Invisible Leviathan – Marx’s law of value in the twilight of capitalism By michael roberts

6 April 2019 — Michael Roberts Blog

My foreword to Invisible Leviathan, by Professor Murray Smith of Brock University, Ontario, Canada, published by Brill in November 2018.   Relevant, I think, to my recent presentation on the contribution of Marx to economics made at the Rethinking Economics conference at Greenwich University, London.

The message of Murray Smith’s book is aptly portrayed by its title, Invisible Leviathan. The book sets out to explain why Marx’s law of value lurks invisibly behind the movement of markets in modern capitalism and yet ultimately explains the disruptive and regular recurrence of crises in production and investment that so damage the livelihoods (and lives) of the many globally.

This book is a profound defence (both theoretically and empirically) of Marx’s law of value and its corollary, Marx’s law of the tendency of the rate of profit to fall, against the criticisms of bourgeois, ‘mainstream’ economics, the sophistry of ‘academic’ Marxists, and the epigones of the classical school of David Ricardo and Adam Smith. As the author points out, even the great majority of ‘left’ commentators concur that the causes of the ‘Great Recession’ of 2007–09 and the ensuing global slump are not to be found in Marx’s theories, but rather in the excessive greed of corporate and financial elites, in Keynes’s theory of deficient effective demand, or in Minksy’s theory of financial fragility. When acknowledged at all, Marx’s value theory and his law of profitability are attacked, marginalised or dismissed as irrelevant.

None of this should be surprising given the main political implication of Marx’s laws: namely, that there can be no permanent policy solutions to economic crises that involve preserving the capitalist mode of production. I am reminded of the debate at the 2016 annual meeting of the American Economics Association between some Marxists (including myself) and leading Keynesian Brad DeLong, who seemed to characterise us as ‘waiting for Godot’ – that is to say, as passive utopians, waiting for collapse and revolution – while he stood for ‘doing something now’ about the deplorable state of capitalism. But as Smith explains so well, it is the ‘practical’ Keynesians who are the real utopians in imagining that actually existing, twenty-first-century capitalism – characterised by crises, war and ‘the avarice and irresponsibility of the rich’ – can still be given a more human and progressive face.

Against the many variants of ‘practical’ economics, Smith’s book sets out to:

uphold Marx’s original analysis of capitalism, not only as the most fruitfully scientific framework for understanding contemporary economic problems and trends, but also as the indispensable basis for sustaining a revolutionary socialist political project in our time. It does so by examining the crisis-inducing dynamics and deepening irrationality of the capitalist system through the lens of Marx’s ‘value theory’ – which, despite the many unfounded claims of its detractors, has never been effectively ‘refuted’ and which continues to generate insights into the pathologies of capitalism unmatched by any other critical theory.

Marxian value theory has been subject to ridicule, distortion and incessant rebuttal ever since it was first expounded by Marx 150 years ago. And the simple reason for this is that value theory is necessarily at the core of any truly effective indictment of capitalism – and essential to refuting its apologists. What truly motivates the ‘Marx critique’ of the bourgeois mainstream is graphically confirmed by the (in)famous argument of Paul Samuelson (the leading exponent of the ‘neoclassical synthesis’ in mainstream economics after World War II) according to which Marx’s value theory is ‘redundant’ as an explanation of the movement of prices in markets. The market, you see, reveals prices, and that is really all we need to know.

It is instructive to note that, shortly after Samuelson’s 1971 broadside against Marx, the (recently deceased) neoclassical economist William Baumol offered a trenchant response to Samuelson’s ‘crude propaganda’. In a paper from 1974, Baumol pointed out quite correctly that Samuelson had entirely misunderstood Marx’s purpose in his discussion of the so-called transformation of values into prices. Marx did not want to show that market prices were related directly to values measured in labour time. Quite the contrary:

The aim was to show that capitalism was a mode of production for profit and profits came from the exploitation of labour; but this fact was obscured by the market where things seemed to be exchanged on the basis of an equality of supply and demand. Profit first comes from the exploitation of labour and then is redistributed (transformed) among the branches of capital through competition and the market into prices of production.

The whole process reveals the ‘Invisible Leviathan’ at work.

Unfortunately, it is not just mainstream economics that has tried to rubbish Marx’s value theory. ‘Post-Keynesians’ like Joan Robinson and neo-Ricardian Marxists like Piero Sraffa and Ian Steedman have also done so. Like Samuelson, they resort to the argument that Marx’s value magnitude analysis is redundant, unnecessary and above all fallacious. As an alternative, Sraffa claimed that prices in capitalist markets can be derived directly from physical output.

Murray Smith demolishes these critiques and revisions, standing firmly on what he calls a ‘fundamentalist’ position that involves a return to both aspects of Marx’s fundamental theoretical programme: the analysis of the form and the magnitude of value, as well as a concern with the relationship of each to the social substance of value: abstract labour. I join him under this banner.

According to Smith:

Marx’s theory of value yields two postulates that are central to his critical analysis of capitalism: 1) living labour is the sole source of all new value (including surplus-value), and 2) value exists as a definite quantitative magnitude that establishes parametric limits on prices, profits, wages and all other expressions of the ‘money-form’. From this flows Marx’s fundamental law of capitalist accumulation: that the tendency of the social capital to increase its organic composition (that is, to replace ‘living labour’ with the ‘dead labour’ embodied in an increasingly sophisticated productive apparatus) must exert a downward pressure on the rate of profit, the decisive regulator of capitalist accumulation.

The book’s theory of capitalist crises rests firmly on Marx’s law of profitability. But, as Smith insists,

Marx’s law of value is merely a ‘necessary presupposition’ of this law of profitability, not a sufficient one. Yet, there is a sense in which the latter stands as a corollary to the former, even if not a theoretically ineluctable one. For capitalism is a mode of production in which the goal of ‘economic activity’ is only incidentally the production of particular things to satisfy particular human needs or wants, while its real, overriding goal is the reproduction of capitalist social relations through the production of value, that ‘social substance’ which is the flesh and blood of Adam Smith’s powerful yet also fallible ‘invisible hand’ – of our ‘Invisible Leviathan’.

And so:

[T]hese laws provide a compelling basis for the conclusion that capitalism is, at bottom, an ‘irrational’ and historically limited system, one that digs its own grave by seeking to assert its ‘independence’ from living labour even while remaining decisively dependent upon the exploitation of living wage-labour for the production of its very life-blood: the surplus-value that is the social substance of private profit.

Smith is by no means content with a purely theoretical defence of Marx’s analysis of capitalism’s Invisible Leviathan; he moves on to empirical verification of the ‘economic law of motion’ of capital as postulated by Marx. I share his view that this is essential. The contrary opinion of certain Marxists is that it is simply impossible to verify Marx’s laws, as the latter are about labour values and official bourgeois data can only detect movements in prices, not values. Moreover, according to this line of thought, statistical verification of Marx’s value-theoretic hypotheses is unnecessary, as the regular recurrence of crises under capitalism is a self-evident fact revealing its obsolescence.

But this is passing the buck. Any authentically scientific socialism demands rigorous scientific analysis and empirical evidence to verify or falsify its theoretical foundations; and Marx himself was the first Marxist to look at data in an effort to confirm his theories. In this connection, Smith writes:

Marxist analysis of the historical dynamics of the capitalist world economy ought not to dispense with serious attempts to measure such fundamental Marxian (value-theoretic) ratios as the average rate of profit, the rate of surplus-value, and the organic composition of capital. To be sure, such attempts can never offer much more than rough approximations. Even so, they are vitally important to charting and comprehending essential trends in the [capitalist mode of production] – trends that can usefully inform, if only in a very general sense, the political-programmatic perspectives and tasks of Marxist socialists in relation to the broader working-class movement.

Murray Smith’s own empirical analysis is original and somewhat controversial. He revives the approach of Shane Mage, whose pioneering empirical work of 1963 on the rate of profit treated the wages of ‘socially necessary unproductive labour’ (SNUL) as a systemic ‘overhead’ cost that should not be regarded as a ‘non-profit’ component of (or absolute ‘deduction’ from) the surplus-value created by productive labour, but rather as a special form of constant capital. In Smith’s view,

by conceptualising SNUL as a necessary systemic overhead cost, the constant-capital approach emphasises that capital’s room for manoeuvre with respect to [persistent problems of valorisation and profitability] is quite limited, giving Marx’s proposition that ‘the true barrier to capitalist production is capital itself’ a somewhat new twist.

And indeed, his analysis of the US capitalist economy (from 1950 to 2013) does reveal a long-term fall in the average rate of profit that is significantly correlated with a secular rise in the organic composition of capital, entirely in accordance with Marx’s view. This hugely important result has been replicated by many other Marxist studies in the last 20 years, several of which appear alongside Smith’s in The World in Crisis, a volume edited by Guglielmo Carchedi and myself. Many are also referenced in my own recent book The Long Depression.1 (It is noteworthy that Smith’s initial empirical study of Marx’s law of the tendency of the rate of profit to fall, employing data on the postwar Canadian economy, was first published in 1991, with an updated version appearing in 1996. The results of those studies, along with some others, are also to be found in the present volume.)

Theory and evidence should lead to practice – which means not ‘waiting for Godot’. At the end of the book, Smith refuses to evade the practical upshot of his theoretical and empirical investigations:

The essential programmatic conclusion emerging from Marx’s analysis is that capitalism is constitutionally incapable of a ‘progressive’, ‘crisis-free’ evolution that would render the socialist project ‘unnecessary’, and furthermore, that a socialist transformation cannot be brought about through a process of gradual, incremental reform. Capitalism must be destroyed root and branch before there can be any hope of social reconstruction on fundamentally different foundations – and such a reconstruction is vitally necessary to ensuring further human progress.

In this bicentennial year of his birth, I can’t help thinking Marx would be pleased. The enemies of his transformative, socialist vision will no doubt be disgruntled.

Michael Roberts


January 2018

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