Some Theoretical Implications

1

It may be appropriate at this stage to pause, and, even at the cost of some inevitable repetition, try to draw a few theoretical conclusions from the considerations presented thus far. Indeed, if our preceding account succeeded in capturing the basic principles governing the functioning of monopoly capitalism, some of the fundamental concepts of economic theory would stand in need of a thorough re-examination. While it is impossible to undertake this important task at the present occasion, the following brief discussion should indicate the general direction in which, we believe, such an effort ought to move and may facilitate the understanding of what this book is seeking to convey.

That all is not well in the realm of bourgeois economic theory is strongly felt by its closest observers. Professor Mason’s blunt statement that “the functioning of the corporate system has not to date been adequately explained,”i could hardly be contradicted by anyone familiar with contemporary economic literature. Its most conspicuous feature is, indeed, this very failure to come to grips with the most important aspects of what, one would think, should constitute its central problem—at least in this country at the present time. As noted by the authors of one of the few important studies dealing with questions posed by the corporate system: “The long-recognized existence of oligopoly led to theories of inter-firm rivalry, theories considered an important, if ill-mannered and discordant, adjunct to the analytically more tractable market structures usually assumed in price theory. With the exception of Kaysen, theoretical recognition of market structure in the field of investment decisions has been ignored.”ii

The reasons for this striking reluctance to place the realities of modern capitalism where they belong: at the center of theoretical attention, are not far to seek; they are alluded to in the just cited remark of Meyer and Kuh. There can be no doubt that the model of a perfectly competitive market economy is “more tractable,” that the examination of its manifold properties is more readily achievable by means of conventional tools of economic analysis than that of a system dominated by oligopolistic corporations. It may not be economics’ claim to applause, but it is understandable that most of its practitioners prefer not to tackle “intractable” matters, but to move along the line of the least theoretic resistance.iii

More significant, however, is the other factor suggested by Meyer and Kuh: the insistence on the paramount importance of oligopoly to any serious effort of understanding the working principles of the corporate system is thought of as “ill-mannered and discordant.” This, indeed, points to the nub of the matter.

Writing in 1873, Marx held that after 1830, after the bourgeoisie had conquered political power in France and in England, and the class struggle practically as well as theoretically took on more and more outspoken and threatening forms, a scientific bourgeois political economy had become an impossibility. “It was thenceforth no longer a question, whether this theorem or that was true, but whether it was useful to capital or harmful, expedient or inexpedient, politically dangerous or not. In place of disinterested enquirers, there were hired prize-fighters; in place of genuine scientific research, the bad conscience and the evil intent of apologetic.”iv

This judgment may have been too rash and the indictment too sweeping. It certainly does not hold true with regard to bourgeois economics’ capacity for gaining important insights into some parts of the capitalism mechanism; a number of worthwhile theorems of economics that are true without being necessarily useful to capital were arrived at since 1830, and since the appearance of the second edition of Capital.

But when it comes to bourgeois economics’ comprehension of the totality of the capitalist order, to its understanding of that order’s “laws of motion,” and, in particular, to its ability to assess the part that capitalism plays in the historical process as a whole, Marx’s statement stands up very well indeed. “As everyone now recognizes,” observes Mason, “classical economics provided not only a system of analysis, or analytical ‘model,’ intended to be useful to the explanation of economic behavior but also a defense—and a carefully reasoned defense—of the proposition that the economic behavior promoted and constrained by the institutions of a free-enterprise system is, in the main, in the public interest…. Until the end of the nineteenth century, moreover, this element of justification continued to play an important role in the literature of political economy.”v This is crucial. While the conscious or unconscious intention to justify a progressive economic and social order may be wholly compatible with scientific inquiry and the search for truth, may, in fact, serve as its major stimulus, the commitment, equally conscious or unconscious, to defend a retrograde system becomes an insuperable obstacle to the conduct of unbiased exploration and to reaching of truthful conclusions.

It is obviously open to serious doubt whether as early as 1830 capitalism had undergone its functional mutation, and turned from being preponderantly an engine of progress to being preponderantly its fetter. The precise timing of any such transformation of an economic and social order is hardly possible. It clearly cannot be said that certain relations of production have become obstacles to the development of the forces of production only if and when such development has come to an actual or virtual halt or commenced to regress. Making the recognition of the occurrence of such a fundamental change in the part played by the existing relations of production contingent on the fulfillment of that “strong” condition would seem to us to imply a serious misunderstanding of what is at issue.

What matters is not so much whether some growth of the forces of production actually takes place within a given economic and social order, but the extent to which the available potentialities for such growth are allowed to be realized within its framework. The emergence of these potentialities themselves depends on a multitude of factors: the advancement of scientific knowledge, the opening up of new technological opportunities, the widening of the scope for the improvement of human abilities and skills and much else. The central question is whether the prevailing relations of production promote or block, encourage or discourage the translation of these potentialities into practice. The presence of a conflict between the development of the forces of production on one side and the existing relations of production on the other is thus not necessarily signaled by the cessation of economic growth; it announces itself rather in the fact that whatever growth takes place is manifestly out of proportion with the visible, tangible, realizable potentialities of growth. The appearance and the widening of the gap between what is and what could be, demonstrate thus that the existing property relations and the economic, social and political institutions resting upon them have turned into an effective obstacle to the achievement of what has become possible.

A further point must be borne in mind. Although it is true, as Marx has put it, that only after capitalism has been overcome “will human progress cease to resemble that hideous pagan idol, who would not drink the nectar but from the skulls of the slain,”vi the price that an economic order extracts for such development of the forces of production as it provides is highly indicative of the degree to which it has turned from a promoter into an impediment of economic and social advancement. Thus the vast development of productive resources that the emergence and the earlier history of capitalism have meant to Western Europe (and North America) were associated with and largely based upon ruthless exploitation of domestic workers and peasants, despoliation and ruination of the now underdeveloped and dependent countries and the enslavement and massive annihilation of millions of natives of Africa, Asia, and America. It is also true that the tremendous multiplication of the productivity of human labor which is taking place under monopoly capitalism unfolds against the background of undiminished disease and starvation in the so-called backward parts of the world, and constitutes itself in a large measure a by-product of the most devastating and cruel wars of human history and of the incessant production of an unprecedented volume and assortment of means of destruction. It may well be that the number of skulls per ounce of the nectar of progress is under advanced capitalism even larger than it was under capitalism in the ages of its greatest rapacity.

And yet in order to establish that the relations of production prevailing in any historical period have actually lost their productive character and have turned into a roadblock to a fuller realization of the existing potentialities of progress it is not sufficient that such potentialities should exist in the realm of the forces of production only. For the conflict between the possibilities of further development of the forces of production and the prevailing relations of production to be real, there must be also visible, tangible, realizable potentialities in the realm of the relations of production. A mere confrontation of the existing economic and social order with some imaginary ideal economic and social order, however eloquent, may bring to light the shortcomings of the former but does not indicate in itself the existence of a historically relevant tension.vii However, the concretization of the possibilities for arriving at relations of production which would permit the realization of the available potentialities with regard to the development of the forces of production is highly correlated with the opening up of new perspectives in the sphere of the forces of production. As Marx remarked: “Mankind always sets itself only such tasks as it can solve; since, looking at the matter more closely, it will always be found that the task itself only arises when the material conditions for its solution already exist or are at least in the process of formation…at the same time the productive forces developing in the womb of bourgeois society create the material conditions for the solution of that antagonism.”viii

Thus a strong case could be made for the proposition that capitalism’s losing its progressive function and the emergence of an acute conflict between the requirements for a fuller development of the forces of production and the maintenance of bourgeois relations of production occurred in the 1870s. It was at that time that scientific and technological advances leading to and promoted by the spread of large-scale enterprise gave a foretaste of what was to come, and opened wide vistas of the attainable abolition of scarcity on a world scale; and it was at that time that a social organization, under which scarcity could be actually done away with, turned from a vague, utopian dream into a specific, historic “project.” As such it was formulated and broadly outlined by Marx, as such it was raised to the level of a political program by the surging socialist movement, and as such it became a short-lived but epoch-making reality in the Commune of Paris.

From that point on, which marked also the beginning of the powerful wave of trustification and monopolization of the capitalist economies in a number of countries, the bourgeoisie of those countries not only shed whatever was left of the progressive, iconoclastic posture of its revolutionary youth, but joined forces with its still powerful former feudal (and ecclesiastic) adversaries. This emerging “holy alliance” of all property-owning, God-fearing, and law-abiding strata in society was cemented by the common fear of expropriation, by the common hatred of socialism.

This shift in the basic position of the ruling class drastically affected not merely the policies of the bourgeois-controlled governments, but also all aspects of bourgeois ideology—political thought no less than the attitude towards religion, philosophy no less than political economy. With the search for a theoretic comprehension of the part played by capitalism in the process of social evolution and of the developmental possibilities which it contains relinquished in favor of the exploration of the modus operandi of segments of the capitalist economy—particular markets, profit-maximizing firms and utility-maximizing consumers—and with the inquiry into individual behavior (and motivations) increasingly taking the place of the effort to uncover the regularities of historical development, political economy has completely changed its character. Taken over by the marginal utility theory and dominated by the static assumptions upon which that theory necessarily rests, what has come to be now called “economics” turned rapidly into apologetics for a more and more retrograde social and economic order. This process reflects itself most clearly in the work of John Bates Clark where the apologetic character of the new doctrine is openly revealed. “Where natural laws have their way,” writes Clark, “the share of income that attaches to any productive function is gauged by the actual product of it. In other words, free competition tends to give labor what labor creates, to capital what capital creates, and to entrepreneurs what the coördinating function creates…. To each agent a distinguishable share in production, and to each a corresponding reward—such is the natural law of distribution.”ix

It apparently did not occur to Clark and to many of his followers that even if an imputation of the shares of output to different “productive functions” were mathematically possible (which is true only under the most unrealistic assumptions), such an imputation would have no bearing whatever on the “justice” or “naturalness” of the resulting distribution of income, and in particular of the capitalists’ appropriations. After all, workers could own their own means of production!

The intellectual brittleness of the marginal utility theory and its complete incapacity of dealing with the new, monopolistic phase of capitalist development plunged the economics profession into a profound crisis. Its response was neither simple nor unequivocal.

Large and important segments of the profession—those rooted both socially and ideologically in small competitive business—became subject to a “cultural lag,” and could not bring themselves to abandon their intellectual heritage. They carried on in the tradition of John Stuart Mill, and remained hemmed in by the limitations and inconsistencies peculiar to that influential school of thought. Although voicing more or less explicitly the political economists’ time-honored opposition to both landed interests and monopoly, and although formulating more or less sharply a welfare-oriented criticism of the emerging “corporate system,” they failed to comprehend monopoly as the inevitable outgrowth of the competitive process and were stymied by their basic commitment to private enterprise as such. This current of economics—represented in its most moderate form by Marshall and in its most “unorthodox” variant by Hobson—found itself in a position close to the conservative wing of the trade-union movement, toyed with the ideas promoted by the Fabian society, and never rose to a comprehensive and radical critique of the capitalist system. But at least it forged the intellectual weapons needed in the rapidly spreading campaign for a variety of social reforms ranging from social security legislation through the shorter workweek to anti-trust laws.

Another trend of economic theorizing, influenced by the nascent mathematical school, took a different tack. Without explicitly endorsing the ascendancy of monopoly, this sector of the economics profession escaped from the burning problems of the day into the realm of recondite abstraction; it in effect abandoned the field of battle, and withdrew to the position of “value-free” objectivity. The price of this “impartiality” was a large measure of intellectual sterility and an even larger loss of historical relevance. It was only Schumpeter, that extraordinary offshoot of the Austrian school with an unusual flair for historical thinking, who saw the handwriting on the wall and sought to induce bourgeois economics to buckle down to its new assignment: to supply the rationalization and justification of the rising and expanding dominance of monopoly capital. In spite of Schumpeter’s outstanding ability, however, his influence was for a long time very limited. Monopoly was too big a pill to swallow for a generation of economists brought up on Marshall and Pigou or Walras and Boehm-Bawerk. Moreover, social background, tradition, and habits of thought combined to prevent most of them from following Schumpeter’s lead in defense, or indeed glorification, of Big Business.

This attitude is still characteristic of what might be called the older generation of bourgeois economists. It has been strongly reinforced by the emergence and spectacular successes of the Keynesian school which focused attention on the urgent problems connected with short-run variations in the level of income and employment, and sought to bypass the entire problem of monopoly. Although both the internal development of the Keynesian doctrine and the course of events in the real world demonstrated the futility of this strategy, it continues to commend itself by its “convenience” to many economists who reluctant to be “ill-mannered and discordant,” and not wishing to risk antagonizing the dominant interests, prefer to stay away from so-called “controversial” topics. Thus the writers of this orientation either ignore the problems posed by the existence of the corporate system by assuming (or pretending) that the only difference between a giant corporation and an individual entrepreneur is one of legal form, or else they assign these matters to the field of “industrial organization” as if it constituted a special branch of economic inquiry which one is free to pursue or to neglect according to one’s particular “field” of interest. In any case, they contribute nothing to the explanation of the functioning of the corporate system.

The evolution of the mathematical school proper, in contrast, has been more complex. Its traditional lack of interest in the development and structural changes of capitalism, and its concentration on the behavior of the individual consumer and individual firm have put it in a good position to perform valuable services for Big Business. Its functions had been of a different kind under conditions of competition; the activities of competitive firms were neither in nature nor in scope such as to require market research or cost studies involving elaborate mathematical and computational techniques. Matters have changed in the present stage of capitalist development. “Today’s large corporation of necessity takes a longer view of its operations: large-scale capital requirements must be planned and financed on a long-term basis; insurance and pension funds are established to cover generations; research programs are undertaken that take many years to pay off. Decisions on short-term matters are always weighted with consideration of their long-term effects.”x And a brilliant mathematical economist astutely observes: “The monopolist in general has stricter informational requirements than the competitor, since he needs to know his whole demand curve, not merely a single price. In conditions of disequilibrium, the demand curve is shifting as a result of forces outside the private market of the monopolist, and a premium is placed on the acquisition of information from sources other than the prices and quantities of the firm’s own sales.”xi Accordingly considerable resources have been devoted by corporations and corporation-endowed foundations to market analyses, cost studies, and various branches of what has come to be called operations research,xii the ultimate effect of which is to promote the rationalization of the profit maximization policies of monopolistic enterprise. Despite the limited and warped purposes which it serves, and the negative impact it has had on Western economic thought up to now by deflecting economists’ attention from all critical analysis of monopoly capitalism, this work nevertheless does provide some insights into the working principles of Big Business and thus contributes to our understanding of some aspects of the corporate system.xiii

This can hardly be said about a third group of economists of whom Adolf A. Berle, Jr. and John Kenneth Galbraith are probably the best-known exponents. Arguing along the lines originally suggested by J.M. Clark’s concept of “workable competition,” these writers advocate a pragmatic, piecemeal approach to problems of monopoly and Big Business. Their writings center essentially on the proposition that the system “works,” and confine themselves to more or less realistic proposals for its improvement.xiv For the rest, neither such concepts as “countervailing power” and “people’s capitalism” nor speculations concerning the limitations of corporate power by the democratic state come anywhere near a theoretical analysis of the complex forces determining the “laws of motion” of a Big Business dominated economy. Their function is strictly apologetic—the creation of a conceptual apparatus which obscures rather than illuminates the economic and social relations of monopoly capitalism.

What all of these currents have in common is an incapacity to view economic and social development in a historical perspective and thus to comprehend the complex tendencies and countertendencies which determine the working principles of the corporate system. This incapacity stems from the commitment to take for granted what is and from the failure to confront this reality with a concept of a more rational economic and social order the attainment of which has been urgently placed on the agenda of our time.

The resulting myopia of contemporary bourgeois thought affects the very foundations of economic theory and empirical research. What Marx recognized a hundred years ago as fetishization of both the conceptual apparatus of economics and its statistical categories has become more widespread, deeper, and more firmly entrenched. To be sure, such progress as has been made in a number of branches of academic economic theorizing has led to the dissolution of a number of misconceptions that not too long ago still constituted the normal stock-in-trade of economics teaching: the role of gold, the nature and significance of the public debt, the infallibility of the market—to mention some prominent examples. Yet the drive to defend and justify the irrationality inherent in monopoly capitalism has generated a web of new fetishes and rationalizations exceeding in its pervasiveness that which characterized the thought-processes of capitalism’s competitive phase.

2

An understanding of the mystifications involved can be perhaps best attained by centering attention on the capitalist economy’s principal phenomenon—the commodity. Considered superficially, there is nothing simpler than a commodity. It is any good and service that exchanges for money in the market, that people are prepared to buy, or what comes to the same, in favor of which they are willing to forego the acquisition of another good and service. Since the capitalist system, based as it is on the division of labor and production for the market, is essentially characterized by the production of commodities, and since commodities are by definition things that people want (for otherwise why would they sacrifice other things to secure them?), the conclusion is easily reached that the capitalist system is a device for the satisfaction of human wants. Furthermore, since commodities are normally sold in a free market, the individual buyer is able to apportion his spending in such a way as to obtain his favored assortment of goods and services. The capitalist system is thus considered to be not merely an arrangement for the satisfaction of human wants, but to provide for their optimal satisfaction. This beneficial result is the outcome of the operations of individual firms. These firms all depend for their prosperity and indeed survival on their capacity to put on the market the commodities people want and are willing to buy. The capitalist firm thus appears to perform the function of organizing the production of the kind of goods that people prefer. At the same time, competition among firms is held to assure that commodities are offered at the lowest possible price. For any other price would eliminate from the market the seller attempting to charge it, with his competitors taking over the business. Thus society is seen to be provided not only with a composition of output corresponding to the tastes of the consumers, but also with a volume of output that is in keeping with the existing level of productivity. Nor is this all: forced by competition to minimize costs and to promote productivity, the firm rewards the “factors of production” (the owners of land, capital, and labor-power) according to their contributions to output and organizes them in ever more productive ways and combinations. The result is that the largest possible and optimally structured output is distributed so as to promote both justice and efficiency.

To be sure, no reputable economist today would subscribe without reservations and qualifications to this stripped-down concept of the capitalist system. The reservations and qualifications may refer to so-called exogenous factors such as the prevailing distribution of wealth (and of income resulting therefrom), which may be recognized as not necessarily conducive to optimal satisfaction of human needs, or they may relate to what have been euphemistically called market imperfections which are acknowledged to prevent the realization of the competitive ideal. Nevertheless, improbable as it may sound, all bourgeois economics—including its most sophisticated variants—is reducible in the last analysis to this fundamental view of the nature of the commodity-producing process. And the natural corollary is obviously that, however ample may be the room for improvements, there is no need for any basic changes in the capitalist order, which is thought of as uniquely capable of providing for the satisfaction of human wants.

Accordingly, such criticism of this theory as may be found in some of the more refined treatments of the subject never goes beyond questioning some of the specific propositions involved, and invariably accepts that theory’s basic terms of reference. For the argument advanced in this book, however, it is of the utmost importance to realize clearly the nature and implications of those terms of reference themselves. Since it is the satisfaction of the wants of the individual that forms the cornerstone of the rationalization and justification of the capitalist order, the concept of the individual assumes controlling importance not only to bourgeois economics but to all bourgeois political and social thought.

As can be readily seen, for the extent to which the wants of the individual are satisfied under any social order to provide the criterion by which that social order may be appraised, the nature of the individual and of his wants itself must be thought of as determined independently of that social order. The man making economic, political, or any other decisions must be seen as autonomous—deriving his motivations, volitions and scales of preference from no one but himself, or, at any rate, from some source other than society. For if the individual’s wants, choices, and predilections were products of a social order, then the justification of that social order could hardly be based on its catering to such wants of the individual as it itself creates.

The difficulty is resolved if the view is adopted that was held by a long succession of philosophers and theologians whose thought was dominant until the sixteenth century that the source other than society providing the determinants of human conduct is the will of God. This solution does not have much to recommend itself, however, if for no other reason than because it disposes of the entire problem without even facing it. If it be God’s will that governs the individual, then it could be assumed with equally good reason that society as a whole is so ordered as to correspond to God’s design, and the rationalization of the social order as satisfying the individual’s wants could be dispensed with altogether. The revolutionary advance of “political theory which…with Machiavelli and Bodin, makes the relation of man to man, instead of the relations of man with God, the foundation of social enquiry”xv would be abandoned in favor of a return to theology. Although arguments along those lines are forcefully advanced by Catholic thinkers,xvi and in a shallow form constitute the stock-in-trade of the spokesmen of what might be called crude conservatism, they are not held in high esteem by most economists whose intellectual background is liberalism and rationalism.

Thus as the theological solution of the dilemma became untenable in the age of the scientific revolution and the advancing Enlightenment, bourgeois thought made an attempt to salvage the vitally important concept of the autonomous individual independent of society by freeing it of all religious connotations and placing it on a more rational, more scientific basis. It put into its place what was taken to be a biological and psychological fact: human nature. Comprising a bundle of physical traits and psychic instincts of the human species, human nature was postulated as invariant, and thus able to serve as a constant, universally agreed upon standard for judging the efficacy of any economic and social organization. This view which evolved in the age when the foundations of bourgeois ideology were laid, is probably best summarized in the statement of Hume: “Mankind are so much the same, in all times and places, that history informs us of nothing new or strange in this particular. Its chief use is only to discover the constant and universal principles of human nature.”xvii It is echoed in a remark of Voltaire: “Man in general has always been what he is. This does not mean that he has always had fine cities and so on: but he has always had the same instinct…”

To be sure, the history of thought on this subject displays a wide variety of opinions on the specific properties and what constitutes human nature, and to those who considered it to be essentially “good,” the thesis of its invariance served as a basis for both social criticism and the construction of schemes of ideal social organizations in which the “true” human nature would be allowed to come into its own.xviii Bourgeois economics, on the other hand, travelled a different course, and following the first major exponents of bourgeois-liberal thought, identified human nature “in general” with that of the man born, reared and living in the capitalist society.

No less than later on with Bentham who, as Marx observed, “with the driest naiveté…takes the modern shopkeeper, especially the English shopkeeper as the normal man,”xix do Hobbes and Locke equate the nature of man with that of their contemporaries in the already essentially capitalist England.xx If Hobbes “to get the state of nature…has set aside law, but not the socially acquired behaviour and desires of men,” Locke was “generalizing some attributes of seventeenth-century society and man as attributes of pre-civil society and of man as such.” And if Hobbes hypostatized the capitalist society and the capitalist man into a “natural” society and a “natural” man, Locke went so far as to “attribute to the state of nature a commercial economy, developed to the point where large estates (of thousands of acres) are privately appropriated for the production of commodities for profitable sale.”xxi

This simple view of the matter could hardly be maintained, however, in the light of accumulating anthropological and psychological evidence. For while changes in human attitudes towards many aspects of life have come about slowly and unevenly, today there can be no doubt that the most far-reaching transformation of human characters, propensities, tastes, and habits have taken place in the course of history. The postulate of an invariant human nature coinciding with the nature of capitalist man is thus no more tenable than that of an individual governed by the will of God.

As a consequence, the present position of economics in this regard is more sophisticated. Eschewing unsupportable ontological assertions, it seeks now to preserve the traditional doctrine by casting it into the form of a useful working hypothesis. Without questioning the occurrence of important changes of men in the course of historical development, it insists on the permissibility, or, indeed, necessity of abstracting from such historic specificities, and on the concentration on what all men have had—and therefore must be expected to retain—in common.xxii These common traits are treated then as the essential elements of human nature, or, at any rate, as those that primarily matter to economic thought. The strength of this approach lies in the fact that there are in all probability some aspects of economic behavior that men have had in common regardless of the socioeconomic formation in which they have lived. “Yet,”—as Marx already noted—“if the most highly developed languages have laws and characteristics in common with the most undeveloped ones, then we must above all single out what constitutes their development, the deviation from the common and the universal. This…must be segregated so that the essential diversity is not forgotten in view of the unity which indeed derives from the fact that the subject, mankind, and the object, nature, are the same. Forgetting this diversity, for instance, comprises the entire wisdom of modern economists who propound the eternity and harmony of existing social relations.”xxiii 1

Bourgeois economics has sought an escape from this predicament by substituting the so-called “rational” individual for the mythical autonomous individual. As capitalist firms are seen to maximize their profits, individuals are considered to maximize their utilities. The implications of this postulate are very important: although neither autonomous nor free the individual in capitalist society is treated as being (at least ideally) capable of and indeed pushed towards rational behavior. In our “enlightened” age this has weighty ideological advantages. Since the notion of rationality is thought of not only as wholly unambiguous but as an absolute standard of perfection independent of time and space,xxiv the concept of the “rational” individual carries a strong connotation of desirability and praiseworthiness. And the obvious and significant conclusion is that he who fails to comply with the precept of “rational” conduct is eo ipso “maladjusted,” a deviant to be consigned to the realm of social pathology.

This device, however, does not solve the problem; it merely conceals it. For the rationality to which reference is had, far from being “neutral” or “absolute,” is bourgeois rationality, the rationality of the capitalist market. In the words of Marx and Engels: “The bourgeoisie, wherever it has got the upper hand, has put an end to all feudal, patriarchal, idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to his ‘natural superiors,’ and has left remaining no other nexus between man and man than naked self-interest, than callous ‘cash payment.’ It has drowned the most heavenly ecstasies of religious fervour, of chivalrous enthusiasm, of philistine sentimentalism, in the icy water of egotistical calculation.”xxv Accordingly, the “rational” individual, the homo economicus following the precepts of the felicific calculus and indefatigably engaged in maximizing his satisfactions and minimizing his pains, who takes the place of the “autonomous” individual in bourgeois economics, is nothing but the “capitalist man” produced and reared by the capitalist society, steeped in its mores and “adjusted” to its requirements.xxvi Thus the circularity of bourgeois theorizing remains unbroken: the capitalist order cannot be justified by its capacity to satisfy the preferences of this particular species of “rational” man since this “rational” man is precisely one whose preferences and “values” are creations of the capitalist system itself.

Although this basic contradiction has been inherent in bourgeois economics from its very beginning, it is only under monopoly capitalism that it is assuming the dimensions of an ideological crisis. The “secret” of this crisis is actually the secret of monopoly capitalism itself. While the notion of the rational individual which underlies all bourgeois economic reasoning always implied the individual possessed of bourgeois rationality, it must be realized that during the youth of the capitalist system that rationality constituted an essentially progressive attitude. “At last compelled to face with sober senses his real conditions of life, and his relations with his kind,”xxvii the “capitalist man” represented a major step forward compared with his feudal predecessor. The concept of a calculating individual driven by self-interest and maximizing his satisfactions (and profits) not only depicted a man vigorously operating on the economic and social scene, but—what is most important—a man who was a powerful promoter of economic and social development, a mighty engine of economic growth. The image of the homo economicus was thus not only a useful “model” of reality, it also fulfilled an urgent hortative function: to induce people to behave in a manner conducive to the establishment and development of the capitalist system, which system in turn was expected to satisfy the wants of the people living under its sway.

To be sure, the wants of the individuals to which capitalism was supposed to cater were the wants of the capitalist individual. But in the earlier phase of capitalist development it could legitimately be assumed that these wants coincided to a large extent with genuine human needs, and that the capitalist mode of satisfying them, all its inadequacy and cruelty notwithstanding, was a great improvement over preceding social organizations in which these needs remained so largely unattended to. Thus, while it was never feasible to overcome the theoretical difficulty arising from the fact that the “autonomous” or rational individual, who provided the principal pillar of the bourgeois defense and justifications of capitalism, was never anything but the product of capitalism itself, still the practical significance of this inconsistency was relatively small in the progressive phase of capitalist development. At that time bourgeois rationality was in fact the historically most advanced form of rationality: the preferences, desires, and “values” of the individual operating in the market were in harmony with the requirements of the individual and of society as a whole.

Under such circumstances it was legitimate to assign secondary importance to the complex relations between human wants and human needs. The elementary nature of most people’s wants—for food and clothing, shelter and sanitation, transportation and literacy—justified the assumption of a far-reaching correspondence between wants and needs. Not that the capitalist order and specifically the capitalist enterprise did not mold and direct the wants and preferences of people under competitive capitalism. But the crucially important difference between competitive capitalism of old and its current monopolistic phase is the manner in which human wants and the nature of the goods that serve to satisfy them are determined. Under competitive capitalism, prior to the emergence of the giant corporation and its giant sales effort, the evolution of wants and the development of the commodities which both shaped and satisfied them was an elemental, quasi-natural process propelled by competitive interaction of all capitalist enterprises and by a conscious effort of none. Just as the price ruling in the market was a datum to the individual firm, so were the physical properties of the commodities which it produced and sought to sell. This is quite different in the case of the monopolistic producer. The purpose of his sales effort is no longer merely to promote the sales of commodities the function of which is to satisfy human needs prevailing at any given time. The purpose of his sales effort is to create wants which will generate the demand for his product. The monopolistic producer is thus not only in a position to manipulate the price and the volume of his output, he can also adapt the physical properties of his product to the requirements of his sales effort. The sales effort, in other words, develops from an auxiliary of the production process into an integral, and indeed decisively important part of it. What can be sold is no longer what is produced; on the contrary, what is produced is what it is possible to sell. In such a setting the molding of human wants and the designing of products to satisfy them cease to be a result of the objectified forces of the market and become the outcome of a conscious manipulative effort on the part of a relatively small number of monopolistic corporations.

The consequence of that effort, as we have already seen in Chapter 5 [The Sales Effort], is an interpenetration of sales and production endeavors. This interpenetration renders the distinction between the two increasingly problematical, and introduces uncertainty and ambiguity into the very concept of a commodity. It can no longer be assumed, as it once could, that the things which are bought and sold in the market serve to satisfy genuine human needs. In any given case, we may only be witnessing proof that some giant corporation has succeeded in generating a perfunctory want. The significance of this can hardly be exaggerated. As long as the need-satisfying quality of commodities could be taken for granted, all that mattered in terms of human welfare were the volume and distribution of output. There was no question about the approximate appropriateness of the physical composition of output.

Whatever validity these propositions may have had has been markedly reduced, if not altogether destroyed, in capitalism’s current monopolistic phase. If in the age of competition the “fictio juris that prevails, that every one, as a buyer, possesses an encyclopedic knowledge of commodities,”xxviii this is certainly no longer the case when we come to monopoly capitalism. Not only is there no possibility of assuming an “encyclopedic knowledge of commodities” on the part of the consumer, there is every reason to consider the consumer under monopoly capitalism as being exposed to a systematic dissemination of calculated ignorance, and to be subject to a planned campaign of all-pervasive obfuscation. With the individual’s wants being “highly elastic—to be extended or shrunk at the whim of those who manage the system,”xxix it becomes meaningless to treat his “revealed preferences” as indices of human needs. During both the competitive and the monopolistic phases of capitalism output has been produced with a view to the realization of profit. During both historical phases the realization of profit has been predicated upon the output satisfying some human wants. It is only under monopoly capitalism, however, that the connection between wants and needs is fatally severed; that the satisfaction of wants tends to bear a diminishing relation to the requirements of human welfare; that with a large and growing share of total human effort directed towards waste and destruction, bourgeois rationality turns into its opposite and becomes the organizational principle of regression.

3

The development which we have been examining had a devastating impact on bourgeois economics. That it has effectively undermined its overall ideological function—of defending and justifying the capitalist order—is clearly recognized by Professor Mason: “With the growing importance of product variation and selling efforts and with the development of increasingly close relations between the large corporations and the instrumentalities of mass communication, it becomes more and more difficult to prop up the wasting concept of consumer sovereignty. But, though this monarch is obviously on the way out, his successor is still to be found. The attack on the capitalist apologetic of the nineteenth century has been successful, but a satisfactory contemporary apologetic is still to be created.”xxx

What is less clearly realized is the damage suffered by nearly all the specific categories of traditional economic theory. With a large share of the output no longer satisfying human needs but catering to the manipulated wants of the producing corporations’ captive clientele and to the requirements of militaristic governments, it becomes increasingly uncertain as to what significance should be attached to variations in aggregate product. It is ironical but most characteristic of the present state of economics that the marked improvement of technical proficiency in measuring changes of national product and income is accompanied by a no less pronounced decline in the meaning of the concepts themselves.xxxi Correspondingly, as an important proportion of total human effort is devoted to the production of goods the demand for which is artificially generated by profit-seeking corporations, the rationality and productivity of the effort itself can no longer be taken for granted.xxxii And again, it is most remarkable (and by no means fortuitous) that under present conditions, which give to the distinction between productive and unproductive labor unprecedented significance, this distinction is uncompromisingly ruled out as “unscientific” by dominant economic thought. Alongside the always central problem of the distribution of output among social classes, there now arises the no less important question of the distribution of output between rational utilization and waste, between productive and destructive employment. Yet this latter distinction is taboo in bourgeois economic theorizing, while vast amounts of energy and ingenuity are spent on not overly illuminating researches into the former.

The situation is no better if we turn to other key concepts of economic theory. When the price of a commodity loses whatever relation to real cost it may have had under competition, and becomes to a considerable extent an index of the degree of monopoly power enjoyed by its seller, that price cannot possibly serve as a measure of relative scarcity and as a valid criterion for the rational allocation of resources. As pointed out by Kalecki, “it is indeed paradoxical that, while the apologists of capitalism usually consider the ‘price mechanism’ to be the great advantage of the capitalist system, price flexibility proves to be characteristic of the socialist economy,”xxxiii 2 and—we may add—gets all but lost under monopoly capitalism.

Or consider the meaning and function of profits. As long as the rate of profit earned by capitalist enterprise could be regarded as indicating, if ever so approximately, productive efficiency and capacity to satisfy consumer demand, and the equalization of the rates of profit could be thought of as a mechanism for shifting resources from less productive to more productive employment, profit could be treated as an imperfect but nonetheless indispensable mechanism for the regulation of the capitalist economy. Such treatment is surely inappropriate when the magnitude of profit is determined in monopolistic markets and depends on such factors as the volume of selling costs, the monopolist’s public relations policy, the extent of monopolistically shielded inefficiency, skill in procuring armaments contracts or other governmental favors; and when the equalization of profits (and migration of capital from one industry to another) is effectively blocked by variable but high and rising barriers to entry.

Nor is it possible under monopolistic conditions to use in an unambiguous way the notion of investment. Treated as a synonym of accumulation of physical capital (plant, equipment, but also stocks of raw materials and finished products), the term investment connoted in economic literature an increase in society’s productive potential, a strengthening of what Marshall called its “mechanical arm.” This is what the word still suggests in socialist countries and in underdeveloped capitalist countries. But what meaning is there to be attached to it in monopoly capitalism when a vast proportion of total “investment” is directed towards advertising and building up trade-marks, towards construction of sumptuous palaces housing the executive offices of giant corporations, towards development of so-called research departments the chief function of which is frequently the discovery of new methods of marketing and product variation? And what progressive part is played by investment in ever new factories producing means of mass destruction?

To be sure, as far as short-term fluctuations of national income are concerned, it makes little difference into which channels investment outlays flow and what their physical counterparts are. Digging ditches and filling them up again is from that standpoint as good as building factories.xxxiv In fact, the former is preferable since it does not, as the latter does, expand existing excess capacities and thus set up roadblocks to future investment. It is clear, however, that to the country’s long-term economic and cultural growth it makes a vast difference whether the part of economic surplus that goes into investment is devoted to the enhancement of its productivity or is sacrificed on the altar of corporate profit maximization.

Equally serious is the question whether the conventional notions about the possibility of income redistribution and resource allocation as between the private and the public sector have any significance under monopoly capitalism. If monopolistic enterprises are in a position to shift a sizable proportion, if not all, of their tax load onto the consumer, if, in other words, taxes tend not to affect the profits of giant corporations but chiefly wages, salaries and profits earned in the competitive branches of the economy, what is left of the time-honored theory of the incidence of taxation and of the programs for social reform under capitalism which are to be attained by means of taxation?

These examples of the incapacity of bourgeois economics to deal with the issues raised by monopoly capitalism could be elaborated and multiplied. We believe, however, that enough has been said to support our contention that a comprehension of the laws of motion of monopoly capitalism is predicated not merely upon placing monopoly at the center of the analytical stage, but also upon an uncompromising readiness to jettison the fetishistic concepts and notions which conceal in an impenetrable fog the crucially important processes unfolding in our society.

4

While thus most of bourgeois economics not only fails to offer an approach to an understanding of monopoly capitalism but actually tends to obscure the nature of the issues involved, the situation is quite different when we come to Marxian economic theory.3 Although very much in need of further development and elaboration, and although containing elements which have lost much of their relevance under present conditions, it constitutes the only basis from which it is possible to visualize the overall functioning of the “corporate system.” Here, as in so many other cases, the proof of the pudding lies in the eating and may be at least partly supplied, if the present volume should succeed in shedding some light on the working principles of a Big Business-dominated society. What calls for some extended discussion, however, is a concept which is central to both Marxian economic theory and our attempt to analyze monopoly capitalism. This concept is “economic surplus” and it may well be asked, why we complicate matters by introducing an unfamiliar expression instead of relying on the conventional terms “profits” and “surplus value.” The terminological question reflects a most important substantive problem.

Little needs to be said about the inadequacy of the category profits for the purpose of the present analysis. For while being a most important economic variable deserving of attentive study in some contexts (particularly in connection with short-term fluctuations of national income and employment), profits constitute only a part of the larger aggregate which, we think, needs to be examined for the understanding of economic and social development. This was clear to Adam Smith, and in this regard as in many others the evolution of economic theory has been pronouncedly retrograde. Indeed, treating profits as reward for enterprise, ground rent as “yield” of land, interest as compensation for “waiting,” “abstinence,” or “risk-bearing,” and mercantile revenues as somehow exuding from the process of distribution or trade, or agnostically taking all these income streams for granted and refraining from exploring their origins, bourgeois economics has been to this very day obscuring the nature of the mainspring from which all these revenues flow.

This mainspring is captured in Marx’s fundamental concept of “surplus value.” It offers, in fact, as Engels claimed, the “key for the understanding of the entire capitalist production” but only “provided you knew how to use it.”xxxv But it would be indeed nothing short of a miracle if the key capable of opening the door to the understanding of capitalism in the competitive stage would fit equally well the much more complicated lock barring the way to the comprehension of its modus operandi in the monopolistic stage. To serve the latter purpose, it needs some refinements.

Stripped down to the barest essentials, the Marxian theory of surplus value postulates the following: In the capitalist economy a good (or service) becomes a commodity on the strength of two characteristics. First, because it possesses use value, i.e. the capacity to satisfy a human want, and secondly, because it has exchange value, i.e. the ability to provide its owner with a quid pro quo in the form of other commodities. Whereas use value derives from the physical quality of goods and services, exchange value is something which goods and services acquire only in an economy based upon division of labor and which turns them under capitalism into commodities. Thus having use value is a necessary but not sufficient condition for an object’s possession of exchange value. It can have the former without the latter; it cannot have the latter without the former.

The use values of goods and services, referring as they do to their ability to gratify human desires are not quantifiable and therefore not commensurate. Moreover, denoting a relation of men to things, they are subject to psychological study but are of no direct relevance to political economy the concern of which is the social interrelation of men. Yet under capitalism this social interrelation takes chiefly the form of an interrelation of things, and the interrelation of things under capitalism expresses itself in their exchange values.

The exchange value of a commodity is determined by the quantity of labor socially necessary for its production. The qualification “socially necessary” is crucial and has two distinct connotations. In the first place, the effort expended in the production of a unit of output must be such as to correspond to the technologically determined (and competitively enforced) average productivity prevailing in the industry in question. Labor expenditures in excess of that average are disregarded by the market, with the producers involved thus placed under pressure to increase their productive efficiency; while labor savings by comparison to that average yield a differential gain on over-average productivity—a fleeting advantage disappearing as soon as other producers emulate the leading ones. Secondly, the aggregate labor input in the production of a given commodity must be such as to yield a quantity of output that corresponds to the market demand for it. The allocation of labor to the production of a quantity of a commodity that is in excess of the market demand—even if the labor applied to a unit of output is socially necessary in the first, technological sense—leads to a depreciation of the commodity in question with the result that in this case also the excessive labor input is disregarded in the market and the producers are thus induced to curtail their production. Conversely, the production of a commodity in a quantity insufficient to meet the existing demand leads to an appreciation of that commodity with a differential gain accruing to its producers and leading in due course to an expansion of output.xxxvi

What applies to commodities in general, applies also with certain modifications to what might be called the principal commodity entering the capitalist market: labor power. Its value is also determined by the labor socially necessary for its production, although this relation is more complicated than in the case of other commodities. One aspect is unproblematical: the lower the value of the commodities required for the production and reproduction of labor power (wage goods broadly speaking), the lower the value of labor power itself and vice versa. But what is the quantity of commodities that is “socially necessary” for the production and reproduction of labor power?xxxvii That quantity is determined by both natural and historical factors; it differs from country to country and from one period of historical development to another.xxxviii That it should provide the bare physiological minimum to the worker and his family actually represents a special case under the general rule, a case corresponding to an early, low stage of capitalism. What renders this case very important, however, is that it focuses attention on the central tenet of the theory, namely that the value of labor power is determined by the value of a historically changing but at any particular time definite quantity of wage goods, and that value constitutes in any given place and at any given time an irreducible minimum.xxxix As we shall see later on, this aspect of the theory of surplus value is essential to Marx’s entire argument.

Like any person paying in the market the exchange value of a commodity, the capitalist buying the commodity labor power acquires the enjoyment of its use value. And this brings us to the heart of the doctrine. The use value of the commodity labor power in the hands of its consumer is of an exceptional nature: it consists of the capacity to produce exchange value, and what is more, an exchange value that is larger than it embodies. In other words, the exchange value of the commodities socially necessary for the production and reproduction of labor power for a period of, say, one day or one week is smaller than the exchange value created by the use of that labor power during the same period. In the time which constitutes the difference between the hours which the worker works for the capitalist and the hours required for the production of the wage goods he receives, the worker produces surplus value. As can be seen, the emergence of surplus value is not seen as due to injustice, unequal exchange, or frictions resulting from disequilibrium. On the contrary, surplus value arises under equilibrium conditions of equivalent exchange, owes its existence to the fact that the commodity labor power has to the capitalist buyer a use value which consists of it being able to generate more exchange value than it contains. It is as “just” or as “unjust” as the capitalist system itself.xl

The question which immediately arises and which some writers believe to be very damaging to the concept of surplus value is why the worker should be content to sell his labor power for its exchange value rather than insist on getting the exchange value which the employment of his labor power creates. It has been argued that under conditions of competition the latter demand of the worker would have to be satisfied because employers would bid up the prices paid to the worker for his labor power, with the result that all of the surplus value produced would accrue to the worker himself. This argument is fallacious because it abstracts from essential aspects of capitalism. Indeed, for such bidding-up to take place, the demand for labor power must exceed its supply, i.e. the number of job-vacancies must be constantly (and substantially) larger than the number of job-seekers. Yet under capitalism, demand for labor power is exercised only with a view to the appropriation of the surplus value which the use of labor power generates. Should the buyer of labor power be unable to acquire surplus value as a result of his purchase, the transaction would be pointless to him. But for the use of labor power to be capable of resulting in the production of both the value of labor power itself and surplus value, it must be organized on a certain minimum level of efficiency. Given any value of labor power, the higher that level of efficiency, the larger is the share of labor time that creates surplus value. Therefore only those who are in possession of productivity-increasing means of production can be interested in buying labor power in the market.

Thus the demand for labor power depends not simply on the desire of individuals to secure a commodity in the market which can yield surplus value to its buyer. This demand, like all demand in the capitalist economy, must be effective demand, i.e. it must be backed up by adequate purchasing power. In the case of labor power, however, demand is rendered effective not merely by the capacity to pay the exchange value of labor power—this is sufficient for the acquisition of the labor power of a servant—but the disposal over a quantity of means of production which would assure that labor power bought and used would produce its own value as well as surplus value for the buyer. In other words, the demand for labor power is limited by the availability of capital to the would-be buyer.xli Consequently the aggregate demand for labor power is circumscribed by the prevailing level of technology and the aggregate quantity of the means of production at the disposal of the capitalist class at any given time.

There is still, however, a large gap in the argument. We have seen that the capitalist who is in possession of the necessary means of production can buy labor power in the market provided the use of labor power reproduces its own value and in addition yields surplus value to the capitalist. But how much surplus value is needed to render this transaction attractive to the capitalist? There is no definite answer to this question. There is obviously always “room at the top,” and the more surplus value can be realized, the stronger the urge of the capitalist to buy labor power. When it comes to the floor below which surplus value cannot fall, if the capitalists’ demand for labor power is not to decline or even disappear, its location has been rather flexible.4 To be sure, there are a number of factors which enter into the determination of that floor. Investing in plant and equipment, buying raw materials, and contracting for labor power is a risky enterprise. The surplus value which the capitalist expects to realize must therefore be large enough to induce him to incur the risks and uncertainties involved. Moreover, since it is possession of capital that enables the capitalist to purchase labor power in the market and to secure surplus value, the disposal over capital commands a price—the rate of interest—even as disposal over land suitable for use commands rent. Similarly, the sale and distribution of products involve costs and give rise to profits accruing to merchants. Although all of these—interest, rent, and mercantile profit—constitute nothing but shares of surplus value claimed by moneylenders, land owners, and traders, to the individual capitalist their magnitude at any given time is as much a datum as the value of labor power, and has to be considered as such in calculating the amount of surplus value required to induce him to demand labor power in the market. In addition there is what might be called a strictly conventional element to be taken into account: the rate of return that a capitalist is accustomed to receiving under the general conditions prevailing in his society. This conventional rate of return has varied over the life-span of capitalism, and is probably lower now in advanced capitalist countries than it used to be a couple of centuries ago or, for that matter, still is in most backward capitalist countries.

It is important to note, although in the present connection we need not do more than note, a further relation between the magnitude of surplus value and the demand for labor power. This relation is established by the fact that it is the surplus value currently produced and accumulated which constitutes the source of additional capital needed for the acquisition of additional labor power by the capitalists. Thus the larger the magnitude of surplus value, the larger is not only the inducement of the capitalist to buy labor power but also the larger the amount of additional capital available for the purpose.xlii

Thus in a capitalist economy the bidding for labor power on the part of the would-be buyers takes place within more or less definite limits. These limits are set by the availability of capital to the capitalist class, by the prevailing level of technology and productivity accounting for the amount of capital required per worker, and by the magnitude of the surplus value extractable from the purchase of labor power, with the last-mentioned factor determining both the intensity of the inducement to purchase labor power and the rate of capital accumulation that serves to support the expansion of the demand for it.

Matters are no less complex when it comes to the supply of labor power. There is first of all the simple but decisive fact that under capitalism the vast majority of people have no means of production of their own, are therefore incapable of producing their sustenance, and are accordingly compelled to compete with each other for opportunities to sell their labor power. The number of such people is continuously on the increase: through the growth of population as well as through the progressing expansion of the capitalist mode of production, i.e. the displacement of the less productive artisan, farmer, merchant, etc. by the concentrated, more efficient, and technologically advanced units of production. This displacement not only enlarges the number of those who are offering their labor power for sale on the market but gives rise to technological unemployment within the industrial labor force by substituting machines for labor. Advances in technology produce new inducements to the capitalist to introduce labor-saving devices, and cause the emergence and re-emergence of what Marx called the “industrial reserve army.” Thus there is a strong tendency for the reservoir of available labor to be regularly replenished, not for fortuitous reasons but owing to the very nature of the process of capital accumulation. While increases in the value of labor power reinforce that tendency by stimulating the introduction of labor-saving machines, there are also counteracting forces at work which reduce the excess supply of labor power. The legal prohibition or curtailment of child labor, the slow but steady decline in the length of the work week, earlier retirement of the aged, and withdrawal of a larger number of women from the labor force, as well as institutions such as paid vacations all cause a lesser number of labor hours to be offered for sale in the market. Nevertheless historical experience thus far presents only rare, short, and usually war-connected, phases of actual labor shortage. The normal condition in capitalist economies has been a more or less severe surplus of labor power in relation to demand, with the result that competition among workers for jobs rather than bidding up of labor power among capitalists has been the dominant feature of the labor market. Under such conditions workers cannot possibly aspire to appropriate the surplus value which their labor power creates.

This thumbnail sketch leaves out of account a number of important aspects of Marx’s theory of surplus value, in particular the problem of the distribution of the aggregate surplus value produced in society among the individual capitalist enterprises participating in its generation. Governed by the competitive process of equalization of the rates of profit and the resulting transformation of values into prices, this set of relations plays a major part in Marx’s understanding of the mode of operation of the capitalist system. While we will have to return to some aspects of this matter, we may leave it aside at this stage of our discussion, because what we are concerned with now is neither the apportionment of aggregate surplus value among the individual capitalist firms nor the process of price formation through which the apportionment takes place. Our interest at the moment centers on the magnitude of surplus value, the mechanism of its generation, and the mode of its utilization. It is central to the argument developed in this book that the transition of capitalism from a competitive to a monopolistic structure has wrought such important changes in all of these relations, that they must be subjected to a new analysis.

During the earlier, competitive phase of capitalist development, the aggregate surplus value produced by society in any period of time could be considered to be a fairly narrowly circumscribed magnitude. It is the difference between the national output of a given period (net of replacement of means of production and raw materials used up in the process of production) and the aggregate value of labor power consumed in the generation of that output. Reckoning in value terms and assuming that wages correspond to the value of labor power, the aggregate surplus value is the difference between the value of aggregate net output and the aggregate wage bill. Leaving aside transactions with foreign countries, it is this surplus value aggregate, which, under competitive conditions, is the source of the manifold forms of non-labor income: industrial and mercantile profits, rent, interest, salaries of government employees, soldiers, domestic servants, and so forth. Indeed, apart from “returns” on swindle, thievery, and the like which are distributed at random and cancel out, there is in society no other source of proprietary or entrepreneurial incomes.xliii To the extent to which there are firms in the system that enjoy some degree of monopoly power, their monopoly profits affect only the distribution of the surplus value aggregate among capitalist firms but not the distribution of aggregate output between labor income and surplus value.xliv

For this to be true, however, the value of labor power must be definite, and, what is most important, at any given time an irreducible magnitude.5 In other words, the quantity of wage goods received by the worker in exchange for his labor power must be fixed within narrow limits by the necessary minimum of subsistence, however defined. As we have seen, this does not imply a physiological subsistence minimum, and is fully compatible with what Marx called the “socially necessary” living standard of the worker. But it does require that the quantity of wage goods received by the worker should really be socially necessary, i.e. that in its absence the supply of labor power would not be forthcoming in the required quantity and/or quality. Under such circumstances, with a given number of workers, aggregate surplus value can increase or decline only if the productivity of labor increases or declines, or if the number of labor hours supplied for a given wage increases or declines.

But as the price of labor power (the level of wage) rises in the course of capitalist development to a level significantly higher than the socially necessary minimum, matters become much more complicated. The value of labor power ceases to be a definite irreducible magnitude, it becomes rather a flexible quantity susceptible to significant variations. Monopolistic profits can be earned under such circumstances not merely by the monopolists’ redistributing the aggregate surplus value in their favor, but by increasing what is appropriated by the capitalist class beyond the surplus value aggregate by means of a price policy that reduces the real wages of labor.xlv

Marx referred to this increase as “profits by deduction”xlvi and considered it to be a fleeting and negligible phenomenon.6 In a phase of capitalist development in which on the one hand wages were irreducible (at or near the subsistence minimum) and on the other hand competition was the prevalent form of the market structure, such “profits by deduction” could have been legitimately disregarded or assigned merely secondary importance. At the present time, however, when wages are markedly above the irreducible minimum and when the bulk of output is sold at monopolistic prices, “profits by deduction” assume a major significance and can no longer be considered to constitute a source of merely minor variations of the surplus value aggregate. This means, however, that the magnitude of the surplus value aggregate is no longer determined (everything else being equal) by the value of the aggregate labor power employed and its productivity. The division of the national product between surplus value and wages is then no longer established in the process of production alone, but also in the process of circulation.7

Correspondingly, to the extent to which monopolistic firms are able to shift their vast selling, advertising, and administrative costs as well as a more or less sizable proportion of their tax load onto the wage-earning consumers, the costs of maintaining advertising agents, salesmen, and the like as well as the costs of the government’s civilian and military establishment can no longer be considered as pure and simple drawings on the surplus value aggregate. They too are supported to a greater or lesser degree by a process of “deduction.”8

As can be readily seen, this difference between what we call “economic surplus” and aggregate surplus value is the result of the ascendancy of monopolistic enterprise and of the historical rise in the level of wages, leading to the incorporation in wages of a “surplus” element. There is, however, a further difference which stems from what was previously termed the interpenetration of the sales and production endeavors, a phenomenon that is a novum to both bourgeois and Marxian economics.

Not that Marx neglected in his analysis of the capitalist process the costs of distribution. On the contrary, they received full attention, and were treated either as a part of the normal costs of production (transportation, storage, crating, packaging, etc.) or as a deduction from the surplus value created in the industrial process (profits of merchants, middlemen, agents, etc.). Yet his approach to the matter was limited by two assumptions which were basic to this aspect of his theory. One was that “profits by deduction,” to which reference was had before, cannot be but negligible in view of the irreducibility of the prevailing wages; and the other, that the process of distribution and the sales costs related to it constitute, as it were, an independent superstructure resting upon the process of production. In other words, in this context he treated commodities produced as standard goods possessing a clearly defined use value, with the cost of distribution being incurred in order to realize their exchange value. The nature of the use value did not require consideration. All that matters for the realization of the commodity’s exchange value is that it should satisfy human wants “whether, for instance, they spring from the stomach or from fancy”xlvii—with the important proviso that those wants are associated with adequate effective demand. So weighty, indeed, is this proviso that Marx’s analysis of the working principles of capitalism was concerned primarily with the exploration of the factors determining the volume, the fluctuations, and the distribution of income which is the measure of effective demand.

This is not to suggest that Marx took a static view of the nature of human wants. Beginning with his earliest writings, he repeatedly drew attention to the historical mutations of the standards of utility and therefore of the physical properties of what constitutes an object of utility or use value.xlviii Nor did he fail to realize the decisive significance of the distribution of income for the structure and composition of consumption. And yet the historical evolution of wants and their concrete morphology remained admittedly outside of his immediate concern, which was the analysis of competitive capitalism.xlix

The reasons for this were twofold. Having determined that production was the strategic “independent variable,” Marx could safely ignore the specificity of consumption and the development of wants, at least on the level of abstraction to which he adhered. But more important perhaps was another consideration to which reference was had before. The new wants rapidly emerging and proliferating under the impact of capitalist development for the most part reflected genuine human needs, catered to a powerful urge for an improvement of what in absolute terms was still a miserably low standard of living, and called therefore for the production of relatively simple standard commodities. Even the requirements of the new upper class—the ascending and growing bourgeoisie—were as yet far from extravagant; the ineluctable necessity to accumulate, to plow capital back into business puts severe limits on luxury and waste.l

The situation changes markedly, however, if the process of production itself is geared to the creation and manipulation of wants, if, in other words, the costs of realization of the commodities becomes all but indistinguishable from the costs of production of those commodities. To be sure, some selling costs retain their earlier status: transportation and packing for example remain outright, identifiable parts of costs of production. Merchants’ revenues are equally obviously shares of surplus value—to the extent that they do not represent profits by deduction. Those production activities, however, which are nothing but disguised selling costs create a new problem. Indeed, what in a competitive economy was an exceptional case—the clothes designer and the garment manufacturer inventing and placing on the market ever new fashions in the attires of ladies and gentlemen in order to kindle and rekindle their demand for his wares—turns in a monopolistic economy into a ubiquitous phenomenon. The sales force of a modern corporation comprises not only the salesmen, advertising specialists, and credit managers, but also a considerable proportion of the personnel that is engaged in the production process proper. The designer of a new model of a consumer durable good, the engineer retooling the factory for the production of that model, the blue-collar worker affixing chrome to the automobile or compounding a new “edition” of a toothpaste, the printer manufacturing a fancy new wrapper for an old soap, and the construction worker helping to build a new corporate “crystal palace” are all members of the huge sales army which is supported by a considerable part of society’s output. All of them, regardless of whether they wear white collars or blue collars, whether they work in the sales offices or on the conveyor belts, are not productive workers who produce surplus value, all appearance to the contrary notwithstanding. They consume a slice of the aggregate surplus value just like the domestic servant of the capitalist, and leaving them out of account in measuring the aggregate surplus value in conventional terms understates pro tanto the total volume of the surplus.li

The necessity for this adjustment of the surplus value aggregate leaves us confronted with a considerable difficulty: how to define unambiguously what is meant by “economic surplus.” One possibility would be to measure the difference between the actually forthcoming aggregate output and the socially necessary costs of production. While representing a major step in the right direction, this procedure has the drawback that it does not take into account the costly and wasteful modifications of the physical nature of output that are caused by the exigencies of the profit maximization policies and sales efforts of monopolistic business.lii A more precise definition would be therefore the difference between the value of resources employed in the production of the output generated by the corporate system and the value of resources which would be required to produce an equivalent output unadulterated by phony product differentiation, artificial obsolescence, and the like. That this difference is not readily measured needs hardly to be stressed. The difficulty in measuring a phenomenon should not be used, however, as an excuse for denying its existence.liii 9

Notes

1. ↩As explained in the introduction, the extant manuscripts of this chapter include: (1) a forty-two-page typescript which was hand-edited by Sweezy in December 1962 and to some extent March 1964 and (2) a more finished nineteen-page (cut-and-pasted) typescript of section I and part of section II of the chapter incorporating these edits together with additions to the original in the final pages addressing the question of human nature. The text here has been based up until this point on the second more finished, but partial manuscript. That version, however, ends at this point, and it is necessary to revert to the longer, typescript, with Sweezy’s hand-edits. Although the exact transition point between the two typescripts is unclear, the text here continues on the basis of the longer, hand-copyedited typescript in a way that appears to conform to the intentions of the authors.In order to link the two manuscripts the following paragraph in the shorter, nineteen-page manuscript has been removed from the text itself. That paragraph reads: “No less important than overemphasizing of what is common as against what is peculiar to men living under particular socioeconomic structures is the concrete specification of what is considered to be common features characterizing men throughout history. Indeed, the selection of what is designed as such common features is decisive for the conclusions to be drawn from the entire argument: if insatiability of wants, compulsion to compete, lust for power and aggressiveness are the common characteristics of men observed under all social and economic systems, human nature turns out once more to be that of the capitalist man—quite independently of the economic and social order in which he lives.”
2. ↩ Sweezy indicated on the manuscript that this quote seemed out of place and should probably be removed. It has been retained here, however, on the grounds that it adds to the argument.
3. ↩ With respect to the section on Marxian economics in the original draft of this chapter, Sweezy wrote in his letter to Baran on December 5, 1962: “On the whole, I think the section dealing with Marxian theory is better than that dealing with bourgeois theory, but here again there is room for improvement. Specifically, I have made the following comment on the last page [Editor’s Note: Here he provides the statement, included in endnote 9 to “Some Theoretical Implications,” from his original marginal notes to the manuscript]. In addition, I think my profit-vs.-surplus diagram could be usefully incorporated and that a rough breakdown of the labor force into surplus producers and surplus eaters (using actual statistics) would also be of value.”
4. ↩ Sentence deleted by Sweezy: “What is required, in other words, is what might be called a socially necessary rate of surplus value, i.e. a rate which changes not unlike the value of labor power itself from country to country and from one historical period to another.”
5. ↩ Baran and Sweezy’s usage here is based on Marx: “The foundation of modern political economy, whose business is the analysis of capitalist production, is the conception of the value of labour-power as something fixed, as a given magnitude—as indeed it is in practice in each particular case.” Karl Marx, Theories of Surplus Value, Part 1 (Moscow: Progress Publishers, 1963), 44. “It is practically sure that…the standard of necessary labour may differ at various epochs and in various countries…at any given epoch the standard is to be considered and acted upon as a fixed one by capital. To consider those changes themselves belongs altogether to the chapter treating of wage labour.” Grundrisse (London: Penguin, 1973), 817.
6. ↩ At this point Sweezy wrote on the manuscript (in comments intended for Baran): “The point I would make here is that Marx thought wages were frequently in fact and for long periods depressed below even the minimum subsistence level with a resultant wearing out of the labor force. This was profit by deduction and certainly neither fleeting nor unimportant in Volume 1 of Capital. It isn’t what you are talking about but I don’t think it should be ignored and still less treated as non-existent.”
7. ↩ The category of profits from deduction, upon which Baran and Sweezy focus here, plays an important, but seldom acknowledged, role in the analysis of Marx and Engels. See the editor’s introduction.
8. ↩ Sweezy included a typed note intended for Baran at this point on the manuscript: “This section needs elaboration. As it now stands, one gets the impression that what is involved is a rise in real wages followed by a raising of monopoly prices and a consequent appropriation by deduction of additional surplus. The counterpart of the latter should be a fall in real wages. This of course is not what happens. The point is that real wages of productive workers rise much more slowly than their productivity, with monopoly permitting the swelling surplus to be siphoned off in various forms. In practice, this is disguised because many of the forms taken by the swelling surplus involve employers and employees (like straight merchandising in Marx). Here is where we can stress the whole biz of g and l labor, productive and unproductive, etc.” Sweezy later added in handwriting: “This note was written on first reading, but I think it is still valid.”
9. ↩ Note by Paul Sweezy at the end of manuscript (written on first reading in December 1962): “This last paragraph needs redoing to take account at least of the following: your own bread loaf example, which clarifies the process very well; (2) such things as redundant distribution facilities because of market imperfections and price rigidities (too many gas stations, etc.); (3) the empirical study of Kaysen, et. al. of the costs of car-model change shenanigans; and (4) the analysis of earlier chapters (chapter 5), which had not been written when you drafted this chapter.” Further note added by Sweezy on second reading: “The end of this chapter is the place for referring the reader to Joe Phillips’ appendix as a rough effort to measure the relevant orders of magnitude.”