rararoadrunner
24th August 2011, 19:24
President Hugo Chavez Frias has just began a column from his hospital bed, "Notes From the Rearguard:" being the same age as Chavez, and facing a minor "rearguard" action myself due not to any illness, but because of my age (we who are at the half-century mark gotta doo what we gotta doo, gasp!) I appreciate the humour behind this column heading...and that, "kidding on the square," Chavez is sharing his self education (he's an engineer now studying economics) with us. Let us take his admonition, "<a href="http://www.avn.info.ve/node/73130">(Hugo) Chavez urges people to study economy to prevent manipulation from bourgeoisie</a>" to heart.
Let me begin by trying to get the non-economists up to speed on the topic under discussion in my "<a href="https://www.createspace.com/3612105">Capitalism vs. Economic Democracy</a>:" what can a study of economics offer to non-economist activists, poor and working people? In my view, we can offer a critique of capitalism's self-justification, and via that critique, some concepts with the help of which workers can construct their own, post-capitalist economy.
Let me jump right in by focusing on one of the most controversial propositions ever made in economics (or as it was called then, political economy): the Labour Theory of Value.
This notion, first developed by the philosopher John Locke, was that labour was the source of all values...that is, it explained relative price ratios.
This was, along with Quesnay's theory of differential rents based upon diminishing marginal productivities of land, and Adam Smith's theory of wealth (developed in his famous "Wealth of Nations," and the basis of our modern concept of the Gross National Product), one of the few, relatively simple mathematical models developed by economists toward the end of the 18th Century, and further debated and developed as was the discipline of economics itself.
A problem noted early on in the Labour Theory of Value was that a proof was needed that the means of production could be mathematically reduced to dated quantities of labour: David Ricardo attempted unsuccessfully to produce this proof in the first half of the 19th Century, and its solution has remained a key to refuting critics of the Labour Theory of Value.
Now as I note on p. 3 of "Capitalism vs. Economic Democracy," Marx and Engels were aware of this problem, but rather than work it out, they turned to the analysis of capitalist relations of production which undergirds Vol. 1 of "Capital." How come?
1) The Labour Theory of Value wasn't as controversial when "Capital" was being written as afterword: its wholesale rejection by the bulk of the economics profession didn't occur until "Capital" was published.
2) Marx and Engels were more interested in examining what was unique to capitalism, its relations of production and what they implied, than in analysing the development of productive forces, common to precapitalist, capitalist, and postcapitalist economies, and in which the necessary proof turned out to be rooted (Marx and Engels did offer a solution toward the end of Vol. 3 of "Capital," but it relied upon two simplifying assumptions: total prices = total values, and total profits = total surplus value...remove those assumptions, and that solution cannot be made).
Absent a proof of its underlying premise, the Labour Theory of Value, which posited that only workers created value, was overthrown right after "Capital" was published by an alternative notion that all "factors of production"...labour, land, and capital...were compensated according to their contribution to the value of the product, as determined at the point of sale.
This "Marginal Utility Theory of Value," which serves as the basis for capitalist self-justification, as Professors Fine and Harris rightly point out in <a href="http://www.amazon.com/Rereading-Capital-Ben-Fine/dp/0231047924">Rereading Capital</a>, isn't really a theory of value at all, as it was understood previously: rather than grounding exchange in the production process, these economists sought to ground production in a series of exchanges...thus, profit is explained away as just another exchange, rather than a form of economic exploitation of one class by another.
Further, as John Maynard Keynes demonstrated in his "<a href="http://www.marxists.org/reference/subject/economics/keynes/general-theory/">General Theory of Employment, Interest, and Money,</a>" you don't need a theory of value in order to analyse capitalist cyclical crises and formulate countercyclical policies...only when stagflation appeared in the 1970s was the flaw in Keynesian macroeconomic theory made flesh, and critics on both the left and right have been debating Keynesians, and one-another, ever since.
A decade before this, however, Piero Sraffa, an Italian economist who studied with Keynes, brought out a small, yet telling work, "<a href="http://www.amazon.com/Production-Commodities-Means-Critique-Economic/dp/0521099692">The Production of Commodities by Means of Commodities: a Prelude to a Critique of Economic Theory</a>:" it slowly, but surely, turned economics on its head...and started the process which led to, among other things, my "Capitalism vs. Economic Democracy."
How did Sraffa both provide the long-sought proof of the Labour Theory of Value, and totally deconstruct the neoclassical/neoliberal self-justification?
Sraffa applied the method of Marx and Engels of moving from highly abstract models to more concrete concepts:
First, he shows that:
1) In any economy can be found a set of basic industries, which produce the means of production for all (or almost all) other industries, including for themselves and for one-another;
2) In any such set of basic industries can be found a subset in which the same composite product is produced as is consumed: this is what Sraffa terms "The Standard Commodity," and with it, he provides the formal proof that all means of production can be reduced mathematically to dated quantities of labour: the premise upon which the Labour Theory of Value rests.
Next, he moves from a model of a single set of production processes to one in which more than one production process is available per product: with this model, he shows that the main mathematical tool that neoclassical economists use to quantify relative capital intensity of two production processes...the solution of which is the basis of their theory of value...leads inevitably to an inescapable contradiction: hence the whole marginal-utility theory of value is disproved.
Now, although Sraffa's method of moving from simple, abstract models to more complex, concrete concepts was basically the same as that of Marx and Engels, the relation between "Capital" and "Production of Commodities by Means of Commodities" wasn't clear at first. Why?
First, we find no mention of the division of production between classes in "Production of Commodities by Means of Commodities:" does this mean that the two works contradict one-another?
Second, if so, has Sraffa disproved the need for a theory of value...or does "Capital" disprove "Production of Commodities by Means of Commodities" by posing a critique that Sraffa fails to answer?
While most economists interested in the subject take sides in the second debate, one must argue the first point in order to get to the second: I am among those who offer that the two works do not contradict one-another...<em>if we understand that Sraffa's "Standard Commodity" is a "Standard Product" in which production is analysed in isolation from exchange and distribution by abstracting away from any specific relations of production to lay bare the process of development of productive forces common to all economies. </em>
Why didn't Sraffa make this clear? He may have hinted at it in his subtitle, "A Prelude to a Critique of Political Economy" (if we understand "Capital" to be that critique)...but overall, he follows Ricardo rather than Marx, so indeed his work can be subjected to the same critique...namely, Ricardo's failure to explain profit as rooted in surplus-value...that Marx and Engels offered to Ricardo's work: take that critique into account, I argue in "Capitalism vs. Economic Democracy," and one can verify that "Production of Commodities by Means of Commodities" does indeed furnish (albeit not without some clarification) the proof of the Labour Theory of Value needed as a prelude to "Capital."
OK, that's where we were before I began the work which would result in "Capitalism vs. Economic Democracy:" a growing suspicion that Sraffa had proved the Labour Theory of Value, and disproved the Marginal Utilitarian Theory of Value...knocking the theoretical pins out from under neoclassical/neoliberal economic thought, and completing the foundations of Marxist political economy.
I looked at this solution and I began to suspect that Sraffa might have been onto something more: that is, <em>his Standard Commodity looked a lot like a Leontieff input-output model used to analyse capitalist economies, and by socialist economists as their model for economic planning.</em> Could it be?
I began to tackle this problem in Blue Books I scribbled in at a laundromat during my last year as a Computer Science student at CSUSB, and have been working on the problem ever since: what reading "Rereading Capital" made me realise was that the model of economic planning I derived from Sraffa's Standard Commodity was no more specific to socialism than was the "Standard Commodity" itself: rather, it could be better understood as a model of the growth and development of any single economic entity, regardless of relations of production. That's why this model is where it is in "Capitalism vs. Economic Democracy:" I reformulate it as a way to tease as many implications out of the "Standard Product" as I can before we specify capitalist relations of production.
Now that you have some idea of what went into part 1 of "Capitalism vs. Economic Democracy," let's briefly mention the other two parts, since I also follow the method of moving from more abstract models to more complex concepts, but in a different way than either Marx & Engels or Sraffa did, since I have their works before me.
Part 2 is my attempt to make a contribution to the theory of economic cycles and crises by moving my model to a specific analysis of capitalism: since exchange and distribution, albeit in a single economic entity, have already entered into the analysis of part 1, I drop the assumption that employment is constant, and add the assumption that we begin with equalised rates of profit, implying equal investment in all industries: I show how this leads to overproduction, recession, and ultimately redistribution of capital from surplus to shortage industries in order that further growth can take place, reproducing the cycle on a larger scale.
Part 3 rounds out the study by moving from Marx & Engels' theory of capitalist development to the theory of development of economic democracy from socialism to communism developed by Marx and Lenin...as well as the theory of the relation of capitalist to socialist development developed by Engels, Lenin, and Raya Dunayevskaya.
To begin with, I argue that the theory of socialist development which Marx began in "Economic and Philosophic Manuscripts" and continued in "Critique of the Gotha Programme" follows the same method of moving from more abstract models...in this case, of an economy in which democracy rather than the employer-employee relationship is its determinating relation of production...to a developmental theory further elaborated in "Critique of the Gotha Programme," and borne out by early Soviet experience, as noted in "State and Revolution."
On the other hand, when one focuses instead on the emergence of economic democracy from capitalism, as noted by Engels and confirmed in later Soviet experience by Lenin, we have the same underlying force, namely economies of scale, underlying the development of capitalism from more market-driven forms through more monopolistic models, finally to state capitalism, and the development of economic democracy from more market-driven socialism to communism: the irony, according to Raya Dunyaevskaya, was that the possibility existed...and was borne out, according to her analysis...that state capitalism could overcome economic democracy via the bureaucratic strengthening of the employer-employee relationship at the expense of economic democracy.
That, in as few nutshells as possible (so as to minimise the suspicion that I'm indulging in a shell game, among other things), is the argument I present to you in "Capitalism vs. Economic Democracy:" we already have the theoretical tools with which we can navigate our way from capitalism to economic democracy, if only we can figure out where to hang them on our tool-belt, put them together, and make the best possible use of them.
So now it's your turn: Hope to hear from you all soon, and, inter alia, that we can begin to work together to help workers chart their course away from capitalism and toward economic democracy: hasta pronto, y a la victoria, siempre, MKO.
PS: I'm seeking a Spanish-language translator for "Capitalism vs. Economic Democracy:" I can furnish the source files and post the translation to my Createspace account...we can split the royalties. Does anyone know anyone who might be interested in working with me? I would really like to see a Spanish edition of "Capitalism vs. Economic Democracy" among the bedside reading of President Chavez...among other Venezuelans and socialists!
Let me begin by trying to get the non-economists up to speed on the topic under discussion in my "<a href="https://www.createspace.com/3612105">Capitalism vs. Economic Democracy</a>:" what can a study of economics offer to non-economist activists, poor and working people? In my view, we can offer a critique of capitalism's self-justification, and via that critique, some concepts with the help of which workers can construct their own, post-capitalist economy.
Let me jump right in by focusing on one of the most controversial propositions ever made in economics (or as it was called then, political economy): the Labour Theory of Value.
This notion, first developed by the philosopher John Locke, was that labour was the source of all values...that is, it explained relative price ratios.
This was, along with Quesnay's theory of differential rents based upon diminishing marginal productivities of land, and Adam Smith's theory of wealth (developed in his famous "Wealth of Nations," and the basis of our modern concept of the Gross National Product), one of the few, relatively simple mathematical models developed by economists toward the end of the 18th Century, and further debated and developed as was the discipline of economics itself.
A problem noted early on in the Labour Theory of Value was that a proof was needed that the means of production could be mathematically reduced to dated quantities of labour: David Ricardo attempted unsuccessfully to produce this proof in the first half of the 19th Century, and its solution has remained a key to refuting critics of the Labour Theory of Value.
Now as I note on p. 3 of "Capitalism vs. Economic Democracy," Marx and Engels were aware of this problem, but rather than work it out, they turned to the analysis of capitalist relations of production which undergirds Vol. 1 of "Capital." How come?
1) The Labour Theory of Value wasn't as controversial when "Capital" was being written as afterword: its wholesale rejection by the bulk of the economics profession didn't occur until "Capital" was published.
2) Marx and Engels were more interested in examining what was unique to capitalism, its relations of production and what they implied, than in analysing the development of productive forces, common to precapitalist, capitalist, and postcapitalist economies, and in which the necessary proof turned out to be rooted (Marx and Engels did offer a solution toward the end of Vol. 3 of "Capital," but it relied upon two simplifying assumptions: total prices = total values, and total profits = total surplus value...remove those assumptions, and that solution cannot be made).
Absent a proof of its underlying premise, the Labour Theory of Value, which posited that only workers created value, was overthrown right after "Capital" was published by an alternative notion that all "factors of production"...labour, land, and capital...were compensated according to their contribution to the value of the product, as determined at the point of sale.
This "Marginal Utility Theory of Value," which serves as the basis for capitalist self-justification, as Professors Fine and Harris rightly point out in <a href="http://www.amazon.com/Rereading-Capital-Ben-Fine/dp/0231047924">Rereading Capital</a>, isn't really a theory of value at all, as it was understood previously: rather than grounding exchange in the production process, these economists sought to ground production in a series of exchanges...thus, profit is explained away as just another exchange, rather than a form of economic exploitation of one class by another.
Further, as John Maynard Keynes demonstrated in his "<a href="http://www.marxists.org/reference/subject/economics/keynes/general-theory/">General Theory of Employment, Interest, and Money,</a>" you don't need a theory of value in order to analyse capitalist cyclical crises and formulate countercyclical policies...only when stagflation appeared in the 1970s was the flaw in Keynesian macroeconomic theory made flesh, and critics on both the left and right have been debating Keynesians, and one-another, ever since.
A decade before this, however, Piero Sraffa, an Italian economist who studied with Keynes, brought out a small, yet telling work, "<a href="http://www.amazon.com/Production-Commodities-Means-Critique-Economic/dp/0521099692">The Production of Commodities by Means of Commodities: a Prelude to a Critique of Economic Theory</a>:" it slowly, but surely, turned economics on its head...and started the process which led to, among other things, my "Capitalism vs. Economic Democracy."
How did Sraffa both provide the long-sought proof of the Labour Theory of Value, and totally deconstruct the neoclassical/neoliberal self-justification?
Sraffa applied the method of Marx and Engels of moving from highly abstract models to more concrete concepts:
First, he shows that:
1) In any economy can be found a set of basic industries, which produce the means of production for all (or almost all) other industries, including for themselves and for one-another;
2) In any such set of basic industries can be found a subset in which the same composite product is produced as is consumed: this is what Sraffa terms "The Standard Commodity," and with it, he provides the formal proof that all means of production can be reduced mathematically to dated quantities of labour: the premise upon which the Labour Theory of Value rests.
Next, he moves from a model of a single set of production processes to one in which more than one production process is available per product: with this model, he shows that the main mathematical tool that neoclassical economists use to quantify relative capital intensity of two production processes...the solution of which is the basis of their theory of value...leads inevitably to an inescapable contradiction: hence the whole marginal-utility theory of value is disproved.
Now, although Sraffa's method of moving from simple, abstract models to more complex, concrete concepts was basically the same as that of Marx and Engels, the relation between "Capital" and "Production of Commodities by Means of Commodities" wasn't clear at first. Why?
First, we find no mention of the division of production between classes in "Production of Commodities by Means of Commodities:" does this mean that the two works contradict one-another?
Second, if so, has Sraffa disproved the need for a theory of value...or does "Capital" disprove "Production of Commodities by Means of Commodities" by posing a critique that Sraffa fails to answer?
While most economists interested in the subject take sides in the second debate, one must argue the first point in order to get to the second: I am among those who offer that the two works do not contradict one-another...<em>if we understand that Sraffa's "Standard Commodity" is a "Standard Product" in which production is analysed in isolation from exchange and distribution by abstracting away from any specific relations of production to lay bare the process of development of productive forces common to all economies. </em>
Why didn't Sraffa make this clear? He may have hinted at it in his subtitle, "A Prelude to a Critique of Political Economy" (if we understand "Capital" to be that critique)...but overall, he follows Ricardo rather than Marx, so indeed his work can be subjected to the same critique...namely, Ricardo's failure to explain profit as rooted in surplus-value...that Marx and Engels offered to Ricardo's work: take that critique into account, I argue in "Capitalism vs. Economic Democracy," and one can verify that "Production of Commodities by Means of Commodities" does indeed furnish (albeit not without some clarification) the proof of the Labour Theory of Value needed as a prelude to "Capital."
OK, that's where we were before I began the work which would result in "Capitalism vs. Economic Democracy:" a growing suspicion that Sraffa had proved the Labour Theory of Value, and disproved the Marginal Utilitarian Theory of Value...knocking the theoretical pins out from under neoclassical/neoliberal economic thought, and completing the foundations of Marxist political economy.
I looked at this solution and I began to suspect that Sraffa might have been onto something more: that is, <em>his Standard Commodity looked a lot like a Leontieff input-output model used to analyse capitalist economies, and by socialist economists as their model for economic planning.</em> Could it be?
I began to tackle this problem in Blue Books I scribbled in at a laundromat during my last year as a Computer Science student at CSUSB, and have been working on the problem ever since: what reading "Rereading Capital" made me realise was that the model of economic planning I derived from Sraffa's Standard Commodity was no more specific to socialism than was the "Standard Commodity" itself: rather, it could be better understood as a model of the growth and development of any single economic entity, regardless of relations of production. That's why this model is where it is in "Capitalism vs. Economic Democracy:" I reformulate it as a way to tease as many implications out of the "Standard Product" as I can before we specify capitalist relations of production.
Now that you have some idea of what went into part 1 of "Capitalism vs. Economic Democracy," let's briefly mention the other two parts, since I also follow the method of moving from more abstract models to more complex concepts, but in a different way than either Marx & Engels or Sraffa did, since I have their works before me.
Part 2 is my attempt to make a contribution to the theory of economic cycles and crises by moving my model to a specific analysis of capitalism: since exchange and distribution, albeit in a single economic entity, have already entered into the analysis of part 1, I drop the assumption that employment is constant, and add the assumption that we begin with equalised rates of profit, implying equal investment in all industries: I show how this leads to overproduction, recession, and ultimately redistribution of capital from surplus to shortage industries in order that further growth can take place, reproducing the cycle on a larger scale.
Part 3 rounds out the study by moving from Marx & Engels' theory of capitalist development to the theory of development of economic democracy from socialism to communism developed by Marx and Lenin...as well as the theory of the relation of capitalist to socialist development developed by Engels, Lenin, and Raya Dunayevskaya.
To begin with, I argue that the theory of socialist development which Marx began in "Economic and Philosophic Manuscripts" and continued in "Critique of the Gotha Programme" follows the same method of moving from more abstract models...in this case, of an economy in which democracy rather than the employer-employee relationship is its determinating relation of production...to a developmental theory further elaborated in "Critique of the Gotha Programme," and borne out by early Soviet experience, as noted in "State and Revolution."
On the other hand, when one focuses instead on the emergence of economic democracy from capitalism, as noted by Engels and confirmed in later Soviet experience by Lenin, we have the same underlying force, namely economies of scale, underlying the development of capitalism from more market-driven forms through more monopolistic models, finally to state capitalism, and the development of economic democracy from more market-driven socialism to communism: the irony, according to Raya Dunyaevskaya, was that the possibility existed...and was borne out, according to her analysis...that state capitalism could overcome economic democracy via the bureaucratic strengthening of the employer-employee relationship at the expense of economic democracy.
That, in as few nutshells as possible (so as to minimise the suspicion that I'm indulging in a shell game, among other things), is the argument I present to you in "Capitalism vs. Economic Democracy:" we already have the theoretical tools with which we can navigate our way from capitalism to economic democracy, if only we can figure out where to hang them on our tool-belt, put them together, and make the best possible use of them.
So now it's your turn: Hope to hear from you all soon, and, inter alia, that we can begin to work together to help workers chart their course away from capitalism and toward economic democracy: hasta pronto, y a la victoria, siempre, MKO.
PS: I'm seeking a Spanish-language translator for "Capitalism vs. Economic Democracy:" I can furnish the source files and post the translation to my Createspace account...we can split the royalties. Does anyone know anyone who might be interested in working with me? I would really like to see a Spanish edition of "Capitalism vs. Economic Democracy" among the bedside reading of President Chavez...among other Venezuelans and socialists!