Imperialism by Numbers

There are close to 7 billion people in the world, in some 200 countries. However, a very small minority of rich, powerful countries - or rather, the rich and powerful in these countries - run the world economy. The way in which this happens is the focus of my research and the subject of many articles on this blog. In this article, I present some statistics to highlight the stratification of the world economy between the small number of imperialist powers and the rest. I welcome any comments on this analysis.

Five features *

Lenin outlined five features of imperialism, from the decisive role of capitalist monopolies, to the development of ‘finance capital’ and the export of capital, to the territorial division of the world between the biggest capitalist powers.[1] Although the form of territorial division has changed, with the end of colonial empires, these features continue to describe the world economy. Here I set out five complementary statistics for examining imperialism today from data for 180 different countries.

The first is nominal GDP. This measure of economic output is the most widely used in official statistics, though it has a number of drawbacks, not least that it is a measure of value appropriated rather than value created.[2] However, it is an easy number to obtain for the size of economic output in a particular country. The degree to which it is exaggerated by value appropriated from elsewhere will also be an advantage if we are to use it as a measure of global economic power.[3] Of course, countries with a large GDP are not necessarily rich – they might have a large population with a very low average income. Nevertheless, a high GDP ranking indicates that the country has weight, and presumably some influence, in the world economy.

The second measure is the size of military spending by each country. This spending might be for internal repression rather than for external power projection, but it is notable that the five biggest spenders in the world are also permanent members of the UN Security Council, each with a veto power on UN decisions. In general, it looks like a good measure to use as an indicator of imperial status.

For the third measure, I use figures for the stock of foreign direct investment (FDI) owned by each country. These figures will not fully reflect a country’s external economic power. For example, they exclude privileges and benefits that may come from commercial and trading relationships that may have little to do with owning companies and property in other countries. Neither will the FDI numbers reflect the power, influence and revenues that come from owning foreign portfolio assets (equities and bonds). However, the FDI data can be used as one guide to how far a country is able to exploit workers in other countries.

The final measures are used to reflect the financial power of different countries. One is a country’s ownership of the top 50 international banks; the other is the importance of a country’s currency in central bank foreign exchange reserves. These measures are far from comprehensive, but they should give an indication of how far a country’s banks are important on the world stage and how far its currency is accepted internationally.[4] Probably the main dimension missing from these particular measures is how far a country is able to utilise the financial sector to appropriate value from the world economy when this does not necessarily come via its own banks, or from the use of its own currency.[5]

Each of the statistical measures I use for the index has problems, but they offer a simple way in which to sum up key features of a country’s economic and political position in the world. In order to standardise the data for comparison purposes, I have set the highest value under each heading at 100. This means that if, for example, one country has the highest GDP, then its value will be shown as 100. Other countries with smaller GDPs will be shown as a proportion of that number, as 30, for example.

The five measures used are given equal weights, and the total index is an average of the individual values. This summary index is a guide to a country’s status. Results for the different countries show dramatically different values, and there is a clear hierarchy between the small number of countries at the top and the remainder with index values far behind.

Table 1: The Imperialism Index

Notes and sources: Calculated from original IMF, SIPRI, UNCTAD data. GDP data were for 2011, military spending data for 2010, FDI stock for 2010, ‘top banks’ for 2009, central bank FX reserves for end-2011. Figures for China include Hong Kong. The total index is an unweighted average of the components.

Table 1 shows the results for the top 20 countries ranked by their total index value. The US stands out at the top of each component measure, with a total (average) score of 100. Next in line is the UK, at a mere 32 points. The UK ranks close to the US only in the significance of its banking sector, and it is a distant second in terms of FDI holdings. France is not far behind the UK, spending slightly more on the military and having a higher GDP, but it scores less on the other measures than the UK. Germany is ranked a bit lower than France. This latter relationship may be surprising, since the French economy is smaller than Germany’s and more central banks hold German securities than French. But France has a higher rank in terms of military spending, FDI and its international banking position. This correlates well with France (like the UK) being a more active promoter of war.

Japan ranks at a significant margin below Germany in these measures of imperial power, with an index value close to 23. While Japan is the second largest world economy in terms of nominal GDP, the prolonged stagnation in Japan’s economy has damaged its banks and reduced the scope for its corporations to invest abroad.

China is a significant member of the top group in this classification, ranking 6^th at just below 20 index points. Its GDP is half the size of that in the US, though ‘purchasing power parity’ measures put it much closer. Its military spending is the second largest in the world, though still less than 20% of that in the US. American strategists are nevertheless concerned because China can mobilise a lot of cheap manpower for the military, and the gap in hardware capability may not be as big as the sub-20% figure would suggest. The FDI figure for China mainly consists of investments from Hong Kong. These may also be invested in China, so this may incorrectly push the overall index value somewhat higher. However, the leverage that Hong Kong gives China in commerce and finance should not be underestimated. Even though China has a position neither in the measure of top banks, nor in that for central bank holdings of its currency, these factors are bound to change in the next few years. China is slowly developing its financial system, the CNY is being used more in international trade relationships and Chinese banks are bound to play a bigger role in international finance.

Below China, it is a significant drop before the next group of countries, each with index values of less than 12. These countries do not count for much individually on these measures, but they can gain some influence by being part of the European Union (or euro) group of countries, or by being a major banker and foreign investor (Switzerland), or by being politically close to the US (Canada and Australia).

Of the so-called BRIC countries, China has already been placed. Russia, Brazil and India each rank much lower, though each has its own particular advantages in the global system (Russia’s being military). Saudi Arabia is perhaps a surprising element in the top 20 countries, but that is how these numbers work out. The close links of the Saudi royal family with US imperialism mean that it is hard to see this country as an independent player. Its position in the table is due to its military spending that reflects the subsidies it offers to defence contractors in imperialist countries, though it has also played an active role undermining protests in the Middle East, especially in Bahrain.

The following chart shows the same data and illustrates clearly the imperial pecking order. The UK, France, Germany and Japan each has an index value of less than one-third that of the US, but they are each several times bigger than countries further down the scale. Remember that this chart only shows the ‘top 20’ countries. The 20^th member, South Korea, has an index value of just 2.1, a fiftieth of the US value and less than a tenth of any of the major European powers or Japan. But further down the list (not shown) are more than 100 countries with an index value of less than 0.1, ones that would be mistaken for the x axis in the chart!

Chart 1: The Imperial Pecking Order

Notes: The height of each bar is given by the country’s total index value, which is then broken down into the respective components. Countries are identified by their two-letter ISO code. Take care, because CH is Switzerland, not China (which is CN), and SA is Saudi Arabia, not South Africa (this country is not shown, as it was ranked number 26). The countries are listed in the same order as in Table 1.

(This chart has been corrected. When originally published, the ISO codes for Canada and Belgium were entered incorrectly)

 

Conclusion

The significance of the US in the world economy is not news to anybody; neither is the fact of inequalities in wealth, power and influence between different countries. However, these statistics highlight the divergence in a striking manner. Although the figures are for recent years, in most cases the leading imperialist countries have been in their positions for decades. This is certainly the case for the US and the UK. They did not win their leading role by winning a popularity contest, but by moulding the world in their own interests, using their economic power and the threat or use of violence.

One final point on the index of imperialism presented here. The position of an individual country can only properly be understood by looking at its relationship to the imperialist system as a whole, not simply by examining whether its index value is higher or lower than another’s. It would be foolish to say that a particular index number means a country is imperialist, while one that is a certain amount smaller shows that it is not. The index components summarise only particular dimensions of the system. Different measures would produce different results, and any index measure would have a problem grasping the dynamics of the system.

Tony Norfield, 1 May 2012

Note on 3 December 2018: I have made some amendments to this index calculation and also updated the results to account for new data. The most recent picture is shown here.

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[1] See Imperialism, the Highest Stage of Capitalism, Chapter 7 ‘Imperialism as a special stage of capitalism’. Available on http://www.marxists.org/archive/lenin/works/1916/imp-hsc/index.htm

[2] See John Smith’s analysis, noted in ‘Imperialism and the Law of Value’, on this blog, 3 December 2011.

[3] GNP would be a better number, since this also includes net property income from abroad. However, GNP data are less readily available.

[4] In the case of the euro, I have divided the latest figures for total central bank reserve holdings of euros into components reflecting the proportions of Deutsche marks, French francs, etc, held in 1998.

[5] I am thinking about Britain here! See ‘The Economics of British Imperialism’, 22 May 2011, on this blog.

The Commodities Business

I recommend reading this article in Foreign Policy on Glencore. While it is short on analysis and focuses instead on personalities, it offers a good summary of many practices in the commodities business, from bribery and corruption to gangsterism and sanctions busting. It is notable how having a secure base in the imperial heartlands (US, UK, Switzerland), with ready access to politicians, cash and markets can combine to make these guys billionaires with relative ease.

Glencore’s founder, Marc Rich, was indicted on tax evasion and other charges in the US in 1983, but he had managed to flee to Switzerland shortly before. In 2001, on his last day in office, President Clinton took time out from photo calls to pardon Rich. Former Israeli Prime Minister Ehud Barak was among those lobbying Clinton on Rich’s behalf.

Information from a recent prospectus showed that Glencore ‘controlled more than half the international tradable market in zinc and copper and about a third of the world's seaborne coal; was one of the world's largest grain exporters, with about 9 percent of the global market; and handled 3 percent of daily global oil consumption … It recently announced a $90 billion takeover of Xstrata, a global mining giant [another FTSE100 company] in which it already holds a 34 percent stake … Glencore already trades, manufactures, refines, ships, or stores at least 90 commodities in some three dozen countries’.

Glencore is interesting in that it straddles the industrial, commercial and financial dimensions of monopoly capitalism. As the Foreign Policy report indicates, its profitability has been boosted by its own form of predatory behaviour, using its close links with agents, particularly in Africa and Eastern Europe, who could secure lucrative local deals.

Tony Norfield, 24 April 2012

The Circuit of Capital

This article is based on an essay I wrote more than 30 years ago. With some minor stylistic changes, a revised conclusion and some footnote updates I reproduce the original essay here as a contribution to the understanding of Marx’s Capital. There are many footnote references, in most cases referring both to particular pages in one edition of Capital and also to the location of a reference within a chapter. This is to assist the reader in finding references in other editions and via internet resources (especially the excellent Marxists Internet Archive).

Of the three volumes of Marx’s Capital, Volume 2 on the circulation process of capital is the most neglected. Where it has acquired some attention, as with the use of the reproduction schemes to analyse the ‘transformation’ of values into prices of production, it has often been misunderstood.[1] The first section of this essay outlines the methodological relationship between the three volumes of Capital; the second deals more extensively with the subject matter of Volume 2 and its relationship to Volume 1.

1.             Methodological distinctions

A concise formulation of the relationship between the volumes of Capital is found on the first page of Chapter One in Volume 3. Marx notes that Volume 1 analysed the immediate process of capitalist production ‘with no regard for any of the secondary effects of outside influences’ and that Volume 2 studied the circulation process of capital, which must be added to the immediate process of production to complete the ‘life span of capital’. Volume 3, on the other hand, went beyond this synthesis to ‘locate and describe the concrete forms which grow out of the movements of capital as a whole’. In contrast to the first two volumes, the third develops those forms of capital which

‘approach step by step the form in which they assume on the surface of society in the action of the different capitals upon one another, in competition, and in the ordinary consciousness of the agents of production themselves.’[2]

The analysis of the first two volumes is therefore conducted at the level of ‘capital in general’ and it only reaches the level of ‘many capitals’ and competition in the third. The forms of capital on the ‘surface of society’ are not examined immediately, and even in the third volume they are only ‘approached’.

Marx’s point was that a ‘scientific analysis of competition is not possible before we have a conception of the inner nature of capital’.[3] Capital can only exist as many capitals, and competition is a necessary feature of the capitalist world. However competition is the relationship of one capital to another, so an analysis that begins at the level of competition will already presuppose the existence of capital. It will tell us nothing essential about capital as a social relation, only about how this relation appears in a modified form, from the standpoint of the individual capitalist. Analysing the essential features of capitalism as a particular form of social production, including the wage-labour and capital relation and the role of surplus value as the driving force of production, can be done without reference to the competition between individual capitalists.[4] In this way, the essential relationships are developed and the analysis can proceed to show how they appear on the ‘surface of society’ in a contradictory form. This approach can account for the changing forms of competition, including the tendency towards monopoly.

The analysis of Volumes 1 and 2 shows that the essential relationships of capital are themselves contradictory. It is not only a question of the more complex forms (eg interest bearing capital) that develop alongside capital accumulation deceiving agents of production. The fundamental contradiction between the development of the forces of production under capitalism and the social relations within which this takes place is evident at every stage. With this in mind, it is even more important not to be misled by differences at the level of competition, where we see antagonism between rival groups of capitalists and states. Instead, a clear grasp of what is necessary for capital as a social relation is the foundation for building an opposition to it in all its forms.

Marx takes the simplest concepts, eg the commodity, and develops these into more complex forms, eg labour-power and capital. Within this general procedure, there is a methodological division between Volumes 1 and 2 on the one hand and Volume 3 on the other. The first is an analysis of ‘capital in general’, the second the analysis of ‘many capitals’. As a result, modifications of the relationships discovered in Volumes 1 and 2 that arise from competition are not dealt with. This is the case, for example, with the assumption in the first two volumes that commodities exchange (on average) at their values. There is no reason to assume otherwise at this stage. Only in Volume 3 does Marx examine how and why prices deviate from values, in the context of forming an average rate of profit among the different individual capitals. This modification – via ‘prices of production’ – does not overturn the previous analysis and conclusions, but develops them. The previous assumptions were not meant as a full description of concrete reality, but were methodologically necessary to examine the pure, fundamental forms.[5]

2.             Volume 2 and Volume 1 of Capital

An examination of the circuit of capital clarifies the relationship and distinction between Volumes 1 and 2. The circuit consists of three stages: firstly, the capitalist appears on the commodity market as a buyer and transforms his money capital into means of production and labour-power (M – C); secondly, these commodities, having fallen out of circulation, are consumed in the process of production and, as a result, the capitalist now possesses a value greater than the value of the elements of production he first purchased (C … P … C’); lastly, the capitalist returns to the market with the commodity-capital and converts it back into money so the circuit can begin again (C’ – M’).

Strictly speaking, this is the circuit of industrial capital, which, as Marx says, ‘is the only mode of existence of capital in which not only the appropriation of surplus-value, or surplus-product, but simultaneously its creation is a function of capital’. Industrial capital is, then, the most general and most important form of capital:

‘Its existence implies the class antagonism between capitalists and wage-labourers. To the extent that it seizes control of social production, the technique and social organisation of the labour-process are revolutionised and with them the economico-historical type of society. The other kinds of capital, which appeared before industrial capital amid conditions of social production that have receded into the past or are now succumbing, are not only subordinated to it and the mechanism of their functions altered in conformity with it, but move solely with it as their basis, hence live and die, stand and fall with this basis.’[6]

For these reasons, industrial capital commands almost exclusive attention until Volume 3.

In Volume 1, which deals with the immediate process of production, the second stage in the circuit is the object of analysis. The first and third steps, in the sphere of circulation, are only discussed in so far as this is necessary for an understanding of the second. In particular, Marx examines ‘the purchase and sale of labour-power as the fundamental condition of capitalist production’.[7] Otherwise, we simply find the assumption that the capitalist is able to obtain the elements of productive capital in the market and that he is able to sell his commodities at their value. On the other hand, Volume 2, dealing with the circulation process, examines explicitly the ‘various forms which capital takes in its different stages, and which it now assumes and now strips off in the repetition of its circuit’. Marx adds for the unwary that

‘In order to conceive these forms in their pure state, one must first of all discard all factors which have nothing to do with the changing or building of forms as such.’ [8]

Therefore it is assumed both that commodities exchange at their values and also that no changes in value occur during the movement in circuits.

The connection between the two volumes can further be traced by examining how those concepts and categories introduced in Volume 1 are modified when the circulation process of capital is accounted for explicitly. In doing this, I will follow the order of presentation in Volume 2.

2.1             Volume 2, Part 1

Volume 1 derived the result that surplus value is only created in the process of production by the capitalist’s exploitation of the wage labourer, and that the magnitude of the value added by the labourer is determine by the duration of the labour process (for a given level of skill and intensity of work). But we can see from the circuit of capital that time is also spent in the sphere of circulation, in buying and selling. How does this time affect the creation of surplus value? Before answering this question it is important to note that

‘The function of circulation of capital is only to transfer the right of ownership of a product from one person to another, only a transformation of value from a commodity form to a money form, or inversely, only a realisation of produced value.’ [9]

This changing of form has to be distinguished from the transport and packaging of commodities, which also occur within the sphere of circulation but which are extensions of the productive process and add value to commodities. Certain costs of storage can also be considered as productive in this way.[10] Otherwise, that capital which is engaged in the sphere of circulation, merely to change the form of commodities and money, is excluded from the process of production and can create neither value nor surplus value. It is clearly necessary for capital to pass through the sphere of circulation, to buy the elements of productive capital and also to sell the commodities produced so that money capital may be newly advanced. But the costs arising here, despite being necessary, are costs that do not add to the values of commodities.[11] Values can only be increased in a negative sense, by reducing the amount of capital tied up in this unproductive function and freeing it for the productive process.[12] It was important for Marx to distinguish between the spheres of production and circulation in order to refute the ideas of the political economists that the functions of buying and selling also added value to the product, and to show the barrier which circulation poses for the self-expansion of capital.

In addition to presenting the general problem of circulation in the first part of Volume 2, Marx sets out the three circuits of capital; those of money capital, productive capital and commodity capital. Marx shows how capital must exist simultaneously in each bodily form as a precondition for the continuity of capitalist production, and that the three circuits are inter-dependent both in terms of coexistence and succession.[13] These circuits play an important role in the exposition of the remainder of Volume 2. They have the following things in common: ‘The self-expansion of value as the determining purpose, as the compelling motive.’[14] This clearly brings out the fact that capital ‘can be understood only as motion, not as a thing of rest’,[15] and the specific forms this motion takes are studied with the aid of the three circuits.

2.2             Volume 2, Part 2

In Part 2 of Volume 2, Marx analyses the turnover of capital. The turnover time of an individual capital

‘is equal to the sum of its time of circulation and its time of production. It is the period of time from the moment of the advance of capital-value in a definite form to the return of the functioning capital-value in the same form.’ [16]

In the study of turnover, Marx uses the circuits of money- and productive-capital. The former enables the relationship between turnover and the formation of surplus value to be clarified; the latter the influence of turnover on the creation of the product. The third element, of commodity-capital, is not dealt with in this part since in this form capital-value does not begin as an advance, but as C’, value already expanded.[17]

The circulation process gives rise to a new categorisation of productive capital that enables the form of turnover to be studied. In Volume 1, Marx divided productive capital into its constant and variable parts, this being the important distinction from the point of view of the self-expansion of capital in the immediate process of production. Marx also distinguished there between constant capital as instruments of labour and constant capital as raw materials, where the former give up their use-value and value piecemeal in production and the latter transfer their value entirely to the product.[18] But this aspect is dealt with only insofar as it is necessary for an understanding of how the value of the means of production is preserved by the labourer.

In the circulation process, the elements of productive capital must be examined from another perspective. Marx makes the distinction between fixed and circulating capital, which is based on the manner in which the value of the capital circulates.[19] The distinction appears to be the same as that applied to the means of production – the constant capital – in Volume 1, since the instruments of labour are designated fixed capital and the raw materials circulating capital. However, circulating capital also comprises the capital invested in labour-power, the variable capital. This is because, despite the differences with regard to the creation of value, the value of the variable capital circulates in the same way as the value of the raw materials.[20]

A simple numerical example illustrates the effects of the two parts of capital on turnover.[21] If a capital consists of £10 000, of which £5000 is fixed and £5000 circulating, and if the former turns over once every five years, while the latter turns over once every year, then in 20 months the total capital value of £10 000 is turned over. Clearly, if the proportion of fixed to circulating capital rises (which is a tendency for advanced capitalism),[22] then the turnover time for the total capital value would also be extended. Such circumstances influence the amount of capital that has to be advanced to produce a given value in a given time.

The previous example also shows that, although the total capital value of £10 000 is turned over in 20 months, the fixed capital is not actually replaced for five years. Where fixed capital accounts for a high proportion of total productive capital, this lag in replacement is one of the factors explaining the periodicity of crises. Marx proposed that the average life of fixed capital, which he assumed to be 10 years, was the ‘material basis’ for the periodic crises of the 19^th century.[23] This is an illustration of the possibility of crises arising out of the general nature of capital.

Another important point emerges in considering the turnover of circulating capital. Volume 1, from the standpoint of the immediate process of production, developed the category of the rate of surplus value. The circulation process modifies this. Circulating capital includes variable capital, so if the rate of surplus value is 100% and variable capital turns over once in a year, then the annual rate of surplus value is also 100%. But if variable capital is turned over 10 times per year, then the annual rate of surplus value is 1000%.[24] A reduction in turnover time may result from a shortening of the working period or increased efficiency in other parts of the circuit of capital, eg in selling the commodities produced. The capitalist can then have less of his capital tied up in the employment of labour-power over a given period and receive the same, or even a greater, mass of surplus value.

2.3             Volume 2, Part 3

Part 3 analyses the reproduction and circulation of the aggregate social capital. In this last part, Marx makes use of the circuit of commodity-capital, although not as a circuit applying to an individual capitalist but as a means of examining the consumption and reproduction of the total product of (industrial) capital. This can usefully be contrasted with the chapters on simple reproduction and accumulation in Volume 1.

In the chapter on simple reproduction in Volume 1 (Chapter 23), Marx shows that a certain portion of each year’s product is destined for productive consumption, while the remainder may be consumed individually. He notes that, in general, commodities serving one function will have a different material form from those serving the other.[25] However, at this point, Marx is not concerned with this aspect of the process, rather with the distinction between productive and individual consumption. The labourer is shown to consume in both ways, such that the wage-labour and capital relation is perpetuated.

The labourer consumes productively when ‘he consumes by means of his labour-power the means of production and converts them into products with a higher value than that of the capital advanced’. In this way he produces capital, ‘an alien power that dominates and exploits him’. [26] On the other hand, the labourer consumes individually when he ‘turns the money paid to him for his labour-power into means of subsistence’. The consumption of means of subsistence not only sustains the labourer (and his family), but it forces the labourer continually to return to the labour market to sell his labour-power. In Volume 2, productive and individual consumption are examined from the point of view of the circulation process.

It is important to recognise that although both Volumes 1 and 2 treat ‘capital in general’, it is only in Part 3 of Volume 2 that Marx analyses the aggregate social capital.[27] This is because the total process

‘comprises both the productive consumption (the direct process of production) together with the conversions of form (materially considered, exchanges) which bring it about, and the individual consumption together with the conversions of form or exchanges by which it is brought about.’[28]

Therefore the total process can only be dealt with after an examination of the categories presented in Volume 1 and the first two parts of Volume 2. This was why, in the first volume, accumulation and simple reproduction were considered ‘from an abstract point of view, ie as a mere phase in the actual process of production’.[29]

This point is further elaborated when Marx introduces the reproduction schemes. Here he says that ‘the merely formal manner of presentation’ in which it was assumed, for example, that an individual capital could find a market for its commodities and could find on the market those commodities it required for its own production, ‘is no longer adequate in the study of the total social capital and of the value of its products’.[30] The questions that have now to be considered explicitly are

‘How is the capital consumed in production replaced in value out of the annual product and how does the movement of this replacement intertwine with the consumption of the surplus-value by the capitalists and of the wages by the labourers?’[31]

The reproduction schemes are the tools with which Marx explores this question, and these show in a strikingly clear form the unity and opposition of the use-value and value of a commodity, first introduced in Chapter 1, Volume 1.

Marx divides the total product of society, and therefore total production, into two departments.[32] Department 1 furnishes those commodities ‘having a form in which they must, or at least may, pass into productive consumption’. Department 2 produces those commodities ‘having a form in which they pass into the individual consumption of the capitalist and the working class’. The sum total of exchange relationships in society is then reduced to the exchange between these two departments, an exchange represented not only in terms of value but also in terms of use-value. The division of the two departments is not arbitrary, but is based on the economic form and role played in reproduction by the use-values they produce.

Given certain assumptions – all commodities exchange at their values, all capitals in each branch of production have an equal turnover time (eg one year) and that there is no fixed capital – it is shown that simple reproduction may proceed smoothly. This occurs if the value of the constant capital of Department 2 (c2) is of the same magnitude as the sum of the values of the variable capital and the surplus value in Department 1 (v1 + s1). The two departments can then exchange equal portions of their respective commodity values and receive the particular use-values that they need. It is irrelevant to argue here that the assumptions are unrealistic, since the point is not to mirror the actual processes in the economy but to see them in their simplest form. In fact, even under a number of favourable assumptions for capitalism, if fixed capital is allowed into the reckoning, it can be shown that crises would occur even on the basis of simple reproduction.[33]

Simple reproduction in both Volume 1 and Volume 2 is considered separately from accumulation. As Marx says,

‘as far as accumulation does take place, simple reproduction is always a part of it, and can therefore be studied by itself, and is an actual factor of accumulation.’[34]

Once the relations arising out of this basic element have been examined, accumulation can be dealt with. Volume 1 treats accumulation from the point of view of the individual capitalist, although not distinguished from ‘capital in general’. Accumulation takes place, or ‘surplus value is convertible into capital solely because the surplus-produce whose value it is, already comprises the material elements of new capital’.[35] In Volume 2 we see how ‘what happened in the case of the individual capital must also show in the annual reproduction as a whole’.[36]

Again it is a question of examining the general possibility of accumulation on the basis of extremely restrictive assumptions, and the results of such an analysis should not be taken as directly conforming to the workings of the capitalist economy. The assumptions are justified insofar as accumulation does indeed take place and we are seeking to understand the character of this process. The conditions under which accumulation and reproduction on an extended scale can take place ‘smoothly’ are evidently more complex than those for simple reproduction, and will not be dealt with here.[37] Instead, it is worth concluding this section with an illustration that shows why the reproduction schemes cannot be used as a ‘growth model’, but how they also clarify the contradiction between use-value and value.

The relationships of exchange between Departments 1 and 2 must be looked at both from the perspective of use-value and value. Each department can only secure those commodities it requires from the other by exchanging a value equivalent to that of its own commodities. However, the demand for a commodity is a demand for its use-value, not its value. In the case of the means of production, for example, this is determined in the first instance by technical factors – a planned level of output will consume a certain volume of raw materials, which in turn will need to be worked on by a certain number of machines, tools, etc. Yet these technical factors are not fixed – themselves being influenced by value considerations - and in the real process of capital accumulation any equilibrium in terms of value and use-value between the two departments could not persist. Accumulation characteristically involves technical change and productivity increases. Such increases would mean that a greater mass of use-values would embody the same value as before, and there is nothing to ensure that this greater mass will match the social demand. Disproportion is bound to occur, and the ‘correct’ proportions, the correct allocation of social labour under capitalism, will only be established by accident, or more likely through the operation of crises of varying intensities throughout the system of reproduction.

3             Conclusions

The analysis of Volume 2 completes Marx’s examination of ‘capital in general’. Capitalist production can now be seen as the unity of production and circulation: the extraction of surplus value from the labourers as the basis for the accumulation of capital, and the various forms assumed here, together with those taken on by capital in its process of circulation. The analysis of the circulation process clarifies many relations not dealt with in Volume 1. It shows how circulation is both a necessity for and a barrier to the self-expansion of capital, and how the period of turnover and the time spent by capital in each of its stages affects the form of motion of capital. The problem of realisation, of producing use-values on the relevant social scale, is clarified through the reproduction schemes.

Presenting these relations at an abstract level enables a correct theoretical understanding of the more concrete forms that ‘grow out of the movements of capital as a whole’. These can be seen as capital’s attempts to overcome the contradictions arising from its general nature. Examples include the role of credit in allowing individual capitals to continue to accumulate, and the specialisation of capital into merchant (commercial) and banking capital. The importance and role of foreign trade can also be deduced from the reproduction schemes. These issues, and many others, are dealt with in Volume 3, which analyses ‘the process of capitalist production as a whole’.

This essay has focused on Volume 2 and its relationship to Volume 1, but it would be a mistake to derive Marx’s view of crises and the barriers to capital accumulation from these two volumes alone. The ‘law of the tendency of the rate of profit to fall’ is critical to Marx’s theory on this question, and it is a further expression of the fundamental contradiction between capitalist relations of production and capital’s development of the forces of production. This law is nevertheless only dealt with in Volume 3. There are two important reasons for this. Firstly, because the analysis of the capital’s process of production and circulation are necessary preliminary steps in the analysis. For example, turnover time is important in determining the annual rate of profit for capital. Secondly, because the trend in the rate of profit has an impact on capitalist society as a social average, but this average can only fully be understood once the analysis has passed from the level of ‘capital in general’ to that of ‘many capitals’. It appears as if there is no relationship between the profits an individual capitalist earns and the surplus value he appropriates. The link can only be derived by examining the individual capitalist’s relationship to the whole system.

Unfortunately, for some radical, and not so radical, critics of capitalism, Volume 2 has provided arguments for focusing on ‘disproportions’ in capitalist production, realisation problems and so forth. This is ironic, since Marx discounted such evident troubles in order to focus on the more fundamental barriers that capitalism placed on the development of society.

Tony Norfield

Bibliography

[4 Nov 2017: Footnote references to the different volumes of Capital below have been corrected] 

Kliman, Andrew 2007, Reclaiming Marx’s Capital: A Refutation of the Myth of Inconsistency, Lexington Books, 2007.

Marx, Karl 1974a, Capital, Volume 1, London: Lawrence & Wishart 1974.

Marx, Karl 1974b, Capital, Volume 2, London: Lawrence & Wishart 1974.

Marx, Karl 1974c, Capital, Volume 3, London: Lawrence & Wishart 1974.

·        Note that the three volumes of Capital are available on: http://www.marxists.org/archive/marx/works/download/pdf.htm

Rosdolsky, Roman 1977, The Making of Marx’s ‘Capital’, London: Pluto Press, 1977.

Rubin, I I 1972, Essays on Marx’s Theory of Value, Detroit: Black & Red, 1972.

Yaffe, David 1974, ‘Value and Price in Marx's Capital’, 1974 http://www.marxists.org/subject/economy/authors/yaffed/1974/valueandpriceinmarxcapital.htm

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[1] See the coverage of this issue by Rosdolsky (1977) Chapter 30, ‘The Dispute Surrounding Marx’s Schemes of Reproduction’. My comments on Marx’s method follow Rosdolsky’s interpretation (see Chapter 2, ‘The Structure of Marx’s Work’). I do not want to add to the interminable debate on the so-called transformation problem, except to say that there is no logic in using Marx’s reproduction schemes for the circulation of capital in the analysis of the formation of prices of production. Marx considered capitals with different organic compositions in his analysis. However, each capital was looked upon as a portion of the total social capital when he derives prices of production. This important point was stressed by Yaffe (1974, Section 3.3.2). Hence, the ‘input/output’ relationships between the different capitals were not relevant to this analysis. If one insists on using the reproduction scheme approach, then Kliman (2007, Chapter 8) has shown that a consistent solution can be found, contrary to many critics of Marx’s theory of value.

[2] Marx (1974c, p25).

[3] Marx (1974a, Chapter 12, p300).

[4] Of course, the existence of many capitalists is not denied at this stage of the analysis, and, for the most part, it is developed using an individual capitalist. However, the individual capitalist is taken as a representative element of the total social capital.

[5] Note that even Volume 3 is not ‘concrete’. Although it deals with competition, it does not analyse the real movement of market prices, wages, the rate of interest, etc. For example, Marx merely notes that the depression of wages below the value of labour-power is a factor checking the tendency of the rate of profit to fall (Marx 1974c, Chapter 14, Section 2, p235).

[6] Marx (1974b, Chapter 1, Section 4, p57).

[7] Marx (1974b, Chapter 18, Section 1, p357).

[8] Marx (1974b, Chapter 1, Introduction, pp25-26).

[9] Rubin (1972, p270).

[10] This is true for those storage costs that do not arise out of the difficulty of realisation. See Marx (1974b, Chapter 6, Section 2.2, p151).

[11] Marx (1974b, Chapter 6, Section 3, p152).

[12] Marx (1974b, Chapter 5, p128).

[13] Marx (1974b, Chapter 4, p106).

[14] Marx (1974b, Chapter 4, p103).

[15] Marx (1974b, Chapter 4, p108).

[16] Marx (1974b, Chapter 7, p156).

[17] Marx (1974b, Chapter 7, p157).

[18] See Marx (1974a, Chapter 8).

[19] Marx (1974b, Chapter 8, Section 1, p163).

[20] Marx’s analysis of fixed and circulating capital allows him to show in Chapters 10 and 11 how Smith, Ricardo and their followers were able to blur the distinction between constant and variable capital.

[21] Taken from Rosdolsky (1977, pp362-3).

[22] Marx (1974b, Chapter 18, Section 2, p361-62).

[23] Marx (1974b, Chapter 9, p188-9).

[24] Marx (1974b, Chapter 16).

[25] Marx (1974a, Chapter 23, Section 1, p531).

[26] Marx (1974a, Chapter 23, Section 1, p535-6).

[27] This fact led Rosa Luxemburg to think that Part 3 marked the transition to a more concrete level of analysis. See Rosdolsky (1977, especially p65).

[28] Marx (1974b, Chapter 18, Section 1, p356).

[29] Marx (1974a, Chapter 23, Section 1, p530).

[30] Marx (1974b, Chapter 20, Section 1, p398).

[31] Marx (1974b, Chapter 20, Section 1, p397).

[32] Note that only the exchanges between industrial capitalists, and between industrial capitalists and workers are dealt with by the reproduction schemes. This is one more indication of their abstract character.

[33] Marx (1974b, Chapter 20, end of Section 12, p473).

[34] Marx (1974b, Chapter 20, end of Section 1, p399).

[35] Marx (1974a, Chapter 24, beginning of Section 1, p544-5).

[36] Marx (1974b, Chapter 21, opening of Section 1, p493).

[37] See Rosdolsky (1977, p446-450).

The Composition of Capital

Reply to Andrew Kliman’s points (see the comments on my 13 March 2012 review of his book, The Failure of Capitalist Production)

Firstly, thanks for clarifying some issues. Secondly, I may have not fully presented what you were arguing when I made the comments in my review of your book, but I think that the logic of what I said stands, given your general thesis about the share of worker incomes (including benefits, etc) being roughly constant over time. I should also have been more specific about which ‘composition of capital’ I am talking about.

The ‘organic composition’ of capital as defined by Marx expresses the positive correlation that usually exists between the technical and value compositions of capital (see the opening paragraphs of  Chapter 25, Volume 1 of Capital). The technical composition looks at the use-value division between means of production and labour-power. The value composition is the value of means of production versus the value of labour-power employed. There can be cases where one goes up and the other one goes down, but overall they will tend to move (usually higher) together, and so produce a rising organic composition. The use-value side of the process is critical for showing the limits of how much labour-time capital can potentially exploit, but I agree that the value composition is most relevant for tracking the movements in the rate of profit. If some of the questions you have about the points I made are down to me using ‘organic composition’ rather than ‘value composition’, then hopefully this clarifies things.

Let us turn to the other points in question. You argue that the rate of profit (using US data) started out high, after 1945, and then fell owing to the impact of much lower incremental profit rates thereafter. Your analogy was with average ages at a party (p135 in your book). When the host is 22 and is the first to arrive, the average age is 22. Then the guests begin to arrive, and each one is 10 years old. So the average age begins to fall towards 10, even though ‘nothing changes during the party’. You only referred to average profits in this particular section, not to any composition of capital (as I incorrectly suggested). But only a few pages earlier, on p128, you argued that the data indicate your proxy measure for the rate of surplus value was flat and that “almost all the entire fall in the rate of profit was due to an increase in the ratio of advanced capital to employee compensation”.

The algebra surely indicates that if the rate of profit fell and if the rate of surplus value was constant, then the (value) composition of capital must have risen. In your argument, the average rate of profit fell because “the CPS-MA rate of profit on new investments (CPS-MA-NEW), the additional profit as a percentage of the additional advance of capital, was much lower” (p135-6). I did not discuss in my review what you meant by CPS-MA, etc, but the overall logic is clear. You must be arguing that the value composition of capital did not rise in the post-war period on new investments. Instead, the average composition of capital rose because the value composition of new investments was much higher, but presumably constant at the higher levels for these new investments. It was this constant value composition of capital on new investments in the post-1945 period that I found to be implausible.

Tony Norfield, 22 March 2012

Eurocentric Angst

Book review: Jűrgen Habermas, The Crisis of the European Union: A Response, (translated from the German by Ciaran Cronin) Cambridge, Polity Press 2012, 140 pages

This book correctly characterises the economic troubles in Europe as concerning the European Union as a whole, rather than simply members of the euro currency area. If the euro project fails, then that would not only be a major economic event; it would represent the destruction of decades of political planning by Europe’s major powers, Germany and France, and throw into turmoil the relationships between all European countries, including those outside the system. However, the book, by one of Europe’s prominent sociologists and philosophers, is an odd mixture of abstract conceptualising and rather commonplace opinions on recent events and does not live up to the implicit promise of being a high level assessment of the crisis. It is not a case of being short-changed by a mere 140 pages; valuable ideas can be concisely expressed. Nor has the force of the argument been weakened by poor translation (as far as I can judge, the translation from the German is good). The basic problem is that Habermas has nothing substantial to say, and what he does say just reflects his liberal imperialism.

The first essay, ‘The Crisis of the European Union’, takes up half the book. His key point is that European politicians have been too timid to make the case for a unified European citizenship, because they have been narrowly focused on national concerns: ‘political elites and the media are reluctant to win over the populations to a common European future’ (p50, and a similar point on p20). This is hardly an original remark, but Habermas insists on building up to it by discussing the nature of democracy, how the sharing of power can take place between different states and peoples in a federal system and by comparing and contrasting the EU to the US and the United Nations. The problem here is that anyone with knowledge of either the origins of the US Constitution or of the UN would take exception to his whitewash of history. He has a tendency to draw upon such liberal icons to support his case that these were key markers in progress to a better world, and that a ‘common European future’ is the next logical step. Critics of the US Constitution, however, have noted that it was a document drawn up by the moneyed class in their interests (quite apart from the issue of slavery), while historian Mark Mazower in his No Enchanted Palace (Princeton University Press, 2009) has effectively debunked the idea that the UN was a universalist project and highlighted the big power compromises that led to the founding statements.

By comparison, Habermas is an ingénue, taking the documents he reads and their commitments to ‘human rights’ at face value. This may not seem to be a fair comment, since he has a tendency to introduce lofty concepts and then to note alongside these the dirty reality that they do not live up to. However, he does this so often that the reader is left wondering why he does not question the validity of his concepts.

This is also true of his view of Europe. Being of a certain age, he is impressed with the fact that moves towards European co-operation in the economic sphere developed into a political project, and that this appears to have cast aside the risk of intra-European warfare. Yet he downplays the economic power of Germany and the political influence of France in this project, preferring to see it instead as a fulfilled dream of the European peoples. For him, this is like the Hegelian notion of the realisation of the Idea. But this theoretical presentation is dishonest. In reality, and little to do with realising democracy, he is a strong advocate of a more powerful Europe that can assert itself and act in opposition to the power of the USA. He makes this very clear in the interview-based Appendix to the book: ‘only together could the euro zone countries acquire sufficient weight in world politics to be able to exert a reasonable influence on the agenda of the global economy. The alternative is to act as Uncle Sam’s poodle and to throw themselves at the mercy of a global situation which is as dangerous as it is chaotic’ (p117).

At least that was a clear political statement. In his theoretical expositions, a Mitteleuropa writing style full of soporific abstractions blankets any sense the reader may get of inconsistency, or even of what is being said. In explaining the ‘hesitation of political elites at the threshold to transnational democracy’, for example, he notes that ‘we must adopt a constructivist perspective when we want to conceptualise the democratic legal domestication of a supranational political community such as the EU as a further stage in civilising state power’ (pp44-45). The reader only wakes up when, within this framework, a more specific point is being made. For example: ‘the peoples of a continent [Europe] whose political and economic weight is diminishing are trying to recover a certain political room for manoeuvre in the face of political forces and systemic constraints of a globalised society. If they succeed, they can use this room for manoeuvre not only defensively to preserve their cultural biotope but also in an offensive way to undertake the still more toilsome task of extending global steering capacities’ (p28).

Make of that what you will, but my hackles are raised, not least by the need to be offensive in Europe on a global scale in order to recover ‘political room for manoeuvre’. A more realistic (and readable) assessment of the origins of the European project, its political design and imperialist mode of operation is given in Guglielmo Carchedi’s For Another Europe: A Class Analysis of European Economic Integration (Verso, 2001).

Habermas ends with a plea that: ‘With a little political backbone, the crisis of the single currency can bring about what some once hoped for from a common European foreign policy, namely a cross-border awareness of a shared European destiny’ (p127). Yet, in more mundane language, what he really advocates is that Europeans should pull together to reassert their privileged position in the world economy. His apparent philosophical universalism is in reality a Eurocentric nationalism.

Tony Norfield, 18 March 2012

The Number of the Beast

Andrew Kliman, The Failure of Capitalist Production: Underlying Causes of the Great Recession, London: Pluto Press, 2012, 240 pages

Andrew Kliman’s book is a valuable addition to the many things written on the crisis, and well worth reading. It is probably the most detailed, and effective, assessment of the economic statistics behind what happened that is available, with his analysis interpreting the data from the perspective of Marx’s theory of value and capital accumulation. He makes very clear what he is arguing and gives full references for anyone who may wish to check his sources. This can make the book a little hard going in places, but this is a text for those who want to explore the real origins of the crisis, not one for those who are satisfied with populist attacks on corrupt politicians or greedy bankers. My principal criticism of his book is that it does not address the question of US imperialism, but first I will note the book’s strengths.

The Failure of Capitalist Production has two main theses. Firstly, it argues that the major post-war crisis of the 1970s did not result in enough destruction of capital values to provide the basis for sustained accumulation thereafter. This meant that profitability showed little, if any, sign of recovery and economic growth remained weak. This, in turn, set the stage for credit-driven, speculative bubbles, not least the biggest and most recent one that has burst with such intractable consequences. Secondly, and following from this analysis, it argues that the common radical arguments about the nature of the crisis are myths. ‘Neoliberal’ economic policies did not cut real wages and did not divert resources into finance and away from production. A close look at the data for the US finds no evidence for these assertions. Instead, the slow growth of incomes and investment is shown to be a consequence of problems with capital accumulation, problems that resulted from inadequate profitability.

In order to substantiate his points, Kliman conducts a thorough review of how to measure the rate of profit on capital investment. He focuses on the US, not only because America is the biggest capitalist power, but also because US data are the most comprehensive. However, he does not claim to come up with the ‘Marxist rate of profit’ for the US, thinking that there is no unambiguous way in which to derive such a thing from official statistics. Instead, he builds a clear case for using a number of profitability measures that reflect the pressures capitalist business is under. He makes a strong point about how commonly used measures of profit rates (using ‘current cost accounting’) give the impression that the US profit rate rose, but that these are not meaningful reflections of the rate of return earned by capitalist businesses.

Kliman notes that almost all measures of profit rates ‘rose sharply in the years immediately preceding the latest crisis’. Yet while a fall in the rate of profit may not have been a proximate cause of the crisis, it was a key indirect cause:

‘The rate of profit was low at the start of the 1980s and it never recovered in a sustained fashion. This led to a marked decline in the rates of capital accumulation and economic growth. Government policies kept this problem from getting out of hand, but also prolonged and exacerbated it.’ (p14)

His case is well made, and is convincing. These are critical points for an attack on the notion that mistaken government policies – or a ‘neoliberal coup’, as some writers suggest - are the root cause of the crisis. Kliman shows that the deterioration in profitability, investment, growth, etc, began in the late 1960s or in the 1970s, prior to the beginnings of the ‘neoliberal’ era that is usually dated from 1979-81 with the Reagan (US) and Thatcher (UK) political regimes.

He also argues that there has been no rise in the share of US national income going to corporations (pp124-128), a measure that he uses as a proxy for the rate of exploitation. The counterpart to this is that the share of workers’ incomes has not fallen, contrary to many reports. Kliman shows that although the wage share did decline, this was offset by a rise in medical, retirement and unemployment benefits, so that the total compensation of workers as a share of national income has not fallen (pp152-160). Real wage growth (including benefits) for US workers has also been positive. While this growth was slow, this was based on the slowdown of accumulation deriving from the low rate of profit (a chart illustrates this relationship on p91).

Weak profits and sluggish accumulation of capital were also the reasons behind the low interest rate regime that the US Fed implemented from the early 2000s. The Fed feared a ‘lost decade’ of growth (pages 38-47) as had already happened in Japan. These developments set the scene for the rise in consumer credit, subprime mortgages, the boom in derivatives trading and so forth. ‘Neoliberalism’ played no part in these events. Alongside this analysis, Kliman gives a critique of ‘under-consumption’ theories of crisis (Chapter 8) that divert attention away from profitability as the cause of the crisis and promote government spending plans as a solution.

In Chapter 7, Kliman demonstrates that a rising ‘organic composition of capital’ was the main driver of the downtrend in profitability. I would agree with this point, except that Kliman’s explanation looks odd. His argument is that the organic composition was very low in 1945, resulting in a high rate of profit. After 1945, the organic composition for new capital investments was much higher, and the rate of profit on new investments was much lower. But he claims that the organic composition did not rise on these new investments after 1945. Instead, in his view, the overall rate of profit fell because, over time, the total stock of capital was made up by a higher proportion of the newer, higher organic composition, lower profit rate investments (pages 134-137). This argument is made in a chapter that is full of technical detail, and is one of the few in his book that I find implausible. Although it is difficult to find a good proxy for the organic composition of capital with official statistics, my reading of reports on business investments would suggest that there has indeed been a rise in the organic composition on new investments in the post-war period.[1]

Kliman’s book is a detailed discussion of the causes behind the current crisis, with the specific aim of focusing on US data and countering some common beliefs about trends in the US economy. To that extent, it is perhaps unfair to ask for a wider perspective. However, I think that his analysis is weakened by the absence of any discussion of imperialism, or even the key features of US imperialism.

His book has nothing on the role of the dollar, nor on the global domination of US finance that acts as a support for US capital.[2] Neither does he take account of the benefits the US has gained from its exploitation of other countries in trade and investment. His argument, made to me in response to my questions on these points, and in this book, is that such benefits would have appeared in the figures for US corporate profitability. His conclusion remains that the US corporate rate of profit fell despite whatever the size of these benefits may have been.

However, while that is a fair point, to ignore America’s status as an imperialist power means that some important countervailing tendencies to declining profitability are set aside. It would have been a stronger point for him to argue that, despite US imperialism’s attempts to appropriate profits from other countries, and despite its success in doing so, this did not avert the crisis.

Kliman dismisses the impact of the earnings on US foreign direct investment by noting that the rate of return on these investments has also fallen over time (pages 78-80). This is true, but it ignores the fact that the rates of return on investment in oppressed countries are several times the rate earned in other imperialist powers! It is also worth recognising that in recent decades a large share of productive investments has been in oppressed, low wage countries, despite the fact that recorded FDI figures show the bulk of total assets and new investments as being in rich countries. Furthermore, in addition to FDI, many low wage countries, not least China, have been brought into imperialist companies’ value chains via trade relationships. This allows the benefits of cheap supplies of goods to be enjoyed by consumers, governments and businesses in the imperialist countries.[3]

It would be tricky to put a value on these imperial benefits, and Kliman understandably focuses on data that he can more readily incorporate into his analysis. However, these points still deserve recognition. I would suspect that an important reason why US working class living standards have risen in recent decades, despite the onslaught of a capitalist class that has had a free hand to attack workers, is due to such benefits.[4]

The absence of imperialism from Kliman’s analysis also leads him to conceive of the crisis as setting the ground for a struggle between capitalists and workers (Chapter 9). In the abstract this is true, but the more important reality is that workers in the imperialist powers usually support their states in any international conflict over economic privileges, and especially in war. Even opposition to the Iraq war in 2003, a war that was widely seen as criminal aggression, basically stopped once the troops had been sent in. Kliman’s book is a valuable attack on mistaken views of the crisis, and on calls for state regulation or spending as the solution. However, it elucidates neither the economics nor the politics of imperialism.

Tony Norfield, 13 March 2012

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[1] For a recent example, see the article ‘Foxconn and the Organic Composition of Capital’ on this blog, 2 August 2011.

[2] See ‘Dimensions of Dollar Imperialism’ on this blog, 5 October 2011.

[3] For these points, see John Smith’s analysis in a PhD thesis entitled ‘Imperialism & the Globalisation of Production’. The pdf (1.5MB) can be downloaded here.

[4] See ‘What the “China Price” Really Means’ on this blog (4 June 2011) for data on wage and compensation levels of workers showing a dramatic gap between wages earned by workers in imperialist and in oppressed countries. This article spells out the benefits of cheap imports for the general population in imperialist countries.