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Chris Dillow — In defence of conservative Marxism

Summary:
This is a very good post by Chris Dillow.He points out that there are two Marxes, so to speak, one radical and the other conservative. The world is most familiar with Marx the radical revolutionary, who advocated violent revolution to remove the "bourgeoisie" (owners of the means of production) and who further proposed a transition stage of "the dictatorship of the proletariat" as being necessary. But Marx is more than the Communist Manifesto, with which he is most associated.The second Marx is the 19th century evolutionary that assumed progress. He much less known in this role. This second Marx is well-characterized by his statement his "guiding principle" in A Contribution to the Critique of Political Economy: The general conclusion at which I arrived and which, once reached, became the

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This is a very good post by Chris Dillow.

He points out that there are two Marxes, so to speak, one radical and the other conservative. The world is most familiar with Marx the radical revolutionary, who advocated violent revolution to remove the "bourgeoisie" (owners of the means of production) and who further proposed a transition stage of "the dictatorship of the proletariat" as being necessary. But Marx is more than the Communist Manifesto, with which he is most associated.

The second Marx is the 19th century evolutionary that assumed progress. He much less known in this role. This second Marx is well-characterized by his statement his "guiding principle" in A Contribution to the Critique of Political Economy:

The general conclusion at which I arrived and which, once reached, became the guiding principle of my studies can be summarised as follows.
In the social production of their existence, men inevitably enter into definite relations, which are independent of their will, namely relations of production appropriate to a given stage in the development of their material forces of production. The totality of these relations of production constitutes the economic structure of society, the real foundation, on which arises a legal and political superstructure and to which correspond definite forms of social consciousness. The mode of production of material life conditions the general process of social, political and intellectual life. It is not the consciousness of men that determines their existence, but their social existence that determines their consciousness. At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production or – this merely expresses the same thing in legal terms – with the property relations within the framework of which they have operated hitherto. From forms of development of the productive forces these relations turn into their fetters. Then begins an era of social revolution. The changes in the economic foundation lead sooner or later to the transformation of the whole immense superstructure.
In studying such transformations it is always necessary to distinguish between the material transformation of the economic conditions of production, which can be determined with the precision of natural science, and the legal, political, religious, artistic or philosophic – in short, ideological forms in which men become conscious of this conflict and fight it out. Just as one does not judge an individual by what he thinks about himself, so one cannot judge such a period of transformation by its consciousness, but, on the contrary, this consciousness must be explained from the contradictions of material life, from the conflict existing between the social forces of production and the relations of production. No social order is ever destroyed before all the productive forces for which it is sufficient have been developed, and new superior relations of production never replace older ones before the material conditions for their existence have matured within the framework of the old society.
Mankind thus inevitably sets itself only such tasks as it is able to solve, since closer examination will always show that the problem itself arises only when the material conditions for its solution are already present or at least in the course of formation. In broad outline, the Asiatic, ancient,[A] feudal and modern bourgeois modes of production may be designated as epochs marking progress in the economic development of society. The bourgeois mode of production is the last antagonistic form of the social process of production – antagonistic not in the sense of individual antagonism but of an antagonism that emanates from the individuals' social conditions of existence – but the productive forces developing within bourgeois society create also the material conditions for a solution of this antagonism. The prehistory of human society accordingly closes with this social formation.
Such a transformation occurring as a shift in the material mode of production gets reflected in the social relations of a society. This may result in opposing forces coming into conflict, perhaps even violent conflict, as history shows. But it is not this social conflict itself that lies at the bottom of the transformation but rather the changing material conditions of production that call forth a corresponding transition in social relations.

This happened in the transition from the age of hunting and gathering to the agricultural age, which initially witness the conflict between nomadic tribes sustaining themselves pastorally and the development of agriculture, specifically grain cultivation and storage. One outcome of this was the introduction of slavery.

Painting with a broad brush, the agriculture age, which was characterized socially and politically by feudalism, then gave way to the industrial and and the replacement of monarch, aristocrats and war lords with "capitalist" as the captains of industry and private owners of the means of production. They were able to capture government through the political power that great wealth bestow.

The final transition to the Industrial Age dominated by private owners of the means of production, at  least in the West as the dominant region at the time, can be viewed as taking place as a result of the First World War when aristocracies and the remnants of the feudal age were replaced en masses by "representative democracies" under bourgeois liberalism. The American and French Revolutions were harbingers of this transition, which is still taking place globally.

The question is how close capitalism is to cresting as the dominant mode of production and what the next wave rising will turn out to look like. There is also the question of how this next transition will take place socially and politically as well as economically.

Since human society is a complex adaptive system, hence affected by reflexivity, emergence, and synergy, it is impossible to foresee this with any great degree of clarity in advance of its unfolding. Is this now in the process of unfolding, or does capitalism have a way to go before exhausting its potential? One thing seems clear from the past several years — that the capitalism and liberal democracy are not "the end of history," as some thought prematurely.

Another outcome seems clear also. Marx needs to be rehabilitated as a thinker, and there is evidence that is now taking place. This need not mean that "we are all Marxists now," as Nixon famously declared, prematurely, about Keynes. What it does imply that a lot more attention needs to be devoted to the thought of both Marx and Keynes, as well as to their followers who developed these lines of thought. Of course, there are other great thinkers to return to as well, such as Thorstein Veblen as the founder, so to speak of Institutionalism, Michal Kalecki, and Karl Polanyi, all of whom were in part "responding" to Marx from some angle.

There is also a lot to return to in Adam Smith, who was not the poster child of laissez-faire economic liberalism, as many make him out to be. Smith was well aware of the fault lines and pointed many of them out in his work.

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. — The Wealth of Nations 1.10.82
“What are the common wages of labour, depends everywhere upon the contract usually made between those two parties, whose interests are by no means the same. The workmen desire to get as much, the masters to give as little as possible. The former are disposed to combine in order to raise, the latter in order to lower the wages of labour.
It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily; and the law, besides, authorizes, or at least does not prohibit their combinations, while it prohibits those of the workmen. We have no acts of parliament against combining to lower the price of work; but many against combining to raise it. In all such disputes the masters can hold out much longer. A landlord, a farmer, a master manufacturer, a merchant, though they did not employ a single workman, could generally live a year or two upon the stocks which they have already acquired. Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment. In the long run the workman may be as necessary to his master as his master is to him; but the necessity is not so immediate.” — An Inquiry into the Nature and Causes of the Wealth of Nations, Book 1, Chapter 8 “Of the Wages of Labour“)
This is the basis of rent extraction in capitalism. It lays the foundation on which Marx built. See, for instance, Karl Marx, Capital, Volume II, Part I: The Metamorphoses of Capital and their Circuits, Chapter 1: The Circuit of Money Capital.
The circular movement [1] of capital takes place in three stages, which, according to the presentation in Volume I, form the following series:
First stage: The capitalist appears as a buyer on the commodity- and the labour-market; his money is transformed into commodities, or it goes through the circulation act M — C.
Second Stage: Productive consumption of the purchased commodities by the capitalist. He acts as a capitalist producer of commodities; his capital passes through the process of production. The result is a commodity of more value than that of the elements entering into its production.
Third Stage: The capitalist returns to the market as a seller; his commodities are turned into money; or they pass through the circulation act C — M.
Hence the formula for the circuit of money-capital is: M — C ... P ... C' — M', the dots indicating that the process of circulation is interrupted, and C' and M' designating C and M increased by surplus-value....
 According to Marx's analysis economic rent is extracted from labor through "surplus value" generated by workers. While capitalists invest money to make more money, that "more" (profit) comes from rent extraction in the form of surplus value as unpaid work consequent on market power in the labor market, where labor power is a commodity like other commodities that capitalists use in production. However, it is unlike other commodities in that labor power is used in the production of commodities and capital goods that produce commodities. In this analysis, unpaid work is unearned gain, that is, economic rent. Marginalism, the dominant economic theory, can be viewed as the attempt to cover this up in terms of marginal productivity and just deserts. From Marx's point of view,  capitalist expropriation of surplus value is exploitation of workers' servile position (see here and here).

Thus historically the primitive age of tribalism gave way to agriculture, which generated slavery and serfdom, with the residual population engaging in servitude, and the dominance of agriculture gave way to the dominance of industrial and finance capital, which was dependent on wage-labor and extraction of economic rent as surplus value. While there is a progression from slavery, to serfdom, to servitude, to wage-labor, workers still are now free. As a 19th century evolutionary that assumed progress and also a radical liberal that assumed progressive attainment of freedom, Marx could logically say, "Proletarians (propertyless workers), unite!"

In the Concluding Remarks to the General Theory, Chapter 24, Keynes also foresaw the transition stage from capitalism "as we know it," to a stage without rent extraction, but for different reasons than Marx did.

I feel sure that the demand for capital is strictly limited in the sense that it would not be difficult to increase the stock of capital up to a point where its marginal efficiency had fallen to a very low figure. This would not mean that the use of capital instruments would cost almost nothing, but only that the return from them would have to cover little more than their exhaustion by wastage and obsolescence together with some margin to cover risk and the exercise of skill and judgment. In short, the aggregate return from durable goods in the course of their life would, as in the case of short-lived goods, just cover their labour costs of production plus an allowance for risk and the costs of skill and supervision.
Now, though this state of affairs would be quite compatible with some measure of individualism, yet it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital. Interest today rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital.
An intrinsic reason for such scarcity, in the sense of a genuine sacrifice which could only be called forth by the offer of a reward in the shape of interest, would not exist, in the long run, except in the event of the individual propensity to consume proving to be of such a character that net saving in conditions of full employment comes to an end before capital has become sufficiently abundant. But even so, it will still be possible for communal saving through the agency of the State to be maintained at a level which will allow the growth of capital up to the point where it ceases to be scarce.
I see, therefore, the rentier aspect of capitalism as a transitional phase which will disappear when it has done its work. And with the disappearance of its rentier aspect much else in it besides will suffer a sea-change. It will be, moreover, a great advantage of the order of events which I am advocating, that the euthanasia of the rentier, of the functionless investor, will be nothing sudden, merely a gradual but prolonged continuance of what we have seen recently in Great Britain, and will need no revolution.
Thus we might aim in practice (there being nothing in this which is unattainable) at an increase in the volume of capital until it ceases to be scarce, so that the functionless investor will no longer receive a bonus; and at a scheme of direct taxation which allows the intelligence and determination and executive skill of the financier, the entrepreneur et hoc genus omne (who are certainly so fond of their craft that their labour could be obtained much cheaper than at present), to be harnessed to the service of the community on reasonable terms of reward.
Stumbling and Mumbling
In defence of conservative Marxism
Chris Dillow | Investors Chronicle
Mike Norman
Mike Norman is an economist and veteran trader whose career has spanned over 30 years on Wall Street. He is a former member and trader on the CME, NYMEX, COMEX and NYFE and he managed money for one of the largest hedge funds and ran a prop trading desk for Credit Suisse.

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