over the function of organising and managing production to hired employees, managers. Hence it is obvious that his income represents payment for a monopoly of private property in the means of production and has a parasitic character. This is very clearly manifested in the epoch of monopoly capitalism when ownership of capital is increasingly separated from capital function. The development of the joint-stock form of ownership and credit has generated an enormous mass of fictitious capital, representing titles to receive an income unconnected directly with real capital.
(2) The theory of factors of production stems from identification of the labour process and the process of creating a commodity value. The transmuted forms of capitalist relations of production create the impression that incomes in capitalist society depend on the role that land (natural conditions), artificial means of production ( capital), and labour play in the simple labour process; and that, Marx remarked,
~^^1^^ P. Wonnacott and R. Wonnacott. Economics (McGraw-Hill, New York 1979), p 23.
~^^2^^ Assar Lindbeck. The Political Economy oj the New Left (Harper & Row New York, 1977), pp 57-58.
643---455
65renders a substantial service to apologetics... The different revenues are derived from quite different sources, one from land, the second from capital and the third from labour. Thus they do not stand in any hostile connection to one another because they have no inner connection whatsoever. If they nevertheless work together in production, then it is a harmonious action, an expression of harmony.l (3) The factors of production theory claims to disclose `eternal', `extrahistorical' patterns of distribution, but in fact the character of distribution in every socio-economic formation is governed by property relations. Apologetic ideas of the 'harmony of interests' of the factors of production (the unsoundness of which Karl Marx disclosed) have proved a 'mother lode' for all subsequent Western economic thought.
At the turn of the century vulgar political economy continued to preach this theory, striving to mask and hide the antagonism between the class of workers and the class of capitalists. The American J.B. Clark, having rather altered Say's `triad', claimed that four factors were constantly involved in production: viz., (1) capital; (2) capital goods, i.e. means of production and land; (3) the activity of the entrepreneur; and (4) the labour of the worker. Each of these factors had its specific productivity, which he deduced from the principle of marginal productivity. Each factor therefore had to be made responsible for a specific share of output: so capital yielded the capitalist interest, and capital goods, rent; entrepreneurial activity provided him with profits, while the worker's labour yielded wages. 'In other words,' he wrote,
free competition tends to give to labor what labor creates, to capitalists what capital creates, and to entrepreneurs what the coordinating function creates.^^2^^
Consequently there is no exploitation under capitalism, and various classes of people who combine their efforts in production cannot have claims on each other. This theory which has come to be called 'the theory of economic imputation'-revenues are `imputed' to the factors of production---was aimed directly against Marxism. Clark tried to free capitalism from the accusation that it was based on the exploitation of hired labour, and to prove that nothing drove the worker to social revolution. The same ideas were preached by the Austrian economist Friedrich von Wieser, the Swede Knut Wicksell, and the German Werner Sombart.
Contemporary Western economics also builds its argument about the absence of exploitation of wage labour under capitalism on this theory. Samuelson, for instance, declares that, from the standpoint
of marginal productivity, the concept 'exploitation of labour' does not exist, because it would mean to admit that the worker has a claim not only to the share of the product created by labour but also to the share created by the other factors of production. In this regard he writes:
It is naive to think that if a word [i.e. exploitation-Xuffi. 1 exists, there must always then exist some obvious real phenomenon corresponding to it.^^1^^
Western economic thought cannot, however, substantiate the absence of a real phenomenon corresponding to the concept ' exploitation of labour', in spite of the efforts it has been making in this respect for more than a century and a half. It is important to note in this connection that the theory of `imputation' cannot demonstrate the absence of exploitation of hired workers by the capitalist. The successive involvement of additional groups of workers in the production process takes place (as the historical facts indicate) on a progressing technical basis, which leads to a raising of productivity, and not to a lowering of it as the theory of 'marginal productivity' postulates. During historical development the organic composition of capital increases, and consequently the volume of means of production per unit of labour. The value of the volume of capital per unit of the value of labour power must also grow correspondingly, and that in turn means that the volume of output, i.e. the mass of use values produced, must also grdw, because the labour created by the additional group of workers drawn into production will function on a more advanced technical basis, which will undoubtedly increase its productivity. Hence it is clear that the successive drawing of additional groups of workers into the production process on an increasingly progressive technical basis leads to a growth of productivity rather than a fall. It turns out, in fact, that the growth of the mass of use values produced should be `imputed' only to labour in its concrete form. When we examine the way value is created, we discover that only labour in its abstract form is the sole source of newly created value. The means of production (capital in Clark's definition) do not create new value. The worker's concrete labour simply transfers their value to the product made during the production process. The wage worker's labour is also the sole source of surplus value. The workers' wages and the capitalists' profits therefore do not have two independent sources, but a single one, i.e. the value newly created by the workers' labour. Hence the imputation of the 'specific products' of labour and capital that is the main content of the above theory pursues the quite definite class aim of justifying capitalist exploitation.
It is impossible to prove the absence of exploitation of wage labour under capitalism. Western economic thought is forced to admit
~^^1^^ Karl Marx. Theories of Surplus-Value, Part III (Progress Publishers, Moscow, 1975), p 503.
~^^2^^ John Bates Clark. The Distribution of Wealth (Macmillan & Co., London, 1925), p 3.
~^^1^^ Paul A. Samuelson. Op. cit., p 543.
66 67its existence as a special case caused by disturbances of the labour market during competition between buyers and sellers. This idea was first put forward by Mrs. Robinson back in the 1930s. The development of monopsony is taken as an example of such a disturbance of competition on the market.
By monopsony these economists mean a market situation, the opposite of monopoly, i.e. a host of sellers facing one buyer. Solmon considered it to be
most frequently encountered in towns and small cities, where one firm employs most of the available labor force. Workers are faced with the choice of working for the monopsonistic firm at wages lower than those on the fully competitive resource market, or not working at all. Some economists call this 'exploitation of labor'.1 Consequently Western economists think capitalist exploitation of wage labour to be due simply to the fact that the capitalist does not pay the worker at a certain necessary standard. As Solmon puts it: A monopsonistic employer may be able to exploit workers by paying them less than their MRP [marginal revenue product- Auth. ].2 It follows from the concept of `monopsony' that exploitation of labour by capital is not the most characteristic feature of capitalism, expressing the essence of this mode of production, but only a phenomenon, seldom encountered, connected with a certain balance of forces of buyers and sellers on the labour market. The apologia of this interpretation is quite obvious. (1) The capitalist's exploitation of the worker takes place irrespective of whether wages are high or low. (2) The exploitation of wage labour is primarily a phenomenon of production and not of the market, as Western economists try to present it. (3) The deviation of wages above or below the value of labour power (the 'marginal product of labour' in Western terminology) in fact signifies merely a decrease in the degree of exploitation in the first case and an increase in the second. Wages, it should be remembered, have a tendency, as a rule, to deviate below the value of labour power.
The treatment of capital's exploitation of labour as a purely market phenomenon leads to the conclusion that it is possible to abolish exploitation in capitalist society by creating a situation on the labour market that is more favourable for the working class. And from that comes the idea, very popular among ideologists of capitalism and spokesmen of Social Democracy and right-wing trade unions, of the decisive role of trade unions in the fight against capitalist exploitation. The Americans Baumol and Blinder put it as follows: When there is monopsony power on the buying side of the labor market, a minimum wage law or a union might succeed in raising wages
without reducing employment. It might even be able to increase employment.^^1^^
Trade unions, in this view, create a more favourable position for workers on the labour market and so promote the abolition of exploitation of man by man, because equality is then established between the 'marginal product of labour' and the size of wages. By ignoring the principal sphere of class relations, the field of production, and reducing the antagonism between workers and capitalists to an economic struggle over distribution, bourgeois economists thereby substitute theories of 'class collaboration' for the issue of class struggle, and divert the proletariat's attention away from the need to develop concrete ways of transforming society in a revolutionary way.
Spokesmen of 'radical political economy' have a special place in the analysis of capitalist exploitation; declaring themselves continuers oif Marx's ideas, they formally admit the existence of the category of surplus value. But some of them, notably Paul Baran, Paul Sweezy, Andre Frank, and Ron Stanfield, modify it into the concept of 'economic surplus'. 'The economic surplus,' Stanfield writes, 'is a derivative of Marx's concept of surplus value.'^^2^^ But it subsequently turns out that the modification of surplus value in this interpretation is so substantial that the concept largely loses its social content. Stanfield, for example, considers that one can only speak of surplus value in respect of capitalism before World War I. Capitalism has so essentially altered its character since then that the place of surplus value has been taken by 'the economic surplus'. He links the change in the character of capitalism with the rise of monopoly competition, the development of powerful trade unions, and the growth of government intervention in the economy. The 'economic surplus' itself he defines as 'the difference between potential output and essential consumption' which includes essential personal consumption, social consumption, and capital consumption.^^3^^ The category of labour power as a commodity whose consumption by the capitalist provides a growth of value, i.e. the production of surplus value, quite disappears here.
The 'economic surplus' includes both productive and non-- productive accumulation, and also some of the current outlays associated with the functioning of the non-productive sphere of the economy. This division of the end product into `consumption' and 'the economic surplus' in fact draws a veil over the exploiter essence of the capitalist mode of production. All the parasitic consumption of the exploiting classes is lumped together under the heading `consumption',
~^^1^^ W. Baumol and A. Blinder. Economics. Principles and Policy (Harcourt Brace Jovanovich, New York, 1979), p 531.
~^^2^^ Ron Stanfield. The Economic Surplus and Neo-Marxism (Lexington Books, Toronto, 1973), p 2.
3 Ibid., pp4-5.
69~^^1^^ Lewis C. Solmon. Op. cit., pp 637-638.
2 Ibid., p 703.
68while 'the economic surplus' includes the part of workers' incomes that they put aside for a rainy day. That not only shrinks the facts about the scale of the appropriation of others' unpaid labour under modern capitalism but also washes out and masks the antagonism between labour and capital. Replacement of the concept 'surplus value' by 'the economic surplus' leads to the conclusion that all classes of capitalist society, including the working class, allegedly have an interest in growth of 'the economic surplus'. It is no accident that some spokesmen of 'radical political economy' basically counterpose to the capitalist class various petty-bourgeois strata and declassed elements of contemporary capitalist society as a revolutionary force, rather than the working class.
WESTERN VIEWS OF WAGES AND UNEMPLOYMENT
1. The `productivity' theory of wages
The profound crisis experienced by bourgeois ideology is to be seen in the evolution of theories of wages. The "wages fund' and 'iron law of wages' theories have practically disappeared. At the same time relatively early capitalist theories of wages continue in rather modified form, including the productivity theory that came into being in the nineteenth century and has its roots in Say's theory of factors of production. The relay of preachers of productivity theory was taken up in the twentieth century by members of the neoclassical trend in theories of income distribution. J.B. Clark, the leading one, basing himself on the so-called law of diminishing productivity, tried to demonstrate that, if one of the factors of production was increased while the others remained unaltered, productivity would diminish. If the number of workers in a plant rose, for example, while the means of production remained as before, the productivity of the workers newly taken on would consistently fall. The productivity of the last worker engaged would be minimal and should be considered marginal, and the worker a marginal worker. Thus, in Clark's view, wages are allegedly full payment of the product of labour, but established in accordance with the marginal productivity of the worker in the worst conditions of production. If the level of wages were fixed according to the preceding, `non-marginal' worker, part of the product created by capital would go to the worker as wages and the capitalist would not receive the profit due to him by right. Clark thus considered free competition and the market to be, in the main, a fair' regulator of the shares of the product of the participants in production (wages and profits). The theory of marginal productivity has been popularised today as well; the Wonnacotts, for instance, treat wages in their textbook as the marginal product of labour, by which is meant the additional amount of product received from hiring another worker. The value expression of the marginal product is the marginal productivity of the worker's labour. In their view, given competition,
71a profit-maximizing firm will hire labor to the point where the marginal productivity of labor equals the wage rate.^^1^^
The same point of view is held by Landreth, who frankly says that 'wages will equal the value of the marginal product of labor in competitive markets'.^^2^^ He thinks that if the price of labour rises, a firm will have to employ fewer workers until the value of the marginal product of a worker is equal to the higher price of labour. In that way, today's non-Marxian economists, like their predecessors, base themselves on the law of diminishing productivity, which they employ as proof that the hiring of extra workers is allegedly as unprofitable for the workers as for the capitalists. The unsoundness of the theory of marginal productivity consists in the following.
(1) Like every non-Marxian theory of wages it starts from the fact that the whole labour of the wage worker is paid for rather than his labour power. From that there allegedly follows a direct dependence between wages and growth of labour productivity. In fact, however, as Marx demonstrated, what is paid for is not the labour of the worker but his labour power. The level of wages is therefore not determined by the growth of productivity, but by the magnitude of the value of labour power. Furthermore, with a growth of labour productivity in industries producing consumer goods the value of labour power is diminished, which creates real opportunities for capitalists to lower or freeze wages at a certain level. This trend is particularly clearly displayed in real wages.
(2) Supporters of the marginal productivity theory consider that there are, as a minimum, two productive factors, identical in character, viz., labour and capital, which create the product and its value. They attribute a capacity to produce value (and that means surplus value too) to capital, by which is meant the means of production. At the same time, we know from Marx's labour theory of value, that new value, and that means surplus value too, is created by the workers' labour, while the means of production do not create value, being a condition for the creation and appropriation of value and surplus value.
(3) However marginal productivity theory is modified or modernised, underlying it is the law of diminishing productivity, which contradicts the actual facts: growth of capital, the contemporary scientific and industrial revolution, differences in workers' skill, and so on. It is absurd to deny this actual reality; and it is impossible to explain why the productivity of each newly employed worker, given this new industrial revolution, is lower than that of the preceding one. And how, of course, are the last worker and the preceding one determined in practice?
~^^1^^ P. Wonnacott and R. Wonnacott. Economics (McGraw-Hill, New York, 1979V, p 586.
~^^2^^ Harry Landreth. History of Economic Theory (Houghton Mifflin, Boston, Mass., 1976), p 256.
(4) By affirming that the worker receives the full equivalent of his labour, capitalist economists deny the existence of exploitation of the proletariat under capitalism, and maintain that the relationships between labour and capital have a *non-exploiter' character because each receives his due share of the social product through the distribution of incomes^
Finally, marginal productivity theory has a clearly expressed class character since it follows from it that workers can win wage rises not through class struggle but through growth of productivity and the social product, in which they are alleged to be no less interested than the capitalists. In that way these economists endeavour to prove the existence of common class interests of the proletariat and capitalists.
2. The `social' interpretation of wages
As the proletariat's class struggle has sharpened in capitalist countries, Western economic science has had to find a more flexible treatment of the problems of wages and income distribution. Non-Marxian economists, it is important to note, try as a rule to represent Marx's views on this as `obsolete' and `useless' for analysing modern capitalism. The French economist Jacques Lecaillon, for instance, considers that Marx's explanation of distribution,
based on analysis of the capitalism of 1860, is now denied by the facts.^^1^^
Another French economist, Andre Piettre, repeats this, saying that the gap between the different classes 'is being narrowed' and that the workers' standard of living 'is getting steadily better', and so on.^^2^^ In order to neutralise the influence of Marxism somehow, and at the same time adapt Western economic science to the practice of modern capitalism, attempts have been made to `renovate' old wages theories by focusing attention not so much on economic as on various sociological, psychological, legal, and other social factors involved in forming the public's incomes.
These economists, while claiming to have a `new' interpretation of the wages problem, nevertheless employ the old methodological baggage of the founders of the social theory of wages, who are by right considered to have been Sombart, Veblen, and Schumpeter in the early part of this century. In Russia a social theory of wages was developed at that time by the 'legal Marxist' Tugan-Baranovsky, who also considered that wages were not a category of production.
~^^1^^ Jacques Lecaillon. Repartition. In Grande Larousse encyclopedique, Vol. 9 (Paris, 1964), p 166.
~^^2^^ Andre Piettre. Lcs grands problemes de I'economie contemporaine, Vol. \.Ouva lecapitalisme? (Editions Cujas, Paris, 1976), p 157.
73 72In the early 1960s the social interpretation of wages was revived in a modified form in the views of contemporary economists of the institutional-sociological (neosocial) trend, notably by JX. Galbraith (USA), Gunnar Myrdal (Sweden), Fra^ois Perroux and Jean Marchal (France), and Erwin Scheele (West Germany). The individual elements of this interpretation are also to be encountered among spokesmen of other trends of Western economics but are given very different forms.
In some capitalist countries the collective bargaining theory of wages, for example, is very popular; it follows from it that the category of wages is determined not by its objective economic content but through negotiation and agreements between workers and entrepreneurs, depending on the 'bargaining power' of the two parties. By 'bargaining power' is meant (according to Bradley)
the ability of the unions to achieve theii goals in bargaining. Bargaining power depends on a number of variables-the organisation of the industry (number of firms, degree of competition among firms, etc.), the elasticity of demand for the labor of union members, the ability of the union and the firm to impose and withstand economic hardship in holding out for a settlement, and the influence of community and political pressure on the firm and the union.^^1^^
It is on social, extra-economic factors (government influence, the balance of power of trade unions and employers' associations, etc.) that the fixing of wage rates for the workers of one trade and equal skill depends, in the view of the advocates of this theory.
By shifting the centre of gravity in the treatment of wages from the economic to the political and social sphere, ideologists like Gruchy, Keiser, Solo, Perroux, and Scheele attach great importance to trade unions and other workers' organisations, ascribing the role of monopolies to them.
Economically, a trade union is a form of monopoly .-When union members formally agree to sell their labor at a common wage, they are, in fact, forming a cartel.^^2^^
It is due to trade unions, these writers say, that workers are converted from the object to the subject of economic affairs, and together with capitalists exert a sizable influence on all economic processes. Milton Friedman, for instance, states:
Labor unions are important political and economic institutions that
significantly affect both public and private actions. This fact raises
serious and difficult problems for economic policy.^^3^^
A similar approach to the role of unions in the distribution of
income can be found in the French economist Raymond Barre, who
~^^1^^ Michael Bradley. Economics (Scott, Foresman & Co., Glenview 111. 1980). pp 330-331.
?Ibid., p 326.
~^^3^^ Milton Friedman. Some Comments on the Significance of Labor Unions. In The Impact of the Union (New York, 1951), p 204.
74considers unions a major force capable both of influencing the workers' wage level and regulating every kind of social issue (the hiring of workers, permitting of overtime, settling of disputes with capitalists through negotiation, and so on). Unions, he says, not only lead the workers' economic actions but also exert political pressure, and are political organisations operating in the economic area.l The American Bradley also defines trade unions as 'complex political organisations'.^^2^^
Theorists of the institutional-sociological trend exaggerate the role not only of trade unions but also of capitalist governments, considering the latter an institution capable of creating some sort of special system of income distribution that would provide 'social justice' and make it possible to transform capitalism.
The authors of current versions of the `social' theory of wages attach great importance to the psychological factors that, in their opinion, influence the establishment of wage rates and explain the reasons for socio-economic inequality. In that connection the workers are induced to think it necessary to change their psychological attitude to capitalist production-to work diligently, strictly carry out the management's instructions, be loyal to their employers, not take part in strikes, and so on. Lecaillon, for instance, says that there is an effective means of reducing the existing inequality between people, and that the workers themselves possess it. It follows from his logic that the inequality observable is in fact not so bad, because 'it equally has the character' of a `stimulus'.^^3^^ The stimulus is expressed in this, that anyone who is at the bottom of the ladder of the social hierarchy will strive to climb up it in relation to other people.
The psychological factor-the striving to get on'-forces the worker to work more intensively, which leads (in the economists' view) to growth of the whole economy and consequently to a growth of incomes and an improvement in the worker's position. Lecaillon, for instance, writes:
From the point of view of improvement of the community's wellbeing it is obvious that realisation of a higher growth rate represents a more effective means than an equalitarian redistribution of incomes.^^4^^
There is undoubtedly a link between this socio-psychological approach to wages in capitalist society and the theory of 'human relations' in production and that of the 'humanising of work'. These conceptions are essentially aimed at exploiting the psychological and spiritual potentialities of wage workers on a broader scale in capitalist production, as well as their physical ones. Employers, moreover, attach great importance to an organisation of labour that involves the workers themselves, offering them the opportunity of establishing
~^^1^^ See Raymond Barre. Economic politique. Vol. II (Paris, 1970), pp 91-92.
~^^2^^ Michael Bradley. Op. cit., p 327.
3 Jacques Lecaillon. L'inegalite des revenus (Editions Cujas, Paris, 1970), P 167.
4 Ibid., p 166.
75the technological regime of work, of finding the most rational ways of using labour power, of distributing the supplementary money remuneration within the production group by results, and so on.
This practice can, of course, lead to a certain rise in wages in capitalist enterprises, and more job satisfaction, but it benefits the employers even more, since job organisation with involvement of the workers themselves leads to a reduction in labour turnover and absenteeism, and gives a steep rise in productivity and the intensity of work, quality of output, and, in the long run, the capitalists' profit. Quite obviously, ideologists of capitalism manipulate workers' consciousness and direct their behaviour into the service of capital, which gets a most effective means of finding and exploiting man's latent potentialities. An illusion of co-partnership in the management of capitalist production is created among the workers, which deceives them into intensifying their work. The goal of the Immanising of work' 'is not so much to limit exploitation as to find the best means of making it easier to admit it'.^^1^^
The same aim is essentially pursued, as well, by the concept of 'human capital', by which the worker's wage is represented as gross income from investment in human capital and depends on changes in the size and rate of this income, just as the employer's profit is income on his investment in capital. Both the wage-earner and the employer are consequently alleged to rank as capitalists, and the motivation of their investment is the same, namely to obtain an income from invested capital. But in backing the striving of employees to get a general or specialised education, for example, so as to improve their 'professional prospects' and pay both now and in the future, the employer in fact pursues a self-seeking goal, namely to make more profit by exploiting more skilled labour power. He realises his right as owner of the means of production and output produced in mounting profits, while the worker receives a wage, as before, i.e. the market price of his labour power or the capitalist's payment for using it. The unsoundness of modern versions of the social theory of wages is displayed in the following: (1) in an ignoring of the prevailing socio-economic relations under capitalism, a pushing of analysis of psychological, political and legal, and other factors to the foreground, and an exaggerating of their role; (2) in treating the worker as an independent factor of production who is said to be transformed from an object of exploitation into a subject of capitalist society; and so wholly ignoring the fact in thus posing the matter that modern workers, like those of the initial development of capitalism, lack means of production and possess only their labour power, which is the object of purchase and sale on the labour market. Nothing has altered in the economic and social status of the modern worker: as before he is the object of
exploitation and cannot exert any real influence on the course of capitalist society's development other than through class struggle for his rights, since it is primarily capitalist relations of production that are reproduced, and not just material wealth and labour power. (3) The conclusion that wage workers have a monopoly in the form of trade unions that are alleged successfully to oppose the capitalist monopolies, and sometimes exceed them in strength, is quite without foundation. Under capitalism, while workers do have trade unions (though not all belong to them), the latter are not nearly as strong as the monopolies that dictate prices on the labour market and consequently determine the level of wages. Capitalist practice demonstrates this. We know, for example; that a wage indexation is an important means of maintaining the level of wages agreed between trade unions and employers (and sometimes government bodies) in accordance with the movement of the retail price index of consumer goods and services. The workers try to defend themselves against the negative effects of inflation on real wages by this means, but even wage indexation does not compensate for losses due to the rise of retail prices. Trade unions also dojiot have great rights in thp control of hiringjuid_ jliejjt labour .power. When it is remembered that the top people of the trade unions as a rule constitute a 'labour aristocracy', it becomes clear that unions cannot oppose capital as 'all-- powerful monopolies'; their possibilities are limited to their operations not touching private ownership of the means of production in any way, i.e. the basic condition of capitalist exploitation.
The socio-economic theories of wages, like all wage theories, have a class character and mask the essence of capitalist exploitation. By exaggerating the role of unions and government institutions under capitalism, they have the purpose of creating an illusion among workers that it is possible to establish class peace between labour and capital. The thesis of the stimulating effect of income inequality on workers' behaviour primarily serves the interests of employers. While encouraging an aspiration among workers to improve their economic position, capitalists widely employ various methods of exploitation that ruin the workers' labour power on the one hand and promote the extraction of a greater mass of profit on the other. Bourgeois ideologists' calls for a change in workers' psychology toward capitalist production need to be treated as an attempt (a) to divert them from the fight for a radical improvement of their position and (b) to justify increasing exploitation.
3. The 'inflationary spiral' theory
At the end of the 50s economists in the West began to propagandise a theory of inflationary spiral of wages and prices, according to which too rapid a rise of wages, by increasing costs of production, inevita-
77' Claude Poperen. L'exploitation capitaliste des o.s. et 1'action des Communistes. Cahiers du communisme, 1972, 48, 9:41.
76bly leads to a rise of prices. Price rises forced wage earners to demand new wage increases, which again caused (in the view of supporters of this theory) a kind of 'defence reaction' of employers and governments to the workers' `pressure', a reaction expressed in the next spiral of prices. And so on.
It should be noted [Marx wrote] that in insisting upon a rise of wages, the labourer would only insist upon getting the increased value of his labour [i.e. labour power-/l«r/i.|, like every other seller of a commodity, who, the costs of his commodities having increased, tries to get its increased value paid.^^1^^
Bourgeois economists had already found a dependence between wage increases and price rises in the last century and were criticised for it by Marx. Although there is a certain indirect connection between a change of prices and wages, the statement that it is the rise of wages that is the main cause of price increases is erroneous. In this case the economists deliberately confuse cause and effect, because wages only adapt themselves (and with a time lag, moreover) to a rise of prices. Furthermore, a change in wages can occur through a change either in the absolute amount of newly created value (v + m) or in the ratio of its components V and `m'.
To support their mistaken position Western economists advance the thesis that wage increases lead to a lowering of employers' profits and that the latter are therefore forced to raise the prices of their output, which is said to be due to the fact that wage increases outrun growth of productivity and that the bigger the gap in the movement of these indicators, the higher prices will rise. The counter-inflation plan (the Barre Plan), for example, adopted in France in September 1976, envisaged a limited growth of wages and incomes in 1977 within 6.5 per cent. But the rise of prices in 1976-7 held at 10 per cent. It was this `leadership' of prices that secured employers steady profits, because it was identical in principle with an increase in the rate of profit, the dependence here being directly proportional. One must also add that employers have great opportunities to manipulate wholesale, import, and export prices, which enables them to fill up with interest a certain overexpenditure on wages.
A certain increase in outlays on wages does not threaten the amount of profits. Because of this wage increases cannot be the main cause of price rises, as the advocates of the wage-price spiral theory maintain. Marx's conclusion about comparative, relative wages, it should be stressed, still holds,
if the income of the worker [he wrote) increases with the rapid growth of capital, the social gulf that separates the worker from the capitalist increases at the same time, and the power of capital over labour, the dependence of labour on capital, likewise increases at the same time...
Even the most favourable situation for the working class, the most rapid possible growth of capital, however much it may improve the material existence of the worker, does not remove the antagonism between his interests and the interests of the bourgeoisie, the interests of the capitalist. Profit and wages remain as before in inverse proportion. l
The thesis of the above theory, which identifies wages with the other costs of production, whose role in the creation of value is different, is also unsound. The value of raw materials, fuel, etc., for example, is transferred completely to the product created during production, which finds expression in both value and price. The value of labour power, however, in the form of wages, is not transferred to the finished product. During the labour process the worker creates new value, one part of which recompenses the outlays on his wages, while the other part constitutes surplus value. The amount of value created by variable capital is not determined by its value but by the amount of labour put into movement by it. A lowering or raising of the value of variable capital is not reflected in the amount of the newly created value unless the amount of working time and of labour power applied is altered. It only affects the size of the surplus value, which is altered in inverse proportion to the size of the variable capital. Wages, being part of the newly created value, only become a cost of production after distribution of the newly created value. But a change in wages does not affejct the change in the total value of the commodity. It is therefore important to stress that the theory under consideration ignores the category 'newly created value', and does not take the category of profit into account as a factor involved in forming the prices of the finished product, but puts the accent on the category of wages.
Some economists point out that, in addition to the adverse consequences caused by a low level of workers' wages (lowering of consumption and consequently a fall in production in industries producing consumer goods), low wages also lead (in their view) to positive results, especially during an unfavourable economic situation. The low level of wages fixed by employers in conditions, for example, of unemployment, encourages a lowering of production costs and an increase in profits. Because of that, it is argued, the employer can rationalise his production, which leads to an increase in its efficiency and provides employment, which ensures a possibility not only of surviving during a recession but also of better conditions during an expansion.^^2^^ A low level of wages thus finds justification in the views of some economists, since it can allegedly secure a rise in the
Karl Marx. Wage Labour and Capital (Progress Publishers, Moscow, 1978),
p44. 78
P37.
~^^1^^ Karl Marx. Wages, Price and Profit (Progress Publishers, Moscow, 1976),
~^^2^^ See 1. Le Pas. Dynamisme des structures et croissance economique (Genin, Paris, 1968), pp 79-80.
79economic activity of capitalist enterprises, and a growth of productivity nationally. It is by such arguments that they try ,to justify monopoly capitalists' policy of attacking the standard of living of the working class, and the policy of wage freeze. The following statement by Lecaillon is typical in this respect:
If we want to stop inflation without affecting growth and full employment, we must in that case act at the stage of the very formation of incomes, and limit wage increases ... which could eventually enable us to modify the distribution of national income in a more just direction.^^1^^
Many economists, however, like Keynes in his day, feel---not without justification-that there is social danger in a direct cutting of wages, because it could lead to the 'blowing up' of the capitalist system itself. Instead they propose making a cut in wages hidden from the workers by means of 'controlled inflation', which would, they think, enable money wages to be raised (blunting the edge of social conflict) but their real content lowered by inflationary price rises, which would simultaneously create favourable conditions for an increase of profits and of production as a whole. These apologists think the capitalist economy would consequently be made ' healthier' at the expense of the mass of the workers. They furthermore cynically declare social `harmony' to be possible between wage-- earners and employers, and `collaboration' within the collective agreements concluded between them. Reformist illusions about a restructuring of capitalist society are thus spread.
of relative overpopulation; Marx noted that it exists in all sorts of nuances. But the Marxian approach to analysing them differs radically from that of capitalism's exponents, who, by concentrating on examining the many forms of unemployment, and the specific causes giving rise to it among different groups of workers, try to hide its socio-economic essence and .radical causes rooted in capitalist relations of production. The job of Marxist political economy, when characterising the concrete manifestations of unemployment, is to bring out their links with the operation of capitalism's economic laws. Western economists usually divide the diverse forms of unemployment into two main groups---one including the unemployment that arises from 'deficiency of effective demand', above all cyclic unemployment, and the other consisting of unemployment not linked with changes in aggregate demand (frictional, structural, technological, etc.).^^1^^
Keynes paid special attention to the unemployment associated with economic crises. In pre-Keynesian theories unemployment had been considered as Voluntary', arising either from workers' unwillingness to work for a given wage or as a consequence of troubles and disorders on the labour market connected with the subjective characteristics of the workers themselves. With the unprecedented unemployment of the early 30s, Western economics admitted the existence of `involuntary' unemployment, when workers could not find jobs even when they were ready to work for lower wages. The causes of economic crises and `involuntary' unemployment, in Keynes' view, was a lack of demand caused by people's 'propensity to save' and Veakness of the inducement to invest'/ Capitalism could attain 'full employment', i.e. retain only Voluntary' unemployment, by increasing demand and a growth of investment.
The Keynesian theory presented both the mechanism of the origin of crises itself and the factors directly influencing the level of employment and unemployment in a false light. In explaining their existence by 'insufficiency of effective demand', Keynes sought their source in circulation rather than production. By linking lack of effective demand with the 'propensity to save' and 'insufficient inducements to invest', he explained the phenomena of capitalism by psychological factors rather than by the operation of economic laws.
The Marxian analysis of the economic Jaws of capitalism, confi^rmed Jjy:pjactice; TridMtes" IhaTl Telai^^reluTof "workers is an inevitable result of the capitalist mode of production, and inherent ifi iTjcTurlhg..revivals and booms as well as"duririg crises and depres1 sions^ An increase of investment and expansion of production (which
~^^1^^ See Unemployment: Terminology, Measurement, and Analysis. Subcommittee on Economic Statistics of the Joint Economic Committee. Congress of the United States (U.S. Government Printing Office, Washington, 1961), p 11.
~^^2^^ See John Maynard Keynes. The General Theory of Employment, Interest and Money (Macmillan & Co., London, 1936), pp 15', 26, 31.
814. Present-day Western ideas about unemployment
Western economics investigates unemployment in two aspects. On the one hand it has the job of explaining the causes of the immense growth of unemployment and suggesting practical measures to alleviate it, since the million-strong army of the unemployed presents a danger to the social stability of capitalism. On the other hand it endeavours to remove responsibility for the existence of unemployment from the capitalist system, and transfer it to the workers themselves, to scientific and technical progress, and to structural shifts in the economy.
When Western authors analyse the causes of unemployment they consider only its external manifestations and the concrete factors giving rise to its various forms. A study made by the Sub-committee on Economic Statistics of the US Congress in the early 60s, for example, named around 70 forms of unemployment, each of which had its own special cause. Marxism does not deny the diversity of forms
1 Jacques Lecaillon. IM politique des revcnus. Kspoir ou illusion? ( Editions Cujas, Paris, 1969), p 139.
80are the main factor in growth of employment, according to Keynes) go hand in hand with an improvement and perfecting of technology (which Keynes abstracted). This finds reflection in a growth of the organic composition of capital, i.e. a relative reduction of outlays on labour power compared with those on means of production. The relative reduction in demand for labour power caused by growth of the organic composition of capital is the main cause of unemployment. Fluctuations in the ratio of the supply and demand of labour power under the impact of the trade cycle thus take place on a background of the relative overpopulation generated by growth of the organic composition of capital. An example of the ousting of living labour by embodied labour is statement in the magazine Canadian Labour that in the period 1956-60 every million dollars of capital invested in industry meant the creation of 95 jobs. In 1971-5 the same amount of capital (in constant prices) created only 66 jobs.1 When, however, the bulk of investment is directed not to an expansion of production but to modernisation and rationalisation, investment 'eats up' jobs.
Marx not only defined the general basis of cyclic unemployment but also showed the place of cyclic fluctuations of employment in the process of capitalist reproduction as a sine qua non of the cyclic development of production.^^2^^ The sequence of the phases of the cycle, in turn, becomes an important factor affecting the level and length of unemployment.
Keynes' followers, who on the whole adopted the principal theses of his theory, varied it in accordance with new conditions. The Neokeynesians have concentrated on the problem of achieving rapid economic growth, hoping thereby to ensure stability of the economy and full employment. Keynes himself assumed stability of prices before 'full employment' was attained, and his model presumed the existence of creeping, `controlled' inflation only with further growth of demand above that point. His followers, however, came up against the problem of accelerating inflation simultaneously with growth of unemployment. In those conditions A.W.H. Phillips' idea (calculated mathematically and depicted graphically as a curve) of the impossibility of a simultaneous achieving of full employment and stable prices, and of the inverse relationship between them, was widely used as a theoretical substantiation of capitalist governments' economic policy. Hence, a choice had to be made between the alternatives of unemployment or inflation. The American economist Bradley Schiller wrote of it as follows:
As long as the curve is an accurate description of economic performance, then full employment and price stability are not attainable at
the same time. Instead, some point on the curve, a distinct compromise between the two goals, must be selected as a policy target. Neokeynesians enthusiastically adopted this idea as the 'missing link' in Keynes' theory. To combat unemployment they suggested stimulating investment by means of the monetary and credit mechanism, although that would cause a rise of prices. If investment were limited by the credit, monetary, and tax levers, unemployment would grow, but in their opinion inflation would be eliminated.
In the 50s and 60s, when the economies of developed capitalist countries had quite stable growth rates, and crises were relatively shallow (which was linked primarily with the objective conditions of the development of capitalism at that time, and in particular with the scientific and industrial revolution), bourgeois ideologists said that a controlling mechanism had been built on Keynesian theory that protected capitalism against deep crises, significant inflation, and mass unemployment.
Developments in the 70s refuted these assertions. In 1974-5 an unusually acute economic crisis broke in the capitalist world accompanied with huge unemployment and runaway inflation. The economies of capitalist countries were extremely unstable in the following years, as well. As some authors admitted:
Unemployment and inflation are grave social ills; both capable, unless resolved, of changing our economic and perhaps political system. Phillips' thesis, considered for many years to be unshakable, proved discredited. Bradley, for example, writes:
The data showed a very loose and unstable relationship between the unemployment rate and the rate of inflation, so that even identifying the trade-off is a siicky problem, furthermore, new theoretical and empirical work in the 1970s suggests that there is no trade-off between unemployment and inflation in the long run-only the choice between higher and lower rates of inflation-and that the apparent trade-off in the 1960s had been a short-run phenomenon.^^3^^
The government's regulating policy, too, based on the thesis of the possibility of reducing `involuntary' unemployment by manipulating inflation, and vice versa, suffered fiasco. In their many attempts to modify Phillips' theory in relation to present-day conditions, the Neokeynesians recanted from examining `involuntary' unemployment, and concentrated on fighting inflation, and put forward incomes policy as a means of curbing it, proposing measures ranging from persuasion and voluntary guidelines to mandatory controls of wages,
~^^1^^ Bradley R. Schiller. The Economy (Prentice-Hall, Englewood Cliffs, N.J., 1975), p 276.
~^^2^^ Henry C. Wallich. Stabilization Goals: Balancing Inflation and Unemployment. The American Economic Review, 1978, 68, 2:159.
~^^3^^ Michael Bradley. Op. cit., pp 633-634.
83~^^1^^ See Technological Change and Jobs. Canadian Labour, 1978, 23, 2:56.
~^^2^^ See Karl Marx. Capital, Vol. I. Translated by S. Moore and E. Aveling and edited by F. Engels (Progress Publishers, Moscow, 1978), pp 592-593.
82prices, rents, profits, and interest income',l but in fact mainly taking the form of a freezing of workers' wages.^^2^^
The bankruptcy of Keynesian conceptions markedly strengthened the position of the neoclassical monetarist trend. Its leading spokesmen, Milton Friedman and Edmund Phelps, suggested their own interpretation of the Phillips curve, according to which unemployment reacts only to an *unanticipated' rise of prices. In their view only unanticipated inflation can keep unemployment below its natural rate, determined by the capacity of labour to adapt itself to market conditions.^^3^^ In this interpretation the Phillips curve has a vertical character: constant anticipated inflation does not cause an increase of employment. As Friedman himself admits, however, this model has not justified itself in practice any more than earlier ones because ever-increasing rather than constant unemployment corresponds to galloping inflation. The neoclassicists think government control policy to be the reason for that, since (in their view) it creates chaos in the spontaneous market mechanism, which is capable independently of ensuring stability of the economy. Concentrating on the fight against inflation they criticise the government policy of 'full employment' but in fact do not investigate 'involuntary unemployment', considering that it will disappear as soon as free functioning of the market mechanism is ensured. At the same time, by_orjgosing state ^pciaMejislatiQnJ_the_fbdng of a minimum wage, and jncpme-- fedistrirnTBrig^rogrammeSj and. recoiDmiendtog jbvernrnents to give_ help tft~4h£"mc^rxMi<kjffld better--off sections of the publicfthey endeavour~to sHjfrthe.Jtuiden-ef the difficulties generated by the,capitalist efipjio3ny]S^staMity_onjp_the_shqulders of the workers. "
The `healthy' economic policy proposed by the neoclassicists, however, like the Neokeynesian, is also ineffective since its ideologists are trying to abolish consequences, and not the causes generating them. Qassical theory, moreover^ even Jn, amended---form, does not cajxespondjajhe objectively esj^bMisd.conditioj^ of the develo£mento£ the capitalist m'arlceT^li^wJiich^aatjnQnopolies and the governnj^rit_cj3njimjappar^jjlirnit the operatian-o£-fteej: ompeJtition. Finally, the. .policy of, attacking the workenT^tandardLof living lo^eis_tEe&=p«Khasing4iQWgrjajid e^aTwrbateTcrisis-phenomena in the-economy.
``"""
Western authors, having suffered natural defeat in the fight against `involuntary' unemployment, have concentrated on analysing the forms of unemployment 'not connected with aggregate demand', which are largely Voluntary' in their view. Under the scientific and
~^^1^^ Michael Bradley. Op. cit., p 656.
~^^2^^ See Felix Burdjalov. State Monopoly Incomes Policy Translated by H. C. Creighton (Progress Publishers, Moscow, 1978).
~^^3^^ See Milton Friedman. Inflation and Unemployment: The New Dimension in Politics (The Institute of Econpmic Affairs, London, 1977), pp 10,
industrial revolution, which is causing significant changes in the hiring and firing of labour, the `technological' theory that arose back in the first half of the century has become widespread in Western economic literature. It owes its spread today to the fact that it enables the guilt for the increase in unemployment to be laid on scientific and technical advance as such.
Writers affirm that 'technical unemployment is due to the introduction of better methods of production and mechanisation'.^^1^^ But, while recording the fact that the use of machinery causes unemployment they interpret it in an opposite sense. They do not want to admit that machines in themselves are not to blame for the sacking of workers. Edward Kalachek, for instance, says: 'Some unemployment is a natural concomitant of technical progress and free labor markets.'^^2^^ A Macuan_-aaaly«sTJiQW_ej£ex^show^hat the,.inachine,
whfle itself r«ducini_labourtim£and-making work lighter, and increasing the wealth of society, leads- undet capitalism, when the goal of production, Js-to -maximise profit-through intensification of exploitation, to the sacking of some workers, and to a rise in the intensity of the labour of those employed .
By trying to mask the destructive consequences for the workers of the ase of new technology under capitalism, non-Marxian economists claim that the workers displaced by it are drawn into employment in new industries
partly because besides labour-saving technical development there is also capital-saving technical development, and partly because capital formation creates a demand for labour as well.^^3^^
They thus return again to the theory of `compensation' put forward by economists back in the last century. Marx criticised this theory in Capital, and showed that the introduction of machines in industry was accompanied with an increase in the numbers employed in the industries producing them. But they could not absorb all the workers displaced by the machines, since it was only profitable for capitalists to employ technique when it was cheaper than the labour power displaced by it, i.e. that the outlays of labour on the production of machines must be less than the labour saved by them. The demand of the new industries, moreover, could not, to a significant extent, be met by workers displaced from other industries and having other trades and skills.
The increase in the quality requirements of labour and its standards of professional skill, due to technological development, and the change in the industrial structure of employment, slow down the re-
~^^1^^ John A. Perrow. Economics (University Tutorial Press, London, 1975), P465.
~^^2^^ Edward D. Kalachek. Labor Markets and Unemployment (Wadsworth Publishing Co.,Belmont, Cal., 1973), p 77.
~^^3^^ Arnold Heertje and Brian Robinson. Basic Economics (Holt, Rinehart & Winston, London, 1979), p 212.
84 85employment of workers even when there are vacancies. These objective phenomena have found reflection in the theories of structural and frictional unemployment. Western economics, however, while recording the structural changes in the army of unemployed, cannot provide a scientific analysis of their real, operative causes.
The `frictional' theory is one of the most common ones in the West. Whatever economic school researchers belong to, they make `frictions' on the labour market the most important cause of unemployment, that is to say, obstacles preventing adaptation of the labour force to changes in the character or location of the demand for labour. Bradley puts it thus:
Specific causes of frictional unemployment include geographic or occupational immobility of labor, the time necessary to find new employment, the time required to acquire new skills, and inadequate market information. Because of these frictions, people don't move instantly from one job to another, and during the time between jobs they are frictionally unemployed.^^1^^
Marxian economic science relates these phenomena in the labour market to the floating form of mass unemployment. In the normal course of capitalist production workers are now sacked from mills and factories and again taken on, but the number of jobs on the whole grows in a constantly shrinking proportion to the growth of production; and in today's conditions, furthermore, many industries are expanding without a growth in employment because of rationalisation and modernisation of plant.
Many Western writers use the term 'frictional unemployment' for cases when there are vacancies but workers for some reason cannot fill them. In the 50s and 60s, according to the official statistics, situations occurred in the major capitalist countries, when the number of vacancies was greater than the number of fully unemployed. That contradiction was examined by Marx when he analysed floating overpopulation:
there is a complaint of the want of hands, while at the same time many thousands are out of work, because the division of labour chains them to a particular branch of industry.^^2^^
Structural unemployment, in the view of Western authors, arises from shifts in the economic structure of capitalist countries, and from uneven development of industries and areas. The difference between structural and frictional unemployment i* not very great, since both reflect a 'qualitative disparity of the supply and demand for labour'.^^3^^ The term 'structural unemployment', however, is used when the changes in economic structure have a deeper character. Some authors distinguish between them according to duration: un-
employment that is relatively short-term, i.e. between being sacked and finding a new job, they call `frictional'.
The scale of unemployment depends wholly, in their view, on labour's opportunities to adapt itself to the changing structure of demand for labour resulting from technical progress, which is hampered by the inertia of the labour force itself, and also by shortcomings in the system of education and training and information about vacant jobs.
The same drive to blame the workers themselves for unemployment is reflected in the theory of 'job search unemployment'.1 Workers sometimes, in the view of Western authors, spend too long' looking for work in line with their desires, since they receive unemployment benefit. Lipsey and Steiner put it this way in their textbook:
Unemployment compensation provides needed protection against genuine hardships, but it also induces some people to stay out of work and collect their unemployment benefits for as long as these last. As a means of combating this form of unemployment, they recommend increasing the price of continued search of employment.
A reduction in unemployment benefits, for example, increases the income loss associated with continued search and makes it more likely that individuals will reduce the time they spend in search of employment.^^3^^
Capital's offensive against the workers' gains is justified in that way. Capital strives to reduce to a minimum the proportion of the unpaid labour it has appropriated that is returned to the workers in the form of benefits. At the same time employers use even their concessions as an additional means of pressure. The threat of loss of benefit obliges the worker to agree to any job, whether or not it suits him.
The blame for unemployment is thus put onto the workers themselves, and onto removable organisational defects, but this imperfection of the labour market is deeply rooted in the very essence of capitalist relations of production.
JThe spontaneous, elemental character of the redistribution of labour, bfitwefin-industries, the-narrow specialisation of a considerable part of thejabour forcer-a discriminatory policy in relation to certain categories ofworkws, -dass-^mL property.privileges in the system of education, the unwillingness of private capital to lay out sizable funds on retraining workers, and public bodies' lack of funds are all factors that are irremovable under capitalism and exacerbate the problem of unemployment- -------
~^^1^^ Michael Bradley. Op. cit., pp 602-603
~^^2^^ Karl Marx. Capital, Vol. 1, p 600.
~^^3^^ See Unemployment: Terminology, Measurement, and Analysis, pp 6-7.
~^^1^^ Michael Bradley. Op. cit., p 603.
2 R. Lipsey and P. Steiner. Economics, 5th ed. (Harper & Row New York, 1978), pp 734-735.
3 Ibid., p73S.
86IDEAS OF PROFIT AND INTEREST
as a surplus on all the capital advanced. The link between variable capital and surplus value is further masked by the former's figuring in costs as wages, with all the labour of the wage workers represented as paid for.
The fetishistic character of profit is due to its being realised surplus value. Since a commodity may be sold at a price above or below its value in accordance with the market situation spontaneously established, the profit and surplus value do not as a rule coincide in an individual undertaking. It therefore seems to the capitalist that
the surplus-value incorporated in a commodity is not realised through its sale, but springs out of the sale itself.l
This form of manifestation of deep relations and dependencies that masks the real source of profit is very handy for the apologists of capitalism, who try in their theories to refute the 'pith and marrow' of the economic theory of Marxism-Leninism, namely the theory of surplus value. The unsoundness of their theories is that they are limited as a rule (i) to a description and classification of surficial phenomena instead of an analysis of deep-lying economic processes and disclosure of their substance, (ii) to making an absolute out of the forms in which economic processes are manifested, and (iii) to analysing them from an idealist or vulgar materialist standpoint. These objective elements apart, which explain the limited nature of the conclusions of theorists who treat profit, it must not be forgotten that their theories have a class character and pursue the aim of disguising the exploiter nature of profit and hiding its true source.
Modern bourgeois theories of profit have developed along the three main lines established in capitalist political economy, i.e. the neoclassical, Keynesian, and institutional-social, which differ in their methodological approaches to study of the phenomena of capitalist reality. The interpretation of profit in neoclassical theories stems from the basic principles of marginalism in respect of individual enterprises and firms. Keynesians put forward conceptions of aggregate profit viewed in the context of macro-economic theories of the distribution of national income. In institutional social theories, which are distinguished by broad use of sociological methods and a technological approach to economic phenomena, profit is treated from the standpoint of extra-economic social factors.
1. The Marxist and non-Marxist approaches to the analysis of profit
The theory of surplus value, and of profit as its transformed form, has a central place in Marxist-Leninist economic theory. The significance of profit as one of the chief categories of the political economy of capitalism is recognised as well by capitalist economists. In Western economics conceptions of profit are treated both from the angle of problems in the analysis of various aspects of the economy and as a component part of general economic theory, since they are linked with issues of the functioning of the capitalist system as a whole. But the fact that most economists share views on the crucial role of profit in economic science and practice is not evidence of unanimity in their interpretation of this category. They have a host of various treatments of profit.
According to Marx's genuinely scientific definition of profit, it is merely a secondary, derivative, converted form of surplus value, the bourgeois form, in which the traces of its origin are obliterated.1 As the 'transformed form of surplus value' profit is the result of capitalists' exploitation of wage workers, whose unpaid labour is its source. Surplus value as such, however, does not show on the surface; it can only manifest itself as profit, and is represented as engendered by all the capital advanced and by all the phases of its movement. Surplus value is created in the immediate process of capitalist production, through the uniting of constant and variable capital. While the difference of their roles is obvious from the angle of the creation of value, the difference between them is wiped out from the standpoint of the turnover of capital; there is an isolation of constant and variable capital as costs of production, and surplus value appears as a surplus over and above costs. Since all the constant capital advanced is involved in the production process, and not just the part that is consumed in the separate production act, surplus value appears
2. Neoclassical theories of profit
The neoclassical theory of profit was born in the last third of the nineteenth century. Being the fullest and most complete theory, it was the historical starting point of all modern ideas of profit, inasmuch as the Keynesian and institutional treatments took shape in
~^^1^^ Karl Marx. Capital, Vol. Ill (Progress Publishers, Moscow, 1977), p 38.
89~^^1^^ Karl Marx. Grundrisse der Kritik der Politischen Okonomie ( Rolientwurfl (Verlag fur Fremdsprachige Literatur, Moscow, 1939), p 489.
88conflict with it. In the words of the American economist Kenneth Arrow, 'no really cohesive alternative which aspires to the same level of completeness exists' among bourgeois theories of profit.^^1^^ The neoclassicists' theories are built mainly on micro-economic analysis, i.e. studies are made at the level of the separate firm operating on the market for goods and factors of production in conditions of perfect or imperfect competition, and making the maximising of profit the main aim of its operations.
The specific conditions of free-enterprise capitalism were given a very distorted reflection in the neoclassical model of perfect competition free of elements of monopoly and limitations and restrictions of any kind. The mechanism of perfect competition was due, in the view of neoclassicists (Marshall, Stakelberg, Stigler and Robertson), to the establishment of long- or short-term market equilibrium, and the setting in of `harmony' in social production^ since all the needs of the consumers and the producers taking part in the market were satisfied. Economists starting from conditions of perfect competition build models of a maximising of profit in the form of its functional dependence on volume of output, costs of production, prices, demand, and capital investment, and so explain the process of price formation.
Underlying all modern capitalist conceptions of profit is J.B. Clark's guiding principle of marginal productivity. According to his theory incomes are considered the prices of factors of production and are established by the interaction of supply and demand in accordance with marginal productivity. In Western economists' views marginal productivity is reflected purely quantitatively through the ratio of growth of output to growth of each factor taken separately. The distribution of incomes is thus reduced to `imputation' of the value of output to production factors for the services `rendered' by them to production.
The Austrian neoclassicists (Karl Menger and Friedrich von Wieser) treated profit as the remuneration of a special factor, capital; they identified average profit with interest and reduced the latter to the marginal product of capital. The English neoclassicists ( Alfred Marshall and others) treated profit on the basis of the same theory of marginal productivity as the complex of entrepreneurs' income from all factors of production, including payment for their own work, remuneration for risk, interest on the capital advanced by them, and rent for natural resources. This aggregate income of the entrepreneur is called 'normal' profit by Western economists and classed as a cost of production by them.
Economic costs also include what are sometimes described as normal
profits-the profits necessary to induce people to organise and operate a firm.^^1^^
In essence they mean by 'normal profit' what is in actual fact average profit, i.e. the share of the aggregate social surplus value appropriated by each capital in accordance with its proportion in the aggregate social capital, irrespective of its sphere of application. The obtaining of average profit enables the individual capital to realise a normal course of reproduction. Its identification with costs of production masks its substance, i.e. the relation of the exploitation of labour by capital and the common class self-interest of the capitalists in increasing the aggregate surplus value squeezed from the working class as a whole.
The forming of `normal' or `zero' profit takes place (so neoclassicists think) when long-term equilibrium of a firm is established (i.e. supply and demand for its output are balanced) and is connected with elimination of the differences in the conditions of the securing of income by each firm in the industry. The category of `normal' or `zero' profit is treated in unity with the concepts ' opportunity costs' and 'implicit costs', which are sometimes identified.2 'Opportunity costs' are represented as compensation for the sacrifice the capitalist is alleged to make in investing his funds in a certain business and keeping them there for some time, and thereby losing the opportunity to employ the factors of production at his disposal in another area of entrepreneurial activity where they could bring him a bigger return.
The opportunity cost of an input [of any factor of production-y4u//i. ] is the return that it could earn in its best alternative use.3 A capitalist's obtaining of a given return is thus dictated by the need to keep him from withdrawing production resources from the business he started in order to invest in another sphere of production. The opportunity cost of capital is called normal profit. '^^4^^
By 'implicit cost' bringing in an additional return that is not fixed in accounts and registers but is distinguished only in theory is meant the capitalist's remuneration for his personal involvement in the firm's affairs, interest on his own investment in the business' capital, rent of unvalued natural resources that are his private property. 'Implicit costs are the opportunity cost of being in business.'^^5^^
The concept 'average profit' is thus replaced by that of 'normal
~^^1^^ Frederick L. Golladay. Economics (The Benjamin/Cummines Publ Co Menlo Park, Cal., 1978), p 81.
~^^2^^ See Roger Chisholm and Marilu McCarty. Principles of Microeconomics (Scott, Foresman & Co., Glenview, 111., 1978), p 227; Lewis C. Solmon Economics, 2nd ed. (Addison-Wesley Publ. Co., Reading, Mass., 1976), p 99.
3 P. Wonnacott and R. Wonnacott. Economics (McGraw-Hill, New York, 1979), p 424.
4 Ibid.
~^^5^^ Lewis C. Solmon. Op. cit., p 99.
91~^^1^^ See Kenneth J. Arrow. Limited Knowledge and Economic Analysis. The American Economic Review, 1974, 64,1:1.
90profit' in the theory of perfect competition. 'Normal profit' is also obtained by all capitalists, but is now represented as remuneration for the services of factors of production that are the private property of the capitalist (his personal work, capital, and natural resources). By reflecting in economic theory the ostensibility that profit arises in circulation as the outcome of all the parts of capital, the supporters of the idea of `zero' profit ascribe surpluses over and above obvious costs to the services of the capitalist. The relationship of exploitation therefore disappears in their theories and the distribution of incomes seems fair. The neoclassical theory of 'perfect competition', being guided by the principles of marginalism, says that, given market equilibrium over a long period, the gross return of every firm in an industry is exactly equal to its full costs (the sum of obvious and implicit costs) and it has no profit.
Neoclassicists deny the significance of ownership of the means of production, and identify big capitalist entrepreneurs and pettycommodity producers. They make an absolute of the fullness of entrepreneurs' knowledge of future costs and prices and the degree of mobility of production resources. While recognising market competition in the short run, they affirm that, given economic equilibrium in the long term, full harmony is realised in society. The acute character of competition to extract the maximum individual profit and its concomitant ruin and death of some entrepreneurs and enrichment of others is thus masked.
By maintaining `barter' conceptions, neoclassicists treat profit as a phenomenon of exchange. Having abstracted the process of production, they are obliged to look for an explanation of the origin of a surplus over and above `obvious' costs (outlays linked with purchase of means of production, hire of labour, payment of interest on borrowed capital, and rent for the use of rented natural resources) in the sphere of circulation, where it is only realised and not produced. They therefore do not manage to reveal the substance of profit. The treatment of profit as compensation or indemnification for the capitalist's `implicit' costs, and remuneration of the entrepreneur for services rendered, can only serve as an argument to justify the capitalist's appropriation of profit, but in no way explains what source this remuneration is derived from. The question of the source of profit (which is labour, creating surplus value) is replaced by the question of capital as the basis for the appropriation of profit (i.e. of the exploiter's private ownership of the means of production).
The idea of `non-zero', pure or economic profit, is a further development of the neoclassical theory. It is analysed within the framework of the model of imperfect competition, i.e. of a departure from the mechanism of the 'perfect market' model. The theory of imperfect competition of the neoclassicists is based on their theory of perfect competition and is an attempt to reflect the phenomena of modern monopoly capitalism in economic theory. In speaking of
92`non-zero' or pure profit as a surplus over and above `normal' or `zero' profit, the neoclassicists are in fact talking about monopoly superprofit. 'Profit. In economics, return to capital and/or entrepreneurship over and above normal profit.'^^1^^ It arises through the establishing of higher market prices in breach of the conditions of perfect competition and in the appearance of monopoly in the market. As a result the income of a firm under imperfect competition proves to be bigger than the sum of the marginal costs of factors that would be its revenue under perfect competition.
`Non-zero' profit (in this theory) is the result of imperfection of a firm's internal or external equilibrium. The first happens through changes in the balance of factors of production (primarily capital and labour) within a firm; by varying them the entrepreneur chooses the optimum variant of production and thereby gets an increase in his firm's profitability. External equilibrium is disturbed by the imperfection of the market for commodities and factors of production when separate monopolists appear on it, who can get a higher profit than the `normal' one through monopolistic manipulation of market prices, differentiation of output, advertising, and other methods of non-price competition.
The obvious measure of monopoly profit is the excess of actual profits over long-run competitive returns. For an economy in equilibrium, the competitive profit rate is the minimum profit rate compatible with long-run survival, after making appropriate allowances for risk. Monopoly profit is thus the difference between actual profits and profits consistent with this minimum rate.
Western economists do not differentiate between monopoly profit and monopoly superprofit, exclude the average profit got by all capitalists from the former, so reducing the scale of monopoly returns, do not bring out the essence of monopoly profit as a whole and of profit in general, and do not demonstrate its source. In characterising profit under imperfect competition, neoclassicists link its rise with the manifestations of monopoly solely in the market, reducing the whole significance of that to a firm's opportunity to influence market prices. The degree to which the monopoly price exceeds marginal costs, and consequently the size of monopoly profit as well, depends (in Western economists' thinking ) on how far a firm controls the supply and price of a certain commodity, and on the obstacles to entering an industry in the form of differentiation of product, use of advertising, patents, and other methods of non-price competition.
Monopoly profits, then, are similar to a rent because they represent a return on the firm's unique position ... in the industry rather than
~^^1^^ P. Wonnacott and R. Wonnacott. Op. cit., p 731.
~^^2^^ Keith Cowling and Dennis Mueller. The Social Costs of Monopoly Power Economic Journal, 1978, 88, 352: 730.
93compensation for cost. If pure economic profit were taxed away, the firm would not be forced to shut down, since it would still be compensated for its opportunity costs.^^1^^
Depending on the nature of the factor that blocks entry of other firms into the industry and breaking of the monopoly, monopoly profit may take the character of
rent on a government license that is granted to one firm (or a few) and that blocks out other potential competitors. Or, it may be rent on a patented product that other firms cannot copy.2 A firm's monopoly profit may also come from the fact that 'it can price its product... higher than under perfect competition, since it makes a differentiated product'.^^3^^
The theorists of imperfect competition, by explaining the origin of `non-zero' profit by a firm's imperfect equilibrium, mask the content of profit by elements influencing the degree of a capitalist enterprise's earning power, i.e. substitute the matter of the causes affecting the rate of profit and concrete size of the mass of profit for that of the origin of profit. They ignore the manifestations of monopoly in the realm of production, although the possibility of controlling price and occupying a leading place in the market is provided precisely by domination of that sphere and depends on how far production and capital have been concentrated and monopolised. The huge scale of monopoly profits owes its origin in the first place to a heightening of the degree of exploitation of the workers directly in the monopolies' enterprises. The most advanced means of production, technique, and technology corresponding to the last word in scientific and technical progress prove to be their property; and they employ the most skilled labour, which enables monopoly capitals to extract more profit than non-monopoly capitals. Apart from these surplus profits monopolies get additional revenues from redistributive processes. These economists also,, while admitting the existence of monopoly profit, often say that it is insignificant, has a tendency to fall, and in general is difficult to calculate. The American, Lafayette Harter, for example, declares in this connection:
Although we cannot estimate monopoly profits with any degree of accuracy, we can say that they are not large in relation to aggregate national or personal income.
In fact, however, the loss inflicted on social welfare by monopolies' domination of the US economy, even by one of the most modest
estimates of Western economists, is 3.2 per cent of the national income, l and in 1980 came to $67.9 billion in absolute terms.^^2^^
The neoclassical analysis of profit under 'imperfect competition' is supplemented by risk theories in which profit figures as the outcome of the activity of capitalists and other economic agents in conditions of risk and uncertainty, which are considered elements of an imperfect market structure. The founder of the risk theory is taken to be Frank H. Knight, the American economist, who came to the conclusion from the conception of 'perfect competition' that profit can only appear as a result of dynamic changes with unpredictable consequences.^^3^^ According to him and his followers profit is due solely to uncertainty. Remuneration for predictable risk, in their view, enters costs as part of `normal' profit. Normal profit is *what has been defined as the opportunity costs of risk taking and capital',^^4^^ while profit, i.e. a surplus over and above `zero' profit, is 'the financial reward to a firm for taking non-insurable risks'.^^5^^ Profit is also treated as payment for the bearing of risk, and as an entrepreneur's remuneration for surmounting uncertainty, i.e. in fact for his ability to orient himself in an economic situation, from which it follows that it is obtained by the most gifted entrepreneurs.
The risk theorists do not see the source of profit in the exploitation of labour by capital but find it in the operations of economic agents of production in situations' of uncertainty, whose role and scale in business affairs they exaggerate, as a rule. The appropriation of profit is explained by the biological nature of the subject, his special gift of provision, and capacity to orient himself in an uncertain situation. While Western economists reflect the phenomena of capitalist reality from an idealist standpoint, they at the same time ignore the objective aspects of uncertainty and risk, and their link with the spontaneity, anarchy, and antagonisms of the capitalist mode of production, and seek the source of profit in the realm of circulation, so distorting the real connection between risk and profit. Uncertainty and risk are not sources of profit, since the latter is a form of the surplus value created by the labour of wage earners in the sphere of production. Risk and uncertainty, however, are factors operating in the distribution and redistribution of surplus value among the various groups of capitalists in the course of competition. As Marx put it: risk 'has nothing to do either with the nature or with the
~^^1^^ Michael Bradley. Economics (Scott, Foresman & Co., Glenview, 111., 1980), p 265.
~^^2^^ P. Wonnacott and R. Wonnacott. Op. cit., p 640.
~^^3^^ A. Heertje and B. Robinson. Basic Economics (Holt, Rinehart & Winston, London, 1979), p 169.
~^^4^^ Lafayette G. Harter. Economic Responses to a Changing World (Scott, Foresman & Co., Glenview, 111., 1973), p 211.
~^^1^^ Richard L. Carson. On Monopoly Welfare Losses: Comment. The American Economic Review, 1975,65,5: 1008-1014.
~^^2^^ Calculated by the author from Survey of Current Business, 1981, 61, 4: 14.
~^^3^^ See Frank H. Knight. Risk, Uncertainty and Profit (Houghton Mifflin, Boston, Mass., 1921), p 18.
~^^4^^ R. Lipsey, G. Sparks, P. Steiner. Economics (Harper & Row, New York,
~^^5^^ A. Heertje and B. Robinson. Op. cit., p 311.
95 94magnitude of the surplus'.^^1^^ It concerns the 'question of the distribution of the surplus-value amongst the different sorts of capitalists'.^^2^^
In one of the modern versions of risk theory, risk and uncertainty are identified with lack of information, and the origin of profit is explained by the fact that
any factor owner possessing information, not fully available to others, on the future demand and supply for his services can earn a surplus over the income expected...^^3^^
The existence of information, in the view of the inventor of this conception, enables the separate owners of factors of production (in which he lumps together capitalists, managers, and shareholders and also workers) to find an application for his factors in a business whose earning power is higher than the market-predicted level of earnings. They therefore get a profit over and above the remuneration agreed in the contract.
By substituting for the question of the character of ownership of the means of production an apologetic thesis of factor owners, among whom the capitalist as the owner of capital and the wage worker possessing his own labour power are equated, Mueller assigns them an identical role in the creation and appropriation of profit. Furthermore he assumes the possibility of exploitation of the owners of other factors, i.e. the capitalist, by the workers themselves.
A factor owner [consequently, possibly a capitalist-Auth. ], who does not know when he joins a firm the extent of his future immobility [i.e. the tying up of his factor in the given business-v4u//i. ] may not secure a contract which allows him to share in both the above and below average revenues of the company, i.e. he is vulnerable to exploitation by other factor owners.
(and consequently by the worker), since 'the factor owners that ``produce'' the surpluses need not receive them'.^^5^^ At the same time it is said that all factor owners receive profit, since each of them may possess valuable information. By creating the semblance that every factor owner has an identical interest in overcoming uncertainty and collecting information with the aim of obtaining extra income, Mueller masks capital's relation of dominance over labour. The authors of these risk theories on the one hand justify the huge profits appropriated by capitalists and top managements, and on the other hand propound the idea of the unity of motivation of capitalists, managers, and workers, and their common interest in creating con-
ditions favouring a firm's prosperity and an increase in its profitability, i.e. propagandising the community of interests of workers and capitalists, and the idea of their class collaboration.
3. Institutional-social theories of profit
In addition to neoclassical conceptions of profit, the theory of functional profit proposed by Schumpeterl has been developed in modern conditions within the institutional-social trend. According to it profit is the entrepreneur's reward for his exercising of the function of innovation, for his introducing the advances of science and engineering in his enterprise, bringing out a new product, applying a new technological process, etc. by which production costs are reduced and profit arises as the difference between revenues and costs. Schumpeter's interpretation of profit is held by many Western economists today.
The dollars earned by the successful innovators are defined by some economists ... as profit. Usually, these profit earnings are temporary and are soon competed out of existence by rivals and imitators. But as one source of innovational profits is disappearing, another is being born. So these innovational profits will continue to exist.2 By treating profit as a temporary phenomenon produced by technical progress, Schumpeter and his followers reduce it in fact to extra profit, in that way rejecting the category of surplus value. By representing revenue from innovations as the sole form of profit, and the innovator entrepreneur as the sole recipient of it, Schumpeter ignored ordinary average profit, concealed the mechanism of capitalist exploitation, limited the numbers of the class of exploiters in capitalist society who live at the expense of the workers, and of course the weight of the burden the latter have to bear. Profit from innovation does not explain profit as such.
The idea of profit as the innovator's revenue borders on the neoclassical interpretation of profit as monopolistic income, since innovations make the innovator entrepreneur a kind of monopolist.
When an entrepreneur innovates, even if his new product or his new process is not protected by patents, he will be one step ahead of his competitors. He will be able to capture many of their customers either by offering them a better product or by supplying his product more cheaply than his rivals can. In either case he will temporarily find himself with some monopoly power left by weakening of his competi-
~^^1^^ Karl Marx. Theories of Surplus-Value, Part III (Progress Publishers, Moscow, 1975), p 357.
~^^2^^ Ibid.
~^^3^^ Dennis Mueller. Information, Mobility and Profit. Kyklos (Basel), 1976, 29,3:425.
~^^4^^/Wt/.,p424. ^^5^^ fbid.,p429.
96~^^1^^ See Joseph A. Schumpeter. The Theory of Economic Development ( Harvard U.P., Cambridge, Mass., 1934).
~^^2^^ Paul A. Samuelson. Economics, 9th ed. (MeGraw-Hill, New York 1973) p 620.
---455
97tors, and monopoly profit will be the reward for his initiative ... the reward for innovation.l
In the theory of functional profit, consequently, it is the outstanding abilities of the entrepreneur and manager that are stressed. Since profit is a special category of 'high temporary earnings resulting from innovation" according to this theory, the genuine entrepreneur receives it, while 'routine management earns wages'.^^2^^
At the same time holders of the functional theory could not ignore the fact that profit is distributed in capitalist society to a large extent in accordance with relations of ownership and control over production and not only in accordance with the innovator's contribution. That is why the French economist Perroux, while sharing Schumpeter's point of view about profit as revenue from the function of innovations, broadens this interpretation, saying that profit is also a reward for the services of economic power. In his view it is a result of the services of the creation or direct realisation of innovations and the services of economic power or the activity of entrepreneurs and managers in ensuring efficient capitalist production. Profit, consequently, is the result of management of the process of capitalist exploitation of wage workers. By calling a broad range of people innovators (from entrepreneurs and managers to engineers and workers) and completely ignoring relations of ownership of the means of production, Perroux^^3^^ classes them all as subjects of economic power and receivers of functional profit. While citing the ownership of shares by some workers and their receiving of bonuses as an example of their sharing of profits, supporters of the functional theory do not see that this `sharing' in fact is aimed at intensifying exploitation of the working class by various `sweating' systems of job organisation and tying of wages to the results of the firm's operations.. All these payments come from the unpaid labour of the workers themselves.
The functional theory, like other contemporary capitalist theories of profit, pursues an apologetic aim, that of concealing the existence of relations of exploitation and antagonistic contradictions in capitalist society. It abstracts the decisive role of ownership of the means of production, and denies the class nature of the distribution of income. By masking ordinary entrepreneurial profit and reducing it simply to extra profit, these economists thereby considerably minimise the scale of capitalist incomes. While showing that a surplus of profit is the result of innovations, they do not see its true source, extra "surplus value, whose form on the surface of phenomena is extra profit.
In addition to `functional' ideas of profit, the institutional-so-
cial trend also includes a development of theories of institutional profit, which is interpreted as income formed outside market patterns during redistributory processes taking place through the operation of extra-economic factors, or social institutions, like state interference, the balance of power between workers' and employers' unions, etc. In the view of supporters of this theory (Jean Marchal, J. Mockers) profit is redistributed according to the strength of various socioprofessional groups, the main criterion for classifying which is the source and character of personal income. These groups are also taken to be the main subjects appropriating profit. With the aim of justifying the huge exploiter revenues in capitalist society employers and capitalist governments are depicted as the most active force directing socio-economic development, and therefore the dominant group exerting a decisive influence on the distribution of national income, in contrast to the inertia of the group of workers and their consequently playing a subordinate role. 'Institutional profit' is assumed to be a surplus of value arising as the difference between buying and selling prices as a result of entrepreneurs' subjective actions. By raising prices and putting pressure on trade unions, the government, landed proprietors, capitalist lenders, etc., entrepreneurs allegedly separate selling prices and cost prices and so create profit, which they themselves appropriate.
In essence this theory is a version of the `exchange' conception. It denies the decisive role of ownership of the means of production and the class nature of income distribution in capitalist society, just like the theory of functional profit. Profit is derived from circulation as the result of entrepreneurs' subjective actions to redistribute it. The process of production is ignored, so that the source of the redistributed profit-surplus value-remains hidden, and the exploitation of labour by capital is camouflaged.
Non-Marxian economics has not been able to build a theory of profit that satisfies even Western economists today. More and more often a crisis in the state of profit theory is admitted. As the Dutch economist Jan Pen, for example, writes:
Any textbook tells us that profits are made up of, say, five elements: (i) a remuneration for uncertainty...; (ii) a remuneration for innovation...; (iii) monopoly profits...; (iv) windfall profits in the small, caused by a sudden shift in demand for the firm's product; (v) windfall profits in the large, caused, for instance, by a general upswing in demand, devaluation, perhaps inflation.' Analysis of these elements, however, leads him to conclude that
notwithstanding the traditional seemingly clear-cut classification, we really don't know what determines profits.^^2^^
~^^1^^ W. Baumol and A. Blinder. Economics. Principles and Policy (Harcourt Brace Jovanovich, New York, 1979), p 549.
~^^2^^ Paul A. Samuelson. Op. cit., p 625.
~^^3^^ See Fran9ois Perroux. L'economie du 20-e siecle (Press Universitaires de France, Paris, 1961).
~^^1^^ Jan Pen. Profits as a Rich Source of Puzzlement. De Economist (Leiden), 1980, 128, 3: 298. * Ibid., p 299.
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