The Twilight of Capitalism by Michael Harrington (Part I: The New Karl Marx, Chapter 5)

Marx analyzes economics, but it is not an economic theory, as Chapter 5, “The Anti-Economist” shows.  Capitalism is about relationships between individuals and, and among, classes.  It is not isolated from the rest of life. It is part of it. Social relations exist in human history and develop in their own epoch. Money is different under capitalism, which is not based on free exchange (the economic ideal) but domination.

Marx wrote about production with society, however his theories never encompassed all of the social sciences.   A good modern vehicle for such analysis came a century later.  Marx and everyone else are put into perspective by  the Grid-Group Theory of Mary Douglass and joined by Aaron Wildavsky. They have different purposes but equal value in understanding the world and society, including capitalist systems and feudalism (and its modern retro counterpart, distrubutism). Marx and Douglass can be used to reinforce each other. They need not compete. I suggest further reading on that theory if one seeks a way to pull the social sciences together.

There is much misunderstanding of Marx, particularly on his theory of value.  As Harrington reminds us
Marx’s labor theory of value argues that commodities exchange at prices proportioned to socially necessary labor time spent in their production (the “socially necessary” being simply that which corresponds to the average efficiency of work in its particular industry. Labor is thus primarily a measure of value and, in a complex way, the ultimate regulator of prices. (109)

Many of Marx’s critics focus on their understanding, or rather, misunderstanding of the concept and its impact on prices. It is part of his analysis of his models of value, not its actual existence in the economy and society, which is found in Volume III. Volume I describes the model, all things being equal, not reality. Most critics, even academic ones, rarely read to the end.

I will spare the reader the details except to say that even Marx disagreed with the concept of the labor theory of value in society, stating that “it would never occur to the capitalist to think in terms of labor value.” Of course, the joke was on the workers, since they had no idea how much a surplus was taken from them, even though the capitalists did. This is a very brief explanation. For better results, read the chapter in Harrington, or better, the original Marx, including the difference between labor value and natural value, “which is not social wealth (117).

Marx was an early critic of how capitalism resulted in the horrifying conditions found in some factories. Still, he did not argue for an end to innovation, especially as it would lead to shorter working hours. Capitalism will not impoverish workers, just the opposite, but it is still abusive of their rights to the surplus value that they produce and its ownership by others.

Technology is a tool of capitalism. It is capitalism that subjugates workers, not machines. Without profit, of course, there would be no investment. Profit is a function of capitalism, not a flaw. Modern cost analysis and new concepts of employee ownership may get around these problems.

Some welfare economists are now coming around to Marx, especially regarding imperfect competition in labor markets, which actually estimate the amount of surplus value taken from the workers and how to fix it, which aside from employee democracy, is an increase in the minimum wage. Feel the Bern.

The analysis of productivity shows that capitalism desires to drive labor costs lower and lower. Non-Marxian economists and capitalists fail to realize that expanding surplus capital makes it impossible for capitalism to destroy itself as science replaces production units  but class relationships remain the same.

Marx did not believe that wages will constantly go down, that there was no “iron law of wages” and that labor unions could make a difference for the worker and could even give a share of surplus value to the working class (although he did not predict employee-ownership as an intermediate step). Again, Marx was concerned with the social relationships in labor rather than wage levels themselves. 

Marx (and later Schumpeter) wrote about capitalist crisis and the business cycle, which is driven by commodity surpluses and scarcity. Modern finance has a new way of looking at such cycles. It has turned out that most of these cycles, at least from the Gay 1890s to now, come from the inflation of assets, especially financial assets like stocks, mortgage securities and commodity futures (like oil) and the offshoring of labor.

In my analysis, an abundance of goods is rarely the cause of systemic failure in the modern world. Rather, it is the abundance of bad investments that add nothing to consumption by households or the government or supporting investments thereof.  The cycle of overproduction, crisis and recovery result from the mechanizations of asset speculation,  they do not cause them. Even corporate investment managers will admit as much. In the end, of course, capitalism is not about either finances or technology (money or machines) but social and class relations.

Marx identified the trinitarian formula of capital land and labor, each, theoretically with its own rewards. Marxian analysis shows this is not the case. Capitalism captures surplus value from each sector for itself. Indeed, any decent modern cost analyst can tell you that much, even as they calculate depreciation allowances that are outside the trinitarian system. It is better to calculate which sector actually contributes to total cost, based on its contribution to production, not its market price.

Capital could be divided into a capitalist hour, its components being land rent per hour, depreciation per hour, material processed per hour and labor utilized per hour less the wage paid. This can be used to restore value to workers.  Of course, employee ownership gets around these questions, as workers would own all capital.

A society divided into investors and workers who cannot afford to invest cannot stand. When progressive income taxes were maintained, labor and labor unions guaranteed a decent lifestyle for workers. After this book was published (but before Harrington’s book Socialism was revised shortly before his death), taxes were greatly reduced in stages. At every instance, lower taxes on the wealthy resulted in a boom followed by a recession, or worse in 2008. Harrington had predicted bad times in the 90s, but Clinton’s tax increases, as well as Obama’s restoration of them, resulted in stable growth and better times for families.

Trump’s cutting of business taxes and minor temporary adjustments to income tax rates could produce a recession, however increased government spending is drawing down available speculation capital, so we have a temporary reprieve until fiscal conservatives demand entitlement cuts. The insanity of King Donald and his criminality may truncate that for now, although the CEO and donor class will still reap the rewards of the class warfare that is capitalism. 

Another thing Marx definitely missed, or did not understand correctly is the evolution of Capitalism to Consumerism and Social Democracy, which diffused the demand for political revolution, although later Marx admits that things did not work out in advanced industrial nations as his paradigm predicted. 

Marx saw production as more important than distribution. Production is not everything, however. Simply put, enterprises are not made up of single industries. If you count production, marketing, transportation, services, (consumption of goods and services, including finance) and management as separate industries within an enterprise, the theory of value still holds.

The labor value concept can be strengthen when my concept of the supply cost of labor is included in the analysis, that is, what do various workers require to sell their labor to others at all stages of life and including childbearing. Marx hints at this, but has left much of the detail to those of us who follow him. The simple fact is that the supply cost of labor is equal to the total demand curve for a worker for goods and services, so it must have a negative slope. The greater the wage, the more the worker is satisfied and the less labor is sold. This argues for socialism, not capitalism.

It is interesting that capitalist economists found themselves out of ideas on how to deal with capital, both in the 1970s and now. Marx has come to the rescue both times, recently with Richard Wolff explaining Marx on, of all places, FoxNews. 

Democratic Socialists, especially supporters of Bernie Sanders, are making the Democratic Party feel the Bern as we win key primaries and face Trumpster Republicans.  Let us see who wins the day, although Trump’s obvious corruption may overtake economics this election. Governing is another matter. Advancing social democracy or democratic socialism will not be enough, however. It simply locks us into a Nordic social welfare model. Workers need more.

The key ingredient to overturning  capitalism is not about production at all, but in emphasizing (as Marx mentions but does not dwell on) that workers control the means of consumption, which leads to control of the means of production. That control is lessened in monopolistic capitalism.

When workers understand the that in accepting payments rather than social goods, which today come through taxation or the market, not cooperation, they will be ready for the social revolution that finally conquers capitalism.  Would Marx mind this development? No. Marx, unlike some Marxists, was not a dogmatist. As long as the analysis is class based, it is Marxian.