In recent times it has become fashionable on the left to 'correct' Marx with the help of the work of the neo-Ricardian Ladislas von Bortkiewicz. Indeed, a radical 'form' of Ricardianism has, in the work of many claiming to be in the Marxist tradition, replaced Marxist political economy both in content and method. Recent examples include the work of Glyn and Sutcliffe and Geoff Hodgson's articles in International. What both these contributions have in common is a rejection of certain of the basic propositions of Marx's Capital and a substitution of others having more in common with the work of Ricardo. The justification for this change is an appeal to the 'facts', to empirically given 'real' processes. So that the falling rate of profit is not connected with the rising organic composition of capital, but with a falling rate of exploitation due to rising wage costs or some other phenomenon. The proof of this is in the 'facts' of modern capitalism, whether Mage's statistics for the American economy or Glyn and Sutcliffe's 'facts' of the British economy. Ernest Mandel has correctly pointed out the weaknesses of Mage's calculations and a similar criticism can be directed against the calculations of Glyn and Sutcliffe. Similarly, in arguing for the rejection of Marx's solution to the 'transformation problem', comrade Hodgson appeals to the fact that the capitalist 'bases his investment decisions on the magnitude of the rate of profit in price terms' and argues for the priority and reality of this rate of profit if our intention is not 'to construct empty tautologies'. In all the cases mentioned we are dealing with a rejection of Marx's method and a substitution of one variety or another of 'empiricism'. What is forgotten is the fact that value relations for Marx are the expression of definite social relations of production and are not mere quantities. Further, it is precisely the money-form of the world of commodities that actually conceals the social character of private labour and the social relations of production as well as the laws of motion of capitalist production. The value categories of Capital have no direct empirical counterpart, yet the value analysis is essential if we are to penetrate the 'veil of appearances' to understand the laws of motion of capitalist production. Far from accepting the immediate reality of the rate of profit in price terms, it is just this which needs to be explained on the basis of the value analysis. Marx makes this point very clearly: 'The final pattern of economic relations as seen on the surface, in their real existence and consequently in the conceptions by which the bearers and agents of these relations seek to understand them, is very different from, and indeed quite the reverse of, their inner but concealed essential pattern and the conception corresponding to it.' It is precisely the method Marx adopts that enables him to grasp the essential relationships of capitalist production, and it is precisely the rejection of this method that leads comrade Hodgson to reject as dogma some of the basic propositions of Marxist political economy.
The Method of Political Economy
It is the particular form which social relations take under capitalist production, their fetishistic form, which makes it necessary for political economy to start from simple (abstract) conceptions such as labour, division of labour, need, exchange-value and move by a process of increasing concretization to grasp the concrete reality. 'The method of rising from the abstract to the concrete is only the way in which thought appropriates the concrete, reproduces it as the concrete in the mind.' This is regarded as the scientifically correct method and the structure of Capital clearly conforms to it. In Volume I, the nature of value and the origin of surplus-value are discussed and developed. This is followed by the examination of capital, of value which generates surplus-value ('value in process'), which presupposes a definite historical relationship, the wage-labour relationship (labour power as a commodity). Throughout the analysis it is assumed that commodities exchange at their values and the General Law of Capitalist Accumulation is developed on this basis. Similarly in the analysis of the process of Circulation of Capital in Volume II, and in particular in the reproduction schema, the same assumption is made. It is only in Volume III of Capital that Marx begins to 'locate and describe the concrete forms which grow out of the movements of capital as a whole', and 'thus approach step by step the form which they assume on the surface of society, in the action of different capitals upon one another, in competition, and in the ordinary consciousness of the agents of production themselves'. It is here that the categories of price of production, profit and the average rate of profit become central in beginning the explanation of the concrete forms of capitalist production. To confuse any intermediate stage of the analysis with the concrete empirical reality, as Rosa Luxemburg did in the case of the reproduction schema or, as I shall argue, comrade Hodgson does in the case of prices of production, is to make a fundamental methodological mistake.
If commodities do not exchange at their values but, as a first approximation, at their prices of production, which are quantitatively different from values, then this fact has to be explicable on the basis of the value-analysis. Whereas bourgeois economics takes this fact as datum, Marx points out that prices of production must themselves be deduced from values. 'Without such a deduction the general rate of profit (and consequently the price of production of commodities) remains a vague and senseless conception.' If this is agreed, then as comrade Mandel points out the total value of commodities must be equal to total price and total surplus-value equal to total profit. Anything else makes nonsense of Marx's theory of value. What remains is to show where comrade Hodgson is mistaken and the roots of his mistake.
Value and Price of Production
A price of production for Marx is a modified value. It is the cost price of a commodity, the quantity of paid labour contained in it, plus a share of the unpaid labour, of the annual average profit on the total capital invested in its production. 'When a capitalist sells his commodities at their price of production, therefore, he recovers money in proportion to the value of the capital consumed in their production and secures profit in proportion to his advanced capital as the aliquot part in the total capital. His cost prices are specific. But the profit added to them is independent of his particular sphere of production.' That we are only dealing with modified values is even clearer in this passage: 'In Books I and II we dealt only with the value of commodities. On the one hand, the cost price has now been singled out as a part of this value, and, on the other, the price of production of commodities has been developed as its converted form.'
Hodgson's first mistake is to confuse prices of production with money prices and the general rate of profit with the empirically given rate of profit. To begin to explain the empirically given rate of profit would require a further process of concretization, taking into account many other factors in the real world such as the existence of merchant capital, rent and banking capital. The price of production is an 'intermediate link' in the process of explaining the empirically given reality on the basis of value relations and the law of value. Marx did speak of the price of production being the centre around which the daily market prices fluctuate but he, unlike Hodgson, did not stop there. At this stage of the analysis, merchant capital had been left out of consideration and so had banking capital and rent. Merchant capital, for example, while creating no new value, participates in levelling surplus-value to average profit. The general rate of profit, therefore, contains a deduction from surplus-value due to merchant capital, and therefore a deduction from the profit of industrial capital. Marx indicates very clearly his method: 'In the course of scientific analysis, the formation of a general rate of profit appears to result from industrial capitals and their competition, and is only later corrected, supplemented, and modified by the intervention of merchant's capital.'
Similar considerations would be involved with rent and banking capital, including the production of the money commodity itself. 'The process of analysing the actual intrinsic relations of capitalist production is a very complicated matter' and it is only the kind of method adopted by Marx that can lead to any deep understanding of the real concrete relations. A necessary stage in this analysis is the transformation of values into prices of production and surplus-value into average profit. The method Marx adopted is the only one which makes it possible to grasp the fact of a general rate of profit on the basis of the value analysis developed in Volume I of Capital. 'If the limits of value and surplus-value are given, it is easy to grasp how competition of capitals transforms values into prices of production and further into mercantile prices, and surplus-value into average profit. But without these limits, it is absolutely unintelligible why competition should reduce the general rate of profit to one level instead of another, e.g. make it 15% instead of 1,500%. Competition can at best only reduce the general rate of profit to one level. But it contains no element by which it could determine this level itself.'
Hodgson's second error is in thinking that the definition of the price unit is an arbitrary matter and that, as a consequence, unless we accept that total price does not equal total value we cannot explain inflation. In fact the matter is surely the other way round. We can only explain inflation by accepting what money really is and has to be, that is, the universal equivalent of exchange-value. Hodgson confuses the content of money with its nominal value. By merely regarding money price as an index of exchange he denies money its real content, ie. as a socially recognized symbol of labour-time as such. In this he follows von Bortkiewicz, but inexplicably fails to draw the logically necessary consequences of this approach. Price for von Bortkiewicz is, like value, the index of an exchange relationship and both are purely theoretical structures. Marx was in error because he did not pay the slightest regard to the conditions of production of the good serving as the measure of values and prices. His assertion that total price equals total value is therefore not only unproven but false. But then von Bortkiewicz draws the obvious conclusion, which clearly Hodgson does not want to accept: 'We are thus driven to reject Marx's derivation of price and profit from value and surplus-value.' To reject von Bortkiewicz's conclusions means to accept Marx's method. It is a failure to understand the method of political economy, as we have indicated above, that leads Hodgson to erroneous conclusions in his two articles.
The Permanent Arms Economy
Before I briefly discuss my differences with both comrades Hodgson and Mandel, it is necessary to put the record straight as far as the expulsion of the IS opposition grouping in the recent period is concerned. 1. The grouping was not expelled merely because of its ideas on the Permanent Arms Economy. It in fact raised a whole number of other issues, concerning e.g. the Labour Party, trade unions, the Transitional Programme and workers' control. 2. The central critique of the Permanent Arms Economy did not rest on the question of the transformation problem, as only a brief acquaintance with the articles [illegible].
In spite of Hodgson's protestations to the contrary, his position does not differ substantially from that of Kidron. This is because he argues with Kidron that 'the conditions of production in the arms and luxury goods sector do not enter into the determination of the rate of profit in the other sectors, and the general rate of profit must be determined solely by the conditions of production in the wage and capital goods sector.' Kidron would also accept that 'there is nothing to stop the organic composition of capital in those industries (that are directly or indirectly involved in the production of the real wage) rising (or falling), independently of the conditions of production in the arms industry, thus causing a fall (or rise) in the rate of profit ...' This does not in any way contradict Kidron's argument for the arms industry as a stabilizer of capitalist production since the second world war.
While we agree with Mandel that the arms sector participates in the equalization process of the rate of profit, we do not accept that this sector produces surplus value from the standpoint of total social capital. Although the capitalist producing for the arms sector receives the average rate of profit and his workers work unpaid labour-time, nevertheless this constitutes merely a redistribution of surplus value already produced. This is because state revenue (from taxes or deficit financing) is utilized to buy the products of the armaments industry. This constitutes a drain on capital which means that a smaller mass of surplus value is spread over a larger capital base. It becomes clear now why inflation increases as a consequence of such expenditure. The money supply and/or government borrowing usually increases to finance such expenditure, that is, grows with total output, of which an increasing part is unprofitable from the standpoint of total social capital. The non-productive expenditure increases the purchasing power in the economy without a simultaneous increase in profitable production. It is surprising that Hodgson seems to hold a similar view and yet still maintains that the arms sector has no overall effect on the rate of profit.
David Yaffe has asked us to make it clear that he is not a member of the International Marxist Group.
[illegible]; Geoff Hodgson's 'The Permanent Arms Economy', International, Vol. 1, No. 8, pp. 54-66, and 'Marxism: Science or Dogma — A Reply to Ernest Mandel', International, this issue.
Hodgson, 'Reply'.
Ernest Mandel, 'Value, Surplus Value, Profit, Prices of Production and Surplus Capital — A Reply to Geoff Hodgson', International, Vol. 2, No. 1, p. 64. For a critique of Glyn and Sutcliffe see my article in New Left Review No. 40, 'The Crisis of Profitability: A Marxist View'.
Hodgson, 'Reply'.
Ibid.
Karl Marx, Capital, Vol. III, Moscow 1962, p. 205. This does [illegible] evidence that distinguishes them from bourgeois economists.
Marx, Grundrisse, London 1973, p. 101.
Capital, Vol. I, Moscow 1961, p. 154.
Capital, Vol. III, p. 25.
[illegible]
Ibid., p. 176 (Quoted in Hodgson, 'Reply').
Ibid., p. 204.
Ibid., p. 281.
Ibid., p. 282.
[illegible] Krisentheorie, Archiv sozialistischer Literatur 20, Verlag Neue Kritik, Frankfurt. Unfortunately little of Grossman's work has been translated into English.
Hodgson, 'Permanent Arms Economy', p. 59.
Grundrisse, p. 144. This section on money in the Grundrisse is really very instructive and shows how wrong it is to regard the 'symbols of labour time as such' as merely arbitrary. Marx brings out very clearly the contradiction in a particular commodity representing the general commodity, and indicates the real difference and contradiction between money-price and value (see pp. 136-53).
Ladislas von Bortkiewicz, 'Value and Price in the Marxian System', International Economic Papers, 2, 1952, pp. [illegible] and 11.
Ibid., p. [illegible].
Hodgson, 'Reply'.
Hodgson, 'Permanent Arms Economy', p. 60.
This assumes that the arms goods are not sold to other countries. If this is the case, to that extent the industries' products find their equivalent exchange outside the national [illegible].
See my article, 'The Marxian Theory of Crisis, Capital and the State', Bulletin of the Conference of Socialist Economists, Winter 1972, pp. 5-58 (reprinted in Economy and Society, Vol. 2, No. 2, May 1973) and my article in New Left Review, No. 89, for a full discussion.
Hodgson, 'Permanent Arms Economy', p. 53.