The Classics (continued)

Optional. Karl Marx (1818-1883). �Labor-value and price

• Marx believed that, beneath the appearance of an equal rate of profit (which can lead to the mistaken belief that the surplus is produced by all capital), the essence of capitalism is that the surplus exists because working hours are extended beyond what is necessary for the maintenance of workers and the economic system. However, competition causes the surplus to circulate among capitalists according to a different law than the one governing its production. Therefore, to understand capitalism, one must understand the combined operation of the surplus production process and the surplus circulation process.
• Extending working days beyond what is necessary means that the surplus (value) is produced in proportion to the labor employed (in accordance with Ricardo's law of labor-values, of an equal rate of surplus value).
• That is why wages are a “variable capital”, because they vary by producing the surplus (or surplus value), while the rest of the inputs are a “constant capital”, because their value is only transferred to the product.
• Rate of surplus value = surplus value / variable capital. Labor values imply an equal rate of surplus value in the processes.
• Marx's theory of exploitation is not an ethical or moral analysis of capitalism but a scientific theory; it is a study of the production of surplus by human labor, with the extension of working days.
• Competition between capitals determines that the surplus circulates between capitals in proportion to the capital employed (according to Smith's law of prices, of an equal rate of profit).
• That is why it appears that the law of an equal rate of profit is fulfilled.
• Rate of profit = surplus value / constant and variable capital. Prices imply an equal rate of profit in the processes.
• To approach the facts we must take into account the two processes, we must start from the labor values and the rate of surplus value but we must "transform" these magnitudes to obtain the prices and the rate of profit .
• Prices are transformed human labor; labor is the substance that takes the form of price under capitalist competition.
• The need for transformation in theory is a reflection of the existence of a real process, the circulation of surplus through competition.
• The appearance of an equal rate of profit hides the essence: the value of the surplus is generated by human labor.
• Marx criticizes classical political economy:
• Smithian positions as circular and superficial. The law of production costs is superficial because it disregards the essential: human labor is what generates the surplus.
• He rejects Ricardian positions because labor values are a poor approximation. Ricardo's law fails to account for the fact that the circulation of surplus among capital causes prices to diverge significantly from labor values.
• Capital I, II, III, https://archive.org/details/marx-el-capital-obra-complete
• Theories on Surplus Value, FCE, 1980, https://archive.org/details/marx-theories-on-surplus-value-ll/Marx%20Theories%20on%20surplus-value%20I/
• Texts by Marx and Engels in Spanish, https://sites.google.com/site/manuelmuinhospan/referencias/marx-engels

Pricing for classic cars. Scheme

• Classical economists understood the long-term price of something based on the production cost necessary to produce it, based on the thing's past. They knew this theory was incomplete:
• Because it did not apply to all things, only to those that could be produced (and not, for example, to land).
• Because it was only true in the long term, and not in the short term.
• According to the Ricardians and Marx, because it implied falling into a circularity, which forced one to start from labor-values.
• Historical development:
• Before the classics: Aristotelians, labor-value as a fair price.
• Smithian school , labor theory of value only in the "rough and primitive stage", theory of the cost of production in capitalism.
• Torrents, Malthus, Say , Sismondi
• Ricardians are criticized because their work values do not comply with the law of profitability.
• Ricardian school , labor-value as an approach in capitalism.
• Mill (father), McCulloch.
• Smithians are criticized because their theory of production costs is circular.
• John Stuart Mill , an eclectic synthesis of Smithians and Ricardians: prices as a cost of production but labor-values as an approximation.
• Marx , a synthesis that surpasses Smithians and Ricardians: labor-values are the substance of price, not an approximation.
• After the classics, a partial vindication of the classics, not so much of the theory of the cost of production as with the " objectivist" view of value depending on the objective conditions of production:
• Leontief , Sraffa , and Von Neumann equations .
• If you want to delve deeper into this, but only if you want to, an outline of the classics can be found on pages 261 to 265 of my thesis (sorry for the self-citation ), https://sites.google.com/site/manuelmuinhospan

Optional. Marx on the injustice of capitalism

Wages, Price and Profit , page 51, https://archive.org/details/marx-k.-salario-precio-y-ganancia-completo-136-paginas/page/51

Capital I, page 8, https://archive.org/details/ElCapital.LibroPrimerovol.1K.Marx/page/n47

Optional. Marx on the injustice of capitalism. �Traduttore , traditore

It is not clear what constitutes a “ deduction from the worker ,” a deduction from their skin, etc. Now, in my presentation, capital gain is not actually “just a deduction or a ‘theft’ from the worker .” On the contrary, I represent the capitalist as a necessary functionary of capitalist production and show extensively that they not only “ withdraw ” or “ steal ,” but actually compel the production of surplus value —that is, they help to create what must be withdrawn . I further show in detail that even if only equivalents were exchanged in the exchange of goods , the capitalist—as soon as they pay the worker the real value of their labor power—would rightfully obtain the surplus value , that is, the right corresponding to this mode of production.

Was ein „ Abzug am Arbeiter “ ist, Abzug seiner Haut etc., ist nicht erfindlich. Nun ist in my Darstellung in der Tat auch der Kapitalgewinn nicht „nur ein Abzug oder ‚Raub' am Arbeiter“ . Ich stelle umgekehrt den Kapitalist als notwendigen Funktionär der kapitalistischen Production dar und zeige sehr weitläufig dar, daß er nicht nur „ abzieht “ oder „ raubt “, sondern die Produktion des Mehrwerts erzwingt , also das Abzuziehende erst Schaffen Hilft; ich zeige ferner ausführlich nach, daß, selbst wenn im Warenaustausch nur Äquivalente sich austauschten, der Kapitalist—sobald er dem Arbeiter den wirklichen Wert seiner Arbeitskraft zahlt—mit vollem Recht, dh dem dieser Produktionsweise entsprechenden Recht, den Mehrwert gewänne.

Marginal notes to Adolph Wagner's treatise on political economy , page 37,

https://espai-marx.net/elsarbres/review/cuadernos-pyp-97-karl-marx-notas-marginales-al-tratado-de-economia-politica-de-adolph-wagner/

https://www.marxists.org/archive/marx/works/1881/01/wagner.htm

Optional. Marx and Engels on the injustice of slavery

Engels (and Marx), Anti- Dühring , page 73, https://historiaycritica.files.wordpress.com/2013/06/engels-anti-duhring.pdf

Marx: Productive forces and classes

Preface to A Contribution to the Critique of Political Economy . 1859. https://archive.org/details/marx-karl.-contribucion-a-la-critica-de-la-economia-politica-2007

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Manifesto of the Communist Party . Marx and Engels, 1848, https://archive.org/details/marx-manifiesto-comunista_202304

“The history of all hitherto existing society is the history of class struggles. Freeman and slave, patrician and plebeian, lord and serf, master and journeyman, in short, oppressor and oppressed, have stood in opposition to one another, have carried on an uninterrupted, now hidden, now open, struggle, a struggle which in every case ended either in a revolutionary transformation of society at large, or in the common ruin of the contending classes.

In the early periods of history, we find almost everywhere a complete division of society into different estates, a multifaceted hierarchy of social positions. In ancient Rome, we have patricians, knights, plebeians, and slaves; in the Middle Ages, feudal lords, vassals, masters, journeymen, and serfs; and, as if that weren't enough, in almost all of these classes, we must add further gradations.

Modern bourgeois society, which arose from the collapse of feudal society, has not abolished class contradictions. It has merely replaced the old classes, the old conditions of oppression, and the old forms of struggle with new ones.

However, our era, the era of the bourgeoisie, is characterized by the simplification of class contradictions. Society as a whole is increasingly dividing into two great enemy camps, two great classes directly opposed to one another: the bourgeoisie and the proletariat.

From the serfs of the Middle Ages emerged the free inhabitants of the first cities; from these free inhabitants emerged the first elements of the bourgeoisie.

The discovery of America and the circumnavigation of Africa offered the emerging bourgeoisie a new space. The markets of the East Indies and China, the colonization of America, trade with the colonies, and the increase in the means of exchange and goods in general, provided commerce, navigation, and industry with an unprecedented impetus, and with it, a rapid development of the revolutionary element in the decadent feudal society.

The previous feudal or guild organization of industry was no longer sufficient to meet the growing demand resulting from new markets. In its place came manufacturing. The middle class of industrial workers replaced the guild masters; the division of labor among the various guilds disappeared in favor of the division of labor within the workshop itself.

But markets kept expanding, demand kept growing. Manufacturing couldn't keep up either. Then came steam power and machinery to revolutionize industrial production. Modern large-scale industry replaced manufacturing; millionaire industrialists, leaders of entire industrial armies, the modern bourgeoisie, emerged instead of the middle class.

Large-scale industry has established the global market that the discovery of America had paved the way for. This global market has fostered immense development in trade, navigation, and land communications. This development, in turn, has influenced the expansion of industry. As industry, trade, navigation, and railroads have developed, so too has the bourgeoisie, multiplying its capital and relegating all the classes inherited from the Middle Ages to a secondary role.

We see, then, that the modern bourgeoisie, for its part, is the product of a long process of development, of a series of transformations in the mode of production and exchange.

Each of these stages in the development of the bourgeoisie was accompanied by its corresponding political advancement. From a social class subject to the rule of feudal lords, to an armed and self-governing association in the commune, sometimes an independent urban republic, at other times a third estate tributary to the monarchy, then, in the age of manufacturing, a counterweight to the nobility in the estate or absolute monarchy, generally the principal foundation of the great monarchies, the bourgeoisie finally conquered, with the establishment of large-scale industry and the world market, exclusive political hegemony in the modern representative state. Modern state power is nothing more than an administrative board that manages the common affairs of the entire bourgeois class.

The bourgeoisie has played a highly revolutionary role in history.”

Karl Marx. Productive forces, classes and �historical necessity

• Marx argues that the history of societies is a consequence of the development of the productive forces (of technology and its application).
• There is a mutual correspondence between the level of productive forces and the structure of human societies (social classes).
• Capitalism arose from previous systems due to a whole series of causes.
• But capitalism is not reformable and tends to self-destruct :
• The reforms may only be sustainable in the short term, but competition will tend to eliminate them.
• Marx was in favor of reforms because they improved people's lives and because they served the development of "class consciousness," but he believed they could not be sustained.
• Economic crises are getting worse.
• There is a growing proletarianization and separation between classes; workers are living worse and worse.
• Capital is concentrated and centralized; this will make economic planning easier, even inevitable.
• As a consequence, the workers will rebel and capitalism will be replaced by socialism as an inevitable historical necessity.
• Marx does not criticize capitalism for moral reasons (as Ricardian socialists or Proudhon did), nor even because capitalism is dysfunctional (as we do in class). Marx considers capitalism a necessary historical stage because it allows for the development of the productive forces that will make socialism possible and inevitable.
• (I disagree with this, because I believe that socialism is possible without such development, or that it can be achieved without capitalism, and also because I don't believe that socialism is an inevitable historical necessity. A better world will be the result of our intelligence, not of historical forces.)
• Marx did not believe that workers should receive everything they produce, as Proudhon thought, not even in advanced socialism. For Marx, the criterion for distribution in socialism must be "to each according to their needs," and therefore workers should not receive everything they produce, or even in proportion to what they produce. For example, a portion of the product should go to the disabled. https://archive.org/details/MarxKarlCriticaDelProgramaDeGotha

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Great dynamics and the decline of the classical school

Remembering: The great dynamics of the classics

• Classical economists studied the long-term destiny of humanity .
• Economic growth was accompanied by population growth.
• But the amount of available land was limited, as were mines and other resources.
• Economic growth entailed resorting to less efficient lands, mines, etc.
• As a result, economic growth tended to decline.
• That is why in capitalist systems the behavior had to be of a logistical type (in modern terms), and in the long term lead to a stationary state .

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Political Economy as the “dismal science”

• Carlyle, https://en.wikipedia.org/wiki/The_dismal_science
• Capitalism was seen as a mechanism with implacable laws imposed upon humanity. Humanity did not control its destiny.
• Capitalism was destined for a stationary state, due to limitations of land, mines, etc.
• The social classes (capitalists, landowners, workers) were in opposition and struggle with each other; the interests of each class were opposed to those of the others.
• Economic progress, while it was possible, did not improve the situation of workers or capitalists, but it did improve the situation of landowners through increased rents. Landowners were seen almost as a parasitic class.
• Workers could not expect to improve their living conditions in the long term. Wages tended to be the bare minimum for survival, following the Malthusian mechanism.

Fall into disrepute of classical economics

• Unresolved theoretical problems
• Some classical theories, such as the Ricardian labor theory of value, were shown to be very limited or incorrect, and this affected their overall credibility.
• Distances from reality
• Capitalisms grew without reaching a stationary state.
• Malthus's demographic mechanism ceased to operate.
• An increase in wealth began to be accompanied by a decrease in fertility, the opposite of what Malthus assumed.
• Wages consistently increased above the minimum living wage.

Fall into disrepute of classical economics

• Alternative theories emerged that were no longer interested in the long-term fate of Humanity: the neoclassicals (around 1870)
• Menger and the Austrian school: subjective value.
• Jevons and the English school.
• Walras: theory of general equilibrium.
• The problem of economic growth and the ultimate trend of that growth was avoided.
• Theories of the 20th century developed from Walras.

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Review of the classics

Review of the classics: value

• Value theory
• Classical economists defended versions of value such as the cost of production, sometimes under the variant of labor-value.
• Revision
• The classical theory of production cost is clearly improvable.
• In its original formulation it is circular. Equations are needed .
• Value in capitalist systems is fundamentally prospective and not retrospective.
• In the long term, it is correct for reproducible goods.
• Sraffa , Leontief , and Von Neumann equations
• The labor theory of value can be understood as an approximation, but also as an unnecessary detour (to calculate prices; not for other purposes).
• This issue is not relevant to the study of long-term dynamics.

Review of the classics: salaries

• Wage theory (we will detail it in another topic)
• Classical thinkers defended wages as a minimum living standard, using the demographic mechanism.
• If workers' consumption rose above the minimum living standard, the population increased accordingly. If workers' consumption fell below the minimum living standard, the population decreased accordingly. As a result, consumption hovered around the minimum living standard, and the population adjusted to the system's needs.
• (Marx advocated pauperization, but with mechanization and the resulting unemployment as the mechanism, not with demography.)
• Revision
• This theory is correct for the entire history of Humanity up to the time of the classical period.
• This is also the principle at work in biological populations. The population level, whether human or biological, is regulated by the availability of resources.
• Marshall already indicated (at the end of the 19th century) that, although it was not correct in England, it was still correct in most countries.
• In our time it is false
• Population growth is no longer linked to wealth as it once was; abundance does not imply an increase in reproduction, and scarcity a reduction, but often the opposite is observed (except in very underdeveloped countries, such as equatorial Africa).
• Classical economists could not foresee the influence of labor laws or the welfare state, with a persistent increase in wages.
• Nor that the non-operation of the Malthusian mechanism in some countries, and the consequent limitation of the population, could tend to raise wages due to the restricted supply.
• However, both Darwin and Wallace recognized the Malthusian mechanism as the one that actually operates in biological populations.
• The Malthusian mechanism did operate throughout much of human history.

Optional. Review of the classics: rental

• Theory of land rent (from mines, etc.)
• For classical economists, rent originated from the existence of lands (mines, etc.) with varying levels of fertility. The difference between the actual profitability of a piece of land and that of marginal land (the least profitable) determined "extensive" rent; the difference between the returns on different types of capital invested in the land determined "intensive" rent.
• Revision
• It's an ad-hoc theory, and therefore suspect. A modern view treats land in the same way as any other commodity.
• Today we understand the price of land as the value of what it will produce. This is not necessarily contradictory to the classical approach.

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Review of the classics: limited resources

• Resource limitations
• Classical economists believed that the amount of land, mines, etc., were the main limitations to which growth in capitalism was subject.
• Economic growth had to be accompanied by population growth, and with it the use of less profitable lands to feed the growing population.
• First, the most profitable ones were exploited, and with economic growth, it became necessary to resort to increasingly lower-yielding ones.
• By resorting to the less profitable options, the growth rate fell, due to the need to use more resources to obtain the necessary food.
• Revision
• Having to resort to less profitable land will indeed tend to reduce growth.
• But the classical economists underestimated the importance of technological innovations in agriculture (and in mining, etc.).
• The classical thinkers assumed the demographic principle that the population would necessarily grow if it had food, which has not been correct.

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Remembering: Capitalism, technological advancement, and growth. The great dynamic of the classics

• The classical economists were right to point out that capitalism, like any real system, is subject to the limitations imposed by its environment. Therefore, it cannot grow exponentially in the long term.
• But capitalism has maintained a growth similar to exponential since the classical era, not reaching a steady state.
• Classical thinkers reasoned under the assumption of constant technology .
• Capitalism has changed the way the problem is framed with the continuous development of technology :
• The continuous technological revolution has steadily increased the load capacity (the final steady-state level)
• Discovering new raw materials, or circumventing some limitations when it comes to waste disposal (extensive progress)
• Sources of “energy”: oil, uranium
• New materials
• Chlorofluorocarbons and the ozone hole
• CO2 and climate _change
• Developing more efficient internal metabolisms (intensive breakthrough)
• Substantial improvement in industrial processes (aluminum)
• Improvement in the process of obtaining information and calculation
• We can understand the growth of capitalism as a succession of �logistical behaviors with increasing carrying capacity, through the technological revolution.
• The foundation of economic growth is therefore technological advancement . Without it, capitalism �would eventually stagnate, as it did in ancient Rome.

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Important. Review of the classics: �other ideas

• The classical thinkers were right when they saw capitalism as a mechanism that, left to its internal logic, was subject to implacable "iron laws" that imposed themselves on humanity.
• But they could not foresee the outcome of social struggles, labor legislation, universal suffrage, the welfare state, etc., institutions that have been decisive in improving the standard of living of workers.
• They did not foresee the decline in birth rates and their disconnection from food provision.
• Modern advanced capitalisms are the confluence of the productive tendency of capitalism with the partial humanization of allocation imposed by these institutions; they are not the result solely of "iron laws".
• If the institutions that tend to partially humanize allocation did not exist (as is the case in some countries) or if they declined, capitalism would again tend to show its ruthless face.

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