Month: December 2013

I have posted the PowerPoint for our seminar on Jake Lowinger’s Thesis on the Marx in America blogsite. I have also posted the readings for our next seminar, some time in February: G Becker’s Competition and Democracy (1958) and his Irrational Behavior and Economic Theory (1962). I am also working on reducing the high resolution, high fidelity MP4 of the seminar from 3.8GB to manageable segments that can be posted on the blogsite.

In February we will move from the 1990s back to the 1950s, when the prevailing economic wisdom was neo-Keynesian and the prevailing explanation for the twentieth century’s officially sanctioned mass die-offs rested on some version of modernization theory. Which is to say, the prevailing view was that we needed to continue to do what we had been doing, but to do it better.

As a foretaste of what was on the horizon, however, beginning in the 1950s the University of Chicago began a hiring spree from among German and Austrian exiles. Leo Strauss joined the faculty in 1949. Friedrich von Hayek joined the faculty in 1950. And Hannah Arendt joined in 1963. There were others, lesser known lights, who followed them. These scholars had been deeply involved in the methodological conflicts at European universities in the 1920s and 1930s. And, without exception, they had stood their ground against what they saw as the inundation of academic life by individuals — left and right — who in their view did not sufficiently value “the life of the mind.” For these German and Austrian exiles, the world’s mid-century catastrophe followed from the influx of ill-equipped individuals into positions of political and academic authority. States and universities had been taken over by the masses. In their view, there was little difference between pre- and post-war Europe or North America, except perhaps that there was still some hope that the United States might not embrace the worst aspects of mass society and social planning, thereby preserving some small island of sanity and independence for an authentic intellectual nobility.

Many of these scholars eventually found their way to the University of Chicago’s “Committee on Social Thought,” where economists, philosophers, political scientists, and theologians developed a shared neoliberal or neoconservative economic, political scientific, and philosophical lexicon. At the center of this shared lexicon was the belief, which they shared with Ayn Rand and Martin Heidegger — under whom both Arendt and Strauss had studied — that authentic being could not be extrinsically determined. To buttress this belief they often drew (erroneously it turns out) upon Aristotle, whose teachings about freedom and necessity and about the conditions that make for freedom, sounded to them an awful lot like their own rants against ontological foundationalism. Authentic human beings act from within. They are not extrinsically shaped or determined. Those individuals who are extrinsically shaped — aboriginals, workers, consumers, ideologues, leftists, students, artists, fashion-mongers, the poor, the needy — clearly display in their dependency their lack of authenticity. The horror is that it is this vast body of inauthentics who now govern our nations and universities.

Did we have more time, we could have fun reading the full canon of this elite group of scholars, beginning with Carl Schmitt, architect of the Nazi legal system and professor to Leo Strauss, and then moving on to Alexander Kojève and Allen Bloom, Francis Fukuyama’s dissertation advisor, whose Closing of the American Mind became a Bible to America’s radical right intellectuals. We could then dip into the Mont Pelerin Society, whose members would fan out in the 1970s and 80s and almost single-handedly would orchestrate the collapse of Breton Woods and what remained of the social contract.

Unfortunately, however, there is no time to pursue all of these angles. Instead, we will limit ourselves to the economic angle. Remarkably, in the 1950s and early 1960s no one was listening to Gary Becker, Milton Friedman, or anyone else in the Economics Department or Business School at the University of Chicago. In those days it was all UC Berkeley and Harvard; it was all JM Keynes. And, yet, insofar as crises of capital accumulation are features of the capitalist social formation, it was only a matter of time before rates of profit would begin to decline, currencies would lose value (leading to inflation) or would grow strong (leading to unemployment), business leaders would complain about the burdens of excessive taxes and regulations, and workers would complain about their declining purchasing power, increasing unemployment, or both. None of this is new. It has been a feature of the capitalist social formation since the 18th century.

And, yet, insofar as Keynesians had fooled themselves into believing in the miracle of endless growth — P Samuelson actually claimed that modern economic policy and theory had rendered the business cycle obsolete — they were completely unprepared for the signs of stagnation when they began to appear in the late 1960s. (We will take a closer look at the actual mechanisms driving the long downturn when we read Robert Brenner’s Economics of Global Turbulence.) When these signs of stagnation were sufficiently clear, however, it was the economists at the University of Chicago, armed with a deeply rooted philosophy to buttress their economic theory, who stepped in to fill the gap.

Theirs, however, was not simply an economic theory or policy recommendation. Theirs was a full-blown explanation for declining responsible behavior, laziness, the decline in morals, declining standards at American universities. To be sure; Max Nordau — that darling of 1920s and 30s fascists — had said it all before in his Entartung (Degeneration). But, when the economic theorists from the University of Chicago stepped forward with their multivariate regression tables and clean, crisp trend lines explaining all that had gone wrong and offering their monocausal solution for making everything right — free markets, deregulation, privatization, eliminate the government — their poorly educated, naive, and completely gullible audience was ready for the Kool-Aid.

In retrospect, when we read Gary Becker’s proofs that private markets are more responsive than democratic institutions, or that irrationality is completely consistent with the rational behavior of markets, it all makes perfect sense. The University of Chicago believed and now was ready to explain to the world why democracy was not really necessary and why the apparent irrationality of capitalism was in fact deep down quite rational after all. What this means is that already in the 1950s the University of Chicago was preparing to make its case to Americans that the catastrophe they had just passed through, which they mistakenly believed had been brought on by unregulated markets and insufficiently democratic institutions, may instead have been brought on by the very opposite. What the world needed was not more, but less regulation of private capital. What the world needed was not more, but less democracy.

And so we begin.

To those of us who have cultivated a fondness for democracy and equality, Karl Marx’s critique of both may come as a harsh blow. If not for these, then for what have we been building our coalitions and walking our lines? And, yet, there is no way to avoid Marx’s critique of democracy and equality, which, under the light of his mature interpretive categories, reveal that they arise not from any innate predisposition to locate and publicly represent that fundamental equality that each of us owns as an inalienable right, but from the mathematical equivalence that each of us enjoys, both as commodity producers and consumers, and as commodities ourselves. This is because, like every use value, we differ qualitatively from one another in our material forms of appearance. We know different things, we have mastered different skills, we differ in our physical abilities, our health, our appearance, and the symbolic and material capital we command. In all of these ways, like all use values, we differ qualitatively from one another.

The sphere of circulation or commodity exchange, within whose boundaries the sale and purchase of labour-power goes on, is in fact a very Eden of the innate rights of man. It is the exclusive realm of Freedom, Equality, Property and Bentham. Freedom, because both buyer and seller of a commodity, let us say of labour-power, are determined only by their own free will. They contract as free persons, who are equal before the law. Their contract is the final result in which their joint will finds a common legal expression. Equality, because each enters into relation with the other, as with a simple owner of commodities, and they exchange equivalent for equivalent. Property, because each disposes only of what is his own. And Bentham, because each looks only to his own advantage. The only force bringing them together, and putting them into relation with each other, is the selfishness, the gain and the private interest of each. Each pays heed to himself only, and no one worries about the others. And precisely for that reason, either in accordance with the pre-established harmony of things, or under the auspices of an omniscient providence, they all work together to their mutual advantage, for the common weal, and in the common interest.

Marx, Karl (2004-02-05). Capital: A Critique of Political Economy: A Critique of Political Economy v. 1 (Classics) (Kindle Locations 4247-4256). Penguin Books Ltd. Kindle Edition.

It is thus only as bearers of the immaterial value form of the commodity that we are infinitely comparable to one another. If equality and democracy in the modern era are grounded in the two-fold commodity form, however, then what has this fact to say to those of us who still feel that equality and democracy are valuable, even though contingent and limited, goals?

The first thing that it says to us is that abstract equality should not, nor should it ever have been a goal of emancipatory politics. But the second thing that it says to us is that substantive equality, since it would annihilate the body, also cannot be a goal. These two points, covering both the bare, merely utilitarian, particular body and its abstract, disembodied, value form, should not be ignored. They form the center of any emancipatory politics.

The democratic project, along with the equal rights project, took root in the contest of the abstract bourgeois social subject to unseat and replace the royal and noble subject — the very definitions of social and political particularity. It took root, that is to say, at that moment historically and politically, when the abstract bourgeois social subject as an embodiment of abstract value sought to build an alternative society (a venture at which it eventually succeeded) to the monarchical society it saw as a representative of private law, of privilege.

That the ultimate creator of the capitalist commodity form — the creator both of its abstract universal form and its concrete particular form — would eventually lay claim to universal subjectivity is only natural, as Marx points out. Labor, after all, is not only an embodiment of abstract value, but also of its material form of appearance. It is therefore the completed Hegelian totality. When it universalizes itself socially and politically, it is thus completing capitalist society (G v Lukács, Geschichte u Klassenbewußtsein). However, when it realizes itself in the completion of capitalism, this should not be mistaken for overcoming capitalism. Rather should it be understood as the universalization of this particular form of social domination; self-domination of and by universal labor in the abstract (GWF Hegel, Phänomenologie des Geistes).

This “completion” may have proven critical particularly in the case of Yugoslavia, whose debt crisis exposed how closely interwoven capital continued to be with labor even at that very moment when labor had most nearly “realized itself.” But, what had labor “realized”?

We may be able to best ask this question from a historical vantage point removed from capitalism, from the vantage point of fourth century Athens, because it is from this vantage point that we can talk sensibly of a “freedom” not grounded in the abstract value form of the commodity. It was from this historically and socially distinct vantage point that Aristotle advanced his theories about the substantive conditions that make for freedom: we are free, says Aristotle, when we are able to act and think without coercion and without necessity.

It is worth noting that Aristotle developed his theory of emancipation in opposition to Plato’s abstract and ideal theory. Thus, where Plato credited those as free only who were able to contemplate the realm of pure forms, Aristotle rejected this notion because it failed to account for the substantive conditions that would have to hold for any specific subject to contemplate these forms and because with these substantive conditions at hand, the pure forms (whose existence Aristotle doubted) became unnecessary. The individual who possessed substantive wealth, health, education, and leisure would also be able to act and think without coercion and without necessity; but, because Aristotle held freedom to be a social category, he also held that citizens could only be free in a community of equally free citizens.

Notice the difference here between Aristotle’s notion and, e.g. J Locke’s or J-J Rousseau’s or T Jefferson’s notions of equality. Aristotle does not propose to erase difference. Rather does he propose to eliminate the conditions that makes some citizens less and some more subject to coercion and necessity. Nor does Aristotle aim, as J Locke, J-J Rousseau or T Jefferson aim, at “freedom” as the “absence of constraint” — freedom from the body. Rather does Aristotle aim at a body that is free because it has the means, the knowledge, the time, and the health to act and think responsibly.

Finally, equality here is not a matter of pure justice or right. It is not abstract equality. Rather does equality perform the vital function of empowering social actors, in fact, not in theory or merely formally, to engage actively with one another. Only under such actual equality — in wealth, knowledge, leisure, and health — can society itself cultivate the highest human ends.

Bourgeois society — whether Communist or Market it does not matter — achieves this these highest ends in differing degrees by default. That is to say, when France or Germany or Yugoslavia provides health care or education to its citizens; or when it shortens the working day, as France and Germany both did in the 1980s, these are good and not bad things. They move us in the direction of emancipation, whether in Yugoslavia or elsewhere. And, yet, insofar as they are grounded in and reproduced by abstract capital and abstract labor, they never actually transform the conditions of our social domination.

On the one hand, this means that we can genuinely celebrate movement in the direction of emancipation. On the other, we need always to be aware that capitalism ties these good ends to the efficiency of labor and so punishes labor whenever market forces “decide” that some good end — health, leisure, wealth, knowledge — cannot be supplied plentifully enough because its “price” has drifted outside the margin. And, when this happens, labor is almost never aware of the active role that it has played in this, its own self-domination, because it has come to view the relationship between capital and labor as natural and necessary. And it is almost never aware of the active role it has played in its self-domination because it has mistaken the fruits of productivity for the goals it needs to pursue. And so it does not fully grasp what has happened to it.

But this means that when it lashes out in self-protection, it does so not as the emancipated social subject, but as the social subject fully formed by labor.

This was why I suggested that J Lowinger’s thesis could be strengthened by recognizing the way that labor contributes to its own self-domination. This takes nothing from the genuine achievements of “communist” Yugoslavia. But it does caution us against the kinds of naturalizations and fictionalizations that may prevent us from fully grasping the mechanisms that account for contemporary domination. It also cautions us against mistaking abstract equality and democracy for the emancipatory agents they can never be because they do not provide for what is most necessary: the substantive conditions that make for freedom (A Sen).

I hope that you will join us for a discussion of Jake Lowinger’s provocative thesis about how the former Yugoslavia was shaped by the global economic downturn. Tonight’s seminar will be our last in 2013. We will reconvene in February 2014. See you tonight.

Since Mr. Lowinger grounds so much of his argument on Karl Polanyi’s notion of “fictitious commodities,” and since this framework has become a standard feature of much Marxian and post-Marxian social theory, I have decided to post a short section from K Polanyi’s Great Transformation (1944), in which Polanyi introduces this framework to explain the rise of extreme politics in the first half of the twentieth century.

Adis asked that I post more detail about the “Self-Moving Substance that is Subject,” an inartful expression used by GWF Hegel to describe the Weltgeist, the World Spirit, constituting the World. I first came across the expression in lectures under Moishe Postone, Jürgen Habermas’ student who went on to completely rewrite contemporary Marxian social theory. On some level, of course, it hardly matters where you touch down in GWF Hegel’s Phenomenologie des Geistes, for, wherever you alight, you will come face to face with the “Self-Moving Substance that is Subject.”

Nevertheless, it seems clear that the passage from which K Marx borrows his imagery, at least in his first description of M-C-M’, comes from the Preface to the Phenomenology, where Hegel describes a God Who while creating and self-creating is nevertheless not lost in the process of his own rational expansion and filling of the world:

Die lebendige Substanz ist ferner das Sein, welches in Wahrheit Subjekt, oder, was dasselbe heißt, welches in Wahrheit wirklich ist, nur insofern sie die Bewegung des Sich-selbst-setzens, oder die Vermittlung des Sich-anders-werdens mit sich selbst ist. Sie ist als Subjekt die reine einfache Negativität, eben dadurch die Entzweiung des Einfachen, oder die entgegensetzende Verdopplung, welche wieder die Negation dieser gleichgültigen Verschiedenheit und ihres Gegensatzes ist; nur diese sich wiederherstellende Gleichheit oder die Reflexion im Anderssein in sich selbst – nicht eine ursprüngliche Einheit als solche, oder un mittelbare als solche, ist das Wahre. Es ist das Werden seiner selbst, der Kreis, der sein Ende als seinen Zweck voraussetzt und zum Anfange hat, und nur durch die Ausführung und sein Ende wirklich ist.

Das Leben Gottes und das göttliche Erkennen mag also wohl als ein Spielen der Liebe mit sich selbst ausgesprochen werden . . . (GWF Hegel, Phänomenologie des Geistes, Preface, §§18-19).

English translation:

Further, the living Substance is being which is in truth Subject, or, what is the same, is in truth actual only in so far as, it is the movement of positing itself, or is the mediation of its self-othering with itself. This Substance is, as Subject, pure, simple negativity, and is for this very reason the bifurcation of the simple; it is the doubling which sets up opposition, and then again the negation of this indifferent diversity and of its antithesis [the immediate simplicity]. Only this self-restoring sameness, or this reflection in otherness within itself – not an original or immediate unity as such – is the True. It is the process of its own becoming, the circle that presupposes its end as its goal, having its end also as its beginning; and only by being worked out to its end, is it actual.

Thus the life of God and divine cognition may well be spoken ofas a disporting of Love with itself . . .

GWF Hegel believes that he is describing the comprehensive rational integration of the material world. The “subject” he refers to is God. Perhaps it is the Christian God. Francis Fukuyama thinks so. If so, then it is to the incarnation that we are supposed to direct our attention; not to “an original or immediate unity as such” – not to either the Father or to the Spirit – but to the “self-restoring sameness, or this reflection in otherness within itself . . . is the True.” I think that there are theological problems with this formulation. It is problematic to suppose that the Father and Spirit are not involved in this co-creation. But, there are also problems with the original formulation, where the Subject is pure negativity: “This Substance is, as Subject, pure, simple negativity, and is for this very reason the bifurcation of the simple; it is the doubling which sets up opposition, and then again the negation of this indifferent diversity and of its antithesis [the immediate simplicity].”

Still, if we are willing to wade through the theological minutia, which K Marx was willing to do, we can see how the Substance that GWF Hegel is identifying here is the simple, yet negative, material shell of the living value form of the commodity. Hegel is grasping, albeit in a veiled form, how the living substance, the Subject, through which the world is unfolding, entails the fragmentation of a complex form that does not lose its integrity in the process of its unfolding. He is referring, in other words, to an unfolding, an elaboration, an expansion in the course of which the original unity is not lost, but is, instead, completed.

Of course, most Marxian scholars leave off the beginning of section 16, perhaps out of bourgeois prudishness; who knows. Nevertheless, it is perhaps significant – surely on a psychoanalytic level – that GWF Hegel recognizes the libidinal dimension of this unfolding. For as this Subject, the Living God, bifurcates – without ever losing itself – it plays with itself; it literally engages in a sexual game: “Das Leben Gottes und das göttliche Erkennen mag also wohl als ein Spielen der Liebe mit sich selbst ausgesprochen warden”; “Thus the life of God and divine cognition may well be spoken of as a disporting of Love with itself . . .” I.e., a love game.

Obviously this is all open to interpretation. What is a “love game”? However, at the very least it invokes both GWF Hegel’s and, perhaps more importantly, I Kant’s discussions of the Sublime in general and, more particularly, the erotic. If so, then we can well understand why K Marx might immediately jump to this passage when thinking about the erotic attraction of the commodity form, the command it enjoys over us in its composition of the world.

Yes, this is economics. But economics is never only about economics. Nicht Wahr?

 

The PowerPoint for The Fourth (US) Cycle of Capital Accumulation, and the reading, from J Lowinger’s Dissertation, are now posted.

Tonight we conclude our discussion of Giovanni Arrighi’s intriguing study of the four cycles of capital accumulation and the three global hegemonies. Our aim is less to criticize capitalism than to understand the most recent economic downturn, which began in the late 1960s, so that we can better understand the mechanisms and the processes shaping the contemporary social, cultural, political and economic world.

Our focus tonight will be on the crisis of capital accumulation in the United States beginning in the late 1960s;

The adequacy of Giovanni Arrighi’s model of economic development and transformation;

The range of possible futures both for the global economic system and for the United States; and

With an eye on Jake Lowinger’s thesis, which we will take up next week, the possible futures of Bosnia and Herzegovina.

Please join us for the discussion.

Some of you may have been following the exchange between Admir Čavalić and me over whether, relative to Norway or Sweden, Bosnia and Herzegovina is moving in the right direction – that is toward more liberal economic policies. Part of the confusion – but only part of the confusion – in these posts is that they fail to tease out the multiple claims bound together into one. Here are the claims bound up in the statement: “Dok u Svedskoj i Norveskoj pobjeduju neoliberalne partije, u mom gradu se razvija Komunisticka”; which I roughly translate: “While the neoliberal parties are winning in Sweden and Norway, by city cultivates communism.”

1. Neoliberal parties are winning elections in Sweden and Norway
2. [“Neoliberal” designates parties that favor deregulation, lowering corporate and individual tax rates, and privatizing public assets]
3. Tuzla promotes communism
4. [“Communism” designates parties that favor public ownership of resources, socialized ownership of the benefits of production, and strict limitations on private ownership of property]

Let us first take the easier of the two examples here, Sweden. Sweden’s latest elections were held in 2010. In these elections, the Liberal Party won 7.1 percent of the vote, down from 7.4 percent in 2006. The real winner on the right in the 2010 elections was the Moderate Party, formerly known as the Right-wing Party, a party whose policies are rigorously neo-Keynesian, though neither socialist nor pro-labor. The Moderate Party increased its share from 26.2 in 2006 to 30.1 in 2010. The two other parties on the right – the Christian Democratic Party (neoliberal), the Centre Party (racialist) – both lost shares from 6.6 to 5.6 and 7.9 to 6.6 respectively.

This is not to say that neoliberal ideology has not gained ground in Sweden. The Socialists also showed losses in 2010, from 35 to 30.7, though some of this loss appears to have benefited the Green Party, hardly a beacon of neoliberal ideology.

A much stronger case can be made for Norway, whose right-wing coalition of Conservatives, Christian Democrats, and Neoliberals (who call themselves the “Progress Party”) have held their own or increased their share of votes significantly over the past two election cycles. But, again, what is perhaps most noteworthy about the 2012 elections is how cruel they were to the party whose support for neoliberal policies was most vocal, the “Progress Party,” which saw its share drop by 6.6% in the last election cycle, the largest decline of any party. To be sure, this drop probably benefited the traditional Conservative Party, which enjoyed the largest boost of any of the parties, a whopping 9.6%. Still, it was probably their promise to voters not to further dismantle Norway’s social democratic safety net that won for them the shift of votes away from the Progress Party to their banner.

Irrespective, however, of the platforms under which they campaign or the seats they hold in Parliament, the proof is in the pudding, as we say. And the pudding is neoliberal. How neoliberal? Here are the statistics:

	Minimum Personal Income Tax Rate	Maximum Personal Income Tax Rate	Corporate Income Tax Rate	Ease of Doing Business
Sweden	30	57	22	14
Norway	0	47.8	28	9
BiH	–	5	10	131
US	0	55.9	0-39	4

While Sweden’s minimum personal income tax hovers between 30 and 57%, and Norway’s tops out at 47.8%, Bosnia and Herzegovina’s politicians are the true neoliberals here, clocking in at a maximum rate of 5%. More importantly, at least for neoliberals, whereas Sweden’s and Norway’s corporate taxes are 22 and 28% respectively, the neoliberals in Sarajevo cannot stomach a corporate rate of more than 10%.

But, then, asks Mr. Čavalić, how are we to account for the overwhelmingly abysmal position of BiH, relative to Sweden and Norway, in ease of doing business?

Mr. Čavalić should know since he attended both of my talks at the ICEI conference two weeks ago.

I am guessing that Mr. Čavalić would agree that it is less the size of the government than what a government does with its resources that counts. In this respect, Bosnia and Herzegovina is a text-book example of what economists still call “crony capitalism,” characterized by no-bid contracts, nepotism in hiring, and the spoils system in politics. Now, of course, since the SPD has no problem pursuing “crony capitalism” while calling itself “socialist,” I should probably not object. Indeed, I don’t object.

Where I object – and object strongly – is faulting Bosnia and Herzegovina in general or Tuzla more specifically for cultivating “communist” policies. Communism would not have sold of the state’s and the city’s public assets. Nor would communism have pursued one of the most aggressive deregulation and privatization schemes in all of post-Communist Europe. Still, Mr. Čavalić was right to fault me for calling Tuzla’s policies or Bosnia and Herzegovina’s “illiberal.”

He was right because “crony capitalism” is neither liberal nor illiberal. For in spite of the exceedingly low corporate and individual tax rates – tax rates that should make any neoliberal salivate uncontrolably – the political oligarchs stealing World Bank funds and directing it to their private oligarchic supporters are not liberals. Indeed, as I explained in my talks at the ICEI, these empires would be ruined by genuine liberal policies, which would never allow the quasi-monopolistic conditions to prevail from which these oligarchs benefit.

But nor are these policies in any meaningful sense “communist.” Thus my initial objection.

Finally, however, I find it tantalizing to find a neoliberal, such as Mr. Čavalić claims to be, defending countries such as Norway and Sweden whose personal and corporate tax rates are among the highest in the world and whose corporations are among the most highly regulated. Yes, it is true, these nations do enjoy far better business climates than any of the Balkan states. Amazing what socialized medicine, socialized pensions, socialized maternity (and paternity) care, socially subsidized transportation, socialized education, and socialized child and elderly care can do to a nation. And if Mr. Čavalić wants to say that these nations are moving in the right direction, who am I to object.

This is a reminder that office hours have shifted to Thursday, 10-Noon, at Urban.

Americans are familiar with Benjamin Franklin from his participation in the Constitutional Congress and as the United States’ first Ambassador to France. Most Europeans, by contrast, first confront Benjamin Franklin as the persona dramatic in Max Weber’s Die protestantische Ethik und der Geist des Kapitalismus (1904). As we have already learned from EP Thompson, there is little that is exceptional to B Franklin’s attraction to efficiency, which, by the late eighteenth century, had grown into something of an obsession for Europe’s educated bourgeoisie. For the deistic framers of the US Constitution, who counted the Anglican and Catholic religions of their grandparents little more than a quaint fiction, the religion of efficiency was a worthy successor; labor, ever more efficient and productive, was, as A Smith taught them, the font of the wealth of nations. We may, therefore, wish to remind ourselves here the book with which the United States shares a birthday, 1776: A Smith’s Wealth of Nations.

The fact that all of the framers were aware of this book and had read it is not in doubt. Thus in 1783 when the framers were pulling together a list of titles that they felt the new nation would need in order to conduct its business, they listed A Smith’s Wealth of Nations in the top twenty under the heading “Politics.”

 

To be sure, Smith had to compete with some pretty big guns: Plato, Aristotle, More, Hobbes, Locke, Machiavelli, Montesquieu, and Ferguson. But the fact that he appears here at all, not seven years after the publication of his book, well illustrates the attraction his ideas provoked among the framers of the Constitution.

But this raises an interesting question. If B Franklin was familiar with A Smith’s ideas, then why might he so faithfully have reproduced the ideas not of Smith, but of the mercantilists and their physiocrat defenders? It is this precisely that K Marx picks up on in his second discussion of M-C-M’. For as K Marx notes, B Franklin, following the physiocrats, held that commerce was cheating:

The form M-C-M’, buying in order to sell dearer, is at its purest in genuine merchants’ capital. But the whole of this movement takes place within the sphere of circulation. Since, however, it is impossible, by circulation alone, to explain the transformation of money into capital, and the formation of surplus-value, merchants’ capital appears to be an impossibility, as long as equivalents are exchanged;20 it appears, therefore, that it can only be derived from the twofold advantage gained, over both the selling and the buying producers, by the merchant who parasitically inserts himself between them. It is in this sense that Franklin says ‘war is robbery, commerce is cheating’.  Marx, Karl (2004-02-05). Capital: A Critique of Political Economy: A Critique of Political Economy v. 1 (Classics) (Kindle Locations 4067-4072). Penguin Books Ltd. Kindle Edition.

Franklin was not alone. His negative views of commerce were shared by nearly all of the southern delegates to the Constitutional Convention who, like Franklin, viewed those of their northern counterparts who made their livings off of trade, commerce, and banking as little more than common thieves. And, when they came to defending their own livelihood, built as it was on slavery, they enjoyed no less an authority in their corner than Aristotle himself. Here the widely held opinion was that banking, commerce, and trade were illegitimate; only manufacturing and agriculture were true sources of wealth.

K Marx was surely aware of this conflict. For almost immediately following his reference to Franklin, Marx himself would invoke Aristotle’s authority:

Hence Aristotle says: ‘Since chrematistics is a double science, one part belonging to commerce, the other to economics, the latter being necessary and praiseworthy, the former based on circulation and with justice disapproved (for it is not based on Nature, but on mutual cheating), the usurer is most rightly hated, because money itself is the source of his gain, and is not used for the purposes for which it was invented. For it originated for the exchange of commodities, but interest makes out of money, more money. Hence its name.’ (τóxoς interest and offspring.) ‘For the offspring resembles the parent. But interest is money, so that of all modes of making a living, this is the most contrary to Nature.’ Marx, Karl (2004-02-05). Capital: A Critique of Political Economy: A Critique of Political Economy v. 1 (Classics) (Kindle Locations 4079-4084). Penguin Books Ltd. Kindle Edition.

Nevertheless, as K Marx had noted earlier, it was because Aristotle lived in a social formation mediated by direct domination, slavery, in which abstract labor time played no role denominating value, that he failed to discern the relationship between labor and value. It did not exist. K Marx was less forgiving for B Franklin, who ought to have known better.

The conceit entertained by B Franklin is that those engaged in commerce and trade make their money by the scarcity of the commodity they are trading; in which case labor would play no role whatsoever forming surplus value. The same, according to Marx, holds for the common view of interest or “users” capital. In both cases, surplus value arises not in the course of production – owing to greater efficiency, the true god of the framers – but in the course of circulation.

Seminar members need to pay special attention here. Because this is precisely the theoretical vantage-point underlying G Arrighi’s interpretation. In F Braudel’s scheme, the sphere of everyday material life is punctuated by markets. The activities in these markets is always and everywhere, according to F Braudel, regulated by political institutions. Following the birth of modern capitalism, however, when markets begin to compete with political institutions, these institutions play an ever more central role, imposing regulations either to facilitate capital formation when necessary or to put breaks on when capitalists threaten society.

To this scheme G Arrighi adds the additional insight that it is at the terminus of capital formation, once investors are no longer able to realize returns from manufacturing that they turn to finance. What seminar members should note is that, for Arrighi, all remains within the sphere of circulation. This is where capitalism takes place for G Arrighi; in banking, commerce, and trade.

Remarkably, it is this very interpretation that K Marx takes up in his dispute with B Franklin.

We have shown that surplus-value cannot arise from circulation, and therefore that, for it to be formed, something must take place in the background which is not visible in the circulation itself. . . . The commodity-owner can create value by his labour, but he cannot create values which can valorize themselves. He can increase the value of his commodity by adding fresh labour, and therefore more value, to the value in hand, by making leather into boots, for instance. The same material now has more value, because it contains a greater quantity of labour. The boots have therefore more value than the leather, but the value of the leather remains what it was. It has not valorized itself, it has not annexed surplus-value during the making of the boots. It is therefore impossible that, outside the sphere of circulation, a producer of commodities can, without coming into contact with other commodity-owners, valorize value, and consequently transform money or commodities into capital. . . . Capital cannot therefore arise from circulation, and it is equally impossible for it to arise apart from circulation. It must have its origin both in circulation and not in circulation. Marx, Karl (2004-02-05). Capital: A Critique of Political Economy: A Critique of Political Economy v. 1 (Classics) (Kindle Location 4086-4101). Penguin Books Ltd. Kindle Edition.

What accounts then for this widespread mistaken notion – not least widespread among Marxian social theorists – that commerce and usury are a form of theft? Obviously K Marx agrees that surplus value arises in the process of production by passing efficiencies along to the owners of capital. This is not the source of his dispute. Rather does the source of the dispute lie in the claim that surplus value arises out of deceit pure and simple; I take a commodity – whether money or goods or labor it does not matter – and I sit on it until its value rises sufficiently or until that commodity grows sufficiently scarce to make a profit. No production. No labour added. Which means that the surplus value comes solely from circulation.

But, Marx points out, since it entirely leaves out of consideration the money of the purchaser of the commodity and hence the labour exchanged for that money, this interpretation is overly one-sided and hence is grossly undertheorized. It is as though, says Marx, we were back at M-M’, money producing more money magically on its own.

This, incidentally, was also the blind spot of Gary Becker, in whose seminal article discussing Says’ Law, capital is believed to hold and increase its value solely by virtue of its being removed from circulation. The argument runs as follows: I would invest my capital in production only for a period of time equal to or greater than the value it could earn in some other project. Since the same holds true for a practically infinite series not only of capital investments, each one with its own supply and demand schedule, but also of all factors of production over which I enjoy control, we are not so much confronted here with Says’ Law of Identity so much as with Says’ Law of Non-Identity. The value of capital in circulation at any given moment is not equal to the quantity of goods because no two investment schedules, whether of capital or any other factor, enjoy the same T¹, T², on to Tⁿ. G Becker, therefore, supplemented or completed Says’ Law with the added variable of infinite supply schedules, which means that only in aggregate and in the long run does the value of the amount of capital equal the value of the amount of goods.

To which K Marx replies that, since money does not make money – or, since the tautology M=M’ is as fabulously unhelpful as M=M – we are compelled to inquire into what is underlying M. And the answer is labor, although obviously not in any simplistic or straightforward way. For example, when I withhold a commodity from circulation – money, labor, goods, it does not matter which – it increases in value only as a substitute is not found and demand remains inelastic. (Incidentally, the same criticism holds for C Menger’s explanation of marginal utility.) But, let us say that no matter how badly the commodity is desired, the capital in circulation remains constant. That can only mean that, in order to purchase the commodity at its greater value, I must deem some other good of less value. But at that point it is the labour that went into that other good that declines in value relative to the value of my own labour. In other words, K Marx points out, we never have a circumstance under which M-C, pure and simple. There always has to be a C-M in front of the M-C. And this means that changes in value never arise out of circulation.

The conceit that M-M’ was already dismissed by A Smith as a vestige of mercantilism. K Marx shared A Smith’s harsh judgment on B Franklin’s error. Unlike A Smith, however, K Marx went on to explain why this mercantilist theory of value was insufficiently rigorous. What is remarkable is that it should be picked up again at the beginning of the twenty-first century by a historian who believes that he is offering a Marxian analysis of the twentieth century.

More on this later.