Posts Tagged ‘Marx’


What are U.S. corporations doing with all the surplus they’re managing to rake in? Well, they’re not investing it. Instead, they’re paying it out to shareholders and upper-management, buying back their stock and expanding their portfolios of financial assets, and hoarding the rest in cash. The net effect is to dampen the rate of economic growth and the creation of new jobs.

And that’s worrying mainstream economists and others who celebrate capitalists, since they appear to be failing in their “historical mission” to accumulate capital.

According to a recent paper by Joseph W. Gruber and Steven B. Kamin (pdf), of the Board of Governors of the Federal Reserve System, in the years since the Great Financial Crash, investment spending by non-financial corporations (the red line in the chart above) has been much lower than their “savings” (undistributed profits, the blue line), which has placed them in the position of being net lenders (the black bars at the bottom of the chart).

Their conclusion?

we find that the counterpart of declines in resources devoted to investment has been rises in payouts to investors in the form of dividends and equity buybacks (often to a greater extent than predicted by models estimated through earlier periods), and, to a lesser extent, heightened net accumulation of financial assets. The strength of investor payouts suggests that increased risk aversion and a precautionary demand for financial buffers has not been the primary reason firms have cut back investment. Rather, our results are consistent with views that, for any number of reasons, there has been a decline in what firms perceive to be the availability of profitable investment opportunities.

In other words, corporations have been distributing their profits for many uses other than real investment, a process that started before the crash and has quickened in the years since.

As it turns out, I’ve been teaching about Marx’s theory of the accumulation of capital this week, using the following equation:

ΔK = Δc + Δv = βDI = s – [(1-β)DI + DO + DM + DR]

The idea is that the accumulation of capital (ΔK = Δc + Δv) represents a distribution of the surplus to internal managers (βDI), which is equal to the difference between the total surplus (s) and all other distributions of the surplus—to internal managers other than for the purpose of accumulation ([1-β]DI), to owners (DO), to merchants (DM), and all others (DR ). Obviously, if the distributions of the surplus in the form of CEOs salaries, dividends, merchants, and all others (e.g., taxes to the state, rent to landowners, interest payments, and so on), plus cash holdings, increase, then less accumulation of capital—that is, investment—will take take place.

And that’s exactly what’s been going in recent years—thus undermining the legitimacy of both capitalists and of capitalism.

As Marx wrote (in chapter 24 of volume 1 of Capital), in one of the most quoted and yet misinterpreted passages:

Accumulate, accumulate! That is Moses and the prophets! “Industry furnishes the material which saving accumulates.” Therefore, save, save, i.e., reconvert the greatest possible portion of surplus-value, or surplus-product into capital! Accumulation for accumulation’s sake, production for production’s sake: by this formula classical economy expressed the historical mission of the bourgeoisie, and did not for a single instant deceive itself over the birth-throes of wealth. But what avails lamentation in the face of historical necessity? If to classical economy, the proletarian is but a machine for the production of surplus-value; on the other hand, the capitalist is in its eyes only a machine for the conversion of this surplus-value into additional capital. Political Economy takes the historical function of the capitalist in bitter earnest.

Bitter earnest, indeed—on the part of classical economists then and mainstream (neoclassical and Keynesian) economists today.

Thanks to Bruce Norton, we know that that passage is not Marx’s assertion that capitalists are driven to accumulate capital. Instead, it’s what mainstream economists (then as now) claim is the role capitalists can and should play. It’s one side, if you will, of our pact with the devil: the capitalists are the ones who get and decide on the distribution of the surplus, and then they’re supposed to use the surplus for investment, thereby creating economic growth and jobs.

When they fail to to fulfill that historical mission, and use the surplus to line their own pockets and to share it with their friends, they break the pact and lose their legitimacy in having sole control over the surplus.

Mainstream economists want to do everything possible to encourage the capitalists to accumulate capital. The rest of us recognize that the time has come to replace the capitalists and use the surplus to benefit the mass of people who, until now, created but have had no say in deciding what should be done with the surplus.



It may have taken 167 years. But consider the irony of today’s celebration of Singles Day, when “Alibaba and other Chinese e-commerce companies hosted the world’s biggest one-day shopping spree,” which amounted to more than $14 billion in sales for Alibaba alone, in light of one of the claims made in what is now regarded as the second most important academic book:

The bourgeoisie, by the rapid improvement of all instruments of production, by the immensely facilitated means of communication, draws all, even the most barbarian, nations into civilisation. The cheap prices of commodities are the heavy artillery with which it batters down all Chinese walls, with which it forces the barbarians’ intensely obstinate hatred of foreigners to capitulate. It compels all nations, on pain of extinction, to adopt the bourgeois mode of production; it compels them to introduce what it calls civilisation into their midst, i.e., to become bourgeois themselves. In one word, it creates a world after its own image.


The public was asked to vote on a list of the top 20 academic books, from a list of 200 titles, selected by a committee of experts invited to take part by the Booksellers Association and The Academic Book of the Future project.

As it turns out, Charles Darwin’s On the Origin of Species was the firm favorite, securing 26 percent of the vote. The Communist Manifesto came in second.

But, for some strange reason, Alison Flood [ht: ja] decided to focus instead on Immanuel Kant’s Critique of Pure Reason, which was fifth:

a choice heralded by the Booksellers Association’s Alan Staton. “We seem to be governed by expediency and doublethink and it’s reassuring to know that Kant’s Categorical Imperative is known and thought important,” he said.

Philosopher Roger Scruton agreed. “I am gratified that the Critique of Pure Reason, which must be surely one of the most difficult works of philosophy ever written, should have been chosen as among the most influential of all academic books,” he said of the 18th-century text.

“Kant set out on an extraordinary task, which was to show the limits of human reasoning, and at the same time to justify the use of our intellectual powers within those limits. The resulting vision, of self-conscious beings enfolded within a one-sided boundary, but always pressing against it, hungry for the inaccessible beyond, has haunted me, as it has haunted many others since Kant first expressed it.”

From my perspective, it is much more interesting that the list included Edward Said’s Orientalism, E. P. Thompson’s The Making of the English Working Class, Simone de Beauvoir’s The Second Sex, and John Berger’s Ways of Seeing.


The distribution of income in the United States is increasingly unequal. We all know that. The problem is, the more we focus on the unequal distribution of income, the more we’re forced to discuss the issue of class.

And that’s a real problem for mainstream economists, who either deny the existence of inequality or deny its connection to class.

That’s the only way of explaining why Jason Furman repeats, in two recent papers (“Global Lessons for Inclusive Growth” [pdf] and, with Peter Orszag, “A Firm-Level Perspective on the Role of Rents in the Rise in Inequality [pdf]), the same argument:

Overall, the 9 percentage-point increase in the share of income of the top 1 percent in the World Top Income Database data from 1970 to 2010 is accounted for by: increased inequality within labor income (68 percent), increased inequality within capital income (32 percent), and a shift in income from labor to capital (0 percent).

In other words, for mainstream economists like Furman who actually do pay attention to rising inequality (e.g., as measured by the share of income going to the top 1 percent), it can’t have anything to do with class (e.g., as measured by changing labor and capital shares).

As it turns out, I’m presenting Marx’s critique of the so-called Trinity Formula in one of my courses this week.* Basically, Marx argued that, if the value of commodities is equal to constant capital plus variable capital plus surplus-value, then both the “profit share” (the “profits of enterprise” plus “interest”) and the “rental share” (“ground rent”) represent distributions of surplus-value. In other words, productive labor—not independent factor services—creates, via exploitation, the incomes of both capitalists and landlords.

Marx’s critique of the Trinity Formula is still relevant today because, even if we assume (as many mainstream economists still do, against all evidence) that wage and profit shares are relatively constant, it’s still possible to show that the rate of exploitation has risen.

Consider the following hypothetical chart:


The blue and red boxes represent profits and wages in 1997 and 2007. However, as we can see, the share of income going to CEOs has risen (Furman’s “increased inequality within labor income”). If we combine profits and CEO salaries as different forms of surplus-value, then indeed it is possible for the rate of exploitation to have risen—even if the conventional measure of profit and wage shares remains the same.

In terms of actual national income data, what we’d want to do is add to corporate profits the distributions of the surplus that go to those at the top (including CEO salaries) in order to to get “capital’s share” and subtract those same distributions from wages to get “labor’s share.”

US labor share

As it turns out, Olivier Giovannoni [pdf] has made something like the latter calculation, by subtracting top 1 percent incomes from the total U.S. labor share. As we can see in the chart above, the real labor share in the United States has fallen dramatically since 1970—from about 77 percent to less than 60 percent—just as it has in Europe and Japan.

The only appropriate conclusion is that the increasingly unequal distribution of income in the United States has a lot to do with the diverging movements of the labor and capital shares, and therefore with class changes in the U.S. economy. And the only way to deal with that problem—that class problem—is not by increasing tax rates at the top or by raising minimum wages, but by eliminating the problem itself: the exploitation of labor by capital.

*For the uninitiated, the Trinity Formula is the classical idea that the “natural price” of commodities is equal to the summation of the natural rates of wages, profit, and rent, that is, the idea that the incomes of workers, capitalists, and landlords are independent of one another. The same idea was later articulated by neoclassical economists, who argue that each “factor of production” receives its marginal contribution to production.


I understand: the only relevance of Karl Marx for the likes of the Wall Street Journal is to poke fun at Marxists who bristle at the idea of paying a fee to visit his gravesite.

“The Friends” of the cemetery are also anticipating an uptick in interest in Marx and in complaints from Marxists. This graveyard, in a leafy, genteel part of north London, typically sees around 200 visitors a day. Most ask to see Marx.

As it turns out, it’s that “uptick” in interest that is, in fact, more interesting.

Clearly, if all were going well for capitalism, there wouldn’t be any interest in Marx. But it isn’t, by a long shot—certainly not when global capitalism appears to be entering a new recession [ht: ja] and a variety of liberal supporters, from Robert Reich to Hillary Clinton, find it necessary to endeavor to “save capitalism from itself.”

Chris Dillow certainly thinks Marx is relevant today, for a variety of reasons: financialization, secular stagnation, the negative effects of inequality on productivity, and the situation of workers. In fact, Dillow argues, there’s a side of Marx that is particularly relevant for us today:

If you start from Engels’ Condition of the Working Class in England and start reading Capital not from the beginning but from chapter 10, another Marx emerges – one whose thinking was rooted in empirical facts about the working lives of the worst off and in an urge to improve these. It is this Marx which is still relevant today.

Certainly, the interest shown by Marx (and, of course, Engels) in the real situation under capitalism of the working-class—aided by Leonard Horner’s “undying service to the English working-class”—puts most contemporary economists to shame.*

But there’s another side of Marx that is at least as relevant today: the critique of political economy. The fact is, Marx didn’t invent an entirely new method to analyze capitalism. He started where mainstream economists (in his day, the classical political economists, such as Adam Smith and David Ricardo) left off and then, based on their own assumptions, developed his critique of their theories. Marx started with an “immense accumulation of commodities” (what today we call GDP) and “just deserts” (that is, the idea that everyone gets what they deserve and the distribution of income under capitalism is “fair”) and then showed how the growth of the wealth of nations was based on “the vampire thirst for the living blood of labour” on the part of capitalists. Therefore, what is an incontrovertible “good” for mainstream economists (more stuff, more commodities) can be seen as a “bad” (since it means more ripping-off of surplus-value by capitalists from the workers who create it). And that class exploitation can, in turn, be directly tied to financialization, secular stagnation, the negative effects of inequality, the situation of workers under capitalism, and much more.

Both mainstream economic theory and capitalism have, of course, changed since middle of the nineteenth century. That’s why the theoretical claims and empirical observations contained in Capital can’t simply be transferred to our own time. What is relevant, it seems to me, is the example of the “ruthless criticism” of political economy—the critique of both mainstream economic thought and of capitalism itself.

That two-fold critique, as exemplified in Marx’s writings, is precisely what is relevant today.

*Of course, their own Adam Smith puts them to shame, as in this passage on the negative effects of the division of labor on workers from Book 5 of the Wealth of Nations:

In the progress of the division of labour, the employment of the far greater part of those who live by labour, that is, of the great body of the people, comes to be confined to a few very simple operations, frequently to one or two. But the understandings of the greater part of men are necessarily formed by their ordinary employments. The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life. Of the great and extensive interests of his country he is altogether incapable of judging, and unless very particular pains have been taken to render him otherwise, he is equally incapable of defending his country in war. The uniformity of his stationary life naturally corrupts the courage of his mind, and makes him regard with abhorrence the irregular, uncertain, and adventurous life of a soldier. It corrupts even the activity of his body, and renders him incapable of exerting his strength with vigour and perseverance in any other employment than that to which he has been bred. His dexterity at his own particular trade seems, in this manner, to be acquired at the expence of his intellectual, social, and martial virtues. But in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.



We used to make sense of market concentration in terms of the notion of “monopoly capital,” which for all its theoretical problems was a serious attempt to analyze the consequences of the (absolute and relative) growth of the size of firms stemming from the concentration and centralization of capital.*

The late Paul Sweezy was one of the pioneers (along with other members of the “Monthly Review School”) of the theory of monopoly capitalism. As he explains,

The reasoning here follows a line of thought which recurs in Marx’s writings, especially in the unfinished later volumes of Capital (including Theories of Surplus Value); individual capitalists always strive to increase their accumulation to the maximum extent possible and without regard for the ultimate overall effect on the demand for the increasing output of the economy’s expanding capacity to produce. Marx summed this up in the well-known formula that “the real barrier to capitalist production is capital itself.” The upshot of the new theories is that the widespread introduction of monopoly raises this barrier still higher. It does this in three ways.

(1) Monopolistic organization gives capital an advantage in its struggle with labor, hence tends to raise the rate of surplus value and to make possible a higher rate of accumulation.

(2) With monopoly (or oligopoly) prices replacing competitive prices, a uniform rate of profit gives way to a hierarchy of profit rates—highest in the most concentrated industries, lowest in the most competitive. This means that the distribution of surplus value is skewed in favor of the larger units of capital which characteristically accumulate a greater proportion of their profits than smaller units of capital, once again making possible a higher rate of accumulation.

(3) On the demand side of the accumulation equation, monopolistic industries adopt a policy of slowing down and carefully regulating the expansion of productive capacity in order to maintain their higher rates of profit.

The fact is, monopoly capitalists don’t strive to increase their accumulation to the maximum extent possible. Instead, large portions of the surplus they are able to appropriate from their workers and otherwise capture with their monopoly pricing power is used to acquire other portions of capital (through mergers and acquisitions), to engage in lobbying and funding its desired political candidates, to pay dividends to stockholders, and to pay enormous incomes to corporate executives and other members of the “professional-managerial” class who produce some of the conditions of existence of monopoly capital.

It should be no surprise, then, that increased concentration in a wide variety of industries has been accompanied by slower rates of economic growth, the rise of more fraudulent and speculative economic activities, and to growing inequality in the distribution of income and wealth.

*Bruce Norton has identified some of the key problems in the theory of monopoly capitalism, especially the presumption that “capitalists always strive to increase their accumulation to the maximum extent possible.” See, e.g., his “Epochs and Essences: A Review of Marxist Long-Wave and Stagnation Theories,” published in 1988 in the Cambridge Journal of Economics.