Marxist Economic Thought between Orthodoxy and Revision

11.3.1. Marxist thought before 1968

In this section we will present a group of economists who made some interesting contributions to the development of Marxist theory in the second post-war period.

The first of these is Paul Alexander Baran. He was a Russian, and the son of a Menshevik militant. At a young age he absorbed the atmosphere of the fervent Soviet debates of the 1920s. He emigrated in 1928 and, after various academic misadventures in Germany and England, ended up in the United States in 1939. There he managed to obtain a safe academic position only in 1951, at Stanford University. His main work is The Political Economy of Growth (1957), in which he put forward the famous theory of the ‘potential surplus’. While the ‘effective surplus’ produced in an economy is measured by the difference between current production and current consumption, the potential surplus is defined as the difference between the production made possible by the existing technology and the productive consumption neces­sary to obtain that level of production. Obviously, it is a notional quantity; it serves, however, to show the actual distortions of capitalist economies. In fact, in this type of economy the potential surplus is always greater than the actual surplus because of the allocation inefficiencies generated by the market and the profit system.

We shall return to the concept of surplus when we consider the book written by Baran in collaboration with Sweezy. Here we shall comment on Baran’s analysis of imperialism—an analysis which, distancing itself from the unrefined Marxist-Leninist work of those times, moved Marxist thought in the direction of the theory of unequal exchange as a basic mechanism in the production and reproduction of imperialism and underdevelopment. Baran’s book was also politically important: his argument that national liberation movements would contribute to liberating, not only under­developed countries from imperialism, but also the imperialist countries from capitalism, gave a theoretical foundation to a great many of the anti­imperialist movements of the 1960s.

Baran’s arguments were developed in the book Monopoly Capital (1966), written in collaboration with Sweezy. We have already spoken about Paul Malor Sweezy in chapter 8, where we mentioned his summary of Marxist economic theory, The Theory of Capitalist Development, a book on which generations of radical intellectuals have been educated. Two of Sweezy’s original lines of thought had already been sketched out in that book, and deal with his personal interpretation of two Marxian laws of movement: on the one hand the theory of the ‘realization crises’, which he reformulated by drawing on stagnationist theories of Keynesian origin and reworking them into an original under-consumption theory of depression; on the other, the law stating the tendency towards increasing ‘concentration’ and ‘cen­tralization’ of capital, which was enriched by the experience he gained by participating in 1930s debates on the forms of non-competitive markets. Sweezy, let us recall, made an original contribution to these debates, ‘Demand under Conditions of Oligopoly’ (1939), where he presented the theory of the kinked demand curve.

In Monopoly Capital these diverse research interests were integrated with Baran’s theory of economic surplus, and produced the thesis of the tendency of the potential surplus to grow—a thesis which was to replace, according to the authors, the Marxian law of the falling profit rate as a fundamental explanation of the march of capitalism towards self-destruction. Capitalist accumulation causes, besides an increasing concentration of capital, a con­stant increase in production and productivity. Given the unequal distribu­tion of income, a permanent feature of capitalist economies, accumulation also creates the fundamental problem of the ‘absorption of the surplus’ and a permanent lack of investment opportunities. The ensuing tendency towards stagnation could be counterbalanced by certain countervailing influences, sales expenditure, public spending, military expenditure, etc.

Another major Marxist economist of this period was Maurice Herbert Dobb, whose important Political Economy of Capitalism (1937) we have already mentioned. In 1946 he published Studies in the Development of Capitalism, a book which nourished the minds of entire generations of economic historians and gave birth to intense debates among historians and Marxist economists. One of the main arguments of the debates concerned the problem of whether the decline of feudalism had been caused by internal contradictions, as Dobb had argued, or had been caused by ‘external’ factors, such as the development of commerce and the relationships between town and the countryside, as was argued by Sweezy and others. The importance of this debate was not limited to the field of economic history, but also touched upon a central problem of Marxist economic theory, that of ‘primitive accumulation’.

One of the main interests of Dobb, after the Second World War, was the economic theory of socialism, to which he contributed with various works, both theoretical and applied. Dobb was a critic of the theory of ‘market socialism’ of the Lange-Lerner type, and pointed out its essentially static and therefore unrealistic nature. Against it, he argued that, given the burdensome inheritance of productive backwardness and of inequality in the distribution of income and resources, an economy in the phase of transition to socialism must put the problems of equity and growth before that of the efficient allocation of resources.

These three heretical academics, Baran, Sweezy, and Dobb, were in fact fairly orthodox if their work is considered from the point of view of the Marxist doctrine of the period. Their orthodoxy is demonstrated mainly in their choice of the ‘level of analysis’ on which to focus their theoretical efforts, which was the ‘intermediate’ level of the analysis of economic evolution; the higher level of the ‘fundamental principles’ of Marxism was not even touched.

11.3.2. Marxist heresies

It is worth pausing for a moment to consider this problem, because it constituted one of the main watersheds between traditional and modern Marxism. In the 1920s and 1930s the theory whereby the soviet system was none other than a form of ‘State capitalism’ was put forward by anarchists and left-wing Marxists, but more as a political slogan than an analytical concept. In the 1940s, various heterodox Marxists, such as Raya Dunayevskaya, Amadeo Bordiga, and Tony Cliff, to name but three, began to elaborate the theory in scientific terms.

Dunayevskaya began by working with Trotsky, having been his secretary in 1937-8, but later changed tack to develop a radical critique of the soviet model as a capitalist system and Stalinism as a counter-revolution.

Also Bordiga formulated an original theory of the Stalinist Soviet system which cut through all the contorted arguments about ‘difficult transition’, ‘degenerated workers’ State’, and ‘bureaucratic collectivism’: the system established in the Soviet Union was simply a new form of capitalism. This argument was put forward in various papers beginning at least as early as 1946, and, in complete form, in the book Struttura economica e sociale della Russia d' oggi (1957). It is interesting to observe that Bordiga had foreseen that sooner or later the soviet system would abandon state capitalism to return to a market system: ‘this is a constant between yesterday, today and tomorrow, between capitalism organized by the Tsar, conducted by the soviet state and tomorrow rendered photographically identical to western capitalism’ (p. 668). Tony Cliff moved along a similar line of thought with a book published in 1948 and subsequently re-elaborated on various occasions. The most recent edition dated 1974 is entitled: State Capitalism in Russia.

The State capitalism thesis remained a minority opinion until the 1960s. But eventually history rendered it justice. Charles Bettelheim, a scholar of Maoist orientation, tackled the problems of the ‘transition’ by interpreting the economic and social transformations generated by the Soviet economic development as typical of a capitalist process. During the 1980s this point of view has become dominant, so much so that even Sweezy has moved over to this position.

Another contemporary Marxist heretic merits mention: Ernest Mandel, of Trotskyist orientation, who, after a systematic but rather traditional Traite d’ economie marxiste (1962), produced two quite original books: Late Capitalism (1975) and Long Waves of Capitalist Development (1980). Even though dealing with the ‘intermediate’ level of analysis, and not touching on ‘fundamental’ principles such as the falling profit rate, these books have helped to lead debates on the future of capitalism away from the simpli­fications of the theories of collapse and stagnation; besides this, they have brought the attention of the economists back to the problem of long waves.

Finally, we must mention one of the few Marxist economists of the period who has had the courage to enter the citadel of fundamental principles and clear out some commonplaces of Marxist orthodoxy. Nobuo Okishio, by developing some arguments already put forward by Shibata in the 1930s, has proved, among other things, that the law of the falling rate of profit is not a law at all, but only a particular theory depending on certain restrictive and unrealistic hypotheses about the nature of technical progress.

1968 was a crucial year for the evolution of Marxist thought. A populous generation of young people, unscathed by ideologies and parties, suddenly approached politics. All over the world they revolted against authoritar­ianism, oppression, and exploitation; and, even though they sought their principal cultural references in the traditional and modern classics of Marxist thought, they did not hesitate to bring their iconoclastic fervour to bear on the ‘establishment’ of official socialist doctrine. Creative energies were liberated and bitter theoretical debates flared up again in the years which followed; and none of the sacred truths was spared.

Here we have no room to deal with all that is original in this theoretical magma. Therefore, to say at least something about the lines of research which seem to be the most important and promising, we have been forced to make extensive use of our scissors. So we will ignore, with very few excep­tions, the work which Uno would have classified at the ‘second level’, even though there are interesting and original lines of research here.

The few exceptions consist of some important works which introduced innovations to traditional Marxist analysis on certain relevant theoretical questions. The Fiscal Crisis of the State (1973), by James O’Connor, broke away from the Marxist-Leninist simplifications about the State as a ‘business committee of the bourgeoisie’, and studied the role played by the modern capitalist state in the process of capital accumulation and, at the same time, the effects of class conflict on the transformations of the State itself. Harry Braverman in Labour and Monopoly Capital (1974), dealt with the problem of the effects of mechanization and managerial control of companies over the transformation of the labour process and class composition in modern capitalism. In The Modern World System (1974-80), Immanuel Wallerstein developed the Marxian analysis of ‘primitive accu­mulation’, putting forward the idea of a capitalism which can live—and, right from the outset, did live—only as a ‘world economy’, i.e. as an integ­rated system of international division of labour.

11.3.3. Toward a theory of value with the feet on the ground

On the subject of value, the debate was reopened in 1960 by Sraffa’s book, which smouldered under the ashes for a decade and burst noisily into flames in the 1970s. Today, it seems generally accepted that the dialectic splendour of the labour theory of value must be renounced. Basically, four reasons are given for this.

The first, and most important, is that this theory, the last residue of ‘Ricardian naturalism’ in Marx, conflicts with the truly Marxian theory, which considers value to be a ‘social phenomenon’. We have already men­tioned this in the section dedicated to Sraffa, and will not return to it here. We will limit ourselves to pointing out that Value and Naturalism in Marx (1979) by M. Lippi is the work which has most clearly tackled this aspect of the problem.

The second reason concerns the transformation problem. We have already spoken about this in the chapter devoted to Marx. Here we will restrict ourselves to reaffirming the main points. However modest the analytical claims which can be advanced in regard to the transformation procedures, it is impossible to avoid admitting that the following propositions are in general not valid:

(1) It is necessary to know the labour values in order to determine the production prices;

(2) Given the wage, it is possible to determine the profit rate before knowing the prices;

(3) In the transformation from values into prices, all the aggregate variables remain unchanged;

(4) In particular, the rate of profit and the rate of exploitation remain unchanged.

Marx was unaware of these difficulties. But today they are known to all, and it is almost universally accepted that, faced with these difficulties, it is impossible to remain faithful to the labour theory of value, even if there are still some people content to keep it as an ‘auxiliary’ theory, and others still searching for the right solution to the transformation problem.

Unfortunately, however, it is not possible to be satisfied with an auxiliary theory. In fact, there is a third reason which impels us towards the aban­donment of that theory. In general, when one does not wish to be limited to the cases of single production with only circulating capital, the variables expressed in terms of embodied labour are not necessarily economically meaningful. This is the well-known phenomenon, also brought to light by Sraffa, that, in the presence of joint production and economically significant price systems, there can be negative labour values—even negative rates of exploitation in the presence of a positive profit rate.

But the most important acquisition of recent research is that of having understood that the theory of labour value contradicts the theory of exploitation. In fact, since the rate of exploitation is not an invariant in the transformation from values to prices (see section 4.3.4), the profit-wage ratio may be higher than the rate of surplus labour. This could be interpreted as a case in which at least a part of the profits has not been ‘created’ by labour— for Marx an unacceptable thesis. Contemporary Marxists have thus realized that they must choose: either the theory of labour value or that of exploitation must be thrown to the wind.

The widespread opinion today is that the theory of exploitation is inde­pendent of the labour theory of value. Thus efforts have been made to show how it is possible to account for exploitation without using the notion of ‘embodied labour’. Here we will mention five authors who made interesting attempts, although research is still continuing: John Eatwell, Ian Steedman, John E. Roemer, Samuel Bowles and Herbert Gintis.

As regards value, almost all Marxists have come to accept Sraffa’s theory of production prices. And those who prefer to continue using Marx’s terminology have discovered they can do it thanks to an accounting expedient as shrewd as it is simple: it is merely a question of normalizing prices with a numeraire, m = py/L, called ‘monetary measure of labour’. p is a vector of monetary prices, y a vector of net outputs and L the level of employment. So m is none other than the average productivity of labour in monetary terms. If a net product is measured with this numeraire, it will be equal to the level of employment, py/m = L. Thus, the value of the net product has been reduced to a quantity of living labour. The same operation can be carried out with profits and wages, so that we can continue talking of ‘surplus labour’ and ‘necessary labour’. The language is the same as that used by Marx, although obviously his concepts have been reinterpreted. The ‘labour values’ obtained by this normalization remain production prices.