Comments on Paul Mattick s 1966 Critique of Baran and Sweezy s book Monopoly Capital (summary and questions by Cliff Cobb)

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1 Comments on Paul Mattick s 1966 Critique of Baran and Sweezy s book Monopoly Capital (summary and questions by Cliff Cobb) Note: BS = Baran & Sweezy; SV = surplus-value; MC = monopoly capital Introduction Mattick s basic criticism of BS is their mistaken neglect of Marx s categories and methods of analysis. Thus, he proposes to go back to basics in understanding how the crisis of capital arises. As such, this essay stands as a critique not only of Baran and Sweezy, but also of a great deal of other revisionist or New Left Marxism that began in the 1960s and continues today. The Nature of Monopoly: Static (bourgeois) or Dynamic (Marxist) The premise that distinguishes BS from Marx is contained in the title of the book: Monopoly Capital. BS claim that the economy has evolved from the 1850s from competitive capitalism into monopoly capitalism. Acc to BS, Marx thought monopoly was a residual of feudalism and mercantilism. BS contend monopoly is a defining feature of late-stage capitalism, and thus not a residual of earlier stages. As a result, they believe new categories and modes of analysis are required to understand monopolistic behavior. Mattick says this is based on a misreading of Marx, who fully anticipated present conditions. To jump ahead, BS find no evidence in late capitalism of a falling rate of profit. So they presume to supersede Marx s analysis with one that uses surplus and overproduction as categories to explain the recurrent crises of capital. They find statistical evidence that capitalism now creates a surplus and generates inadequate buying power. For BS, this is the cause of the recurrent crises of capital. To Mattick, this sounds suspiciously like Keynesian analysis, which it seems BS have absorbed from the surrounding culture. [He might have noted a similarity to John Kenneth Galbraith s Affluent Society, ca 1955.] Mattick says Marx did not use the term "monopoly" in its bourgeois sense as the opposite of competition. For Marx, capital competition is the same as monopoly, since they are dialectical. Competition creates monopoly by eliminating competitors, so, says Mattick, "Monopoly always remains competitive." The elimination of competition might appear as the pinnacle of capital's success, but it actually represents the decay and dissolution of capital. Mattick: "When, instead of being a form of competition, monopoly eliminates competition, capitalism finds itself on the way out." In summary, contrary to BS, both competition and monopoly are always and everywhere part of capitalism. Price versus Value To understand how this is true, Mattick takes us back to basic principles. BS say the study of monopoly capitalism must start with the price mechanism, but Marx says value relations precede price relations. Value analysis disregards competition, since total prices = total value. Marx is interested in total capital, not in competitive prices or monopoly. Social relations as value relations circumscribe market relations and prices. Marx's model is thus not based on competition (as BS claim), but on the labor theory of value applied to accumulation which is based on the difference between the price of labor (wage, based on cost of reproduction of labor as commodity) and the value of labor the labor-power which can produce a Comments on Paul Mattick Article Page 1

2 surplus above cost. That is the sole source of surplus-value or profit in the system. All of the pathologies can be traced back to the difference between the wage-price of labor and the value of labor-power. Two Competing Explanations of Crisis: Surplus Production or Falling Profit Rate BS mistakenly think the falling rate of profit is based on competition, which is why they think it no longer is valid in the new monopolistic economy. Mattick says, the falling rate of profit actually depends on the shifting value relations of capital expansion. Mattick says the profit rate = profit / total capital = profit / (equipment + labor power). (Equipment, along with buildings and raw materials, is constant capital; labor-power is variable capital. Therefore, since profit = SV or surplus-value; profit rate = SV/(c+v).) Investment in equipment causes a decline in the rate of profit because equipment is unproductive or inactive. (I think by unproductive Marx means only that it reproduces itself, but it does not produce SV in the way labor-power does. If so, then constant capital does add to the productive power of variable capital.) So the denominator (c+v) rises because of an investment in constant capital, but the numerator (profit or SV) does not increase, because the addition of constant capital does not increase SV. The underlying cause of the declining profit ratio is the rise in the organic composition of capital which is simply (c/v), the ratio of constant capital to variable capital (or, in simpler terms, the amount of equipment per worker). Actually, all variables are increasing, but the ratios among them are changing. Despite the falling profit rate, 1) more workers (variable capital) are hired, 2) more surplus-value is expropriated from them, and 3) more total profit is produced. This is a necessary relation, acc to Marx. But the profit RATE can fall, even as total profits grow, because the above ratio [SV/(c+v)] declines as capitalists attempt to substitute equipment for labor. Two conflicting factors are at work. 1. Workers become more productive as a result of added equipment (reduced necessary labor-time to reproduce labor-power). 2. The work-force is reduced relative to constant capital, since fewer workers are needed per unit of capital. These 2 steps affect the profit rate in opposite ways. The first increases the profit rate by raising the rate of surplus-value (surplus per worker), and the second reduces absolute profit (absolute surplus-value or number of workers). Thus, accumulation of constant capital (investing in equipment) adds to profit or surplus value by increasing output per worker, AND reduces profits by cutting the size of the workforce (or increasing it more slowly than additions of equipment). But there is a limit to the ability to make this shift between laying off workers and getting more work per hour from each worker. The reduction in the workforce reduces variable capital relative to constant capital, which causes a decline in the profit rate and eventually in the absolute quantity of profits. Mattick suggests that BS conflate productivity growth (increased output per worker) with capital accumulation (based on profits). In fact, he says, they are two separate processes. Confusion of BS about Falling Profits Since there is a super-abundance of stuff coming out of factories (more than people can buy), BS infer that would mean that there is an "apparent abundance of surplus-value in the United States" (Mattick's words). Instead of falling profits, BS observe rising surplus or surplus-value. BS see Marx as writing about a period of inability of capitalism to generate a surplus, which slowed capital accumulation. In the new period, there is "a law of rising surplus," not shortage of accumulation. Ergo, they think they have Comments on Paul Mattick Article Page 2

3 disproven the Marxist theorem of a falling rate of profit. BS are confused because they use surplus instead of SV. This is based on superficial thinking. As Mattick has shown, there is no contradiction between a rising level of absolute profits (rising quantum of SV) and a falling profit rate. The source of confusion is clear. Mattick says, Baran and Sweezy have switched from Marxian to bourgeois economic analysis,... [to the] amalgam national income, the concept of 'effective demand', and the Keynesian remedies for capital stagnation. BS find that the unabsorbable "surplus" (which clogs monopoly capital) grew from 1929 to 1963 (as % of GDP), but the portion that is traditional SV fell from 57% to 32% of total surplus. Mattick says these statistics show that capitalist productivity allows for a great amount of waste-production even under conditions of relative capital stagnation. They do not disprove the Marxian thesis of a declining rate of profit. Permanent Stagnation or Periodic Crisis BS argue that production in monopoly capitalism (MC) will not proceed beyond the point of minimum profit for capital. But Mattick points out that this is also true for competitive capitalism (which is also monopolistic). BS argue that what was once a periodic crisis (reduced production because of low profits) has now become a permanent crisis (some factories and workers idle because of overproduction). BS claim this is due to MC. Mattick indicates that capital crises are not permanent. Instead, they are sporadic. Market contractions weed out weaker companies, making capital more productive and more concentrated. There is "restoration of an effective demand allowing for the resumption of the accumulation process." [Personal comment: This seems to fit the facts of business cycles better than the idea of permanent stagnation.] BS think the problem of capitalism lies solely with market relations. But they are wrong. They think the current problem is that capitalism has excess capacity because of lack of aggregate demand. If aggregate demand is low, there will be a cut-back, which will lead to underuse of resources (constant and variable capital). Mattick says, rising surplus (A) cannot explain lack of demand (B). A and B are two sides of same coin. So, the underlying problem remains the unprofitability of production (thus too little production and too little demand). In other words, the Marxian thesis of a falling profit rate still explains the conditions of capitalist society. Production of Goods vs Production of Value Mattick then says that BS mistakenly focus on physical production capacity because of their belief that overproduction is the cause of capital crises. Increased production through more productive labor is part of the normal process of increased aggregate exchange values, which permits capital accumulation. Mattick says increasing capacity is what pulls capitalism out of slumps, not what causes them. He says "the capacity to produce increases particularly in crisis situations in order to effect a resumption of the accumulation process. It is precisely the compulsion to increase the capacity to produce which points to the reality of the tendential decline of the rate of profit." Whereas BS talk about surplus production, Mattick says what matters is the exchange value of the surplus, which is equivalent to profit. In capitalism all surplus is surplus-value or it is not a surplus but a loss. When resources remain idle it is not because they are too productive but because they are not productive enough. Monopoly capital is not choking on surplus. There can never be too much surplus or profit because of the diminishing profitability of capital. Instead, capital roams the earth in search of profit. Comments on Paul Mattick Article Page 3

4 Surplus-value or profit is always equivalent to surplus labor-time. Surplus labor-time diminishes as a result of the rising organic composition of capital (increase in c/v). Mattick says, It is not the mass of commodities as a growing surplus which determines the rate of profit, but the value relations between dead and living labour; that is, the changing relationship between constant and variable capital modified by the rate of exploitation. Overproduction is simply an outward sign of the change in the organic composition of capital. Moreover, as Mattick later notes, the excessive production of capital in the U.S. is more than offset by a lack of capital in the rest of the world. Global capitalism is still facing a condition of shortage of capital, not an excess. Mattick suggests consideration of an extreme case in which automation becomes complete and no laborpower is needed. There would be a large amount of production, but there would be no surplus-value. Capital would feed labor instead of labor feeding capital. This is impossible within capitalism, says Mattick. Capital in the World Economy If the U.S. were a closed economy, then a fall in the rate of profit would be inevitable. But since it can trade, the rise in the organic composition of capital is offset by other factors. In particular, capital can be exported [which was still happening in the 1960s] or profits can be imported. But these factors are not large enough to account for the continued strength of the American economy (in 1967). The decisive factor that permits increased production is the increasing productivity of labor. In any case, there is globally a capital shortage, not a surplus. On a global basis, the organic composition of capital is still low (i.e., labor-oriented) and thus does not put downward pressure on profits. But the accumulation process is at the same time a capital concentration process. The destruction of capitalism is presumably far in the future, since it will come about from the stagnation caused by the rise in the organic composition of capital. In the world today, most parts are capitalstarved, and capital spreads only slowly. ( The inability of capitalism to capitalise world production is evident in the potential surplus in capitalistically advanced nations and in the increasing misery in the rest of the world. ) Illusory Profits in Monopoly Capital But BS claim that monopoly capital is able to continuously expand profits by lowering costs and by setting prices. This extraordinary growth of profits occurs even as capital is stagnating. Capital is enormously productive, but effective demand is too low to absorb the full amount produced, leading to a combination of stagnation and high profits, acc to BS. But, as Mattick points out, production is determied by c/v and the resulting rate of profit, not by the technical capacity to produce. BS ignore this basic principle by thinking it is possible to have both an increasing surplus and a diminishing rate of accumulation. (In fact, SV grows only with accumulation, but it grows at a dimishing rate as c/v rises.) Effective Demand and Capital Accumulation Mattick accuses BS of improper accounting when they claim that price manipulation and advertising permits MC to accumulate additional capital. Mattick points out that there is a given quantity of SV in a Comments on Paul Mattick Article Page 4

5 society at a time, and that the super-profits of one firm must be offset by the losses of another. Monopoly profits reduce the competitively established average rate of profit. BS devote a lot of attention to advertising. Mattick discusses it for four paragraphs. The most crucial point he makes is that advertising does not create effective demand, which requires income in the hands of workers. Capital absorbs that income in order to accumulate capital. For BS, advertising and government spending help absorb the surplus, but Mattick says they have no effect on the total quantum of SV. Describing the position of BS, Mattick says: The surplus in evidence in the affluent society is, then, not a surplus produced by monopoly capital but in spite of it. It is in fact brought forth, as Baran and Sweezy point out, by government purchases which increase the effective demand and thus prevent crisis conditions. But, as Mattick explains, government in a capitalist society produces nothing. So, it must buy from capitalists. Real income (before taxes) is generated entirely by the circulation of commodities, not by government spending. If government spending does increase total income and production, it does not increase SV (which arises only in commodity production). Using the same statistics as BS, Mattick argues that the growth of government expenses reduces SV. Government purchases do increase total production. But this is mostly non-capitalist production, which falls outside the market. Since it produces no surplus-value or profit, the private sector remains as subject to crisis as ever. BS claim that government spending produces more goods than would have been produced otherwise, because when there is excess productive capacity (idle factories), government spending does not crowd out private investment. The economy can produce more of everything. [This is essentially the same as the Keynesian argument of the 1960s.] But if this has any effect, it occurs by transferring capital from money hoards into unprofitable spending outside the capitalist economy. The result: the growth of production by way of taxation indicates the decline of the capitalist system as a profit-determined private enterprise system. Mattick criticizes the idea that government can increase production by borrowing money (adding to the national debt) and using it to buy products from the private sector. The only part of this that actually adds to national income is the amount above and beyond what the government spends. The expenses of government that do not pile up as debt are spread over the whole economy, as taxes are pushed from business onto consumers and workers. For that reason, business does not mind if taxes rise, and government spending increases. Because of government interventions, particularly the permanent war economy, the U.S. enjoys prosperity. If military spending were cut, the economy would return to depression. Mattick indicates this is a temporary fix that does not address fundamental problems. How long did the temporary fix hold? ^^^^^^^^^^^^^^^ Questions: 1. What is the definition of monopoly, according to Marx. Mattick criticizes Baran and Sweezy for adopting a bourgeois understanding of it. Is there a specifically Marxist definition of monopoly? 2. At one point, Mattick mentions the possibility that surplus-value will be consumed instead of accumulated and invested. Comments on Paul Mattick Article Page 5

6 a. In feudal society, would it be true that surplus-value is consumed, not invested? Or, is there no SV at all, since labor does not work for wage? b. In capitalism, if a capitalist squanders money on consumption instead of investment, would this slow accumulation and thus maintain the profit rate, instead of causing a decline in the rate of profit? 3. The core of Mattick s and Marx s argument is confusing. On the one hand the profit rate (ratio of profit to total capital or SV/(c+v)) has a tendency to fall. On the other hand, the rate of surplus-value (SV/v) is rising as output per worker rises, but the number of workers is declining. So, there are four variables changing simultaneously: profit, stock of equipment (constant capital), stock of labor-power (variable capital), and efficiency of variable capital (or output per worker). This algebra gets to be extremely complicated. With the variables working in opposing directions, the outcome does not appear to be obvious. 4. If the profit rate falls when there is capital accumulation and additions to the stock of constant capital, does the opposite hold true as well? In a slump, sales and profits are down. Does this dis-accumulation of capital lead to a rising profit ratio during depressions? 5. Mattick criticizes BS for using national income statistics to make judgments. But how would Mattick propose to verify when the profit rate is rising and when it is falling? Is it possible to verify it empirically? What do you look for? 6. Mattick says: "For Marx, accumulation [occurs] through changes in the material-technical conditions of production which raise the productivity of labour and therewith the rate of surplus-value and profit." If new inventions raise worker productivity AND the rate of profit [SV/(c+v)], why does capital accumulation (investment in the equipment) reduce the rate of profit [SV/(c+v)]? This seems like an internal contradiction. 7. Mattick says that a completely automated capitalist system of production is impossible. Yes, it contradicts the economic laws as defined by Marx. But why precisely would capitalists not keep adding equipment (robots) until all human labor was replaced, especially since some factories have come very close to doing this? 8. Mattick says, [the] rate of profit should fall with [the] increasing organic composition of capital, unless offset by an increased rate of surplus-value expressed in an accelerated capital expansion. That means the ratio SV/(c+v) falls unless the ratio of SV/v is rising. What causes SV/v to rise? Why does that offset the decline in the profit rate? 9. Baran and Sweezy believe that adverstising and government spending avoid stagnation and crisis in capitalist societies by raising effective demand. What is Mattick s view of advertising and government spending? How do they relate to SV? 10. Mattick says that the prosperity created by way of government spending is a false prosperity, capable of postponing, but not of abolishing, crisis conditions. This seems to indicate that Keynesian policies are effective in the short run. Is that actually what happened? Did Keynesian policies forestall as series of crises? Did that make the actual crises worse? Comments on Paul Mattick Article Page 6