Even in the
simplest
cases, products are no longer well-defined.
Nitzan Bichler - 2012 - Capital as Power
With LIFO (meaning 'Last In, First Out'), Dell would calculate its costs currently, based on the price of its most recently purchased inputs.
With FIFO (or First In, First Out), it would compute the cost historically, based on the price of the most dated inputs in its inventory.
The two methods can have dramatically different financial consequences - depending on the rate of infla- tion, tax laws, transfer pricing, currency movements and other assorted considerations, including the duration of the production run and the path of technical change.
But, then, there is no objective yardstick - that is, other than the laws, habits and customs of bourgeois society - to tell us which method to use.
Now, unlike the accountants, who deal with observable prices, Marxists do not even know what abstract labour looks like.
So it seems that their quest for the Holy Grail here is a bit presumptuous.
Theoretically, however, historical valuation is far more 'flexible' than a current one. Current valuation as used by the conventional approach requires all instances of a given commodity to have one and only one value, so that a barrel of oil has the same value whether it appears as an input or an output. By contrast, historical valuation as used by the TSSI allows each barrel of oil to have its own value - depending on its particular temporal position in the production process. This difference allows the TSSI to appear more theoreti- cally 'robust' than its conventional alternative - but that appearance is misleading. Obviously, if the same commodity can have multiple values, the likelihood of the valuation system as a whole being logically inconsistent is much reduced.
Prices as values
Labelling these considerations 'theoretical', though, is somewhat misleading - for the simple reason that TSSI really is more of an accounting device than a scientific proposition. The definitional nature of the TSSI is evident from its
108 The enigma of capital
second assumption. According to this assumption, Marx had in mind not two systems, but one. Recall that, in the standard dual-system view as formalized by Bortkiewicz, labour values and prices of production are determined sepa- rately, each in their own distinct system, and that the question is whether or not the former can be mathematically 'transformed' into the latter. This ques- tion does not even arise in the TSSI. Here, there is only one system for both prices and values and therefore nothing to transform in the first place.
The language of the last sentence is a bit deceptive. In fact, the single system articulated by the TSSI does not have prices and values. It has prices as values. The distinction is crucial. The conventional Marxist approach argues that labour values are the cause of prices. This causal link is mean- ingful because the definitions of the two magnitudes are different. Prices are counted in money, whereas values are counted in labour time. The two magnitudes could be used interchangeably - but only if the theory is correct.
The setup of the TSSI is completely different. Here, there is no point in asking whether or not prices are equal to values, simply because values are defined by market prices. What the empirical studies do out of necessity and with much unease, the TSSI marshals with fanfare and as a vindication of Marx. The value of constant capital used by Dell is defined here as the market price the company paid for its (depreciated) capital, raw materials and semi- finished goods. Similarly, the value of the labour power it employs is defined as the money wages paid to its workers. Finally the company's surplus value is defined by subtracting from its current dollar revenues the constant and variable capital, as well as an unknown discrepancy that may arise from unequal exchange. 21 Labour is still held responsible, by definition, for the creation of all value in the aggregate. But it is no longer necessary for any of the underlying computations. Individual values are defined as the sum of market prices, with the result that the single-system equations no longer contain embedded labour coefficients.
New interpretationists do not see a problem with this circularity. Duncan Foley, for instance, argues that when Marxists define values by prices they do nothing different than Newton, who defined force by mass and acceleration (F = m * a). In each instance the definition serves a purpose insofar as it 'decisively disciplines and directs scientific investigation in conceptual and fruitful ways' (2000: 28). And, of course, there is nothing wrong with defini- tions per se.
But there is an important difference between the two cases: whereas Newton offers one definition for force, the new interpretationists have two for value: one based on price, the other on labour time. And since value is made proportionate to both price and labour time, it follows that prices are proportionate to labour time and that the labour theory of value is true before
21 This discrepancy, although unknowable for individual commodities, disappears in the aggregate since, by assumption, unequal exchange cannot create value, only redistribute it.
? The Marxist entanglement I 109
we even begin. Kliman and McGlone (1999: 44) claim that this is a 'circular, Hegelian type' of explanation, although it isn't clear how this supposedly dialectical technique differs from the positive neoclassical habit of defining the quantity of capital by its price or the marginal product of labour by the wage rate. Given these considerations, it is perhaps little wonder that, while the definition of force enabled Newton to accurately describe, explain and predict the movement of actual bodies, the concepts of utils and labour values enable their theorists to say pretty much nothing about the actual movement of prices.
Proponents of the TSSI argue that this is what Marx had in mind. And maybe they are right. But if that was Marx's intention, it seems unclear why he would bother to call the result a theory of value, let alone a labour theory of value. The TSSI says nothing about labour, save for asserting that labour creates all values. And it is not a scientific theory in the sense of cause X (value) explaining consequence Y (price). It merely states the truism that current money prices are the sum of past money prices, plus a deviation.
Writers who advocate this approach emphasize that they do not claim Marx's value theory to be empirically valid. Their only purpose is to show that his framework is logically consistent and fully in agreement with his analytical claims. But in the process of achieving this purpose, they seem to have shifted into reverse. Whereas Marx's labour theory of value claims to reason phenomena according to their 'essence', the TSSI advocates move in the very opposite direction. Not only have they turned his theory into an irre- futable tautology, but by defining labour values in price terms, they have made it practically impossible to transcend the very appearance they wish to explain. They have ended up with a dogma.
7 The Marxist entanglement II
Who is productive, who is not?
Their husbands, you know, are the two principal stock holders in the Mills. Like all the rest of humanity, those two women are tied to the machine, but they are so tied that they sit on top of it.
--Jack London, The Iron Heel
So far, our discussion of Marxism has examined how production determines the quantitative architecture of capitalism - while taking production itself for granted. But, then, there is nothing very simple about production, certainly not in the way that Marx analyses it. Recall that his value equations concern productive labour only. They therefore presuppose that we can objectively distinguish labour that is productive from labour that is not. Yet, as we shall now see, differentiating the two types of labour is no simpler than trans- forming values into prices. And even if a line could somehow be drawn between them, its meaning and significance would be anything but clear.
Productive and unproductive labour
The question of 'productivity' dates back to the eighteenth-century conflict between the nobility and the bourgeoisie. The issue was who contributes more to society. Franc? ois Quesnay's Tableau e? conomique argued that it was the tillers of the land. The peasants were the sole producers, while the bourgeoisie merely circulated their product. The opposite position was marshalled by Adam Smith, who prioritized the industrial entrepreneur as the engine of economic growth and the wealth of nations. Marx leveraged the debate for his own purpose, arguing that only the industrial working class produced value.
In all three cases, the reasoning was based on Descartes' notion that cause cannot act at a distance. Leaves move when touched by wind, and the same must be true for productivity: Quesnay's peasants were closest to the land, Smith's capitalists pulled the levers of technical change and Marx's industrial workers were tied to the machines.
The Marxist entanglement II 111
The problem in Marx is that not all workers are industrial, which means that the labour process itself needs to be bifurcated. Marxists classify produc- tion according to the type of wage labour employed. Many types of labour produce use value and many generate exchange value, but for Marx only labour that produces use value, exchange value and surplus value is produc- tive in the capitalist sense. 'That labourer alone is productive, who produces surplus-value for the capitalist, and thus works for the self-expansion of capital', he writes (Marx 1909, Vol. 1: 158). Only labour that is 'directly consumed in the course of production for the valorization of capital' can generate surplus value and produce capital (Marx 1864: 1038). Other types of labour - such as those employed in domestic services (servants for example), in circulation (to convert one form of value to another) and in state organs (as public officials and service providers) - are all unproductive from the stand- point of accumulation. Although they may be important for the reproduction of capitalism as a whole, as well as for the realization of surplus value, they themselves do not create surplus value; in fact, their wages are paid from - and therefore eat into - that very surplus value.
Clearly, distinguishing between the two types of labour is crucial. Since productive labour boosts accumulation whereas unproductive labour hinders it, knowing which is which must be a first step in any investigation of capi- talism. And yet this first step is not easy to take. 1
For a start, Neo-Ricardian Marxists deny the very productive-unproduc- tive distinction. Orthodox Marxists love to dismiss this denial as heresy, on the ground that Neo-Ricardians reject value analysis altogether and therefore are not 'true' Marxists. But even if we ignore the dissenters and assume for the moment that indeed there are two types of labour, we are still faced with the question of how to tell them apart.
According to Fine and Harris (1979: 56) the answer is simple. Paraphrasing Marx, they state that 'If labour directly produces surplus value it is produc- tive; if not, it is unproductive'. This criterion looks straightforward, but in fact it puts the cart before the horse. If our final purpose in separating produc- tive from unproductive labour is to identify surplus value - how can we begin by assuming we already know what surplus value is? Recall that surplus value, like utility and factor productivity, is a theoretical construct, not a directly observable quantum. So how can we know when it is being produced and when it is not?
Recognizing the problem, Fine and Harris, still in the spirit of Marx, offer an indirect litmus test: 'only labour which is performed under the control of capital (on the basis of the sale of labour-power from workers to capitalists),
1 For various analyses and summaries of the issues involved in this distinction, including Marx's own inconsistencies, see Baran (1957: Chs 2-3), Morris (1958), Gough (1972), Harrison (1973), Hunt (1979), Laibman (1992) and Savran and Tonak (1999). Our discus- sion draws in part on these writings.
? 112 The enigma of capital
and in the sphere of production, is productive' (ibid. ). In other words, to iden- tify productive labour we must back-step and decide (1) what constitutes 'production', and (2) which aspects of production come under the 'direct control' of capital. Unfortunately, answering these two questions is not much easier than observing values.
Production versus circulation
Financial intermediation, advertising and insurance
The standard Marxist view is that production mediates the 'relationship of society to nature' - in contrast to circulation and to the reproduction of the social order, which affect the historically specific 'relations among human beings' (Savran and Tonak 1999: 122). Based on this nature-society distinc- tion, the employees of companies such as Deutche Bank (diversified finance), InterRepublic Group (advertising), ING (insurance), Fannie Mae (mort- gages) and CIGNA (real estate) are for the most part unproductive. Their labour, insofar as it is devoted to circulation, does not mediate the relation- ship between society and nature and therefore cannot, by definition, create surplus value.
But is it really that simple? Begin with the sphere of financial intermedia- tion. Over the past century, credit has become the most important mechanism for directing social reproduction (or 'allocating resources' in neoclassical parlance). Despite this fact, Marxists do not consider financial intermedia- tion as 'mediating society's relationship to nature', and therefore do not see it as productive. To be consistent, though, they should apply the very same criteria to R&D, cost accounting, industrial relations and strategic planning. After all, these activities - just like financial intermediation - help allocate resources in 'productive' corporations such as Toyota, ExxonMobil and Microsoft, and if credit is deemed unproductive these corporate activities should be unproductive as well. It is true, of course, that credit is intimately related to the redistribution of ownership and therefore to power; but could this aspect of credit be at all separated, even conceptually, from its other features that help guide reproduction?
Or take advertising. Undoubtedly, this activity is designed to promote sales. But what about the incessant remodelling of automobiles, clothing, detergents, cosmetics, architecture, news media and what not - remodelling that according to some estimates accounts for over 25 per cent of the cost of production? 2 Given that the main purpose here, much like in advertising, is to enhance circulation, shouldn't we consider the labour put into such
2 The 25 per cent estimate is taken from Fisher, Griliches and Kaysen (1962), the first to study the cost of automobile remodelling. Pashigian, Bowen and Gould (1995) claim that such remodelling has since become even costlier - to the point of forcing US-based firms to cut down the frequency of model changes.
? The Marxist entanglement II 113
remodelling to be unproductive as well? Paradoxically, even a positive answer would not solve the problem here. After all, any new product characteristic can persuade people to buy, so how do we distinguish between the adver- tising-like aspect of remodelling that merely circulates existing values and its productive aspect that by definition creates new values?
Finally, consider insurance, which Marxists commonly but erroneously classify as purely redistributional and therefore unproductive. Every produc- tion system requires some means of reducing uncertainty. 3 Historically, this reduction has been achieved through kinship commitments, community support organizations, state programmes like business and farm subsidies, welfare payments, unemployment insurance and pensions and, of course, capitalist insurance. Although all these methods are based on redistribution, they also serve to provide stability for production.
Similarly with business conglomeration and diversification. This strategy, which was first practised by the large trading companies of the seventeenth century and is presently exercised by most large corporations, tends to reduce uncertainty and therefore serves as a form of insurance. If we consider the labour involved in initiating, planning and managing corporate diversifi- cation as productive, we must treat the labour of private insurance employees in a similar manner. If the former creates value and surplus value, so does the latter.
Disaggregates in the aggregate
Marxists commonly bypass these ambiguities by conceding that circulation activities, like financial intermediation, advertising and insurance, do have an impact on production: they affect the reproduction of the social order as a whole, and therefore the overall magnitude of value and surplus value. But they also insist that such activities, because of their general character, do not bear on the relative magnitudes of specific values and surplus values. It is in this latter sense that circulation is deemed unproductive.
This claim is difficult to sustain for two basic reasons. To start with, finan- cial intermediation, advertising and insurance - like every social activity - are invariably differential: they affect some aspects of production more than others. Changes to old-age security programmes or the shifting stance of monetary policy - just like the purchase of life insurance by a single employee or the extension of credit to a specific corporation - have different impacts on different sectors, firms and workers. The same with marketing: the overall
3 In fact, the reduction of uncertainty has had an important, if understudied, impact on the very direction of social development. The pre-historic Australian population, for instance, became nomadic partly because of the continent's infertile soil and the dearth of domesti- cable plants and animals. But there was another crucial reason: El Nin? o made agricultural production intolerably unpredictable, in contrast to the relative security offered by the diver- sity and flexibility of nomadic hunting and gathering (Diamond 1999: Ch. 15).
? 114 The enigma of capital
sales effort creates what John Kenneth Galbraith (1967) called the 'propa- ganda on behalf of goods in general'. But the consequences of this general propaganda vary along the production chains, with some processes being affected differently and more extensively than others. Thus, if we are ready to accept that a certain social activity affects the production of value and surplus value in general, we also have to accept that this impact is distributed unevenly and therefore affects the relative structure of values and surplus values.
Unfortunately, though - and here we get to the second point - value and surplus value cannot be observed, detected or examined, so there is no way to ascertain the existence of these differential impacts, let alone their size. We cannot know if monetary tightening by the central bank alters the relative value and surplus value of microchips vs crude oil - and, if so, by how much. We don't know whether the effect of tax breaks to advertisers raises, reduces or leaves unchanged the value and surplus value of brand names relative to brandless commodities. We have no clue as to the impact of insurance legisla- tion on the value and surplus value in the production of mobile homes rela- tive to the production of university graduates.
But, then, if we are unable to say whether these so-called circulation activi- ties are productive or not, let alone to what extent, how can we ever separate them from production 'proper'?
Objective exchange values?
Eating the cake and having it too
In the final analysis, the difficulty of identifying the so-called sphere of production is rooted in a basic theoretical schizophrenia: the attempt to deduce objective exchange values from subjective use values - while denying this very deduction in the first place. 4
Marx believed that the boundaries of production were objectively delin- eated. They were given, he said, by 'the definite social form, the social rela- tions of production, within which the labor is realized' (Marx 1863, Part I: 152, emphasis added). In practice, though, the categories that Marxists consider definitive and objective almost always rest on subjective criteria.
A recent taxonomy of productive and unproductive labour by Savran and Tonak (1999) illustrates this uneasy derivation. Following Marx, they empha- size the need to distinguish clearly between two types of circulation: the circulation of use value typical to all advanced socio-economic structures, and the specifically capitalist circulation of exchange value embedded in commodities, money and capital (p. 142). However, when they come to distinguish the circulation of exchange value from its creation, their criteria are based entirely on use value:
4 This schizophrenia, of course, is hardly unique to Marxism. As we will see in Chapter 8, it underlies both the util of the neoclassicists and the abstract labour of Marx.
? The Marxist entanglement II 115
[A] society can only increase its wealth through the purposeful transfor- mation of nature and only that amount that has thus been produced can be distributed among the individual members or social classes of society. No amount of exchanging parts of the social product already produced can increase this product itself. . . . This means that any activity which is not directly necessary for humanity's intercourse with nature in order to transform aspects of it in accordance with human needs cannot be regarded as productive labour in general, nor therefore, as productive labour under capitalism.
(143-44)
To see the difficulty, note that, according to this statement, any under- standing of objective exchange value requires prior agreement on no less than five different questions: (1) the definition of the 'product itself'; (2) the 'amount of wealth' this product represents; (3) whether or not the production of this 'wealth' involves a 'purposeful transformation of nature'; (4) whether or not the transformation is 'directly necessary' for humanity's intercourse with nature; and (5) the 'human needs' the product is made to fulfil. Now, since the answers to these questions are all subjective to a lesser or greater extent, and given that they are nonetheless necessary for separating the production from the circulation of exchange value, it follows that exchange values cannot be derived objectively from production.
Capitalist answers, pre-capitalist questions
The difficulty here is one of historical mismatch. Simply put, we are trying to give capitalist answers to pre-capitalist questions. In the feudal-agricultural order, the separation between productive and unproductive activity seemed fairly clear cut. On the one hand, there were the peasants who tilled the land, along with the artisans who crafted with their tools and serviced with their skills. One could reasonably argue that their 'direct and purposeful inter- course with nature produced wealth in accordance with human needs'. It seemed rather evident - certainly to their coevals - that they were productive.
On the other hand, there were the nobility and the clergy who merely appropriated, along with the merchants, money lenders, usurers and taxmen who mostly 'exchanged and redistributed the already produced social product'. Since neither group participated in production as such, it wasn't too hard to conclude that they were unproductive. Even the Church found it diffi- cult to deny what everyone could see. 5
5 A 1020 poem by Bishop Adalbero of Laon provides a succinct summary of the feudal division of labour: 'The community of the faithful is a single body, but . . . human law distin- guishes two classes. Nobles and serfs, indeed, are not governed by the same ordinance. . . . The former are the warriors and the protectors of churches. They are the defenders of the people. . . . The other class is that of the serfs. This luckless breed possesses nothing except
? 116 The enigma of capital
There was relatively little ambiguity: the division between those who laboured and those who didn't was fairly trenchant; needs and subsistence were practically synonymous and wealth a self-evident residual; product diversity was miniscule and the items on offer fairly well-defined; joint production was limited and technical knowledge diffused. In this pre-capi- talist context, use value seemed pretty straightforward - indeed, almost 'objective'. It was an obvious yardstick for separating the productive from the unproductive.
But these clear ecological, occupational and legal distinctions began to melt with the arrival of capitalism. Nowadays, use value is no longer evident, let alone agreed upon. It cannot be an 'objective' yardstick, or even a rough rule of thumb, for delineating what Marxists call the sphere of capitalist production. The remainder of this section illustrates the impasse.
The product itself and the amount of wealth
Take our first question regarding the notion of the 'product itself'.
Even in the simplest cases, products are no longer well-defined. When a New York resident buys a loved one flowers flown in from Mexico, does she purchase just 'flowers' - or specifically 'Mexican flowers'? This distinction is crucial since the latter entails the additional costs of air transport, insurance and hedging against currency changes - expenses without which Mexican flowers would be unavailable in New York. If the 'product itself' is merely flowers, these additional costs are socially unnecessary and therefore count as unpro- ductive circulation expenses. But if the product is Mexican flowers, these expenses are necessary costs of production. Now, which of these two defini- tions is correct? Do we have an objective basis to decide? And if we do not, what then constitutes the 'product itself'?
Next, turn to the second question, regarding the 'amount of wealth' prod- ucts supposedly represent. What is the quantity of wealth contained in a modern anti-depressant drug, in a barrel of oil, or in software used in the production of nuclear missiles? Do these amounts exist as objective quanta? And if they have no objective quanta, how can we know what 'amount of wealth' is available for distribution?
The transformation of nature
The third question concerns Savran and Tonak's claim that a society can increase its wealth only through the purposeful transformation of nature. This delineation, meant to exclude purely social activities that merely circulate an
at the cost of its own labour. . . . The serfs provide money, clothes, and food, for the rest; no free man could exist without the serfs. . . . We see kings and prelates make themselves the serfs of their serfs; the master, who claims to feed his serf, is fed by him' (quoted in Le Goff 1988: 255, emphases added).
? The Marxist entanglement II 117
already-transformed nature, is far trickier than it seems. To point out the difficulty, consider the service sector. Commodities ranging from health care and telecommunication, to tourism and entertainment, to engineering and personal services, now account for roughly two thirds of social reproduction in money terms. The production of these service commodities normally requires a certain transformation of nature, but it also has another compo- nent that is purely social.
And so, as Marxist researchers, we are now faced with a dilemma: when calculating the contribution of the service sector to social wealth, should we exclude the purely social component - and if so, how big should the deduc- tion be? Is there an objective way to calculate this deduction - and if so, what is it? And if we end up excluding the purely social component from the production of services, shouldn't we do the reverse for the sphere of circula- tion? The latter includes, in addition to its purely social components, a certain purposeful transformation of nature. If we are to be consistent, don't we need to classify these latter components as productive? 6
Human needs
The fourth and fifth questions concern the related notions that productive labour is one that is 'directly necessary' for the transformation of nature in accordance with 'human needs'. Activity that does not fulfil these two related conditions is supposedly unproductive. One issue, then, is how to decide what constitutes 'human needs'. Food is a human need, but is the daily consump- tion of a 10-ounce steak or of expensive caviar also a human need? Laughing and excitation are human needs, but does it follow that all forms of commer- cial entertainment fulfil a human need? Based on the popularity of crime and horror movies, violent sports and the daily news, should we conclude that aggression, cruelty and war are basic human needs - or are these merely the result of brainwashing and the anxiety of capitalist alienation? Alternatively, can't we say that all human activity is geared toward fulfilling human needs? And if we accept this latter proposition, wouldn't that make all labour productive? How do we choose between these alternatives?
6 The notion that wealth is created only by purposeful transformations seems unnecessarily restrictive. Our quest for knowledge is driven, at least in part, by idle curiosity, and our learning about nature is often serendipitous. Since production ends up using this purposeless knowledge, should we prorate our measurement of wealth to include only the 'purposeful' part - or should we simply assume that a little bit of purpose somewhere in the process is enough to make the entire transformation intentional? Similarly, what do we do with nega- tive transformations of nature - such as deforestation, pollution, the destabilization of the climate and the extinction of species? The dilemma here is that these transformations may represent a reduction of use value, so, on the face of it, they need to be deducted from our social wealth. At the same time, these latter transformations are often unintentional, so perhaps we should simply ignore them?
? 118 The enigma of capital
The other side of the problem is that, even if we can somehow agree on what constitutes human needs, we still need to know which labour activities are 'directly' necessary to fulfil those needs. Assuming that transportation is a human need, we may be tempted to conclude that the workers of Volkswagen and ChevronTexaco are directly necessary to its fulfilment. But, then, wouldn't universal public transportation fuelled by nuclear energy make these workers unnecessary? Can these questions ever be answered objectively?
Non-capitalist production
The slope becomes even more slippery when we move to identify the so-called 'non-capitalist' spheres of production, particularly the state. During Marx's time, the problem was easy to disregard. Until the late nineteenth century, state spending was miniscule by contemporary standards, as was the ratio of government to private employment. But the capitalist state has since expanded to account for a very significant portion of overall 'economic' activity, so the issue could no longer be ignored.
The classical Marxist position is that employees of the capitalist state may in certain cases be productive of use value, but usually not of surplus value. State activity is customarily divided into three categories: one that deals with the reproduction of the social order as a whole through the judiciary, police, army, taxation, etc. , and is deemed unproductive of use value, exchange value and surplus value; a second, more ambiguous, category that provides useful social services like education and health care - yet remains unproductive of surplus value to the extent that it is not controlled by capitalists; and a third that comprises government-owned enterprises whose capitalist-like nature makes them productive of surplus value. 7
Reproducing the social order
Consider the first category, the one responsible for reproducing the social order itself. Since this sphere produces no use value as such, it cannot, by defi- nition, produce exchange value or surplus value, and it therefore must be deemed unproductive (a conclusion that is not very different from the liberal view, in which a parasitic public sector freely rides the productive private sector).
7 Neo-Marxists, insofar as they abandon the labour theory of value, offer a rather different classification of state activity (see, for instance, O'Connor 1973). Alternatively, some clas- sical Marxists, such as Michael Kidron (1974), take the unorthodox position that the state actually serves to boost accumulation. Kidron argues that surplus wasted on military expen- ditures is akin to the production of luxuries. The relative growth of such spending therefore offsets the expansion of productive capital, which in turn counteracts the tendency of the rate of profit to fall (a relationship first shown by Bortkiewicz 1907a). For a critical review of Marxist analyses of fiscal policy, see Miller (1986).
? The Marxist entanglement II 119
The difficulty with this assertion resembles our earlier discussion of circu- lation. For a start, it is hard to accept that this type of state employment produces no use value. It is certainly true that government taxation, expendi- tures and subsidies, the legal code and the organized use of violence are all matters of power. But don't these power activities also affect the organization of production and therefore the creation of use value? Indeed, is there a single historical example of a hierarchical social order without taxation and subsi- dies, without a legal or other code of conduct, and without the institutional use of force? What evidence do we have - from Neolithic cities, through ancient empires, to feudalism, capitalism and communism - that the produc- tion of so-called use value is at all possible without these broader institutions of power? And if we accept, as we should, that these institutions do have a use value, then isn't it possible that they also affect exchange values and surplus values?
Although Marxists may deny it, according to their logic the answer must be positive. The impact of these power institutions and processes, just like the impact of financial intermediation and commerce, is inherently differential. State spending and taxes affect not only the overall process of production, but also its minute details. Indeed, this is often their very purpose. And if that is the case, we should expect them also to bear on the value and surplus value associated with individual commodities.
To illustrate, take the example of electricity. Taxing coal-fuelled utilities while subsidizing windmills is bound to alter their respective cost and profit structures; this change would likely lead to diverging growth patterns in the generation of electricity; and as these different patterns reverberated through- out the chain of production, the result according to Marx's framework would be to alter the entire pattern of relative values and surplus values. In this sense, the labour involved in planning and administering the taxes and subsi- dies becomes part of the capitalist production process and therefore poten- tially a bearer of value and surplus value (we say potentially since, in order to create value and surplus value, labour needs to be not only productive, but also subjugated to capitalist authority - an issue with which we deal below).
Similar considerations apply to the law, propaganda, organized violence and other state policies. Regardless of how universal they seem, they all affect the allocation and pattern of societal activities. They alter the progress of science and knowledge, they bear on the choice of techniques, they modify the organization of production (however defined). From a Marxist perspective, therefore, they must be seen as affecting the creation of surplus value - not only in the aggregate, but also in detail. If we are to keep with Marx's own logic, we need to label employees who administer these institutions productive.
Social services
The second state category - made up of social services - is also deemed unpro- ductive. Here, though, the services are considered useful, which means that if
120 The enigma of capital
the state were to produce them for profit - for instance, through the third category of government-owned enterprises - the labour involved would become capitalistic and therefore productive of surplus value (Savran and Tonak 1999: 139-40).
Let's examine this proposition with a hypothetical example. Suppose the government decided to 'go private' and instead of financing water services out of taxes on surplus value, sold them for a fee with an eye to making a profit. In order to actually earn this profit, the government would need to either cut the wages paid to water-service employees or otherwise mark up the price of water above its wage cost (which for simplicity we assume to be the only cost). According to the classical Marxist scheme, the first option is impossible since water-service employees, like all workers, are already paid their own value, so any reduction here will push their wages below subsis- tence. The only avenue therefore is to make the fee (price) higher than the wages. 8
And here arises the puzzle. The shift from free to fee-based water services alters neither the use value of these services nor the labour producing them, which in turn means that, on its own, the redesignation of these services can create no surplus value. So where does the government profit come from?
One possible source is lower real wages elsewhere in the economy, as workers bear the brunt of the new fees (since consumer prices rise but wages do not). The problem is that such a decline would push these wages below subsistence, again violating the Marxist assumption that workers are always paid their value. The only route is for capitalists to allow overall wages to rise by the difference between the new fees and old taxes, and accept the conse- quent decline (of an equal amount) in their own profit.
Yet this possibility does not solve the puzzle either. Although the govern- ment now acts as a productive, profit-making capitalist for all intents and purposes, its workers are not productive of surplus value! Instead, they merely help their employer - in this case, the government - scoop up part of the surplus value produced by capitalists elsewhere in the economy.
What is non-capitalist?
Finally, we should consider, if only briefly, the meaning of non-capitalist production. Recall that, according to Marx, labour can be productive only if it is controlled by capitalists. It must be 'directly consumed in the course of production for the valorization of capital' - that is, tied to capital through the wage contract (Marx 1864: 1038). The problem is that, even if we accept that capitalist control is a prerequisite for the creation of value, it is not clear why the only gauge for such control is the wage contract.
8 The Marxist subsistence wage, of course, is not carved in stone but rather 'socially deter- mined'. This determination, though, is unaffected by our theoretical reclassification of government employees.
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To clarify the difficulty, consider LockheedMartin, one of the world's largest military contractors. The owners of LockheedMartin certainly control the work performed by their employees. But don't they also have some impact on the work performed at the U. S. Defense Department, with obvious bear- ings on their own business? The latter impact may be indirect, but is it smaller than the former? Similarly with the US government. The government controls the employees of its own Defense Department, but doesn't it also control to some extent, through its laws and procurement policies, the employees of LockheedMartin?
The answers to these questions are crucial for the computation of labour values. For, if we accept that government workers are controlled by capital- ists at least to some degree, we can no longer treat such workers as unproduc- tive. And likewise, but in reverse, with privately employed workers: if we concede that they are not entirely controlled by capitalists, perhaps we should no longer treat them as strictly productive.
We can go on with such examples and queries, but by now the problem should be clear. There is no objective way to separate 'production' in general - and the sphere of 'capitalist production' in particular - from other forms of social reproduction. Consequently, the notion that surplus value and accumulation are rooted exclusively in this sphere has no definite meaning. Any theory of capital based on such an assumption becomes unbounded and impossible to implement.
A qualitative value theory?
Taken together, the challenges to the labour theory of value seem insur- mountable. To recap, the theory depends on an objective definition of pro- ductive labour that is impossible to devise. It faces a trying dilemma of having to choose between logical consistency and meaningful explanation. It is inher- ently partial in that it recognizes but is unable to theorize the role of factors other than labour. And it is analytically and empirically impenetrable since labour values cannot be conceived and observed in the first place.
The retreat
With this onslaught of criticisms, many Marxists have chosen to retreat to the so-called qualitative labour theory of value. 'While the idea of value as an accounting tool or as an empirically observable magnitude plainly had to be abandoned', conceded David Harvey (1982: 36), 'it could still be treated as a "real phenomena with concrete effects". . . . It could be constructed as the "essence" that lay behind the "appearance", the "social reality" behind the fetishism of everyday life'.
This retreat isn't new. It had already begun with Engels' 'Law of Value and Rate of Profit' (1894), which defended the labour theory of value on histor- ical rather than analytical grounds and gave rise to the 'value epoch' debate;
122 The enigma of capital
it continued with Hilferding's (1904) reply to Bo? hm-Bawerk, which empha- sized Marx's 'conceptual revolution' while downplaying its quantitative shortcomings; and it received its seal of approval from Sweezy (1942: Ch. 7), who claimed that the qualitative implications of the theory are logically sepa- rate from its quantitative assertions.
The labour theory of value, Sweezy argued, is not essential for under- standing the price structure of capitalism - a structure far better explained by bourgeois economics. But this quantitative deficiency, he continued, in no way undermines the qualitative significance of the theory. The notion of labour value, even if quantitatively flawed, is still essential to dialectically demystify the economy. It has the indispensable role of reminding us of exploitation, and that the only source of profit is unpaid labour.
And so developed a large literature focused exclusively on the qualitative nature of accumulation. The hallmark of this literature is its selectivity: it discards the quantitative conclusions of the theory while upholding its concepts. Labour value and surplus value, even if quantitatively meaningless, are nonetheless taken as a solid starting point for qualitative analysis. Armed with these truncated concepts, the qualitative theorist then proceeds to examine the many features and processes of capitalism - from the restruc- turing of production and class conflict, through alienation and the institu- tions of power, to the business ethos, political organization and the dynamics of culture, among others.
Very few Marxists see anything wrong with exclusively qualitative anal- yses. Most feel that removing Marx's quantitative theory leaves much of his broader conclusions and insights intact, if not enhanced (a claim laboured by Hodgson 1982). Some believe that the whole quantitative/qualitative debate has been misconceived, premised on the erroneous notion that Marx was trying to create a critical political economy 'intended to operationalize the law of value in order to explain the workings of the market' (Postone 1993: 133). And others take this point even further, arguing that Marx's isn't really a labour theory of value but rather a 'value theory of labour' (Elson 1979).
Marx's science
Needless to say, we do not find these arguments persuasive. The notion that Marx was concerned with the qualitative rather than quantitative aspects of capitalism seems to us apologetic and unfounded. More significantly, in our view the belief that his theory of capitalism - or any theory of capitalism for that matter - could be fractured into two independent subsets leads to a dead end.
Begin with the issue of Marx's emphasis. His work was certainly a critique of capitalist ideology. But it was much more than that. Marx tried to create an alternative science, a framework that could replace both bourgeois polit- ical economy and the positivist social management of Auguste Comte. This scheme stood on two main foundations. One was a dialectical history that
The Marxist entanglement II 123
provided the basis for revolutionary consciousness. The other was a value theory that broke the front window of prices and offered a starting point for future democratic planning.
It is perhaps worth reminding ourselves that, unlike today, science was still highly rated in the nineteenth century. Marx followed Hegel in viewing the rise of science as part of the broader development of history. But that view never led him to treat science merely as a matter of fashion and power. He truly believed he could create a new science, one that would both debunk conventional political economy and explain the reality of capitalism.
The task was revolutionary, and revolutions cannot be achieved by mere critiques. Einstein transcended Newtonian physics partly by questioning its epistemology, but mostly by inventing a new one. And the same is true for Marx. To challenge bourgeois economics he needed to construct an alterna- tive capitalist reality, and this new episteme required a different theory of prices. To argue that Marx was not concerned with prices is to argue that his key theses about capitalist development - including the tendency of the rate of profit to fall, the immiseration of the proletariat and the tendency of capi- talism to generate recurrent profitability crises - were meaningless gibberish. These tendencies can be expressed only in terms of price ratios. To theorize them is to theorize prices, and that is precisely what Marx and many of his followers tried to do.
Indeed, for the nineteenth-century intelligentsia, the magic of Marxism lay precisely in the novelty of its scientific structure. Its historical laws of motion seemed as inevitable as the movement of the stars, pushing capitalism toward change, crisis and imminent collapse. Even with the advent of Leninism, when determinism was partly sacrificed in favour of political vitality and party discipline, the thirst for quantitative analysis remained unquenched. In this sense, the Bolshevik apparatus, particularly Lenin and the Comintern, calculated their historical moves just like today's financial strategists, trying to time the coming economic crash and the best entry point for their 'world revolution'. For this purpose, Lenin employed experts such as Nikolai Kondratieff, whose long-term technical analyses (denominated in prices, by the way) were supposed to identify the opportune moment (1926; 1928). Stalin executed Kondratieff and gave his job to Eugen Varga (1935). The latter, coming to his senses, ended up in a gulag. But the quest for the quan- titative magic bullet has remained strong, as evident from the long-wave analyses of contemporary Marxists such as Ernest Mandel (1995).
The fact that Marx erred in trying to anchor prices specifically and some- what mechanically in labour values is secondary. It certainly requires no cover-up or apology. Many eighteenth- and nineteenth-century physicists now seem dated, if not irrelevant. Yet, without their breakthroughs physics would not be where it is today. The same is true for Marx's labour theory of value. It was the first theory to put the study of society on a systematic footing. Had it not been for the stifling influence of the Soviet Union, the spirit of that theory would likely have kept Marxism a vibrant science.
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Quality without quantity?
And here we come to the second and more fundamental point - the notion that we can somehow disconnect the quantitative and qualitative aspects of capitalism, and then discard the former and keep the latter. This path betrays a deep misunderstanding of the subject of inquiry. To study the rationalist order of capitalism without quantities is like studying feudalism without reli- gion, or physics without mathematics. According to Marx, and here he was right on the mark, capitalism, by its very nature, seeks to turn quality into quantity, to objectify and reify social relations as if they were natural and unassailable. In this sense, a qualitative theory of value necessarily implies a quantitative theory of value; it means a society not only obsessed with numbers, but actually shaped and organized by numbers. This organization is the architecture of capitalist power. To understand capitalism therefore is to decipher the link between quality and quantity, to reduce the multifaceted nature of social power to the universal appearance of capital accumulation. The two aspects of the theory rise and fall together. If one is proven wrong, so is the other.
The question, therefore, is not which aspect of value to emphasize, but what the basis of value should be in the first place.
Theoretically, however, historical valuation is far more 'flexible' than a current one. Current valuation as used by the conventional approach requires all instances of a given commodity to have one and only one value, so that a barrel of oil has the same value whether it appears as an input or an output. By contrast, historical valuation as used by the TSSI allows each barrel of oil to have its own value - depending on its particular temporal position in the production process. This difference allows the TSSI to appear more theoreti- cally 'robust' than its conventional alternative - but that appearance is misleading. Obviously, if the same commodity can have multiple values, the likelihood of the valuation system as a whole being logically inconsistent is much reduced.
Prices as values
Labelling these considerations 'theoretical', though, is somewhat misleading - for the simple reason that TSSI really is more of an accounting device than a scientific proposition. The definitional nature of the TSSI is evident from its
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second assumption. According to this assumption, Marx had in mind not two systems, but one. Recall that, in the standard dual-system view as formalized by Bortkiewicz, labour values and prices of production are determined sepa- rately, each in their own distinct system, and that the question is whether or not the former can be mathematically 'transformed' into the latter. This ques- tion does not even arise in the TSSI. Here, there is only one system for both prices and values and therefore nothing to transform in the first place.
The language of the last sentence is a bit deceptive. In fact, the single system articulated by the TSSI does not have prices and values. It has prices as values. The distinction is crucial. The conventional Marxist approach argues that labour values are the cause of prices. This causal link is mean- ingful because the definitions of the two magnitudes are different. Prices are counted in money, whereas values are counted in labour time. The two magnitudes could be used interchangeably - but only if the theory is correct.
The setup of the TSSI is completely different. Here, there is no point in asking whether or not prices are equal to values, simply because values are defined by market prices. What the empirical studies do out of necessity and with much unease, the TSSI marshals with fanfare and as a vindication of Marx. The value of constant capital used by Dell is defined here as the market price the company paid for its (depreciated) capital, raw materials and semi- finished goods. Similarly, the value of the labour power it employs is defined as the money wages paid to its workers. Finally the company's surplus value is defined by subtracting from its current dollar revenues the constant and variable capital, as well as an unknown discrepancy that may arise from unequal exchange. 21 Labour is still held responsible, by definition, for the creation of all value in the aggregate. But it is no longer necessary for any of the underlying computations. Individual values are defined as the sum of market prices, with the result that the single-system equations no longer contain embedded labour coefficients.
New interpretationists do not see a problem with this circularity. Duncan Foley, for instance, argues that when Marxists define values by prices they do nothing different than Newton, who defined force by mass and acceleration (F = m * a). In each instance the definition serves a purpose insofar as it 'decisively disciplines and directs scientific investigation in conceptual and fruitful ways' (2000: 28). And, of course, there is nothing wrong with defini- tions per se.
But there is an important difference between the two cases: whereas Newton offers one definition for force, the new interpretationists have two for value: one based on price, the other on labour time. And since value is made proportionate to both price and labour time, it follows that prices are proportionate to labour time and that the labour theory of value is true before
21 This discrepancy, although unknowable for individual commodities, disappears in the aggregate since, by assumption, unequal exchange cannot create value, only redistribute it.
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we even begin. Kliman and McGlone (1999: 44) claim that this is a 'circular, Hegelian type' of explanation, although it isn't clear how this supposedly dialectical technique differs from the positive neoclassical habit of defining the quantity of capital by its price or the marginal product of labour by the wage rate. Given these considerations, it is perhaps little wonder that, while the definition of force enabled Newton to accurately describe, explain and predict the movement of actual bodies, the concepts of utils and labour values enable their theorists to say pretty much nothing about the actual movement of prices.
Proponents of the TSSI argue that this is what Marx had in mind. And maybe they are right. But if that was Marx's intention, it seems unclear why he would bother to call the result a theory of value, let alone a labour theory of value. The TSSI says nothing about labour, save for asserting that labour creates all values. And it is not a scientific theory in the sense of cause X (value) explaining consequence Y (price). It merely states the truism that current money prices are the sum of past money prices, plus a deviation.
Writers who advocate this approach emphasize that they do not claim Marx's value theory to be empirically valid. Their only purpose is to show that his framework is logically consistent and fully in agreement with his analytical claims. But in the process of achieving this purpose, they seem to have shifted into reverse. Whereas Marx's labour theory of value claims to reason phenomena according to their 'essence', the TSSI advocates move in the very opposite direction. Not only have they turned his theory into an irre- futable tautology, but by defining labour values in price terms, they have made it practically impossible to transcend the very appearance they wish to explain. They have ended up with a dogma.
7 The Marxist entanglement II
Who is productive, who is not?
Their husbands, you know, are the two principal stock holders in the Mills. Like all the rest of humanity, those two women are tied to the machine, but they are so tied that they sit on top of it.
--Jack London, The Iron Heel
So far, our discussion of Marxism has examined how production determines the quantitative architecture of capitalism - while taking production itself for granted. But, then, there is nothing very simple about production, certainly not in the way that Marx analyses it. Recall that his value equations concern productive labour only. They therefore presuppose that we can objectively distinguish labour that is productive from labour that is not. Yet, as we shall now see, differentiating the two types of labour is no simpler than trans- forming values into prices. And even if a line could somehow be drawn between them, its meaning and significance would be anything but clear.
Productive and unproductive labour
The question of 'productivity' dates back to the eighteenth-century conflict between the nobility and the bourgeoisie. The issue was who contributes more to society. Franc? ois Quesnay's Tableau e? conomique argued that it was the tillers of the land. The peasants were the sole producers, while the bourgeoisie merely circulated their product. The opposite position was marshalled by Adam Smith, who prioritized the industrial entrepreneur as the engine of economic growth and the wealth of nations. Marx leveraged the debate for his own purpose, arguing that only the industrial working class produced value.
In all three cases, the reasoning was based on Descartes' notion that cause cannot act at a distance. Leaves move when touched by wind, and the same must be true for productivity: Quesnay's peasants were closest to the land, Smith's capitalists pulled the levers of technical change and Marx's industrial workers were tied to the machines.
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The problem in Marx is that not all workers are industrial, which means that the labour process itself needs to be bifurcated. Marxists classify produc- tion according to the type of wage labour employed. Many types of labour produce use value and many generate exchange value, but for Marx only labour that produces use value, exchange value and surplus value is produc- tive in the capitalist sense. 'That labourer alone is productive, who produces surplus-value for the capitalist, and thus works for the self-expansion of capital', he writes (Marx 1909, Vol. 1: 158). Only labour that is 'directly consumed in the course of production for the valorization of capital' can generate surplus value and produce capital (Marx 1864: 1038). Other types of labour - such as those employed in domestic services (servants for example), in circulation (to convert one form of value to another) and in state organs (as public officials and service providers) - are all unproductive from the stand- point of accumulation. Although they may be important for the reproduction of capitalism as a whole, as well as for the realization of surplus value, they themselves do not create surplus value; in fact, their wages are paid from - and therefore eat into - that very surplus value.
Clearly, distinguishing between the two types of labour is crucial. Since productive labour boosts accumulation whereas unproductive labour hinders it, knowing which is which must be a first step in any investigation of capi- talism. And yet this first step is not easy to take. 1
For a start, Neo-Ricardian Marxists deny the very productive-unproduc- tive distinction. Orthodox Marxists love to dismiss this denial as heresy, on the ground that Neo-Ricardians reject value analysis altogether and therefore are not 'true' Marxists. But even if we ignore the dissenters and assume for the moment that indeed there are two types of labour, we are still faced with the question of how to tell them apart.
According to Fine and Harris (1979: 56) the answer is simple. Paraphrasing Marx, they state that 'If labour directly produces surplus value it is produc- tive; if not, it is unproductive'. This criterion looks straightforward, but in fact it puts the cart before the horse. If our final purpose in separating produc- tive from unproductive labour is to identify surplus value - how can we begin by assuming we already know what surplus value is? Recall that surplus value, like utility and factor productivity, is a theoretical construct, not a directly observable quantum. So how can we know when it is being produced and when it is not?
Recognizing the problem, Fine and Harris, still in the spirit of Marx, offer an indirect litmus test: 'only labour which is performed under the control of capital (on the basis of the sale of labour-power from workers to capitalists),
1 For various analyses and summaries of the issues involved in this distinction, including Marx's own inconsistencies, see Baran (1957: Chs 2-3), Morris (1958), Gough (1972), Harrison (1973), Hunt (1979), Laibman (1992) and Savran and Tonak (1999). Our discus- sion draws in part on these writings.
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and in the sphere of production, is productive' (ibid. ). In other words, to iden- tify productive labour we must back-step and decide (1) what constitutes 'production', and (2) which aspects of production come under the 'direct control' of capital. Unfortunately, answering these two questions is not much easier than observing values.
Production versus circulation
Financial intermediation, advertising and insurance
The standard Marxist view is that production mediates the 'relationship of society to nature' - in contrast to circulation and to the reproduction of the social order, which affect the historically specific 'relations among human beings' (Savran and Tonak 1999: 122). Based on this nature-society distinc- tion, the employees of companies such as Deutche Bank (diversified finance), InterRepublic Group (advertising), ING (insurance), Fannie Mae (mort- gages) and CIGNA (real estate) are for the most part unproductive. Their labour, insofar as it is devoted to circulation, does not mediate the relation- ship between society and nature and therefore cannot, by definition, create surplus value.
But is it really that simple? Begin with the sphere of financial intermedia- tion. Over the past century, credit has become the most important mechanism for directing social reproduction (or 'allocating resources' in neoclassical parlance). Despite this fact, Marxists do not consider financial intermedia- tion as 'mediating society's relationship to nature', and therefore do not see it as productive. To be consistent, though, they should apply the very same criteria to R&D, cost accounting, industrial relations and strategic planning. After all, these activities - just like financial intermediation - help allocate resources in 'productive' corporations such as Toyota, ExxonMobil and Microsoft, and if credit is deemed unproductive these corporate activities should be unproductive as well. It is true, of course, that credit is intimately related to the redistribution of ownership and therefore to power; but could this aspect of credit be at all separated, even conceptually, from its other features that help guide reproduction?
Or take advertising. Undoubtedly, this activity is designed to promote sales. But what about the incessant remodelling of automobiles, clothing, detergents, cosmetics, architecture, news media and what not - remodelling that according to some estimates accounts for over 25 per cent of the cost of production? 2 Given that the main purpose here, much like in advertising, is to enhance circulation, shouldn't we consider the labour put into such
2 The 25 per cent estimate is taken from Fisher, Griliches and Kaysen (1962), the first to study the cost of automobile remodelling. Pashigian, Bowen and Gould (1995) claim that such remodelling has since become even costlier - to the point of forcing US-based firms to cut down the frequency of model changes.
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remodelling to be unproductive as well? Paradoxically, even a positive answer would not solve the problem here. After all, any new product characteristic can persuade people to buy, so how do we distinguish between the adver- tising-like aspect of remodelling that merely circulates existing values and its productive aspect that by definition creates new values?
Finally, consider insurance, which Marxists commonly but erroneously classify as purely redistributional and therefore unproductive. Every produc- tion system requires some means of reducing uncertainty. 3 Historically, this reduction has been achieved through kinship commitments, community support organizations, state programmes like business and farm subsidies, welfare payments, unemployment insurance and pensions and, of course, capitalist insurance. Although all these methods are based on redistribution, they also serve to provide stability for production.
Similarly with business conglomeration and diversification. This strategy, which was first practised by the large trading companies of the seventeenth century and is presently exercised by most large corporations, tends to reduce uncertainty and therefore serves as a form of insurance. If we consider the labour involved in initiating, planning and managing corporate diversifi- cation as productive, we must treat the labour of private insurance employees in a similar manner. If the former creates value and surplus value, so does the latter.
Disaggregates in the aggregate
Marxists commonly bypass these ambiguities by conceding that circulation activities, like financial intermediation, advertising and insurance, do have an impact on production: they affect the reproduction of the social order as a whole, and therefore the overall magnitude of value and surplus value. But they also insist that such activities, because of their general character, do not bear on the relative magnitudes of specific values and surplus values. It is in this latter sense that circulation is deemed unproductive.
This claim is difficult to sustain for two basic reasons. To start with, finan- cial intermediation, advertising and insurance - like every social activity - are invariably differential: they affect some aspects of production more than others. Changes to old-age security programmes or the shifting stance of monetary policy - just like the purchase of life insurance by a single employee or the extension of credit to a specific corporation - have different impacts on different sectors, firms and workers. The same with marketing: the overall
3 In fact, the reduction of uncertainty has had an important, if understudied, impact on the very direction of social development. The pre-historic Australian population, for instance, became nomadic partly because of the continent's infertile soil and the dearth of domesti- cable plants and animals. But there was another crucial reason: El Nin? o made agricultural production intolerably unpredictable, in contrast to the relative security offered by the diver- sity and flexibility of nomadic hunting and gathering (Diamond 1999: Ch. 15).
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sales effort creates what John Kenneth Galbraith (1967) called the 'propa- ganda on behalf of goods in general'. But the consequences of this general propaganda vary along the production chains, with some processes being affected differently and more extensively than others. Thus, if we are ready to accept that a certain social activity affects the production of value and surplus value in general, we also have to accept that this impact is distributed unevenly and therefore affects the relative structure of values and surplus values.
Unfortunately, though - and here we get to the second point - value and surplus value cannot be observed, detected or examined, so there is no way to ascertain the existence of these differential impacts, let alone their size. We cannot know if monetary tightening by the central bank alters the relative value and surplus value of microchips vs crude oil - and, if so, by how much. We don't know whether the effect of tax breaks to advertisers raises, reduces or leaves unchanged the value and surplus value of brand names relative to brandless commodities. We have no clue as to the impact of insurance legisla- tion on the value and surplus value in the production of mobile homes rela- tive to the production of university graduates.
But, then, if we are unable to say whether these so-called circulation activi- ties are productive or not, let alone to what extent, how can we ever separate them from production 'proper'?
Objective exchange values?
Eating the cake and having it too
In the final analysis, the difficulty of identifying the so-called sphere of production is rooted in a basic theoretical schizophrenia: the attempt to deduce objective exchange values from subjective use values - while denying this very deduction in the first place. 4
Marx believed that the boundaries of production were objectively delin- eated. They were given, he said, by 'the definite social form, the social rela- tions of production, within which the labor is realized' (Marx 1863, Part I: 152, emphasis added). In practice, though, the categories that Marxists consider definitive and objective almost always rest on subjective criteria.
A recent taxonomy of productive and unproductive labour by Savran and Tonak (1999) illustrates this uneasy derivation. Following Marx, they empha- size the need to distinguish clearly between two types of circulation: the circulation of use value typical to all advanced socio-economic structures, and the specifically capitalist circulation of exchange value embedded in commodities, money and capital (p. 142). However, when they come to distinguish the circulation of exchange value from its creation, their criteria are based entirely on use value:
4 This schizophrenia, of course, is hardly unique to Marxism. As we will see in Chapter 8, it underlies both the util of the neoclassicists and the abstract labour of Marx.
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[A] society can only increase its wealth through the purposeful transfor- mation of nature and only that amount that has thus been produced can be distributed among the individual members or social classes of society. No amount of exchanging parts of the social product already produced can increase this product itself. . . . This means that any activity which is not directly necessary for humanity's intercourse with nature in order to transform aspects of it in accordance with human needs cannot be regarded as productive labour in general, nor therefore, as productive labour under capitalism.
(143-44)
To see the difficulty, note that, according to this statement, any under- standing of objective exchange value requires prior agreement on no less than five different questions: (1) the definition of the 'product itself'; (2) the 'amount of wealth' this product represents; (3) whether or not the production of this 'wealth' involves a 'purposeful transformation of nature'; (4) whether or not the transformation is 'directly necessary' for humanity's intercourse with nature; and (5) the 'human needs' the product is made to fulfil. Now, since the answers to these questions are all subjective to a lesser or greater extent, and given that they are nonetheless necessary for separating the production from the circulation of exchange value, it follows that exchange values cannot be derived objectively from production.
Capitalist answers, pre-capitalist questions
The difficulty here is one of historical mismatch. Simply put, we are trying to give capitalist answers to pre-capitalist questions. In the feudal-agricultural order, the separation between productive and unproductive activity seemed fairly clear cut. On the one hand, there were the peasants who tilled the land, along with the artisans who crafted with their tools and serviced with their skills. One could reasonably argue that their 'direct and purposeful inter- course with nature produced wealth in accordance with human needs'. It seemed rather evident - certainly to their coevals - that they were productive.
On the other hand, there were the nobility and the clergy who merely appropriated, along with the merchants, money lenders, usurers and taxmen who mostly 'exchanged and redistributed the already produced social product'. Since neither group participated in production as such, it wasn't too hard to conclude that they were unproductive. Even the Church found it diffi- cult to deny what everyone could see. 5
5 A 1020 poem by Bishop Adalbero of Laon provides a succinct summary of the feudal division of labour: 'The community of the faithful is a single body, but . . . human law distin- guishes two classes. Nobles and serfs, indeed, are not governed by the same ordinance. . . . The former are the warriors and the protectors of churches. They are the defenders of the people. . . . The other class is that of the serfs. This luckless breed possesses nothing except
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There was relatively little ambiguity: the division between those who laboured and those who didn't was fairly trenchant; needs and subsistence were practically synonymous and wealth a self-evident residual; product diversity was miniscule and the items on offer fairly well-defined; joint production was limited and technical knowledge diffused. In this pre-capi- talist context, use value seemed pretty straightforward - indeed, almost 'objective'. It was an obvious yardstick for separating the productive from the unproductive.
But these clear ecological, occupational and legal distinctions began to melt with the arrival of capitalism. Nowadays, use value is no longer evident, let alone agreed upon. It cannot be an 'objective' yardstick, or even a rough rule of thumb, for delineating what Marxists call the sphere of capitalist production. The remainder of this section illustrates the impasse.
The product itself and the amount of wealth
Take our first question regarding the notion of the 'product itself'.
Even in the simplest cases, products are no longer well-defined. When a New York resident buys a loved one flowers flown in from Mexico, does she purchase just 'flowers' - or specifically 'Mexican flowers'? This distinction is crucial since the latter entails the additional costs of air transport, insurance and hedging against currency changes - expenses without which Mexican flowers would be unavailable in New York. If the 'product itself' is merely flowers, these additional costs are socially unnecessary and therefore count as unpro- ductive circulation expenses. But if the product is Mexican flowers, these expenses are necessary costs of production. Now, which of these two defini- tions is correct? Do we have an objective basis to decide? And if we do not, what then constitutes the 'product itself'?
Next, turn to the second question, regarding the 'amount of wealth' prod- ucts supposedly represent. What is the quantity of wealth contained in a modern anti-depressant drug, in a barrel of oil, or in software used in the production of nuclear missiles? Do these amounts exist as objective quanta? And if they have no objective quanta, how can we know what 'amount of wealth' is available for distribution?
The transformation of nature
The third question concerns Savran and Tonak's claim that a society can increase its wealth only through the purposeful transformation of nature. This delineation, meant to exclude purely social activities that merely circulate an
at the cost of its own labour. . . . The serfs provide money, clothes, and food, for the rest; no free man could exist without the serfs. . . . We see kings and prelates make themselves the serfs of their serfs; the master, who claims to feed his serf, is fed by him' (quoted in Le Goff 1988: 255, emphases added).
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already-transformed nature, is far trickier than it seems. To point out the difficulty, consider the service sector. Commodities ranging from health care and telecommunication, to tourism and entertainment, to engineering and personal services, now account for roughly two thirds of social reproduction in money terms. The production of these service commodities normally requires a certain transformation of nature, but it also has another compo- nent that is purely social.
And so, as Marxist researchers, we are now faced with a dilemma: when calculating the contribution of the service sector to social wealth, should we exclude the purely social component - and if so, how big should the deduc- tion be? Is there an objective way to calculate this deduction - and if so, what is it? And if we end up excluding the purely social component from the production of services, shouldn't we do the reverse for the sphere of circula- tion? The latter includes, in addition to its purely social components, a certain purposeful transformation of nature. If we are to be consistent, don't we need to classify these latter components as productive? 6
Human needs
The fourth and fifth questions concern the related notions that productive labour is one that is 'directly necessary' for the transformation of nature in accordance with 'human needs'. Activity that does not fulfil these two related conditions is supposedly unproductive. One issue, then, is how to decide what constitutes 'human needs'. Food is a human need, but is the daily consump- tion of a 10-ounce steak or of expensive caviar also a human need? Laughing and excitation are human needs, but does it follow that all forms of commer- cial entertainment fulfil a human need? Based on the popularity of crime and horror movies, violent sports and the daily news, should we conclude that aggression, cruelty and war are basic human needs - or are these merely the result of brainwashing and the anxiety of capitalist alienation? Alternatively, can't we say that all human activity is geared toward fulfilling human needs? And if we accept this latter proposition, wouldn't that make all labour productive? How do we choose between these alternatives?
6 The notion that wealth is created only by purposeful transformations seems unnecessarily restrictive. Our quest for knowledge is driven, at least in part, by idle curiosity, and our learning about nature is often serendipitous. Since production ends up using this purposeless knowledge, should we prorate our measurement of wealth to include only the 'purposeful' part - or should we simply assume that a little bit of purpose somewhere in the process is enough to make the entire transformation intentional? Similarly, what do we do with nega- tive transformations of nature - such as deforestation, pollution, the destabilization of the climate and the extinction of species? The dilemma here is that these transformations may represent a reduction of use value, so, on the face of it, they need to be deducted from our social wealth. At the same time, these latter transformations are often unintentional, so perhaps we should simply ignore them?
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The other side of the problem is that, even if we can somehow agree on what constitutes human needs, we still need to know which labour activities are 'directly' necessary to fulfil those needs. Assuming that transportation is a human need, we may be tempted to conclude that the workers of Volkswagen and ChevronTexaco are directly necessary to its fulfilment. But, then, wouldn't universal public transportation fuelled by nuclear energy make these workers unnecessary? Can these questions ever be answered objectively?
Non-capitalist production
The slope becomes even more slippery when we move to identify the so-called 'non-capitalist' spheres of production, particularly the state. During Marx's time, the problem was easy to disregard. Until the late nineteenth century, state spending was miniscule by contemporary standards, as was the ratio of government to private employment. But the capitalist state has since expanded to account for a very significant portion of overall 'economic' activity, so the issue could no longer be ignored.
The classical Marxist position is that employees of the capitalist state may in certain cases be productive of use value, but usually not of surplus value. State activity is customarily divided into three categories: one that deals with the reproduction of the social order as a whole through the judiciary, police, army, taxation, etc. , and is deemed unproductive of use value, exchange value and surplus value; a second, more ambiguous, category that provides useful social services like education and health care - yet remains unproductive of surplus value to the extent that it is not controlled by capitalists; and a third that comprises government-owned enterprises whose capitalist-like nature makes them productive of surplus value. 7
Reproducing the social order
Consider the first category, the one responsible for reproducing the social order itself. Since this sphere produces no use value as such, it cannot, by defi- nition, produce exchange value or surplus value, and it therefore must be deemed unproductive (a conclusion that is not very different from the liberal view, in which a parasitic public sector freely rides the productive private sector).
7 Neo-Marxists, insofar as they abandon the labour theory of value, offer a rather different classification of state activity (see, for instance, O'Connor 1973). Alternatively, some clas- sical Marxists, such as Michael Kidron (1974), take the unorthodox position that the state actually serves to boost accumulation. Kidron argues that surplus wasted on military expen- ditures is akin to the production of luxuries. The relative growth of such spending therefore offsets the expansion of productive capital, which in turn counteracts the tendency of the rate of profit to fall (a relationship first shown by Bortkiewicz 1907a). For a critical review of Marxist analyses of fiscal policy, see Miller (1986).
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The difficulty with this assertion resembles our earlier discussion of circu- lation. For a start, it is hard to accept that this type of state employment produces no use value. It is certainly true that government taxation, expendi- tures and subsidies, the legal code and the organized use of violence are all matters of power. But don't these power activities also affect the organization of production and therefore the creation of use value? Indeed, is there a single historical example of a hierarchical social order without taxation and subsi- dies, without a legal or other code of conduct, and without the institutional use of force? What evidence do we have - from Neolithic cities, through ancient empires, to feudalism, capitalism and communism - that the produc- tion of so-called use value is at all possible without these broader institutions of power? And if we accept, as we should, that these institutions do have a use value, then isn't it possible that they also affect exchange values and surplus values?
Although Marxists may deny it, according to their logic the answer must be positive. The impact of these power institutions and processes, just like the impact of financial intermediation and commerce, is inherently differential. State spending and taxes affect not only the overall process of production, but also its minute details. Indeed, this is often their very purpose. And if that is the case, we should expect them also to bear on the value and surplus value associated with individual commodities.
To illustrate, take the example of electricity. Taxing coal-fuelled utilities while subsidizing windmills is bound to alter their respective cost and profit structures; this change would likely lead to diverging growth patterns in the generation of electricity; and as these different patterns reverberated through- out the chain of production, the result according to Marx's framework would be to alter the entire pattern of relative values and surplus values. In this sense, the labour involved in planning and administering the taxes and subsi- dies becomes part of the capitalist production process and therefore poten- tially a bearer of value and surplus value (we say potentially since, in order to create value and surplus value, labour needs to be not only productive, but also subjugated to capitalist authority - an issue with which we deal below).
Similar considerations apply to the law, propaganda, organized violence and other state policies. Regardless of how universal they seem, they all affect the allocation and pattern of societal activities. They alter the progress of science and knowledge, they bear on the choice of techniques, they modify the organization of production (however defined). From a Marxist perspective, therefore, they must be seen as affecting the creation of surplus value - not only in the aggregate, but also in detail. If we are to keep with Marx's own logic, we need to label employees who administer these institutions productive.
Social services
The second state category - made up of social services - is also deemed unpro- ductive. Here, though, the services are considered useful, which means that if
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the state were to produce them for profit - for instance, through the third category of government-owned enterprises - the labour involved would become capitalistic and therefore productive of surplus value (Savran and Tonak 1999: 139-40).
Let's examine this proposition with a hypothetical example. Suppose the government decided to 'go private' and instead of financing water services out of taxes on surplus value, sold them for a fee with an eye to making a profit. In order to actually earn this profit, the government would need to either cut the wages paid to water-service employees or otherwise mark up the price of water above its wage cost (which for simplicity we assume to be the only cost). According to the classical Marxist scheme, the first option is impossible since water-service employees, like all workers, are already paid their own value, so any reduction here will push their wages below subsis- tence. The only avenue therefore is to make the fee (price) higher than the wages. 8
And here arises the puzzle. The shift from free to fee-based water services alters neither the use value of these services nor the labour producing them, which in turn means that, on its own, the redesignation of these services can create no surplus value. So where does the government profit come from?
One possible source is lower real wages elsewhere in the economy, as workers bear the brunt of the new fees (since consumer prices rise but wages do not). The problem is that such a decline would push these wages below subsistence, again violating the Marxist assumption that workers are always paid their value. The only route is for capitalists to allow overall wages to rise by the difference between the new fees and old taxes, and accept the conse- quent decline (of an equal amount) in their own profit.
Yet this possibility does not solve the puzzle either. Although the govern- ment now acts as a productive, profit-making capitalist for all intents and purposes, its workers are not productive of surplus value! Instead, they merely help their employer - in this case, the government - scoop up part of the surplus value produced by capitalists elsewhere in the economy.
What is non-capitalist?
Finally, we should consider, if only briefly, the meaning of non-capitalist production. Recall that, according to Marx, labour can be productive only if it is controlled by capitalists. It must be 'directly consumed in the course of production for the valorization of capital' - that is, tied to capital through the wage contract (Marx 1864: 1038). The problem is that, even if we accept that capitalist control is a prerequisite for the creation of value, it is not clear why the only gauge for such control is the wage contract.
8 The Marxist subsistence wage, of course, is not carved in stone but rather 'socially deter- mined'. This determination, though, is unaffected by our theoretical reclassification of government employees.
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To clarify the difficulty, consider LockheedMartin, one of the world's largest military contractors. The owners of LockheedMartin certainly control the work performed by their employees. But don't they also have some impact on the work performed at the U. S. Defense Department, with obvious bear- ings on their own business? The latter impact may be indirect, but is it smaller than the former? Similarly with the US government. The government controls the employees of its own Defense Department, but doesn't it also control to some extent, through its laws and procurement policies, the employees of LockheedMartin?
The answers to these questions are crucial for the computation of labour values. For, if we accept that government workers are controlled by capital- ists at least to some degree, we can no longer treat such workers as unproduc- tive. And likewise, but in reverse, with privately employed workers: if we concede that they are not entirely controlled by capitalists, perhaps we should no longer treat them as strictly productive.
We can go on with such examples and queries, but by now the problem should be clear. There is no objective way to separate 'production' in general - and the sphere of 'capitalist production' in particular - from other forms of social reproduction. Consequently, the notion that surplus value and accumulation are rooted exclusively in this sphere has no definite meaning. Any theory of capital based on such an assumption becomes unbounded and impossible to implement.
A qualitative value theory?
Taken together, the challenges to the labour theory of value seem insur- mountable. To recap, the theory depends on an objective definition of pro- ductive labour that is impossible to devise. It faces a trying dilemma of having to choose between logical consistency and meaningful explanation. It is inher- ently partial in that it recognizes but is unable to theorize the role of factors other than labour. And it is analytically and empirically impenetrable since labour values cannot be conceived and observed in the first place.
The retreat
With this onslaught of criticisms, many Marxists have chosen to retreat to the so-called qualitative labour theory of value. 'While the idea of value as an accounting tool or as an empirically observable magnitude plainly had to be abandoned', conceded David Harvey (1982: 36), 'it could still be treated as a "real phenomena with concrete effects". . . . It could be constructed as the "essence" that lay behind the "appearance", the "social reality" behind the fetishism of everyday life'.
This retreat isn't new. It had already begun with Engels' 'Law of Value and Rate of Profit' (1894), which defended the labour theory of value on histor- ical rather than analytical grounds and gave rise to the 'value epoch' debate;
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it continued with Hilferding's (1904) reply to Bo? hm-Bawerk, which empha- sized Marx's 'conceptual revolution' while downplaying its quantitative shortcomings; and it received its seal of approval from Sweezy (1942: Ch. 7), who claimed that the qualitative implications of the theory are logically sepa- rate from its quantitative assertions.
The labour theory of value, Sweezy argued, is not essential for under- standing the price structure of capitalism - a structure far better explained by bourgeois economics. But this quantitative deficiency, he continued, in no way undermines the qualitative significance of the theory. The notion of labour value, even if quantitatively flawed, is still essential to dialectically demystify the economy. It has the indispensable role of reminding us of exploitation, and that the only source of profit is unpaid labour.
And so developed a large literature focused exclusively on the qualitative nature of accumulation. The hallmark of this literature is its selectivity: it discards the quantitative conclusions of the theory while upholding its concepts. Labour value and surplus value, even if quantitatively meaningless, are nonetheless taken as a solid starting point for qualitative analysis. Armed with these truncated concepts, the qualitative theorist then proceeds to examine the many features and processes of capitalism - from the restruc- turing of production and class conflict, through alienation and the institu- tions of power, to the business ethos, political organization and the dynamics of culture, among others.
Very few Marxists see anything wrong with exclusively qualitative anal- yses. Most feel that removing Marx's quantitative theory leaves much of his broader conclusions and insights intact, if not enhanced (a claim laboured by Hodgson 1982). Some believe that the whole quantitative/qualitative debate has been misconceived, premised on the erroneous notion that Marx was trying to create a critical political economy 'intended to operationalize the law of value in order to explain the workings of the market' (Postone 1993: 133). And others take this point even further, arguing that Marx's isn't really a labour theory of value but rather a 'value theory of labour' (Elson 1979).
Marx's science
Needless to say, we do not find these arguments persuasive. The notion that Marx was concerned with the qualitative rather than quantitative aspects of capitalism seems to us apologetic and unfounded. More significantly, in our view the belief that his theory of capitalism - or any theory of capitalism for that matter - could be fractured into two independent subsets leads to a dead end.
Begin with the issue of Marx's emphasis. His work was certainly a critique of capitalist ideology. But it was much more than that. Marx tried to create an alternative science, a framework that could replace both bourgeois polit- ical economy and the positivist social management of Auguste Comte. This scheme stood on two main foundations. One was a dialectical history that
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provided the basis for revolutionary consciousness. The other was a value theory that broke the front window of prices and offered a starting point for future democratic planning.
It is perhaps worth reminding ourselves that, unlike today, science was still highly rated in the nineteenth century. Marx followed Hegel in viewing the rise of science as part of the broader development of history. But that view never led him to treat science merely as a matter of fashion and power. He truly believed he could create a new science, one that would both debunk conventional political economy and explain the reality of capitalism.
The task was revolutionary, and revolutions cannot be achieved by mere critiques. Einstein transcended Newtonian physics partly by questioning its epistemology, but mostly by inventing a new one. And the same is true for Marx. To challenge bourgeois economics he needed to construct an alterna- tive capitalist reality, and this new episteme required a different theory of prices. To argue that Marx was not concerned with prices is to argue that his key theses about capitalist development - including the tendency of the rate of profit to fall, the immiseration of the proletariat and the tendency of capi- talism to generate recurrent profitability crises - were meaningless gibberish. These tendencies can be expressed only in terms of price ratios. To theorize them is to theorize prices, and that is precisely what Marx and many of his followers tried to do.
Indeed, for the nineteenth-century intelligentsia, the magic of Marxism lay precisely in the novelty of its scientific structure. Its historical laws of motion seemed as inevitable as the movement of the stars, pushing capitalism toward change, crisis and imminent collapse. Even with the advent of Leninism, when determinism was partly sacrificed in favour of political vitality and party discipline, the thirst for quantitative analysis remained unquenched. In this sense, the Bolshevik apparatus, particularly Lenin and the Comintern, calculated their historical moves just like today's financial strategists, trying to time the coming economic crash and the best entry point for their 'world revolution'. For this purpose, Lenin employed experts such as Nikolai Kondratieff, whose long-term technical analyses (denominated in prices, by the way) were supposed to identify the opportune moment (1926; 1928). Stalin executed Kondratieff and gave his job to Eugen Varga (1935). The latter, coming to his senses, ended up in a gulag. But the quest for the quan- titative magic bullet has remained strong, as evident from the long-wave analyses of contemporary Marxists such as Ernest Mandel (1995).
The fact that Marx erred in trying to anchor prices specifically and some- what mechanically in labour values is secondary. It certainly requires no cover-up or apology. Many eighteenth- and nineteenth-century physicists now seem dated, if not irrelevant. Yet, without their breakthroughs physics would not be where it is today. The same is true for Marx's labour theory of value. It was the first theory to put the study of society on a systematic footing. Had it not been for the stifling influence of the Soviet Union, the spirit of that theory would likely have kept Marxism a vibrant science.
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Quality without quantity?
And here we come to the second and more fundamental point - the notion that we can somehow disconnect the quantitative and qualitative aspects of capitalism, and then discard the former and keep the latter. This path betrays a deep misunderstanding of the subject of inquiry. To study the rationalist order of capitalism without quantities is like studying feudalism without reli- gion, or physics without mathematics. According to Marx, and here he was right on the mark, capitalism, by its very nature, seeks to turn quality into quantity, to objectify and reify social relations as if they were natural and unassailable. In this sense, a qualitative theory of value necessarily implies a quantitative theory of value; it means a society not only obsessed with numbers, but actually shaped and organized by numbers. This organization is the architecture of capitalist power. To understand capitalism therefore is to decipher the link between quality and quantity, to reduce the multifaceted nature of social power to the universal appearance of capital accumulation. The two aspects of the theory rise and fall together. If one is proven wrong, so is the other.
The question, therefore, is not which aspect of value to emphasize, but what the basis of value should be in the first place.
