[OPE] Reply to Paul Zarembka on the law of capitalist competition

From: Jurriaan Bendien <adsl675281@tiscali.nl>
Date: Fri Dec 12 2008 - 18:51:48 EST

Paul Z. asked:

If Marx was interested in the law of capitalist competition, why does he EXPLICITLY exclude it from consideration in Vol. 1, Chp. 12?

Short answer is, because he intended to analyse it in Capital Volume 3: "The fundamental law of capitalist competition, which political economy had not hitherto grasped, the law which regulates the general rate of profit and the so-called prices of production determined by it, rests, as we shall later see, on this difference between the value and the cost-price of commodities, and on the resulting possibility of selling a commodity at a profit under its value." http://www.marxists.org/archive/marx/works/1894-c3/ch01.htm I also have a long answer, but that's longer than what I write here just now.

To kick off with, Marx warns in Cap. I, chapter 12 that "a scientific analysis of competition is not possible, before we have a conception of the inner nature of capital, just as the apparent motions of the heavenly bodies are not intelligible to any but him, who is acquainted with their real motions, motions which are not directly perceptible by the senses." ("Wissenschaftliche Analyse der Konkurrenz ist nur möglich, sobald die innere Natur des Kapitals begriffen ist, ganz wie die scheinbare Bewegung der Himmelskörper nur dem verständlich, der ihre wirkliche, aber sinnlich nicht wahrnehmbare Bewegung kennt.").

Question then is "what is this inner nature of capital anyway?" and how do we get there. Any serious analysis of capitalist competition must obviously explain what that competition is essentially or ultimately all about, why there is competition instead of cooperation, and somehow we need to get to the essence of what this thing capital is, its "deep structure" which may not be readily apparent from its surface appearances, appearances which can fool us - just like the sun observably appears to turn around the earth, but in reality the earth turns around the sun, as Copernicus discovered (he pioneered a theory of heliocentrism, but also advised the Polish king Sisgismund on monetary reform).

Asked why competition exists, a game theorist says "because there's a pay-off if you compete and a penalty if you don't", but what are the pay-offs and penalties really? Or he will say, "because in the game of life there are always winners and losers, you cannot all win or lose". But why?

On the surface, the capitalist competition seems to be just about the conditions of business trade, namely, buying as much stuff as you can at the lowest possible price and selling as much stuff as you can at the highest possible price, generating a revenue stream, and that of course can be influenced by innumerable factors. It's "market competition", competition in the marketplace, a competition in trading practices where inventiveness and ingenuity can make a lot of difference to the results. The proof you're winning is, that you make more money than the other guys.

You can easily get the drift of this kind of approach if you consult the writings of Prof. Michael Porter from Harvard University, who tries to create typologies for the all main sorts of strategies which businesses have to reduce purchase prices, increase selling prices, and increase sales volume, so that more profit for capital invested results. The problem he faces however is, that the amount of useful generalisations you can make is limited, because different enterprises produce different kinds of stuff for different product markets, and therefore what makes an enterprise more competitive will depend a lot on what kind of business they're in, and what product market they're in, as well as on the state of the market influencing sales of their product. It's difficult not to drown in the complexity of it all, once you really get going. It looks simpler if you take just one business (micro-level), it gets much harder when you look at all the businesses together.

Porter adopts a sort of "empirical" approach, i.e. he studies what enterprises actually do, undoubtedly a great step forward which many economists do not make, and then he has lots of anecdotes and typologies to show how enterprises discovered they could get a competitive advantage here or there. But no general theory of competition in capitalist society really results from this, except that you can say that enterprises did certain things out of a range of possible things which successfully enabled them to cut their costs and up their sales, resulting in more profit. Porter's assumption is that competition is always beneficial, at least if it's done within the law, it's a sort of sport, and "may the best man win". Competitiveness is a sort of stuff in human nature, you can succeed or fail of course, but it just sort of hangs around the place anyway.

The analytical problem he has is, that a factor which provides competitive advantage here, does not provide competitive advantage there, an indeed how this works out across time, may change quite rapidly. So really all you get is numerous different factors which could combine in all sorts of ways to cut costs, raise sales and increase profits. It is tempting to say then, that this is what the capitalist competition is all about: cutting costs, raising sales and increasing profits. That is certainly what it looks like on the surface, and you can read about that in the newspaper everyday. In this theory, there's only economic competition between businesses, regulated by the state with legislation and enforcement. Porter himself delights in the paradoxes of his inquiry: for example, although he thinks competition is a wonderful thing, decades of intensifying competition have actually wrought a situation of acute "capital disadvantage" - "the US system of allocating investment capital both within and across companies is failing" (On Competition, p. 431). Competition seemed so very good, the elixir of life, now look what's happened mama.

That's where Marx's analysis kicks in.

Just as a sketch, the first step Marx takes in his thinking is to say that the competition isn't just between businesses, it involves everybody in society, including, in particular, workers. It's a social process, there's a sort of bellum omnium contra omnes ("war of all against all") moderated by the fact that we also have to cooperate to get what we want, and regulated by the state. There's not just competition between capitalists, but also competition between capitalists and workers, and competition between workers. There's also competition between nations, but I won't get into that here now.

The next question is then, what really structures this competition and why, beyond passing fads and fashions? What is it essentially all about? According to Marx's "materialist interpretation of history", the answer should be sought in the social relations of production, and in the necessary metabolism between man and nature which occurs through human labour. You obviously cannot have a social "science" without necessary causal connections, and therefore you have to start off with what's really "necessary" for human survival, the basic constants people necessarily have to face up to in life, and which motivate their social behaviour at the most basic level.

Capital can be defined as money in search for more money, more generally value in search of additional (surplus) value, but money cannot generate more money, or value cannot generate more value, except within specific social relations. A gold bar is not capital, it becomes capital only if it is used in a certain way to augment its value, and that presupposes the existence of trading relations, reciprocal obligations and property rights, a certain social framework within which all this can occur. If for example you borrow money on the basis of your gold bar, to invest it, and somebody steals your gold, you're no further ahead. If you don't pay back your creditor, your creditor is no further ahead, although you are yourself, until they catch you. For this system to work you need rights and duties, and means to enforce them. Somehow you have to "make" these things and maintain them, otherwise you cannot accumulate. Sometimes academics call this the "social structure of accumulation" or the "social environment of business".

But, Marx argues, the essence of capital and all its facets, its social meaning, is not actually revealed by these trading practices, only some aspects of it. If a usurer lends out money at interest, this transaction or trading agreement does not reveal the essence of "capital", because it is not clear from this how exactly the increase in capital value ultimately originates, or what the magnitude of the increase is due to. If a merchant "buys cheap" here and "sells dear" there, this does not reveal the essence of capital either, he could acheive that for all sorts of reasons. This essence, he argues, becomes really apparent only when the whole of society's production process is becoming capitalised, i.e. when capital is struggling to subordinate the whole economy to its requirements, transforming it for commercial purposes and restructuring all human relations to fit in with that, when the capital relation is well and truly sinking into the people. You find the meaning of it, in the real living clash of what it is, with what it is not, in that contradiction.

Cutting a long story short, it becomes quite clear, that the source of the surplus value, the added value (Mehrwert) which is the ultimate source of all profit, is really unpaid surplus labour, the original appropriation of which occurs EXTERNAL to the hustle and bustle of the marketplace. Simply put, "Somebody" has to produce the wealth before it can be distributed - in the end, traders cannot keep on selling for more than they buy without somebody producing something for nothing, with or without goodwill, and therefore it is really the conditions under which the latter is consented to, which is critical to the whole competitive process that arises over it. (Hence also the modern obsession with GDP growth and productivity). In particular, Marx also thinks that the mode of production determines the mode of distribution, the mode of circulation and the mode of consumption. The whole "secret" is, in his opinion, that both the increase in material wealth and its appropriation have already occurred, before the new material wealth is traded and distributed in the marketplace. In Marx's terminology, capital is already "valorized" (verwertet, i.e. its value has increased and the increase is appropriated) before its increase is "realised" as more money in market trade.

The way Marx puts it in his 1859 critique of the labour theories of value devised by the political economists is as follows:

"If the exchange-value of a product equals the labour-time contained in the product, then the exchange-value of a working day is equal to the product it yields, in other words, wages must be equal to the product of labour. But in fact the opposite is true. Ergo, this objection amounts to the problem, -- how does production on the basis of exchange-value solely determined by labour-time lead to the result that the exchange-value of labour is less than the exchange-value of its product? This problem is solved in our analysis of capital." http://www.marxists.org/archive/marx/works/1859/critique-pol-economy/ch01a.htm

Engels later puts the issue this way:

"Whence comes this surplus-value? It cannot come either from the buyer buying the commodities under their value, or from the seller selling them above their value. For in both cases the gains and the losses of each individual cancel each other, as each individual is in turn buyer and seller. Nor can it come from cheating, for though cheating can enrich one person at the expense of another, it cannot increase the total sum possessed by both, and therefore cannot augment the sum of the values in circulation. (...) This problem must be solved, and it must be solved in a purely economic way, excluding all cheating and the intervention of any force - the problem being: how is it possible constantly to sell dearer than one has bought, even on the hypothesis that equal values are always exchanged for equal values?" http://www.marxists.org/archive/marx/works/1877/anti-duhring/ch19.htm

The solution, Marx & Engels, argue, cannot be found in the hustle and bustle of marketplace itself, or in an accounting definition, but must be sought in the specific, characteristic way in which the "factors of production" are combined in production.

The mentioned capitalist production process, Marx finds, already sets up a structural, foundational competition between capitalists, between capitalists and workers, and between workers - capitalists try to raise the amount of surplus labour that can be appropriated from workers (more productivity); different capitalists compete to realise a bigger share of the surplus value that results from that; workers compete with capitalists to limit and reduce the rate of labour-exploitation and increase their earnings, and workers also compete with each other for jobs, earnings, free time, promotions etc. The subtlety and moral complexity in this story is, that because human labour is a "necessary metabolism between man and nature", the actors involved don't just compete, they also have to cooperate. They both compete and cooperate at the same time - irrespective of whether these processes are voluntary or coerced.

If, therefore, we are to construct an adequate theory of capitalist competition and what it is really about, what it really turns on, Marx argues, we shouldn't go and look at all the exciting things which occur in the marketplace when seller A is inventively able to obtain more income from overselling or underselling a certain volume of his product, and buyer B is ingeniously able to obtain her product at a bargain. Rather we look at how the "factors of production" are combined and socially organised in the production process, which is the source of the new wealth available for distribution in markets. It turns out that the essence and power of capital is simply the claim on the surplus labour of others, this social relationship, and then the issue is then how this claim is asserted, maintained, and extended, in the first instance within the production process itself.

For the purpose of this analysis, the fluctuations of prices in markets are not immediately relevant - Marx indeed aims to show that profit can be made from production even regardless of all sorts of market fluctuations, and thus he assumes for a start, for the sake of argument, that equal values will trade for equal values, i.e. that the traded items directly involved in production (inputs and outputs) are not sold above or below their value, but at their real value. Strictly speaking, the assumption here is that equal quantities of labour trade for equal quantities of labour, and in his numerical illustrations he assumes that prices directly express values, such that a certain sum of money represents a certain fixed quantity of labour-time. He intends to prove that even if this is the case, capital can increase in value through investment in production.

He knows very well (and says so) that, in reality, equal values do not trade for equal values, and that capitalists try to buy below value and sell above value all the time; indeed workers also try to do this. "Equal exchange" (insofar as we could specify and quantify it) is not even an equilibrium condition, and as he later explains, it cannot be, the whole system is propelled forward precisely by successive positive and negative adjustments to imbalances. But as I said, he thinks trading conditions themselves do not directly reveal the essence of capital, nor do they directly reveal the essence of capitalist competition, because they obscure the ultimate "source" of the new wealth and the conditions giving rise to that, which are to be found external to market trade and not inside it.

Moreover, whatever the patterns of competition, it does not change the basic "structure" and continuity of production relations one iota, which is another reason why they are the starting point of the analysis; the competition is of a specific type, which ordinarily meshes nicely with that structure. However, in chapter 12 he does briefly allude to market competition in the sense that the industrial capitalist aims to sell more product at a price above its individual production value, but below the social value for that type of product (below the ruling average price level, if you like), the theme taken up in Capital Vol. 3.

In reality, as Marx explains in Capital Vol. 3, capitalists aspire not to realise the "average rate of profit", but rather a rate of profit "above the average", a surplus-profit (Mehr-gewinn) or extra surplus-value, which in general they can do positively by raising the net productivity of their own enterprise in specific ways and out-trading competitors in specific ways; negatively by blocking competitors; or by changing the structure of capital finance, in which case it is more lucrative to use capital you borrow to extract profit, than use capital you own or have created (which can have both positive and negative effects for output levels and for other capitalists, as we know now).

Thus, the driving force or dynamic of the system as a whole, which shapes the trajectory of its development, is really the quest for surplus-profits, and the leading industries (also politically) are the ones which fetch the greatest surplus-profit. Main point is, we cannot understand the phenomenon as a whole if we simply focused on clever trading in which a surplus-profit appears due to advantageous sales or purchases; according to Marx, we have to understand what this whole trade is predicated on, what sustains it, its ultimate source - namely, the claim to the unpaid surplus-labour of others, a value relation between quantities of labour-time which exists and persists despite price fluctuations.

Marx's own intellectual claim is that if capitalist competition is view in this way, we can arrive at an integral theory of capitalist competition, which clearly identifies the relationship between cause and effect. Why? Because we have identified what the competition is ultimately all about, what really motivates it, its pivot if you like, the link between the production (the economy of saving labour-time) and the circulation of products (the economy of trading advantage). This is made possible by means of a consistent theory of value, which explains why the result of competition is a definite price level, and not any other one.

Without such a theory, he argues, we fall from one paradox and contradiction into another, causes are effects at the same time, so that we end up making arbitrary assumptions which theoretical development cannot remove, and with descriptive arguments which turn in a tautological circle. In that case, profits appear just as "extra charges added by unaccountable laws to the price of commodities" and "competition has to shoulder the responsibility of explaining all the meaningless ideas of the economists, whereas it should rather be the economists who explain competition". http://www.marxists.org/archive/marx/works/1894-c3/ch50.htm

In an era of economic boom and opulence, the bourgeoisie hails competition theoretically, there is nothing more exalted, chivalrous and honorable than competition. That figures, because everybody is making gains, even if some gain more than others. But in a real crisis, matters turn around: competition becomes a violent, rather frightening cut-throat competition, the gains of some are the losses of others, there are many casualties, and it is realised that "if we don't pull together, work together, we're all down the tubes". Then the talk shifts to how we can cooperate better, work together more. But in reality, Marx argues, all that happens is that the competition shifts ever more clearly to what is really essential to the capitalist system: the real conditions safeguarding the exploitation of unpaid labour-time, the source of profit. Then it turns out, that the competition is no longer simply a competition between businesses, but a competition between social classes, a conflict between capitalist property and the labour that sustains it.



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Received on Fri Dec 12 18:54:01 2008

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