Value, profit, technology and value again
By Michael Roberts
Editorial note: Left Horizons is pleased to re-publish the regular blogs from Michael Roberts. His economic analysis from a Marxist perspective is always clear and insightful. In this blog he reiterates his long-held position that China is not a capitalist state. We think this is not a straight forward question. It is a really important debate that needs to be carried forward, with the writings of Michael Roberts being a very valuable contribution to that debate.
**************
It’s been a week since the end of Historical Materialism conference in London and I have finally got round to doing my regular review of the proceedings. For those who don’t know, the HM conference brings together academics and students to present papers and discuss not just economics but all aspects of capitalist society – from a broadly Marxist viewpoint. This year, apparently up to 800 attended, with many papers presented and several plenaries. Obviously, I cannot cover all the papers presented and even more obviously that means I shall concentrate on the papers and discussions around Marxist economics.
My own presentation to the conference
So let’s start with my own presentation. This was a session on the themes and arguments presented in our latest book by myself and Guglielmo Carchedi, entitled Capitalism in the 21st century – through the prism of value.
The main approach of the book is to use Marx’s value theory to try and explain the main developments in global capitalism in the 23 years so far of this century. The chapters of the book follow some key themes: the degradation of nature, global warming and the impact of pandemics; changes in the role of money and credit, the return of inflation and a critique of new theories; what causes regular and recurring crises in capitalist accumulation – already two of the greatest slumps in capitalist history: 2008-9 and 2020; the economics of modern imperialism; the rise of mental labour, robots and AI; and last but not least, the features of transitional economies going from capitalism to socialism.
The book’s thread is based on what Marx called the “collision between production for profit on the one hand and the creation of wealth for the producers and their communities on the other.” We show the high correlation between the drive for profit by capital globally and the environmental destruction of the planet; and how it is the periodic fall in profitability that drives economic crises. We argue that imperialism is no longer defined as the direct military occupation and political control of a weaker country by the imperialist nations. Now imperialism operates mainly through trade and investment and the extraction of value (profit) in capitalist operations from the periphery to the core imperialist bloc – a bloc that has not changed since Lenin identified it in 1915. The new challenge to capital and labour in the 21st century is the rise of robots and more specifically, automation of work and the development of artificial intelligence – will AI replace human labour and even surpass human intelligence? In our final chapter, we discuss the class nature of the countries where capitalist power was overthrown, like the Soviet Union and China. Are these ‘socialist states’ or were they always capitalist, or if not, are they capitalist now?
Critics of the ideas presented in my session
There were two discussants on the book panel: the well-known Seongjin Jeong from Gyeongsang National University, South Korea, and Raquel Varela, a top Marxist labour historian from Portugal. While both panellists praised the book, both had significant criticisms.
SJ was pleased that we did not swallow the idea of capitalist stages ie. ‘monopoly capitalism’ or ‘state monopoly capitalism’, which have become popular again recently, but instead stuck to using value theory to explain changes in capitalism, as such. But SJ did not agree with the view in our book that China was not capitalist, let alone imperialist. RV also argued that China was capitalist – yes, the state played a big role, but so did it play such a role in countries like Japan and Korea in their development. Indeed, China’s economy was similar in some ways to Nazi Germany in fusing the state with big business to exploit wage labour. I do not agree that a fascist state has the same class character or economic foundation as the modern Chinese state, but there is no space to develop that argument here.
This critique was echoed from the floor in discussion. Indeed, I suspect that I was the only one in the session that did not accept that China was capitalist (or state capitalist?). My defence of that position has been outlined in many posts and papers. Simply, yes the law of value still operates in China, capitalists operate in China; workers are exploited and wage labour exists. But something happened in 1949: capitalists and landlords were expropriated and a new state machine was installed. Yes, there is no workers democracy in China; it’s a one-party dictatorship (says Biden!).
But when we consider the economic foundation of the Chinese economy, the size of the state sector is immense compared to any other (major) economy in the world; and the commanding heights of the economy are in the hands of the state and CPC. Capitalists operate in China and there are billionaires, but they do not control the state machine or its policies, and instead often they must do the state’s bidding.
How can we explain China’s phenomenal economic growth?
And here is the theoretical rub: if China is capitalist like any other capitalist state, how can we explain China’s phenomenal economic growth and rise in prosperity? I thought capitalism could no longer develop the productive forces for the world’s periphery – are they not held back by imperialism and the contradictions of capitalist production? No other peripheral capitalist economy, not even India, has grown like China – none of the other BRICS have done so. So does China’s (capitalist?) success mean that we must revise Marxist theory on capitalism; or is China not capitalist after all?
Since 1949, there has been no slump in output or investment in China (on the contrary); while the major capitalist economies suffered slumps at regular intervals and the peripheral economies are in continual crisis. China did not have a contraction in the Great Recession or in the pandemic slump despite then applying a severe and long-lasting lockdown. So there is something different about China – in our view, it is the state-led economy with planned investment that curbs the operation of the law of value and the anarchic role of the market forces within the country and outside. For us, China is not socialist, but nor is it capitalist (yet) – it is neither black nor white, but in a transition – but a transitional economy that cannot proceed to socialism, surrounded as it is by imperialism and not having workers’ democratic control. So any transition cannot be resolved.
Does it matter what it is? Yes, because China’s economic rise is an indicator of the power of collective ownership and planning over the capitalist production system and the law of value (as expressed in the other BRICS), even with the distortions of the ‘Communist’ rule.
Disagreement with the chapter on imperialism
That’s a long response on this issue. So let’s move onto other criticisms of the book. Several speakers attacked the chapter on imperialism; first, because the book rejected the theory that the main cause of surplus value transfer from the peripheral counties to the imperialist bloc was through ‘super-exploitation’ ie where wages levels in poor countries are forced below even the basic needs of people ie below the value of the labour power. Our research on the economics of modern imperialism does not rule out super-exploitation, but we reckon value transfer takes place mainly because of the technological superiority of the imperialist companies over the periphery, not because of low wages. Through the process of what Marx called ‘unequal exchange’ in trade, the imperialist countries can gain extra surplus value from the periphery. So imperialist exploitation is not because wages are forced lower in the poor countries.
Our methods showing this process came under severe criticism on the grounds that using GDP and official money-based stats was full of holes, as it was not based on Marxist labour value measures ie labour hours. In our book, we argue that the official stats, although only approximate, can still show the general trends in profitability and labour value transfers. We can confirm this from those studies that are based on labour input-output tables. They show similar trends as our more dynamic study. Moreover, all show that the imperialist bloc extracts significant surplus value through trade from China and Russia – and in that sense, they are not imperialist countries.
Our book argues that the underlying cause of crises comes from Marx’s law on the movement of profits, not from underconsumption, disproportion or financial instability – or some eclectic mix of all these alternatives. But our calculations showing the profitability of capital falling over time have been challenged at regular intervals. One of the latest challenges comes from Bill Jefferies at SOAS who published a paper last year arguing that using the official stats from the BEA for US profitability was bogus because the BEA like other official sources makes up its capital stock figures from false neoclassical assumptions, not from reality. At the session, BJ made these points, reckoning that if other proper measures are used, then the US rate of profit has been rising not falling. I think we can refute BJ’s assertions (and here I attach an unpublished response to BJ’s arguments).
How to establish a galling rate of profit
BJ is just one challenger to the data on the US rate of profit. Recently, Jacobin editor Seth Ackerman delivered what he considers a decisive death blow to the law of the falling rate of profit with his adjustment of the US data. Again, I think I have answered this attempt in my recent reply in the Spectre journal.
Let me just add a recent study by Sergio Camera of the University of Mexico. He found “a prolonged stagnation” of the US rate of profit in the 21st century. The general rate of profit was 19.3% in the ‘golden age’ of US supremacy in the 1950s and 1960s; but then fell to an average 15.4% in the 1970s; the neoliberal recovery (coinciding with a new globalisation wave), pushed that rate back up to 16.2% in the 1990s. But in the two decades of this century the average rate dropped to just 14.3% – an historic low.
Two other papers on profitability
Phew! That’s my session over. What was going on elsewhere? Well, interestingly there were two other papers on profitability presented that tend to confirm Marx’s law of the rate of profit. In an excellent paper, Geoff McCormack from New Brunswick, analysed the changes in Canada’s economy since the 1990s. His result showed clearly a general decline in profitability and when the mass of profit also fell, Canada had a slump. Unfortunately, I cannot insert here McCormack’s explicitly revealing graphs.
In another session, Tomas Rotta from Goldsmiths, London and Rishabh Kumar from the University of Massachusetts presented a paper entitled, Was Marx right?. In the paper, they use labour input-output tables (no neoclassical stats or GDP here!) and found that Marx’s law was confirmed for at least the 21st century in the US and in the other major economies. Here are their conclusions: “If there is a tendency for the OCC (organic composition of capital) to rise over time then there should also be a tendency for the rate of exploitation to rise, otherwise the average profit rate will tend to decrease. Evidence at the global level from 2000 to 2014: OCC and the exploitation rate rise over time, but the average profit rate falls. The 2007-2008 crisis had a major negative impact: profits OCC, exploitation rate, and profit rate all fall with the level of development.”
Technology ‘monopolies’ and AI
The big issue of 21st century capitalism apart from global warming is the advent of AI and ‘generalised intelligence’, as expressed through language learning machines (LLMs) like ChatGPT and Bard. There was an excellent session on the tech ‘monopolies’ and how they would prosper over the next few decades. In his presentation, Harry Halpin from the American University of Beirut (and a top ‘techi’, I am told), quickly dismissed the nonsense promoted by the likes of Yanis Varoufakis that ‘ordinary capitalism’ is dead and been taken over by ‘feudal monopolies’ like the ‘famous seven’ media and tech monsters.
Halpin reckoned that the tech companies faced the same contradictions of other capitalist companies – over time, their profitability would fall and push them into crisis. Their bloated stock prices bore little relation to their underlying profitability and would prove to be so much fiction. As AI reduced marginal costs of production towards zero, it would lead to high average costs in infrastructure and facilities that had to be paid for by ever great profits. That wasn’t going to be found in the sectors each tech was in and so they would be forced to compete with each other and look for ‘unproductive’ but lucrative business such as military and corporate surveillance where government funding would be available.
In the same session. Jonas Valente from the University of Oxford) reckoned that digital platforms owned and controlled by companies in the global north outsourced the work of ‘intellectual’ (mental labour) to workers in the global south at low pay rates and so were able to profit. This “platform-mediated work” encompassed millions of workers from hundreds of countries in charge of crucial tasks in the development cycle.
There was a session on a new book by Matteo Pasquinelli called In the eye of the master, which I think argued that, whereas in the past, labour was supervised and controlled by the owners and their agents (the masters), now supervision will be increasingly automated. So instead of AI and automation being used collectively by us all, machines will rule our lives for the benefit of the master.
Other sessions on financialisation, state capitalism and super-exploitation
Another session on a new book, entitled, The rise and fall of American Finance by Stephen Maher and Scott Aquanno, was much easier to understand – and disagree with. There were many well-known panellists in this session to discuss the book. The authors argue that the ‘financialisation’ of capitalism since the 1980s has not weakened the mode of production but changed and strengthened its ability to exploit with the support of “an increasingly authoritarian state.” The authors claimed that they were arguing differently from “strict financialist theorists” by not claiming “a qualitatively new phase of capitalist development is emerging” but just the same interlocking of finance, industry and the state that has always existed in capitalism.
If so, I am not sure what new thoughts the book is offering. The author’s policy conclusions were also vague; namely that “reducing economic inequality and bringing investment in “Good Jobs” back to the United States requires challenging the competitive logic of global financial integration with state-imposed barriers on the movement of investment worldwide.” Or to be clearer: “establishing a greater public role in determining the allocation of investment”. That seems somewhat feebly short of taking over the banks and financial institutions and the strategic sectors of industry like the ‘feudal tech monopolies’.
I have left out a lot of other interesting sessions: on ecological unequal exchange between the imperialist bloc and the periphery ie. the extraction and transfer of natural resources. And then there were sessions on ‘state capitalism’ and super-exploitation (see above). And then there was the announcement of this year’s Isaac Deutscher book of the year prize. It went to Heide Gerstenberger with her book, Market and violence: to summarise: Gerstenberger does not contest the thesis that there has been, in many places, a decline in the use of violence in the pursuit of profit; but this has been achieved only by a “combination of energetic social contestation and political intervention” by labour, not by the kindness of capital.
Revisiting Marx’s ideas on the law of value
But let me finish this long post with the exhumation of some Marxist theoretical dead bodies. At several sessions, yet again the question of what Marx precisely meant by his value theory was debated. It ain’t easy to summarise what was at issue here. But the basic argument (which has been going on for decades) is between those who reckon Marx said that value is created in production by human labour before the commodities produced are sold in the market; and those who say that Marx reckoned value was only created when it was turned into money on the sale of the commodity in the market. This, in my view, is the basic division, but of course, skilled academics can spin sophistry to make it not so simple and stark.
Let me try to explain. At HM, long standing American Marxist economist, Fred Moseley presented a new book entitled Marx’s theory value in Chapter one of capital: a critique of Micheal Heinrich’s value form interpretation. That’s a mouthful, but Fred and Michael Henrich debated what was at stake in a well-attended session.
Fred argues that, in his interpretation, Marx saw the commodity as the most elementary form of capitalist production. And the commodity has a dual character in production. There is the use value of the things and services people need and produced by human labour; and then there is value, measured in labour time incorporated in the commodity sold on the market. The commodity needs to have a use for the buyer, but under capitalism, it also must have value to be realised by the seller. It’s an old saying: General Motors is not in business to make vehicles, but to make money. Vehicles have a use value for buyers, so GM makes them, but only if money (profit) is realized in selling. So the commodity, the form that products take under capitalism, has this dual character.
Does a commodity only have value when it is sold?
Moseley argues that this dual character exists before any commodity is sold. In contrast, the renowned scholar of Marx’s writings and biographer, Michael Heinrich, who is the main modern proponent of a ‘monetary theory of the commodity’, reckons that Marx did not mean this. The commodity is just one among many commodities and can only possess value once it has been exchanged for other commodities or for the universal commodity, money, on the market. Before that, a product has no value. Heinrich claims that only his interpretation can unite production and circulation and thus create value. Moseley argues that exchange on its own cannot create value; that requires the exertion of human labour in production before exchange.
I struggled with all this counting of how many angels were on the head of the commodity pin. Marx put it this way: “As the commodity is immediate unity of use value and exchange-value, so the process of production, which is the process of the production of a commodity, is the immediate unity of process of labour and process of valorisation.” So it’s the process of production, the exertion of human labour that creates value. As Marx once put it: “Every child knows that any nation that stopped working, not for a year, but let us say, just for a few weeks, would perish. And every child knows, too, that the amounts of products corresponding to the differing amounts of needs demand differing and quantitatively determined amounts of society’s aggregate labour.”
The value-form approach of Heinrich is implicitly a simultaneist approach. Its characteristic feature is the belief that value comes into existence only at the moment of realization on the market. Consequently, production and realisation are collapsed into each other and time is wiped out. But the process of production and circulation (exchange) is not simultaneous, but temporal. At the start of production there are inputs of raw materials and fixed assets from a previous production period. So there is value in the commodity already before exchange. Then production takes place to make a new commodity using human labour. This creates ‘potential’ value, which is realised later (in a modified quantity) when sold.
The fundamental contradiction in capitalism
But why does all this matter? Let’s jump off the end of the commodity pin and stop counting the angels there and consider the point of this debate. For me, it’s about showing the fundamental contradiction in capitalism between production for social need (use-value) and production for profit (exchange value). Units of production (or commodities under capitalism) have that dual character which epitomises the contradiction.
For Marx, money is a representative of value, not value itself. If we think that value is only created when selling the commodity for money and not before, then the labour theory of value is devalued into a monetary theory. Then, as mainstream neoclassical economics argues, we don’t need a labour theory of value at all because the money price will do. Money prices are what mainstream economics looks at, ignoring or dismissing value by human labour power – and therefore the exploitation of labour by capital. It removes the basic contradiction of capitalist production (which by the way, our book tries to develop).
And also it leads to a failure to understand the causes of crises in capitalist production. It is no accident that Heinrich dismisses Marx law of profitability as illogical, ‘indeterminate’ and irrelevant to explaining crises and instead looks on excessive credit and financial instability as causes. Heinrich even claims that Marx dropped his law of profitability – although the evidence for that is non-existent. If profits (surplus value) from human labour disappear from any analysis to be replaced by money, then we no longer have a Marxist theory of crisis or any theory of crisis at all.
From the blog of Michael Roberts. The original, with all charts and hyperlinks, can be found here.
