Tuesday, August 19, 2014

SCIOD 8: The Secret Basis of Glut

Even though it appeared "when the factory system was comparatively but little developed," Marx observed that Ure's work, "perfectly expresses the spirit of the factory, not only by its undisguised cynicism, but also by the naïveté with which it blurts out the stupid contradictions of the capitalist brain." The most glaring contradiction Marx pointed to involved the relationship between unionism and the pace of technological change. In the early pages of the book, Ure noted the "instructive warning to workmen to beware of strikes," posed by the invention of the dressing machine, which proved:
…how surely science, at the call of capital, will defeat every unjustifiable union which labourers may form… Were it not for unions, the vicissitudes of employment, and the substitution of automatic for hand work, would seldom be so abrupt as to distress the operative.
Yet in the third section, Ure asserted that:
[h]ad it not been for the violent collisions and interruptions resulting from erroneous views among the operatives, the factory system would have been developed still more rapidly and beneficially for all concerned than it has been…" 
Perhaps, though, the contradiction is not quite as stark as it appears. Maybe Ure is assuming that capitalists would introduce different, more benign machines if they could confidently rely on docile workers? In that case, though, the contradictions are only displaced from the nature of machines to equally naïve and cynical assumptions about the inherent benevolence of the masters and malevolence of the "hands" (as Ure frequently referred to workers).

The section in Capital immediately following Marx's critique of Ure examines "The theory of compensation as regards the workpeople displaced by machinery." One might expect to find there a critique of Say's Law – or rather of the maxim that eventually came to be known as Say's Law. Instead, Marx referred to the insistence of "James Mill, MacCulloch, Torrens, Senior, John Stuart Mill, and a whole series besides…"

The only mention of Jean-Baptiste Say appears in a footnote referring to "a disciple of Ricardo, in answer to the insipidities of J. B. Say…" It repays the effort to ferret out the anonymous pamphlet cited by Marx, "An Inquiry into those Principles Respecting the Nature of Demand," &c. The anonymous pamphleteer presented a comprehensive critique of Say's maxim in pages 14 to 33 and returned to that topic on page 72, comparing specialized labour to fixed capital, in the passage Marx cited:
The habits of the labourers, where division of labour has been carried very far, are applicable only to the particular line they have been used to; they are a sort of machines. Then, there is a long period of idleness, that is, of labour lost; of wealth cut off at its root. It is quite useless to repeat, like a parrot, that things have a tendency to find their level. We must look around us, and see that they cannot for a long time find a level: that when they we cannot but see, that they are unable to find their level for a long time; and that when they do, it will be a far lower level than they set out from.
In Theories of Surplus Value, Marx described the pamphlet as "one of the best of the polemical works of the decade," notwithstanding disparaging remarks about "the infinite narrow-mindedness of these fellows" when examining capital. There he addressed "Say’s earth-shaking discovery that “commodities can only be bought with commodities…" and again quoted the above passage regarding the effects of division of labour. A few paragraphs later, he remarked, "What the author writes about Say is very true." "The theory of compensation as regards the workpeople displaced by machinery" can be read as a veiled response specifically to Say's maxim. Marx's critique owes a great deal to the anonymous pamphleteer, whom he both praised and disparaged.

It is curious that Marx didn't take the opportunity to directly confront Say, particularly as his discussion of the pamphlet in Theories of Surplus Value bears directly on the issue of crises of overproduction. After quoting the author's observation that "glut is synonymous with high profits," Marx affirmed that this was, "indeed the secret basis of glut." A few paragraphs later, his summary response to the pamphlet's argument is a succinct expression of Marx's crisis theory:
Over-production, the credit system, etc., are means by which capitalist production seeks to break through its own barriers and to produce over and above its own limits. Capitalist production, on the one hand, has this driving force; on the other hand, it only tolerates production commensurate with the profitable employment of existing capital.
Bernice Shoul mentioned neither the anonymous pamphlet nor the section in Capital on the theory of compensation in her 1957 article, "Karl Marx and Say's Law."


Myrtle Blackwood said...

Re: "Capitalist production, on the one hand, has this driving force; on the other hand, it only tolerates production commensurate with the profitable employment of existing capital...."

Once upon a time, perhaps. These days TARP and other taxpayer-funded bailouts (or QE-enabled corporate safety nets) have made the need for genuine profitable production 'old-hat'. And John Kenneth Galbraith questioned the assumption of the profit motive in the large modern corporation back in the 1970s.

'Production' of what, by the way? A financial derivative, or real goods and real services?

Magpie said...


These are genuine questions (in other words, please don't think I am asking this with any ironic intent), but if profit does not motivate modern corporations, what does?

Related to that question: if economic agents' motivations depart from **predictable** patterns of behaviour, how can economics offer any insight?

Myrtle Blackwood said...

Magpie, a list of possible alternative motives (other than 'profit) for the modern corporation's activities:

- control over and security of resources;
- 'profit' for corporate insiders (rather than the corporation as a whole), other forms of wealth transfer;
- power and prestige for key players;
- pressure and edicts from government;
- delusional thinking;
- social and ethical concerns;
- narcissism and malevolence;
- public relations
- shortages of resources

Question: "if economic agents' motivations depart from **predictable** patterns of behaviour, how can economics offer any insight?"

Response: Do the motivations of 'economic agents' depart from 'predictable patterns of behaviour? Or is it that the economic theory that informs that they do (in the first instance) fails to take into account the real nature of humanity and its institutions?

'Economics' could be defined as a large body of thought pertaining to human notions of material prosperity. Thus, I believe such study should offer insight into the nature of humans and pose important questions as to what sort of life and existence we should, or could, be aspiring to.

Magpie said...

Thanks, Myrtle. Much appreciated.

Let's consider, for instance, the behaviour of the banks leading up to the housing crash.

It seems indisputable that a combination of several motivations was at play: "'profit' for corporate insiders (rather than the corporation as a whole), other forms of wealth transfer", "delusional thinking", "narcissism and malevolence"...

Imagine we are big wigs from the Fed, and, let's further suppose we are truly interested in the material prosperity of the US (as opposed to our own careers), what can one conclude from those motivations? Are interest rates at a reasonable level? Should banks have larger reserves? Some may claiming that an inflationary outbreak is imminent; others, that the risk is nil and we are in a position to decide: what do we do?

Myrtle Blackwood said...

An Irishman pulls no punches when he talks about these wankin' bankers:

Keep interest rates negative, but give appropriate credit ratings and checks on borrowers. [Limit credit to where 'credit is due'. ]

Inflation is occurring on asset, energy and food prices. Deflation on wages, the price of money and durable goods.

Banks need to be recognised as the public entities they are.

Material and political prosperity depends on the employment of people and the wise choice of technologies.