Finance, Imperialism and Profits

Last Friday I took part in a panel to launch a new book, World in Crisis: A Global Analysis of Marx’s Law of Profitability, published by Haymarket Books, edited by Michael Roberts and Guglielmo Carchedi. The presentation was at this year’s Historical Materialism conference in London.

My presentation was on ‘Finance, Imperialism and Profits’, in which I stressed the need to develop Marx’s theory in order to explain the world today. I argued that an accurate measure of a rate of profit (in Marx’s sense) could not be gleaned from official statistics and that, among other things, this was because of the nature of the imperialist world economy. Also I noted that for some adherents of Marx’s ‘falling rate of profit’ theory, this theory was somehow consistent with their calls to nationalise banks and regulate finance. This expunges the revolutionary content of Marxist theory, shows a naïve faith in the capitalist state and makes concessions to nationalism.

This was a lot to cover in the twenty minutes available, so could only be done in summary form in the presentation (see below), but there was more time in the Q&A.


Tony Norfield, 12 November 2018

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What is Marx’s Value Theory Worth?

At a recent talk I gave on imperialism, there was an interesting question raised on what I thought about Marx’s theory of value. This seemed to be prompted by my reference to Marx’s theory, while I spent little or no time using the terminology in Capital. So the logic of the question was: what is the point of Marx’s theory if one can do without it when explaining what is going on in the world?

Partly, the question is answered by saying that one does not always have to use specialist terminology to express ideas. For example, I have found it to be simpler in presentations to avoid Marx’s term ‘fictitious capital’, because that concept would take some time to explain properly and most people are not familiar with it. Even those who are commonly misunderstand it. Instead, I usually develop the same ideas more directly through discussing the role played by equities and bonds and their relationship to what the economy produces. However, the question needs to be put in a broader context.

Marx’s value theory analyses social labour under capitalism and the increasingly odd forms that it takes as capitalism develops: from being represented in the prices of commodities, to being the source of interest, profits, dividends, rents and tax revenues, to underlying, in an even more distorted fashion, the prices of financial securities. Marx’s theory shows how the capitalist market gives the system a particular dynamic, one that leads to the monopolisation of production and the creation of a world market as capital accumulates. The labour embodied in commodities may not tally directly with the prices they command in the market, but those (relative) prices remain strongly influenced by changes in social productivity. Furthermore, we get a longer-term process by which barriers to capitalist production are set by the tendency of the rate of profit to decline. Since the logic of capitalist production is to make a profit, this is the key underlying problem for capitalism as a social system. It is one that the (sometimes) well-meaning reformers of the system do not want to contemplate, so they exclude this from their analysis or go out of their way to deny this does, or even could, happen.[1]

These fundamental features of capitalism analysed by Marx remain in place, although the system has of course developed a great deal in the 150 years since Capital was written. The changing forms of capitalism have led many to argue that Marx’s theory is outdated or invalid today. But a proper Marxist analysis examines the dynamic of the system and the new forms that evolve out of the old, rather than simply to judge whether contemporary capitalism fits completely with an earlier conception of it.

In Capital Volumes 1, 2 and 3, Marx did not investigate relationships between countries in the world market. Some of this was done outside the three volumes, and plans for later volumes included a more systematic coverage of the state, foreign trade and the world market. So, for example, in Capital there was no real discussion of colonies, just brief mentions, nor much on monopoly or national differences in wages.

Lenin updated aspects of Marx’s work in his 1916 pamphlet Imperialism, drawing on other analyses. He correctly put greater emphasis on the division of the world economy between oppressed/oppressor nations, the territorial division of the world between the major powers, the propensity to war, on monopolies, bank/industrial capital and a ‘financial oligarchy’. This was a key advance in the analysis, and consistent with the idea of Marx’s value theory as being a theory of the evolution of and barriers to the capitalist system – hence Lenin’s term ‘moribund capitalism’. Many aspects pointed out by Lenin remain relevant today, even though these century-old forms have, of course, also developed. There is now a largely post-colonial world, although most countries are still clearly underdogs in the imperial hierarchy. There remains a propensity to war, but now with many wars by proxy, sponsored by the major powers.

I have some differences with Lenin’s analysis, as explained in my book, The City: London and the Global Power of Finance, especially on his understanding of finance, which was taken largely from Hilferding. However, perhaps Lenin’s greatest weakness was his analysis of the ‘labour aristocracy’, the unconvincing notion of how a labour elite getting the benefits of imperial privilege influences the broader working class with their pro-imperialist views. Even in Lenin’s time it would have been more convincing to have taken into account how the mass of people in rich countries were patriotic for their own reasons, ones that had a strong basis in reality rather than a supposedly infectious ideology. They saw, and still see, their economic interests tied up with that of their own states, and they benefit in their wages and welfare conditions from this imperial privilege. That is another sign of how it is important to conduct a thorough analysis.

I rely on Marxist concepts as starting points for understanding the world today because they provide the best way to explain what is going on. However, this is not to say that one can find the detailed answers in a particular volume of Capital. To think so would be almost as bad as believing in the prophecies of Nostradamus. Instead, the significance of Marx’s theory is that it so clearly spelled out the dynamic of capital accumulation that, much more than one might think plausible, his analysis provides key building blocks from which to understand major features of the world economy today.

Whether I use terms from Marx’s value theory in my analysis, and which terms, depends on the context in which I make my argument and how much time there is to do so. In any case, Marx’s work is used as just described. His concepts, like Lenin’s, might need to be amended – perhaps even rejected – according to an assessment of how the world has developed since they wrote.

The observation that capitalism in various forms has been around for several hundred years is commonly seen as an argument that it will go on forever; that it is an eternal, natural system for organising the economy. While economic crises are an undeniable reality and sometimes bring protests, there remains little understanding or acceptance of the Marxist conclusion that capitalist social relations are an increasingly dysfunctional, reactionary way in which to organise the affairs of humanity.

Tony Norfield, 1 March 2017

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[1] I have little confidence in being able to track movements of the rate of profit through official statistics, although one does get indications of the underlying movements from the behaviour of major capitalist companies and reports of investment that suggest a rising organic composition of capital. Official data are focused on an individual country, and do not fully allow for international influences, something especially important for the US. Statistical conventions for counting the ‘value added’ by the financial sector make things worse, as exemplified by UK GDP income data in 2008 showing a higher operating profit for UK banks when the company reports, and Bank of England data, showed a very sharp drop, often into losses! This is apart from the multitude of accounting tricks that large corporations use to relocate the origin of their profits, including through tax havens.

Developing Marxist Theory

In some recent events, I have given my views on world developments and heard what others have had to say. One theme of these was Marxist theory, and here I sum up my views on how to develop it.

Marx was a genius in many respects, not least in the way that he had a clear perspective on the dynamics of the capitalist economic system from the earliest stages of its industrial development. So why is it that some key elements of his theory are still being debated or disputed, or sometimes expounded as if read from a holy book? Surely, this is a little odd, more than 120-150 years after the theory was first set out. Was Marx such an astonishing genius that his ideas cannot be fully understood even today? Considering why this has been the case also leads to my perspective on what should be done next.

Marx’s theory shows how social labour, ie the work that people do as part of their social cooperation to survive, takes a peculiar form under capitalism. This peculiar form – where workers are employed by capitalists to produce commodities for the market – obscures the underlying relationships. For example, it will appear that there can be a ‘fair wage’ for work done at the same time that the worker also provides the employing capitalist with a profit. Where does the profit come from? Mainstream economics does not recognise that it comes from the surplus labour workers perform. While surplus labour is evident under social systems such as slavery or feudalism, under capitalism the riches of those running the system are supposed to come from the magical powers of ownership and the ‘entrepreneurial spirit’. Such beliefs persist, despite the fact that many capitalists also gain their extravagant revenues these days from government spending.

The previous points would probably find agreement among almost all those who have studied the basic elements of Marx’s theory. But most soon fall into a ditch when other issues are raised. In particular, there is chronic misunderstanding of the structure of Marx’s arguments in the three volumes of Capital. I confess to finding this depressing, rather than amusing. Despite the clear, readable exposition of Marx’s approach in Roman Rosdolsky’s The Making of Marx’s Capital, published more than three decades ago, the result of the subsequent decades of much ‘Marxist’ writing can be more accurately described as cacophony rather than it having achieved much clarity or having made much progress.

However, there is a more fundamental problem, not simply a failure to get to grips with the theory. The problem is that an understanding the world does not easily develop in the absence of an active political debate, where questions are raised and demand to be answered, with consequences that follow from what has been said. Marx, Engels and Lenin developed their theories in such political turmoil, which provided them with fertile ground on which to build their outlook on the world. Today, the opponents of capitalism still have its destruction and disasters to provide raw material for their views. But, in the rich countries at least, they must also find a way through the quicksand left by widespread illusions in the potentially progressive character of the capitalist state. This dates back to the late 19th century, and was attacked by Marx in his 1875, unfortunately semi-private, Critique of the Gotha Programme. Such illusions have been given more substance from the welfare systems established in the post-1945 period.

Even though a deep crisis is now dismantling these forms of political cohesion in richer countries, most radicals today respond by arguing for a return to the status quo ante, not by explaining that the game is up. Consider the following examples of Marxist cognitive dissonance.

A longstanding one in Britain has been where many self-described ‘revolutionaries’ would argue to vote for the Labour Party as the least bad alternative in an election (better than the Conservatives), despite Labour’s consistent role as a supporter of British imperialism. (For those less familiar with this history, Labour’s pro-imperial strategy is part of a more general national-welfarist outlook, one that is to be paid for, as far as possible, by other countries) Not surprisingly, this trend has been strengthened with the elevation of Jeremy Corbyn as the Labour leader-saviour for gullible dissidents.

Another is how many of those who would claim to adhere to a Marxist perspective, for example on the trend fall in the rate of profit resulting from capital accumulation, see no problem in also advocating the nationalisation of banks. A demand to nationalise banks is not a challenge to the power of the capitalist state; it endorses illusions in that state as the potential saviour of the national economy and the mass of people. Nevertheless, they see no problem with this because they too believe that the capitalist state can be used in this way – given the right amount of popular pressure, of course. Surely, there are some problems here for anyone who wants to build a revolutionary movement, based on the power of the working class and opposed to the national state?

Probably worst of all, however, is the fact that most radicals ignore the division of the world between rich and poor, oppressed and oppressor, as outlined by Lenin. This is the major difference in political perspective between Lenin and Marx. But Lenin’s view reflects the development of capitalism into imperialism and this rightly contradicts Marx and Engels’s optimism expressed in the earlier, 1848 Communist Manifesto slogan: ‘Workers of the world unite!’. Lenin did not work out the point fully, but the logical conclusion is something that has been borne out by decades of disappointment: the mass of the populace in most of the richer countries is politically tied to their own state and not in the least interested in a revolution. This goes well beyond the narrow, unconvincing notion that such a political outlook is the fault of a ‘labour aristocracy’.

My view on the development of Marxist theory is quite simple: develop it! Analyse the way that the world works today and expose the exploitation and oppression that hides behind what is otherwise seen as the abstract, natural workings of the market. Analyse the forms taken by capitalist rule in the imperialist world economy today. This is the way to develop Marx’s ‘law of value’. Observation and experience have convinced me that while disputes on the so-called ‘transformation problem’ and the falling rate of profit, etc, cannot be completely ignored, there is nothing to be gained from prolonged debates on these issues with those who have every incentive not to learn. Not to push the cynical boat out too far, there is a lot of truth in the old saying that it is not possible to convince people of something when their salaries depend upon them not understanding it.

At this weak stage of development, I also think that there is little point in spending a lot of time honing the finer points of Marxist theory with those who are roughly along the correct lines, although that does not preclude my willingness to share views and engage with interesting ideas. If this somehow comes across as the position of a philistine who does not want to learn, then I would point readers both to the many articles on this blog and to my being awarded a PhD last year.

In recent years, I have paid particular attention to analysing the global financial system. This is at the forefront of popular misunderstanding, and a particular feature of the pro-imperialist reform initiatives from those who want to save the capitalist/imperialist system. Many, of course, will not admit that this is their underlying objective, or that it is an outcome with which they would be quite comfortable.

Tony Norfield, 14 November 2015