Vol. TY 2(11) ISSN 0385 - 8247

Bulletin • of the Conference of Socialist Ec s nomists

• June 75 Vol. TY 2(11) ISSN 0385 - 8247

For contents see back cover SP & CD 1

CAPITALISM IN IRELAND

Stephen Parker and Ciargn Driver

INTRODUCTION Despite eight centuries of continuing colonial rule less has been written by British socialists about the Irish economy than almost any other object of British imperialism. The reason is obvious: an analysis can only be fully objective when it pursues its conclusions into the practical political sphere. The Irish question is uncomfortably close to the British left, compared, say, with that of Latin America. At a time when the tendencies at work in Ireland are coming to a head, the necessity for a clear and rigorous analysis cannot be underestimated. The two papers on Ireland printed below are based upon working papers prepared for, and discussed by the Revolutionary Communist Group's workgroup on the Irish question. The British left, where it has not ignored the Irish question, has too frequently proceeded from political generalities, without making a concrete analysis of the Irish situation. As a result politidal prognoses have been empirically deduced without reference to the underlying economic tendencies. The consequences of such a method are disastrous. As Lukgcs remarks: "The more conscientiously the facts are explored - in their isolation, ie in their unmediated relations - the less compellingly will they point in any one direction. It is self-evident that a merely subjective decision will be shattered by the pressure of uncomprehended facts acting automatically 'according to laws'." 1 . This reflects itself in relation to the Irish question either in an uncritical fat- alism about the successful development of the Irish revolution, or in the attempt to impose utterly utopian solutions which have no connection with reality. These papers are not academic. They were written to help clarify the tasks facing socialists in Britain. 2 The central points which they establish are that civil rights cannot be achieved within the confines of the northern state, because their denial is a central prop to the accumulation process there; and that the incorporation of the north into a united capitalist Ireland cannot furnish a long term solution because the southern bourgeoisie has proved incapable of providing the independent development of the productive forces necessary for this. References 1 Lukgcs History and Class-Consciousness (Merlin 1971) p23 2 See 'Britain and the Irish Revolution', Revolutionary Communist, 2 (May 1975) 5

SOUTHERN IRELAND AND FOREIGN CAPITAL In most of this paper, I intend to concentrate on the period since the late 50s, partly because events earlier than this have been adequately described in a recent issue of the CSE Bulletin 1 and partly because a correct analysis of the economic forces at work since the 50s is indispensible for an understanding of the current political situation in Ireland*which I turn to later in the paper. The following quote from a recent issue of the OECD Observer 2 sets the scene: "Some 50 years of Irish independence have been marked by war, depressions, shortages of capital and entrepreneurial skills as well as key raw materials, and by heavy emigration of its most vigorous and brainy workers. In the wake of the stagnation of the early 50s Ireland gave priority to export oriented growth and instituted a

*For the sake of convenience and unless the context indicates otherwise, 'Ireland' will be used in this paper as a shorthand for the 26 county state in the south. SP & CD 2 capital formation programme whose central content has been the provision of considerable incentives to private industry." During the early 50s Irish GNP grew by only 0.7% p.a. Wage rates and profit rates alike were extremely low by European standards. In 1956 for instance, profit before tax in the manufacturing sector, expressed as a percentage of turnover, stood at only 5%. Imperialism manifested itself in the drawing off of labour and capital mainly to Britain; in the 10 years up to 1958, over 10% of the population and a higher percentage of the work force emigrated. The ease with which this emigration occurred was a product of the close ties such as common language that had been forged during British rdle, and its implication was that wage levels could not be driven down far enough to compensate for the low level of industrial productivity. The only way to overcome this dilemma within a capitalist framework was for the state to subsidise capital out of loans and hope that relative surplus value could be increased sufficiently to allow for a period of rapid accumulation. Between '58 and '68 GNP rose by over 4% p.a. Capital formation as a percentage of GNP rose from 13% to 22% over the same period. Yet with the development of the productive forces came the intensification of the antagonisms inherent in capital as a social relation. During the 60s the number of employees as a percentage of total at work grew from 60% to 70%. Coincident with the number of workers involved in struggle grew enormously and Ireland twice topped the world strike league for the number of days lost per employee. Unemployment also grew steadily and today stands at over 9% while Ireland jockeys with Japan for the second highest inflation rate in the OECD group. The key to underganding these developments lies in the role played by the state in the economy. State involvement both in terms of direct grants to foreign capital and in terms of providing an infrastructure of communication, training, advisory services etc. increased dramatically in the 60s. - The ratio of state expenditure (current and capital) to GNP rose from 27% in 58/9 to 42% in 72/3. - To finance this and service the rising national debt necessitated massive taxation increases and further borrowing. - By the late 60s Ireland had the second highest ratio of interest on public debt to GNP in all the EEC countries. If the ratio of interest plus government subsidies (which are mainly to industry and agriculture) is taken Ireland has the highest ratio. The growth of taxation and borrowing since 1965 is shown below. 1965 1973 % increase GNP 1020.0 2674.0 162 Borrowing 87.6 237.4 170 Indirect Tax 134.7 431.3 220 Direct Tax 68.6 258.4 278

Indirect taxation as a percentage of GNP is higher in Ireland than in another EEC country and its rate of change is no lower than the average. Direct taxation as a percentage of GNP is not among the highest but this is only because farmers have been up to now excluded from paying income tax. The rate of increase of personal income tax is the highest of the OECD group, ]dsing for those workers under the PAYE scheme from 8.1p per E in 1958/9 to 14.2p per E in 1971/72. During this period also the number of employees paying income tax rose from 25% of the total to over 90% Throughout this period, gross real earnings grew in line with national income, but take home pay grew more slowly as is indicated in the diagram overleaf. State involvement in the economy necessitated extracting forced savings from workers. This got under way in earnest in 1964 with the introduction of a 21% turnover tax, later raised to 5%. In 1966 a wholesale tax was introduced forcing up prices SP & CD 3

BROWN-HART DIAGRAM: IRELAND 1959-71

o Gross Employee Remuneration as a percentage of Domestic Income x Employee Reumeration net of tax and social insurance as a percentage of domestic income 71

7 . . . . . . 0 • 70 6. 5. 66 69 4. 67 Employee 68 3. remuner- 65 2. 64 ation as 1. 63 0 a percent- 60. age of 62 0 9. Domestic 8. 61 Income 60 66 7. o 190 x 6. x o x 70 x X 64 x x 5. 63 x X 65 67X 71 62 69 4. 60 x x 68 3. 1959 61 2. 1.

50. - • ° • • • • • 60 1 2 3 4 5 6 7 8 9 70 1 2 3 No of Employees as a percentage of total at work

0 Note: A 45 line indicates that employee income is rising in line with domestic income. The figures are necessarily estimates. Employee remuneration includes some pensions. The social insurance netted out is overestimated but this should not affect the trend. when direct taxation and increased social insurance contributions were eating into pay packets. Working class reaction may be summarised as follows.

ANNUAL AVERAGES 1954-61 1964-71 No. of days lost 131(000) 586(000) No. of strikes etc. 68 112 No. of workers involved 10.3(000) 39.0(000)

Although the unions broke the national wage agreement in 1966, they were demoral- ised by rising inflation and negotiated two-year threshold settlements from 1968 onwards. SP & CD 4

To summarise, then, the situation was one of rapidly rising productivity where high gross increases could be won, but where net wages had to grow much slower than domestic income to allow for the increase in state involvement. This is the central contradiction involved in capitalist attempts to industrialize the South of Ireland. Another feature of the Irish economy is that very little of the growth of industrial output has been directed towards the home market. In 1966 for instance, the grant aided sector supplied only 11% of all industrial output, but supplied 42% of all exports and this development has since become more pronounced. Put another way, grant aided industry exports over three quarters of its gross output. With the fall off in world trade, there will be a rapid downturn in all these export oriented industries such as chemicals, metals and electrical machinery. Al- though this factor has not yet asserted itself as the dominant cause of redundancies we have seen a foretaste of what may come in the virtual collapse of the car assem- bly industry. Unemployment is currently at its highest level since 1942 and has recently been rising by a full percentage point of the workforce every five weeks. The economic background just described has been reflected in the political sphere by the rise of Economism. Reformism manifests itself in Ireland, not as a simple separation of the economic and political, but more particularly a separation of the economic struggle from the national question. The fact that the hegemony of the bourgeoisie over the national movement has never been seriously threatened is due in part to this separation. In the 1918 General Election, the Labour Party put up no candidates, rather than challenge Sinn Fein for the leadership of the national struggle. At the 1930 LP conference, the president of the ITUC remarked bitterly "the national issue still commands a dominating place in the minds of great sections of the people and workers are also taking part in this academic political controversy." It is no surprise then that the latest phase of the national struggle, taking place against a background of increasing economic strife has been met by an economistic response, not only by the traditional reformist left, but by the so-called revolutionary left as well. The Leninist position of support for all oppressed sections, irrespective of whether there is any immediate hope of achieving socialism is hopefully well known. It is encapsulated in the quote: "In so far as the bourgeoisie of the oppressed nation fights the oppressor, we are always, in every case and more strongly than anyone else in favour for we are the staunchest and most consistent enemies of oppression." 3 Yet, in the particular case of Ireland, it is frequently argued, nationalism has run its course. Developments in the south have shown the progressive nature of foreign investment as against the economic isolationism that was prevalent since the 30s. Nationalism is now seen as the political creed of reactionary economic forces and has no relevance for the socialist struggle. Where have we heard these arguments before? In "A Carricature of Marxism", 4 one of three works directed against what he termed "Imperialist Economism", Lenin quotes his opponent Kievsky as saying: "The right of nations to self determination is one thing in the era of the formation of nation states as the best form of developing the productive forces at their then existing level, but it is quite another thing now that this form, the national state fetters the development of the productive forces." To this Lenin replies: "The economic revolution will create the necessary prerequis- ites for eliminating all types of political oppression. Precisely for that reason, it is illogical and incorrect to reduce everything to the economic revolution, for the question is how to eliminate national oppression? It cannot be eliminated without an economic revolution - that is incontestable, but to limit ourselves to this is to lapse into absurd and wretched imperialist economism."3 SP & CD 5

The characterisation of bourgeois nationalism as reactionary rests on a view which regards the nascent bourgeoisie not as potential junior partners in world capitalism (which they are) but as an independent capitalist grouping willing to shelter and stagnate behind permanent tariff barriers. This latter view is of course based on a superficial examination of native capital in the south of Ireland between the early 30s and 50s. But it is noteworthy that protectionism was introduced then only as a reaction to world events. It was not a case of the triumph of small scale industry over large, but the triumph of any industry over none, and in that sense it was relatively progressive. In the 50s international events allowed the Irish bourgeoisie to assert their junior partnership in the world economy and the influx of foreign capital began. Is this relation to the world economy threatened by the national struggle? Could the impetus of the bourgeois dominated national movement lead to a small farm, handicraft republic? The question scarcely needs to be answered. As Lenin remarked: "British finance capital was at work in Norway before and after secession. German finance capital was at work in Poland prior to her secession from Russia and will continue to work there no matter what political status Poland enjoys. That is so elementary it is embarrassing to have to repeat it." 6 Even a cursory acquaint- ance with the programme of the provisional Sinn Fein would alert one to the situation. Far from prohibiting the import of capital (a step only nominally taken in the 30s) the Sinn Fein programme merely says "Import of capital would be controlled and foreign domination of any sector would be prevented." 7 In this regard, it is interesting that a recent OECD report on Science policy in Ireland had this to say: 8 "Experience has shown that loss of control has lead to a loss in value added gained through production within the country. It would thus be regretable if the few remaining groups were to come under foreign control..." This poses the question of the real contribution of foreign investment to the development of the economy. Although it is important to be clear on this question, and exclusive concern with it can lead to reformist conclusions, which is why, unlike Smyth, we have not posed it as the central issue. A recent report; commissioned by the Irish National Science Council 9 comments on the effects of foreign investment as follows: "One of the main advantages of producing in Ireland is simply that the firm can accumulate tax free profits on in- termediates supplied from its home-based production lines - such a firm will have little incentive to use Irish materials even if they are available at comparable prices...[this] helps to explain the limited linkage effects of .government aided industry in Ireland." The absence of linkage effects is borne out by the available data. In 1966, out of a total of £26.8M spent by grant-aided industry on material purchases, only £11.0M was of domestic origin. Furthermore, although the gross output figures for these industries are of the order of twice the total materials expenditure, these include profits which firms are free to expatriate to their country of origin. The OECD report comments that grant aided industry "has not generated much secondary investment, with the exception of the effects which direct income generation (in the form of wages and salaries) may have had on raising consumer demand in Ireland. Even in this respect, however, secondary investment effects may have been slight. The import content of consumption tends to be high in Ireland..." The failure of the established section of the Irish bourgeoisie to integrate and develop whole sectors of the Irish economy, while paying large hand-outs to foreign capital has reinforced the ideology of nationalism among the nascent and petty bourgeoisie. Sinn Fein unites within itself the creed of political independence for the North with demands for better terms for the national capitalist class in a united Ireland. The fact is, of course that any bourgeois movement will inevitably be forced by SP & CD 6 objective events to betray the national struggle in so far as its economic aspects are concerned. The attempt to overcome uneven development inevitably comes up against class barriers which the bourgeoisie cannot break. But that does not imply the correctness of an economist perspective. As Lenin advised, in such a situation "the criticism of revolutionary marxists should be directed not against the national movement but against its degradation."1 0 The failure of the left to understand these positions has greatly contributed to the growth of reaction throughout these islands.

REFERENCES 1 Smyth, J. "Changing Nature of Imperialism in Ireland", CSEB Spring 74. 2 0.E.C.D., Observer October 1974 3 Lenin, V.I. "The Right of Nations to Self Determination", Selected Works I, p611 4 Lenin V.I. "A Caricature of Marxism", CW 23. 5 Ibid., pp37,75 6 Ibid., p52 7 Eire Nua, The Social and Economic Programme of Sinn Fein 1971, p15 8 0.E.C.D. "Reviews of National Science Policy - Ireland", Paris 1974 9 C. Cooper and N. Whelan, Science, Technology and Industry in Ireland - A Diagnosis and some Policy Promlems, 1972, p18 10 Lenin V.I. "A Caricature...", p61

NOTES ON THE ECONOMY OF THE NORTH The greatest threat to the loyalist cause is not the assault of Irish nationalism in the form of IRA physical violence...Nor is the threat to the loyalist cause as open as the Liberal Party's home rule policy for Ire- land... the threat today is more deadly because more insidious. The left- ward shift in Westminster politics has produced a Conservative party, tired, even bored with Irish politics from which they wish to extricate themselves. Hence they have been converted to a belief in a United Ireland as the best long term solution of the old Irish problem.' In a distorted way this remark from the Ulster Vanguard movement expresses the central problem facing Unionism in Ireland. The British ruling class is less interested. in saving its Ulster counterpart than it was half a century ago. This is because of the economic decline in the North, British capital's reorientation away from Empire and towards Europe, and the greater significance and cooperation of Southern capitalism. The Carsonite rebellion of 1914 was supported by major sections of the British ruling class. Today, all observers of Irish politics from right to left acknowledge that the basic aim of both Labour and Tory strategy on the Irish question is some kind of united capitalist Ireland. The main opponent of this aim has been the loyalist forces in the north. This has encouraged the belief that advanced capital is playing a progressive role, and that the Left should accordingly support it. In a pamphlet published by the ILP, Boserup writes: "It needs to be recognised that the destruction of the Orange system and its replacement by the 'welfare state' of managerial capitalism is historically necessary and historically progressive... [the revolutionary left should] leave aside the windmills of British imperialism and the wholly counter-productive demands for Irish reunification, and ...concentrate on the real issue of today: crushing the Orange system." 2 The idea that the whole question of reunification must wait upon the reforming of the 'Ulster' statelet forms the basis of the politics of the Official Republicans, SP & CD 7 the Communist parties in both Britain and Ireland, and other political groupings. It attempts to separate the two issues, instead of recognising their inseparability. 'Northern Ireland' is the Orange system. It is impossible both to destroy the Orange system and to preserve 'Northern Ireland'. The situation in the North is not one of conflict between feudalism and capitalism - of reaction against progress. British imperialism is wrestling with a dying partner. In trying to impose its needs on Ireland, British capital excited the hopes of the catholics in the North. But it found its local agent - the Unionist bourgeoisie - refusing to accept its plans. In a united capitalist Ireland, the economic justification for locating industry in the north would be enormously weakened. Brit- ish capital is racing to unite Ireland from above before it can be done from below; it must do this as slowly as possible to prevent the loyalists from upsetting its plans. Britain is struggling with the loyalists, not to crush them - for the economic tendencies at work are doing just that - but in order to deal with the nation- alist forces more easily. Loyalism's irritating persistence is bringing Ireland to the brink of a civil war and is dragging the British ruling class behind it.

Why does Britain want a united Ireland? The, change in the British relationship with Ireland springs from the changing economic balance within Ireland rather than from any imperialist initiative on Britain's part. The southern economy had undergone substantial development from the days of the 'gombeen republic', while the north, the most developed part of Ireland at the time of partition, was supported by the substantial crutches of British subsidies. While the North was becoming a burden, the southern development complemented Brit- ish postwar development. The young Irish republic had inherited a bourgeoisie determined to develop and preserve itself economically. The Home Rulers had adopted the economic ideology of Arthur Griffith - tariff protection to aid the southern manufacturers. Sean Lemass, one of the founders of Fianna Fail, assumed the role of Opposition spokesman on economic affairs when the new party entered the Dail in 1927. In 1928, he made his views very clear in a speech in the Dail: "We believe that Ireland can be made a self-contained unit, providing all the necessities of living in adequate quantities for the people residing in the island at the moment and probably for a much larger number.. .Until we get a definite national policy decided on in favour of industrial and agricultural protection and an executive in office prepared to enforce that policy, it is useless to hope for results." 3 When Fianna Fail came to power in 1932, Lemass set to work putting up tariffs until the southern economy was one of the most highly protected in the world. The results in terms of production and employment were impressive:

1926 1931 1938 Value of total net industrial output £23m £26m £35m Index of industrial production 92 102 149 Numbers employed in industry 102,515 110,589 166,153 While tariffs helped Irish capitalists ride out the depression years, the working class had to pay a price: the level of income per head as a percentage of that in Britain fell from 61% in 1931 to 49% in 1939. After the war Ireland initially enjoyed some of the advantages of Marshall Aid, and agriculture benefitted to some extent in the early post war years due to world agricultural shortages. However, by the mid fifties it became clear that the economy had not fundamentally altered in the protection era. Balance of payments deficits, the minimal rate of growth, and above all stagnation in agricultural SP & CD 8 production and consequent threats to employment forced the Irish bourgeoisie to change course. This was spelt out in the First Programme for Economic Expansion, published in 1958. Agriculture was to become more export oriented, the emphasis being switched from tillage to grassland. In industry protection was to be abandoned, foreign capital to be wooed, while certain grants would be made to Irish industries. This domestic policy was followed by a series of international initiatives: the decision to join GATT in 1960, the application to join the EEC in 1961, and the Anglo-Irish Free Trade Area agreement signed in 1965. Ironically, it was Sean Lemass who sponsored the reversal in policy, aptly symbolising the confession of the inability of the Irish bourgeoisie to develop the Irish economy. The economy of the south boomed: industrial employment grew from 257,000 in 1961 to 328,000 in 1971. Gross national product grew by 4.1% per annum between 1958 and 1968, compared with a rate of 0.7% per annum between 1951 and 1958. Investment increased: gross fixed asset formation climbed from 13% of GNP in 1960 to 22% in 1969. In the north, the capital that would have suffocated behind tariff walls nearly drowned on the world market. There are some political groups who not merely accept the partition of Ireland but claim that it was historically progressive because it allowed the productive forces in Ulster to develop, therefore giving it historical justification. Although these people make much of the economic development which preceded partition, they are curiously silent on economic progress since then. The north went into depression. Linen production has been declining not simply since the last war, but since the First: 4 Yardage of Linen and Union Cloth Woven, Millions of sq. yards 1912 226.4 1924 167.4 1937 161.5 1950 92.7 1961 59.8 The linen industry lost ground to cotton and man-made fibres, while it also suffered through the increasing protection operating in the world economy. With the 'decline in trade, the demand for ships fell and the industry in the north declined correspondingly. Unemployment was not as large as it might have become, because of a growth in service employment. Employment in the 'boom years' of 1927-9 averaged only fifteen per cent. Between 1930 and 1939 it averaged twenty-five per cent. A survey of the Belfast working class in 1938-9 revealed that thirty-six per cent of those investigated were unable to afford sufficient food, clothing or fuel to maintain health or working capacity. The war came as a godsend to Unionist capital - markets for its commodities were guaranteed by wartime demand for ships, machinery and clothing. However, the decline of Empire and the emergence of revitalised competition on the world market led to a drastic decline in employment in the traditional industries of linen and shipbuilding. A series of industrial development Acts expanded aid and capital grants to industry. Grants of 30% to 40% towards buildings, machinery and equipment were offered without the employment conditions attached to their less generous counter- parts in Britain accompanied by minimal rents for government built factories. Be- tween 1963 and 1972 the NI Index of Industrial Production rose by 60%. While in Britain it only rose by 28% over the same period. But employment in northern manufacturing industry continued to decline: in 1950 it employed 206,000 people - in 1973 only 166,000. Only the expansion of employment in services prevented a colossal growth of the unemployed. The changed strategy in the south complemented the British turn away from Empire and towards Europe. Britain had long been able to rely on Ireland as a source of labour-power. Free trade, the welcome to foreign capital, and the increase in the productivity of Irish agriculture were all welcome to the declining British SP & CD 9 capital. The Irish market, while not enormous provides an important additional out- let for certain British manufacture. British capital expanded into Ireland in line with the general expansion into Europe: 5 Book values of Net Assets, 1962-1971, £ millions 1962 1971. Irish Republic 67.2 179.6 Western Europe, Developed Countries 356.0 1177.4 Britain also has a strategic interest in ensuring free trade with Ireland. In 1974 out of total imports of food and live animals of £3.372M some £278M came from southern Ireland, whose contribution was only exceeded by Denmark and Holland. In the North, the British and other foreign capital was far more productive than its local partner. For example the linen industry has been outpaced by the growth of synthetic fibre production ('Miscellaneous' in the table). 6 Textile Industry in the North - firms employing more than 25 people (£) Net output per person employed: Linen 1963: 652, 1970: 1,061 Misc. 929 5,088 With a much higher level of productivity, the new capital operating in the North was less concerned with keeping wages down through sectarian divisions in the northern working class than its local counterpart. Besides the economic obsolescence of the Unionist bourgeoisie and of the religious division it sponsored, the British state found itself paying large subsidies to the statelet to subsidise welfare benefits, social services and grants to industry. In addition to actual subventions, certain items of revenue collected in Great Britain are waived for the North. The 'imperial contribution' - a share of defence expenditure - is set at a nominal LIM. When the real cost is taken into account, the 1967-8 subvention would be £138M, rising to some £460M in 1973-4. 7 Some £424M of the liabilities of the £627M NI public debt at March 1974 were covered by advances from the British treasury. In addition to these subventions, the shipbuilding and aircraft industries have received grants whose payment is shared with Britain. These forms of state expenditure and subsidies form a real burden on British capital, and it would like to see them transferred onto the shoulders of the EEC. It is these developments, north and south, which form the basis of Britain's changed strategy towards Ireland. The decline of the Unionist Bourgeoisie The changes in the Northern economy have taken their toll of the Unionist bourgeoisie. Once dominant in the Northern economy, its material basis has been eroded by changes inside and outside the North. This becomes apparent when we examine the structure of the Northern economy since the war. While the overall employment figures show that employment has grown slightly in the post-war period, they also mask the shaky basis of this apparent stability and the colossal changes which have been wrought in the employment structure of the North. Employment in the North of Ireland (000) 8 1950 1973 Agriculture 101 53.5 Manufacturing 206 166.4 Textiles 72.8 39.0 Shipbuilding 24.2 9.8 Engineering 13.5 25.3 Construction 34.0 49.5 Services 201 276.5 SP & CD 10 If we look at agriculture, there has been a fall of nearly 50% in employment in this sector. This reflects the need of British capital to ensure food supplies during the war and its subsequent attempts to increase the productivity of agriculture. Between 1939 and 1962, the number of tractors used in the North increased from 850 to 30,000. This rationalisation has been restricted to a small section of agriculture. In 1923 there were 105,000 holdings held by 75,000 farmers; in 1960 72,000 holdings were held by 55,500 farmers. 9 The mechanisation of agriculture and amalgam- ation of holdings has left the smallest farmers unaffected: Agricultural holdings by size (Acres) as percent of all holdings 1Q

Acres • GB North Less than 15 25.1 30.3 15-49.9 22.7 48.2 50-99.9 19.4 16.9 100 + 34.3 4.4 Some 9.7% of the labour force is employed in agricultural production in Northern Ireland compared with about 2.7% in Britain. As the crisis deepens, British capitalism would like to see an increase in the productivity of agricultural production. This will require substantial state expenditure which British capital would prefer to share with European capital and would increase unemployment even further, sharpening the already existing conflicts. Where has the labour from the land found employment? Manufacturing employment has been steadily falling throughout the period. This is due mainly to the decline of the traditional industries of the north: linen and shipbuilding. The decline in employment would have been even greater if it had not been for the influx of foreign investment and government assistance to industries. In 1961 government sponsored industry employed some 22.5% of all manufacturing employees; in 1972 the corresponding fingure was 44.9%. 11The industrial distribution of this employment is illustrated in the table below: 12 Sector Jobs % of total Textiles 19,335 28.1 Engineering 16,317 23.7 Not elsewhere specified 9,661 14.0 Clothing etc 7,684 11.2 Food Drink and Tobacco 5,631 8.2 Vehicles 5,209 7.6 The growth in textiles is mainly due to the establishment in the north of major man- made fibre plants. The engineering firms are mostly light engineering firms: there is no particular new product to replace shipbuilding. - The only major sector which has grown substantially is the service sector. About 90% of the increase is due to the expansion of education, of health services, and of the central and local administration. The construction industry has grown from some 35,000 to about 55,000 in the period. The main basis for this is the expansion of public works. 13 - The shift from the traditional sectors of employment to those that are government sponsored is not simply an increase in the importance of the state in maintaining employment, but shows the economic decline of the Unionist bourgeoisie (see overleaf). - State aid has been given to a large number of NI firms but the real source of the jobs has been from outside the province. The attempt to maintain manufacturing employment has therefore been doubly precarious: firstly the dependence on capital from outside the province, and secondly the dependence on the state to attract it. The expansion of employment to take up the labour-power expelled from agriculture . and from traditional employment is not a process free of contradictions. The substantial subsidies to capital investing in the north make the capital laid out by the individual capitalist realise a rate of profit above the average. However, these SP & CD 11 14 Government sponsored projects 1945-1972

Origin No of % of all No employed % of em- Employment projects projects ployment per project

NI 109 40.7 8,847 12.8 81 GB 110 41.0 31.777 46.1 279 US 29 10.8 16,314 23.7 563 Other 21 7.8 11.961 17.4 570 TOTAL 269 100.0 68,899 100.0 257 subsidies represent capital diverted by the state to such employment. Left to itself such capital would have been accumulated where profit dictated. An increase in overall capital accumulation as a result of subsidies is only possible where the capital units which are taxed to provide the subsidies would otherwise have failed to accumulate them - ie where they failed to be capitalist. Capital in crisis seeks to restore profitability and the ways of doing this include the reduction of subsidies in order to maintain profitability. When Wilson talks. of 'spongers' there is a very real logic asserting itself. It is difficult to assess the changed relationship with the world market that this new pattern of capitalist exploitation has brought about. This is because some of the north's .exports are shipped through British ports, rather than direct from the north, to third countries. Consequently, the figures for direct exports are not a reliable indicator of the markets that industry in the north relies on. In 1970 some 63 percent of northern manufactured goods went to Great Britain as a market. It is not possible to establish other final markets in the same way. However, if we examine direct exports (some 13% of all exports) this gives some indication of the main overseas markets to which the north exports, though these do not include all foreign exports for the reasons given above. There is a clear shift towards the European market, and away from the Commonwealth and American markets. 15 Direct Exports, by industry, 1959 and 1968 (%) To Europe Share of all exports 1959 1968 1959 1968 Engineering 33.3 53.9 49.5 46.5 Textiles 27.0 55.9 42.8 36.6 Clothing 53.2 46.2 1.3 1.3 Food Drink & Tobacco 28.4 29.8 3.0 5.1 All other exports 66.1 83.5 3.4 10.5 All exports 31.9 56.5 100.0 100.0 In 1959 direct exports to Europe represented less than one third of all direct exports. By 1968, after the influx of foreign capital, they represented more than half of all direct exports. The growth in 'all other exports' is clearly related to the growth of foreign capital in the north and shows that the new industry is much more export orientated towards Europe than Unionist capital. The division within Unionism . The growth of state sponsored industry had given sustenance to a Unionist middle- class impatient with traditional loyalism. This section of the Unionist bloc was willing to concede to catholics a measure of reform which breached traditional but

anachronistic divisions. The central problem seemed not so much a question of prog - ramme, but of the pace at which this could be implemented without alienating traditional Unionist support. O'Neill, who became PM in 1963, was the representative of this tendency. It would be ludicrous, of course, to represent this wing of Unionism as some kind of 'progressive bourgeoisie'. It was merely trying to fortify the rule SP & CD 12 of the larger Unionist capital, by removing some of the more minor discriminations which protected the Unionist petty-bourgeoisie, smaller Unionist capital, and pre- served the trivial but important privileges of protestant workers. Local government refor, the end of discrimination in housing, one-man one-vote, and other measures could not erode the central bastion of this section of Unionism - control over the subsidisation and location of industry. It is significant that the re- commendations of the 1965 Wilson Report (commissioned by O'Neill) which suggested diverting industry to Derry were ignored in the economic policy of this period. The attempt of the new section of Unionism to reform the nature of discrimination did not take place against a placid political background. Strong undercurrents were flowing which would surface later. Amongst catholics, exclusion from the benefits of the 'welfare state' was stirring dissatisfaction by the early sixties. Among protestants, the IRA campaign of 1956-62, the 'Tricolour incident' in Belfast in 1964, the visit of Sean Lemass to O'Neill in 1965, and the fiftieth anniversary cel- ebrations of the Easter Rising sustained Loyalist hostility to the 'taigs' and bred mistrust of the O'Neill strategy. In 1956 the first UVF assassinations occurred and in 1968 NICRA took to the streets for the first time. Inside his cabinet O'Neill could find no support for his programme. The developments, both north and south had exacerbated rather than undermined the divisions in the north. 16 Balancing between a British ruling class with its designs on Ireland, and the loyalist section of the working class bent on preserving its privileges, Stormont could only dither. Reform programmes thus went hand in hand with intensified repression. Catholics could not be allowed to take reforms from below through their own efforts, but had to be forced to accept them from above. But reform itself threatened the immediate economic interests of the protestant petty-bourgeois and the loyalist workers. In no way could reforms reconcile the catholic minority and the mass of the protestant population. The admission of the catholic population to full economic and social equality with protestants demands more than local government reform. It cannot be achieved within a stagnant capitalism shored up by British subsidies. The whole movement for civil rights collided, not just with the political self interest of the Union- ist bourgeoisie, but with the entire structure of the artificial state of Ulster. Under the impact of the continuing resistance of the minority, Unionism began to splinter. One section, wary of biting the hand that fed it, became the reluctant, if petulant, agent of British policy. The other section, less dependent on the economic link with Britain, but crucially dependent on the political support of the loyalist working class, came increasingly to oppose the British strategy for Ire- land. Catholics remained discontented with the lack of thoroughgoing reform. Loyalist workers and petty-bourgeois could see that their future was increasingly threatened by the whole possibility of a federal Ireland. In the face of this opposition, the British ruling class have settled for some kind of compromise with loyalism. This is less by design than because the abilities of the British state to pursue its strategy through its own methods have been exhausted. Time and time again the British bourgeois press has announced that the situation is cooling down, that the gunmen have been defeated, the extremists isolated, and so on. Events have shown that this is untrue. The UWC strike finally confirmed whose side the silent majority were on. Foreign capital in the north is now pressing for some kind of final solution, for the Ulster general strike was the most serious disruption that it has experienced since 'the troubles' began, and was the first major penetration of the issue into the factories. If this means leaning on loyalism - then lean on it... Although the tendencies of economic decline are very clear, this in itself will not drive the northern working class into a united socialist struggle. SP & CD 13

Economic decline and the protestant workers What has the effect of the new industries been on the material base of loyalism? The new industries have, in general, been more productive than the old industries. The NI Index of productivity began to increase more rapidly than that for the UK as a whole with the new wave of government assisted projects and the inflow of foreign capital. Thus, although representing a reorientation in the underlying direction of the economy in terms of the share of total production, employment created by the new projects has not challenged the relative importance of employment in the traditional industries. Although linen's absolute decline has been dramatic, it still represents some 56.9% of employment in the textile industry. 17 The textile industry in the north - firms employing more than 25 people 1963 1970 Linen Misc. Linen Misc. Number of establishments 201 12 143 1 Employment 33,884 4,810 23,481 8,837 % of total output of textile industry 59.7 22.9 29.8 53.9 The relative weight of man-made fibres in the NI economy is very clear in 1970. Thirteen firms produced more than half of the output of the entire industry. Yet the continued preponderance of employment in linen production is equally clear. Although the tendencies point to a continued decline in the importance of linen production, there is still a clear basis for the direct influence of the Unionist bourgeoisie in employment discrimination. More important and enduring than discrimination directly practised by Unionist capital has been the indirect influence, through Stormont, on the location of industry. Although finance by the British state is crucial in encouraging capital to locate in the north, the precise location of an enterprise in the province has been dependent on the existing pattern of uneven development and on decisions taken by Stormont. The more developed infrastructure around Belfast, product of the development of Unionist capital in the last century, is 'naturally' attractive to firms establishing new plant in the north. This has been reinforced by Stormont decisions about the location of industry. The 1965 Wilson Report made a number of pro- posals regarding the location of industry. Although these were based upon the assumption that Belfast should be a growth area, they also emphasised that some industry should be located outside Belfast, in areas that had a catholic majority such as Derry. In the accompanying government statement on economic development which broadly endorsed the Wilson Report, no mention was made of Derry, but only of pro- posals for a new town at Lurgan/Portadown (predominantly protestant), and major schemes in Ballymena and Antrim. "Relative high unemployment and a low standard of living exist in Northern Ireland in spite of the government's actions in attracting or directing no less than 217 new factories to the province since 1945. One hundred of these were 'sponsored' by the government inasmuch as the state provided one-third of all capital outlay costs on plant and machinery. The other 117 factories were built in advance by the government before tenants were found. Of the 217 new factories, only 31 or 14% have been located more than 30 miles from Belfast.. Cautious investment from public as well as private sources has meant that eastern towns smaller than some in the west of the province have received more factories. Thus Lurgan with a population of 18,000 and only twenty-one miles from Belfast has attracted 13 new factories, while the City of Londonderry, or Derry, with a population of 55,000 but more than seventy miles from Belfast has attracted only 7 factories - two of which were vacant in 1968" 18 It is clear that if employment is only offered in the predominantly protestant areas, then however exemplary the hiring policy of particular capitalists, the cath- SP & CD 14 olic population will experience more unemployment and insecurity of employment. The role of Stormont in overseeing this process must have been seen by the loyalist working class as a central factor in preserving their privileges. What is the future perspective for the erosion of the material basis of loyalism? Although the traditional-industries have undergone substantial decline, with the expansion in manufacturing employment springing from the new industries, this is not going to replace traditional employment. The 'troubles' and the general economic crisis have discouraged new firms from investing in the north: New employment in the north 19 Year Total jobs Expansion Jobs created % new Number of created of exist- by firms new jobs new firms ing firms to the north 1966 7493 2593 4900 65.4 24 1967 5418 3089 2329 43.0 25 1968 6599 3354 3245 49.2 27 1969 5943 3452 2491 41.9 23 1970 6484 4382 2102 32.4 15 1971 7200 5583 1617 22.5 12 1972 6864 6187 677 9.9 7 While the total number of jobs created by government sponsored industry has remained at a fairly high level - even increasing since the 'troubles' began - this will not continue for long. The civil disturbance has clearly had an effect on firms decisions to invest in the north. Since 1968 there has been a fall in the number of firms setting up in the area, although this was a period when capital exports from Britain were increasing. The reason why the total number of jobs prom- oted has remained steady is because many of the firms which arrived in the mid and late sixties have been carrying out their expansion plans over a period of years, but will soon reach the limits of their planned expansion. The number of jobs created by new projects has been steadily falling throughout this whole period. It should be made clear that the fall off in new projects has nothing to do with direct physical damage and interruption of production due to the struggle. Every bourgeois article (until recently) applauded the contrast between the general social effects of 'sectarianism' and the harmony prevailing on the shop-floor. By the beginning of 1973 only 764 jobs had been permanently lost as a result of physical damage. Until the UWC strike 'industrial relations' had been 'good': Days lost per 1000 employees, all industries and services, North as a percent of the UK

1970 1971 1972 1973 51.4 78.2 58.5 48.4 The British state has done what it can to keep it this way - eg making special arrangements so that the north would not be affected by the three day week. The UWC general strike completely reversed this separation of politics from the shop floor, forcing the British ruling class to halt in their tracks. Capital's reluctance to invest was seen to be justified, and there can be no doubt that many of the large British and foreign firms who originally backed the 'reform' strategy want to see the situation resolved once and for all. The conditions in the world market for the textile industry, and on the British market for the engineering industry have not been good and it is quite likely that the more traditional sectors of these industries in the north will undergo further decline because of their low productivity. This does not mean that there will be SP & CD 15 some kind of automatic anti-capitalist unity brought about by the resulting decline in employment. It is precisely the economic issues that divide the working class in the north. A house for a catholic means one less for a protestant, a job for a catholic means one less for a protestant, and so on. Connolly likened the protestant workers to a labour aristocracy: "the Orange working class are slaves in spirit because they have been reared up among a people whose conditions of servitude were more slavish than their own. In Catholic Ireland the working class are rebels in spirit and democratic in feeling because for hundreds of years they have found no class as lowly paid or as hardly treated as themselves. "At one time in the industrial world of Great Britain and Ireland the skilled labourer looked down with contempt upon the unskilled and bitterly resented his attempts to get his children taught any of the skilled trades; the feeling of the Orangemen of Ireland towards the Catholics is but a glorified representation on a big stage of the same passions inspired by the same unworthy motives." 21 But what is the situation today? The linen and shipbuilding industries, traditional strongholds of protestant employment, have declined enormously in their significance since partition. We have also illustrated the importance of state aided industry in providing employment for the core of the northern working class. It is often pointed out that the conditions of the protestant working class are as poor as those of the catholics: in the Shankhill Road, for instance, 'Over 90% of the houses have been declared unfit for human habitation; 96% of them have no hot water, no bath or wash-hand basin and only an outside toilet.° 22 Not much privilege here, it might be thought. But it is precisely these conditions that make security of employment and better jobs so important: it is the only apparent way out of a miserable existence. The Unionist capitalist class was able to grant privileges directly - because of its control over private employment - and, indirectly, - through its control of the state at all levels - it was able to discriminate in public employment. Hostility to the catholic minority has gone hand in hand with protestant support for the Unionist ruling class and its state. The decline of the direct economic power of Unionist capital has not weakened its ability to maintain this traditional privilege. Stormont was ultimately responsible for the location of grant aided industry. This factor, combined with the 'natural' advantages of the Belfast area created by Unionist capital, has meant that location has been in the predominantly protestant east. Thus state aided industry has reinforced rather than undermined the traditional relations between protestant and catholic workers. Public and private employment policy in the north has succeeded in preserving discrimination in employment. There is no detailed set of figures available which show the relative numbers of catholics in employment and out of employment compared with protestants. However, it is known that 'in Belfast's three largest firms, Catholics are employed in the proportions of 3 per cent, 1.4 per cent and 0 per cent respectively.° 23 The census figures give a more general indication of the extent of unemployment amongst the catholic population. 4 Area % Catholic % male Unemployed' Belfast: Falls Road - 79.6 23.8 Shankhill Road 7.8 11.3 Derry: North Ward 43.5 11.4 South Ward 82.1 26.7 In times of economic crisis, the protestant workers have turned to the traditional organisations which have offered them some security of employment: the Orange Order and the Unionist Party. Many economistic socialists are prone to recite instances of working class unity in the north. They usually forget to mention the far more SP & CD 16 frequent occurrence of sectarian rioting. And even the instances of unity deserve close examination. The Belfast riots of October 1932 are a good example. The elementary class unity that was displayed was obviously a tremendous advance. But what is forgotten is the colossal economic decline necessary to make loyalist ideology weaken its grip on the protestant workers: 25 Index of employment in shipbuilding in the north 1930 1931 1932 Jan. July Jan. July Jan. July Sept. 100 92.1 56.8 51.4 38.9 24.5 15.3 It is the height of naivety to expect the two sections of the northern working class to unite on 'economic' issues, when it is precisely these that divide them. As the crisis begins to bite, protestant workers will pursue the traditional way out: the expulsion of catholics from employment. Only later, when the Unionist regime is visibly unable to preserve the position of protestant workers, will the possibility exist of breaking the protestant workers from loyalism and drawing them round a programme which emphasises the economic issues. As Connolly scornfully remarked about the economists of his day: "The doctrine that because the workers of Belfast live under the same industrial conditions as do those of Great Britain, they are therefore subject to the same passions and to be influenced by the same methods of propaganda, is a doctrine almost screamingly funny in its absurdity. 1126 Similarly, many attempts are made to paint the loyalist para-military organisations as 'grass roots working class' groups who will break with the Unionist bourgeoisie to unite with catholic workers. There are currents within these organisations which speak with a socialist accent, but as the secretary of the Merseyside Defence Association reassured his readers: "The UVF are willing to raise the red flag but only if it is intermingled with the white and blue of the Union Jack." 27 In fact these groups, while having working class support, are guided by a petty- bourgeois loyalism and are developing into semi-fascist organisations. A question that these groups have had to face when battling against the designs of British imperialism is the massive subsidies that sustain the northern statelet. When the government published its White Paper, Finance and the Economy, a UVF paper had this to say: "The financial end of keeping Northern Ireland solvent is admittedly a grave responsibility, but other countries have come through worse and survived, and there is no reason to think that Ulster couldn't do the same. Many of the problems of finance in Northern Ireland stem from a section of the community who care nothing for the state, but what they can get out of it, and it is this section who are the biggest drain on our social services. ...one only has to look at certain areas where the high birth rate and unemployability of the inhabitants makes sure that they get the biggest share of the cake, without the responsibilities that go with it." 28 Ulster Vanguard, favouring an 'Independent Ulster', published a pamphlet which stated that: "If Westminster subventions ceased, Ulster would respond with new economic policies and a radically reshaped fiscal system. Priorities would be laid down and new sources of revenue found. Some groups might experience hardship, especially during the transitional period, but the majority of the population would be unlikely to be markedly affected. ...As a dominion Ulster would offer lower production costs than EEC or North American countries..." 29 The lowered production costs, the 'hardship', are euphemisms for the attacks that the Unionist bourgeoisie must make on their own political base if they are to survive economically without British aid. The carrot offered is that this hardship will be borne by the catholics ('a section of the community...', 'some groups...'). These organisations may well have working class following, but it is similar to that of the South African Nationalists who supported strikes under the slogan 'Workers of the world unite and fight for a White South Africa': a labour aris- SP & CD 17 tocracy bent on preserving its privileges. The Irish Revolution and the North The theory that the left must support the 'modernising' tendencies of the new capital operating in the north is completely against the interests of the oppressed minority in the north. As we have shown, the influx of new capital has done nothing to undermine the free entry of the minority into economic and social life, even on a bourgeois basis. This is not simply a whim of Unionist policy, but a question of the structure of the northern economy shaped by capital. The north has experienced neither a full independent bourgeois development which would enable it to participate in the world economy on an equal footing, nor has it been sufficiently crushed by British capital to have become an organic part of the British economy. If this were the case, then the republican struggle would clearlly be a diversion from a direct struggle against either the Unionist bourgeoisie or against the British ruling class. The struggle for social and economic equality on the part of the catholic minority in the north is a struggle against the very structure of capital in the north: discrimination is not a simple question of a particularly unpleasant ruling class being in power and imposing its eccentric policies on the minority. If the decrep- it northern economy was to preserve any viability after partition, it had to en- gage in the most severe attacks on the northern working class. It has managed to maintain a high rate of exploitation precisely by fostering the divisions which existed in the northern working class. Even this proved insufficient to maintain the economy, and only massive subsidies from Britain could prevent the Unionist bourgeoisie from total collapse. This pivotal involvement of the British state in

- the north means that the struggle within the northern statelet is directed just as much against British imperialism as against the 'Orange system'. An independent capitalist Ireland could not, of itself, provide the material basis for full achievement of the democratic tasks of the Irish revolution. The massive subsidies which are today necessary even to preserve discrimination, let alone ameliorate it, would disappear. The full achievement of democracy in Ireland therefore demands the most thoroughgoing measures in relation to the Irish economy. As Trotsky put it, explaining the permanent revolution, the Irish working class is confronted with democratic tasks in the north, "the fulfilment of which is bound up with deep inroads into the rights of bourgeois property. The democratic revolution grows over directly into the socialist revolution and thereby becomes a permanent revolution." REFERENCES 1 "Ulster a Nation" (Ulster Vanguard Publications, April 1972), pp11-12 2 Anders Boserup, "Who is the Principal Enemy?" (ILP 1972), pp27,29 3 Quoted in T K Whitaker, 'From Protection to Free Trade - The Irish Experience', "Social and -Economic Administration", 8 2 1974, p97. The information and • figures below are taken from this article and from F S L Lyons, "Ireland Since The Famine" (Fontana, 1974), pp610-28 4 Report of the Joint Working Party on the Economy of Northern Ireland (Cmnd 1835 1962 - the 'Hall Report' - p69 5 'Trade and Industry, 15/11/73, pp368-9. The figures for trade below are from 'Overseas Trade Statistics of the United Kingdom', December 1973 6 'Northern Ireland Census of Production, 1970 7 For the components of the 'Imperial Contribution' see the Hall report p72. The figures for UK subventions to the north are taken from Northern Ireland Office, 'Finance and the Economy' (HMSO 1974) p31. Estimates for the 'Im- perial Contribution' are calculated from Garret Fitzgerald, "Towards a New Ireland" (Toro, Dublin 1973), pp54-7, "Finance and the Economy", p19. See also Lyons op.cit., p740n. SP & CD 18

8 "Northern Ireland Digest of Statistics" 9 Hall report, pp7-8 10 "Abstract of Regional Statistics 1973V pl, Table 2. The figures are for June 1972 11 "Industrial Development in Northern Ireland" (Ministry of Commerce, Belfast Feb 1973), Table 3-2, p8 12 Ibid, Table 3-4, p10 13 Norman Cuthbert,"The Northern Ireland-Economy" (Queen's Univ. Belfast 1970) p6 14 "Industrial Development", Table 3-5, p12 15 Ibid p23, and "NI Census of Production", 1960 16 See Sunday Times Insight Team, "Ulster" (Penguin 1972); Lyons, pp748-80; David Boulton "The UVF 1966-73"(Torc, Dublin 1973); T W Moody "The Ulster Question 1603-1973" (Mercier, Cork 1974) pp46-7, 57-65 17 See note 6 18 Alan Robinson, 'Londonderry, Northern Ireland: A Border Study', "Scottish Geo- graphical Magazine,86 3 December 1970, p211 19 "Industrial Development", Table 3-3, p8 20 Ibid, p14;"NI Digest of Statistics"; "Department of Employment Gazette" 21 "James Connolly: Selected Writings", ed. Berresford Ellis (Penguin 1973), pp265 -6. Conor Cruise O'Brien completely ignores this important article in his 'examination' of Connolly's attitude to the protestant working class. See "States of Ireland" (Panther 1974), pp89-97 22 Anders Boserup,"Revolution and Counter Revolution in Northern Ireland" (Spokes- man Offprint No.15), p44 23 Morris Fraser, "Children in Conflict" (Penguin 1974), p128 24 Calculated from General Register Office, Northern Ireland "Census of Population 1971", County Reports. We have chosen to take male unemployment as reflecting the true differences between catholics and protestants because women, who may well be 'economically active' according to the Census categories, are encumbered with other tasks which prevent them from entering the labour market on an equal basis with men, as free wage labourers. 25 K S Isles and N Cuthbert "An Economic Survey of Northern Ireland" (HMSO Belfast 1957), p594 26 Connolly, op.cit., p267 27 "The Volunteer", May 1974, p5 28 "Loyalist News, 21/9/74, p4 29 Kennedy Lindsay "Dominion of Ulster?" (Ulster Vanguard Publication 1972), p10 CRITIQUE AJOAMMOOFSWIEFSIMES ANDSCOMMVINEORY 'CRITIQUE, 31, Clevedon Road, Glasgow G12 OPH, Scotland'

Editor : Hillel H. Ticktin David S. Law: The Left Opposition in 1923. Jan Kavan: Czechoslovakia 1968: Workers and Ernest Mandel, Peter Advisory Editorial Board: Students. Sedgwick. David H. Ruben: On Dialectical Relations. Annual Subscriptions (2 Issues) : Inland £1.00 • Contents of No. 3 includes: Overseas £1.20 ($13.00) Ernest Mandel: On the Transitional Economy. Contents of No. 1 includes : R. Selucky: Marxism and Self-Management. Jiri Pelikan: Workers Control in Czechoslovakia C. Goodey: Factory Committees in 1918. HiIlel H. Ticktin: Towards a Political Economy of Each issue also contains Book Reviews, a Survey of the USSR. Current Events, and Translations of documents James D. White: Historiography of the Russian hitherto unpublished in English. Revolution in the Twenties. Contents of No. 4 will include: David H. Ruben: Godelier's Marxism M. Holubenko: The Soviet Working Class Contents of No. 2 includes : G. A. E. Smith: Political Economy of the Reform Hi!lel H. Ticktin: Political Economy of the Soviet Movement Intellectual J. L. Dallemagne: Justice for Bukharin Mary McAuley: Political Change Since Stalin. H. Sherman: On Dialectics — A Reply HE & DF 1

THE MARXIAN THEORY OF MONEY AND THE CRISIS OF CAPITAL*

H. Ergas and D. Fishman

In this paper we intend to analyse Marx's theory of money viewed in relation to the theory of capitalist crisis. Our object here is not, therefore, to develop a complete Marxist monetary theory; but, rather, to follow Marx in the °path of abstract thought, rising from the simple to the combined'[Grundrisse p102] which leads from the analysis of the commodity to the historical limits of capitalist production. To make this project more manageable we are going to disregard the international workings of the law of value and the role of the monetary system in these workings. We realise that this will restrict the direct empirical relevance of our analysis, but we do feel that a clear understanding of the domestic workings of the monetary system is a necessary foundation for an analysis of international money. In recent years there has been a renewal of interest, among monetary economists, in the analysis and comparison of what are sometimes referred to as different technologies of exchange. Marx too, developed an analysis of these technologies; but what distinguishes his analysis from more recent ones, making it, we think, more complete, is that Marx always analysed forms of exchange in terms of the social organisation of production - (i.e. a specific level in the development of the productive forces) - to which they correspond. Further, Marx maintained that the contradictions inherent in the operation of the forms of exchange had to be explained, not in terms of the forms of exchange themselves, but through an analysis of contradictions in the mode of production. Therefore, we would like to start off with Marx's derivation of the money-form of exchange and its peculiarities from the structure of commodity production. I COMMODITIES AND MONEY

The specific feature of economies based on commodity production is that while in them production is pre-eminently social production, that is, production for others, production decisions are not made directly by the 'associated producers' but by he owners of the means of production, who own the results of the production process as their private property. As a result of this duality in the organisation of production between social character and private form the fact that the labour of individuals is not only private labour but also labour in and for society reveals itself only through the mediation of exchange. Only at the moment of commodity exchange are the various and qualitatively different use-values, products of private labour, compared as products of the total homogeneous labour of society and exchange relations established between them. These exchange-relations act as the social bond between atomised producers. It is through them that the indirect social regulation . of the production process - the allocation of the total social labour to the various branches of production - takes place, in two essential ways. First the exchange relations established between a commodity and all other commodities validate whether or not the commodity is a use-value for others and therefore in fact a . commodity. And secondly, the determination of the exchange-relations of commodities on the basis of the labour-time socially necessary for their production - the law of value - ensures that when new production techniques are introduced gaps arise between the expected and realised income of inefficient producers, forcing a reallocation of labour.

*At various times in the preparation of this paper useful comments and suggestions were received from Andrew Black, Imran Hamid, Stuart Holland, Mary Kaldor and Robin Murray, whom the authors gratefully acknowledge. HE & OF 2

In brief, it is through the series of exchange-relations, in which the labour which produced commodities assumes its social form, that the law of value operates as an ex-post regulator of a constantly altering social process of production. The structure of commodity production determines not only the role of these exchange-values but also their form. Value, as a relation of private labour to the total labour of society in commodity production, is only expressed in exchange, in the exchange-ratios established between use-values. When the value of a commodity is expressed directly in terms of the use-value of another commodity - i.e. 3 tons of coal = 8 loaves of bread - clearly the labour which produced it is brought into relation with the labour which produced the other commodity; but unless the commodity in terms of which the exchange value is expressed is the representative form of pure abstract or social labour, the value of the commodity is expressed not as a relation to total social labour but to specific concretisations of the total social labour, to specific use-values. In this case (which corresponds to the forms of exchange preceding the money form - economic account on the one hand becomes increasingly complicated, as the set of exchange-ratios expands and on the other hand remains dominated by the specific use-values in terms of which the commodity produced is reckoned, the aim of production remaining the production and exchange of use-values. As we have seen, however, commodity production is production for others, production for exchange-value, and the terms of exchange are determined not by the producer's desire for other use values, but by the relation between his private labour and the total social labour. The need arises for a commodity in terms of which other commodities' exchange-values can be expressed not only as a relation to a specific concretisation of abstract labour but also as a relation to the total labour of society in its most abstract form, as pure exchange-value. This is achieved in the money-form of value, in which the relation of each commodity to social labour is summarised and expressed in its relation to a single commodity-money- "which serves as the direct incarnation of Social labour" [Anti-Duhring p365]. The commodity designated as money acts as the general form of exchange-value, the universal equivalent, in front of which all other commodities exist as mere use-values. To quote Marx: "Commodities, first of all, enter into the process of exchange just as they are. The process then diff- erentiates them into commodities and money, and thus produces an external opposition corresponding to the internal opposition inherent in them as being at once use- values and values. Commodities as use-values now stand opposed to money as exchange- value..." [K.I p104]. To sum up, this is more or less where we stand at the end of Chapter 1 of Volume 1 of Capital. Marx has established on the one hand that the allocation of labour to the various branches of production takes place on the basis of the operation of the law of value through exchange-ratios; and, on the other hand, that value must take the money-form, that the contradiction between the social character and private form of production must be heightened into what Marx termed a 'polarisation' of use- value -- embodied in a multitude of useful objects -- from exchange-value, embodied in a specific commodity, money. The problem is to put these two results together, to integrate the money-form into the operations of the law of value. This is what Marx does, in Chapter III of Volume 1, in his analysis of the 'functions' of money. II THE FUNCTIONS OF MONEY Marx lists three functions of - the universal equivalent: as the measure of valuet as the medium of circulation; and as Money. These are not three separate or even sep- arable attributes of the money commodity; rather this 'trinity' represents a process of concretisation of the money-form. In a logical chain based on the structure of commodity production, and on the polarisation of commodities and money, Marx argues that because the universal equivalent is the measure of value, it must be the medium of circulation; and because it is the medium of circulation it must be Money. It should be fairly clear from what we said above, why the universal equivalent is HE & DF S the measure of value. In commodity production the relations between producers and therefore between each individual producer and the total labour of society, are established in and mediated through the exchange of products. This exchange is regulated on the basis of value, expressed as quantitative relations between use-values. In its money-form value is expressed in terms of the relation between each particular use-value and the money commodity, which is the general form of exchange-value. Since money is the only concrete form of existence of value, it is the measure of value° To purchase a commodity, to effect what Marx termed "the social circulation of matter" [K I p104], a value equivalent must be offered in exchange° To exchange use-value Cl for use-value C 2 , Cl must be established as the value equivalent of C 2 . Now the exchange value of Cl exists ideally as its price; but in a world in which the quantity of labour socially necessary for the production of commodities is constantly changing divergences may and frequently do occur between expected and realised exchange-values. The exchange-value of a commodity can therefore never exist in the form of the commodity itself, but only in the quantity of the money commodity for which it actually exchanges. Marx expressed this rather elliptically when he wrote that "Price, like relative value in general, expresses the value of a commodity (eg a ton of iron), by stating that a given quantity of the equivalent (eg an ounce of gold), is directly exchangeable for iron. But it by no means states the converse, that iron is directly exchangeable for &id" [K I pp102-3]. In brief, before purchasing C 2 the owner of C 1 must transform his own commodity into money. Therefore the process of circulation of commodities presents itself, in its formal aspect, as an endless conversion of commodities into money and of money into commodities: C 1 - M - C 2 - M - C 3 ... Two aspects of this process are especially important: first, the fact that the continuity of the circulation'process appears as contingent on the capacity of mutually dependent producers to transform their use- values into money, this mutual dependence being expressed in the fact that M - in contrast to all other commodities - must enter into all transactions, but secondly, that the very logical form Cl - M - C 2 implies a separation of the moment of purchase from that of sale. This separation of purchase from sale highlights the fact that the universal equivalent is not a mere "token" or "symbol" of exchange-value but is the autonomous form of exchange-value, exchange-value as a commodity. This existence of the universal equivalent as a commodity in its own right, attaining therefore a degree of autonomy from the circulation process, Marx termed the function of universal equivalent as Money. The Money-form as Marx put it "...bursts through all restrictions . as to time, place and individuals, imposed by. direct barter, and this it effects by splitting up, into the antithesis of a sale and a purchase, the direct identity that in barter does exist between the alienation of one's own and the acquisition of some other man's product" [Capital, I p113]. This "breaking of the bounds" takes two forms: the first is the separation of Cl from C 2 , that is hoarding; the second is the separation in time of Cl from M or of M from C 2 , that is, credit, We would like to reverse Marx's order and deal first with credit and then with hoarding. Creditors and debtors existed well before.commodity production; but in commodity production their relation acquires a new form. Credit, as it arises from the circulation process Cl - M - C2 does not appear as a relation between commodities, say Cl now being traded against C 2 later. Rather, precisely because commodity exchange must be mediated through money, creditor and debtor confront each other as poss- essors not of use-values but of value equivalents. The law of value imposes itself in the necessary equality between the value advanced and the value returned. This equality is guaranteed by settlement of debts through the transferral of a given quantity of the universal equivalent, which therefore functions as the universal means of payment. Like exchange, credit in commodity production is not an isolated occurrence, but an interconnected circle of lending and borrowing, in which producers both receive and

HE & DF 4 give credit. Alongside the circulation process C 1 M - C 2 .., there therefore arises a circulation process of credit, constantly intertwining with the simple circulation of commodities. In this new form circulation appears as a process in time, representable as: cl m -C2 -M tl t2 t3 t4 '" where the't's are time subscripts. . . In each period old debts are falling due and new debts are being contracted; enough commodities must be exchanged against the universal equivalent to settle old credits and finance new. This means that if the circulation of credit is to proceed smoothly the transformation of commodities into money - into means of payment - must proceed .smoothly. However, when the system is flowing Smoothly, the quantity of money .needed as means of payment is determined not by .gross' debt outstanding but -by , groSs debt minus the debt owed by net creditors to net debtors, 'This reduction in the necessary quantity of means of payment occurs through the. creation and consolidation of mutually can- celling bills of exchange and of credit money generally. Bills of exchange are essentially a form of 'barter-money"; they are the monetary unit of account which ensures the value equivalence of direct flows of commodities between producers, flows not mediated through the market, The flows represented by these bills are, however, flows of exchange-value. Therefore if the bills are to be accepted, the acceptors must be confident that the use-values which back the bill effectively correspond to, and are, convertible into, a certain mass of exchange-value., Should this' confidence be lacking bills will not be accepted in settlement.of debt.and ,an increased quantity of commodities will have to be exchanged against money. The point we would - like to stress is that the credit system is so arranged that while›it ,only flows smoothly when the conversion of commodities into money is floWing smoothly, when this con- Version is not flowing smoothly the quantity of commodities to be transformed into money , is greatly increased, The question is why and how such crises occur.. Now let us return to Marx's analysis of hoarding. As Money, the universal equivalent is .the 'general form of wealth, "...the only adequate 'form of existence of exchange-value" '[K I p130] Therefore the money-commodity is the only store of value and the hoarding of wealth presents-itself'as an accumulation of. money0. What it is important 'to' consider at this point is not the reasons for hoarding, but rather its impact for this links up with the role of money in the, operation of the law of value. As is certainly familiar to.those who have suffered,through neo-classical_economics, the dominan.t„tradition in economic theory - from Smith to the neo-Walrasians - has always maintained that the structure of general equilibrium systems is such that "general overproduction" is impossible. "Say's Law", or what is now known as "Say's Identity", was a rudimentary form of this proposition which stated that since the value of aggregate output must equal aggregate factor payments and since factor payments are ,always entirely held in 'commodity fort then the total supply of commodities must always be identically.equal to the total demand for commodities; This extreme.proposition was' maintained by Say, Ricardo and the two Mills, and on this - point Marx more or less tore them apart. He pointed out that their analysis only applied to barter economies, that in commodity production there was always a gap between purchase 'and sale and that Money could be held on to for long periods, i.e- hoarded. When'this happened - i.e. when there was net hoarding - the circulation process would be interrupted and this would result in "general overproduction", which Marx defined as an excess supply of commodities relative to the,cash demand for them. To quote: "What...haS overproduction to.do,with absolute needs? . It is only concerned with ,demand that is backed by ability to pay" [TSV II p506]. The question is whether there are broader forces operating which tend either to prevent or to redress overproduction. Since Keynes and since Lange, Hicks and Patinkin's reformulations-Of'Walras,' bOUr- HE & DF 5 geois economists have tended to reject the stricter Ricardian formulation of Say's • Law of markets in favour of the far looser proposition that the sum of the excess demands for commodities and money must be zero. Combining this proposition with assumptions of price flexibility and of the effectiveness of price incentives they conclude that markets are self-regulating: that the balancing of excess demands between markets will, as they put it, tend to restore equilibrium. If a barter system is stable, the addition of a market for money will not make it unstable. The first thing we would like to point out about this is that Marx was aware that it is possible to describe the balancing of supply and demand in terms of a market for money and one for goods., As he wrote in the Contribution to the Critique: "Using Mill's confusing language one may say that there are times when it is impossible to sell all commodities.. ,and that at these times - there are more buyers than sellers of one commodity, i.e. money, and more sellers than buyers of all other forms of money, i.e. commodities. The metaphysical equilibrium of purchases and sales is confined to the fact that every sale is a purchase and every purchase a sale, but this gives poor comfort to the possessor of commodities who, unable to make a sale, cannot accordingly make a purchase either" [Contribution p97]. The second point we would like to make, a point which we think, is obvious from the quotation above, is that Marx did not believe that this "metaphysical" balancing of supply and demand would in any sense correct or prevent overproduction. Rather, his emphasis on the mutual dependence of producers led him to a concept of what would now be called "cumulative disequilibrium", in which the interaction of markets serves to amplify disturbances. As proof of this we offer Marx's analysis of the way in which overproduction in one industry [cotton] is amplified into general overproduction. To quote: "The stagnation in the market, which is glutted with cotton cloth, hampers the reproduction process of the weaver. This disturbance first affects his workers, Thus they are now to a smaller extent, or not at all, consumers of his commodity - cotton cloth - and of other commodities which entered into their consumption. It is true, that they need cotton cloth, but they cannot buy it because they have not the means, and they have not the means because they cannot continue to produce and they cannot continue to produce because too much has been produced...But apart from the workers who are directly employed by the capital invested in cotton weaving, a large number of other producers are hit by this interruption in the reproduction process of cotton: spinners, cotton-growers etc... They are now, all of a sudden, relatively overproduced, because the means with which to buy them and therefore the demand for them have contracted. Even if there has been no overproduction in these spheres they are now overproducing." And, Marx concludes "...the phenomenon of general over-production is derived from the inter-dependence not only of the workers directly employed in these industries, but of all branches of industry which produce the elements of their products, the various. stages of their constant capital. In [these] latter branches of industry, overproduction is an effect" [TSV II p524]. This analysis obviously has implications which go well beyond the impact of hoard- . ing and which make hoarding redundant as an explanation of the instability of commodity exchange. For example, the operations of the law of value, by altering prices in line with changes in socially necessary labour time, and thereby creating gaps between expected and realised income and expenditure, could unleash disequilibrium process frustrating the exploitation of new productive techniques. Or, in capitalist production, a small change in the rate of profit could lead, not to a gradual reduction in investment but to a collapse in the level of employment and ,output. And further, a disruption in the simple circulation of commodities could pre- cipitate a credit crisis, further aggravating the circulation proeess. We think Marx was aware of these "Blondinian" implications. On this basis he analysed the general form of crisis as being that of an interruption in the process of circulation and the magnification - one could say multiplying - of this interruption till it spread to all branches of social production. However, having said this, we do hot think that Marx actually elaborated, at any point in his writings, a complete

HE & DF 6 or exhaustive analysis of the behaviour of prices and outputs in disequilibrium. For example, Marx tended to over-emphasise the effect of absolute inconvertibility of commodities into money, as against the effect of changes in the terms of convertibility; and one could list other weaknesses. We therefore feel that there is ample room for Marxists to make explicit in their political economy the starting point of Clower and Leijonhufvud's work on disequilibrium process, namely the theory of the micro behaviour of units under the capitalist price system. 1 However we must be absolutely clear as to the tendency which the Clower-Leijonhufvud school share with neo-classical theory of studying abstract economies. In our view, Marx produced a coherent and necessary framework for the analysis of market processes; a framework in which it is clear that the contradictions and instabilities inherent in the money-form of value are not a flaw in the mode of production, but arise as a necessity from an organisation of production, corresponding to a given level of development of the productive forces, based on a contradiction between use-value and exchange- value, heightened into an antithesis between commodities and money. Further, Marx realised, in contrast to more recent economists, that although an analysis of money and of the circulation of commodities could provide a foundation for an analysis of the forms of crises, it could not explain the causes of crises; and that these causes were to be found in the unfolding of capitalist production.

III CAPITAL AND MONEY: FINANCIAL CAPITAL Up to this point we have been dealing only with the analysis of the commodity; but commodity production does not exhaust the Marxian definition of capitalism. For Marx, capitalism is the production and reproduction, through the production of commodities, of the social relation between capital and wage-labour. To quote: "The historical conditions of [capital's] existence are by no means given with the mere circulation of money and commodities. It can spring into life, only when the owner of the means of production and subsistence meets in the market with the free labourer selling his labour-power. And this one historical condition comprises a world's history. Capital, therefore, announces from its first appearance a new epoch in the process of social production" [K I p170]. To summarise very schematically the capitalist process of production: the capitalist purchases labour-power and means of production on the market; he unites them in the production process of exchange-values embodying surplus-value; and, finally, by selling the commodities produced realises this surplus value, transforming it into additional capital. Mediated through the production and exchange of values is the extraction and realisation of surplus-value, i.e. capital. Capital, therefore, is the unity of production and circulation; and Marx represented this in the circulation process of capital as:

1 [M. ' M [ Labour Power r l -M Means of Production '" P "' - m ... In this circuit money performs the same functions as in the simple circulation process of commodities; however it receives an additional determination as a form of capital. How then does this additional determination, as a moment in the accumulation of capital, affect the system of money and credit? As Marx wrote: "The entire character of capitalist production is determined by the self-expansion of the advanced capital-value, that is to say, in the first instance by the production of as much surplus-value as possible; in the second place, however, by the production of capital, hence by the transformation of surplus-value into capital. Accumulation, or production on an extended scale, which appears as a means for constantly more expanded production of surplus-value - hence for the enrichment of the capitalist, as his personal aim - and is comprised in the general tendency of capitalist production, becomes later [...] by virtue of its development, a necessity for every individual capitalist. The constant augmentation of his capital becomes a condition of its preservation" [K II p81]. The development of the forces of production, is therefore the primary aim of capitalism. HE & DF 7 However only the phase of direct-production in the total circulationprocess of capital . is productive of value and of surplus-value.' This implies: (1) that the labOur employed in realising the product - excluding, that is, the labour involved in transporting it - is unproductive; the' 'costs of circulation' as Marx termed them, are not matched by an expansion of value, but rather act as a barrier to accumulation. For our purposes these costs are of two types: those involved in accounting and financial control; and those involved in servicing the stock of the money-commodity. These costs, arising from the function of money as a means of exchange, are, according to Marx, reduced by the centralisation'- in the government and the banks - of the tasks to which they correspond. And (2) that only when capital is employed in.the direct process of production is it expanding and that therefore when capital is fixed in the form of money or of commodities it is unproductive. However, the very circulation process of capital " necessitates the fixation of capita]: for certain lengths of time in its various phases" [K II p50]. And this for two reasons: first, gaps between income and expenditure arising from the technical structure of circulation; and second, the holding of in- ventories and reserve assets. According to Marx, gaps between income and expenditure arise from essentially the structure of the turnover of capital, from the coordination and synchronisation -of working period, circulation period, turnover of variable capital' andturnover of constant capital,: Two examples will make this cleat: consider a case in which you have two processes, a process of production and one of circulation. To minimise over- heads production must be continuous.- Production takes six-weeks, circulation three. Production is financed out of the previous period's income.: At the end of six weeks the capitalist will not yet have,realised the value produced. If the continuity of the circulation process is to be maintained the capitalist must finance a deficit for three weeks- 'The converse of this., howevet, is that when he realises the com- todity., receiving a lump sum payment, and will have a cash surplus, since his expenditure is lagged over a period of weeks. The second case is, in a way more obvious: the greater the turnover and replacement period of constant capital the greater the surplus Of income over (current) expenditure thanks to the accumulation of depreciation.allowances, will be. In brief,, as Marx put it, "The formation of a hoard appears as ,a factor included in the process of capitalist accumulation, accompanying it but essentially differing from it; for the.process of accumulation itself is not expanded by the formation of latent money-capital" p80].. This above aspect of hoard formation is largely involuntary: even given- the best coordination of production decisions and turnover periods some degree of hoarding will result. However, hoards of money capital are also formed voluntarily by capitalists 'to act as. reserve funds of means of payment - "for counter-balancing disturbances it the cirait" [K II p87]. These reserve funds, which act as buffer stocks within-the system, are of course completely sterile: their value does not expand. Credit- in capitalist production arises from the formation of_gapsbetween income and expenditure, and Of reserve funds -of money in the circulation process of capital. The primary function of the credit system is to reduce this quantity of capital held in the form of money, and this it does first by 'redistributing surplus holdings of cash so as to finance deficits, thereby ensuring the continuity of the production process; and second, by centralising reserve holdings - of cash. The redistribution of surplus money-capital which lies at the basis of credit in capitalist production could be done directly between producers, : as in fact occurs through bills of exchange. But the complex informational problems' posed by such arrangements and the need for asset diversification Militate towards the intermediation of these tasks through a complex of financial institutions,'a . complex which Marx termed financial capital, To - quote: "The purely technical movements performed by moneyAm the process of circulation of industtial'capitaL.,if individualised into an independent function of some particular capital that performs nothing but just HE & DF 8 this service, convert a capital into a financial capital...A definite part of the total social capital separates from the rest and individualises itself in the form of money-capital, whose capitalist function consists exclusively in performing the financial operations for the entire class of industrial and commercial capitalists" [K III p371].

IV THE INTEREST FORM AND THE GENESIS OF FICTITIOUS CAPITAL Financial institutions buy and sell money in exchange for a variety of assets. These assets however have one thing in common: they represent claims not only on the principal but also to interest. For Marx the interest-form arises from the separation of the ownership of capital from its function. The function of capital is to unite labour-power and means of production in the production of surplus-value; the ownership of capital is the juridical expression of this real relation of appropriation in which the surplus-value accrues to the capitalist. It is only in the production process that the self-expansion of value can occur; and interest - a payment for the use of capital - as a form of this self-expansion, is paid out of surplus value. However, the form of interest, M - Ml, is irrational as far as Marx is concerned in that interest - as a form of the expansion of capital - appears in it as a relation to money rather than to surplus-value, i.e. labour-power. As Marx wrote: "...in the interest-bearing capital the idea of a capitalist fetish is per- fected, the idea, which attributes to the accumulated product of labour, and at that in the fixed form of money, the power of creating surplus-value by its inherent secret qualities, in a purely automatic manner,. .The product of past labour, the past labour itself, is here pregnant in itself with a portion of present or living surplus- value. We know, on the contrary, that as a matter of fact the preservation, and to that extent the reproduction, of the value of the products of past labour is only the result of their contact with living labour" [K III p408-9]. This fetish reaches its peak in the form of compound interest which "appears as a Moloch demanding the whole world as a sacrifice belonging to it of right" [TSV-III p456]. This fetish form, which reflects - in "a kind of fiction without fantasy" [TSV III p453] - the dominance of dead labour over living labour in the capitalist economy, has two important implications: the transformation and generalisation of the concept of capital; and the apparent weakening of the qualitative limits on the self-expansion of value. Previous to the interest-form, capital - i.e. the self expansion of value appeared as directly related to the process of production; but in the form of interest the self-expansion of value appears as an unmediated property of money, and every determined and regular revenue yielded by the investment of a given quantity of money appears as interest on, and as a form of, a given quantity of Ycapital', regardless of the real relation of this investment to the production process. Every stream of income is, by capitalisation, reduced to a given quantity of "capital". This "capital" is for Marx, fictitious , in two respects: on the one hand because it need not represent an actual industrial capital; and on the other because even, when it does - i.e. equities - it does so only in a partial and distorted way, achieving a large degree of independence from the accumulation process, for the value of these claims appears to fluctuate not with the value of the capital they may represent, but with the rate of interest and conditions on the money market. This ties in with what we were saying previously about the apparent weakening in the interest-form of the qualitative limits on the self-expansion of value. To quote: "By the identity of surplus-value with surplus-labour a qualitative limit is imposed upon the accumulation of capital. This is formed by the total working day, the prevailing development of the productive forces and of the,population, which limit the number of simultaneously exploitable working days. But if surplus-value is conceived of in the meaningless form of interest, then the limit is merely quantitative and defies all fantasy" [K III p468]. In fictitious capital the expansion of value appears as a market process, centred on the value or price of ownership HE &-DF 9 , claims. The price of these claims is only very partially determined by the value of industrial capital; and their high degree of liquidity makes them-the natural targets of, and form for, speculation, the "feverish attempt to make money without the intervention of the process of production" [K 11 p58]. In brief, the credit system which arises from the circulation process of capital operates through the creation and circulation of fictitious capital,. Surplus producers acquire fictitious capital as an asset, deficit producers as a liability. But both the capital value of such assets and the proportion of the total surplus-value to be distributed as interest are determined outside and beyond the strict process of production. V THE FINANCIAL SYSTEM AND THE PRICE LEVEL The next problem we would like to deal with regards the impact of this financial . system on the price level. Therefore, we will begin by very briefly examining the various approaches to the price level in Marx and in the Classical Economists0 2 Both the concept and the theory of the price level arose from the eighteenth century debates over the role of bullion in the system of international trade. Hume, in criticising the mercantilists, argued that increases in the quantity of gold in any particular country led, in the long-run, to corresponding increase in the general level of prices, and that it was therefore "...of no manner of consequence, with regard.:to the domestic happiness of a state, whether money be in a greater or less quantity" [Hume, Essays on Economics, p32]. Bullion flows between nations and the corresponding alterations in price levels were, however, important in leading to an optional international allocation of labour; and in the theory of international - trade, as refined by Ricardo and, later by J.S. Mill, gold flows under fixed exchange rates became the mechanism by which: "under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employments as are . most beneficial to each. This pursuit of individual advantage is admirably connect- ed with the universal good of the whole. By stimulating industry, by rewarding ingenuity,fand -by using most efficaciously the peculiar powers bestowed by nature, it distributes- labour most effectively and most economically; whilst by increasing the, general, mass of productions, it diffuses general benefit and-binds together by one common tie of interest and Intercourse, the universal society of nations throughout the civilised world" [Ricardo, Principles, p152]. , This theory of the international distribution of prePious metals, based on .a rather Crude version' of the quantity theory of money, seemed to imply that the international monetary mechanism could only operatolproperly when the national . turrencies 7donsisted entirely of gold coins or, in the case of a 'paper currency''if . the issue fluctuated with a.gold base. As Ricardo put it: "A currency is in its most perfect state when it consists 'wholly of paper money, but of paper money of an equal-value with the gold which it professes to represent" [Principles, p361].. Were this condition met thej)ridejevel would fluctuate solely in response to international adjustment pro- eesses';'but, the.Ricardians maintained, this condition was in fact Violated, on the one hand by the government's right to issue inconvertible fiat money in limitless quantities; and, on the other hand, 'by the financial system's .'creation' of money, The Ricardians therefore maintained that the government's right to issue, fiat money had to be curtailed; and further that a strict limit had to be set on the quantity of Bank of England and private bank notes in circulation., Hume,:who seemed to advoc- ate both deflation and inflation,. adopted the most extreme form of this latter proposition when he wrote that "..-no bank could be more advantageous, than such a one as locked up all the money it received..." [op.cit. p36] i.e. 100% reserve banking, The dominant view, however, was that shared by Overstone, Torrens and G.W. Norman -,leading lights of the 'Currency School' - who argued that not only should the bank-notes, be automatically convertible into gold at a fixed rate, but also that - the issue of bank-notes - both by the Bank of England andipy the country banks -. HE 4 DF 10 should be tied to gold movements. This view was then embodied in Sir Robert Peel's Banking Act of 1844 which, having divided the Bank of England into a Banking department and an Issue department, made all increases in the Bank's total note issue above a statutory minimum of £14M conditional on an increase in the issue department's bullion reserve, and, further, froze the note issue of the country banks. As we have seen, the essence of the Currency School's position was that, even under full convertibility, the banks° note issue could lead to an increase in the price level. The validity of this proposition was denied by Fullarton, Tooke and New- march who formed the 'Banking School'. The basis of the Banking School's critique was the inseparability of the note-issue function from the broader process of financial asset creation. A correct analysis of the determination and impact of bank- note issue had therefore to start from the general principles of the operations of the credit-system. Underlying the Banking School's analysis is a "vision" of banking as an industry acquiring liabilities i.e, buying cash to produce and sell financial assets. • Banks produce credit, embodied in a wide range of assets bearing various levels of liquidity, risk and return, of which demand liabilities - bank notes and time and current accounts - are a peculiar form. These demand liabilities imply, as Adam Smith pointed out, an additional cost for banks: "...over and above the expenses which are common to every branch of trade,. ,the expenses peculiar to a bank consist chiefly in two articles: first in the expense of keeping at all times in its coffers, for answering the occasional demands of the holders of its notes, a large sum of money, of which it loses the interest; and secondly in replenishing those coffers as fast as they are emptied by answering such occasional demands" [A. Smith, Wealth of Nations, I pp265-6]. An increase in the volume of demand liabilities must therefore be matched by an increase in reserves, and the rising cost of acquiring reserves - i.e, rising interest rates - constrains the process of credit expansion. The important features of demand liabilities is, therefore, not that thy function as money, but that they are credit-instruments. When the quantity of 'cash' is constant an increase in the volume of cash + demand liabilities - an increase constrained by the availability of reserves - occurs as an expansion of debt, and the consequent increase in purchasing power is merely temporary, since debts must be paid off. To quote: "New gold coin and new conventional [fiat] notes are introduced into the market by being made the medium of payments. Bank notes, on the contrary, are never issued but on loan, and an equal amount of notes must be returned into the bank whenever the loan becomes due., .The banker has only to take care that they are lent on sufficient security, and the ref lux and the issue will, in the long run, always balance each other" [Fullarton 1845 p64]. So long as banks stick to their basic function - which, according to Smith and the Banking School, is to provide working capital for industry, to make self-liquidating advances - the balancing of debt and payment will not affect the price level. Convertibility, the requirement that Banks pay their net debt off in assets they do not create and whose supply they do not control, is therefore according to the Banking School sufficient to ensure that there will be no necessary and causal relation between the quantity of credit instruments and the price level. Marx adopted the Banking School position, of whose work he wrote: "...the newer Eng- lish writings about circulation - the only branch in which real new discoveries have been made..." [Grundrisse, Penguin ed. p882]. And when, in volume three of Capital he discussed the role of currency under the credit system, he reiterated Fullarton's law of Reflux: "The quantity of circulating notes is regulated by the requirements of commerce, and every superfluous note wanders back immediately to the issuing party." [K III p615].

• It is important to note that the validity ôf the Banking School's approach to the price level is not dependent on the role of gold in the monetary system. The base of the credit system can consist of a non-commodity money, issued either as fiat money or in response to changes in the volume of net government obligations. However, and HE & DF 11 this is important, if in the latter case the issue of non-commodity money is not constrained by an ultimate obligation of the government to settle its debt, permanent increases in the price level can be sustained without changes in the volume of output. Further, central bank attempts to maintain a given level of interest rates in a situation in which government debt is largely held by the financial institutions will lead to a loss of central bank control over the process of credit expansion0 3 In this case the quantity of money will be demand determined and, to quote Tooke: "If... the transactions of the district, or the trade of the country generally, require more instruments of exchange, a larger number of notes would remain out; but this increase of the outstanding circulation would be the effect of increased transactions •and prices, and not the cause of them." [T. Tooke, A History of Prices... IV p194]. However in an international system of fixed exchange-rates, a solely demand-constrained process of credit expansion may clash with free currency convertibility. VI THE FINANCIAL SYSTEM IN THE PROCESS OF ACCUMULATION 4 The accumulation of capital parallels an enormous expansion of the credit system. As the scale of capitalist production increases, as the socialisation of production continues, only the concentration of many capitals and their distribution through the financial system can oil the wheels of industry. Increasingly purchase and sale are mediated through credit; contractual commitment dominates the process of production. This brings with it a vast multiplication of assets which expresses the complexity of the system of ownership and intermediation: "...with the development of the credit system and of interest-bearing capital all capital seems to double, or even treble, itself by the various modes in which the same capital, or perhaps the same claim on a debt, appears in different forms in different hands." [K III p553]0 Further an increasing proportion of the total surplus-value is distributed as interest and this implies that the ratio of contractual payments of interest to surplus value is rising. And lastly, producers tend to become debtors to rentiers, as against to each other. This secular process is not, however, a smooth one. The rising productivity of labour and the increasing organic composition of capital which reflects it determine a cyclical pattern of growth, crisis, stagnation, and recovery. In developed capitalism this pattern is reflected in a cycle of credit; therefore it is to the form of these crises of capital, and to the role of the financial system in them, that we now want to turn. We will assume that every producer holds not only real but also some financial assets, and that all debt servicing and interest payments are mediated through financial institutions. In the growth phase of the cycle, interest rates are low and the demand for loans, to be used in restructuring capital and introducing new techniques, is high. Those assets that are expected to share directly in the growth process will increase in value relative to those which are not; that is, equities will increase in value relative to debts of fixed interest. This encourages the increased growth of investment in real capital, a process aided by the increased security in firms' reserve assets due to their increase in value, the increased acceptability of assets to act as collateral, and by the further expectation of growth in the value of real assets relative to the cost of loans. The loans/net asset ratio, i.e. the proportion of future receipts committed to settling old debts, is therefore rising. Further, as expectations of growth spread the value of the assets created to supply this demand for loans will also rise (capitalisation rates for assets decrease). This increase in market values can take place in a relatively short period of time, yielding a , rate of growth of asset values that is much greater than the expected rate of growth of income. An expansion of loans will be forthcoming since the value of the financial system's reserve assets, composed largely of fictitious capital [K III p552], is also rising; allied to the fact that the growth process increases money hoards that are deposited with the banks. The increase in investment made possible by the increase in credit expresses itself HE & DF 12 in an increase in the organic composition of capital and a decline in the profit rate. This decline is neither simultaneous nor evenly spread between industries: we will assume, however, that it is sufficient to cause at least one significant producer financial difficulties. This will not necessarily affect the producer's sol- vency; what it will affect is his liquidity. To avoid defaulting on commitments - since this implies bankruptcy - he will have to realise his more liquid, i.e, financial, assets or raise new lines of credit. He is not likely to be able to do this since his creditworthiness will be declining and therefore will have to resort to a hurried sale of assets, reducing their market price. This reduction in values will force him to default on his debts. In fact, a recent study by the Manchester Busi- ness School notes that "...it appears that once a company's share price has fallen to or below ten per cent of the previous high there is only one chance in ten of that company continuing to survive without going through a restructuring or some other form of rehabilitation." [Financial Times, 7.2.75, p17]. This producer's default may put the financial institutions into difficulty. To meet their own commitments they must realise their liquid assets; but the market value of these assets has declined, a decline which the institutions' forced sales may pre- cipitate. Interest rates are raised to attract cash into the financial system but this (1) increases the servicing burden of debtors; (2) reduces net worth throughout the system; (3) reduces further the market value of reserve assets. The reduction in effective demand caused by the bankruptcy is already likely to have hindered the transformation of commodities into means of payment, but precisely at this point the demand for money will sky-rocket, for two reasons: on the one hand servicing costs have increased; and on the other, the acceptability and availability of credit instruments for the settlement of debt declines as confidence collapses. Further, as the fall in the rate of profit continues default will become more or less unavoidable and the entire credit system will totter, lf, as an alternative to default, producers choose to restrict current expenditure by decreasing production this will affect the income position of suppliers as well as resulting in widespread unemployment, and will therefore lead through the same channels to the same results. The essential point is that the growth in contractual liabilities (in fixed amounts of interest payments and repayments of principal in money terms) through the credit system outstrips the production possibilities in terms of rate and mass of surplus- value. It is the deflation of an over extended system of credit and fictitious capital which marks the crisis, a crisis whose roots, however, lie in the accumulation of capital. After the soar in interest rates and the collapse in the market price of fictitious capital, and after bankruptcy, in both the financial and industrial sectors, has become general, there follows a period of stagnation, in which Money, revealed as the only risk-free form of existence of exchange-value, is hoarded in large quantities. In this period of stagnation the reduction in real asset prices, and the consequent rise in their return relative to that of fictitious capital, will pave the way for dishoarding and for another period of recovery and growth.

VII THE CENTRAL BANK IN THE CRISIS OF CAPITALS The State, however, may well act to prevent the crisis from assuming the forms described above. Historically speaking, the State has intervened in the financial system for two purposes: on the one hand to meet its funding requirements; and on the other, to ensure the overall stability and, to a lesser extent, efficiency of the system. The increasing concentration and centralisation of capital which has marked the accumulation process has, throughout the capitalist world, been paralleled by a process of interpenetration of industrial capital and financial capital. The financial system has, in many ways, become the pivot of the State's, by no means necessarily consistent, economic policy relation to capital; and as a consequence this policy has been conducted through the Central Bank. In the process, the State's funding policy and its counter-cyclical policy, both being mediated through the Central Bank, HE & DF 13 tend to fuse in the State's broader role as provider of risk-free assets. The State therefore becomes committed to supporting the financial system as well as to regulating it through control over reserve ratios etc., not only because financial stability is a desirable objective, but also because global financial stability becomes a necessary condition for the orderly funding - and conduct - of State activity. The State, through the Central Bank, supports the financial system by providing 'lender of last resort' rediscounting and borrowing facilities; through Federal Dep- osit insurance; by direct support of the Bill market, thus stabilising interest rates; and, in the U.K. through the tacit understanding that no major bank will be allowed to fall. This support ensures that relatively minor crises of adjustment are not magnified into serious impediments to the accumulation process. However, this support may also perpetuate the crisis by changing its form. In fact, in those crises of capital arising from the process of accumulation, the global restructuring of social capital presents itself as a necessary precondition for further accumulation. This restructuring of social capital would, in ordinary circumstances, be forced on producers through the mechanisms described above - drop in realised income; collapse in asset values; default and bankruptcy - for these path- ological phenomena are necessary and therefore normal moments in capital accumulation. However if Central Bank support of the financial system permits producers' refinancing of their debt positions, these deflationary processes may be blocked or postponed. But rising servicing and debt burdens will force producers to attempt to increase their revenue in a period of declining profitability; if output decreases are excluded or ineffective, and if those cost economies realisable without a major destruction and restructuring of capital have been achieved, then the only alternative open to the firm is to raise prices. Price increases are sustainable in these situations because they are both general and cumulative. General, because all firms face much the same problem and therefore the increase in prices does not necessarily lead to long-run changes in relative prices and to the substitution effects such changes would entail; cumulative because being general they increase costs, while, however, reducing the burden of debt. So long as the State commits itself to permanent support of the financial system, and/or so long as the growth in the government's net obligations keep pace with the rate of price increases, a long-run inflationary process can be maintained. How- ever, this inflationary process, designed to stabilise the economy, precipitates a crisis in the financial world as money and financial assets generally lose their facet as a store of value. Further, if interest-rates are to be maintained below the rate of inflation, the capacity of interest-bearing capital to expand in value - a capacity which lies at the heart of the credit system - must be brought into question. And, while complete indexation is not theoretically impossible, indexation of the absolute price level implies some determination of relative prices, interfering therefore with the operations of the law of value. Lastly, an international con- straint, given by differing rates of inflation, operates in the State's determination of the tolerable rate of price increases. In the absence of complete indexation, high rates of inflation are not easily sustainable in highly developed financial systems. However, freezing the price level and restricting the money supply would not solve but aggravate the underlying problems of profitability. And if the State is unwilling to accept this deflationary alternative, the only option left open is for the State itself to attempt to carry through the restructuring of capital. Whether or not this will be politically acceptable in the context of the Capitalist State is a different problem.

VIII CONCLUSION In this paper we have seen how the polarisation of money from commodities arises from the structure of commodity production and how this provides the framework for HE & DF 14 the law of value to operate in the circulation of commodities and of credit; how capital subsumes within the production and circulation of commodities the production and realisation of surplus-value; how from this circulation of capital arises a financial system, which in redistributing capital, creates assets which take the form of fictitious capital, asserting a relative autonomy from the process of production; and, lastly, we have seen how the accumulation and crisis of capital is reflected in the financial system. In his Preface to the first German edition of volume one of Capital, Marx warned that "...the present society is no solid crystal, but an organism capable of change, and is constantly changing" [Capital I p10]. As this organism changes, as the forces of production develop, the forms of its crisis change with it. The increasing socialisation and concentration of capital, and the rising organic composition of capital which lies behind it, have led to a vast increase in the level of state intervention. The contemporary capitalist state does its utmost to prevent the crisis of capital from taking the form of unemployment and therefore funds an inflationary process, forcing the crisis on to the financial system and into the market for fictitious capital. Crises, however, whatever their form, must lead to a restructuring of capital: laying the basis both for a further development of the productive forces and for the rise of a new system of production.

NOTES 1 Cf. on these problems: Clower (1969, Leijonhufvud (1968) and Ostroy (1973) 2 On the price level in Classical political economy see: Rist (1940); Viner (1937); Robbins (1958); Sayers (1953) and Sayers (1960) 3 Cf. D Fishman:"Competition and Credit Control" (1973) 4 A great deal of the analysis in this section is derived from the pioneering study by Minsky (1964). It should be noted that this analysis is worked out only at a national level; introducing an international level adds both constraints and possibilities. 5 On Central Banking cf. Andreades (1966); Clapham (1944); Fullarton (1845) pp148-9; Minsky (1964) pp370-81; Minsky (1966); Morgan (1943); Presnell (1968); Thornton (1802) pp112-140 REFERENCES . AndreadesA. A (1966): "History of the Bank of England, 1640-1903" (Frank Cass & Co, London) Clapham, J (1944): "The Bank of England: A History" (C.U.P. 2 vols) Clower, R.W (1965): 'The Keynesian Counter-revolution' in F H Hahn and F R P Breech- ling, eds "The Theory of Interest Rates" (London) Fishman, D (1973): 'Competition and Credit Control', manuscript. Fullarton, J (1845):"On the Regulation of Currencies", 2nd ed (John Murray, London) Hume, D (1955): "Writings on Economics" ed. by E Rotwein (Nelson, London) Leijonhufvud, A (1968): "On Keynesian Economics and the Economics of Keynes" (OUP London) Marx, K: "Contribution to the Critique of Political Economy" (Progress Publishers, Moscow 1970) "Grundrisse: Foundations of the Critique of Political Economy", (Penguin 1973) "Capital" (Vol.I, Lawrence and Wishart, London 1970); (Vol.II, Progress publishers, Moscow 1967), (Vol.III, C.H.Kerr & Co., Chicago 1909) "Theories of Surplus-Value", Parts I-III,(Lawrence and Wishart, London 1969- 1972) Minsky, H (1964): 'Financial Crisis, Financial Systems and the Performance of the Economy' in "Private Capital Markets" (Prentice-Hall Inc. for the Commiss- ion on Money and Credit) (1966): 'The Evolution of American Banking: The Longer View' in "The Bank- er's Magazine, vol.CCII Morgan, E V (1943): "The Theory and Practice of Central Banking (Frank Cass, London) HE & DF 15 GH & IS 1 Ostroy, J M (1973): 'The Informational Efficiency of Monetary Exchange', AER 63 Sept. Presnell, L S (1968): 'Gold Reserves, Banking Reserves, and the Baring Crisis of 1890' in C R Whittlesey and J S G Wilson, eds, "Essays in Money and Banking" (Clarendon Press, Oxford) Ricardo, D (1951): 'Principles of Political Economy and Taxation', in "The Works and Correspondence of D Ricardo" I ed. by P Sraffa, (C.U.P) Rist, C (1940): "History of Monetary and Credit Theory", (Geo. Allen and Unwin, Lon- don) Robbins, L (1958): "R Torrens and the Evolution of Classical Economics" (Macmillan & Co, London) Sayers, R S (1953): 'Ricardo's Views on Monetary Questions' in QJE 67, Feb. (1960): 'Monetary Thought and Monetary Policy in England' in EJ LXX Smith, A (1954): "The Wealth of Nations" (Everyman, 2 vols, London) Thornton, H D802): "An Enquiry into the Nature and Effects of the Paper Credit of Great Britain" (Allen and Unwin, London 1939) Tooke, T (1838-57) "A History of Prices and of the State of the Circulation" (Long- mans, Brown, Green and Longmans, London; 6 vols) Viner, J (1937): "Studies in the Theory of International Trade" (Ilarper, New York)

FIXED CAPITAL AND VALUE ANALYSIS

G Hodgson and I Steedman

In this paper we discuss Marx's approach to the problem of the value depreciation of fixed capital. By means of one representative, but simple, numerical example we shall indicate the weaknesses in Marx's approach, and comment on some consequences for Marxian economic theory. It should be noted that the paper is concerned solely with value analysis; profit rates and prices of production will not be considered. Since the equality between the value of the output from any labour process and the sum of constant capital, variable capital and surplus value is so central to Marxist analysis and, since constant capital includes the 'loss of value' of the fixed capital used, it is of great importance to be quite clear how that 'loss of value' is determined. It will be apparent that the correct determination of value depreciation is of relevance in the analyses of reproduction, the devaluation of existing machines when new types are introduced, the transformation problem in the presence of fixed capital, the :'tendency of the rate of profit to fall", and so on. MARX'S GENERAL ASSUMPTION OF LINEAR DEPRECIATION In Capital, Marx considers a number of different types of fixed capital, of different life spans and rates of depreciation. He even includes a discussion of machines' having rising efficiency for certain periods of their lives (Marx, 1969 p479), as well as the more frequent consideration of falling or constant efficiency. He is obviously fully aware of the complexity and heterogeneity of fixed capital in the real capitalist world. However, at least in one respect, he does not give recognition to this at the theoretical level. When discussing the way in which a machine gradually loses its value over its life he assumes, in general, that the machine yields up its value in a constant linear manner; so that the machine loses an equal amount of value for each year of its life. This conception of linear value depreciation is clearly evident from the following quotation, which discusses depreciation in completely general terms: "A portion of the advanced capital-value becomes fixed in this form determined GH & IS 2 by the function of the instruments of labour in the process. In the performance of this function, and thus by the wear and tear of the instruments of labour, a part of their value passes on to the product, while the other remains fixed in the instruments of labour and thus in the process of production. The value fixed in this way decreases steadily until the instrument of labour is worn out, its value having been distributed during a shorter or longer period over a mass of products originating from a series of constantly repeated labour-processes.. .The longer an instrument lasts, the slower it wears out, the longer will its constant capital- value remain fixed in this use-form. But whatever may be its durability, the proportion in which it yields value is always inverse to the entire time it functions. If of two machines of equal value one wears out in five years and the other in ten, then the first yields twice as much value in the same time as the second." (Marx, 1961 p158) Other passages, where Marx makes a similar point, can also be found (eg Marx 1969, p479). We shall show that with machines of rising efficiency, for example, the assumption of linear depreciation is generally invalid. This is done by showing that the linear depreciation is generally invalid. This is done by showing that the linear depreciation assumption leads to formal inconsistencies in a representative numerical example. (Our general approach can be easily adapted to show that linear value depreciation is correct only under very special circumstances).

AN ECONOMIC SYSTEM WITH MACHINES OF RISING EFFICIENCY Consider the following economic system with three goods and three processes. There is one type of machine, which lasts for two years. Each production period lasts one year. Formally, it is necessary to regard new machines and one-year-old machines as different goods, in order to examine the pattern of value depreciation over 'the' machine's life. Corn is the other good in the system. We shall adopt the following symbols to represent the three goods: G1 - Corn, G2 - New Machines G3 - Old Machines There are three production processes in the system P1 - produces new machines P2 - produces corn using P3 - produces corn using using labour and corn labour, new machines labour, old machines and corn and corn The second process P2, uses a number of new machines in the production period which lasts one year. Consequently, an equal number of old machines is 'produced' at the end of the year as a by-product, as well as the corn that is produced. In each of the other two processes a single product is produced. In P3, for example, all the old machines are completely used up to produce only corn at the end of the production period. The following schema shows the amounts of the three goods that appear in the inputs and outputs of the system: Inputs Outputs G1 G2 G3 Labour G1 G2 G3 P1 1 0 0 0 5 0 P2 9 5 0 10 10 0 5 P3 15 0 5 25 25 0 0 Total 25 5 5 40 35 5 5 — — — Note that this example has the following features. First, in P2, the number of new machines employed, equals the number of old machines 'produced'. Second, P3 uses GH & IS 3 that same number of old machines to produce corn. Thirdly, the number of new machines produced in P1 equals the number used in P2. As a result the system is self- sustaining, and it can operate in simple reproduction. (We could easily alter the intensities of production of the three processes to allow for expanded reproduction, but that does not effect our results, and it need not concern us here.) The net output in the system consists of ten units of corn (G1) only. Part of this will feed the labourers employed, and part will go as surplus product to the capitalists. Note also that less corn and fewer machines are required per unit output of corn in P3 than in P2, even though employment per unit output is the same. As new machines are employed in P2, and old machines in P3, this means that 'the' machine has rising efficiency from the first to the second year of its life. Such a phenomenon is quite possible in real life: when a machine achieves maximum efficiency after being 'run in' for a period, for example. VALUES: MARX'S APPROACH We shall now examine the amounts of socially necessary labour time embodied in the three goods, i.e. their values. At first we shall suggest how Marx himself might have attempted to deal with the problem, whilst remaining consistent with his assump- 1 and 1 tion of linear depreciation, as cited above. We shall use the symbols 1 l' 2 3 to represent the values of Gl, G2 and G3 respectively. If we look at the total inputs and outputs in the system we see that the outputs of new and old machines are exactly equal to the respective inputs of new and old machines. No machine appears in the net output. We may conclude that 40 units of labour are used to produce a net output of 10 units of corn only. From this we may in- fer that the value of one unit of corn is 4, ie 1 = 4 1 It is, of course, more common to approach the calculation of values from a different point of view, but it should be intuitively obvious that the total labour employed to produce a given net output is equal to the value of that output. Elsewhere, it has been shown that the 'net output approach to the definition of value is equivalent to the other, more common definition (Morishima, 1973 Chapter 1) and indeed, we shall obtain the same result (1 = 4) below by the more usual method. 1 In process PI, new machines are produced alone, using labour and corn as inputs. We get the following equation: + 5 = 5 1 1 1 2 which, of course, states that the value of the used up corn, plus the living labour employed, equals the value of the new machines produced. Using the known value of one unit of corn we get the result that = 1.8 1 2 The next task is to calculate the value of an old machine. From Marx's assumption of linear depreciation we would reason that as a one-year-old machine had expended half its life, it would have lost half its value. Hence we would expect the value of an old machine to be: 1 3 = 2 = 0.9 We appear to have determined the value of all three goods in the system. However, if we examine the results further we notice an inconsistency. Consider process P2. According to the three values computed above we get the following result for the value of the gross inputs, plus the labour employed: + 10 = 36 + 9 + 10 = 55 9 1 1 + 5 1 2 GH & IS 4 The value of gross output in this process, however, is 10 1 + 5 1 = 40 + 4.5 44.5 1 3 = Using the values calculated above, it is evident that the value of the gross output is much less than the value of the gross inputs plus the labour employed. Hence the inconsistency; 10.5 units of value are mysteriously lost in production. (Incidentally, we get the same inconsistency if we account the machine values 'net' instead of 'gross assuming that half of the value of the five new machines employed is used up in one production period. The latter amount, plus the value of the nine units of corn used up, plus the labour employed gives a value of 50.5. The value of the net output of corn is 40. We still get the same discrepancy of 10.5 units of value.) Consider P3. According to the same three computed values we get the following result for the value of the inputs, plus the labour employed: 15 1 + 5 1 + 25 = 60 + 4.5 + 25 = 89.5 1 3 The value of the gross output of P3, ie 25 units of corn, is 100 units. This is 10.5 greater than the value of all the inputs, including labour. Hence an extra 10.5 units of value have been mysteriously created, - without any workers' blood, sweat or tears, in process P3. Clearly something must be wrong with at least one of the values we have calculated above. We show below that it is the calculation of 1 which is wrong, based as it is on Marx's assumption of linear depreciation. 3 AGGREGATED PROCESSES An apparent way out of this problem would be to avoid the separate consideration of the old and new machine using processes, and aggregate P2 and P3 together into a single 'corn industry': Inputs Outputs Cl G2 G3 Labour Cl G2 G3 P2+P3 24 5 5 35 35 0 5 Old machines (G3) appear in equal amounts on the input side and the output side, so that their embodied labour value cancels out on each side of the value equation for the corn industry. Also the positive and negative discrepancies in the value accounts of P3 and P2 respectively, cancel out, and the value accounts in the industry balance. The value of corn input is 96 units; the value of the used up' new machines is 9 units; these values plus the amount of direct labour employed in the industry, have a sum equal to the value of the gross output of corn, which is 140 units. The value of old machines can be disregarded without any problem in the corn industry as a whole. No value is created or lost, without explanation, in the two processes considered together. However, aggregation is a way of avoiding the problem, rather than solving it. The approach does not tell us what the value of an old machine must be, and hence we do not know the depreciation of a machine in the first year of its life. In fact the value of an old machine could take any magnitude, and it would still remain consistent with the value accounts in the aggregated corn industry. The assumption that its value is one half of the value of a new machine is optional, and purely arbitrary, from the point of view of the aggregated corn industry. The aggregation approach gives no backing to the assumption of linear depreciation. Correspondingly, the aggregation approach cannot tell us what the gross and net values are in each separate process. In P2 and P3 old machines appear in either the inputs or the outputs. If their value is arbitrary then the amounts of value circulating in these two processes would also be arbitrary. GH & IS 5 Thus if we are not to rest content with a value analysis which leaves certain values indeterminate, we must find the value of an old machine according to some logical and non-arbitrary method. CORRECT VALUE ACCOUNTING It is very easy to find the correct values of the three goods. We proceed from the Marxist proposition that the value of all the means of production in a process, plus the amount of labour employed, equals the value of the gross output. Hence we get the following value accounts for the three processes: P1 1 + 5 = 5 1 P2 9 1 + 5 1 + 10 = 10 1 + 5 1 1 2 1 3 P3 15 1 + 5 1 + 25 = 25 1 1 3 1 There are three value equations, with three unknown values. Solving simultaneously we get the following results: 1 = 4 1 = 1.8 1 = 3 1 2 3 The reader may wish to check, by substitution, that the above three values are correct (There are no other possible solutions). Note that 11 and 12 are no different from the magnitudes which we calculated before. What is surprising is that the value of an old machine is not only inconsistent with Marx's assumption of linear depreciation, it is actually greater than the value of a new machine. Our first conclusion, therefore, is that Marx's assumption of linear depreciation is, in general, incorrect, and inconsistent with non-arbitrary value accounts. The second is that, with rising efficiency, it is possible for the value of a machine to rise with age; in other words value depreciation can be negative. THE MEANING OF FIXED CAPITAL VALUE APPRECIATION It is not difficult to give an intuitive explanation of fixed capital of appreciating value. We noted earlier that, in our example, the old-machine using process was more efficient than the new-machine using process. (This would be in accord with the common phenomenon of a machine being 'run-in' during the first period of its active life.) In a sense, therefore, a fully efficient machine is still being 'produced' when it is used in the first year of its life. The fact that it is also used to produce corn in this first year means that two joint products are created: corn and a fully efficient machine. Let us consider the creation and transfer of value in process P2. Some of the living labour employed in this process must be imparted to a new machine so that it appreciates in value. The new value given to the machine is not mysteriously created out of thin air; it actually originates in production. We have noted that if fixed capital appreciates in value then the 'used up' fixed capital is negative, in value terms, in the process that uses a new machine. This could be sufficiently negative to swamp the positive value of all other used up constant capital; though this does not occur in our example. As a result the total used up constant capital can be negative in individual processes. This does, in fact, occur in another example of fixed capital of appreciating value, which can be found in Hodgson and Steedman (1974). Circulating capital of negative value cannot occur in the economy as a whole. Even- tually, the machines must depreciate to zero, and thus lose their original value, plus any extra value they may have gained during their life. Consequently, taking the machine's life as a whole, losses in value must be greater than any gains. Thus GH & IS 6 in the economy as a whole, in a steady-state situation, fixed capital depreciation must be numerically greater than fixed capital appreciation. It can be shown that fixed capital of appreciating value is only found when machines have rising efficiency. The latter is only a necessary, not a sufficient, condition for this phenomenon to occur. Nevertheless, the example of fixed capital appreciation given above is not just a fluke. There is an infinite number of examples which show the same phenomenon. In addition, it can be shown that even when fixed capital depreciates in value, linear depreciation must, in general, be rejected.

THE HETEROGENEITY OF FIXED CAPITAL OVER TIME We must note that the consistent and non-arbitrary results for the value of an old machine were obtained by treating old and new machines as qualitatively different commodities. In contrast, Marx usually did not adopt this approach. He regarded machines of different ages as quantitatively different, from the point of view of their values; but he implicitly regarded old and new machines as qualitatively the same. As a result the not-used-up fixed capital often did not appear in his value . accounts; it did not appear to matter whether they were constructed in a 'net' or a 'gross' manner. In this paper we have shown that the 'net' approach can not generally be used to determine the values of machines of different ages correctly. We regarded old and new machines as qualitatively different goods, and this enabled us to calculate the values of machines of different ages. Accounting was done in a 'gross' manner; remaining fixed capital was not cancelled out on each side of the value equations. In the 'gross' approach, fixed capital appears as an input in the value equations, and one-year-older fixed capital appears on the output side, pertaining to a qualitatively different commodity as well as, in general, having a quantitatively different value. 'Old' fixed capital appears as a joint product at the end of the year, along with the other products of the industry, and the analysis of fixed capital is a special case of joint production analysis. (This 'gross' approach to fixed capital was adopted by Sraffa (1960, pp63-73, 94-5).)

CONCLUSIONS We have shown that: 1 Marx's assumption of linear value depreciation is generally incorrect; only in special cases is it acceptable. 2 Fixed capital of appreciating value is possible, when machines have rising efficiency over time. (The occurrence of the latter Marx, himself, recognised.) 3 In contrast to Marx's usual approach, machines of different ages must be regarded as qualitatively different goods. Hence accounting in an economic system which includes fixed capital must be done in a 'gross' rather than 'net' manner, regarding fixed capital as a kind of joint product.

APPENDIX While the validity of the above analysis is quite independent of the following remarks, they may be of some interest. It may be noted, first, that the analysis of value depreciation given in the text provides a further example of how careful value analysis has to start from the physically specified conditions of production. Value data and physical data do not provide alternative starting points for econom- mic analysis; on the contrary, the values can only be found by being derived from physical data. It may also be pointed out that even the correctly derived values do not provide a basis for the explanation of the rate of profit (and prices of production). The physical data, however, together with a physically specified real wage bundle, do suffice to determine the rate of profit (and prices of production). GH & IS 7 JG, SH & MM 1 BIBLIOGRAPHY Hodgson and Steedman (1974) "Depreciation of Machines of Changing Efficiency: A Note" (Unpublished) Marx (1961) "Capital", Vol.2,(Lawrence and Wishart) (1969) "Theories of Surplus Value", Part 2,(Lawrence and Wishart) Morishima (1973) "Marx's Economics,"(Cambridge University Press) Sraffa (1960) "The Production of Commodities by Means of Commodities" (Cambridge University Press)

WOMEN'S DOMESTIC LABOUR Jean Gardiner, Susan Himmelweit and Maureen Mackintosh* The kind of theoretical analysis one does is determined by the kind of questions one asks of it, and one of the hardest problems which has faced the 'Political Economy of Women Group' over the past year has been to redefine the theoretical questions we were asking in order that they should address more closely our own political concerns. We start out with a common political perspective in that we are all socialists and feminists, but beyond that we are trying to develop an understanding of our agreements and disagreements in the process of discussion and research. This paper reflects only a small part of that work. It is written by three members of the group and comes out of the group's discussions on the questions of the theory of domestic labour. The group has also been working on the welfare state, women's wage work, the family in industrialisation and social legislation as it affects women and the family. The group as a whole did not see this paper before its presentation and is not responsible for it. Here we set out our views on the problem of domestic labour (i.e., housework) and its relation to women's total economic role under capitalism. What we mean by 'economic' in this context is that we are focussing on production and reproduction and the material aspects of women's oppression. We examine the interrelations between the different forms of women's work under capitalism, the material basis of sexism, the gains to capital and to various groups of workers from the oppression and exploitation of women. While recognising the ideological importance of the family, we shall be stressing the roles of women in production since this is the specific contribution political economy must make to the women's movement. In con- centrating somewhat on domestic labour we are reflecting the view, common to almost all writing on this subject; that women's role in the home is crucial to her subordination under capitalism. The paper is organised as follows. We begin by setting out a theoretical problem the relation of domestic labour to the process by which surplus value is generated within capitarigiii. --We go on to discuss, in the light of this, the concept of a mode of production, and the relation_of domestic labour to the capitalist mode of production.•We then analyse the nature of the production relations of domestic labour, "aird-Tarticularly the relations within the family. Finally we- consider the relation

*Besides all the members of the Political Economy of Women Group, the authors would like to thank many members of the Conference of Socialist Economists for their written and verbal comments. JG, SH & MM 2 of domestic labour to women's wage work and of historical changes in domestic labour to the contradictory needs of capitalism.

1 DOMESTIC LABOUR AND SURPLUS VALUE This section identifies the theoretical problem of the relation of,domestic labour to the expansion of surplus value. In the process of developing an understanding of this we began with the question of how housework contributes to the production of surplus value, but found that we could not work out a satisfactory answer to that question without a clearer understanding of why we were asking it, So we have come to focus our analysis more around questions like: Why has domestic labour retained a major role in the mainenance and reproduction of labour power in capitalist societies? Is domestic labour and the family as we know it likely to be significantly eroded in the current phase of British capitalism? Thus in discussing the relationship of domestic labour to the expansion of surplus value we want to concentrate on those approaches which proved more fruitful in answering these questions, (a) Surplus value in Marx The core of Marx's theory of surplus value is expounded in Capital Vol.I in the following way. Marx restricts his analysis to the productive relations of a pure capitalist mode of production in which there are two classes: the bourgeoisie who own the means of production and the proletariat who own nothing but their labour power. All labour performed in this economy is engaged in capitalist commodity production. Surplus value is then defined as the abstract labour-time embodied in that part of capitalist commodity production which represents a surplus over and above the commodities purchases with their wage by workers for their own consumption. Since all production is capitalist commodity production workers consumption is also exclusively consumption of commodities. • The production relations of capital and labour are inherently antagonistic since capital will strive to shorten the portion of the working day the worker is working for his own subsistence and lengthen correspondingly the portion of the day the worker is producing surplus value for his employer. The production of surplus value is therefore a process in which class conflict is inherent, around both the wage bargain and the production process, As far as the wage bargain is concerned, Marx saw the wage for each group of workers as fixed in real terms for a given historical period, identifying this as a historically given level of subsistence. The value of labour power is then the abstract labour-time embodied in commodities making up that level of subsistence at any moment. In this approach, Marx therefore abstracted from the problem of the determination of the historical level of subsistence, and the interaction between this and • the wage rate. He could argue that the real wage must be fixed for a given level of subsistence only because he assumed that workers' consumption consisted only of commodities purchased with the wage. Once one recognises that workers also consume use-values produced by domestic labour (as well as the role of the state in areas like health, education and social benefits) then a one to one relationship between the level of wages and the level of subsistence breaks down. Since however Marx regarded the level of real wages as historically pre-determined, he concentrated most of his analysis of the production of surplus value on the capitalist production process. For once wages are fixed in real terms there are only two ways of raising the rate of surplus value. Either the working day can be lengthened or the pace of work increased, both of which meet with physical limits and organised opposition from the work force. Or the labour-time required to produce the necessary commodities for workers' consumption can be reduced. We feel that in order to develop an analysis of the contribution of domestic labour to the expansion of surplus value, the question of wages and the value of labour JG, SH & MM 3 power has to be explored in much greater depth. (b) The Value of Labour Power The dominance of capitalism requires that the mass of producers, men and women alike, be separated from alternative independent means of subsistence, but beyond this, Marx took little further interest in the question of how the subsistence and reproduction of the labour force was transformed by the advent of capitalism. For example he does not appear to have seen any contradiction between, on the one hand, viewing capitalism as a mode pf production in which workers are dependent for their subsistence on wage labour and, on the other, relegating the question of the maintenance and reproduction of labour power to an ahistorical and peripheral terrain: "The maintenance and reproduction of the working class is, and must ever be, a condition of the reproduction of capital. But the capitalists may safely leave its fulfilment to the labourers' instincts of self-preservation and propagation." (Capital, I, p572) Once the emergence of the current feminist movement had focussed attention on women's domestic labour and its role in the maintenance and reproduction of labour power, however, it became clear that the value of labour power -- in the sense of the abstract labour-time embodied in the commodities entering into the level of subsistence -- could not be assumed to be independent of the other forms of work which went into the total level of subsistence of the working class. Several issues have to be examined as part of a theory of the value of labour power. The first point is that the payment of wages to workers does not provide in itself adequate material conditions for their labour power to be maintained and reproduced either on a day to day basis or from generation to generation. In any period the provision made by capital for the reproduction and maintenance of labour power through the wage paid to workers is premised on the existence of domestic labour and the state in a particular form. Secondly there is the question of the dependence of the value of labour power on the economic structure of the family. Marx explicitly assumed in his analysis of the value of labour power a family unit in which neither children nor wife worked, although he also pointed to the historical tendency of capital to spread the value of labour power over the whole family through the employment of women and children. Both of these factors we will return to in subsequent sections. There is a third set of questions which need to be examined in developing a theory of the value of labour power. That is how do subsistence needs get determined and change over time; how do needs influence wage levels and wage levels influence how needs are perceived; how do wage differentials get established, maintained or changed over time? We raise these questions but do not attempt to explore them further in this paper since they are not directly related to the role of domestic labour. Before looking in detail at the role of labour in the determination of the value of labour power and hence in the production of surplus value, we first consider the relation of domestic labour to the capitalist mode of production, and the implications of this for our analysis. 2 DOMESTIC LABOUR AND THE CAPITALIST MODE OF PRODUCTION There has been a certain amount of discussion recently of whether domestic labour should be analysed as a form of work within the capitalist mode of production, or as a separate 'client' mode articulating with, but outside, the capitalist mode of production?' To some extent this has been a question of vocabulary, but there are real theoretical issues involved, and we first discuss these in general. In deciding how the concepts of 'mode of production' should be used, there is one important issue which must be kept clear. We must be able to distinguish between transitional and non-transitional societies. Transitional societies are those in a process of change from domination by one ruling class, on the basis of one set of JG, SH & MM 4 relations of exploitation, to domination by another. Non-transitional societies, whatever the fragmentations, fractionating and confusions within them, are not under- going such a process. So long as this distinction is kept clear one can to some extent choose one's own vocabulary, but we feel that there are good arguments for the concepts we have chosen to use. Marx does not use the phrase 'mode of production' consistently except for the capitalist mode of production, but the historical epoch which he contrasts with capitalism: the 'Asiatic form', the 'feudal dominium for example, are identified by means of a set of social relations each defining a single contradiction: the relation between the direct producers and the controllers of their labour. The concept of mode of production is thus fundamental to Marx's theory of history; changes in the set of production relations and the development of the productive forces being 'in the last instance' the determinant of the historical process, The most explicit passage is the well known one from the discussion of feudal land rent, where Marx contrasts this with the capitalist form of surplus extraction: "The specific economic form in which unpaid surplus labour is pumped out of the direct producers, determines the relationship of rulers and ruled, as it grows directly out of production itself and in turn reacts upon it as a determining element ...It is always the direct relationship of the owners of the conditions of production to the direct producers - a relation always naturally corresponding to a definite stage in the development of the methods of labour and thereby its social productivity - which reveals the innermost secret, the hidden basis of the entire social structure, and with it the political form of the relation of sovereignty and dependence, in short, the corresponding specific form of the state. This does not prevent the same economic base - the same from the standpoint of its main conditions - due to innumerable different empirical circumstances, natural environ- ment, racial relations, external historical influences etc. from showing infinite gradations and variations in appearances." (Capital, III, p791) This it seems to us is the most useful way of using the concept of a mode of production, an inspired abstraction if you like, laying bare the form of the principal contradiction between producers and non-producers. The dynamic of change in a society can then be explored as the process of resolut- ion and reinforcement of that contradiction, Thus in any historical epoch, one contradiction is basic to the determination of the laws of development of that society. In British capitalism that contradiction is the one between capital and labour, and therefore our analysis of domestic labour must be situated in relation to the contradictions and dynamic of capital. An alternative would have been to locate the central contradiction to be between the direct producers and the consumers of surplus labour within the home, and to attempt to analyse capitalist production in terms of the dynamic of the unfolding of the domestic contradiction. We do not think we would have learnt much from this approach, since the subordination of the forms, relations and forces of domestic production to the developing contradictory needs of capital is so clear. We feel that this approach is much the most satisfactory one for analysing the process of change in domestic labour. It should be noted that we are not collapsing the concept of 'mode of production' into that of relations of productions, Many different relations of production can exist under one mode, and each of these r&la- tions is stamped by the character of that mode of production0 2 We therefore have rejected the characterisation of domestic labour as a separate mode of production. 3 We include it within the capitalist mode of production, while recognising that the relations of domestic labour under capitalism are fundamentally different from firstly, the relations of capitalist wage labour and secondly, the relations of anything that we might call domestic labour under any other mode. So we now can make the distinction between transitional and non-transitional societies. Societies in transition are characterised by the contradictory existence JG, SH & MM 5 of more than one mode of production. Non-transitional societies contain only one mode. Modern capitalism is not a society in transition between domestic production and capitalist production (or vice versa). Domestic labour is therefore part of the capitalist mode of production. One of the implications that has been drawn from the analysis of domestic labour as a separate mode of production is that housewives form a distinct class0 4 This is not an inevitable deduction. Political conclusions do not follow so straightforward- ly from analysis. But there is a tendency to argue by analogy with capital and labour. In all societies, the material situation of women differs from that of men (for example, women's relation to the means of production can differ from that of men in peasant societies), and indeed the categories of material analysis, class or caste for example, are specified in terms of the material situation of men. It is therefore analytically incorrect simply to apply these male-referrent categories to the relations between men and women and thus to see housewives (or worse, women) as a class. This is not to say that women do not have specific class interests, ways in which their material position differs from that of men. There are precedents in Marx for a detailed analysis of the class position of various groups in capitalist society, according to their specific interests, while not losing sight of their position in the division between capital and labour. 5 In carrying out such an analysis, it is essential to recognise that women, like men, of the working class have no control of the means of production. They are potential workers for capital for much of their lives, and most do wage work at some point, including a high proportion of married women. It is only through a recognition of their (actual or potential) double role in production, that we can analyse their class position and the ten- sions within it which lead to change. 3 PRODUCTION RELATIONS AND DOMESTIC LABOUR • (a) The Relations of Production within the Home Domestic labour is therefore the production of use-values under non-wage relations of production, within the capitalist mode of production. From this we go on to examine the nature of those non-wage relations and their implications for the economic relations between men and women within the home. In the examples which we use to illustrate this discussion we shall try to avoid the assumption, so common in the literature, that women are typically full time housewives. Women are most likely to be full time housewives when they have children under five, since preschool childcare is still almost entirely done by domestic labour. We shall therefore take this case first, and describe the different relations of production for the wage worker and the wife working in the home. The wage worker sells his labour-power as a commodity for a definite period of time, in exchange for a money wage. The rest of his time is his own and there is a rigid separation of his life into work and leisure. His wages are spent on commodities consumed away from the work place. Thus, production and consumption are two separate activities, emotionally and physically. The former is seen as a rigidly timed unpleasant necessity and goes on at the work place; the latter as leisure, supposedly enjoyable and going on in or around the home. So for the wage earner the home is the place where he consumes but does not work and where his time is his own. For the housewife it is her place of work but she does not go elsewhere for her leisure. So in her life there is no rigid work/ leisure distinction either in physical location or in time. She is not paid for her work, and the amount of time she spends is not the direct concern of anyone else, as long as the work is done. So, unlike the situation under capitalist commodity production, there is no external pressure to reduce the time spent on particular tasks. This, combined with the indistinct definition of her work and the fact that she is not producing for a market means that her work is not under the same kind JG, SH & MM 6 of pressures for increasing productivity, as work under capitalist relations. There is not necessarily even a clear opposition between production and consumption in her life. In contrast with her husband, she is to a large extent in control of her method and pace of working. She organises her own time, given the constraints of fitting in with the rest of the world. There is neither division nor practically any socialisation of her labour. All housewives do roughly the same work and they do it in isolation. A few activities, such as shopping, do bring housewives into contact with each other but this socialisation is only that of a group engaging in a given activity together but in parallel. They are not co-operating. The relation between a housewife and her husband is completely different from that between a worker and a capitalist. It is not a relation of commodity exchange. There is mutual responsibility based, at least in theory, on what Engels calls °individual sex-love'. Each partner has his or her own realm of responsibility within the relationship usually based on a sex-typing of roles. Thus the relation is not reducible like any monetary exchange to a one-dimensional scale. Also, unlike commodity exchange, the relation is a binding one. The partners are not so free to re-contract exactly as they • wish. This means that there is no tendency towards the equalisation of working conditions (compensated by pay differences) that occurs in capitalist commodity production. Since the difficulties of and prejudices against dissolving the relationship are so strong, substantial variation in standards of domestic work and time spent on it is possible. Nevertheless, the nature of the relation is such that the performance of the respective sex-roles is seen as signs of love by the rest of the family. A good and loving husband is also a good factory worker, one who gets a large wage-packet; a good and loving wife is one who spends much time on domestic work of one sort or another. Domestic labour is the production of use-values, the physical inputs for this production being commodities bought with part of the husband's wage. The housewife produces directly consumable use-values with them. Some of these use-values are consumed by individual members of the family, some by the family collectively. Most of this work is repeated over a very short period of time since its consumption is practically continuous, e.g., cleaning and the preparation of food. Much of it is of a service nature, rather than the production of physical objects, and may be unnot- iced by other members of the family. She may get some help from other members of the family. Child care is the most time-consuming part of the work of full-time housewives. Because child care is in a sense a twenty-four hour job, young children requiring constant adult presence, this is the part of domestic labour which is the most difficult to combine with wage work. Also because of the almost total absence of socialised substitutes, it is the most essential task performed by the housewife for the continuance of capitalism. CIO Surplus Labour in the Home? There is a knotty theoretical problem which recurs in discussions of domestic labour; and that is the economic characterisation of flows of commodities and use values between man, woman and children within the home. One approach to this has been that found in Harrison, and in Jean Gardiner's first paper, 6 which used a model of unequal exchange in the sale of labour power, to provide the conclusion that women (often, at least) perform surplus labour which is transferred elsewhere: to the capitalist, or to the husband. It was assumed that in general the labour embodied in housework would generally exceed the value of the wife's consumption out of her husband's wage packet. She could therefore be seen to be performing surplus labour. The view that this labour was transferred to the capitalist involved a redefinition of the 'value of labour power' to become what we have referred to as the total level of subsistence of the man, measured in labour time. Labour power then appeared to be sold at less than its value, and the surplus labour of the housewife was transferred to capitalist profits. JG, SH & MM 7 While this approach represented a real attempt to point out the quantitative economic significance of housework and to connect the benefits derived from it by men to the use made of it by capital, we have rejected it as disguising more than it reveals, and being inadequate on a number of counts. In particular we do not accept the redefinition of the value of labour power because, to compare domestic labour with wage labour in a quantitative way, is not comparing like with like. However unevenly it operates, the law of value enables one to talk about abstract labour in the case of wage labour in a way that is not valid for domestic labour. It is therefore not possible to add together domestic labour-time and wage labour-time in order to calculate the wife's surplus labour because the two are not commensurate. In addition an approach which equates domestic labour-time with wage labour-time tends to blur the differences from a capitalist viewpoint between the contributions of the two different forms of women's labour and therefore fails to expose the forces for change in the relationship between the two. As a result and because, in addition, no account is taken of the wife's potential for wage work, the approach is static and .ahistorical. The approach we have come to adopt, therefore makes a more orthodox interpretation of value theory in the sense that it defines value as socially necessary labour-time embodied in commodities. The value of labour power is therefore defined as the value of commodities necessary for the reproduction and maintenance of the worker and his family. This implies that the value of labour power is not synonymous with the labour-time embodied in the reproduction and maintenance of labour power once one takes account of domestic labour (and the state). 'Once we drop the assumption of a family in which the woman does no wage work, to take account of the fact that a half of married women are currently in paid work outside the home, we are forced to explore the relation of women's wages to the wages of men and to the value of labour power. We can approach this problem either by an analysis of the value of women's labour power or by examining the role of women's wages within the formation of the value of labour power for the family unit as a whole. Neither approach has been much discussed as yet. We therefore see this as an important area for future work. The value of labour power is therefore premissed, both on the role of women in the wage economy, and on a particular level and organisation of domestic labour (and state-provided services). The concept of a historical subsistence level of the working class has become somewhat detached from the value of labour power, and has changed somewhat in theoretical status. What this discussion has rejected is an analysis which calculates a transfer of labour from domestic labour into profits. What it has not rejected is the idea that husbands may benefit from the work of their wives. To see this, we should look at our second example, the polar opposite of the previous one: a family where husband and wife are both working, and for the sake of the argument are gaining Identical wages, but where the wife is still performing all the housework and child care. There is evidence that this model is by no means uncommon amongst professional married couples and the obvious sense of injustice it generates has pushed a good many women towards feminism. From this situation the husband clearly benefits from the wife's work, assuming that they both contribute equally to the family expenses. What this leads us to examine however is also the nature of that benefit. The use- values produced by domestic labour have embodied in them an element of personal service which is dispensed with to a large extent when those use values are socialised and become commodities.. Having your clothes washed for you by someone else is different from washing them yourself, not only in that you do not in the first case do the work yourself, but also in that the first case puts someone into a servant JG, SH MM 8 role towards you within the family. This type of benefit from women's work remains even when the division of labour at home and work is not so obviously in the man's favour as in the second example. However, in our first example, where the woman does not work, or in a third case where the woman is working part time and earning less than the man, the further issue arises of the division of wages between man and woman. There is a lack of empirical evidence on work and consumption within the home, but it appears 8 that in general, women work longer total hours than men, and that in poor families women's subsistence is the first to suffer. The main analytical point to be made about the division of family resources is that there are no forces inherent in its structure working to equalise the division between men and women. The very fact that much family consumption entails sharing and cooperation means that the real division of resources can be difficult to dis- cern, and also that it is not entirely a 'zero-sum game' where more for one is less for another. Nevertheless, the housewife role under capitalism can frequently become monetised in a sort of parody of the wage relation: secrecy by the husband about the size of his wage packet and a weekly tussle over the size of the housekeep- ing money. The expansion of a woman's personal consumption and leisure are often necessarily at the expense of those of men and children, a circumstance which will often prevent her from attending to her own needs. Some further points can be made about this. Because wages are paid on an individual basis they will tend to be seen initially as the property of whichever member of the family has earned them. Where the housewife is only doing housework she will not be seen to be working because the unpaid nature of housework teads to an undervaluation of its importance even where it is economically essential. In addition because women are responsible for the family budget, even where they are earning wages themselves, they will tend to merge their own individual needs within those of the family rather than seeing the two as separate areas of expenditure in the way that men are more likely to do. In the families therefore where the wife is either doing no paid work or part-time and low-paid work there are ideological and economic reasons why the division of wages in the family might work against women and in favour of men. Even where in the case of part-time work the women's wages may be contributing an important portion of her own subsistence she will still be economically dependent on some of the man's higher wages in budgeting for the family's needs. From an ideological point of view, as well, the family's wages will not be seen to be equally earned by husband and wife because of the undervaluation of housework. In the second family this last factor will not operate since we have assumed equal wages earned by husband and wife. How- ever because of the problem of women merging their individual interests with those of the family to a greater extent than men we might expect women to get less for themselves even in this latter case. But the division of resources and benefits is not decided merely within the bounds of the family: the undervaluation of women's work and women's needs within the home both influences and is influenced by the undervaluation of women's work in the wage sphere, and by the process by which domestic labour is socialised and women are drawn into the sphere of wage labour. Women, because of the relations of production within the home, find themselves isolated and relatively powerless in that sphere of production. This role and their socialisation into it reinforces their imposed subordination within wage work. The final section of this paper returns to the issue raised in the first section, and examines the benefits to capital of both of these forms of women's oppression in the context of a discussion of the process of socialisation of domestic labour. JG, SH & MM 9

4 THE SOCIALISATION OF DOMESTIC LABOUR Domestic labour, largely performed by women, remains essential for the reproduction of the capitalist system. At the present time it provides major services essential for the reproduction of the labour force for which there are no substitutes provided in any quantity by either capital or the State, the most obvious being preschool child care. It also provides a large number of other essential goods, such as prepared meals, for which there exist, qualitatively, substitutes such as res- taurants on the market, but the price of which has remained sufficiently high relative to the wage to prohibit all but an occasional substitution of the marketed good for the domestically produced one, save for the very rich. Another way of saying this is that domestic labour permits capital to provide a wage lower in terms of use values than the total subsistence level of the working class. In this sense its existence benefits the production of surplus value, and indeed makes that production possible. Why in that case has domestic labour nevertheless been progressively socialised over the past century and a half? By the socialisation of domestic labour we do not necessarily mean a reduction in the time actually spent on housework by full time housewives: the tendency of housework to expand to fill the day is one of its best documented characteristics. What we mean is the replacement (and at the same time the transformation) of the work done in the home by goods and services produced for the market or provided by the State: laundries and prepared foods, education and health care. Within the socialisation of domestic labour there are two processes at work. The first is the replacement of some aspects of domestic labour by socialised production (commodities or state services), and the second, the increasing participation of women in wage work. 9 And there are two effects. First there is the increase in production under capitalist relations of production and hence an extension in the labour force who produce surplus value; second, but a necessary precondition for the first, there is a reduction in the time which has to be spent in the house for the production of an acceptable standard of living for the family. The concept of socially necessary labour in the home is not analogous precisely to the concept when applied to capitalist commodity production. But in order to grasp the fact that the socialisation of domestic labour is necessary in order to permit women to work in wage labour, we need some concept of the minimum time necessary for tasks in the home, and of the forces permitting its reduction. Thus, though domestic work, as outlined in Section 3, is not subject to the same pressures for speeding up and rationalisation which affect wage labour, nevertheless productivity in the sense of reduction of minimum time spent has clearly been increased by launderettes, prepared foods, disposable nappies. Given these tendencies towards increasing numbers of women being drawn into wage work and towards a reduction in minimum necessary domestic labour-time, we have to explain why the situation has been maintained, for a century and a quarter at least, in which in a considerable number of working class families at any one time, the women are full time housewives. There are two sorts of reasons why this has been so. The first relate to the inability of capital up to now to overcome the obstacles to complete socialisation of domestic labour. The second are the positive forces working against such socialisation. A lack of adequate accumulation or of a sufficiently labour-saving technology may be a bar to the further socialisation of domestic labour by capital at any historical moment. An example of this is the socialisation of preschool childcare, which is extremely costly in labour and initial outlay if socialised provision is to pro- vice an adequate substitute for family care. In State nurseries the required ratio of nursery staff to children is one to five, without taking account of the ancill- JG, SH & MM 10 ary and administrative staff required. If one compares this to the average family of one and a half children to one mother with children under five one sees that at least one-third of housewives released from the home would have to be reemployed in nurseries, on the realistic assumption that childcare would remain women's work. Note too that women in families provide a 24 hour childcare service, not just a daytime one. If a complete service were provided the number of wage workers required would be even higher. It is very unlikely that individual capital would enter into the provision of childcare as a commodity. Its high cost in labour-time would ensure that profit making nurseries or creches would have to charge fees which could not be met out of present or likely future female wages: On the other hand, individual industrial capitals might provide nursery facilities, not as a commodity but as a direct use value, for the children of their female workers. One would expect the capitals that initiated such schemes to be in areas with an existing labour shortage and to be making high profits. In providing childcare directly, no variable capital is 'wasted on women without children, as it would be if female wages as a whole were to rise sufficiently to cover the cost of commodity childcare. For if women with children were paid wages high enough to enable them to purchase childcare services the wages of all other women would tend to rise to the same level. If one looks at the possible political processes that could bring about the socialisation of childcare, the only large scale possibility would be for the state to expand its provision. For the same reasons as above, childcare would not be sold by the state as a commodity at its value. State nurseries would be free or, what is probably ideologically more acceptable, heavily subsidised. Since this would add to the costs of reproduction of the labour force borne by capital, this would only be likely to occur in a boom situation, in which there was rapid accumulation of capital and consequent productivity increases. These conditions are not true of the present phase of capitalism in Britain. This is only one example of the way that conditions of crisis are likely to prevent improvements in women's position. One example of the positive reasons for the maintenance of full time housework is the nature of benefits that sections of the working class, men and women, have derived from it at different times. It has been argued that a key component of the conservative ideology of, initially, the male labour aristocracy in the nineteenth century, and subsequently the male working class as a whole was the striving, however partially achieved, for dependent wives to service their needs. Moreover the trades unions spasmodic and differential success in winning men a family wage was undoubtedly an achievement of organised labour and one that many women, as well as men experienced as a benefit, given the arduous nature of domestic labour in this period. Currently however the rising proportion of married women working (now over 50% for those aged 16 to 59) makes the demand for a family wage for men less mean- ingful, and less likely to be achieved (especially in a period of crisis), and the ideology of dependent wives whose place is in the home more and more anachronistic. Full time housework for married women is probably producing increasing strains for families (there is a high incidence of mental illness among full time housewives) and an increasing burden for husbands in the form of the loss of the wife's earning power. The increasingly common model of the double shift in which women contribute wages to the family and do most of the housework as well is likely to become the most desirable for men in the future, and to generate resentment among women, and strains on the family structure. What happens to the value of labour power as the socialisation of domestic labour proceeds is a complex question. On the one hand, the real wage per family is likely to rise (though not necessarily: in a time of crisis women may go out to work to defend the family standard of living); however the effect this has on the value of labour power will depend on the growth in productivity in the economy and on the extent to which the value of labour power becomes 'spread over men and women, as discussed below. Armstrong 1 JG, SH & MM 11 We can draw out of this analysis a number of statements with political implications. The first is that the burden of the reproduction of the labour force has shifted proportionally from the family to capital and the State. This is very unlikely to be reversed to any great extent though we are seeing today how in an economic crisis, an attempt is made to exhort women to work harder, to intensify their domestic labour, and hence to try to disguise a fall in the real wage. The last major function of reproduction in the family is pre-school child care, and if this were to be socialised, the forces keeping the family together would inevitably be weakened. Secondly, women have always provided a relatively cheap labour force for capital. The value of labour power is spread, not evenly, but unevenly across men and.women. But in eroding (not removing) the material basis for the family as an institution and drawing women into wage work (frequently for the purpose of working, for low pay, in precisely the areas of domestic production which have been socialised), capital has been eroding the material basis for that form of oppression, and it now finds itself faced with demands for setting up the preconditions for equality, such as nurseries, to which it cannot hope to accede, and with demands which, if seriously pursued, could threaten women's role as a cheap labour force. Thus again, the labour process of capital is producing its own opponents.

NOTES 1 John Harrison, 'Political Economy of Housework', CSEB, Spring 1974. Wally Secombe, 'The Housewife and her Labour under Capitalism', New Left Review, 83 2 There are in capitalist society many people whose work is done under production • relations other than those of strict capitalist wage labour: for example, artisans, bureaucrats and 'professionals'. 3 It should be noted that this is not a critique of the use of the concept of the articulation of modes of production in the analysis of capitalist dominance • in Africa and Latin America. 4 See, for example, Harrison, op.c-it. 5 Karl Marx, 18th Brumaire of Louis Bonaparte, (Lawrence & Wishart, 1968) 6 Jean Gardiner, 'Political Economy of Domestic Labour in Capitalist Society' to be published in Explorations in Sociology, VIB ed. D. Barker and S. Allen. 7 See for example R. and R N Rapoport, Dual Career Families,(Penguin 1971) 8 See for example, Audrey Hunt, Survey of Womens Employment(HMS0 1968); Lucy Syson and Michael Young in 1974 Poverty Report, ed. M. Young. 9 Department of Employment, Women and Work - a Statistical Survey, Manpower F per 9

ACCUMULATION OF CAPITAL, THE RATE OF PROFIT, AND CRISIS Philip Armstrong I INTRODUCTION This article is concerned with the question, what is the law of the tendency of the rate of profit to fall and how is it related to crisis. Section II attempts to set out Marx's position and the later sections consider some aspects of the theory that are only partially considered by Marx and need expanding. 'There is much overlap and agreement between the second section and parts of an earlier paper by David Yaffe. 1 The aim of this article though is to make the relationship between the tendency of the rate of profit to fall, accumulation, and crisis, more explicit, less general and abstract. The impetus for the paper was not just the need for theoretical clarity but the practical problems raised in analysing capitalist development over the past 50 years. This work is being carried out with Andrew Glyn, John Harrison and Bob Sutcliffe who I would like to thank for their helpful comments on this paper Armstrong 2 II WHAT MARX SAID For Marx the law of the tendency of the rate of profit to fall was very important and included crisis, as the following quotations indicate. "This is in every respect the most important law of modern economy, and the most essential for understanding the most difficult relations. It is the most important law from the historical standpoint." (Grundrisse 748) "...that the development of the productive forces brought about by the historical development of capital itself, when it reaches a certain point, suspends the self realisation of capital [because the rate of profit falls P.A.], instead of positing it. Beyond a certain point, the development of the powers of production become a barrier for capital, hence the capital relation a barrier for the development of the productive power of labour. When it has reached this point, capital i.e. wage labour enters into the same relation towards the development of social wealth and of the forces of production as the guild system, serfdom, slavery, and is necessarily stripped off as a fetter... The growing incompatibility between the productive development of society and its hitherto existing relations of production expresses itself in bitter contradictions, crises, spasms. The violent destruction of capital not by relations external to it, but rather as a condition of its self-preservation is the most striking form in which advice is given to be gone and to give room to a higher state of social production." (Grundrisse 749) "On the other hand, the rate of self expansion of the total capital, or the rate of profit, being the goad of capitalist production (just as self expansion of capital is its only purpose), its fall checks the formation of new independent capital and thus appears as a threat to the development of the capitalist production process. It breeds over-production, speculation, crises, and surplus capital, alongside surplus population." (Capital III 241) In some ways the second quotation is a very general description of the economic basis of historical materialism. I think it indicates that the law of the tendency of the rate of profit to fall should not be thought of 'simply', i.e. should not be separated from the whole process of capital accumulation and the reproduction of capitalist productions relations. Crisis is often considered as something outside of the tendency of the rate of profit to fall, as opposed to being something dialectically related to it. This failure to understand the dialectical relationship takes two forms: (a) saying that crisis has got nothing to do with the tendency, and that the latter doesn't exist anyway. (b) saying that crises are merely the result of an actual fall in the rate of profit. 2 First it may be worth saying that a low rate of profit can on its own augment the tendency to crisis of the capitalist mode of production because, for example, there are more capitals that are receiving or expect to receive a zero or negative profit and hence bankruptcies. Or as Marx says, new independent capitals find it difficult to get established because for them a low rate of profit means a low absolute amount of profit. The main point of this article though is that this 'simple' relationship between the falling rate of profit and crisis is not the fundamental one. In Capital III Marx does at first look at the tendency 'simply' and not really relate it to crisis, or include it in a theory of crisis. In the mid 19th century the 'rate of profit had been falling and the economists of the period were quite unable to explain it adequately. (Their explanations were in terms of a falling rate of exploitation, resulting for example from decreasing returns in agriculture.) For Marx it was no mystery, it was entirely what would be expected, the only mystery was why it was not falling faster. "If we consider the enormous development of the productive forces of social Armstrong 3 labour in the last 30 years alone as compared with all preceding periods; if we consider in particular, the enormous mass of fixed capital, aside from the actual machinery, which goes into the process of social production as a whole, then the difficulty which has hitherto troubled the economist, namely to explain the falling rate of profit, gives place to its opposite, namely to explain why this fall is not greater and more rapid." (Capital III 232) This leads him to consider the counteracting influences on the tendency which will be considered later. Marx gives two main reasons why the rate of profit will tend to fall. (i) The motive force of capitalist production is the appropriation and accumulation of surplus value. The accumulation of surplus value means that the value of total capital must grow, and it grows without limit. Surplus value on the other hand is limited by the size of the working population. So the rate of profit which is simply surplus value divided by the value of total capital must fall. (ii)The way that productivity is increased in capitalist production is by the growth of large scale industry and the resulting growth in the size and number of machines. This growth in the physical amount of machinery used by each worker also means, though to a lesser extent, that the value of constant capital grows. In volume I of Capital he clearly shows the dialectical relationship between these two aspects. "...What we have to note is that all the methods for increasing the social productivity of labour that arise upon this foundation are, at the same time, methods for promoting an increased production of surplus value or surplus product, which is in its turn the creative factor of accumulation. They are, therefore, simultaneously, methods for the production of capital by continual retransformation of surplus value into capital by capital, or methods of accelerating its accumulation. The continual retransformation of surplus value into capital displays itself as a steady growth of the capital engaged in the process of production. This, in turn, becomes the foundation of an increase in the scale of production, and of the accompanying methods of increasing the productivity of labour and of bringing about an accelerated production of surplus value. If, therefore, a certain amount of accumulation manifests itself to be a necessary condition of the specifically capitalist method of production, the latter conversely causes an accelerated accumulation of capital. A specifically capitalist method of production therefore develops as the accumulation of capital develops; and the method of production develops. Both these economic factors, in virtue of their receiprocal relationships, furnish the impetus for that change in the technical composition of capital thanks to which the variable constituent grows continually smaller in comparison with the constant." (Capital I 689) In volume III of Capital it is the second aspect which seems to be emphasised e.g. "...owing to the distinctive methods of production developing in the capitalist system the same number of labourers,., operate, work up and productively consume in the same time an ever increasing quantity of means of labour, machinery.., and consequently a constant capital of an ever increasing value." (Capital III 212) This same idea is then repeated in various different ways. And he concludes: "The , progressive tendency of the general rate of profit to fall is, therefore, just an expression peculiar to the capitalist mode of production of the progressive development of the social productivity of labour." Marx considers what factors could prevent the rate of profit from falling, but clearly considers these merely as 'counteracting influences'. This is a further case of his looking at the tendency 'simply'. In the chapter "The Law as Such" he says "And this reduction, just as the fall in the rate of profit, is only delayed by the cheapening of the elements of constant capital and by the other circumstances set forth in the first part of this book, which increase the rate of profit at a given, or even falling, rate of surplus value." (Capital III 226) Armstrong 4 "The rate of profit could even rise if a rise in the rate of surplus value was accompanied by a substantial reduction in the value of the elements, of constant, and in particular fixed, capital. But in reality, as we have seen, the rate of profit will fall in the long run." (Capital III 230) The enigmatic final sentence is confusing because it is far from obvious that we have seen anything of the sort. The cheapening of the elements of constant capital is also considered in the chapter on "counteracting influences". the same development which increases the mass of the constant capital in relation to the variable reduces the value of its element as a result of the increased productivity of labour, and therefore prevents the value of constant capital, although it continually increases, from increasing at the same rate as its material volume." "The foregoing is bound up with the depreciation of existing capital (that is, of its material elements), which occurs with the development of industry. This is another continually operating factor which checks the fall of the rate of profit although it may under certain circumstances encroach on the mass of profit by reducing the mass of capital yielding a profit. This again shows that the same influences which tend to make the rate of profit fall, also moderate the effects of this tendency." (Capital III 236, cf. TSV 11415-16) Once again he in fact gives no reasons why the cheapening of the elements of constant capital could not permanently prevent the rate of profit from falling. This difficult question is considered later. The other factors which he mentions that can counteract the tendency of the rate of profit to fall are ones that increase the rate of surplus value and as such can only play a moderating role. For even if the value of labour power approaches zero the rate of profit would still in the end fall as a result of the growing value of constant capita1. 3 , 4 In the chapter on "The Internal Contradictions Of The Law" Marx starts to get inside the law, i.ee does not treat it simply, he does relate it to crisis and in particular to the overproduction of capital. "Over-production of capital, not of individual commodities - although overproduction of capital always includes over-production of commodities - is therefore simply over-accumulation of capital. To appreciate what this over-accumulation is (its closer analysis follows later), one need only assume it to be absolute... As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population, nor the relative surplus working-time could be expanded any further (this last would not be feasible at any rate in the case when a demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over-production of capital; ... In both cases there would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour." (Capital III 251) The process described here appears to be one where the available working population is all employed so that surplus value cannot be,increased because the increased capital cannot find labour to employ, the real wage rises and the rate of profit falls. However, put this way there seems to be no connection between a falling rate of profit due to the over accumulation of capital, and the tendency as previously described. But maybe this interpretation depending on a shortage of labour is not quite right because when considering that the extra capital does not produce any more surplus Armstrong 5 value Marx says in the middle of the above quotation "As soon as capital would therefore have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population nor the relative surplus working-time, could be expanded any further (this last would not be feasible at any rate in the case when the demand for labour was so strong that there was a tendency for wages to rise)". (Capital III 251) So that not only is surplus value prevented from rising because there is no more labour (i.e. the absolute working-time supplied by the population cannot be expanded) but also because the surplus value per head (i.e0 the relative surplus working time) cannot be increased because the rate of surplus value is already high. This high rate of surplus value is in turn the result of the previous accumulation process. The rise in wage merely reinforces the difficulty in expanding relative surplus labour time through increased productivity. Further on he says "The rate of profit would not fall under the effect of competition due to overproduction of capital. It would rather be the reverse: it would be the competitive struggle which would begin because the fallen rate of profit and overproduction of capital originate from the same conditions." (Capital III 252, my emphasis) The basic factor of these 'same conditions' is the difficulty in increasing surplus value, which as suggested above reflects the fact that relative surplus value has been increased to an already high level. This increase is in its turn part of the law of the tendency of the rate of profit to fall. Marx had already emphasised this last point many times earlier on in Volume III of Capital. For example: 5 "The same development of the productiveness of social labour, the same laws which express themselves in a relative decrease of variable as compared to total capital, and in the thereby facilitated accumulation, while this accumulation in its turn becomes a starting point for the further development of the productiveness and for a further relative decrease of variable capital - this same development manifests itself, aside from temporary fluctuations, in a progressive increase of the total employed labour power and a progressive increase of the absolute mass of surplus value, and hence of profit. "Now, what must be the form of this double-edged law of a decrease in the rate of profit and a simultaneous increase in the absolute mass of profit arising from the same causes? As a law based on the fact that under given conditions the appro- priated mass of surplus labour, hence of surplus value, increases, and that, so far as the total capital is concerned, or the individual capital as an aliquot part of the total capital, profit and surplus value are identical magnitude?" (Capital III 220) The question remains though why can't an increasing labour force avoid all this? When analysing the tendency Marx clearly thought that the dominant factor was that growing productivity came about through growing ratios of dead to living labour so that in fact there would always be surplus labour. But to the extent that this is so then there seems to be no reason for over accumulation of capital. Because accumulation can continue using the current techniques and the surplus labour. So it appears that both the tendency of the rate of profit to fall and the over accumulation of capital depend on the difficulty in increasing surplus value which exists only if there is difficulty in expanding the labour force. So, the falling rate of profit and the over accumulation of capital flow from the difficulty in increasing surplus value, and the competitive struggle (between capitalists) simply determines how this given surplus value is divided between the growing capital. But this does not mean that a shortage of labour cannot further reduce the rate of profit by increasing the wage and thus reducing the surplus value. "To be sure, the competitive struggle is accompanied by a temporary rise in wages and a resultant further temporary fall of the rate of profit." (Capital III 256) Armstrong 6 Also the quotation above from Capital III 252 continues "The part of AC in the hands of old functioning capitalists would be allowed to remain more or less idle to prevent a depreciation of their own original capital and not to narrow its place in the field of production. Or they would employ it, even at momentary loss, to shift the need of keeping additional capital idle on new- comers and on their competitors in general." (Capital III 252) In this case the overaccumulation leads to over production, unemployment and a reduction in wages and crisis. He describes this crisis later in this way: "The stagnation of production would have laid off a part of the working class and would thereby have placed the employed part in a situation, where it would have to submit to a reduction of wages even below the average...the fall in prices and the competitive struggle would have driven every capitalist to lower the individual value of his total product below its general value by means of new machines, new and improved working methods, new combinations, i.e. to increase the productivity of a given quantity of labour, to lower the proportion of variable to constant capital, and thereby to release some labourers; in short to create an artificial over- population. Ultimately, the depreciation of the elements of constant capital would itself tend to raise the rate of profit. The mass of employed constant capital would have increased in relation to variable, but its value could have fallen. The ensuing stagnation of production would have prepared - within capitalistic limits a subsequent expansion of production." (Capital III 255) But does the overproduction really mean that there is insufficient labour available to set in motion the fixed capital? Marx goes on to say: "However, even in the extreme conditions assumed by us this absolute over-production of capital is not absolute over-production, not absolute over-production of means of production. It is over-production of means of production only in so far as. the latter serves as capital, and consequently includes a self expansion of value, must produce an additional value in proportion to the increased mass." (Capital III 255) i.e. the reason why the surplus product is not used to extend production is not because there is no labour available but because production cannot be extended prof- itably. The absolute over-production of capital is not absolute over-production, not absolute overproduction of means of production, in two senses. (1) Consumption could be increased, which would reduce the quantity of means of production to be accumulated. (2) Other methods of production could be used which would ensure that there was not excessive means of production for the available labour force. But in either case, the overproduction of capital leads to insufficient labour because the means of production using high organic composition techniques are not produced and there appears to be a shortage of labour. This shortage of course quickly turns into its opposite as the resulting crisis leads to unemployment. The question of whether overproduction of capital, over accumulation is to be understood only in the sense of too much capital for the available labour force is difficult The argument of the first part of the Internal Contradictions chapter seems to be more general than this and to be close to Rosa Luxemberg's interpretation which was that limited final consumption must in the end lead to over production because there is a limit to the extent that means of production can be used to produce means of production etc. with only a small amount of consumption as the final 'aim'. "With the development of the process, which expresses itself in a drop in the rate of profit, the mass of surplus value thus produced swells to immense dimen- sions. Now comes the second act of the process. The entire mass of commodities 'Armstrong 7 ...must be sold.. .The conditions of direct exploitation and those of realising it, are not identical...The first one only limited by the productive power of society, the latter by the proportional relations of the various branches of productions and the consumer power of society. But this last-named is not determined either by the absolute productive power, or by the absolute consumer power, but by the consumer power based on antagonistic conditions of distribution, which reduce the consumption of the bulk of society to a minimum varying within more or less narrow limits. It is furthermore restricted by the tendency to accumulate, the drive to expand capital and produce surplus-value on an extended scale...But the more productiveness develops, the more it finds itself at variance with the narrow basis on which the conditions of consumption rest. It is no contradiction at all on this self-contradictory basis that there should be an excess of capital simultaneously with a growing surplus population. For which a combination of these two would, indeed, increase the mass of produced surplus-value, it would at the same time intensify the contradictions between the conditions under which this surplus-value is produced and those under which it is realized." (Capital III page 244) This is not the result simply of the tendency of the rate of profit to fall but also "the development of the process, which expresses itself in a drop in the rate of profit" i.e. capital accumulation and ' a growing rate of surplus value. Another way of seeing the relation of this quotation to the earlier analysis is that the barrier to accumulation is perceived by the capitalists before it becomes absolute. There is excess capital despite the fact that there are means of production and labour ready to be used because the capitalist can foresee the difficulty in selling the resulting output before this difficulty is actually forced by over accumulation. This brings us to the position that the fundamental contradiction in the capitalist mode of production flows from the fact that "Every capitalist knows this about his worker, that he does not relate to him as producer to consumer and he therefore wishes to restrict his consumption i.e. his ability to exchange, his wage, as much as possible. Of course he would like the workers of other capitalists to be the greatest consumers possible of his own commodity. But the relation of every capitalist to his own workers is the relation as such of capital and labour, . Only in this way does it realise itself, and create surplus value. But on the other hand it posits necessary labour only to the extent and in so far as it is surplus labour and the latter is realisable as surplus value. It posits surplus labour, then, as the conditions of the necessary, and surplus value or the limit of objectified labour, of value as such. As soon as it cannot posit value, it does not posit necessary labour..." (Grundrisse 420) However this contradiction must not be seen as being opposed to the tendency of the rate of profit to fall, it is rather included within it. This is precisely because, as was shown earlier, it is necessary to include within it the tendency of the relative surplus value to rise. In very simple terms there is one general fundamental cause of crisis. That is the contradiction between the ever growing surplus value that is automatically generated by capitalism and tge limited opportunities for the profitable accumulation of this surplus value. The form of this contradiction can be summarised as follows: (1) The aim of capitalist production is the production of surplus value, and moreover it is in the nature of capitalism that the surplus value is accumulated. (2) The value of labour power and capitalist consumption are limited. The reasons for this are that: - (a) The relation of capital to labour is the relation of every capitalist to his own workers. He keeps their wages and hence their consumption as low as possible because he is in it for profit: also the system imposes this behaviour on him because if he is less profitable than other capitalists he will be slowly squeezed out. (b) Competition likewise forces capitalists to accumulate not consume Armstrong 8 their surplus value, because any capitalist who consumes it will again find himself squeezed out. 7 (3) This accumulation of capital would, if it continued without interruption, lead to a falling rate of profit. But this tendence of the rate of profit to fall provides a barrier to the accumulation of capital. The surplus value cannot be accumulated, there is over accumulation and crisis. This happens in various ways: (a) Insufficient labour. (b) Techniques with a higher organic composition which would not need more than the available labour are not profitable to use. This may not lead to over production because capitalists may use these methods and have a low rate of profit sort of by mistake though this cannot be a general tendency. 8 (c) Capitalists perceive the barrier to accumulation before it becomes absolute, i.e. they are incapable of accumulating the surplus value produced even though there is labour available. This theory of capital accumulation and crisis raises certain questions, and I would like to discuss the following. (i) Does a rising ratio of dead to living labour lead, in the end, to a falling rate of profit, even when prices of production not values are used? (ii) What is the role of 'luxury goods' production? ii What is the relation between over-accumulation of capital and the fact that willingly introduced new techniques increase the rate of profit for given real wages? (iv) What is the implication of technical change which does not increase the ratio of dead to living labour? III PRICES OF PRODUCTION AND THE TENDENCE OF THE RATE OF PROFITS TO FALL Marx's argument presented in Section II is concerned with the rate of profit measured in value terms, that is surplus value divided by the value of capital advanced. Without getting involved for the moment in the question of how the rate of profit should be measured, the question is raised of whether the rate of profit in price of production terms must also fall in the end if the ratio of dead to living labour rises .9 This is examined by considering a two sector model with simple reproduction, then by making a comparison with a similar two sector model with a higher ratio of dead to living labour. Sector I uses Kl + 1(1 means of production plus 11 labour to produce unit means of production, where 1( 1 is the amount of means of production used up in the production period and Kl is the amount of means of production left over at the end. Similarly sector II uses K2 + k2 means of production plus 12 labour to produce unit consumption good. All the above are measured in physical terms. vl and 13 1 are the value and price respectively of unit means of production, and v2 and p2 are the value and price of unit consumption good, r is the rate of profit and w is the amount of consumption good paid for unit labour. It is throughout this first part assumed that accumulation is just sufficient to employ the total labour force, the result of this not being so is brought in later. V and v are given by the equations 1 2 v ik i + 1 1 = v i

1 2 + 1 2 = v2 these express the fact that the value of the output equals the value of the means of Armstrong 9 production used up plus the amount of living labour expended. Solving the above equations gives: v = 1 /(1-k ) 1 1 1 v = 1 k /(1-k ) + 1 2 1 2 1 2 The ratio of dead to living labour in department I is

v (k + K ) k + K 1 1 1 1 1 1 (1-k ) 1 1 • and in department II is

v (k + K )1 1 (k2 + K2 1 2 2 ) 1 - 1 (1-k ) 2 2 1 for the whole economy it is given by l i [xl (k i + K 1 ) + x2 (k2 + K2 )]/(x 1 1 1 + x2 1 2 )(1-k 1 )

where xi is the amount of means of production produced and x2 is the amount of consumption goods. If, further, simple reproduction is assumed, then the net output of department I must equal the means of production used up in department II. That is x1(1-k1) = x2k2. So that in this case the ratio of dead to living labour for the whole economy is given by X = 1 [k + k K + (1-k )K ]/(1-k )[k 1 + 1 (1-k )] 1 2 2 1 1 2 1 2 1 2 1 Before considering the rate of profit it is useful to look at the ways that X can rise without limit. There are the following ways: (a) 1(1 tending towards unity (b) Kl tending towards infinity 10 (c) K2 tending towards infinity (d) k 2 and 12 tending towards zero. The latter three cases all involve the length of life of means of production tending towards infinity, so that there are limits to the extent that they can be the mechanism for the rising ratio of dead to living labour. Notice, for example, that if k2 and 12 tend towards zero, and the length of life of means of production used in department II is to remain finite then K2 must also tend to zero, and in this case X does not tend to infinity. The ratio of dead to living labour can rise in other ways such as by 12 falling or 11 rising, or in certain circumstances k2 rising. But again in each of these cases there is a limit to the possible rise in X, and in no case can it tend to infinity. For example if 12 falls the ratio of dead to living labour in department II does tend to infinity, but this happens mainly through a fall in the proportion of the labour force employed in department II and not an ever growing stock of means of production. So that for the economy as a whole the ratio of dead to living labour has a maximum value of [k + k K + (1-k )K ]/(1-k )k when 1 = 0 2 1 1 1 2 1 2 2 Moreover, a rising technical composition in the means of production industry, resulting from a fall in 11, actually reduces the ratio of dead to living labour in the whole economy, by reducing the value of means of production relative to consumption goods. If 11 rises on the other hand, the ratio of dead to living labour in the economy as a whole does rise. This rise is limited though, because as a greater and greater proportion of labour is employed in department I the ratio of dead to living labour in the economy as a whole is dominated by the ratio in this department. This in turn is unaffected by the rising 11, because the value of the means of production rises to the same extent. Finally, the only way that the ratio of dead to living labour can rise without Armstrong 10 limit, at least so long as there is a limit to the length of life of means of production, is through the amount of means of production used up in producing unit means of production approaching unity. What happens is that the net output, which is (1-k1), tends to zero, so that in order to maintain the net output of means of production required for replacement in department II, the scale of production must be increased, and in particular the total amount of means of production used in, department II must grow. It may seem strange that capitalists should use techniques which involve a larger value of constant capital in the production of a smaller value of net output, however at this stage of the argument the question of what com- peting capitalists will actually do is not considered. Now to return to the rate of profit. The two price equations are (plc ]. + 1 1w)(1 + r) + rK ip = p

(pk2 + 12w)(1 + r) + rK 2p = 1 where p is relative prices 13 1/p2 The maximum rate of profit occurs when wages are zero (this is intuitively obvious, but it can be shown more rigorously as follows. Assume on the contrary that if w falls then r falls also, then p must rise because if not then every term on the left hand side of the second equation falls whereas the right hand side is constant. But, from the first equation it can be seen that if p rises and w falls then r must rise. This contradicts the initial assumption which is thus proved to be incorrect. So when w falls r does not fall, and thus maximum r is when w equals zero.) When the wage is zero, it can be seen from the first equation that r = + K ) 1 The main conclusions to be drawn from this are that if there is a limit to the length of life of the means of production, then, since the only way that the ratio of dead to living labour can rise without limit is by kl tending towards unity, the rate of profit does tend to zero even in the price of production system. But that if the ratio of dead to living labour rises through rising K2 or falling k2 and 12 then the rate of profit does not necessarily fal1 11 but then these examples are not important because they involve the length of life of means of production growing without limit. So that in this fundamental sense a rising ratio of dead to living labour does lead to a falling rate of profit whatever happens to the rate of exploitation. Further it should be pointed out that the above cases of the failure of the rate of profit to fall despite a rising ratio of dead to living labour depends on surplus product taking the form of consumption goods. Clearly if the surplus product takes the form of means of production then a rising ratio of dead to living labour must lead to a falling rate of profit, because it cannot be counterbalanced by the price of the surplus product rising relatively to the price of means of production

IV LUXURY GOODS AND ARMS PRODUCTION The proponents of the permanent arms economy theory give two reasons why arms production can stabilise capitalism. The main emphasis seems to be on the fact that the state expenditure on arms maintains demand, the other factor is that since arms are a 'luxury' good capital can be accumulated in the arms industry without forcing a fall in the rate of profit so that "seen from the angle of the system, that is of pure theory, arms production is the key, and seemingly permanent offset to the 'tendency of the rate of profit to fall" (M.Kidron, "Western Capitalism Since the War", p56). It is this second factor which is mainly considered here. 12 It will be shown that, despite the fact that Bortkiewiez, Sraffa, etc. have shown that changes in technique in the 'luxury' goods industry have no direct effect on the rest of the economy, and in particular on the rate of profit, it is incorrect

Armstrong 11 to conclude from this that luxury good production, and in particular arms production, is the way to prevent a rising ratio of dead to living labour from imposing a fall in the rate of profit. This is because, basically the arguments used above in the two sector model still apply in that: (a) if the length of life of means of production is limited, then a rising ratio of dead to living labour in the arms industry means a rising value of depreciation, or replacement in the sector. This is constrained by the output of the means of production sector, so that in this case also there is a limit to the extent that accumulation in the arms goods industry can raise the ratio of dead to living labour in the economy as a whole. (b) if the length of life of means of production can rise without limit then the ratio of dead to living labour can also, without the rate of profit being forced to zero. However this applies equally well to the production of consumption goods as the production of luxury goods. But with the production of consumption goods the falling 12 and k2 means that the total amount of consumption goods produced must rise if the accumulation is to take place so that capitalist consumption must rise. Again the difference between department II and arms is the question of demand. Some numerical examples make this clear. Value Price

9 3 Period 1 I 1000 250 75 75 1125 250 •.75 1121 1000 II '50' 75 75 375-!--.50 3 3 0 74,75 37i III 4000 500 9 3 9 100 50 50 T.100 --.-4. 50 50 5 5 5 5 5 9 5 5 5 Period 2a I 17.1000 - 250 3 75 -.75 ,1125 -.-..250 - -75 5 5 ' 3 3 -.. 3'4 ° -.1121 1000 II 50 75 75 • 375-9g-.50 5,75 3 4 321 III 8000 200 0 0 1000 2-.200 0 1125 9 13

Period 2b I 1000 250 75 75 1125 t250 4-75. 1121 bi° 1000 II 50 75 75 375 9 50 3 75 3 li r' -,4T ° 321 18 4000 III 100 50 50 1800 9 100 3 50 5' 9 T. 4 7' 150 Departments I, II and III are means of production, wage goods, and luxury goods respectively. K = value (price) of the means of production remaining at the end of the production period. k = value (price) of the means of production used up. v = value of labour power (wages). s = surplus value (profit). (definitions in brackets apply to the price system.) The rate of surplus value is 100% and the rate of profit 1/13, the ratio of the price to the value of means of production is 9/8, and for wage goods 3/4. The figures are consistent as can be seen for example by looking at department I where the value of production is 25+75+75 = 400 and the price is 9/8.250+3/4.75+112i and the ratio of price to value is 9/8. Armstrong 12 In period 2a there has been accumulation in department III but the length of life of means of production is the same as in peliod I, i.e. K/k is unchanged, as are techniques of production in departments I and II. The more means of production used up in department III, the more the output of department I must grow. The limit to this is shown in period 2a when all available labour, except that producing necessary wage goods, is used to produce means of production used in department III. Now consider an alternative period 2b, where the length of life of means of production used in department III is longer. There is no limit to accumulation in this case and the rate of profit is maintained. So as with the case of capitalist consumption of the product of department II, their consumption of the product of department III can result in there being accumulation without the rate of profit falling. But this not only involves the unlikely event of the means of production in these departments having an ever growing length of life, but also an ever smaller portion of profit being accumulated. This returns to the fundamental question of accumulation being in the nature of capitalism, and of this nature being enforced through competition both nationally and internationally. The argument up to now has been concerned with luxury production, that is production for capitalist consumption. Arms production however is not for capitalist consumption but is waste production. The arms are bought by the state and the capitalists are still making the same rate of profit, but where does the state get the money from? If the value of labour power Is unchanged then the money must come from the capitalists. If it is by taxation then the post tax profit is the same in the two periods and the rate of profit must fall. If it is by printing money or by giving the capitalist some other form of financial asset such as government bonds then this is precisely the growth of fictitious capital. Capitalists think that their rate of profit has been maintained but all they have in fact is bits of government paper. They will find that whenever they try to spend these as a class, they are not worth very much, and that the rate of profit was not what it appeared to be, i.e. their fictitious capital will be devalued by inflation.

V WILLINGLY INTRODUCED NEW TECHNIQUES AND RISING RATE OF PROFIT It has recently been pointed out that new techniques willingly introduced by capitalists - that is techniques which with the existing price reduce unit costs- will lead to an increase in the rate of profit in the economy as a whole 13 The import ance of this result is that it shows that the rate of profit cannot simply fall because new methods that appear to be more profitable for the individual capitalist in fact reduce profitability for the class as a whole. Okishio concluded from this "The content which Marx wanted to demonstrate by the Gestez is that in capitalistic society the progress of productivity takes inevitably an intimidating form, or the fall of the rate of profit. But as shown above, capitalistic classes can raise the rate of profit, if labourers fail to get an increase of wages. Thus the movement of the rate of profit is determined by the struggle between conflicting classes." Glyn and Himmelweit appear to come to similar conclusions. This is incorrect though. It is rather the interaction between the fact that willingly introduced new techniques must lead to a rise in the rate of profit, and the fact that the accumulation of the surplus value must in the end lead to a fall in the rate of profit, which demonstrates once again the barrier to the accumulation of capital that results in crisis. The analysis of over-accumulation presented in section II applies in exactly the same way here.

Armstrong 13

VI TECHNICAL CHANGE AND THE TENDENCY OF THE RATE OF PROFIT TO FALL This section is extremely tentative and does not go much further than to raise a number of questions. As discussed in Section II, Marx merely asserts that technical change must take the form of a growing ratio of dead to living labour, and that the cheapening of the elements of constant capital cannot in the longer run prevent the tendency of the rate of profit to.fall from making itself felt. Historically it appears that in the first half of the 19th century, with the rapid growth in machinery, there was a considerable growth in the ratio of dead to living labour but during the 20th century however this is far from true and there has possibly been a fall in the ratio. This is partly the effect of the massive destruction of capital as a result of wars and depression. However the intention of this article is the limited one of analysing what effect a rapid growth of technical change can have on capital accumulation and the tendency towards crisis. In a simple equilibrium position it is easy to measure and define socially necessary labour, but when methods of production are changing it is more difficult. One possibility is to assume that, even when there is technical change, the means of production transfer their entire value to the commodities they help to produce; this is true on the average of course, but not for every individual means of production. In order to look particularly at the effect of moral depreciation it is useful to assume that means of production do not lose efficiency but last for ever and so are only scrapped because of moral depreciation. Let v the value of new means of production produced in year t and .4 be their value after one year. it is the labour time used by the means of production produced in time t, and at is the physical amount produced. vt+1 is the value of unit commodity in year t+1. t t t+1 v +1 = a v + V o 1 Or t t+1 t t t a v +v - v = 1 o 1 So that the value of the commodities produced is the direct labour time plus the value transferred from the means of production. Similarly in the next year for the same means of production t t+2 t t t ) a v = 1 + (v 1 - v2 The means of production are scrapped as soon as the value of the commodities produced is not greater than the value of the labour power used to produce them. (They are of course scrapped if the price, is less than the labour cost, but in value terms the above is correct.) This happens when the residual value of the means of production is zero. This is not obvious of course but it is what defines vt, vt+ 1 , etc. So that the labour socially necessary to produce one unit of the commodity at a given time is related not simply to the time needed using the latest technique, but to the production methods of the whole stock of machinery and even future machinery. This does not make value subjective and dependent on capitalists' expectations, but simply reflects the fact that the amount of value the machine adds depends on how long it lasts, and this depends on how rapid moral depreciation is, which in turn can only be exactly known after the event. Consider a situation where new machines are expected to be available next year that will enable a certain commodity to be produced very cheaply, so cheaply that none of the existing machinery will be able to compete and will have to be scrapped. If the production of the commodity is to be extended this year then the capitalist knows that the machine he purchases will have to add all its value in this one year. Armstrong 14 As Marx says: "The continual improvements which lower the use value and therefore value, of existing machinery, factory buildings etc. This process has a particularly dire effect during the first period of newly introduced machinery, before it attains a certain stage of maturity, when it continually becomes antiquated before it has time to reproduce its own value. This is one of the reasons for the flag- rant prolongation of the working time usual in such periods, for alternating day and night shifts, so that the value of the machinery may be reproduced in a shorter time without having to place the figures for wear and tear , too high. If on the other hand the short period in which the machinery is effective (its short life vis- a-vis the anticipated improvements) is not compensated in this manner, it gives up so much of its value to the product through moral depreciation that it cannot compete even with hand labour." (Capital III 113) In this instance surplus value has been created in the form of means of production, but it cannot be realised because no capitalist is going to buy means of production that he expects to have to scrap one year later. Alternatively the surplus value is realised and the capitalist who bought the means of production gets a nasty shock when he is forced to scrap it. The process described here certainly applies to technical change in an individual industry. The new methods of production will lead to a fall in the price of the commodity produced and hence in the profit of the capitalist owning the old machine. This means that in industries with a rapid growth of technical progress the machines used in that industry add a large portion of their value to the product in the early years. At the same time the new methods used in the industry will, by reducing the value of labour power, increase surplus value in other industries and increase the rate of profit. The point is that, with perfect foresight, capitalists will take into account the fact that the price of the commodity they are producing will fall because of rapid technical progress and will not all rush into this industry because they appear to be able to receive a high rate of profit at existing prices. Unfortunately this analysis does not really help in answering the question of what happens when technical change is general, because in this case it is not obvious that there is moral depreciation. If real wages are fixed then money wages fall in the same way as prices and there is nothing to force the premature scrapping of fixed capital. 14 Andrew G1yn tries to handle technical change in a different way by saying that the value transferred from means of production to the product is defined by the technical life of the means of production and the labour socially necessary to produce them at the time of their production. This does raise some questions, because a given commodity cannot have a different value depending on which of the existing production methods are used; but this is not the place to go into this. Technical change means that they are scrapped before they are worn out so that in general they transfer only part of their value to the commodities they help to produce, and for the rest they are simply devalued. Anyway the important question is whether technical change can, by cheapening the means of production, prevent the tendency towards crisis, and in particular, by stopping the ratio of dead to living labour from rising, prevent over-accumulation of capital. Andzew Glyn has shown in a particular example how technical progress can prevent the ratio of dead to living labour from rising. In his example there is only circulating capital and it may not seem important whether it is said that there is surplus value but an even greater devaluation of capital, or that there is no surplus value. Either way round the capitalist ends up with less value than he started off with and the way of stopping the rate of profit from falling through a rising Armstrong 15 organic composition of capital has been in some sense to eliminate the profit! It might seem under these circumstances that the capitalist system could continue indefinitely without accumulation of value, because capitalists in order to simply maintain the value of their capital are forced to accumulate the surplus product. However there are two principal objections to this. Assume that technical change is not the same in all industries and in particular there is no technical change in one industry so that the commodity produced in that industry can act as a store of value. In that case no capitalist is going to put his capital to work in another industry where, though he can accumulate use values, the value of his capital falls. The existence of a store of value means that capitalists do have an alternative to the accumulation of means of production. An- other question raised is to what extent money or financial assets can appear to be a store of value, so that capitalists attempt to hoard these with resulting overproduction; and further, how important is inflation (by preventing money and financial assets in general from being a store of value) in forcing the accumulation of productive capital. The second objection to taking only circulating capital is that the means of production are completely used up, so there is no question of moral depreciation short- ening the lives of the means of production. Moral depreciation of means of production used in the production of wage goods can only happen to those means of production in general if the real wage rises. This is because the rising real wage is the only way that the permanent scrapping of the particular means of production can be ensured. This indicates the possible importance of rising real wages as a part of the tendency of the rate of profit to fall - not as some unexplained rise in wages divorced from the accumulation process which reduces profits, but as a part of the mechanism for the devaluation of capital, which in turn plays a role in reducing the tendency towards over accumulation. Moral depreciation of means of production used in the production of means of production is more difficult to analyse. I think the answer must be along the lines that if moral depreciation only occurs in this department then this capital will tend to secure a lower rate of profit, which cannot be the case in general. Second- ly, moral depreciation of means of production in the consumption goods department is necessary if the output of the means of production department is to find a buyer.

NOTES 1 D. Yaffe, 'The Marxian Theory of Crisis Capital and the State', CSEB Winter '72. Section 3, the General Law of Capital Accumulation and the Theory of Crisis. 2 The first position is clearly that taken by G. Hodgson in his article 'The Theory of the Falling Rate of Profit', "New-Left Review, March-April 1974. It is less clear which writers hold the second position though it does seem to be a commonly held notion that it is the Marxist position. Hodgson for example, in the above article, says that Marx and most Marxists thought "that there is an inherent tendency for the capitalist system to stagnate or fall into crisis, as a result of the falling rate of profit (my emphasis). Secondly P. Sweezy in the Autumn 1973 CSEB accuses D. Yaffe and M. Cogoy of holding to "an absurdly untenable notion i.e., that the capital accumulation process necessarily implies a runaway organic composition of capital". However it is unclear that the accused do hold this position as opposed to the correct position that the rising organic composition and the falling rate of profit are tendencies within the contradictory process of capital accumulation, and that what actually happens to the organic composition or the rate of profit in the long term is irrelevant to the point at issue. Some statements by Yaffe and Cogoy do support Sweezy however. For example Yaffe in 'Marxian Theory of Crisis, Capital and the State', op.cit. p.29 says "...it is the general tendency of the accumulation process itself and the long run tendency of the rate of profit to fall that constitutes the basis Armstrong 16 of that explanation (of crisis)" (my emphasis) the point is that the tendency of the rate of profit to fall is not a long run tendency but an ever present tendency which can make itself appear in crisis as opposed to a long run fall in the rate of profit. Cogoy spends much time (in "The Fall of the Rate of Profit and the Theory of Accumulation. A reply to Paul Sweezy" (CSEB Winter 1973) in trying to disprove the assertion that the organic composition, or rather the ratio of dead to living labour, has actually fallen during the 20th century. This indicates that he feels that an actual fall would imply that capitalism . could exist without crisis. However all this is anticipating the rest of the article. 3 A. Glyn gives a simple proof of this in "Capitalist Crisis and the Organic Com- position" (CSEB Winter 1972) page 100-101. 4 Marx also mentions falling raw material prices and falling interest rates. 5 Similar statements can be. found in Capital III pages 218,219,221,223,225,240 and in Grundrisse, for example on p.763. 6 It is here that this article disagrees with M. Itoh when in "The Formation of Marx's Theory of Crisis" (CSEB February 1975) he says there are two types of crisis theory. The two different types of crisis are in fact merely different forms resulting from the one basic cause, the barrier to the accumulation of capital. 7 These two factors distinguish capitalism from pre-capitalist societies and a planned socialist economy. In that as Marx pointed out the limited consumption of the masses in pre-capitalist societies does not lead to crisis because the drive to production is luxury consumption not accumulation. In socialist society the drive to production is consumption by the masses, and again no crisis. 8 P. Baron in "The Political Economy of Growth" (Pelican 1973) pp.194-195 suggests that this might have been a general tendency in the competitive phase of capitalism. 9 This question does not seem to have been discussed much, except in the context of luxury goods production. 10 It may seem strange to use simple reproduction schemes when accumulation is being analysed, however it is a useful simplification to compare simple reproduction at different stages of accumulation. The same results apply, with one exception, if instead of simple reproduction there is accumulation and thus a larger scale of output in department I and a smaller scale of output in department II. The exception concerns the case when k2 and 12 tend to zero, because in this case the way that the ratio of dead to living labour in the whole economy changes, does depend on what form the surplus value takes. If it consists only of consumption goods then we have the simple reproduction example considered, but, if to take the other extreme all surplus value takes the form of means of production, then the ratio of dead to living labour does not rise. 11 In fact in the only relevant case of a non zero real wage the rate of profit does tend to zero as K2 grows. It remains non zero as k2 and 12 fall, however, in fact the rate of profit rises to its maximum value of something less than (1-k1)/ (ki+k i ) depending on the wage. 12 See for example D. Yaffe, "The Marxian Theory of Crisis, Capital and the State" (CSEB Winter 1972) pp46-50 for a criticism of the underconsumptionist aspect. 13 See Glyn CSEB Autumn 73 and Himmelweit CSEB Autum 74. However this result is not new. Okishio in Kobe University Economic Review 1961 comes to the same conclusions and he states that Shibata proved the same result in Kyoto University Review in 1934 and 1939. Further Sweezy in the Theory of Capitalist Development p.104 indicates that Bortkiewiez comes to the same conclusion in 1907. However, Armstrong 17 B.R.1 Sweezy then goes on to say, incorrectly, that Borthiewicz was wrong because what is true for individual capitalists is not necessarily true for the whole class. 14 Glyn, "Capitalist Crisis and the Organic Composition" (CSEB Winter 1972)

Other References in Text: Karl Marx, Grundrisse (Pelican 1973) Capital I (Everyman) Capital II (Moscow 1967) Capital III (Moscow 1966) TSV II (Lawrence & Wishart 1969)

BOOK REVIEWS AND LIST

INFLATION AND LABOUR MARKETS Reviewed by Andrew Glyn Edited D. Laidler and D.L. Purdy (Manchester University Press) Two themes recur repeatedly in this collection of mainly econometric essays; the role of trade unions in wage determination, and the effect on movements in average wages of divergent levels of demand between different industries and regions. On the latter question what seems to emerge for the post-war period is that wages have tended to rise a bit faster at a given average level of unemployment if there, are wide variations in unemployment levels between sectors. More interesting perhaps are Brechling's findings for the USA that it is the level of demand in areas with high earnings that is important in relation to average wage increases, and Thomas's result for the UK that unemployment appears to have less effect in moderating wage increases if it is concentrated in industries where unionisation is strong. Archibald et al find that the dispersion of unemployment bore no relation to wage increases in the inter-war period which is perhaps not surprising given that the average rate was never much below 10%. But despite the statisticalsophistication of much of this type of work it tends to suggest interesting facts rather than explain them. For example Archibald et al find that unemployment and price changes are more or less unrelated to wage changes during the period 1923-31 when Britain was on the gold standard, while by contrast the relation with prices and unemployment is quite strong later in the thirties. So for the gold standard period they conclude with commendable frankness: "We are led to suspect some sort of 'wages policy', or at least governmental inter- ference with the ordinary course of wage bargaining. One might further conjecture that interferences of the type postulated might have helped to provoke the general strike, and its failure, and the subsequent weakness of unions, might have further disrupted normal bargaining relations. We do not know how to develop or test these rudimentary ideas; perhaps explanation is now best left to historians." The papers which try to examine the role of unions in affecting the rate of increase of wages at least represent an advance on those which would deny a priori any role for working class organisation in securing wage increases. In the first paper Purdy and Zis conduct a very detailed re-examination of Hines's work on the association between changes in wages and changes in the number of workers unionised. For the inter-war period various redefinitions and reformulations only slightly weaken Hines's finding that wages went up faster when unions were gaining members. They also find the level of unionisation to be significantly related to wages while, given what was happening to unionisation, neither the level of unemployment nor the rate of inflation was significant in accounting for variations in the rate of wage B.R.2 increases. In the fifties the fairly weak relationship between unionisation and wages found by Hines disappears completely if those changes in total unionisation resulting merely from changes in the industrial composition of employment are left out of account; and in the sixties there is just no relationship at all. While the contrast between the pre- and post-war periods is illuminating these patterns certainly do not constitute explanations of wage changes in either period. The patterns themselves can be variously interpreted. Hines suggests that an increase in unionisation is a necessary precondition for faster wage increase; Purdy and Zis suggests that the relation between wages and unionisation (when it holds) results from workers joining unions when they think that strikes, and strike pay, are in prospect. By being stuck in a neoclassical perspective of individualistic utility max- imisation they ignore the likelihood that the strong relation they find in the fifties and sixties (pp51-2) between strikes and unionisation reflect collective involvement in successful wage struggles. But however interpreted the patterns just suggest the next question to be asked; for example why were unions able to recruit in some periods or why did the struggles over wages, which generated recruitment in one way or another, take place? Again Purdy and Zis put great emphasis (pp.20-1) on the fact that the faster wage increases of the post-war period were not associated with much higher levels of unionisation on average (indeed unionisation was highest in the early twenties - p37). By contrast unemployment was much lower, and not surprisingly therefore shows up as significant when regressed on wages for the pre- and post-war periods combined, though insignificant within each period. Most people would agree with their statement that "the persistence of full employment since the war has provided a platform for wage inflation" (though 'wage inflation' is a horrible piece of bourgeois terminology). But while it is perfectly correct to stress the objective situation in which the labour movement operates, what cannot be concluded is that trade unions are merely the passive agents through which market pressures are mechanically reflected. Purdy and Zis say that little progress is likely to be made in unravelling the role of unions "without the construction of a more rigorous model of union-employer negotiations" (p58). Johnston's attempt to do this in the following chapter does not inspire much confidence in this view. For example he criticises (p76) previous bargaining models for implying that strikes always lead to higher settlements than pre-strike offers; but in turn his own model implies that unions always get less than the maximum achievable without a strike; (the only point of striking then is to increase the employer's expectation of costly strikes in the future if he doesn't make a decent offer!). There is no question in Johnston's model of union attitudes hardening once a strike is called. Perhaps it is not surprising that these very simple 'models' seem to be little more than formalisations of rather particular situations. The empirical tests in the paper by Johnston and Timbrell strongly confirm the Turner/Jackson emphasis on the impact of direct taxation, and also the lack of relation between wages and unemployment in the post-war period. They find that, once price and tax changes are included in a regression, adding a variable for days lost in strikes does not improve the explanations of wage changes. They conclude "In our view the primary cause of the wage inflation was the cumulative retardation in the growth of net real wages.. .This led to ever larger money claims in an attempt to make real gains. The resultant struggles involved a substantial increase in strike activity, but the two variables moved so closely together over this period that the primary variable gets most of the statistical mileage" (p98). Of course 'primary cause' is correct in only a very proximate sense; for it is necessary to analyse why taxation increased and real wages decreased, and that leads back to the whole post-war development of British capitalism. But it is interesting that Purdy and Zis want to interpret these results as supporting their view that unions have not been shown to have any effect independent of the state of the market for labour. From a 'left' position of wanting to defend the unions from any of the blame for capitalism's problems, they end up arguing for an interpretation of wage changes pretty close to Friedman's. B.R.3 So the interpretations placed on the results of such work have to be scrutinised very closely for bias (of the ideological as well as the ordinary least squares variety). Still the essays in this book are worth a perusal as being representative of the most recent econometric work on the area. Provided you are prepared to wade through pages of regression results quite a few of the findings are useful, even if only one element, and certainly not the most important one, is sorting out the relationships.

PRIVATE ENTERPRISE AND PUBLIC INTERVENTION - THE COURTAULD EXPERIENCE Arthur Knight (George Allen and Unwin) Reviewed by Andrew Glyn In many ways the textile industry exemplifies the competitive pressures faced increasingly by UK capital in the post-war period; as a result of competition both from low-cost Far East producers and from the giant fibre producers in the other metropolitan countries imports constituted half of textile consumption in the UK by 1970. The theme of this book is the response of UK capital to this situation, as seen by the Deputy Chairman of the company most actively involved in the rationalisation of the industry. In the first half of the book Courtaulds' own strategy of developing into a 'vertical fibre-textile group' is explained as 'a bid to survive as an independent business in a situation in which the alternatives had, one by one, been eliminated' (p37); and this is substantiated by detailed, but comprehensible, analysis of the different nature of the competition in the product markets. In the second half the relation. of Courtaulds to government activity is described; mainly in relation to protection against imports ('the most important area for industry-government intervention') and the investigations of the Monopolies Commiss- ion and PIB. The report of the Monopolies Commission in particular gets a thorough slating and the contradictions in a policy which sets limits to profits in a system directed by profits are pointed out; 'any arbitrary limit on the return to capital regarded as acceptable takes away any motive for increased efficiency above the crit- ical point' (p160). A consistent theme of the book is the misguidedness of looking to competition as a cure to all capitalism's problems. In relation to EEC an internal Courtaulds' report wrote that 'from the point of view of its profits the company cannot welcome the prospect' (p23), and more generally the author argues that the history of the Lancashire industry shows 'it is a fallacy to think that exposure to competitive pressures of any magnitude is conducive to good management' (p185). Only the last chapter lacks real interest as it is a recital of how a more compre- hensive cost-benefit approach to industrial policy could reconcile the kind of conflicting objectives described in earlier chapters; in 1975 this appears rather banal to say the least. But otherwise this is a most useful and informative book which everybody interested in the history of British capitalism should read, especially students confronted by an essay on industrial policy.

THE FISCAL CRISIS OF THE STATE Reviewed by Ian Gough James O'Connor (St. Martin's Press, New York 1973) This book represents the first systematic attempt by a Marxist to analyse the causes and consequences of the explosive growth of state expenditure which has been a feature of all advanced capitalist economies since the second world war. O'Connor has drawn upon a wealth of (often neo-classical) research and has produced an extremely useful and provocative book. More's the pity, therefore, that it falls within a general under-consumptionist framework which leads it, in my view, to a series of errors discussed below. Having said that, it must be stressed that it marks a great advance on the traditional functionalist explanations of the capitalist state often associated with this framework. He stresses the role of class struggle and the political process in determining the size and composition of state expenditures, but this sits uneasily beside (or rather on top of) a determinist analysis of the economic base. This is closely related to a second, less important, criticism: that the book refers B.R.4 only to the fiscal crisis of the US state. There is scope for research on the reasons why the under-consumptionist school of Marxist economics is so dominant in the US (eg Baran and Sweezy, Steindl, Gillman). In my view it is clearly related to (a) the absence in the US of a unified labour movement, much less its political expression in the form of mass social democratic or communist parties, (b) US world hegemony since the second world war (now being modified as inter-imperialist rivalries intensify). In consequence, US state expenditure is dictated much more by the needs of the dominant class than by concessions wrested by the working class in political and economic struggle. Of course someone like O'Connor writing in the early 1970s could not ignore this element, but it is my contention that this has only amended, and not replaced, the 'traditional' paradigm of these economists. According to O'Connor, the modern capitalist state tries to fulfil two often contradictory functions: to aid capital accumulation whilst ensuring the legitimis- ation of its social relations. Corresponding to these functions, state expenditures have a two-fold character: social capital and social expenses. Expenditures on social capital are required for profitable private accumulation and are indirectly productive of surplus value. They in turn consist of two categories: 'social investment expenditures (social constant capital) which increase the productivity of a given amount of labour power (sic) and social consumption expenditures (social variable capital) which lower the reproduction costs of labour (sic). On the other side are social expenses required to maintain social harmony (apparently including military expenditure) which are not even indirectly productive. These three categories, it will be noted, correspond very roughly with Marx's departments I, II and III (very roughly because O'Connor includes educational plant, for example, in the category of social investment). Though he rightly points out that many expenditures. (eg on roads) will contain elements of all three, he considers that each has a major function. Thus within social security, social welfare is a social expense to control the surplus population, whilst social insurance is an investment in the productive sector of society. Whilst this division within the social services may be true of the US, it is certainly untrue of the UK where, for example, the Nation- al Health Service provides a universal (if inadequate) medical service for all sectors of society. But.this distinction (which mirrors the distinction between selective and universal social services in contemporary debates on social policy) may reflect the different class and political relationships in the two countries touched on above. On this basis, O'Connor develops two theses. The first is that the growth of the state is both a cause and an effect of the expansion of monopoly capital. The second is that this process continually creates tendencies toward a fiscal crisis, which is a combined economic, social and political crisis. Let us consider each in turn. The first thesis is dependent on O'Connor's analysis of American 'state capitalism'. Modern America comprises three sectors, each employing about one third of the labour force: a monopoly sector, a competitive sector and the state sector. The first is distinguished from the second by the scale of production, rate of growth of productivity,the level and regularity of wages and the degree of unionisation. The third, state sector (which includes those industries supplying inputs to the state) combines features of both, having a low rate of growth of productivity but with sec- curity of employment and wage levels more and more linked with the monopoly sector. Since much of his subsequent analysis hinges on the separation of the monopoly and competitive sectors, it is important to consider the evidence on this. This O'Conn- or provides with his customary meticulousness, but it must be said that his very own evidence (pp32-3,n2) points to the opposite conclusion. There are low paid workers in the monopoly sector and there are skilled, high-wage workers in many competitive sector industries, eg construction. Much more characteristic of modern capitalism is a situation where in each industry there are a handful of giant corporations surrounded like aircraft carriers by a flotilla of small businesses. B.R.5 Furthermore, though certain industries have a higher proportion of low paid workers, in the UK at least it is noticeable how they are spread across all industries including the most advanced and monopolistic. Still less is there any evidence of the gradual impoverishment (relative and absolute!) of the competitive sector and surplus population on which O'Connor lays such stress. At times he even attributes this impoverishment to state workers and the unskilled in the monopoly sector. How does the interrelation between these three sectors generate the tendencies to rising state expenditure? In brief the process is as follows. Due to the increasingly social character of production, state investment and consumption expenditure is more and more necessary to esnure private accumulation and profitability, eg roads, educational research and development. This point is clearly true and important, indeed recent work by Rowthorn and others has demonstrated exactly how such state services are indirectly productive of surplus value, in the capitalist sector. This state expenditure raises total demand and income which results in increased productive capacity in the monopoly sector. But demand for monopoly sector products does not grow as fast as capacity, surplus population and surplus capital results and this necessitates a rise in state expenses on welfare relief etc. Furthermore, the excess capacity necessitates overseas expansion and therefore further growth of expenses in the shape of military expenditure. The result is the Marcusian/warfare state This is clearly the most unsatisfactory part of O'Connor's argument, and from this argument alone flow the major errors of his book. It is here that the tendencies 'toward underconsumption are uncomfortably inserted into his scheme. No reason is given for this tendency (the reader is referred to Rhodes, ed., Imperialism and Underdevelopment) save one: that competitive sector wages rise very slowly so damp-' ening overall demand. And the reason for this? The lack of unionisation of these workers! The logical implication is to foster militant unionism in the US and all will be well! Apart from this the analysis is simply that of the permanent arms economy, criticised elsewhere on many occasions, in a different guise: the permanent warfare/welfare economy. The logical necessity of both is to increase 'luxury expenditure' (ie expenditure which generates demand but does not add to productive capadty) in order to make up the deficiency in demand. In fact, even in the US and certainly elsewhere, it is not 'social expenses' but 'social capital' (including here the bulk of the social servies) which has risen fastest since the war. The major errors flowing from this position are: a functionalist, ahistorical conception of the state; the resurrection of Marx's immiseration hypothesis; and a theory of generalised conflict between workers from different sectors, including the 'exploitation of the city by the suburb.' Taking the first point here, Purdy has levelled a similar criticism against the permanent arms economy hypothesis. In O'Connor, too, the growth of arms expenditure is explained not in terms of the changed balance of world power or the threat of liberation movements, but primarily as a means of purchasing the excess output of US capitalism. Similarly, welfare expenditures are functional responses to the pressures of labour-saving technology and the impoverishment of competitive sector, marginal and unemployed workers in the interests of preserving social harmony. Surplus productive capacity calls forth overseas expansion; surplus population calls forth internal welfare. "The welfare-warfare state is one single phenomenon, and military and civilian expenditures cannot be reduced significantly at the expense of one another". (p236) This has not been true of West European countries since the Korean war period, nor even of the US since the height of its war in South East Asia (see OECD, 'Expenditure Trends', 1972). But apart from its empirical falsehood, this theory gives quite insufficient weight to either the role of class struggle in determining the size and allocation of state expenditure, or to the relative autonomy of the state in responding to an initiating policies to cope with these pressures. This is odd because elsewhere O'Connor gives due weight to the role of class struggle B.R.6 and he presents an excellent analysis in chapter 3 of political power and budgetary control. He points out the growing need for a 'class conscious political dir- ectorate' standing above the interests of various sections of capital, the consequent growth of centralisation through the executive, the role of public expenditure planning and budgetary control in this process, the decline of local government and the growth of ad hoc regional and sub-regional planning bodies. All these trends are important in the present-day UK. Nor is the under-consumption model necessary to O'Connor's analysis, for elsewhere he analyses with insight some of the other long-term tendencies at work within capitalist society, such as the steady prolet- arianisation of the workforce which creates the need for further state services. My critique is not that the state does not respond to objective developments in the economy - the centralisation of capital is clearly one that is decisive. It is that, first, the role of the state cannot be exclusively determined by these functions, and second, that some of the so-called general laws are simply false. The tendencies to absolute or relative impoverishment and to under-consumption are examples of such laws. So is the falling tendency of the rate of profit which another school of Marxist economists regards as the key determinant of state expenditures. This analysis also results in a false polarisation of interests between competitive sector and monopoly sector workers. The latter gains from the socialisation of many costs, from the control of the surplus population via welfare (though they also at times oppose welfare spending) and from the 'exploitation' of the city by the suburb. Some doubt has already been cast on the distinction between these sectors, and this would appear to be confirmed by the many occasions in which O'Connor refutes his own general analysis above. Thus he recognises that organised monopoly labour supported the Kennedy plan for universal health insurance against the Nixon plan for a selective, privately provided scheme, even though the competitive working class would gain most from the former. This is not invalidated by the fact that much of the social security system here and in many other countries benefits better paid workers in regular employment more than unskilled, casual female and black workers. O'Connor's second thesis is that the growing expenditures lead to a structural gap between state expenditures and revenues. This crisis, and state responses to it, take a variety of forms - one of which is inflation - and each solution creates further problems. Whilst I would agree with this general scenario, the precise mechanism adduced by O'Connor to explain it seems to me faulty in parts. On the expenditure side, as well as the factors noted above (some of Which are valid in the long- term and some of which I have argued are not) there is also (a) the slow productivity growth of many state services coupled with rising wages as state workers increasingly tie their wage claims to those wrested in the monopoly sector, and (b) the persistence of 'inefficient' solutions due to sectoral political pressure. An example of the latter is the much higher share of GNP devoted to health in the US compared with the UK (in return for a worse service), due to the waste and corrup- tion endemic when the state finances private provision instead of providing services directly itself. On the revenue side, however, O'Connor rightly concedes that the basic source of revenue to match this expenditure is increased taxation. Only when expenditure programmes are highly unpopular (eg the war in South East Asia) will the state resort to debt financing. In this case why is there a fiscal crisis? Tax yield increases year by year with economic growth (still more with inflation) and in addition this offsets the inflationary impact of the spending. To this O'Connor's chief reply is that a tax revolt develops, mainly along section- al lines as residents oppose the payment of local rates etc. Again we are seeing the beginning of serious opposition to payment of rates in the UK, but it is hardly of decisive importance. (He also argues that a rising proportion of the 'surplus' is not available for taxation because it is absorbed in selling expenses - a formulation which raises a hundred questions about the very concept of 'surplus' he is using.) He gives little weight to what I would consider the major reason: the B.R.7 effect of rising taxes and 'fiscal drag' on wage claims. This is the crucial link between the crisis of state expenditures and the chronic inflation of recent years. the state, in expanding its expenditure and protecting profits, places most of the tax burden on the working class, who attempt to offset this by putting in pre-emptive wage claims, thus fuelling inflationary pressure. Given this crisis, the state has adopted several responses. O'Connor is particularly good on the impact of this on forward planning of public expenditure, centralisation of debt management, increased central funding of local government etc. He shows how many recent economic techniques such as PBBS and cost benefit analysis have an important political function, to strengthen the central budgetary control of y the executive over the special interest pleading of the legislature. But the savings that can be obtained from these developments is now limited. The options now open to the capitalist state to deal with the fiscal crisis/inflation are three: managed recession, wage and price controls and the 'social-industrial complex'. The last of these is a most confusing concept. It appears to mean a shift in emphasis within state expenditure from unproductive social expenses to productive social capital. It is not clear whether the benefits of this would come through greater markets for private capital, or more direct revenue for the state, or simply via higher economic growth and thus a more buoyant tax yield. Either way, the phenomenon- if it is an identifiable phenomenon- would be of only the most minor importance in dealing with the present crisis, and it would still leave open the political question: who would appropriate the gains from this policy? The 'social-industrial complex' represents the most barren transposition of concepts from the 'permanent arms' hypothesis to the more fruitful analysis O'Connor is attempting to develop. In the last chapter of the book O'Connor considers the scope and nature of capitalist reforms. His analysis of the reasons for the growing radicalisation and milit- ancy of state workers is excellent. So too is his explanation of the way state workers will tend to raise qualitative issues (eg levels of need and provision, control of social services, content of education) in the course of advancing economic demands and to link up with movements of state clients and consumers. At the same time, some of his conclusions apply only to the US - for example, that the fiscal crisis will tend to divide and weaken the working class in the absence of a socialist movement. In itself, this would not be important, but it reflects the basic lack of an historic and comparative perspective, which I have argued above is intimately related to the underconsumptionist economic model, and its parallel functionalist model of the state. This is seen again where public sector unions are perceived to be 'dysfunctional' and monopoly sector unions 'functional'. Irrespective of the rights and wrongs of this, it reveals an erroneous conception of the structure and processes of capitalist social formations. "To combine analysis (of the state) to an account of its functional role in modern capitalism is to fall into one of the basic methodological faults of bourgeois social science: the complete failure to understand the present as history" (Purdy, CSEB, Spring 1973, p23). No account is given of the development of the US economy, the effect of the second world war on the international position of US capitalism, the growth of inter-imperialist rivalries, the development of the socialist bloc and the effects on capitalist policies, the growing strength of the working class, etc. To do this requires acknowledging that one is considering state expenditure in the US in the late 1960s, not referring to general manifestations of ubiquitous economic forces. Read in this light, O'Connor's book marks a serious step forward in Marxist studies of state expenditure. But it falls short of an acceptable general theory of state expenditure in modern capitalist states. Such a theory would necessarily have to be both more general, with detailed comparative analysis, and more specific, by considering each phase of capitalist development in all its historical specificity. B.R.8

THE BALHAM GROUP, HOW BRITISH TROTSKYISM BEGAN. Reviewed by S .-mart Macintyre Reg Groves (Pluto Press, pp.110 75p paperback) Reg Groves has written a colorful account of the argument with the British Commun- ist Party which led to the expulsion in 1932 of him and his colleagues of the Balham Group. As the record of the disenchantment of an able group of militants whom the Party could ill afford to lose, his book recreates the atmosphere most effectively. Yet if one approaches this book looking for something more - for an analysis of British Communism during the period of 'Class Against Class' - one is disappointed. Groves' chronological presentation prevents him from sorting out which elements he retained and which he rejected. The theoretical patrimony of the Balham Group remains a mystery. As Groves admits (p73), the Balham Group had not fully assimilated the litany of organised Trotskyism, even though they found that some of Trotsky's writings illum- inated aspects of their dissatisfaction. When we look further into the political reasons for their break with the Communist Party, we find the Balham Group agreed with most of the 'new line', 'Class Against Class', that was introduced at the end of the twenties. Hence Groves' statement that his Group alone "spoke out against the destruction of true socialism and communism" and struggled against the Party's "final and absolute submission in the years 1929-32 to Stalin and the rulers of Russia" (p7) is unsatisfactory. He welcomed, rather than opposed, the over- throw of pre-1928 policies and leaders. The executive member to whom Groves was closest during this period, and for whom he expresses greatest admiration, was Palme Dutt, the ideologue of Stalinism. Such claims require justification and in the remainder of this review I shall try to explain how 'Class Against Class' altered British Communism and demonstrate the limited nature of Groves' opposition to it During the 1920s the British Communist Party failed to resolve the political contradictions posed by its formation. As a coalition of two major pre-war Marxist sects, the British Socialist Party and the Socialist Labour Party, it inherited a rarefied and essentially propagandist method of political work. The B.S.P. and S.L.P. grounded their Marxism in an extremely mechanical version of the materialist conception of history: history was controlled by discrete economic forces and just as feudalism had given way to capitalism, so capitalism would move inexorably on to socialism. They confidently expected a continually falling rate of profit, steadily worsening immiserisation of the working class, and a final apocalyptic breakdown. They believed this process would automatically create a socialist consciousness and hence lay the foundations of the new socialist society. In the mean- time, their function was essentially evangelical, heralding the doom of the existing order and educating pockets of workers in a highly scriptural Marxism. As James Hinton has shown in The First Shop Stewards Movement, their aloofness from the everyday political and industrial activities of the working class ended in the period from 1917 to 1920. As a result of war-time developments in the British labour movement and the influence of the Bolsheviks, British Marxists abandoned their sectarian isolation and threw themselves into struggle. The Communist Party was the fruit of these changes. Yet although the pre-war contempt for the mass activities of the working class disappeared after 1920, deeper theoretical weaknesses persisted: British Communists retained essentially Second International conceptions of historical materialism and economics. Here we can draw attention to only one crucial aspect of the ingrained attitudes, the economist conception of class consciousness. During the 1920s Communists believed that experience alone would impel workers to revolutionary conclusions. As one wrote in 1921, "every-day lessons are imposing the hard, irrefutable facts of Marxism upon the minds of the workers". (Socialist, 6.1.21) Such beliefs were accompanied by another pre-war residue, an economic expectation of capitalist collapse. Lenin, Bukharin, and others to whom British Communists paid lip-service, pointed to structural limitat- ions in the capitalist mode of production but always insisted that the problem of ending capitalism was in the last analysis a political problem. British Communists, B.R.9 on the other hand, expected in the immediate future a breakdown of capitalism from purely economic causes independent of working class activity. "Society goes hurtling to the universal catastrophe which the writer of Capital foretold. Cap- italist civilization is reaching its culmination, impelled by the most fearful momentum of its ever more frenzied career." (Newbold,'Labour Leader; 20.2.19) Thus British Communists' optimism about the potency of experience sprang from a belief that this experience would be one of ever-deepening crises and immiserisation. As an important text-book put it, "history is moving in the same channels as their work, and is helping them to realise their mission". (Paul, Communism and Society 1922, p16) These expectations underlay the political strategy of theC.P.G.B. during the 1920s. Its approach to the Labour Government of 1924 and the General Strike in 1926 was guided by the belief that the workers were prey to reformist illusions and that "it would only be hard experience that would teach them otherwise". (Com.Rev.VII (Nov.1926), p339) Groves himself provides a typical example of the attitude when writing of the collapse of the second Labour Government: he writes that "it was plain to the most election-minded constitutionalists.. .that the government and the employers could be resisted only by action in the workshop and in the streets" ,(1p51) The argument is clearly wrong. It was plain to most election-minded constitutionalists in 1931 that they needed a labour government with a parliamentary majority, just as it was plain to the great majority of the labour movement in 1924 and 1926. The argument that events alone would demonstrate the validity of Marxism is one that Lenin discredited in 1902 in What is to be Done?, but it was nevertheless used by all British Marxists in the 1920s. What is to be Done? was not translated into English until the very end of the decade, and it had an immediate and decisive impact on the Communist Party. The changes it wrought in the political strategy of the Party lie at the heart of Groves' dissatisfaction. The new line of class against class was introduced prior to the appearance of What is to be Done? and was justified by the earlier economist arguments. The most important change was to redirect the Party's primary effort against the Labour Party and trade union leadership. They were now 'social fascists', the chief props of capitalism. According to the discredited Executive, it had been necessary to 'push' a new labour government into office "to help the workers by their own experience to convince themselves of the worthlessness of reformism". (Com.Int. V(1.3.28),p125) Not so, replied the proponents of the new line. The 'exposure' of Labour had taken place already and "in consequence the basis exists in the experience of the working class on which the Communist Party can drive home the lessons of experience". Hence the Party came to determine policy not by "the level of understanding that they have reached", but according to their 'true interests' inherent in experience. (Com.Int. V(15.3.28), pp135,142) The Party accordingly abandoned its left Labour allies and marched further off into the political wilderness. Groves approved of the new line. As he shows in this book he wanted a clean break from Labour and an independent struggle for leadership. So his reservations about the new developments after 1928 rest ultimately on thin air. He was troubled by a lack of democracy in the Party and yet complained bitterly because some established members of the executive were not removed (p27) (despite the fact that Campbell and other supporters of the old line were discredited only by pre-arranged manouevres out of sight of the rank and file. He condemns Comintern's dictation "of the terms of the discussion and the outcome" (p19), yet disregards the fact that without the Comintern the new line could not have been introduced. Certainly the Party succumb- ed to authoritarian and undemocratic procedures but these procedures did not retard the new line, they accompanied it.) In these respects the accounts provided by Pelling and MacFarlane of the changes are more accurate than Groves'. We have therefore to look elsewhere for the Balham Group's differences with the Communist Party. The differences can be found in the political method adopted by the Party at the beginning of the 1930s. As an immediate result of its assimil- B.R.10 ation of What is to be Done? the Party repudiated its earlier economist approach: "It would be naive and foolish to think that, because there exists a"deep crisis and the revolutionary wave is growing, that the masses.. .will come to us 'spon- taneously' and that we have only to open the doors and welcome them." (Com.Rev. n.s.III (Aug.1931), p328) First of all, the crisis did not imply "an automatic collapse of capitalism." To think that "capitalists cannot solve the economic crisis" was an "absolutely non-revolutionary attitude", announced Harry Pollitt. (Com.Rev. n.s. IV (4ar.1932), pp130-1) "If the bourgeoisie succeed in the policy of suppressing the workers, of cutting wages", they could restore profitability and overcome their difficulties. Therefore "it depends on the activities of the Party whether Capitalism will be ended". (Com.Rev. n.s. III (July 1931), p.272) To this recognition of the political level was added a new political method. The new method was to pose immediate demands and fight for them in a way that "explained their political meaning" and realised their revolutionary implications. (Dutt, Lab.Monthly, XIV (Feb.1932), p79) "Every wages movement, every grievance in the workshop, every strike is not to be taken by itself...but as part of the whole struggle, as a part which can build up and grow into a great revolutionary struggle. (Burns, What is the Communist Party; 1933, p10) The Balham Group could not accept these innovations. During the crisis of the Labour Government in August 1931 they insisted that the party policy of working with trade unions in this manner was inadequate and that alternative councils of action should be established to organise general strike action. (Groves, Daily Worker, 27.8 31) Here we can see two differences with the Communist Party. First, the Balham Group believed, and Groves reiterates in this book (esp. p51), that there was a revolutionary situation in 1931; and secondly, they did not accept the Party's new method of working within the existing organisations of the labour movement. The first judgement obviously reinforced the second but the disagreement ultimately rested on the economist belief - as we have quoted Groves already - that the situation had generated a non-constitutional and extra-parliamentary outlook among the mass of the working class. In all these respects it can be seen that by 1931 the Balham Group was much closer to the original - strategy and approach of class against class than the party was. The misfortune was that although the Party had taken the crucial first step towards overcoming the highly unrealistic strategies of class against class, it had not slackened in any way the paranoiac mentality that it engendered. Groves and his colleagues were interviewed by Willie Gallacher, Harry Pollitt and others in an effort to persuade them to accept the Party's position. Groves gives a graphic description of how the dialogue broke down in a 'torrent of bitter vituperation' about the Group's 'petty bourgeois' mentality. This is not the place for a full discussion of the issues raised by the Balham Group. The point I wish to make is that it is highly misleading to see the group as a natural but premature precursor to the present international socialists, in whose journal Groves' book first appeared. The Balham Group's perspective contained two elements. The first was a rejection of the alleged compromising reformism of the Communist Party, and in this respect the International Socialist lineage is justified. The second element was reversion to the classical Stalinist"political strategy of class against class. It is this apparent paradox that the review has tried to illuminate.

RATIONALITY AND IRRATIONALITY IN ECONOMICS Reviewed by Ken Cole Maurice Godelier (New Left Books, 1972, pp.xlii & 326) The book consists of a series of essays written between 1958 and 1966, and is divided into three parts. The first part of the book includes a discussion on the rationality of economic systems and the ways in which.this rationality, or the laws of functioning of the economic system can be discovered. This leads into a discussion on the rationality of economic science, a discussion which centres on the B.R.11 methodology utilized by bourgeois economic theory (in this context he specifically refers to marginalist theory, as the most advanced form of neo-classical theory) as compared to that utilized by Marxist economic science. The second part of the book begins with a discussion of the 'young' versus the 'mature' Marx, followed by two essays on the methodology employed by Marx in 'Capital", and two essays which include discussions on the role and measurement of value in a socialist economy, and a comparison of the marginalist and Marxist theories of value and prices. The third and final part deals with economic anthropology and the possibility of a general theory of economic systems and therefore of economic functioning. The central theme of his book however, is to answer the question, "What is the rationality of the economic systems that appear and disappear throughout history - in other words what is their hidden logic and underlying necessity for them to exist, or to have existed: and what are the conditions needed for a rational understanding of these systems - in other words for a fully-developed comparative economic science?" (pvii). This question is central to all the other arguments and topics he considers, and ultimately it is on this question that the work stands or falls, consequently, it is this aspect of the book that I will concentrate on. Clearly the understanding of the 'rationality of economic systems' depends upon discovering 'the conditions needed for a rational understanding of these systems', i.e. essentially it is a question of methodology, of differentiating between the 'scientific' or 'rational' explanations of social phenomena in general and economic in particular, and the 'apologetic' or 'ideological' explanations. In turn this question centres on a correct definition of rational social action. His analysis therefore, at least potentially, provides the theoretical basis for the fundamental critique of social theory and it is in this context that he compares marginalist economic theory and Marxist economic theory, being careful to differentiate between vulgar materialism, or dogmatic Marxism, and scientific Marxism. He argues that rationality has to be defined in terms of the pursuance of mutually coherent ends by means appropriate to those ends (p12) i.e. that social action, or the means utilized, only makes sense if we know the ends to which they are working. From this it follows that since man has to operate within an historically given social structure and therefore limits to social action, the rationality of such action has to be defined in historical terms. We cannot simply analyse the rationality of action in terms of the form of behaviour, we have to include the content of behaviour. As Godelier argues, "There is no rationality 'in itself' nor any absolute rationality. What is rational today may be irrational tomorrow, what is rational in one society may be irrational in another" (p317). Further,he argues that if the nature of the content is ignored then a number of consequences follow. The first of these is that the principle of rational action has to be made universal, for example as with the economic tradition from Smith to modern bourgeois theory where rationality has been defined in terms of 'human nature' or 'a priori' Ideas of freedom - if the naturally competitive instinct of man is left 'free' to maximise private gain, then through the 'invisible hand' we reach an optimum position maximising the societies"welfare', so that, "...with the coming of capitalism mankind is restored to its true nature... and enters the age of civilization ...(however) deducing the economic system of free competition from the general principle of rationality, assumed to be an inherent characteristic of human nature is.. .an ideological approach to the problem which results in an apologia for this system" (pp16-17). The second point is that the analysis of economic behaviour must take the form of a general theory of 'purposeful' action. Economics becomes "the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses" (Robbins, quoted p13). Thus, economics "...appears as an aspect of every human activity in so far as this activity seeks to 'economize' its means. B.R.12 Every kind of purposive activity thus has the right to be regarded as 'economic' ...economics becomes dissolved in a general theory of action" (p13), everything, and therefore nothing is economic. By ignoring the content of economic behaviour, we have to take the form of such behaviour as the point of analysis, we have to start from the individual and therefore assume the structure of the economy within which he operates. By starting from such a 'formal' definition of rationality we assume, or deduce, the structure of the society i.e, that all products are commodities for exchange, that social relations are'relations of commodity exchange, that relations of exchange are relations of competition. But this misses the point that such a definition of rationality presupposes such a structure of society, and vice versa. The capitalist system is reproduced and legitimized as a result of the methodology utilized, a methodology that systematizes the visible social relations without seeking, or being able to explain why and how they came into existence, since it takes the existence of the system as a fundamental assumption, as the basis for its definition of rational social action. In place of an explanation of the laws of functioning or the conditions for the origin and development of the system, we get justification. "Science is lost.. .where ideology begins and ideology begins when a society takes itself as the absolute point of reference" (p303), that is where by definition the society is the only possible 'rational' society. Economic rationality must be seen as part of a wider social rationality, in order to take into account that the individual acts within an historically given social and economic system. "The rationality of economic systems and the rationality of the behaviour of economic agents within these systems is revealed only through cognition of the laws of functioning of these systems" (p24, emphasis in the original), and to undertake such an analysis without beginning from 'a priori' definitions of rationality, then the 'economic' must be defined by content and not by form. According to Godelier, we have to separate the economic as a "particular field of activity directed towards production, distribution and consumption of material objects" from "production, distribution and consumption (as) a particular aspect of all non-economic activity" (p23). We have to define the economic not in the visible form it takes in society, but in terms of a 'structural' relationship, where a structure is defined as the invisible reality beyond the visible, and in terms of which the visible reality, can be understood, "We are here at the very heart of Marx's method" (pxxiv), "...all science would be superfluous if the outward appearance and the essence of things directly coincided" (Marx, 1971 p817). We have to account for and reject the visible social relations, for although the ...economic categories of wages, profit, interest on capital etc...express quite well the visible relations of the capitalist system and as such they have prag- matic utility, being of service in management and the taking of decisions...they possess no scientific value for they do not reflect the true underlying logic of the system" (pxxv, emphasis in the original). Godelier argues that the significance of Marx's thought lies in his methodology. "Marx was able to link together a structural analysis and a dynamic theory, to combine the analysis of structures with the analysis of origins...(and) at the heart of this reasoned history lies the philosophical assumption that there is no world- beyond-the-world except in the sense of ideas" (p192) i.e. that man is both the product and the producer of his own practical activity. This Marxian methodology, it is argued has two component parts, the hypothetico- deductive method and the dialectical analysis. The hypothetico-deductive method consists of making simplifying assumptions to mark out °a priori' the field of analysis from which a deductive system is created in which one structure is referred back to another, starting from an originating structure. Thus in his analysis of capitalism Marx assumed "...that the laws of capitalist production B.R.13 operate in their pure form. In reality there exists only approximation..." (Marx, quoted p137), in order to isolate the essence of the economic relations that make capitalism a definite economic system and within this defined field to deduce the theoretical links between the structures. Further, within this deductive system he uses economic concepts in order to show the essence of the structures themselves and their logical relations and possibilities of functioning, these points should become clearer as we go along. In practice however, this part of the methoaology cannot be separated from the dialectical analysis, since the logical ordering of the concepts depends upon such a dialectical process. The ordering of these concepts "...is dictated by the objective content of what is being thought about. At the same time the objective truth of this content is to be discovered only through a certain mode of access, through a certain type of advance from theoretical think- ing to objective reality" (p133) - it is a circular or dialectical process, which Godelier argues is characteristic of all rational cognition. According to Godelier, Marx, using this methodology developed an 'ideal' structural model of the capitalist system. The Marxist conception of social structure is analysed into the economic base or infrastructure, which is determinant in the last analysis, and the relatively autonomous superstructure, the state, law, ideology etc. The central concept with regard to the infrastructure is the mode of production, itself made up of two structures, that of the productive forces i.e. the tools, techniques, way the work is organised etc., refers to the relations between man and nature, and that of the relations of production, i.e. the social conditions of the production process in terms of the kind of ownership of the means of production and thus the mode of appropriation of the social product, the relations between men. These relations of production presuppose a legal-political and ideological superstructure which justifies and reinforces these relations of production. The structuralist methodology is based on an assumption of the necessary correspondence of structures, of a continuous tendency towards compatibility between structures, with the structure of the society as a whole being determined by the nature of the relations between the component structures.' However there are limits to the compatibility of structures within a particular social structure as a whole, • or mode of production, and these limits are the unintentional consequences of intentional social action, and to develop beyond these limits requires a major structural transformation. Thus we can see why each society contains within it the seeds of its own destruction. To understand the rationality of a social system and thus the conditions necessary for its genesis and the principles of its development, we therefore have to isolate the relations between men that account for the major structural transformations of society, i.e. determine them in the last analysis. In order to isolate such key relationships we have to turn again to the dialectical analysis. Each structure presupposes the other and creates it in a certain way, each is the condition and yet the effect of the other and in order to separate such reciprocal interdependence within an organic whole dialectical methodology has to be used. We have to uncover the dynamic of the system and reveal the way it is kept in equilibrium through constant disequilibrium, i.e. the development of the system is seen in terns of contradictions between structures being resolved, which in turn creates new contradictions etc.. Thus, "Just as the relations of production are distinct from the productive forces and yet influence and are influenced by them, so the infrastructure influences and is influenced by the superstructure. In the working of the reciprocal causality however, Marx assumes that the economic structure 'ultimately' plays a determining role" (p92)... "the relations that men form among themselves in order to carry out...the production of the material conditions of their existence determine, in the last analysis, the relations of compatibility and incompatibility between all levels of social life" (pix). At the cen- tre of the Marxist problematic lies the hypothesis of the necessary correspondence

' Here we see why the Marxist theory can form the basis of a general theory since different systems appear as different realized possibilities of the general relations between man, himself and the world. B.R.14 between the productive forces and the relations of production, "a general hypothesis needing to be verified theoretically and practically" (p126). The contradictions between the structures are deduced from the logical relations between them that are implied by the 'ideal' model of the system, and in this sense the contradiction is 'necessary' as opposed to accidental, and by assumption leads to 'necessary' social changes. Thus arguing from an ideal model of capitalism Marx saw socialism as a 'necessary' consequence of capitalist development. Its necessity is a scientific conclusion arrived at independently of any ideological notions of 'freedom', 'social justice' etc. Rubin (1973) argues that Godelier is incorrect in his formulation of Marx's methodology both in terms of the stated 'necessity' of structural transformations and in terms of the differentiation between the hypothetico-deductive method and the dialectical analysis. In this respect Rubin seems to have two, related misconceptions about Godelier's position. He argues that since "the Marxist method at all times and in all of its aspects must see its operational field as a reality which constantly moves" (Rubin, 1973 p60), then Marx at no time could use the hypothetico-deductive method which deduces the logical relations that "hold between formal schema which as such have no specific content" (ibid p59), But Godelier makes clear as quoted above (p133) that the content of the 'formal schema', the nature of the assumptions and concepts utilized, is itself the result of a dialectical process. Rubin in his criticism of Godelier refers to the 'operational field' of analysis, and it will be clear from the following discussion that on this point Godelier would agree with him. But Godelier specifically points out that he is not referring to the 'operational field' of analysis with regard to the point of Rubin's criticism, "Let me make clear once more that my standpoint is that of epistemology, in other words, analysis of the procedures and abstract tools employed by science (emphasis added)...The method of Capital is both one and multiple. Its unity is the synthetic unity of different approaches,. .The distinguishing of these levels of intervention of structural analysis and dynamic analysis.. .was a delicate business ...for it was imperative never to lose sight of their necessary unity" (pp 196 & 198). Further, countering Rubin's criticism, he points out that methodology only becomes theory , "when it enables us to conceive some particular determined, historical relation' (p162) and at this level the methodology is a 'synthetic unity'. With regard to the 'necessity' of structural relationships, Rubin argues that since "Marxist science is a praxis; it tells us that things will not necessarily happen unless revolutionary activity combines with objective circumstance to make them happen" (Rubin, 1973 p57), no such 'necessity' can exist. But again he misses the point of Godelier's analysis. Necessity for Godelier is a logical implication deduced from given assumptions - it is not synonymous with inevitabil- ity. In fact he specifically assumes that such revolutionary activity takes place in assuming that (i) man is both the product and the producer of his own reality, and (ii) that there is a 'necessary' compatibility between structures. Such an approach is needed to isolate the central dynamic and contradiction within any given mode of production, and thus to identify the crucial and decisive areas of conflict, i.e. those areas of conflict upon which the fundamental structural transformations depend - if and when they happen. Thus when Godelier says that socialism is a necessity, he is saying that given the assumptions this is a logical deduction, i.e. that in order to solve the principal contradiction of the capitalist system we must progress to a system of socialist relations of production. The Marxist methodology details the possibilities of social action, that is identifies the constraints which are the result of the structure of society which restrict intentional social action, "Marx's thought...operates like all rational thought, with simplifying assumptions and builds an ideal model of reality" (p142). B.R.15 "In theory it is assumed that the laws of capitalist production operate in their pure form. In reality there is only approximation; but this approximation is the greater the more developed the capitalist mode of production" (Marx quoted p137)0 From the possibilities of social action we can then try to decide the probabilities of action, which would have to include an analysis of the extent to which other economic formations affect the central dynamic of the dominant mode of production (in this case capitalism), analysis of the level of development of the class struggle and the way in which external factors (economic, social, political etc.1 may affect this etc. "...materialism, scientific truth is not an ideal, closed essence, accessible once for all to an illuminating intuition, but an assumption to be checked, to be tested. Truth is for the materialist essentially experimental". (1°209) Godelier argues that because of the methodology of Marxism it provides the basis for a general theory of social development, with the implication that the rational aspects of other theories and methodologies should be incorporated into the Marxist schema. As already noted the Marxist methodology seeks the explanation of the ob- servable reality in the underlying structure. Thus it is the role of the value equations to bring out the influence of the relations of production in the capitalist system on the visible exchange relations, with the latter being described by the system of price equations. In undertaking a structural study, therefore, Marx largely ignored the process of price formation (or the process of value realization) and thus the role of supply and demand in this process. "Political economy assumes that supply and demand coincide with one another. Why? To be able to study phenomena in their fundamental relations,, ,that is to study them independently of the appearances caused by the movement of supply and demand" (Marx, quoted p64). The role of 'value' theory in neo-classical economic theory lies in trying to explain observed prices and quantities, only looking at the economy on the formal level of exchange. Clearly in so far as neo-classical theory has explanations for these surface phenomena, they can, and should be included in Marxist economic theory so as to provide a satisfactory theory of prices as a process of the realization of value in the market place, i.e. the selling of commodities and the conditions under which they are sold. "Godelier's idea is that Marxism although perfectly adequate as a theory of value can be usefully supplemented by the marginalists to arrive at a complete theory of price formation. However the notions of consumer preference and individual choice to which Godelier refers, seem intrinically ideological notions and one is therefore sceptical of such a 'use' of marginalism by Marxists" (Rubin, 1973, pp60-1). This is another misunderstanding of Godelier's position, Far from util- izing the results of marginalist theory as they present them, Godelier specifically states that "if we are to evaluate the results achieved by contemporary non- Marxist economists, we must analyse their real practice, which often contradicts the general doctrinal assumptions to which they officially give their allegiance" (p74). To illustrate this, Godelier states examples of where they start from the system as a whole in order to analyse the behaviour of individuals, while stating that they are deducing the system from the individuals. For instance "By stating that in a situation of perfect competition the influence of each entrepreneur upon prices and upon his competitors may be considered as nil, they contradict their general assumption that prices are determined by individual behaviour,... (thus) analysis of the results of contemporary non-Marxist research in economics is a much more complicated task than at first appears when we consider the general doctrines to which the researchers in question explicitly affirm their allegiance" (p75). However it is clear that the Marxist approach to the processes involved in price formation must be further developed and it is a matter for further research which aspects, implicit or explicit, of bourgeois economic theory can be included in such an analysis. I think that the analysis presented by Godelier has its greatest significance in B.R.16 providing the basis for the differentiation of the scientific from the ideological explanation, not only between theories but within theories by an analysis of the methodology utilized, allowing the evaluation, rejection and acceptance of aspects of bourgeois theory on a more fundamental level than on such issues as those raised in the 'capital controversy or 'reswitching' debate, providing the basis "for a fully-developed comparative economic science". In reality, this is only continuing the analysis started by Marx in 'Theories of Surplus Value', where for example Marx specifically separates out the scientific aspects of Smith's theory of productive and unproductive labour (from which follows his definition of value) from the apologetic aspects, i.e. the definition of productive labour as labour where "the value of, .,wages (is). ..generally restored, together with a profit" (Smith 1970 p430), of which Marx says "Productive labour is here defined from the standpoint of capitalist production. This is one of his greatest scientific achievements" (Marx, 1969 p157) - from, the definition of productive labour as labour which produces a physical tangible commodity and merely replaces its own maintenance, "The reference is no longer to the production of a surplus value which in itself implies the reproduction of an equivalent for the value consumed. But according to this presentation the labour of the labourer is called productive in so far as it replaces the consumed value by an equivalent...Here the definition by social form...by their relation to capitalist production is abandoned" (Marx, 1969 p162, emphasis added). Marx is here separating the structural analysis from the 'surface' analysis, "Vul- gar economy actually does no more than interpret, systematize and defend in doctrin- aire fashion the conceptions of the agents of bourgeois production...It should not astonish us.. .that vulgar economy feels particularly at home in the estranged outward appearances of economic relations. ,,It is the great merit of classical political economy to have destroyed this false appearance. ,,Nevertheless even the best spokesman of classical political economy remain more or less in the grip of the world of illusion which their criticism has dissolved" (Marx, 1971 p830).

REFERENCES

Marx, K, (1969), Theories of Surplus Value Part I, London, Lawrence and Wishart. (1971), Capital Vol III, London, Lawrence and Wishart. Rubin, D.H. (1973), 'Godelier's Marxism, in Critique Vol I Nol (Spring 1973). Smith, A. (1970), The Wealth of Nations, London, Penguin.

BOOKS RECEIVED

Title Author Publisher and Price AN INTRODUCTION TO THE ITALIAN K.J. Allen & A.A. Martin Robertson & Co. Ltd. *ECONOMY Stevenson £4.95 Hback. 1974 *STATE CAPITALISM IN RUSSIA Tony Cliff Pluto Press Ltd. £3.75 Hback, £1.00 pback. 1974 *CAPITALISM AND THEORY Michael Kidron Pluto Press Ltd. £3.30 Hback, £1.50 pback. 1974 BUREAUCRACY AND REVOLUTION IN Chris Harman Pluto Press Ltd. £4.50 *EASTERN EUROPE Hback, £1.50 pback. 1974 *THE GUINEAPIGS John McGuffin Penguin Books Ltd. 40p pback. 1974 B.R.17 HANDBUCH 1 PERSPEKTIVEN DES Ed. Volkard Brandes Europaische Verlagsanstalt KAPITALISMUS •DM 22.00. 1974 A TOUCH ON THE TIMES, SONGS Ed. Ray Palmer Penguin Books Ltd. pback. OF SOCIAL CHANGE 1770 TO 1914 1974 WOMENS RIGHTS, A PRACTICAL GUIDE Anna Coote & Tess Penguin Books Ltd. 60p Gill pback. 1974 SCREAM QUIETLY OR THE NEIGHBOURS Erin Pizzey Penguin Books Ltd, 45p WILL HEAR pback. 1974 *ECONOMICS OF IMPERIALISM Michael Barratt Penguin Books Ltd. £1,25 Brown pback 1974 THE BOLSHEVIKS AND THE OCTOBER trans. Ann Bone Pluto Press Ltd. 1974 *REVOLUTION pback £2.70. Hback £6.60 BUILDING SOCIETIES? Rupert Greer Fabian Research Series 319 Fabian Society 30p, 1974 THE CRISIS SOCIAL CONTRACT OR Tony Cliff Pluto Press Ltd. pback 75p SOCIALISM 1975 DEVELOPMENT AND UNDERDEVELOPMENT Geoffrey Kay MacMillan 1975 Hback £7,50 *A MARXIST ANALYSIS *MARXISM AND IMPERIALISM V.G. Kierman Edward Arnold (Publishers) Ltd. pback £2.75. 1974 INSIDE THE COMPANY: CIA DIARY Philip Agee Penguin Books Ltd. pback 95p. 1975 STAAT UND ALLGEMEINE PRODUK- Dieter Lapple Verlag fur das Studium der TIONSBEDINGUNGEN Arbeiterbewegung GMBH. DM100 1973 THE SOCIALIST ECONOMIES OF THE Marie Lavigne Martin Robertson £6,95 SOVIET UNION AND EUROPE trs. T.G. Waywell Hback. 1974 INFLATION AND HOW TO FIGHT IT Matthew Warburton 'The Discussion Group' Pamphlet 20p PROBLEMS OF COOPERATION FOR G.M. Meier OUP £2.90 pback. 1975; DEVELOPMENT MARXISM AND EPISTEMOLOGY Dominique Lecourt New Left Books £5.50 Hback 1975

: Under review

Members of the CSE who wish to review any of the books still available in the above list, or any book recently published should contact Lawrence Harris, Dept. of Economics, 7-15 Gresse Street, London W1P 1PA Reviews should also be sent to this address. If members wish to review a book which has not been sent to us could they let us have the title, author, publisher (with address) so we can obtain the book for them. Lawrence Harris, Reviews Editor

INDEX 1

INDEX TO THE CSE BULLETIN

The Bulletin has appeared 3 times a year since it first came out. The numbering has not always been consistent. The full list is as follows: Vol I Vol , II Vol III 1.1 (Winter 1971 1:1) 11.5 (Spring 1973) 111.8 (Spring 1974) 1.2 (Spring 1972 2:1) 11.6 (Autumn 1973) 111.9 (Autumn 1974) 1.3 (Autumn 1972 2:2) 11.7 (Winter 1973) Vol IV 1.4 (Winter 1972) IV.10 (February 1975)

ARTICLES ELMAR ALTVATER On the Analysis of Imperialism in the 111.8 Spring'74 JURGEN HOFFMAN Metropolitan Countries: The West German WOLFGANG SCHOLLER Example (trans. from the German by Rich- WILLI SEMMLER ard Alexander)

MICHAEL BARRATT BROWN The EEC and Neo-Colonialism in Africa 1.1 Winter' 71 Capitalism in the Second Half of the 1.4 Winter' 72 Twentieth Century Imperialism Today - Some Problems for Study 11.7 Winter' 73 Public Ownership and Economic Theory 11.7 Winter' 73

RON BELLAMY Prospects for the European Economic Com- 1.1 Winter'71 munity

STAN BROADBRIDGE A Note on Marx on the Rate of Profit 11.5 Spring'73

PAUL BULLOCK Categories of Labour Power for Capital 11.6 Autumn'73 • Defining Productive Labour for Capital 111.9 Autumn'74

GEORGE CATEPHORES Some Remarks on the Falling Rate of Profit 11.5 Spring'73

DANIEL CHUDANOVSKY International Corporations and the Theory 11.7 Winter'73 of Imperialism MARIO COGOY The Fall of the Rate of Profit and the 11.7 Winter'73 Theory of Accumulation: A Reply to Paul Sweezy (trans. from the German by David Yaffe)

BEN FINE A Note on Productive and Unproductive 11.6 Autumn'73 Labour

ANDREW GAMBLE The British State and the Inflation Crisis 11.6 Autumn'73 PAUL WALTON

ANDREW GLYN The British Crisis and Entry into the EEC 1.1 Winter'71 Capitalist Crisis and the Organic Compos- 1.4 Winter'72 ition British Capitalism in 1972 and 1973 11.5 Spring'73 INDEX 2 ARTICLES (Cont.) ANDREW GLYN Productivity, Organic Composition and 11.6 Autumn'73 the Falling Rate of Profit - A reply Notes on the Profit Squeeze IV.10 Feb. °75

PATRICK GOODE The Law of Value and Marxist Method 11.6 Autumn'73

RICHARD GOODWIN Capitalism's Golden Rule 1.3 Autumn'72

IAN GOUGH On Productive and Unproductive Labour - 11.7 Winter'73 A reply IAN GOUGH Unproductive Labour and Housework Again IV.10 Feb.'75 JOHN HARRISON

PAUL HARE Skilled Labour in the Marxist System - 111.9 Autumn'74 A Comment

JOHN HARRISON Productive and Unproductive Labour in 11.6 Autumn°73 Marx's Political Economy The Political Economy of Housework 11.7 Winter'73

British Capitalism in 1973 and 1974: 111.8 Spring°74 The Deepening Crisis

JOHN HARRISON Autopsy on British Leyland TV.10 Feb. '75 BOB SUTCLIFFE

SUSAN HIMMELWEIT The Continuing Saga of the Falling Rate 111.9 Autumn°74 of Profit - A Reply to Mario Cogoy

GEOFF HODGSON Marxist Epistemology and the Transform- 11.6 Autumn°73 ation Problem

MAKOTO ITOH The Formation of Marx's Theory of Crisis IV.10 Feb. '75

MARY KALDOR A European Aerospace Industry? 1.2 Spring°72

JAN KREGEL Post Keynesian Economic Theory and the 1.4 Winter°72 Theory of Capitalist Crisis

The Post-Keynesian Radical Approach to 111.9 Autumn°74 Monetary Theory

PAUL MATTICK Nixon's 'New' Economic Policy 1.2 Spring'72 ROBIN MURRAY Productivity, Organic Composition and the 11.5 Spring'73 Falling Rate of Profit

CHRISTIAN PALLOIX The Question of Unequal Exchange: A Crit- 1.2 Spring'72 ique of Political Economy

PRABAT PATNAIK The Political Economy of Underdevelopment 1.2 Spring'72

DAVID PURDY The Theory of Permanent Arms Economy - 11.5 Spring'73 A Critique and an Alternative

INDEX 3 ARTICLES (Cont.) HUGO RADICE European Integration: Capital and the State 1.1 Winter'71 SOL PICCIOTTO ALESSANDRO RONCAGLIA The Reduction of Complex Labour to Simple 111.9 Autumn'74 Labour

BOB ROWTHORN Marxism and the Capital Theory Controversy 1.3 Autumn'72 Vulgar Economy (Part II) 11.5 Spring'73 Skilled Labour in the Marxist System 111.8 Spring'74

JIM SMYTH Changing Nature of Imperialism in Ireland 111.8 Spring'74

ALFRED SOHN-RETHAL The Dual Economics of Transition 1.3 Autumn'72 IAN STEEDMAN An Expository Note on the Switching of Techniques 1.3 Autumn'72

Marx on the Rate of Profit, 1.4 Winter'72

The Transformation Problem Again 11.6 Autumn'73

PAUL M SWEEZY Some Problems in the Theory of Capital 11.6 Autumn'73 Accumulation

LEON TROTSKY The Curve of Capitalist Development 11.5 Spring'73 (Introductory Note by Sigurd Zienan)

JOHN WELLS Recent Developments in Brazilian Capital- 11.7 Winter'73 ism

MICHAEL WILLIAMS An Analysis of South African Capitalism - IV.10 Feb. '75 Neo-Ricardianism or Marxism?

HAROLD WOLPE The Theory of Internal Colonialism - The 111.9 Autumn'74 South African Case

DAVID YAFFE The Marxian Theory of Crisis, Capital and 1.4 Winter'72 the State Value, Price and the Neo-Ricardians: An 11.6 Autumn'73 Introductory Note

BOOK REVIEWS

IRMA ADELMAN Economic Growth and Social Equity in IV.10 Feb. '75 CYNTHIA TAFT MORRIS Developing Countries (J.A. KREGEL)

H.W. ARNDT The Economic Lessons of the Nineteen 1.3 Autumn'72 Thirties (BOB SUTCLIFFE)

W. BECKERMAN (ed.) The Labour Government's Economic Record 11.6 Autumn'73 1964-1970 (Ideological Dilemmas: The Convergence of Labour and Conservative Economic Policy) (BILL WARREN)

INDEX 4 BOOK REVIEWS (Cont.)

N BUKHARIN Imperialism and the Accumulation of 1.3 Autumn'72 Capital (DAVID YAFFE)

S CASTLES & G. KOSACK Immigrant Workers and the Class Structure 111.8 Spring'74 in Western Europe (JOHN LEA)

KEN COATES (ed.) A Trade Union Strategy in the Common 1.1 Winter'71 Market (EDMOND SCIBERRAS)

LUCIO COLLETTI From Rousseau to Lenin & Marxism and 111.8 Spring'74 Hegel (The Political Economy of Lucio Colletti) (GEOFF HODGSON)

MEGHNAD DESAI Marxian Economic Theory (MAKOTO ITOH) IV.10 Feb. '75 MICHAEL ELLMAN Problems of Planning in the USSR... 111.9 Autumn'74 (2 Review articles: GRAHAME THOMPSON; SIMON MOHUN)

ARGHIRI EMMANUEL Unequal Exchange (JOHN HARRISON) 1.1 Winter'71

ANDREW GLYN & BOB British Capitalism, Workers and the 1.3 Autumn'72 SUTCLIFFE Profits Squeeze (JOHN HARRISON)

STUART HOLLAND (ed.) The State as Entrepreneur (GIOACCHINO 11.6 Autumn'73 GAROFOLI)

E. MANDEL Decline of the Dollar (CHRISTINE DOWNTON) 111.9 Autumn'74 PAUL MATTICK Marx and Keynes: The Limits of the I.1. Winter' 71 Mixed Economy (DAVID S. YAFFE)

M. NIKOLINAKOS Politische Okonomie der Gastarbeiterfrage: 11.7 Winter'73 Migration und Kapitalismus. (The Political Economy of the Migrant Worker Question - Migration and Capitalism) (SUZANNE PAINE)

GUR OFER The Service Sector in Soviet Economic 11.7 Winter'73 Growth. A Comparative Study (COLIN LAWSON) CHRISTIAN PALLOIX L'Economie Mondiale Capitaliste (HUGO 1.2 Spring°72 RADICE) JOAN ROBINSON & JOHN An Introduction to Modern Economics 111.9 Autumn°74 EATWELL (FRANCIS GREEN•& MORAY CLAYTON) E SAHLINS Stone Age Economics (B. BRADBY) IV.10 Feb. '75 PAT.SLOAN Marx and the Orthodox Economists (MORAY 111.9 Autumn'74 CLAYTON) GARY TEEPLE (ed.) Capitalism and the National Question in 11.7 Winter°73 Canada (ALAN MOSCOVITCH & JOHN CALVERT) E L WHEELWRIGHT AND The Chinese Road to Socialism (SUZANNE' 111.8 Spring°74 B MCFARLANE PAINE)

INDEX 5

BOOK REVIEWS (Cont.)

J R WILDSMITH Managerial Theories of the Firm (HUGO 111.9 Autumn'74 RADICE)

J. ANN ZAMMIT (ed.) The Chilean Road to Socialism (STEPHEN 11.5 Spring'73 PARKER)

REPORTS AND LETTERS

LISANDRO BARRY Letter from a Group of Marxist Economists 1.1 Winter'71 in Argentina

STEVE BODINGTON Letter to the Editorial Board 111.9 Autumn' 74

LIONEL CLIFFE & PETER The Teaching of Political Economy at the 1.3 Autumn'72 LAWRENCE University of Dar es Salaam

JEAN GARDINER & MAUREEN A Note on Women and Economics 1.4 Winter'72 MACKINTOSH

FRANCIS GREEN CSE Dayschool on the Teaching of Economics 111.9 Autumn'74

MARIOS NIKOLINAKOS On the Situation at the Free University of 1.3 Autumn'72 Berlin

TIM PUTNAM Notes on the Marxist Education Course at 1.4 Winter'72 S.O.A.S.

HUGO RADICE Seminar on International Firms: a Report 1.4 Winter'72

HUGO RADICE CSE Conference on Money and Inflation 11.7 Winter'73 HILLEL TICKTIN Report from Glasgow University 1.1 Winter' 71

BIBLIOGRAPHY GEORGE LEE Imperialism 1.2 Spring'72 r

CONTENTS ARTICLES CAPITALISM IN IRELAND Stephen Parker & Ciaran SP & CD 1-18 Driver THE MARXIAN THEORY OF H Ergas and D Fishman HE & DF 1-15 MONEY AND THE CRISIS OF CAPITAL FIXED CAPITAL AND VALUE G Hodgson & I Steedman GH & IS 1-7 ANALYSIS WOMEN'S DOMESTIC LABOUR Jean Gardiner, Susan Himmel- JG,SH & MM 1-11 weit and Maureen Mackintosh ACCUMULATION OF CAPITAL, Philip Armstrong Armstrong 1-17 THE RATE OF PROFIT AND CRISIS .

REVIEWS AND BOOK LIST Review by INFLATION AND LABOUR Ed. D Laidler & D L Purdy Andrew Glyn B.R.1 MARKETS PRIVATE ENTERPRISE AND Arthur Knight Andrew Glyn B.R.3 PUBLIC INTERVENTION - THE COURTAULD EXPERIENCE THE FISCAL CRISIS OF James O'Connor Ian Gough B.R.3 THE STATE THE BALHAM GROUP. HOW Reg Groves Stuart B.R. 8 BRITISH TROTSKYISM Mackintosh BEGAN RATIONALITY AND Maurice Godelier Ken Cole B.R.11 IRRATIONALITY IN ECON- OMICS BOOKS RECEIVED B.R.16

INDEX TO NUMBERS 1-10 Index 1-5

Published by: THE CONFERENCE OF SOCIALIST ECONOMISTS c/o Ben Fine, Department of Economics, Birkbeck College, 7-15 Gresse Street, London W1P 1PA Produced by Barbara Coysh, ISSN 0305-8247 15 St. Anne's Road, Headington, Oxford.