As I was telling you, Marx is in many respects
a classical economist or
He was, he gave completeness to Ricardo’s
analysis which did not happen in Ricardo’s
own writings. Like Smith and Ricardo, Marx
is also thinking in terms of England as consisting
not just England, a society as consisting
of three classes of people, the land owners,
the capitalist and the workers. I am saying
this, because although the economics of Laissez-faire
attempted to look at people as individuals
dealing with the market, evidently they dealt
with as with the market as constituents of
different groups of people.
In fact, Smith was clear about, how not just
the land owners and the capitalist and workers
earned their livelihood, but also how they
spent it, as was Ricardo. Labour theory value
was central to Marx, interacts like the more
central to Marx then it was even to Ricardo.
We know that in the case of Adam Smith, there
was an ambivalence on the one hand, he was
committed to labour theory of value as an
absolute. On the other hand, he had a composite
notion of price and cost, the cost of something
also had to include the rewards of other factors
of production then labour, this is also part
of smith. Whereas, this composite quality
of the price was abandoned by Ricardo and
he committed himself to labour theory and
labour has an absolute value.
However, he was not able to deal with capitallucidly.
If you are looking at labour as an absolute,
then how do you explain the idea that labour
produced much more than what it needed for
his own survival and where did that surplus
go, and who are appropriating that surplus?
Ricardo’s theory explained of course, capitalist
profits, it explained land owner’s rents
and it also argued that the rent of land owner
was not part of the price very lucidly.
But profits were certainly for constituents
of the price that was the case, what is the
point of talking about labour theory as an
absolute? So, this area of doubt remained
in Ricardo also, the genius of Marx Lee in
showing that everything was capital, capital
too was only so much labour. In fact, his
definition of value was so lucid and his definition
of capital was so lucid that you could all
reduce it to all single desideratum, all of
labour was capital and all of value was labour.
So, this was Marx’s genius in the sense
that he carried Ricardo a lot further than
he himself could carry himself.
But before we go into that, we must acknowledge
also that Marx use labour theory of value
much more intensively than Ricardo did. For
Ricardo, labour theory, labour was on only
an absolute value whereas for Marx, labour
was the entity around which all of history
revolved. And all of human history where a
history of human labour and subjugation of
labour in order that the output of labour
might be appropriated.
So, Marx looked upon all of history as a continuum
of subordination and dominance by one who
worked and over him, the dominance of who
did not work and he believed that this single
truth of history which was subordination of
labour to dominance by others took various
forms and various shapes in various epoch.
The substance of human history is subordination
and dominance, but the substance took varied
forms in different epoch and different times.
And therefore, the understanding of history
is important to understand the mortality of
dominance in control through different times.
So, he used the historical method, so which
was why his method was known as historical
materialism.
Materialism because, he was he was a materialist,
he did not believed in any metaphysical entity,
he was atheist and he believed the material
world around us which we see is all that exist
which can be understood by human reason. So,
it was materialism, but the materialism from
historical point of view, because everything
has history to it, everything is becoming
and will become into something else in the
future, this was Marx’s idea of things.
And he used Haggles method of studying history.
And he used Haggles method of studying history
which is dialectics, have you studied Haggle?
I believe you have, can you tell me something
about Haggle?
Ah.
Fantastic, why do you him an idealist?
Because his thoughts was entirely in the , he
was a perfect the of ideas you know, he believed
that all of human history was finding moving
towards the idea.Perfection
Does it go back somebody else whom you knew?
Plato.
Plato.
Plato also
More then Plato, Aristotle, Aristotle was
the positive man, he was looking at the world
as moving towards this perfection. No, Plato
was not so much concerned about world moving
towards his perfection, but as constituting
this perfection, but it is Aristotle who was
positive.
Oh yes, he was an empiricist, he was a scientist,
he was everything, he was a lot of things.
But this platonic idealism was embodied in
much of for what Aristotle was saying in a
positive sense.
Anyway, right, if you have a chance do read
a book, a lovely book by Carl Popper p o p
p e r, Open Society and Its Enemies, it is
a classic. It tracks the platonic roots of
Marx, Haggle and every one of the modern times
very beautifully written, open society and
its enemies. Anyway, so as you rightly said,
Haggle believed that all history was a manifestation
of the idea and was the unfolding of the idea
in the dialectical process till finally, perfection
of idea is reached.
So, you are right, absolutely Marx used dialects
too, but Marx was non metaphysical person,
he was a non idealist in that sense, Marx
was a materialist. Marx saw that the material
conditions of human existence contained within
itself, both the thesis and anti thesis, every
human epoch is materially considered as consisting
of a thesis and an anti thesis and to the
next epoch dialectically as a synthesis.
So, as far as Marx is concerned, capitalism
itself would follow capitalism itself follows
primitive communism, slavery, federalism all
of which them are dialectical precedence of
capitalism. Each of this epoch had its own
dialectical contradictions and led to the
next one as as a synthesis and capitalism
itself according to Marx is a synthetic outcome
of the internal contradictions of federalism.
This is an important thing to remember that,
although Marx makes a brilliant analysis of
capitalism using classical, political, economics
tools, his commitment to classical political
economy was only in the sense of the analysis,
economic analysis of capital. But his view
of capitalism itself was historical, now much
begins with a proposition that all value derives
from labour, like Smith and Ricardo and even
Malthus.
And like Malthus and Ricardo, he admits that
if labour is a source of all value and if
labour is producing more than what it needs
for its , there must be something else in
the in the system too, that is how profit
is justified in no Malthus and Ricardo. But
in Marx, it is more general, all others who
do not work, who dominate labour have access
to this surplus. So, the existence of the
difference between a positive difference in
numbers between what labour produces and what
it consumes is the index of exploitation,
because labour produces the surplus and somebody
else is appropriating it.
And therefore, it is clear all kinds of surplus
and society are only products of surplus labour.
And through history, during the time of slavery,
you had the slave owner who appropriated the
surplus output which came out of the surplus
labour of the slave. Under federalism, you
had the landowner, the aristocracy appropriating
the surplus output of the out of his surplus
labour. And under capitalism, you had the
capitalist appropriating the surplus value
of the output produced by surplus labour I
am sorry produced by surplus labour time.
So, all history has been characterized by
the existence of the exploiter and the exploited,
the worker has been exploited. Now, this is
the point at which he takes a big step away
from Ricardo and company. Because Ricardo
and company admit that as long as the difference
between total labour output and subsistence
wage, this surplus is something which goes
to profits and so forth. But they did not
think of the idea of exploitation, whereas
Marx is very clear, the labourlabourer is
not a charitable institution, he dosent give
away things, he does not manufacture things
and then give it away to his some capitalists
saying ok, you enjoy your life too, no it
is taken away from him.
And conditions of society are so organized
that he has no option, but to compline. So,
in Marx, there is a home, social framework
which creates the rules and norms and conditions
of work with which the workers has to comply,
which are the sources through which the surplus
labour and the output of surplus labour, the
surplus output is appropriated? It is a historical
process, because the rules, norms and institutions
vary according to times, so this is clear.
And societies, therefore characterized by
a fundamental conflict, the conflict between
the worker who is the source of all value
and others who appropriate the surplus from
the worker. So, there is a fundamental antagonism
in all society, between worker and the exploiter.
So, under slavery, it is to be the slave and
the master of the slave; under federalism,
it was the surf versus the landlord and a
capitalism, it is the worker and the capitalist.
The forms have changed, rules and institutions
have changed, but the modality is the same
which is exploitation or into Marx. Therefore,
the justification for is use of dialectical
method, throughout the thesis and antithesis
of different epochs were contained within
the epoch, whereas slavery or surf term or
capitalism.
Now, some terminology, the conditions of production
which is again expression used by Ricardo
and others, which refers to basically the
way work is organized, the technology which
determines the capital output ratios and the
organization of the time schedules, work schedules,
all these are conditions of productions. And
based on these conditions of productions,
there are relations of productions, there
are for instance, managers and the workers
in the factory and the managers are themselves
related to the capitalist owner of the factory.
So, the conditions of production exists within
the framework of relations of productions,
the organizational structure of the form of
production, whether it is a modern factory
or whether it is slavery, the organizational
structure of the form of production gives
you fundamental production relations; weather
it is a slave related to the master, weather
it s a surf related to the landlord or the
worker related to the work to capitalist.
So, this relationship which is called production
relationship along with the conditions of
production which is given by technology, which
is given by , which is given by various physical
factor, resource endowments and so on and
so forth put together. These constitute the
economic base of a society, this is the ultimate
stamp of the materialist definition of Marx
of himself, because he says all society must
have economic base and economy base consists
of production conditions and production relations.
However, the economic base is surrounded,
embedded and filled with a lot that is not
apparently economical. For instance, the worker
in a factory and the and the employer, the
capitalist will not pass each other the first
time in a day without greeting each other.
Although the greeting is not in a part of
the exploitative relationship, the greeting
is a way in which that relationship is articulated.
Likewise, socialization of people into the
lifestyles into which they are living, likewise
the educational process which instills knowledge
not just about science and technology and
mathematics, but also about the society and
its structure and its politics and its history.
All of these are processes through which or
all of all of these are things in which an
economic base is embedded, there is whole
lot of political relationships, there are
political parties with ideologies, there are
parliamentary or non parliamentary or monarchic
or dictatorial political systems, there are
different types of enforcement regimes, there
are regimes in which enforcement is very explicit,
there are regimes in which enforcement is
not explicit, but either way enforcement of
rules, regulations is a part of society.
So, you have politics, you have culture, you
have social institutions, you have belief
systems, you have religions, you have everything
which is the totality in which the economic
base is embedded. And therefore, all these
put together are addressed by Marx as super
structure. So, a society or a social formation
as Marx calls it is a combination of the economic
base and the super structure and every social
formation in every epoch is called a mode
of production.
So, you have a slavery mode of production,
you have a feudal mode of production, you
have capitalist mode of production, you have
socialist mode of production and so on.
In a very simple description, you can say
it all begins with primitive communism in
which the dialectics are not so much institutional,
but human in terms of charismatic differences
among members of small communities which lead
to basic hierarchies among themselves. And
then which lead to the early emergence of
the notion of the property on to human labour
as a property under slavery and land as a
property to which human labour is locked as
surf under federalism.
And then the complete liberation of labour
under capitalism from all forms of institutions,
from land, from slavery, everything the labour
is 100 percent free under capitalism to sell
his labour power. So, you have whole emergence
of forms, superstructures, economic basis
across epoch from one to another and this
in historical process, Marx finds capitalism
is central, because it is almost seems to
have come to a columniation of everything
that started with primitive communism.
So, let us see what Marx has to say about
capitalism, the difference between all capitalist
and pre capitalist economists I am sorry capitalist
and pre capitalist societies among other things
is the fact that, under capitalism labour
is free, whereas it is not free in pre capitalist
societies. Labour is either locked to land
as in federalism or lock to ownership in a
master under slavery, whereas under capitalism,
labour has no constrained in the process of
converting itself into a commodity.
So, what is crucial is to note that, labour
is a commodity. Since, labour is a commodity,
what is paid to the labour is a value of labour
to the employer right, and what is produced
by the labour is the value of the output in
terms of labour right. So, the output has
a value in terms of labour and labour itself
has a value in terms of the rewards paid to
it by the employer and the surplus, therefore
is not just surplus as in previous epoch,
it is surplus value. Why does this happen?
It happens, because the capitalist has a certain
amount of capital, call it M, he pays it to
the labour to purchase labour power and gets
it converted to some C commodities.
So, M gets converted into some commodity c
right and this commodities at the end of it
get converted into more capital when it is
sold into some M prime so that this end m
prime is always higher than the initial m
and the difference between M prime and M is
the surplus. Surplus at the capitalism, therefore
is surplus value, it is how labour is valued
in the society, it is how output is valued
in the society and the difference between
the way output is valued and labour is valued
is surplus value.
Output itself goes into three directions when
it is distributed as a as a final distribution
of the society part of the output of a society
goes to sustain all the workers as the aggregate
wage bill, it is called variable capital.
Variable capital, because around it the technology,
the machinery, the equipment are all organized
and and the quantum of labour can vary in
the usage of these constants forms of capital
what we know today as fixed capital, Marx
used the term constant capital.
So, you have constant capital and variable
capital, this constant capital, the part of
the output that goes towards constant capital
of K is some fixed entity, initially we can
assume that so, we can assume that initially
some stock of capital exists and it has to
meet an annual depreciation costs for replacement
of this equipment and that depreciation is
constant capital. And the other is variable
capital which is what goes to labour and what
remains is surplus, after what is paid to
paid towards constant capital, what is paid
towards variable capital, what remains is
surplus know, it is clear.
So, what is the objective, what is the maximizing
function of a capitalist in this system? Take
a shot Akhil.
Absolutely, the whole purpose of capitalist
is being part of this is to maximize surplus
value, how can that happen? You have an little
arithmetic here, Y equal to V plus K plus
S and you want to maximize S.
Absolutely, because k is constant it is given,
you cannot touch it. So, the fundamental antagonism
between the worker and the capitalist is in
the initial accounting of the enterprise itself,
you cannot maximize S unless you minimize
S I am sorry unless you minimize V in a constant
situation in a unchanging static situation,
dynamically of course Y will change and then
also others will change, but where a constant
or a given Y, S can be maximized only if V
is minimized know.
So, that is what you find here, so what is
the index of exploitation in this situation
S upon V, is it not. So, the idea is go on
increasing S, and how can the worker and how
can the factory do it? Suppose, V is given
at some substance wage and how can you increase
Y such that S can increase, I repeat, suppose
you have a factory with the curtain number
of workers, some missionary equipment technology.
Now, you want to increase the surplus produced
by the workers in this factory, how can you
organize that?
Overtime or extra hours right, in other words
the initial stage in which capitalism works,
it works by increasing labour time, surplus
labour time is maximized in order that surplus
value is maximized, this stage and this form,
it is known as absolute surplus value. It
is absolute because, you have no option, but
to go on increasing labour hours and therefore,
increase output, so let your surplus is maximized,
is this clear, but can this be done for a
long time, forever? Beyond the point, the
labourer cannot work, there is a limit right
beyond which he cannot work anymore.
So, as you are approaching the limit, you
got to start thinking in terms of other ways
in which the output can increase, one way
of doing this is improving the quality of
labour so that the same one hour of labour
time might produce an hour and a half quality
of work know. So, since you cannot increase
the number of hours, you tried to increase
the quality of the number of hours of work
that the labour works. In other words, you
tried to increase productivity of labour and
how can you increase productivity of labour?
By changing technology.
So, technologically innovation becomes necessary,
so once you change technology, the same labourer
now produces more in the same number of hours
as he did earlier right. So, now you have
an open door to surplus maximization, because
you can go on changing technology, go on improving
productivity of labour and then go on maximizing
surplus.
So, this stage is the stage which is known
as relative surplus value, what is crucial
is to realize at this point that once you
move from this first stage to this second
stage, K is no longer a constant. K increases,
you got to spend money on technology, you
have to invest more money, and in other words
your expenditure on capital increases. So,
your Y or your output has to grow now, partly
to sustain your workers and partly to sustain
a growing investment outlay, so this is a
dynamic stage of capitalism.
Now, once investment goes on, it is not simply
a question of checking out the productivity
increases and tying investment to them, because
your productivity increase is also to be compared
with what that investment is bringing for
you. In other words, there are two considerations
which become important one is extraction of
surplus value, one equally important the rate
of return on your investment, some times the
rate of return might be very high and it might
end up also in high surplus value. Some time
rate of return may be low, because the particular
technology chosen might not be very high yielding
technology in terms of productivity. But still
the capitalist might follow that, but when
he does that, he is doing that under low rates
of return, low rates of profit, know it is
clear. So, this might happen, so the dynamics
of capitalism brings in a situation of uncertainty,
rate of profit may rise, it may fall and it
is not entirely in your hands, it is in hands
of the system is a whole. So, economic fluctuations
become a part of the system commencing at
this stage.
So, I repeat, the system has a whole, now
looks like this on the one hand, the workers
are working and since the capitalist is growing,
the workers also form unions to try and bargain,
negotiate, agitate and so forth for better
terms. So, if they find that a new technology
comes in and it is making more money for the
capitalist, the worker would, the union would
immediately agitate and claim a part of that
additional earnings.
It would say ok, you are making 30 percent
growth in the output, because of this technology,
let us have a 30 percent growth in our incomes
the, then the capitalist might bargain and
say no nono 30 percent is too high, I want
my margin too. So, they negotiate, haggle
and so forth and eventually they will arrive
at something like what 20, 25 five percent,
15 percent, whatever.
But, the unions become a very important institution
in this system at this point, because they
are the ones who bargain and gets something
out of this gain for the workers, so this
is on the workers side. And once the worker
bargains and gets what he wants, next time
the employer is pushed into another round
of technological improvements, because he
says I cannot sustain so many workers paying
such high salary. I must have some , I cannot
pay this high salary to all the workers; I
can only have less workers than before.
So, he brings in a labour saving technology,
once more and this time he looks at how many
workers is able to remove from employment
know. So, there is prosperity with this technology,
at the same time there is exploitation in
the sense that the workers are thrown out
and as workers are removed from employment
in this manner, more and more and more workers
get around to the margins, they do not have
jobs. At the same time, there are workers
who are benefiting from this, who are able
to get higher pay because they are more productive
and so on and so forth.
So, among the workers themselves, there grows
up a difference between highly paid, not so
highly paid workers. So, the workers who are
marginalized in the process were thrown out
of employment, they become what Marx calls
the reserved army of unemployed the reserved
army of unemployed, there the reserve army,
because they are available to him, in case
he wants workers, they are there. And yet,
they are a reserve for which he has to pay
nothing, they are just there, they are hanging
in around.
Later on, as capitalist society becomes more
democratic, you might have unemployment benefits
during during times of unemployment, the workers
might find themselves getting some aid from
the government to sustain themselves, but
for which the tax is paid by the capitalist
and so forth. So, in indirectly in more democratic
society, the capitalist ends up paying a tax
which will sustain the workers and they are
in the state of reserved army.
But in the earlier stages, the worker is abolished
to do nothing I am sorry the capitalist abolished
to do nothing, he just lets them be and then
they constitute reserved army of unemployed
that is one. Second, the workers who have
better salaries, what about them? They have
the of even better lifestyles in front of
them, but they cannot get it, because that
is about the limit to which they can get.
So, there is more frustration in these workers
too, there is a lot of promise in the system
which the system does not deliver, this whole
process is called of the workers.
So, in the society as a whole, there is a
great dynamic going on is increasing pressure,
counter pressure, the workers want more and
under pressure, the capitalist might healed,
the hitches come back with another labour
saving and take more workers off. So, this
is pressure, counter pressure, so what is
happening in this frame? More and more workers
are getting unemployed, constituting the reserved
army of unemployed. In modern economies, how
many of these workers, how much, what number
of workers, what percentage of the working
force, what percentage of the population can
be sustained as being unemployed in this fashion,
essentially due to technological changes,
adaptations and so forth.
How many of them can be sustained is a function
of how much can be afforded. right and how
much can be afforded is a function of how
much tax can be raised to support them through
social security? So, eventually, the numbers
come down to an affordable feasible number
which is what is described in modern unemployment
statistics in developed countries.
Unemployment rate of 2 percent, 3 percent,
2 and a half percent, 5 percent, 4 percent
whatever that is a sustainable level of unemployment
in the system due to what in modern macro
economics is called structural and frictional
unemployment, essentially it is a reserve
army of unemployed in a dynamic process of
capitalist development, so this is one thing
that is happening
The other thing is the world around the capitalist
is becoming more uncertain, he is not very
sure that the innovation he makes the technological
change which he institutes is something which
will always pay what he expects it to pay
for three reasons. The first reason is that
the technology might not perform as it is
blue print guarantees right, second each technological
change is a learning process. So, the workers
have to be retrained, re-educated and that
is an expensive project.
So, depending upon what the technology costs
in terms of funds, the capitalist has to think
is it worth my while and its worth my while
if it deals a good net income over and above
a cost of training and recouping, retooling
and so on and so forth. Now, this becomes
unpredictable, it becomes unpredictable, because
there are other factors then simply technology
involved here, the market in enrolled here.
The cost of this technology will depend upon
how costly funds are, in other words if in
the system interest rate is raising, then
the funds are not cheap right.
So, if the interest rates are falling, then
the funds are cheap, do you remember the old
mercantilist argument that interest rates
must be kept low so that business can grow
and the economic can expand? It is a lot of
sound common sense in it from this point of
view know, the capitalist would wish interest
rates to remain same, remain low and well
managed. But whether that is the case, we
are not, we do not know but, one thing is
the capitalist has more variables and his
consideration now than before, there is greater
uncertainty in calculation in his mind than
before.
So, his rate of profit becomes a question
mark in front of him, what will they be in
the longer an what will they they be 5 years
from now, because I am committed to wave after
wave of technological innovations and improvements
to to protect by self, it is no longer a question,
you see it is become a very interesting game.
Initially, I did all this technology change
in order that I might maximize my surplus
value, absolutes relatively, relative surplus
value you know.
But now it is become a kind of a chess game
between the workers and me, they keep pushing
me for higher wages and to protect myself,
I have to bring in one more innovation and
when I go into one more innovation, I have
got all these calculations to make and I expose
myself more to risk. So, the world of capitalist
becomes more unstable and since, businesses
might rise and fall, investments are made
and the investments may fail or succeed and
if it is been investment succeed the economy
takes a beating I am sorry in the investments
fail, the economy takes a beating, the investments
succeed then the economy is on the boom.
So, what you find now, are the rise and fall
of the income levels of the economy through
time. So, this is something else which the
capitalist has to recognize with at this point
of time know. So, you find , you find the
world of the capitalist growing more in secure,
he is he is growing more he growing richer
alright, he is he is growing more and more
insecure, more and more uncertain uncomfortable.
Now, he is open to cyclical movements of income
ahead of him which are essentially a function
of his investment activities. If you were
not investing so much looking for constant
augmentation of capital stock and technology,
there would not be so much movement, the more
he pushes him selves into an innovation, the
more deeply he pushes selves into a the possibility
of
So, this is second, the third has the capitalist
come face to face was the is the reality,
we find two options opened to them, should
I expand my business by creating more structures,
expanding my capital size, building another
factory with more technology, more advance
technology or should I simply buy up another
factory which is somewhere, which is owned
by somebody else?
The option is which is cheaper, if I buy up
somebody else’s business, then I have a
going proposition in my hands, I do not have
to spend so much money on building everything
a new right, the moment I think of this, some
predatory process has started in among the
capitalist, the bigger capitalists are now
looking to buy this smaller capitalist. We
will stop at this point and continue with
Marx in the next class.
