Re-claiming Capital
Reclaiming Marx’s Capital:
In his book, “RECLAIMING MARX'S CAPITAL(2007), Andrew Kliman’s concluding section highlights the problem of CAPITAL at the beginning of the 21st century. He points to the poor level of Marxian scholarship, the lack of institutional resources for someone to carry on working within Marx’s Critique of Political Economy, particularly at University and the need to have to continue to refute Marx’s alleged inconsistencies when none exist. In part this is due to a low level of Socialist consciousness. Marx remarked in the GERMAN IDEOLOGY that dominant ideas are the ideas of the ruling class. This includes economics and the teaching for what passes for economics.
The main attack against Marx for inconsistency came from the Professor Paul Samuelson (Understanding the Marxian Notion of Exploitation: A summary of the so-called “transformation problem” between Marxian Values and competitive prices JOURNAL OF ECONOMIC LITERATURE 9:2, 399-431 1971) who at the time was the leading economist in the US. He tried to demonstrate that mainstream economic theory had culminated with his own economics not those of Marx and that if Marx had written an economic paper on value in the 1970’s it would not have been published in any of the respected economic journals. He went on to state that to set out a rigorous theory, Marxists would have to “adopt the tools of bourgeois economics” p.405).
Kliman points out, correctly, that Samuelson makes a strategic error in his paper. Marx in his transformation of values into prices of production in the third volume of CAPITAL; “did not pose the problems in terms of the properties of static equilibrium states, and he therefore had no need to value inputs and outputs simultaneously” (P. 11). Kliman goes on to say that “this difference has been repeatedly ignored” (p.11).
Kliman also accuses Samuelson of being “dishonest” for ignoring the problems which interested Marx and replacing them with ones of his own. Instead of providing a better theory to Marx within the same set of problems, Samuelson ignores or distorts the problems Marx set out to answer “creating inconsistencies where there is none” (p.10). Furthermore by turning Marx into a “flawed precursor” to Samuelson and his economics he effectively eliminates the distinctive character of Marx’s own thought.
Professor Kliman points out that there is no inconsistency in CAPITAL. The problem lies with those economists who believe there is an inconsistency. He starts with the heavily mathematical paper “Value and price in the Marxian System” by the Polish-Russian economist L von Bortkiewicz published in 1907 and then shows that each economist following Bortkiewicz including the leading Keynesian economist Paul Samuelson and a host of economists claiming to be “Marxists” made similar errors.
The fact that these so-called Marxists made similar errors to Bortkiewicz with impunity was largely due to the sophisticated mathematical equations in which they dressed their attack on Marx making it difficult to follow the argument unless the reader was trained in mathematics or at least understood the linear algebra taught to economic students.
The Blind Leading The Blind
And the charge made against Marx that his work was inconsistent was uncritically reproduced the Left. The Socialist Workers Party’s theoretical leader, Alex Callincos, for example, popularised the belief that Marx had made serious inconsistencies in Capital. The reader is told that there were “valid technical criticisms” against Marx regarding the transformation of values into prices of production. “Marx”, Callincos concludes; “ignored the fact that the value of the commodities represented by variable and constant capital must themselves be converted into prices of production” (THE REVOLUTIONARY IDEAS OF KARL MARX page145-146 1995).
Worse still, was the publication of A GUIDE TO MARX'S CAPITAL (1984) by Anthony Brewer, an economist in the department of Economics at the University of Bristol. After commenting on the chapter 9 in the third volume of CAPITAL, Formation of a general rate of profit (average rate of profit) and transformation of values into prices of production, Dr Brewer gave his readers this gem:
“…Marx’s approach to the transformation problem must be either abandoned or completely reconstructed, which poses serious questions for the whole system of analysis presented in CAPITAL” (p.138).
Brewer then goes on to cite a number of economists from the Keynesian Paul A. Samuelson to the neo- Ricardian Ian Steedham who, he claimed, had shown Marx to be “wrong” in his presentation of values into prices of production, stating in a sneering off the cuff remark:
“Many of the works cited above make substantial use of mathematics and so they should, since the quantitative aspects of values and prices are essentially mathematical. If all else fails, Marx’s approach might be defended on the grounds that it, at least, is comprehensible to non-mathematicians” (p.206)
Brewer makes an appearance in Kliman’s book. In 1995, the academic journal, HISTORY OF POLITICAL ECONOMY, published a symposium on Marx. Anthony Brewer gave the lead paper in which he said:
“…in Marx’s own terms…CAPITAL must be counted as a magnificent failure” citing the alleged logical error in Marx’s value theory and the law of the tendency for the fall in the rate of profit. He went on to say; “If both fail, as they do, not much is left” (A Minor-Post Ricardian?: Marx as an economist” 27:1, 111-45).
Hardly surprising that many of the radical students in of the 1960’s passed from being Stalinists to neo-Ricardians in the 1970’s onto economic liberals after the fall of the Berlin Wall: the same anti-Socialists in different political clothes. Yet these academic charlatans claimed to be “Marxists” working in a discipline called “Marxian economics” which had largely abandoned Marx’s theory of value. Hundreds of students have passed through their lectures or produced doctorates under their supervision perpetuating the myth that Marx was theoretically inconsistent in much of what he wrote in CAPITAL. More damage has been and is being done by those who describe themselves as “socialists” or “Marxists” than from the anti-Marxists at either the Institute of Economic Affairs or the Adam Smith Institute.
NoIinconsistency In Marx’s Capital
Once a trained mathematician with an understanding of Marx’s method gets to grips with the so-called “mathematical proofs” provided by Bortkiewicz and others to “prove” Marx wrong they are all found wanting. Kliman recalls the time when he was a student and his professor discussed the inconsistency criticism levelled at Marx where in the transformation problem in the third volume of CAPITAL, Marx had apparently forgotten to “transform the input prices” (A tiresome academic debate on the so-called transformation problem is set out in REREADING CAPITAL by Fine and Harris ch. 2 pp 21-48 1979).
Kliman was dissatisfied that Marx’s inconsistency had just been taken on trust by academics. Kliman first re-examined the source of the alleged error by Marx in Bortkiewicz’s “proof” and proceeded to provide a refutation of Bortkiewicz’s mathematical proof against Marx and to demonstrate that no inconsistency existed. Other mathematical proofs were likewise spurious because they had all assumed Marx to have made an error when none existed. As he remarked, this incident taught him to think for himself (Preface p. xiv).
What has been established by Kliman? Six points:
• Marx’s account of the value-price transformation in the third volume of CAPITAL has been shown to be logically consistent (p.207)
• Marx’s so-called “metaphysical” value theory has not been shown to be superfluous to Marx’s conclusion that surplus labour is the exclusive source of profit via surplus value (page 208).
• There is no confusion in the tendency of the rate of profit to fall (page 208).
• Bohm Bawerk’s criticism are irrelevant to any discussion of Marx because the methodology adopted by Bohn-Bawerk to attack Marx is defective (page 208).
• The case against Marx by economists like Samuelson is no case to answer at all (page 208)
• Marx held no collapse theory of capitalism (page 31 and page 115)
Kliman concludes:
For a full century, Marx’s critics have alleged that his theories of value, profit, and economic crisis have been proven internally inconsistent. Drawing on a body of research that I and others have conducted since the 1980’s, this book has challenged –and, I believe, disproved-these allegations. In doing so, it has removed the principal justification for the suppression of Marx’s theories in their original form and for various efforts to “correct” CAPITAL, fragment it, truncate it, or subsume it under one or another school of economics. Marx’s critics are entitled to their theories, but Marx is equally entitled to his” (p. 205).
CAPITAL therefore remains a consistent and scientific account of capitalism.
One final point should be made; like the examples for simple and extended production in the second volume of CAPITAL, Marx did not see the transformation of value into prices of production as a major mathematical exercise. The example should not be isolated from the whole analysis of working out capital’s law of motion which was Marx’s intention stated right at the beginning in the Preface to Volume I of CAPITAL
A study of the relationship between social demand and the distribution of social labour and consequently between market-values, prices of production and values shows the whole process of capitalist production to be governed by the latter. The utopian ideal of academic economics-equilibrium- is never realised and it is impossible to say what it is. Capitalism is a continuous movement of contradictions, crisis and change through which the law of value operates.
And Marx’s impressive critique of political economy was admitted by Wasily Leontief, the Harvard Economist and no Marxist, before the Second World War. He paid tribute to Marx’s “brilliant analysis of the long run tendencies of the capitalistic system”.
He went on to say;
“The record is indeed impressive: increasing concentration of wealth, rapid elimination of small and medium-sized enterprises, progressive limitation of competition, incessant technological progress accompanied by an ever-growing importance of fixed capital, and last but no least the undiminishing amplitude of recurrent business cycles –an unsurpassed series of prognostications fulfilled, against which modern economic theory with all its refinements has little to show” ( Proceedings of the 50th Annual Meeting of the American Economic association, 1937, American Economic Review Supplement, March 1938, pp 5-9)
What Is Pseudo-Science?
This leads us on to Imre Lakatos, late professor of Logic and Scientific method at the London School of Economics and his notion of research programmes. He said that a scientific research programme should predict novel facts. He cited, as an example, Halley, working within Newton’s programme, who calculated on the basis of a brief stretch of a comet’s path that it would return in seventy-two year’s time, calculating to the minute when it would be seen again at a well-defined point in the sky. Lakatos claimed Marxism failed to predict “novel facts” and was therefore an example of a “pseudo science” guilty of lagging behind the facts to justify its predictions. (SCIENCE AND PSEUDO SCIENCE p. 96-103 Open University 1978).
Yet facts of physics and chemistry are not the same as social facts. Social facts are not neutral and innocent; they are not objectively given. Instead social facts are an outcome of a complex social and historical development both in society and within Political Economy itself. That said we can challenge Lakatos with reference to economic crises.
If we look at economic crises and depressions whose theory supports the facts rather than lag behind them Marx or academic economists? Take as an example the 1930’s depression. President Calvin Coolidge believed he was presiding over a booming capitalism lasting forever (T. Rennell, 1929, The DAILY MAIL, 18.03.08).
The leading academic economist in the US at the time, Professor Irving Fisher, stated in 1928 that the US economy had solved the problem of the business cycle, and was settled “on a high plateau of endless prosperity” (quoted from D. Dowd, CAPITALISM AND IT'S ECONOMICS: A CRITICAL HISTORY, 2000 p.107). While Marx, on the contrary, stated that “…capitalist production moves through certain periodical cycles. It moves through a state of quiescence, growing animation, prosperity, overtrade, crisis and stagnation” (WAGES PRICE AND PROFIT in SWI, p. 440).
The economic crisis and depression of the 1930’s was a fact anticipated by Marx’s understanding of the cause of economic of crisis at the heart of commodity production and exchange for profit. Academic Economists believed that the depression could not occur because the market was harmonious. Academic economics treated capitalism not only in terms of social harmony, but mechanically in terms of equilibrium as a stable system.
Is this the real world we live in? Does it accord with the facts? When we look at the world through the cold light of day, there can be little doubt that academic economics and its fictional world of the individual with his “natural propensity” to “truck, barter and trade” is something imposed on reality by the particular forms of thought which economists have used, and not vice versa.
Since the economic crisis and depression of the 1930’s some economists, like Schumpeter, were forced by the collision of academic theory and economic reality to turn their attention to the study of fluctuations and of divergences from market equilibrium. Milton Friedman spent a life-time trying to blame the Depression on the 1930’s on the Government and the Federal Reserve Bank. But this “lagging behind the facts” criticized as “pseudo-science” by Professor Lakatos cannot be readily be integrated into an economic theory which sees commodity production and exchange for profit as harmonious and self-adjusting. The market fundamentalists have no answer to the current crisis with Alan Greenspan, former head of the Federal Bank admitting that the market is to blame. Greenspan acknowledged that he had made a "mistake" in believing that the financial markets, operating in their own self-interest, would do what was necessary to protect their shareholders and institutions. Greenspan called that "a flaw in the model ... that defines how the world works." (FOX NEWS 28.10.08). Quite.
The preoccupation of Marx when he wrote CAPITAL over a century ago was to show capitalism to be composed simultaneously of forces oscillating between states of balance and imbalance; any situation where the former predominated tending periodically to pass over into a situation where the latter predominated.
Commodity production and exchange for profit for Marx was essentially movement through oscillation and interaction in which stability and instability represented simply contrasted extremes of time. And this is found right at the beginning of CAPITAL where Marx shows the error of the economist J. B. Say who thought that every seller in the market brings with him a buyer. If the buyer is not forthcoming and the time lag is too great to realise a profit; unsold commodities, bankruptcy and unemployment ensues.
It is hardly surprising that Marx had an account of economic crises which could explain the economic cause of events of 1929-1933 given his deep scientific understanding of capitalism. Academic economists did not have this understanding and only very belatedly, and as an after thought, went on to produce a business cycle theory of crisis.
Did Professor Lakatos or his predecessor at the London School of Pseudo Economics and Political Ideology, Karl Popper, describe academic Economics as a “pseudo science”? No, during the silence of their seminars and lectures on the subject of trade cycles, intellectual tumbleweed blew across the windy open spaces of Houghton Street.
The capitalist class and their “hired gunslingers” might not like the questions Marx asked and the conclusions that followed but that does not invalidate Marx’s science; his method and the presentation of his critique of political economy. Socialists do not have to reclaim Marx’s Capital. We never lost it in the first place.