More on this book
Community
Kindle Notes & Highlights
He emphasized how definitions of ‘productive’ activity depend on historical circumstances–the society of any given time.
The source of that inherent value is the one special commodity workers own: their labour power, or–put another way–their capacity to work.
He was careful to distinguish labour expended in production from labour power, which is the capacity to work. Workers expend labour, not labour power. And in this distinction lies the secret of Marx’s theory of value. Humans can create more value than they need to restore their labour power.
The ingenuity of capitalism, according to Marx, is that it can organize production to make workers generate unprecedented amounts of this surplus value.
after the means of production were taken away from independent producers–mostly by violence and expropriation through property rights legislation, such as enclosures of common land in England by big landowners–they became workers, ‘free’ and without property.
He also foresaw the problem of growing financialization, which could potentially undermine industrial production. Throughout his analysis, his focus was on change, and the effects of change on the creation of value.
Marx was struck by the social upheavals he could see all around him, such as the mass movement of rural workers into cities, which created an urban proletariat.
capitalist society, not just the capitalist economy, was utterly different from preceding societies and was in permanent flux–a very evident phenomenon today as we struggle to come to terms with the massive changes brought by digital, nano, biological and other technologies.
capital accumulation is not just due to productive labour. It is also deeply social. Because workers do not own the means of production they are ‘alienated’ from their work. The surplus they produce is taken away from them.
Historically, the wages of the poor had tended to be at subsistence level. But here Marx introduces a powerful new idea which has informed thinking ever since: class struggle. Workers’ wages were set by class struggle. The side with more power could force through a wage rate favourable to itself. Which class had more power was related to what we would call today the tightness of the labour market.
Marx was also acute in his understanding of the capacity of technology to transform society. He would not have been surprised by the extent to which automation has replaced people, nor perhaps by the possibility of machines more intelligent than their human creators.
Amazon is a commercial capitalist because it is a means by which production capitalists sell their goods and realize surplus value. Banks’ money transfer services are also an example of commercial capital.
Although labour in firms engaged in the circulation of capital does not create surplus value, it is seen by the commercial capitalist as productive because it secures the capitalist’s share in existing surplus value and becomes a profit.
Interest-bearing capital, unlike commercial capital, does not lower the general rate of profit; it just subdivides it between recipients of interest and earners of profit.
labour is productive if–and only if–it produces a surplus value for production capital, the engine of the capitalist system; that is, value above and beyond the value of labour power. For Marx, then, the production boundary is defined not by sectors or occupations but by how profits are generated–
Marx thought that a well-functioning sphere of circulation could raise the profit rate by reducing turnover time for capital. If the ‘circulation sphere’ was not functioning properly–for example, the system of credit that fuelled it was inefficient–it risked absorbing too large a chunk of the surplus value that capitalists hoped to generate by selling their goods and as a result impeding growth.
Marx’s theory of value every privately organized enterprise that falls within the sphere of production is productive, whether it is a service or anything else.
finance has simply degenerated into a casino, aiming to appropriate as much of the existing surplus as possible for itself.
his labour theory of value was not just a set of abstract ideas, but an active critique of the system that he saw developing around him. If labour produced value, why was labour continuing to live in poverty and misery? If financiers did not create value, how did they become so rich?
Together, they made the obvious argument that if the value of commodities derives from labour, the revenue from their sale should go to workers. This idea underlay the co-operativism of the textile manufacturer Robert Owen (1771–1858), for whom the solution was that workers should also participate in ownership, of both factories and publicly created infrastructure.
The pair collaborated with the groups to whom they were well disposed to produce critiques of capitalism.
In Britain, the Chartists (1837–54) demanded reforms to the political system.
During the recession of the 1880s, socialism became more widespread, culminating in the founding of the Labour Party in 1900.
Malthus’s pessimism about the dangers of population growth was an affront to the later-nineteenth-century belief in progress–and the facts did not appear to support him, because the food shortages he predicted had not materialized.
encouraged attempts to place economics on a similar ‘scientific’ footing, as opposed to what was becoming seen as the more ‘literary’ endeavours of the political economists.
Linking profits to a notion of sacrifice allowed a useful moral justification for the large income inequality between capitalists and workers.
For him, ‘the characteristic of a science properly speaking is the complete indifference to any consequences, advantageous or undesirable, of its attachment to the pursuit of pure truth’.
Walras was keen to show that economics was a real science, less fuzzy than sociology or philosophy, so set out to discover ‘pure truths’ in the science of theoretical economics rather than focus on applications.
Jevons called his economic theory ‘the mechanics of utility and self-interest’.
linked value to utility was Carl Menger (1840–1921), one of the founders of the ‘Austrian school’ of economics. As we shall see later, utility is a broad concept, combining ideas about a product’s efficiency–is the car reliable?–with vaguer notions of satisfaction and even happiness–does the new car impress the neighbours?
They used the construct which later came to be called ‘marginal utility’, and their propagation of a new view on value theory is now referred to as a ‘marginal revolution’4–it was, however, a slow one.
marginal utility theory of value states that all income is reward for a productive undertaking.
Just price was a normative concept, against what was seen as the wrong price resulting from morally evil greed.
In 1776–the year that Adam Smith published The Wealth of Nations–the Englishman Jeremy Bentham argued that ‘the greatest happiness of the greatest number’ should be the ‘measure of right and wrong’.
In Say’s view, labour in services–which classical economists thought fell squarely into the ‘unproductive’ category, because they failed to produce ‘things’–could in fact be reclassified as productive, so long as those services fetched a price and labour got paid a wage.6
First, it is based on the notions of utility and scarcity and is subjective: the value of things is measured by their usefulness to the consumer.
By the same token, the scarcer a thing is, the more utility it gives you–‘increasing marginal utility’. One Mars Bar on a desert island can give you more happiness than any number of bars bought from your corner shop.
Prices, then, reflect the utility that buyers get from things. The scarcer they are–the higher their marginal utility–the more consumers will be willing to pay for them.
Microeconomic theory, the theory of how firms, workers and consumers make choices, is based on the neoclassical theory of production and consumption which rests on the maximization of profits (firms), and utility (consumers and workers).
The inclusion of concepts like equilibria in the neoclassical model had the effect of portraying capitalism as a peaceful system driven by self-equilibrating competitive mechanisms–a stark contrast to the ways in which the system was depicted by Marx, as a battle between classes, full of disequilibria and far from optimal,
the rise of socialism and trade unions in Europe threatened the old, often autocratic, order and the conventional wisdom was that capitalism was largely self-regulating and government involvement was unnecessary or even dangerous.
the new utility theory of value, as the marginalists defined it, explained the difference in price through the scarcity of diamonds. Where there is an abundance of water, it is cheap. Where there is a scarcity (as in a desert), its value can become very high. For the marginalists, this scarcity theory of value became the rationale for the price of everything, from diamonds, to water, to workers’ wages.
define the study of economics itself in terms of scarcity; his description of it as ‘the study of the allocation of resources, under conditions of scarcity’ is still widely used.
As value is now merely a relative concept–we can compare the value of two things through their prices and how the prices may change–we can no longer measure the labour that produced the goods in the economy and by this means assess how much wealth was created.
Marginal utility and scarcity need a couple of additional assumptions for price determination to work as intended. First, all humans have to be one-dimensional utility calculators who know what’s best for themselves, what price to pay for what commodity and how to make an economically ‘rational’ choice.
Second, there must be no interference, for example by monopolie...
This highlight has been truncated due to consecutive passage length restrictions.
What workers earn is reflected in their marginal productivity and their revealed preferences (marginal utility) for leisure versus work.
The corollary of this logic is that unemployment is voluntary. Voluntary unemployment arises from viewing economic agents as rationally choosing between work and leisure (i.e. ‘inter-temporal maximization’ in modern theory). In other words, Marx’s concept of the ‘reserve army of labour’ disappears into thin air.
He used his theories to argue for free trade in Italy, which did not make him popular with the Fascist government of the time, which was more protectionist.
Our problems, marginalism holds, derive solely from imperfections in, and inhibitions on, the smooth working of the capitalist machine.
