Production, Circulation, Distribution (was: Re: Confessions of a frustrated socialist

loupaulsen at loupaulsen at
Tue Sep 23 12:48:35 MDT 2003

Juriaan wrote:

> There are a lot of windy Marxists around, who like to take the piss out of
> Ernest Mandel's "Marxist economic theory" (1960), but the least that can be
> said for Mandel, is that he did not make the mistake of thinking that total
> value added=total national income. Because this would be like saying that an
> economy features production and consumption, but no circulation and
> distribution, which Marx at least would have considered a howler. Building
> on the brilliant insights of the younger Charles Bettelheim (who at that
> time was developing French Marxist economics, and not yet distracted into
> trying to develop Marxist ideas about Russia for the Chinese), Mandel
> sketches an excellent brief outline of the Marxist theory of the
> "Reproduction and growth of the national income" which he refined in later
> years (although he too got distracted from the real job).
> Specifically, he says (translating from the Flemish edition which Paul
> Verbraeken did), "In capitalist society commodity circulation leads to the
> productive or unproductive consumption of these commodities: the
> intermediary phases which these commodities traverse in circulation, before
> they are consumed, do not create additional value. The enterprises who own
> the commodities during these phases, can only make profits by appropriating
> part of the surplus-value produced earlier in time during production. But
> the distribution activities CREATE NEW INCOMES - incomes of employees in the
> distribution sector (...) Commodity production and the division of the
> available capital therefore create in essence the incomes of the workers
> (productive and unproductive) and the incomes of capitalists (IN THE
> DIFFERENT INVESTMENT AREAS OF CAPITAL). The circulation of incomes however
> makes the whole process more complicated; when these incomes exchange for a
> commodity, these incomes realise only their value and do not create new
> value; when these incomes buy services, they create the illusion that they
> create new incomes. But in reality they are only transfers". (my emphasis)

Well, perhaps this makes me a bad Marxist, but the more I think about the
distinctions between "production", "circulation", and "distribution", the less
I understand them, and the less I believe that it makes sense to talk about
labor in the 'circulation' and 'distribution' sector as 'non-productive' and
generating only incomes but not new value.  I think this is something which
Marxists have to rethink.

I suppose, for example, that 'circulation' involves, for example, shipping,
and that 'distribution' involves retail sales.  Let's take something like
orange growing as an example.  Let's suppose I am an agricultural capitalist
who employs workers to plant and cultivate orange trees in Florida, to pick
the oranges, sort, clean, and grade them, put them in boxes, ship them to
market at points from Florida northward along the Atlantic Coast to
Newfoundland, and sell them to the consumer.  (Of course in reality the
railroads, trucking firms, and retail stores are owned by different
capitalists from the grower, but they COULD be owned by the same capitalist in

If I understand Mandel's theory correctly, the 'productive workers' are the
ones who actually produce 'the orange', and they are the only ones who are
producing value.  Everything else that is done in the way of packaging,
shipping, storing, and selling, is 'unproductive labor', and the incomes of
all of those people come from the value which is produced by the laborers who
cultivate the trees and pick the oranges.

I think there are a lot of problems with this idea.

(a) This reifies the concept of an abstract, metaphysical orange, "The
Orange", with no geographical or social context.  I think this flies in the
face of dialectics.  People do not buy "The Orange".  They buy particular
oranges in particular packages and in particular settings in particular
locations.  I would argue that these particular oranges have different
production costs and embody different amounts of labor and have different

(b)  Specifically, I would expect that the sale price of the oranges will
increase as you go northward from Florida to Newfoundland because of the
additional costs of shipping.  If I am allowed to count these shipping costs
as "productive labor", even though they are "circulation", then there is no
mystery at all, because it simply requires more labor to produce an orange-
sold-in-Newfoundland than an orange-sold-in-Georgia.  It is just a different

I think it leads to incongrous results to argue that the Newfoundland orange
is the same thing as the Georgia orange, and that all the transfers of money
to truckers and railroad workers somehow come out of the surplus value of the
agricultural capitalist.  For one thing, this means that if, in 2002, I sell
all my oranges in Georgia, and then in 2003 I sell all my oranges in Canada
(for a higher selling price most of which goes into shipping costs), this
means that my agricultural workers in Florida have suddenly, magically
produced much more value, despite the fact that they are doing exactly the
same things with the same technology for the same pay in 2003 as in 2002.

A similar argument can be made that the orange-sold-in-the-premium-grocery is
not the same as the orange-sold-in-the-discount-grocery.

(c) I believe that it is very difficult to make the distinction
between 'productive', 'circulatory', and 'distributive' labor objective.
When, for example, does the 'productive' labor stop and the 'circulatory'
labor begin in the orange business?  Are the pickers 'productive'
or 'circulatory'?  Suppose I make the argument that "The Orange" is in its
final form while it is still attached to the branch of the tree; thus the
pickers are circulatory, since they are just moving the oranges from place to
place, from the tree to the ground, and the only productive workers are the
ones who planted, pruned, and fertilized the trees?  If you answer
that "nobody can consume the orange while it's still attached to the tree", I
will respond that "in the real social world, the orange can't be consumed
until it is sold from a store in Georgia, New York, Canada, etc., either;
removing it from the tree is not sufficient."

Suppose that the process goes through these steps: pick the orange; put it in
a crate; put the crate on a truck; drive the truck to a collection point; sort
the oranges by size and quality; repackage them; put them in another truck...
Where in this process does "production" end and "circulation" begin?  Suppose
Marxist A says that everything after picking is "circulation" and Marxist B
says that everything through the sorting and repackaging is "production"?  How
do you objectively determine who is right?  From the point of view of the
capitalist, all of this labor is necessary to actually produce oranges -as a
commodity-, that is, oranges which can actually be sold to identifiable people.

My understanding of Marx's labor theory of value is that commodities trade for
an amount of money that embodies the labor which is SOCIALLY NECESSARY to
produce the product, and I would like to underline the term "SOCIALLY".  To
produce an orange which can really be consumed, it is socially necessary to
pick it, package it, ship it, sell it, and, yes, even advertise it.

(d) By contrast, Mandel is forced to argue that prices are determined by the
ignorance of the buyer and the craftiness of the seller.  For example, in his
discussion of trade, he raises the example of Phoenician traders who acquired
amber very cheaply in the Baltic and then sold it for a high price in Asia
Minor.  They were able to do this, he says, because the ignorant Baltic people
didn't know how much the amber was worth, and the ignorant Greeks who bought
it from the Phoenicians didn't know how cheaply it was produced.  Thus the
clever traders bought the amber for less than it was worth and sold it for
more than it was worth, thus cheating both the producer and the consumer.  He
really says this.

This seems utterly unmaterialist to me.  How stable could a commercial system
be if it were based entirely on people being stupid, rather than on anything
material in the situation?  Furthermore, what does Mandel think the amber was
REALLY worth?  Something between its Baltic price and its Asia Minor price -
some kind of average, it seems.  Why??  On what basis??  What happens to the
labor theory of value then??

I would argue that amber-on-the-shores-of-the-Baltic did not require a lot of
labor to produce, but that amber-in-Asia-Minor actually DID require a lot of
labor to produce, because you would have to look awfully hard to find any on
the spot; the 'socially necessary labor' for the production of amber-in-Asia-
Minor WAS the labor of getting in a boat and sailing up to the Baltic and
coercing the natives into selling it to you (or stealing it) and sailing back
to Asia Minor, added to the cost of buying it, depreciation on the ship, etc.
(There may be a premium built into it to allow for the risk of dying on the
way, but leave that aside for now.)  This lets me argue that in so far as
market forces were really operating, amber traded for its value in both places.

(d) In my view, the attempt to make the 'production' vs. 'everything else'
distinction involves trying to bring the logic of 'use values' into the laws
of production which really involve only 'exchange values'.  That is, it
involves trying to isolate the workers who are really producing 'The Orange'
as a use-value, and calling that 'production', and then labeling the
additional workers who convert this orange into an exchange-value as 'non-
productive'.  I don't think this makes a lot of sense and I think it's really
trying to bring a moral-philosophy dimension into the discussion, and it
impairs our power to make predictions and understand the processes.  Certainly
the capitalist in making his/her decisions is going to consider only the
question of how much labor is needed to produce a given exchange value.

(e) By the way, all of this bears directly on the argument about the Brenner
thesis and the origins of capitalism by the following chain:

- The 'orthodox Marxists' - Mandel for instance - insist that shipping is
not 'productive'.

- Therefore in all their discussions of trade they treat 'merchant capital'
and the activities of trade in general as being an unimportant relation of
industrial capital, rather than being -ancestral- to it (contrary to
the 'unorthodox' Sweezy - see Proyect's earlier post today).

- Therefore they attempt to find the genesis of industrial capitalism in
domestic production, RATHER THAN in colonial trade, colonial plunder,
commerce, and all of these other activities which involved the creation of
great fortunes, because they have to see these fortunes as being merely the
result of transfers rather than as the exploitation of labor and the
appropriation of surplus value.

(f) With reference to the US: several days ago the question was raised of
whether there was a labor shortage in the pre-Civil War northern states.
Well, one of the areas of enterprise which required the most wage-labor, and
for which thousands of Irish laborers were indeed imported in the 1820's and
1830's (before the great famine), was, in fact, canal-building.  For example,
20,000 Irish laborers were employed in digging the Ohio and Erie canal from
Cleveland to the Ohio River; this was in the period from 1828 to 1840 more or
less.  This was a profit-making venture, not a 'public work'.  If shipping is
only 'circulation', then the whole enterprise has to be conceived of as a
redistribution of the value produced by grain farmers many of whom did not
hire labor.  The same goes for the railroads after that.  How useful would
this be?

(On the other hand Juriaan is quite right about the veil issue!)

Just my personal opinion,
Lou Paulsen

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