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Two Letters on Monopoly Capital Theory

Paul Baran and Paul Sweezy’s voluminous correspondence in the 1950s and early 1960s ranks as one of the crucial exchanges of letters between Marxist political economists in the second half of the twentieth century, and, indeed, in the entire history of Marxist thought. At the time, Sweezy was living in New Hampshire and New York, and editing Monthly Review (started in 1949), while Baran was in California, where he was from 1949 on a professor of economics at Stanford University. During most of this period they were actively working on the ideas for what they initially referred to as their “opus,” which was published by Monthly Review Press in 1966 as Monopoly Capital: An Essay on the American Economic and Social Order. This work built on the analysis already introduced in Baran’s The Political Economy of Growth (Monthly Review Press, 1957). Only a few letters in their extensive correspondence have been published so far. A number of extracts were included (mostly emphasizing Baran’s personality) in the memorial issue to Baran in the March 1965 issue of Monthly Review, and four more letters of a more substantial nature were published in full in the memorial issue to Sweezy in October 2004. We have thus chosen to publish two additional letters here in recognition of the joint centennial of the births of the two Pauls: Paul Baran (1910-1964) and Paul Sweezy (1910-2004).

The first letter is by Baran on the concept of economic surplus, the central analytical category of both The Political Economy of Growth and Monopoly Capital. It has long been argued by more traditionalist Marxian critics that, in adopting the concept of economic surplus, Baran and Sweezy were abandoning Marxian value analysis.1 This letter makes clear that Baran viewed the new concept as crucial to going “beyond Marx” in order to address the somewhat different realities of monopoly capitalism. In classical Marxism, total surplus value was seen as essentially equal to profits + interest + rent, and based on the crucial assumption that production costs were socially necessary costs. Although such an approach made sense for competitive capitalism, Baran’s letter argued that this had broken down under a system of monopoly capital, in which all sorts of unnecessary costs were integrated into the system, and the total social accumulation fund (potential as well as actual) had its statistical trace in various forms of hidden profits, waste, and underemployment. This growing irrationality was dramatized by the interpenetration of the sales effort with the production process. For this reason, the economic surplus category was a useful supplement to the traditional surplus value calculus, not only pointing to the real magnitude of the surplus product of monopoly capitalist economy (hidden in waste, business overhead, etc.), but also the extent to which it had departed from the requirements of a rational social order.2 Today, in a period when we are face to face, not just with the gigantic sales effort, but also with the vast financialization of the monopoly capitalist economy—which has now taken the form of global monopoly-finance capital—these criticisms are even more salient. Moreover, no one who is concerned with the current planetary ecological emergency can afford to ignore the waste built into the very structure of monopoly capitalist production.

The second letter by Paul Sweezy addresses John Maynard Keynes’s historic critique of Say’s Law, the import of which, Sweezy argued, was that it led to the issue of stagnation (or unemployment “equilibrium”), the emphasis on which was Keynes’s main achievement. Yet Keynes was not able to provide a real explanation for the phenomenon, due to his refusal to break with neoclassical orthodoxy, and his neglect of monopoly (oligopoly). Without incorporating the role of monopoly power in particular, Sweezy insisted, there was no way to explain why the economy seemed to enter a path of “creeping stagnation,” in which both a full slump on the downside and a full recovery on the upside were equally closed off. These arguments were later to be developed by Baran and Sweezy (especially under the influence of the work of Michal Kalecki) in Monopoly Capital. In later years, Sweezy was again and again to return to Keynes, particularly in attempting to understand the interrelationship between stagnation and financialization.3 But the basic critique of Keynes for failing to weave imperfect competition into his macro analysis—a major shortcoming in his theory of accumulation—marked for Sweezy a distinct failure of The General Theory.

The following letters have been minimally copyedited for readability, including translation of some non-English phrases. Square brackets are used to indicate editorial inserts. A few opening and closing lines of the letters have been excluded as non-pertinent.

John Bellamy Foster

Paul Baran to Paul Sweezy, May 2, 1960

Palo Alto, California

You are busy now with other things and probably do not feel like pondering the dreck I am concerned with, but I want to communicate it to you anyway because (a) something may occur to you, and (b) of a need for self-understanding. What is at issue is the following: the opus [Monopoly Capital] hinges—in my opinion—not on statistical measurements, and not even on a big display of factual information. What it does hinge on, however, is what you have called “vision” combined with conceptual clarity. I think we have the former but I am having a dog’s time now with the latter.

The difficulty is essentially to define properly the notion of the economic surplus for the purposes of our discussion. Engels remarked that Marx’s greatest achievement was to uncover surplus value underneath all the different income streams that were considered more or less autonomous by Smith, Ricardo and others: interest on capital, ground rent, much of mercantile revenues and, naturally profits sans phrase [putting it bluntly]. What we are really trying to do is precisely the same. We want to show that the sum total of profits, interest, rents + (and this is crucial!) swollen costs of distribution + advertising expenses + PR + legal departments + fins and chrome + faux frais [incidental operating expenditures] of product variation and model changes = economic surplus, and that this economic surplus increases both in absolute and relative terms under monopoly capitalism. It is important to understand that our economic surplus is not the same as surplus value of Marx’s but a much more comprehensive and much more complex term.

Indeed, I am somewhat exhilarated by the thought that we may actually have in our hands something that is an important contribution to thought beyond Marx. For what I have been thinking about is that under competition economic surplus is essentially identical with surplus value. If you have a universe of output consisting of more or less “sensible” commodities (where need and want more or less converge) and if you have a competitive mill in which costs are being held down to socially necessary levels with what is socially necessary determined by the state of development of productive resources then surplus value is the difference between the net value of output (net that is of depreciation which is in turn sensibly calculated) and the aggregate wage bill. Note well, this rests on the assumption of socially necessary costs being maintained. With socially necessary determined really by the “state of the arts” it is quite permissible to deduct the entire wages + salaries bill from the aggregate value of output in order to arrive at surplus value (with due allowance for constant capital). Out of that surplus value the capitalist gets his profits, the banker his percentage, the landlords their rents, and the merchants (part of) their commercial gains. (The other part constituting productive services comes out of the costs proper and still another part based on milking v [variable capital or wage] recipients is “profit by alienation” and constitutes a net addendum to surplus value.)

So far so good for competition. But when we get to monopoly capital the whole thing shifts and economic surplus is no longer even approximately identical with surplus value but very much larger!!! Simply because with aggregate output no longer consisting of a heap of “sensible” commodities but of an agglomeration of commodities a large part of which is due to the sales effort—the notion of socially necessary cost of its production gets a new meaning. It is no longer socially necessary in terms of prevailing productivity + technology, it is socially necessary in terms of the modus operandi of the big business economy. The surplus value concept would give you wrong or rather irrelevant measurements. For if you take the value of aggregate output and deduct from it aggregate v [the wage bill], (with due allowance for constant capital which is incidentally now much more difficult to make), you get surplus value alright but this is only a part of the economic surplus. This would even be true if you were to draconically confine your v to those engaged in production proper. Since the production process proper under monopoly capital is inherently corroded by the sales effort the distinction between costs of production and costs of distribution (still meaningful in Marx’s competitive universe!) becomes extremely hazy: The advertiser is in costs of distribution alright; what about the construction engineer who devises the new car model for sales reasons and the worker who retools the joint to produce it? The Charlie Van Dorens are costs of distribution boys and partake of the surplus value but what about the blue collar type who with socially necessary skill produces the booklet conveying the message of the remedy against sour stomachs?4 The crux is the interpenetration of production and sales effort with the result that in that embrace the concept of “socially necessary” gets stifled. What does socially necessary mean now? Everything that is needed to conduct business under monopoly capital? Surely not, because the coalminer is as necessary for that as [the advertising firm] Batten, Barton, Durstine & Osborn. Everything that is needed to produce (physically) the material output of society? Certainly not, because that output consists to a large extent of fins, chrome, remedies against sour stomach, new models, etc., with lots of engineers, foremen, workers engaged in turning this stuff out. This, incidentally, all on the assumption that those boys operate with maximal technical efficiency. The story gets even more “mixy upy” if there is monopoly capital-shielded inefficiency cum waste. In other words, without the competitive assumption the surplus value concept is mortally ill! (Amusingly, this is the opposite of what Schumpy [Schumpeter], Leontief, and others used to argue saying that with perfect competition there would be no surplus value [no profits] because entrepreneurs would bid up wages to a point of zero surplus value. This is because what is needed is not their crazy perfect competition, but just Marx’s free competition with all the social constraints.) And if on top of it all wages are not determined by the value of labor power in the Marxian sense but are higher, i.e. permit of reduction per alienation, and the capitalists are able to shift their various expenses (if only partly) onto the consumer (including the wage earner) then the derivative surplus value recipients (merchants, bankers, landlords, but also advertisers, etc.) do not only eat into surplus value but actually increase it per alienation.

Where does all this leave matters except with the necessity to leave this alone and to define the consequent economic surplus with reference not to what is socially necessary here and now but to what would be socially necessary in a rational society. I began moving in that direction in The Political Economy of Growth: “Most generally speaking, {the unproductive share of a nation’s total economic effort5} consists of all labor resulting in the output of goods and services the demand for which is attributable to the specific conditions and relationships of the capitalist system, and which would be absent in a rationally ordered society” (p. 32). By the way, Marx hints at this in discussing Smith’s notion of unproductive labor and adds “absolut gesprochen” [i.e., in the narrowest, most abstract terms] [recognizing that without this qualification] everything would be different! Without the absolut gesprochen one gets stuck now—simply because monopoly capital is much more removed from that absolut gesprochen than competition ever was!

I am attaching a little translation which I made of a lovely passage in Marx—the new Moscow-Berlin edition of Theories of Surplus Value—which should be appended to one of the chapters of the opus.6 This undoubtedly requires a full-dress discussion of what is meant by a rational social order, etc., but we cannot shirk that for otherwise we hang in the air. On the other hand, once this nut is properly cracked the opus is a cinch. Then we go ahead and give a “casually empiricist” sketch of the forms in which the dreck appears, and I do not give a damn whether we have plenty of statistics or none. As long as we have illustrations and as long as it is clear what we mean. I think this represents a revolution in science because it explains and systematizes what the Galbraiths of all descriptions are at best able to describe. The same step as Karl Marx made by comparison with Smith, Ricardo, etc.

At least, I am modest!….

And cheer up; we have a mission Goddamit, and let us not be gotten down by anything!

Love, Paul

Paul Sweezy to Paul Baran, September 25, 1962

Larchmont, New York

Thanks for yours of the 23rd in regard to Keynes, etc. There is some difference between us here which puzzles me—because I can’t really put my finger in it. So let’s try again.

I don’t maintain for a moment, of course, that the competitive model is incapable of breaking down. The continuous operation of Say’s Law is rubbish. But this was really quite well known to Keynes’s predecessors: after all business cycle and crisis theory had a long and respectable history prior to 1936. What the earlier theorists maintained was that the breakdown couldn’t persist indefinitely. Unemployment and unused plant would lead to price (including wage and interest rate) and income changes that would sooner or later (depending on reaction times, mobility of resources, etc.) set the stage for an upswing which, once under way, would carry up to full employment. Except under very special assumptions, the condition of full employment couldn’t persist either, of course. It was universally recognized by the top theorists before Keynes (Pigou, Robertson, Schumpeter, etc.) that in a competitive, unplanned system, fluctuations were “natural” and inevitable. And that meant that none of them were slaves of Say’s Law, whatever Keynes may have said about it.

What was new in Keynes was the assertion that, left to itself, the competitive economy could not recover—unless the marginal efficiency of capital [expected profits on new investment] happened to be high enough, which Keynes thought it had a deeply rooted tendency not to be. In other words, he introduced the problem of stagnation, alias underemployment “equilibrium.” This you will not find in any of the earlier theories in the classical-neoclassical tradition—though of course many respectable thinkers such as Hobson and Veblen made serious attempts to explain them [the contradictions]. It was thus Keynes’s historical merit to bring the problem of stagnation into the orbit of orthodox, accredited economics where it occupied the center of the analytic stage for a good decade. (Note well, however, that since the late 1940s it has been largely banished again.)

This is one aspect of the matter. Up to this point, Keynes gets full credit for an historic achievement. His vision of a stagnating economy has all sorts of ramifications and implications which were absent from the neoclassical vision. But when we come to his attempts to explain why the economy couldn’t recover by itself, why the theory of his predecessors was deficient, we enter an entirely different realm. And I must say that the more I read of the General Theory the less convincing his arguments seem. The whole notion of an equilibrium with involuntary unemployment—which is what he wanted to explain—seems to me to be totally incompatible with the assumption of competitive markets. Wages must come down. And if one wants to insist that every wage cut brings prices and incomes down proportionately (I do not think this makes much sense, but that’s another matter), then the process will keep going until (in Keynesian terms) the quantity of money measured in wage units has grown so enormously that the rate of interest finally does fall below the marginal efficiency of capital. Or if liquidity preference is insatiable, then the deflation can go on until wages and prices equal zero and everyone starves to death. But that isn’t underemployment equilibrium. If we assume that somewhere short of this a lower turning point is reached and the reverse process sets in, why should it fall short of full employment or a reasonable approximation thereof? I cannot see that Keynes has any rational explanation as to why either a downswing or an upswing would halt and give way to a steady state characterized by the existence of involuntary unemployment. Still less has he got a rational explanation of the phenomenon of creeping stagnation. All of his efforts to deal with these problems are vitiated by the fact that at bottom he accepts all the neoclassical assumptions but tries to squeeze different conclusions out of them. Some different conclusions—about the mechanisms of economic fluctuations—are doubtless valid and useful. But the real one, the difference between a self-adjusting system and a running-down system, simply cannot be derived that way. Only the explicit introduction of monopoly into the macro picture can supply the missing key.

I have no desire whatever to idealize the competitive model. It is compatible with wild gyrations, with deep and even prolonged slumps; it may display continuing high unemployment of a “Marxian” variety;7 it may even generate Verelendung (impoverishment) as Marx believed it would. But I do not see any reason to suppose that it would also suffer from the disease of stagnation, creeping or galloping, which in my judgment is specific to monopoly capital. This is what Keynes did not see and without which his theory remains a collection of brilliant insights and stupidities without any overall coherence….

Love, Paul


  1. On this debate, see John Bellamy Foster, The Theory of Monopoly Capitalism (New York: Monthly Review Press, 1986) and Henryk Szlajfer, “Economic Surplus and Surplus Value Under Monopoly Capitalism,” in John Bellamy Foster and Henryk Szlajfer, eds., The Faltering Economy: The Problem of Accumulation under Monopoly Capitalism (New York: Monthly Review Press, 1984), 262-93.
  2. For an empirical approach to the economic surplus concept, see Michael Dawson and John Bellamy Foster, “The Tendency of Surplus to Rise, 1963-1988,” in John B. Davis, ed., The Economic Surplus in the Advanced Economies (Brookfield, Vermont: Edward Elgar, 1992), 42-70.
  3. On Keynes and Sweezy on financialization, see John Bellamy Foster, “The Financialization of Accumulation,” Monthly Review 62, no. 5 (October 2010): 1-17.
  4. Charles Van Doren was a telegenic young academic and son of the celebrated poet and critic Mark Van Doren—inter alia, an acquaintance of MR’s editors and a reader of this magazine. The younger Van Doren was involved in a television quiz show fixing scandal in 1959, aimed at inflating television show ratings to benefit advertisers and networks (later dramatized in the 1994 film Quiz Show). See Leo Huberman and Paul M. Sweezy, “The TV Scandals,” Monthly Review 11, no. 8 (December 1959): 273-81.
  5. Baran placed this phrase in brackets in his letter to indicate that it replaced the word “it” in the original.
  6. The references to Marx here and in the preceding paragraph appear to be to a passage from Marx’s Theories of Surplus Value that Baran translated on page 25 of The Political Economy of Growth. Here Marx, according to Baran’s translation, writes: “As the dominion of capital extended, and in fact even those spheres of production not directly related to the reproduction of material wealth become more and more dependent on it, and especially the positive sciences (natural sciences) were subordinated to it as means towards material production—second rate sycophants of political economy thought it their duty to glorify and justify every sphere of activity by demonstrating that it was ‘linked’ with the production of material wealth, that it was a means towards it; and they honored everyone by making him a ‘productive worker’ in the ‘narrowest’ sense—that is a worker who works in the service of capital, is useful in one way or another to its increase.” For the standard English-language translation see Karl Marx, Theories of Surplus Value, part 1 (Moscow: Progress Publishers, 1963), 176.
  7. In referring to unemployment of the so-called “Marxian variety” here, Sweezy is alluding to what in standard economics is sometimes referred to as “Marxian unemployment”—a technical designation referring to long-term, structural unemployment associated with a scarcity of capital relative to labor supply. “Marxian unemployment” in this sense is seen as applicable to competitive capitalism. See Mark Blaug, Economic Theory in Retrospect (Cambridge: Cambridge University Press, 1996), 16.
2010, Volume 62, Issue 07 (December)
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