Capitalism in the 21st Century: Through the Prism of Value (IIPPE)

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Capitalism in the 21st Century: Through the Prism of Value (IIPPE)

Capitalism in the 21st Century: Through the Prism of Value (IIPPE)

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Giles, Chris, and Siddharth Venkataramakrishnan, 2023, “How Would a UK Digital Pound Operate and What Would It Mean for Cash?”, Financial Times (10 February). However, this new paper counters this narrative and shows that most of those in the top 1 percent earn their income through human capital

The concept and design of a piece of software are produced by mental labour employed by capitalist companies. The companies exploit that labour and appropriate surplus value by selling or leasing the software. This is productive labour, and it produces value, even if knowledge is not a tangible object. Imperialism is more than an economic phenomenon Equally deserving of a much longer discussion is the chapter on ‘Robots, Knowledge and Value’. The authors are convincingly sceptical of the wilder claims made for robotics and AI, and demonstrate that any likely developments in those technologies will not change the fundamental character of capitalism. Rather, new technology of these kinds will ‘intensify the contradiction under capitalism’ between the drive for profits through increasing productivity, and the consequent rise in the organic composition of capital, which leads to further decline in the rate of profit. Claims for the future of ‘immaterial labour’ are also thoroughly debunked, and some important philosophical arguments advanced about the material nature of all labour, both mental and physical. We define imperialist exploitation as a persistent and long-term net ­appropriation of surplus value by the high-technology imperialist countries from the ­low-technology, dominated ones. This process is placed within the secular ­tendential fall in ­profitability, and not only in the imperialist countries, but also in the dominated ones. 25 Within this definition, there is little sense of imperialism constituting a system or a stage in the development of capitalism, which are characterisations that would explain the inter-imperialist rivalry that led to the First World War and other major global conflicts. For Carchedi and Roberts, imperialism is a consequence of the formation of an international average rate of profit that transfers surplus value from the technologically underdeveloped countries to the technologically advanced countries.The authors argue that there has been a long-term decline in the US inflation rate measured by the Consumer Price Index from 1960 to 2019. Within that 60-year period, there are 2 phases. In the first, between 1960 and 1979, inflation was rising; in the second, between 1980 and 2019, inflation fell. The relationships between total value, constant capital, and the combined purchasing power of wages and profits are then used to explain the two different periods as well as the overall fall in the rate of inflation in the long run. Over time, the effect is for the quantity and capital cost of the means of production to increase relative to the labour required to produce goods. Marx calls this shift in the balance of machinery compared to labour, a rise in the organic composition of capital. The problem for capitalism is that machinery can only transfer the value already embedded in its own production. It cannot create surplus value; only labour can do that. This means that overall, capital becomes less profitable the higher the organic composition of capital. This is the tendency for the rate of profit to fall. Carchedi and Roberts discuss this law, and the various countervailing factors which act against it, in detail, but also refer to the increasing volume of evidence showing its empirical validity across economic history. Capitalist imperialism grows out of the accumulation of capital as the ­intersection of competition between capitalist states and capitalist firms. It is a global system of powerful states competing for domination of the world system using all the economic, military and political means at their disposal. Lenin, analysing capitalism at the start of the 20th century, explained the origins of the First World War as the outcome the conflict between rival imperialist powers. 23 Choonara, Joseph, 2022a, “The Gathering Storm”, International Socialism 175 (summer), http://isj.org.uk/the-gathering-storm The unequal and combined nature of capitalist development results in unequal relations between nation-states and regions. A hierarchy of competing states has emerged. At the top are the more economically advanced states—for example, the US, China and Russia—which are the imperialist countries that compete with one another to form spheres of influence while dominating weaker states economically, militarily and politically. Lower down the hierarchy are less powerful states that compete over control of particular regions. In the Middle East, for example, these include Turkey, Israel and Iran. These smaller powers compete with each other, trying to form regional spheres of influence and domination.

While the income of public C corporation owners is well known, most of the very rich earn pass-through income that is never made public: 69 percent of the top 1 percent and over 84 percent of the top 0.1 percent earn pass-through income. This raises the question: how much of this pass-through income represents labor income or just capital income accruing to idle owners? Applying all this to the post-war period, the inflationary period of the 1970s was therefore not caused by a ‘wage-price spiral’, as the mainstream insists. Rather, the cause lies in the interaction of constant capital growth and combined purchasing power growth (CPP, including profits and wages). While ‘total value rises at 8.7 per cent, constant capital grows by 19.2 per cent and the CPP by 8.5 per cent … Thus, the CPP falls as a percentage of total value, but given that total value grows strongly, the CPP rises percentage-wise. This explains inflation’. If crisis is recurrent and if they have different causes, these different causes can explain the different crises, but not their recurrence. If they are recurrent, they must have a common cause that manifests itself recurrently as different causes of different crises. 17 Brilliant Marxian theoretical and empirical analysis ... as if updating Ernest Mandel’s Late Capitalism for the 21 st century' The law of profitability has a host of implications, but to return to inflation, it provides the basis for the authors to construct a new Marxist theory of inflation. To begin with, they show that, due to the long-term rise in the organic composition of capital, there is in fact a tendency towards disinflation. This is because the mounting accumulation of total value in the economy increases relative to the total purchasing power of labour and capital (wages and profits) combined.Where bourgeois economics takes its starting point from ‘common sense’ assumptions, that is, the immediate appearance of things, Marx, as always, delves beneath the surface to reveal the hidden workings of the system. In investigating the nature of value, he is therefore able to show the exploitative heart of capitalism. On the surface, a worker receives a fair wage according to the value of labour in the market, but in reality, that wage is less than the total value a worker produces. It is this difference, surplus value, which alone is the source of profit. Once these hidden realities of value are laid bare, the full dynamics and contradictions of the system follow. The puzzle of inflation It is the transformation of abstract human labour into the value of the commodities which is the focus of the law of value. Marx holds that there is a law-like relation between the labour expended under the capitalist production and value: the quantity of labour (measured in time) determines both the quantity of value produced, since value is labour, and the quantity realised through redistribution. This is the kernel of the law. Orthodox economic theory does not recognise the distinction between use value and exchange value, and attempts to find the determination of prices at the level of utility, hence the neoclassical ‘marginal utility’ theory. Here the marginal cost of each extra unit of production depends upon its utility to a potential customer. As Carchedi and Roberts argue, this approach rests economic analysis on a basis of pure subjectivity, and is, in reality, the metaphysical abstraction, which the labour theory of value is not. Just as it cannot adequately explain or deal with inflation, so the ‘falling rate of GDP growth for the G20 countries is puzzling to conventional macroeconomics’ (p.118). The answer, of course, lies in Marx’s value theory; the rising organic composition of capital, and the falling rate of profit. The latter has bounced up and down since 1950 in the G7 countries, but has had a marked downward trajectory; from a height of 10.3% in the mid-1960s, to a low of 6.4% during the financial crisis of 2007-8, and barely recovering thereafter. One factor, however, that has slowed the deterioration in growth in the core imperialist countries is the ‘inflow of surplus value … from the rest of the world’ (p.120). Carchedi and Roberts argue that the transformation of abstract human labour into the value of commodities is the focus of Marx’s law of value and that three aspects of this law are crucial to explaining the developments in 21st century capitalism. 3 These aspects are surplus value, the organic composition of capital and the rate of profit.

Explaining changes in the inflation rate involves combining the measures of purchasing power, including both profit and wages, as well as the quantity of money. For monetarism, the latter is the active factor: if there is more money, then prices go up. However, Carchedi and Roberts argue that in fact, ‘the prices of commodities, that is, their value, determines the quantity of money in circulation and not vice versa’ (p.84). Money isn’t just a token, produced by governments at will, as MMT theorists will have it (p.52), but ‘is the manifestation of value’ and so ‘a certain quantity of new value, to realise itself, needs and determines a certain quantity of money’ (p.85). Any new book by Guglielmo Carchedi and Michael Roberts is to be welcomed; both authors have had a long and fruitful engagement with Karl Marx’s economic theories. This new publication aims to explain some of the major issues in contemporary capitalism, using the framework of value theory and ­supported by empirical evidence. The book contains many insightful comments on value in relation to money, robots and knowledge as well as a clear explanation of crises that centres on the rate of profit. However, I find it necessary to challenge the authors’ view of the state in general, and its role in relation to imperialism and China in particular. 1 From labour time to money A sweeping, authoritative and accessible overview of major issues in the global economy from a Marxist perspective To cut to the chase: most pass-through income at the upper end accrues to working-age owners of midmarket firms in skill-intensive industries. Capitalism changes shape as it develops, and the economy develops a greater mass of constant capital (machinery, infrastructure and so on) over time, relative to what can circulate within the economy. That this deflationary tendency is a reality is borne out by the data over the period 1960-2018 which shows ‘a long-term secular decline in the US consumer price index (CPI) inflation’, even despite inflationary periods, such as that of the 1970s (p.76). A Marxist theory of inflationThe subtitle of this book, Through the Prism of Value, is very apt, since the authors are able to use Marx’s value analysis to explain and illuminate a huge range of the economic and technological issues of the present, from recurring crises and global inequality, through capitalism’s inability to deal with climate change, to robotics and AI, digital currencies and more. Perhaps the most startling failure of the different schools of orthodox economics lies in their inability to explain the pattern of the rise and fall and rise of inflation over the last fifty years. Here, Carchedi and Roberts offer their own theory of inflation, based on Marx, while showing the one-dimensional nature of the standard explanations. According to the authors’ model, unequal exchange between the advanced and underdeveloped world arises because of the transfer of value associated with the formation of an international average rate of profit. 26 However, the international appropriation of surplus value via the tendency towards a world rate of profit is just part of the normal working of the capitalist system. It is not specific to modern capitalism, even if the scope for the transfers of value has probably increased in contemporary capitalism.

Some research has suggested that income of the top 1 percent is mostly earned by the idle rich drawing on non-human capital Marx’s law has a double edge. Even if the rate of profit falls, it is perfectly possible for the mass of profits to rise, and this can keep investment and production rising. Nonetheless, a persistently falling rate of profit will eventually slow and reverse the rise in the mass of profits. When the rate of profit falls to the point where the mass of profit goes into decline, this is a tipping point that opens the way for crisis. Profitability falls first, then investment falls. As profits go down, less is left for investments. Following an examination of the data, Carchedi and Roberts argue: There is thus in Keynesian economics a relationship between the unemployment rate and inflation, with falling unemployment leading to higher wages, and the result being rising inflation (this is represented statistically as the Phillips curve). Like monetarist theory however, empirical evidence suggests that this line of causation does not hold true; plotting unemployment against inflation from US data shows a virtually flat line, where it should be steep (figure 2.5, p.79). Just as historical experience belies monetarism, so it does the supply-and-demand based theories; after the 2008 crisis, when unemployment was historically low, so was inflation. Now, however, we have to perform a task never even attempted by bourgeois economics; we have to show the origin of the…dazzling money form… When this has been done, the mystery of money will immediately disappear. 4 Capitalism will always be capitalism, but in the 21st century new forms, controversies and challenges have appeared ... This book masterfully shows the strength of Marx’s law of value and the alternative socialist planning'

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In every US recession since the war, it is broadly the same. The rate of profit falls before and during each recession by between 4 and 18 percent, and the mass of profit drops by between 6 and 26 percent (with the exception of the early 1990s recession). 15 Whatever form money takes, a major issue of concern is the return of inflation and the rise in the cost of living. Inflation, Carchedi and Roberts contend, is the result of the interplay of two factors: the combined purchasing power of wages and profits, and the quantity of money in circulation. They argue that, due to the ­labour-shedding nature of technological innovations, the share of constant capital (outlay on fixed assets, such as plant and machinery, and on raw materials) in total capital grows, leading to a rising organic composition of capital and the tendency of the rate of profit to fall. However, the rising share of constant capital in total capital also leads to the share of wages and profit in total capital falling. If inflation is determined by the combined pressure of wages and profits on prices, then the theory of inflation is tied to the theory of the tendency of the rate of profit to fall.



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