WE INTERRUPT THIS BROADCAST

I have many times remarked that I am, this semester, teaching two courses: a course on Plato's REPUBLIC in a learning-in-retirement program at Duke University, and a graduate seminar at UNC Chapel Hill on "Normative Dimensions of Public Policy." My weekly preparation for these courses, which I confess is more taxing than I anticipated, is to re-read the materials I have assigned for the week. This morning, I finished reading the portion of the REPUBLIC in which Plato advances the controversial proposal that women and men should be trained for and serve equally as Guardians in the ideal state. It is mildly amusing to reflect that America has finally gotten around to a point of view that Plato arrived at twenty-four hundred years ago. Oh well.

Then, having completed my preparation for Monday's Duke class, I turned to this week's reading for the wednesday UNC seminar -- two famous essays by the British Conservative philosopher Michael Oakeshott. I have expressed before on this blog my admiration for Oakeshott's writing, but I am compelled to say a few words about it again, because after re-reading only the first nine pages of the first of the essays, "Rationalism in Politics," I am enraptured by the brilliance, the elegance, and the penetration of it. For those who do not know the essay [and I urge you all to get a copy of the volume in which it appears, also called RATIONALISM IN POLITICS, and read it immediately], it is a deadly accurate description, anatomization, and ridicule of people like me.

I shan't succumb to the temptation to type into this blog long passages from the essay, and from the second essay I have assigned, "Rational Conduct." You must bestir yourselves to seek the essays out and read them for yourselves. Oakeshott is the ego ideal of people like David Brook and Andrew Sullivan and Ross Douthat and countless other conservative commentators. I suppose he bears to them roughly the relation that Marx bears to me, although, interestingly enough, I think there is a good deal in Marx that is compatible with, and resembles, what Oakeshott has to say. Marx, after all, was himself scornful of the deracinated rationalism of those he labeled Utopian Socialists.

What does it say about me that I admire Oakeshott's writing so? I hope it says that I am a big enough person to recognize and freely acknowledge brilliance even in my opponents. But some will suggest that it reveals a secret ambivalence in me, a shameful lust for tradition that has heretofore found expression in my respect for the philosophy of Immanuel Kant and shows that I am not, for all my protestations, the philosophical anarchist I claim to be. So be it. I feel when I read Oakeshott, the way I feel when I listen to Bach. Johann Sebastian and I could never have been drinking buddies, what with his religiosity and all, but that does not diminish my love for his music.

THE THOUGHT OF KARL MARX PART FOURTEEN

Why are the workers compelled to accept a wage that allots to them nothing more than subsistence? This, of course, is the real story of capitalism, and Marx devoted a great deal of time and many pages to his answer. Marx was, among other things, the first great economic historian [that is to say, historian of economic matters -- he was also the first great historian of economic theory, which is another thing entirely. See the three volumes of THEORIES OF SURPLUS VALUE.] Looking principally at the evolution of capitalism in England [the data for which were more readily available to him], Marx argues that over a period of several centuries, peasants and artisans were progressively deprived of their ownership of or access to the means of production -- the land, in the first instance, but also the forests, the mines, the tools of their trades, and also, eventually, the inherited knowledge and skill that made them productive craftspersons. Having no access to the means of production, they were left with nothing but their capacity for labor, or as Marx calls it, their Labor Power. They are compelled to work for wages, at terms set for them by the capitalists. At the same time, the traditional bonds between lord and peasant are broken, so that on the one side, the workers are legally free to accept work wherever and at whatever wage they choose, while on the other side, the employer is liberated from any traditional or legal responsibility for the well-being, indeed for the survival, of his workers. It is no concern of his if they starve to death. To be sure, if an employer offers wages well below the market standard, his workers will leave him for an employer offering better wages. But the competition between workers and employers is unequal, because the employers own and control the means of production, and are capable of sitting out a strike, whereas the workers are living from hand to mouth. The key to understanding any historical era, Marx says, is identifying who controls the means of production. It is for this reason that the central demand of socialists is collective control and ownership of the means of production.

A few side notes on this vast subject, which I am merely touching on. First, in the seventeenth century, as capitalism and wage labor were developing, it was common to view working for wages as a kind of slavery [what eventually came to be called by radical critics "wage slavery."] John Locke, in his classic SECOND TREATISE OF CIVIL GOVERNMENT, asserts that I acquire ownership in a portion of the common given to us by God by mixing my labor with it. [Thus, if I clear an uncultivated field and make it ready for cultivation, I acquire ownership of the field by mixing my labor with it.] If my servant [his word], who works for me for wages, clears the land, then, since I own his labor, I and not he acquire property in the land. It is in this way that one individual comes to own vastly more land than he could ever mix his labor with.

Second, Marx considers the appropriation of the means of production perfectly just, by bourgeois [say, Lockean] conceptions of justice. But does he think it is REALLY just? The answer -- rather surprising to readers who expect Marx to be a utopian reformer -- is that there is no such thing as Real JUSTICE. Morality is a by-product of the structure of the social relations of production in an era. Feudal justice simply IS justice in a feudal society, albeit it is an anachronism in a capitalist society. So long as the slave owner in a slave society pays the contracted price for his slaves, he has a legitimate claim to own them IN A SLAVE SOCIETY. Marx never, never says that socialism OUGHT to replace capitalism. he says that socialism WILL replace capitalism, as a consequence of the working out of the "laws of motion" of capitalist society and economy.

One amusing final observation. Capitalism, for purposes of rationalizing the subsistence wage, construes the worker as a petty commodity producer whose commodity is Labor-Power [and for whom the wage is the cost of production of that commodity.] Now, in the American tax code, independent business owners are permitted to deduct their costs of doing business from their gross taxable income before arriving at the net taxable income on which they owe taxes. So, since the worker must eat, wear clothes, and find shelter in order to produce, each day, his or her product -- Labor-Power -- the worker ought to be able to deduct the cost of food, clothing and shelter [and also medical expenses, etc.] from his or her gross taxable income before arriving at the net taxable amount. Good luck! If I am not mistaken, someone [in Connecticut?] actually took such a claim to court. The logic of the claim was, I believe, unassailable, but not surprisingly, the court threw it out. So much for bourgeois justice when it conflicts with the interests of the ruling capitalist class.

Not only did Marx study the history of the development of capitalism, and the history of economic theory, he also studied what actually went on in the factories that were spewing out the vast quantities of commodities that were making capitalists rich. In this as well he was breaking new ground. Marx did not go into factories and watch the production process. Instead he went to that great library, the British Museum. Why so? Because one of the achievements of the Reform Movement that flourished in England in the first third of the nineteenth century was the establishment of a cadre of professional Parliamentary Factory Inspectors charged by the government with traveling around England and gathering data, first hand, on the conditions in the rapidly multiplying factories. The Inspectors not only observed the production process. They also interviewed workers and collected data on their working and living conditions. Their observations were presented to Parliament in [I think] semi-annual Factory Inspectors' Reports, which Marx read, volume after volume. [These reports have been reprinted by the Irish University Press, and should be available in most really good university libraries.] Much of the extraordinary Chapter X of CAPITAL Volume One, "The Working Day," is drawn from the reports, as Marx's footnotes indicate.

Marx describes the endless devices by which employers sought to extract extra labor time from their employees. They would even go so far as to push back the hands of the clock in the factory so as to steal an extra few minutes of unpaid labor. These detailed, matter of fact descriptions give the modern reader an appalling picture of life in the early factories. But it is very important to be clear that Marx is NOT saying that these tricks and thefts on the part of the capitalists explain or account for the existence of profit. One of the beauties of Marx's theory is that it accounts for profits in the ideal, never actualized case in which workers are faithfully paid the wages for which they contracted, the production line is not speeded up above the norm for the industry as a whole, and equal organic composition of capital in all liens of production guarantees that all goods, outputs and inputs, exchange in proportion to their labor value.

It is also important to be clear that despite Marx's itemizing of the cruelties and dishonesties of English capitalists, he insists that we will only have a satisfactory theory of capitalism if we can explain how it works when all the capitalists are good-hearted, upstanding, honest men and all the workers dutiful and obedient employees. His analysis and critique focus on the structure of capitalism, its logic, so to speak, not on the many corruptions of it and deviations from the canons of bourgeois justice.

There is, of course, a great deal more to be said about Marx's account of capitalism, but at this point I want to continue the story I have been telling about Marx's completion and critique of the classical school of Political Economy. We had gotten as far as showing [or at least reporting -- I have not set down the proofs here. They can be found in UNDERSTANDING MARX] that in the special case of equal organic composition of capital, prices are proportional to labor values and surplus labor is extracted annually from the workers in an amount exactly equal to the labor value of the annual physical surplus. The ratio of total profits to total surplus value is then exactly equal to the ratios of prices to labor values, and thus, in that direct sense, profit just IS the surplus labor extracted from the workers.

One terminological point before we move on to Marx's solution to Ricardo's problem of unequal organic composition. In common speech, to exploit something is to make use of it so as to achieve some end. Now, in that very generally sense, we may say that the factory owner exploits coal's natural ability to burn in such a manner as to fuel a power machine, and the corn producer exploits iron's ability to hold its shape and serve as a plowshare. But there is a more precise and limited sense of the word that Marx invokes in his account of the origin of profit. To exploit an input into production in this limited sense is to extract from it, in the process of employing it in production, more value than has been embodied in it in the process by which it was produced. There is, Marx says, only one such commodity [see the mocking passage, quoted above, about Moneybags] -- namely, Labor Power. The capitalist buys a day's Labor Power from its producer, the worker, at its natural price, namely a price proportional to the quantity of labor embodied in it. [By the way, I keep inserting the term "proportional to" because money and labor are measured in two different units -- pounds sterling, let us suppose, for money, and hours of average socially necessary labor time for labor. Hence they can never, in the strict sense, be "equal."] The capitalist then extracts from the labor power, in the production process, MORE VALUE THAN IS CONTAINED IN IT.

It is in this precise sense that, according to Marx, CAPITALISM RESTS ON THE EXPLOITATION OF THE WORKING CLASS.

If I may end today's post on a personal note, it is this proposition, in my considered judgment, that is absolutely true, and remains when all the criticisms I have yet to mount are leveled against Marx's specific solution of Ricardo's problem. The simple truth, as true now as it was when Marx first advanced it, is that capitalism rests upon exploitation. That is why, on this blog and elsewhere, I call myself a Marxist.

THE THOUGHT OF KARL MARX PART THIRTEEN

Marx has now answered the question, Why are there profits in a capitalist economy? Profit is the money representation of the surplus labor extracted from the workers in the process of production, and then realized in the sphere of circulation, when the output is sold. Since I am trying to bring this tutorial to a close before the 2012 presidential election [ :) ], I am simply assuming that all of you are capable of going back to the equations of our little system and checking that the labor value of the physical surplus equals the surplus labor extracted in the system, and the price of the price of the physical surplus equals the total profit appropriated in the system. If anyone is having trouble doing that, speak up and I will spend a moment showing you how to do it.

It would seem natural, at this point, to move on to the second big question, which was left pending by Ricardo, namely, What happens in the general case when unequal organic composition of capital results in the deviation of prices from labor values? [This is, strictly speaking, the Transformation Problem.] But there is an enormous amount to be said before we get to that problem. Indeed, what remains to be said constitutes most of the content of Volume One of CAPITAL. So for the next several days, I will be rapidly summarizing the high points of Marx's brilliant socio-historical-anthropological-psychological analysis of capitalism.

Let us start with the little matter of the wage. Recall that in order to introduce the concept of surplus labor, and with it the central concept of surplus value, Marx [and we] must specify a real wage. A real wage, for those of you unfamiliar with the jargon of economists, is the actual market basket of goods and services that the worker buys with his or her money wage. For purposes of simplicity of exposition, we are assuming that all workers spend their money wages for the same market basket of goods. This is not a wildly implausible assumption in an economy, like that of mid-nineteenth century England, in which industrial workers are getting subsistence wages and living very near the edge.

Ricardo was powerfully influenced by Thomas Malthus, whose ESSAY ON THE PRINCIPLE OF POPULATION, first published in 1798, took the dismally pessimistic view that any increase in the well-being of workers would lead to an increase in population that would press against available food resources and drive the wage down to subsistence. A lowering of the wage below subsistence [as a result of desperate competition among unemployed men and women for scarce jobs] would simply cause a dying off of the starving, until the supply of labor had adjusted itself. Ricardo concluded that the wage would always be at subsistence level, leaving the entire annual physical surplus to be divided between entrepreneurs and landowners.

But in a move of profound theoretical significance, Ricardo argued that what constituted subsistence has a cultural, or historical, or habitual component. Here is the crucial passage from Chapter V of the PRINCIPLES, "Of Wages":

"It is not to be understood that the natural price of labour, estimated even in food and necessaries, is absolutely fixed and constant. It varies at different times in the same country, and very materially differs in different countries. It essentially depends on the habits and customs of the people. An English labourer would consider his wages under their natural rate, and too scanty to support a family, if they enabled him to purchase no other food than potatoes, and to live in no better habitation than a mud cabin; yet these moderate demands of nature are often deemed sufficient in countries where "man's life is cheap", and his wants easily satisfied. [n.b. Ricardo has in mind the Irish.] Many of the conveniences now enjoyed in an English cottage, would have been thought luxuries at an earlier period of our history."

In this brief but pregnant passage is encapsulated the entire history of the labor movement and the struggle for a living wage. At each stage in history, workers organize and strike for an improvement in their conditions -- enough money to buy meat once a week, enough money to have sugar for their tea, enough money to buy new clothing for their children when they go to school, enough money for indoor plumbing, for medical care, for a vacation once a year. Their employers condemn this demand for luxuries, and say that their workers are making demands that will drive them out of business. When the workers are successful, for a while they treat their improved conditions of life as a windfall. But eventually, they succeed in establishing that improvement as a component of their subsistence, as necessary to them. And then the struggle moves on. Always, they are demanding some portion of the annual surplus, and then redefining the concept of surplus so that it does not include that portion now allocated to them as wages.

Ricardo understood this, almost three hundred years ago, even if our modern economists do not. When General Motors reneges on its commitment to provide health care for its retired workers, it is redefining downward the market basket of goods and services that constitutes subsistence. When corporations outsource jobs, they are searching for a labor force that defines its subsistence wage more restrictedly, and so are willing to leave a larger share of the annual surplus to the capitalists. Everything I have just said can of course be said, in one way or another, in the language and conceptual framework of neo-classical economics. But Classical Political Economy makes these sorts of insights natural and immediate. It pushes them to the fore, so that anyone reading their writings sees them easily. That is one of the great strengths of the Classical school.

Marx understood everything that I have just attributed to Ricardo, but he went a very great deal further in analyzing the historical and institutional changes that are embodied in, and hidden beneath, Ricardo's laconic observations. Marx showed us that a long historical process is necessary to produce a standardization of produced goods that fits them for the role of "commodity' in a capitalist economy. A parallel process of de-skilling and regimentation is necessary before it makes any sense to speak, as we do in our little equations, of so and so many units of labor required for the production of one unit of corn or iron. Only when traditional craft labor has been destroyed, and replaced by industrial labor, are the units of labor plausibly interchangeable. Yet another process of routinization must take place in the processes of production, through the introduction of machines. All of these historical processes, interacting on one another, eventually bring about a state of affairs in which it is possible, meaningfully, to speak of quanta of "socially necessary labor" as embodied in standardized commodities.

One small point, among the scores that Marx makes so brilliantly, will perhaps help to explicate these remarks. Imagine, if you will, two workers employed in automobile assembly plants. John works in a Toyota plant; Mary works in a General Motors plant. They are both averagely efficient, work at the same speed, work on roughly comparable machines, and embody the same amount of labor each hour in the cars that they help to assemble. Now suppose that, thanks to the bumbling incompetence of a GM executive overseeing a product line OTHER than the one on which Mary works, the entire division that he oversees operates in a sub-standard manner, inefficiently producing sub-standard cars that GM cannot sell. This reduces the profitability of GM as a whole, of course. The net result is that Mary, whose work process has been entirely unaffected by the screw-up in the other division, ends up embodying LESS socially necessary labor in the cars she is assembling than does John, working for Toyota. Nothing has changed in Mary or John's behavior, but the logic of embodied labor calculations, based as they are on quanta of socially necessary labor, results in their generating and embodying quantities of Labor Value that diverge from one another. If Bob has the misfortune to be employed in a buggy whip factory, still being operated by a demented capitalist despite the total lack of demand for buggy whips, then Bob will, from a systemic perspective, embody no socially necessary labor at all in a product. He might just as well be digging holes and filling them up. It is for this, and other reasons, that Marx describes the commodity as "a very queer thing, abounding in metaphysical subtleties and theological niceties." [Once again, I urge you to read my little book, MONEYBAGS, where all of this is gone into at much greater length.]

I PAUSE FOR A CLARIFICATION

Mike's comment on the last part of this tutorial indicates that I have failed to make clear a very elementary point about the classical school of political economy. Since this is really important, I think I had better interrupt my exposition to explain this point again, in hopes that I will make it clear enough so that no one will be confused or misled.

Mike notes that in a situation in which people are exchanging goods that they did not produce, the intersection of supply and demand is sufficient to explain the relative prices of the foods -- which is to say the proportions in which they exchange with one another. He is quite correct. Indeed, since in this situation the goods are not produced [at least not by the people exchanging them], they might as well be treated, as he says, as manna from heaven. In his POW camp example, the goods are presumably introduced into the system by the Red Cross. One might also reference the World War II phenomenon of "cargo cults." [Google it.]

The classical political economists were quite aware of this fact. Ricardo, bless him, refers to wines made from grapes grown on a particular side of a hill [I guess he led a rather comfortable life.] He also references old masters, which is to say works of art which, though once produced by someone's labor, are now non-reproducible [save by forgers]. Such goods exchange in ratios that have nothing much to do with the amount of labor required to produce them, and everything to do with supply and demand. [Just imagine what it would do to the price of van Goghs if someone discovered a cache of three thousand additional authentic van Goghs.]

Why the difference? Well, if goods are reproducible [corn, iron, cloth, and so forth -- the standard commodities of the modern industrial economy, whose quantity is in effect unlimited], then a rise in demand will result in a temporary rise in price, which in turn will result in a momentarily higher profit for the entrepreneurs lucky enough to enjoy that blip in demand. Other entrepreneurs, noticing that higher profit rate, will shift their capital into that industry, with the result that there will be an increase in supply. When everything has settled down, Ricardo argues, the ratio in which goods exchange will be determined by the labor embodied in them. The one exception is of course a situation of some necessarily scarce factor of production, which is to say land. That is why he thinks he needs to show that rent is not a determinant of price, but a diversion of profits from entrepreneurs to landowners.

Note that when Leon Walras introduced the modern notion of price determination by the intersection of supply and demand, a decade after Marx published CAPITAL, he posited a pure market situation in which possessors and desirers of commodities shouted out offers until through a process of "tatonnement," an equilibrium had been reached in which no further mutually advantageous exchanges were available to them. He was not talking about production at all. Ricardo [and Marx] would not have disagreed with this theoretical result. They simply would have pointed out that it does not speak to the actual situation of the production of commodities by means of commodities [to echo the title of Sraffa's book.]

We have a long way to go before I am finished with the entire story of Marx's revision and critique of Ricardo's theory, but if we are not clear about this elementary point, the rest will just be utterly mysterious.

THE THOUGHT OF KARL MARX PART TWELVE

Other explanations [and justifications]have been offered for the existence of profits. The profit earned by the entrepreneur, it was said, is actually his wages of management -- a more plausible rationale in the early days when businesses were routinely run by their owners. But this too is fairly obviously a non-starter. To see why, just consider a business inherited by the ne'er-do-well son of an industrious, hard-working capitalist, who, not wishing to spend his days on the shop floor overseeing his employees, hires a manager, to whom he pays whatever salary is the going rate in the labor market. That salary is one of the costs of doing business, to be subtracted from gross earnings before a profit rate is calculated. The young man would be quite surprised if he were informed that the salary of the manager had entirely gobbled up the company's profits, leaving nothing for him to disport himself on the Riviera.

Equally implausible is a more recent rationale, which traces profits to the compensation for entrepreneurship and innovation. No doubt, in any economic system, some compensation must be made for those indispensable talents, but why then do routine businesses, not engaged in daring and exciting flights of innovation and entrepreneurship, also earn a solid profit?

Marx poses the problem in its full difficulty by positing, as I have said, that commodities are exchanging at prices proportional to their labor values -- which, as we have seen, means that there is equal organic composition of capital in all lines of production. Now, under those circumstances, the capitalist pays for his inputs a money price proportional to the labor embodied in those inputs. He then hires workers to transform those inputs into salable output. What wage does he pay his employees? Well [this is the crucial point in the entire exercise], the workers are, from the point of view of the theory of laisser-faire capitalism, petty commodity producers, producing their laboring, so they, like everyone else, are paid a money wage proportional to the cost to them of producing their labor. This means that they are paid enough money to buy the food, clothing, and shelter they require to be able to continue to work. In addition, since their physical plant [their bodies] wears out, they must be paid enough for a depreciation fund so that when their physical plant is completely spent [and they die], it can be replaced. In short, they must be paid enough to raise children who, at the age of twelve or thirteen, are ready to take their place in the factories. [Yes, Marx fully intends this as bitterly ironical, which is to say BOTH literally true AND ALSO a devastating condemnation of capitalism. This is why he needs a complex language capable of capturing all of this. More of this anon.]

Now, when the capitalist combines his various inputs, the result is a product embodying a quantity of labor directly and indirectly applied. The product is then sold in the market, and by Marx's assumption, it, like the inputs, sells at a money price proportional to its labor value. And here is the nub of the problem. The capitalist has paid the labor value price for his inputs. He has combined them [including, perhaps, his own managerial laboring], thereby transferring to the output all of that embodied and direct labor. And he now sells the output for its labor value, which is to say for a money price proportional to the labor embodied in it. How on earth can he make a profit? If he decides arbitrarily to slap a 10% surcharge on the cost of his inputs, that will do him no good, because all the other capitalists will do the same, and the cost to him of his inputs will rise so as to eat up what he gained by upping the price of his output. As Marx writes at the very end of Chapter Five ["Contradictions in the Formula of Capital"]:

"Our friend, Moneybags, who as yet is only an embryo capitalist, must buy his commodities at their value, must sell them at their value, and yet at the end of the process must withdraw more value from circulation than he threw into it at starting. His development into a full-grown capitalist must take place, both within the sphere of circulation and without it. These are the conditions of the problem. Hic Rhodus, hic salta!" ["Here is Rhodes. Jump here!" -- the tag line of an ancient Roman story about a braggart who claimed to have made a great broad jump in Rhodes, and was challenged to reproduce it on the spot.]

And now, in the very next paragraph, Marx springs his great discovery, the solution to that puzzle that had stumped all of his predecessors, namely: In a capitalist system, how do the surplus-getters get the surplus? [As I have been phrasing it.] Here is his answer.

"In order to be able to extract value from a commodity, our friend, Moneybags, must be so lucky as to find, within the sphere of circulation, a commodity, whose use-value possesses the peculiar property of being a source of value, whose actual consumption, therefore, is itself an embodiment of labour, and consequently, a creation of value. The possessor of money does find on the market such a special commodity in capacity for labour or labour-power."

A few words about the language of this passage. First of all, the term translated by Aveling, Moore, and Engels as "Moneybags" is geldbesitzer, whose standard translation is "possessor of money." But the etymology of "geldbesitzer" suggests someone sitting on money, and that calls to mind the wonderful nineteenth century caricatures of Thomas Nast and others, who routinely represented capitalists as fat men in tails and top hats with big dollar signs or pound signs on their breasts, sitting on bags of money. The translation "Moneybags" perfectly captures Marx's mocking tone. This character is presented to us by Marx as a naive, decent fellow searching in the market for a commodity that will have the magical quality of adding more value, when it is consumed in production, than is contained within it. We are invited to imagine him trying first this commodity and then that, until, hey presto, he hits upon labor, and suddenly finds that he is making a profit.

This is crackbrained, mad, absurd, "verruckt," as Marx says. [I cannot do an umlaut in this damned blog, so you will have to supply the umlaut each time I write "verruckt."] But it is also true, and the solution to the mystery of profit. The fact that a proposition about capitalism can be both true and crack-brained is one of Marx's way of showing us that capitalism, despite its surface appearance of every-day simplicity and rationality, is in fact deeply mystified and shot through with what he calls, following Hegel, "contradictions."

The precise solution to the problem, Marx says, is that there is a distinction, in the case of labor but in the case of no other commodity, between the Labor-Power of the worker, which is a human capacity, and the Labor, which is what the worker does when hired by the capitalist. The worker is paid for his or her Labor-Power [strictly, although Marx does not say so, the Labor-Power is rented, not sold], and the natural price of that Labor-Power, as for any other commodity, is its replacement cost, which is to say the amount of labor embodied in it. When the worker eats food, wears clothes, and rests at night in a shelter, he or she is consuming commodities purchased in the market at their natural prices. The labor embodied in those wage goods is then transferred to the worker, or more precisely is transferred to the worker's Labor-Power, reconstituting it.

Now comes the real secret. Let us suppose that it takes six hours of labor a day, directly and indirectly, to produce the food, clothing, and shelter that the worker needs to reconstitute her Labor-Power for one more day. In that case, the worker will be paid a money wage proportional to those six hours of embodied labor. BUT, when the worker goes to work the next day, she will be required to work a full twelve-hour day. In working a twelve hour day, she will embody twelve hours of new labor, living labor, labor directly required, in the product that the capitalist will eventually sell. And the difference between the six hours of embodied labor she must purchase in the form of wage goods, and the twelve hours of labor she is required to perform, is the surplus labor, or Surplus Value, extracted from her by the capitalist. When the capitalist sells the product in the market, at its value, he appropriates that six hours of surplus labor, in the form of an equivalent amount of money, which thereupon becomes his profit.

How do I know that the embodied labor in the wage goods will be less than the labor time given up in the sphere of production? Because it is a mathematical truth, easily proved, that IF THERE IS A PHYSICAL SURPLUS IN THE SYSTEM AS A WHOLE, THEN THERE WILL BE SOME AMOUNT OF SURPLUS LABOR PERFORMED IN THE SPHERE OF PRODUCTION. What is more, THE LABOR VALUE OF THE PHYSICAL SURPLUS WILL EXACTLY EQUAL THE SURPLUS LABOR PERFORMED IN THE SYSTEM, AND THE MONEY VALUE OF THE PHYSICAL SURPLUS WILL EXACTLY EQUAL THE MONEY PROFIT.

Or, as we say these days, Ta da!

There is a very great deal more to be said, but I must go teach, so I will post this, and continue tomorrow.

THE REAL WORLD INTRUDES

While I have been teaching my two courses, posting segments of my Marx tutorial, working out at the Wellness Center, and playing endless games of Spider Solitaire, I have also, like everyone else, been watching events unfold in Egypt. I do not intend to comment on those events. I have never been to Egypt, do not read, write, or speak the language, and can contribute nothing to the discussion that has not already been said by those more knowledgeable than myself. But reading Andrew Sullivan's DAILY DISH this morning [where one will find the tweets and emails from Cairo as they appear], I came across a chart that struck me so powerfully that I decided at least to report it here. Sullivan reproduces a chart that compares the Gini Coefficients for Pakistan, Egypt, Israel, and Tunisia, which range from 30.6 [Pakistan] to Tunisia [40], and then observes that the Gini Coefficient for the United States is 45.

For those who not au courant, the Gini Coefficient [named after someone named Gini] is a measure of the inequality of distribution of income [or, in fact, anything else] in a population. It is derived from, and is an alternative way of expressing what is captured by, a Lorenz Curve [named, of course, after someone named Lorenz.] Leaving aside the mathematics, a Gini coefficient ranges from 0 to 1 [or, if you wish, from 0 to 100], with 0 meaning exactly equal distribution of income and 1, or 100, meaning absolutely unequal distribution [one person or household gets everything].

This is a measure of relative inequality, not of absolute wealth or poverty. So, to ring the changes on an old joke, if a group of millionaires are sitting around a wine bar, with the Gini Coefficient for the group being 0 [each has exactly one million dollars], when Bill Gates walks in, the Gini Coefficient shoots way up close to 1, even though no one is made any poorer by his presence. Nevertheless, in a large society, the Gini is a good snapshot of the shape of inequality. It is simply stunning that the United States has significantly greater income inequality than Pakistan, Egypt, Israel, or Tunisia [and many other countries.] By the way, back in 1960, France had a much, much higher Gini Coefficient than the United States. Now, it is much, much lower. Government policies do really matter.

I remarked, some while back, that the United States was on its way to becoming a banana republic. That was no really fair to the banana republics. Nicaragua's Gini is 43.1 India's, by the way, is 36.8 Since this is a centennial of Ronald Reagan's birth, we might think of this number as Reagan's legacy. I am sure the demented old man would be quite happy with that if he were still alive.

THE THOUGHT OF KARL MARX PART ELEVEN

And so, after sixteen thousand words of preliminary remarks, I come finally to the centerpiece of Marx's lifework, his analysis and critique of capitalism. Although, as I have remarked, Marx wrote at least 5000 pages of economic analysis [and maybe more, as one commentator noted], everyone, I think, will agree that the central text is Volume One of CAPITAL. When we open the pages of this extraordinary book, we are immediately confronted by a problem of great complexity and difficulty. Marx purports to be writing in the tradition of Smith, Ricardo, and dozens of lesser lights, but his language bears almost no relation to theirs. It is complex, convoluted, rife with metaphors, ironies, literary allusions, and metaphysical crochets. Ricardo's language is recognizably like that of Smith, and Smith's language looks not very different from that of Quesney [although it is, of course, English, not French], but Marx's language is absolutely nothing like that of any of his predecessors. What on earth is going on?

In my opinion, this question is of such importance that it needs, and deserves, an entire book devoted to it. So I wrote one. MONEYBAGS MUST BE SO LUCKY is my attempt to confront, engage with, and answer the question. Each writer must choose a language whose syntactic and literary possibilities are adequate to the complexity of the object of his or her discourse. The classical political economists were children of the Enlightenment, and believed that when the fog of superstition was blown away, what would remain was a simple, clear transparent world whose structure could successfully be captured by a plain, non-metaphorical prose. To them, the marketplace was a transparent world of rational calculation and exchange.

But Marx believed that capitalist economy and society is deeply mystified, presenting itself as transparent when it is in fact opaque, as rational when it is in fact irrational, as the end of history when it is in fact just one more stage in the unfolding of history. What is more -- this is really difficult and important -- he is convinced that although we can, by great effort, see through the opacity and the irrationality, we and he as inhabitants of that world can never entirely rid ourselves of the effects of the mystifications. To express the full subtlety of this insight, he needs a language that can, at one and the same time, reproduce that surface opacity and irrationality, analyze and explicate it, and yet acknowledge our bondage to it, with full and appropriate intensity of emotional articulation of each level. His solution, unique among social scientists of any discipline or persuasion, is a complexly ironic discourse, rich with cultural allusions and resonant with overtones and implications. No one had ever written social science like this before, and no one has since, or perhaps ever will again.

This is not the customary view of Marx's language, of course. The reaction of the British, as exemplified by Joan Robinson, has been to subscribe to what I elsewhere call the childhood polio view of Marx's writing style. This is the notion that when he was young, he contracted a nearly fatal case of Hegelism, which nearly destroyed his ability to move gracefully from the beginning to the end of a sentence. Long years in England facilitated a partial recovery, but the effects lingered, with the result that he never succeeded in achieving the limpid clarity of a David Ricardo. Never mind that this view is offered with respect to the man who wrote THE COMMUNIST MANIFESTO, arguably the most powerful piece of political prose ever penned. We know for a certainty that the theory is wrong because while Marx was preparing Volume One of CAPITAL for publication, he wrote, in ENGLISH, an exposition of his views, published as the pamphlet VALUE, PRICE, AND PROFIT, which is as transparent a piece of Ricardian prose as one could ask for. Clearly, Marx chose to write as he did because he believed that only thus could he communicate his richly complex ironic vision of capitalist society and economy. And, I am quite convinced, he was correct.

[After writing these last lines, I re-read portions of MONEYBAGS MUST BE SO LUCKY, to keep some of its phrases and arguments fresh in my mind. That little book, I believe, is, sentence for sentence and page for page, the best thing I have ever written, although it has languished for years now, having, in David Hume's poignant phrase, fallen "stillborn from the presses." I cannot reproduce it here, though I should like to, but perhaps some of you will be moved to take a look at it.]

In the opening pages of CAPITAL, Marx begins his analysis of the mystifications of capitalism, but I am going to postpone my discussion of this aspect of Marx's theory because it would interrupt the story I have been telling about the Labor Theory of Value. I shall have to return to this theme of mystification, however, because it is impossible to understand the full complexity of Marx's economic theory without it.

Recall the point at which we had arrived when we concluded our look at Ricardo. Ricardo solved Smith's problem of the "accumulation of stock" by revising the Labor Theory of Value to take account of labor indirectly required for production -- or as Ricardo puts it, "embodied labor." This embodied labor is thought of as residing in the capital inputs and being transferred, but by bit, to the output in the process of production. [Marx will have a wonderful time both ridiculing and embracing this bizarre notion of bits of labor being passed from the spindle to the wool as the wool is spun into thread. He calls the notion absurd, crack-brained, "verruckt," and yet, despite that fact, correct. We shall have to see later on what that is all about.] But brilliant though Ricardo's revision was, it turned out to hold true only in the very special case of economies like the little corn/iron-books model we were looking it. As I told you [without proof, though that is easily supplied if you know a little linear algebra], prices are in fact proportional to labor values only in the case in which each line of production exhibits the same ratio of labor directly required to labor indirectly required -- a situation which Marx equivalently describes as "equal organic composition of capital." [Marx also rather vividly describes this as a situation in which each line of production uses the same proportions of "living labor and dead labor."]

Since Marx believes that he can salvage the Labor Theory of Value despite this problematic limitation, and in doing so reveal some very deep truths about capitalism, we might expect him to begin Volume One of CAPITAL by posing the problem for the general case, in which we do not have the convenient and rather unusual situation of equal organic composition of capital. But to our surprise, Marx does not follow this strategy of exposition. Instead, all of Volume One is written about the special case of equal organic composition, and it is not until Volume Three that Marx completes his defense of the [now considerably revised and elaborated] Labor Theory of Value. Why?

The reason is that Marx sees in the writings of his classical predecessors an even deeper problem than that of the determinants of natural price, a problem of which Smith, Ricardo, and Mill were not even aware. The problem goes so deep into the real nature of capitalism that it takes Marx virtually an entire volume to solve it and explore the historical, ideological, social, and economic implications of the solution. Eventually, he will use his solution to this little understood problem as the clue to the final defense of the Labor Theory of Value. I shall argue that it is his solution of the problem posed in Volume One, rather than his resolution of the difficulties with the Labor Theory of Value, that is the real heart of Marx's entire critique of capitalism. It is also the central truth of Marx's lifework, unrefuted to this day, a truth that stays with us after history and mathematics and politics and time have tarnished Marx's reputation. It is because of this truth that I call myself a Marxist.

If I may be facetious for a moment and make a little philosophical joke, the problem Marx sees is the economic version of a more general problem that Martin Heidegger would later pose: Warum gibt es uberhaput etwas, und nicht nichts? [Why is there is general something and not nothing?] Marx asks, why, in a capitalist economy, are there any profits at all?

We know that in virtually every economy, there is a physical surplus each year that is appropriated by someone in the society. And we know for a fact that there are enormous profits in capitalist economies, because we can see the capitalists getting rich, year after year. It certainly looks as though the capitalists are appropriating the surplus, and indeed, with a little calculation, we can demonstrate that in our corn/iron/books model, the natural price of the annual physical surplus exactly equals the profits garnered by the capitalists. [To demonstrate this, we would first have to specify the wage, and this, as we shall see, is a profoundly important step in the process of analyzing what is going on in the economy.] But why are there any profits at all? Why do capitalists get rich under capitalism?

We know why slave masters get rich. They force their slaves to perform productive labor whose product the masters appropriate. We know why feudal lords get rich. They compel their serfs to labor several days a week on the lord's land, and the lords then appropriate what is grown on that land. But in a capitalist economy, there are no slaves, there are no serfs. There are only legally free men and women who voluntarily accept jobs working in the factories of their employers, the entrepreneurs. These workers are paid wages determined by the forces of the free market. How, in this situation, can it be that the workers merely survive, and the capitalists grow fat on profits?

The apologists for capitalism on the eighteenth and nineteenth centuries had a number of answers to this question, all of them, needless to say, very flattering to the capitalists, and these answers have stayed with us. One can still find them in modern mainstream economics textbooks.

The first answer, and my favorite, is the abstinence, or, as I like to think of it, the cheese-paring, theory of profits. According to this explanation, most people improvidently and wantonly spend every bit of money they can lay their hands on, buying fine clothes and hard liquors and expensive delicacies for their dinner table, and so they never grow any wealthier. But a few sternly religious upstanding Protestant men live simply, pare their cheese, scrimp on their clothing, eschew hard liquor, and set aside every bit of money they can squeeze out of their daily budgets until they have amassed enough to start a small business. "Many a mickle makes a muckle," as George Washington said, misquoting the old Scots proverb. Profit is then the reward in this life for the virtue that will be even more lavishly rewarded in the next. Modern economics jettisons the religious trappings and simply calls profit the reward for waiting [i.e., waiting to consume.]

This explanation of profit, spiritually uplifting though it may be, is unfortunately not terribly plausible analytically. In fact, it confuses the rate of interest with the rate of profit. To see that this is indeed a confusion, perform the following little thought experiment. Imagine two would-be entrepreneurs, each of whom decides to launch a business. We may suppose that both businesses, once started, will have gross annual receipts of five million dollars and annual expenses [including raw materials, machinery, labor, utilities, and so forth] amounting to $4,840,000. The going rate of interest, let us assume, obtainable at the local bank, is 6%. The first entrepreneur, a fine upstanding Puritan, has saved for years and managed finally to assemble a fund of one million dollars, which he decides to invest in his start-up. By doing so, of course, he chooses to forego the sixty thousand dollars in interest that he could earn simply by putting his money in the bank. At the end of the year, when it comes times for him to do his books and figure out whether he has made a profit, he will have to subtract, from his gross revenues, not only the cost of his labor, raw materials, machinery, and so forth, but also that lost sixty thousand dollars. That is, as they say these days, the opportunity cost to him of using his million dollars to start the business. His calculations yield a happy result. Against his five million in gross revenues, he writes the $4,840,000 he has spent for all those inputs, adds to this the $60,000 in foregone bank interest, and finds that he still has $100,000 left over, for a healthy 10% profit on his invested one million. In short, he has made a profit. The second entrepreneur, who has until now led a rather profligate life, has no sevaings at all, but he is a fast talker, and manages to persuade a banker to lend him one million dollars, in order to launch his business. His end of the year calculations yield exactly the same result. He has five million in revenues, four million eight hundred and forty thousand in production costs, and sixty thousand in bank interest, all of which, when deducted from his gross revenues, leaves him with the same 10% profit. So it seems that profit is not the reward for abstinence, upstanding living, and frugality.

[This is growing rather long. I shall continue tomorrow.]