[Marxism] Reply to Tom on the meaning of capitalism and state capitalism

Jurriaan Bendien andromeda246 at hetnet.nl
Sun Dec 12 15:42:32 MST 2004


Tom,

Just a few quick remarks on what you wrote (I had intended to go out, but 
didn't). Essentially I think you have missed the main question, which 
concerned the criteria for defining a society as capitalist. The thrust of 
what you say concerns the role of the state in the economy which you think I 
have missed, but obviously there is a difference between state 
interventionism in markets, and state ownership of the most of the means of 
production and state control over the production process. Essentially, what 
matters for the bourgeoisie as a class is the ability to own and accumulate 
private assets securely, and to be able to trade, without undue 
restrictions. That would be their main objection to the Soviet Union, 
because for the most part, you could not do that there. Behind that is a 
restricted concept of freedom, essentially the freedom provided by ownership 
of money that can be used to buy what you like.

You:

Come now,  the law of value did not at any time, anywhere, "regulate the
whole of production because there was increasingly LITTLE ELSE
regulating it". The state was pivotal in the primitive accumulation
process...

Me:

If the vast majority of inputs and outputs of the production process are 
items sold at market-prices, then I think you can say that the law of value 
governs ("dominates") production in an economy, insofar as relative 
market-prices are in that case regulated, at least in the longer term if not 
in the short term, by economic costs, measurable in money-units or 
labour-hours. What Marx means by the law of value is essentially that the 
relative exchange-values of commodities (and thus the ratios in which they 
exchange) are regulated by the average labour-time currently socially 
necessary for their production; there exists a quantitative, proportional 
relationship between output values and volumes of labour-time. "Socially 
necessary" refers to a definite relation between modal production-costs in 
relation to monetarily-effective demand for a given type of output, in other 
words the average unit labour-cost under given production conditions 
vis-a-vis a given demand. Of course, Marx didn't think this was a 
particularly significant insight in itself, what he wanted to find out is 
the mechanisms and dynamics involved in reconciling supply and demand under 
capitalist conditions, the social implications of that and so on. 
Substantively, the implication of the domination of the law of value is

(1) that, assuming a competitive market, enterprises are under the constant 
objective compulsion, exerted by the market, to limit or reduce unit 
labour-costs while maximizing the utilisation of the labour they command. 
While they can set their own output-prices, they lack control over the 
prices set by the market for outputs, or over market demand volumes, and 
they cannot set their own input-prices; to maintain and maximise returns on 
the production of an output, they must therefore try to economize labour 
use, and maximize its productive application, in order to meet or better the 
price structure for outputs which the market imposes on them.

(2) that producers must constantly adjust to markets which they are 
powerless to control, and that whether or not output does or does not meet a 
social need, as well as how this output is valued, can only be established 
definitely after the output has been produced and sold.

This creates, as Marx notes, a permanent concern with increasing 
productivity and a constant need to adapt behaviour to uncontrollable market 
forces. So far so good, but can the state affect the regulative force 
exerted by the law of value? Of course it can, because it can:

- impose tarriffs, levies and taxes,
- impose restrictions on what may be produced or sold,
- alter the money and credit supply
- subsidize producers and consumers through incentives and discounts
- independently produce outputs and generate incomes outside the aegis of 
the market.

The point is however that if, as I said, the vast majority of inputs and 
outputs of the production process are items sold at market-prices, then 
state policies are mainly REACTIVE to market developments. The state does 
not dominate markets, but markets dominate state policy, and state policy 
acts on market results. Thus, the state can alter the ratios in which goods 
and services exchange (the cost structure of production and the structure of 
consumer demand) but only within definite limits - these limits are 
essentially relative real economic costs in price terms, and the state's 
ability to fund its own interventions in the market. In that sense, even if 
there is substantial state intervention, the law of value still dominates 
the economy. In specific protected sectors, e.g. agriculture in the EU, that 
may admittedly not be the case so much, i.e. in that case, output prices may 
bear little relationship to true economic cost. Even so, the input prices of 
agricultural producers are set by the market, and so it is not as though 
farmers can escape from market forces. And output quantities and prices must 
be such that outputs will sell.

Can you tell me ANY country, at any time, where the law of value
operated with "little else regulating it"? In America perhaps, where the
North fought the civil war partly to entrench tariff protection? Or
perhaps the German Zollverein - was that unregulated?

Of course the state in capitalist society has always intervened in markets, 
that is not in dispute. The question however is whether it can effectively 
dominate and determine the relationship between supply and demand, and thus 
overrule the effects of the law of value. And if the bulk of means of 
production and privately owned, and the state does not control the 
disbursement of the bulk of incomes, it cannot do so. The concept of state 
capitalism makes sense, if the state directly organises a very large share 
of what is produced. But if the state organises the WHOLE of production, 
then there is no more capitalism, at least not in Marx's sense, because you 
no longer have private enterprise and neither means of production nor labour 
are traded at prices set by market forces. And that was essentially Stalin's 
project. Rather than market-regulated production, you had state-regulated 
production. Enterprises could not set their output prices, input prices were 
mainly not regulated by market fluctuations, and investments might have 
little to do with economic cost considerations but with social or political 
priorities. You might still call this "state capitalism" of course but that 
is more a moral metaphor or analogy than an objective economic description. 
I have never come across one capitalist who believed that the Soviet Union 
was capitalist or state capitalist. Yes, you still had profits in the USSR, 
expressed in administered prices, but the point is, price movements for the 
most part no longer regulated what was produced or how much was produced. 
Investments were no longer mainly guided or motivated by profit criteria, 
nor even, necessarily, by demand conditions. The state authorities decided 
that something was to be produced, and organised people to produce it. This 
was not market coercion but direct political coercion.

You:

The second sentence just says capitalism is a system dominated by
capitalism. I guess we can agree on that!

I don't think that is quite fair. I gave you the basic defining criteria for 
a capitalist economy, which you however evade making a response to, except 
to say that in a capitalist economy there is also a lot of non-market 
regulation. But I don't deny that, all I am saying is, "regulation of 
what?". And the law of value applies purely to the prices or values of goods 
and services produced, the inputs and outputs of the production process. It 
is one thing if the state imposes restrictions on prices or subsidizes them, 
but it is another thing if the state not only fixes prices for enterprises, 
but also directly decides, organises and controls the bulk of what is 
produced.

You:

Um, wait a minute. Large portions of industrial output in even the least
regulated economies are for purposes other than "sale in an open
market".

Me:

What you are saying here is again that the state intervenes in the market 
economy, so that many prices are not really set by market competition or 
market demand. That is true, and it is also true that monopoly prices may 
not reflect true economic cost. Internally, big corporations may also apply 
pricing schedules which do not reflect real costs. Some writers therefore 
argue that you cannot really say that the law of value governs the 
allocation of resources anymore in modern capitalism. But I think that is 
mistaken, empirically. Corporate monopolies may be able to rig their output 
prices, within certain limits, but they cannot control their input prices - 
at best, they control only part of the product chain. Corporations tend to 
be disciplined by "value based management" and the imperative to return 
maximum value to share-holders. The constraint of production prices 
therefore still operates. You cavalierly run together the economy of the 
USSR with capitalist state interventionism, but in so doing you assume 
precisely what has to be proved. What you had in the USSR was not state 
"interventionism", but state control of production. The law of value no 
longer regulated proceedings, simply because outputs could no longer be 
freely bought and sold, at prices regulated by market demand, and set by 
enterprises themselves. If that did happen, it was only in the grey economy 
or black market. Obviously, the planners were very concerned with production 
costs, but within the system that existed, cost-efficiencies in production 
for the most part could not be achieved by price signals, that is the point. 
Producers were mainly not compelled by market conditions to economise 
resources, only by direct political directives and coercion, and by direct 
state incentives. The emphasis was not on maximising profits or revenues, 
but on maximising output as such.

You:

But some capitalist societies have had very large state sectors.

Me:

That is true, but have a look at the quantitative proportions as between 
private enterprise and government enterprise. Just because the British 
government owned the railways, the coal industry, national health and so on 
did not mean that it controlled the British economy, far from it. The vast 
majority of enterprises remained privately owned.

you:

Have you never heard of cartels?

Me:

Sure, Adam Smith already talked about monopolists conspiring to rig prices 
in their favour. But so long as you have private ownership of the means of 
production by a mass of different groups and individuals, then the ability 
of monopolists to set prices is limited. If the prices are rigged too high, 
market demand is reduced in the majority of cases. They cannot control their 
input prices mostly, and they cannot control market demand for their 
outputs. Mostly what they can do is dominate supply, and increase their 
control over product chains. In the oil industry, for example, OPEC is a 
cartel of sorts, they agree collectively to increase or decrease production 
of oil in response to market factors. But can you really say that they can 
independently set the average market price for a barrel of oil? They cannot, 
at most they can drive up the price within certain limits. But OPEC has no 
real control over market prices for oil. They have to deal with overall 
market effects which nobody controls and can only react to.

You:

>>because of business secrecy and competitive pressures, [corporations]
cannot co-ordinate their activities according to collective, conscious
planning.<< Again a half truth. They can certainly plan consciously,
and any large company does so. [...] Collective planning is harder,
but if you look into the government industry plans of any advanced
western industrial society,

Me:

What you are doing here is conflate planning internal to the enterprise, and 
collective planning by all the enterprises in a sector, and you obscure the 
question of "planning in relation to what exactly?". Obviously every 
enterprise engages in planning, that is not in dispute. The question is 
whether all enterprises in a sector co-ordinate their production plans 
according to an overall economic plan which sets output quantities and 
prices. And they cannot and they do not, because they compete and the 
information they share is limited. They might get together to discuss what 
is best for the industry, and make some agreements, but they don't decide a 
total quantity of output and a given price-schedule, that is not something 
they can control, at most they can agree to increase or reduce production to 
influence market prices, or respond to demand.

You:

Actually many companies develop technology without direct reference to
profitability criteria. Some pour all their revenue back into R&D, and
as a result never become profitable, which is one reason the Australian
state has R&D incentives. It's true that profitability is important "in
the last analysis", but so it was in the USSR.

Me:

Well this may be a subtle point, but obviously profitability acts on R&D 
both as a constraint, and as a stimulus insofar as the hope is that R&D 
results will be profitable in the future. It is precisely because it cannot 
be known in advance whether the results will be profitable, that the state 
subsidizes R&D - enterprises would not engage in R&D otherwise, precisely 
BECAUSE they do not know in advance if it's going to be profitable.

You:

Soviet workers were also compelled to sell their labour power because of
lack of access to alternative means of subsistence. It is true they
sometimes got means of subsistence through non-market mechanisms, but
then western societies have subsidised workplace cafeterias too, schools
hand out milk, and so on.

Me:

I think again you have to look at the quantitive proportions. Soviet workers 
were in a different position. The state was obliged to provide work and a 
livelihood, and workers often could not be fired, at most sidelined. Just 
because they were hired by an enterprise, did not necessarily mean that the 
enterprise actually had work for them. Workers had a statutory obligation to 
work. They had access to a large range of free or heavily subsidized goods 
and services. Just because they earnt a wage, did not mean that they could 
automatically buy with their wages what they wanted to buy. In other words, 
subsistence wasn't regulated by mainly market price signals. At most you 
could say that labour-power was partially commodified to the extent that 
labour was compensated with a monetary wage used to obtain basic goods and 
services. But there was no real sense in which wage levels were regulated 
and set by a genuine labour market and responsive to supply and demand, nor 
was there necessarily any relationship between wages paid and the real cost 
of living. At most you could say that the state deliberately paid incentives 
for work in particular areas.

You:

I would say that from the point of view of capital as a whole,
profitability is second to accumulation. So it was in the USSR.
Profitability does remain important though, as indeed it was in the
Soviet Union.

Me:

To me this is fairly meaningless. I suppose that it depends on what you mean 
by accumulation. The accumulation of capital can be technically defined as 
either an increase in the stock of capital, or as the reinvestment of 
profits or net income (realised surplus-value) resulting in additions to the 
capital stock. Under capitalism, accumulation of capital involves a double 
private appropriation: private appropriation of surplus-labour, and private 
appropriation of surplus-value upon sale of output. Obviously accumulation 
also occurred in the USSR, but the bulk of it was not accumulation of 
private capital and it was not primarily motivated by the desire to maximise 
enterprise profit. The incomes of enterprise operatives were not directly 
determined by the profitability or turnover of the enterprise; instead, the 
objective was to reach the output target set by the plan, and if that target 
was achieved, bonuses of various kinds might result.

You:

I don't share this picture of the ruling class because it ignores other
participants who may not own private capital: judges, generals, senior
bureaucrats, top politicians and so on. The longest-standing Australian
Prime Minister, Bob Menzies, didn't have much money at all; I believe
they took up a collection for him when he retired. But to not include
him in the ruling class would make a mockery of the word "rule".

Me:

I was generally referring to the basic social classes and the basic 
class-structuration principle involved. The concept of a ruling class is 
primarily a political concept, not an economic one, it refers to the class 
which wields actually power. Obviously, since power is to a large extent 
determined by ownership, political power and economic power are connected. 
The dispute about whether the Soviet nomenklatura were really a class or a 
caste is largely a scholastic dispute, the question is how this group 
obtained its power, and how it used or lost it, consequently what it was 
motivated to do or not do, and to what extent that was progressive or 
reactionary. As Marx says, management contains both a control function and a 
productive function, and in that sense, the nomenklatura had a partly 
progressive and partly reactionary role, at some times more the one than the 
other.
In capitalist societies, usually judges, generals, senior bureaucrats and 
top politicians have incomes which permit the accumulation of capital, 
making them part of the petit-bourgeoisie or haute bourgeoisie. There may be 
exceptions to this rule, but not so many. In the Soviet Union, only a 
minority of the nomenklatura could genuinely accumulate private capital. 
Mostly, all they could do was accumulate consumer durables, houses and so 
on.

You:

In fact Cliff recognised that there were important diifferences. That's
why his full term for societies like the USSR was "bureaucratic state
capitalism", and I think it's also why he was confused about whether
wage labour existed in the Soviet Union.

Me:

I think what Cliff was trying to say is that he believed that the Soviet 
system was not liberating or emancipating the working class, that it was an 
oppressive system. That argument has a lot of validity, especially as far as 
the Stalin era is concerned. In fact, the modernisation dictatorship had the 
social effect of CREATING a large working class out of the peasantry.

You:

Also true. A healthy debate, and Cliff gets corrected. This sounds like
democracy in action, though I don't suppose it will stop you accusing us
of  "mimicking Stalinism" :-)  '

Me:

My view is that this whole IS controversy about the meaning of state 
capitalism is rather obscure and byzantine. It showed little real analysis 
of conditions in the Soviet Union, rather it was a dispute about the 
intellectual coherence of a doctrine. The working class is essentially not 
defined by the commodification of labour-power, but by the socio-economic 
compulsion to work for an employer to earn a living, and the inability to 
accumulate private capital in amounts that would free the worker from that 
compulsion.

You:

Yet "State Capitalism in
Russia", Cliff' main book on state capitalism, seemed to say there was
no wage labour there. (...) From the
logic of his treatment, we can only conclude that the Russian workers
were not proletarians in Marx's sense. (...)
But still the theoretical problem remains: what about the hypothetical
pure case where the stalinist state is the one and only employer?
None of this is to say the partial suppression of standard capitalist
exchange forms in the USSR wasn't significant.

Me:

In Marx's lexicon, proletarians and working class are not synonymous, 
although these words are often used interchangeably. Hal Draper has provided 
quite a careful analysis of how Marx used these terms, in Draper's major 
work. Wage labour covers a "multitude of sins", i.e. there is a very diverse 
range of labour-contracts possible. The IS believed that the existence of 
wage-labour was essential for the definition of the Soviet Union as state 
capitalist. But wage-labour in the sense of the general form of remuneration 
is only one defining characteristic of capitalism as I mentioned. 
Wage-labour existed well before industrial capitalism existed, but not as 
the general form of labour-compensation.

You:

Cliff saw state
capitalism as a "transition stage to socialism, this side of the
socialist revolution", so it would be surprising if some capitalist
forms weren't suppressed.

Me:

It is not clear however in what sense that which he called state capitalism 
was really a transition to socialism. You can say that by increasing 
productivity and output it created some material preconditions for 
socialism, but at the same time the brutal and repressive nature of the 
modernisation dictatorship also had very demoralising and dehumanising 
longterm effects. What Cliffs stance prevented I think was a serious and 
objective assessment of what developments in the Soviet Union were real 
advances towards socialism and which were not. But his position also had 
strengths, insofar as it emphasised the centrality of the emancipation of 
the working class, thus, the basic purpose of socialism was not lost sight 
of.

You:

Nevertheless, we shouldn't doubt that Soviet
workers were proletarians in Marx's sense.

Me:

Well initially the bulk of them were peasants, but they became proletarians, 
yes.

In summary: maybe this dispute seems obscure, but it has very big 
implications for how you see the transition to a socialist economic system 
and what you consider as advances over capitalism and towards socialism. I 
think we can all agree that state ownership of the means of production is 
not necessarily anymore emancipating or liberating, that private ownership 
of the means of production, from the standpoint of the working class. Just 
as important is who holds power over what, and how that power is used. But 
that is just to say, that there exists a broad scala of possible ownership 
forms, and these ownership forms are not usually intrinsically (inherently) 
progressive or reactionary. Their merits have to be evaluated in the total 
social context, with due regard for the forms of association between people, 
and the goals of a society. Ways of distributing goods, ways of trading and 
property forms are only means (instruments) to achieve social and human 
goals in this sense. The basic problem with the Soviet Union was that the 
subordination of everything to increasing output, involving the use of 
direct coercion, was often just as harmful to human beings, as the 
subordination of everything to maximising profits and capital accumulation. 
In both cases, the means and ends of human life were to a large extent 
inverted: what should be a means, became an end in itself.
The conclusion you can draw is that the modalities for human enslavement and 
human emanipation are more variegated than can be contained in a few easy 
dogmas.

That's it for now, I got to get back to work.

Jurriaan






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