Invisible Leviathan – Marx’s law of value in the twilight

of capitalism
thenextrecession.wordpress.com/2019/04/06/invisible-leviathan-marxs-law-of-value-in-the-twilight-of-
capitalism
April 6,
2019

My foreword to Invisible Leviathan, by Professor Murray Smith of Brock University, Ontario,

Canada, published by Brill in November 2018. Relevant, I think, to my recent presentation on the
contribution of Marx to economics made at the Rethinking Economics conference at Greenwich
University, London.

The message of Murray Smith’s book is aptly portrayed by its title, Invisible Leviathan. The
book sets out to explain why Marx’s law of value lurks invisibly behind the movement of
markets in modern capitalism and yet ultimately explains the disruptive and regular
recurrence of crises in production and investment that so damage the livelihoods (and lives)
of the many globally.

This book is a profound defence (both theoretically and empirically) of Marx’s law of value
and its corollary, Marx’s law of the tendency of the rate of profit to fall, against the criticisms
of bourgeois, ‘mainstream’ economics, the sophistry of ‘academic’ Marxists, and the
epigones of the classical school of David Ricardo and Adam Smith. As the author points out,
even the great majority of ‘left’ commentators concur that the causes of the ‘Great
Recession’ of 2007–09 and the ensuing global slump are not to be found in Marx’s theories,
but rather in the excessive greed of corporate and financial elites, in Keynes’s theory of
deficient effective demand, or in Minksy’s theory of financial fragility. When acknowledged
at all, Marx’s value theory and his law of profitability are attacked, marginalised or dismissed
as irrelevant.

None of this should be surprising given the main political implication of Marx’s laws: namely,
that there can be no permanent policy solutions to economic crises that involve preserving
the capitalist mode of production. I am reminded of the debate at the 2016 annual meeting
of the American Economics Association between some Marxists (including myself) and
leading Keynesian Brad DeLong, who seemed to characterise us as ‘waiting for Godot’ – that
is to say, as passive utopians, waiting for collapse and revolution – while he stood for ‘doing
something now’ about the deplorable state of capitalism. But as Smith explains so well, it is
the ‘practical’ Keynesians who are the real utopians in imagining that actually existing,
twenty-first-century capitalism – characterised by crises, war and ‘the avarice and
irresponsibility of the rich’ – can still be given a more human and progressive face.

Against the many variants of ‘practical’ economics, Smith’s book sets out to:

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 uphold Marx’s original analysis of capitalism, not only as the most fruitfully scientific
framework for understanding contemporary economic problems and trends, but also as the
indispensable basis for sustaining a revolutionary socialist political project in our time. It does
so by examining the crisis-inducing dynamics and deepening irrationality of the capitalist
system through the lens of Marx’s ‘value theory’ – which, despite the many unfounded
claims of its detractors, has never been effectively ‘refuted’ and which continues to generate
insights into the pathologies of capitalism unmatched by any other critical theory.

Marxian value theory has been subject to ridicule, distortion and incessant rebuttal ever
since it was first expounded by Marx 150 years ago. And the simple reason for this is that
value theory is necessarily at the core of any truly effective indictment of capitalism – and
essential to refuting its apologists. What truly motivates the ‘Marx critique’ of the bourgeois
mainstream is graphically confirmed by the (in)famous argument of Paul Samuelson (the
leading exponent of the ‘neoclassical synthesis’ in mainstream economics after World War II)
according to which Marx’s value theory is ‘redundant’ as an explanation of the movement of
prices in markets. The market, you see, reveals prices, and that is really all we need to know.

It is instructive to note that, shortly after Samuelson’s 1971 broadside against Marx, the
(recently deceased) neoclassical economist William Baumol offered a trenchant response to
Samuelson’s ‘crude propaganda’. In a paper from 1974, Baumol pointed out quite correctly
that Samuelson had entirely misunderstood Marx’s purpose in his discussion of the so-
called transformation of values into prices. Marx did not want to show that market prices
were related directly to values measured in labour time. Quite the contrary:

The aim was to show that capitalism was a mode of production for profit and profits came
from the exploitation of labour; but this fact was obscured by the market where things seemed
to be exchanged on the basis of an equality of supply and demand. Profit first comes from the
exploitation of labour and then is redistributed (transformed) among the branches of capital
through competition and the market into prices of production.

The whole process reveals the ‘Invisible Leviathan’ at work.

Unfortunately, it is not just mainstream economics that has tried to rubbish Marx’s value
theory. ‘Post-Keynesians’ like Joan Robinson and neo-Ricardian Marxists like Piero Sraffa and
Ian Steedman have also done so. Like Samuelson, they resort to the argument that Marx’s
value magnitude analysis is redundant, unnecessary and above all fallacious. As an
alternative, Sraffa claimed that prices in capitalist markets can be derived directly from
physical output.

Murray Smith demolishes these critiques and revisions, standing firmly on what he calls a
‘fundamentalist’ position that involves a return to both aspects of Marx’s fundamental
theoretical programme: the analysis of the form and the magnitude of value, as well as a
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concern with the relationship of each to the social substance of value: abstract labour. I join
him under this banner.

According to Smith:

Marx’s theory of value yields two postulates that are central to his critical analysis of
capitalism: 1) living labour is the sole source of all new value (including surplus-value), and
2) value exists as a definite quantitative magnitude that establishes parametric limits on
prices, profits, wages and all other expressions of the ‘money-form’. From this flows Marx’s
fundamental law of capitalist accumulation: that the tendency of the social capital to increase
its organic composition (that is, to replace ‘living labour’ with the ‘dead labour’ embodied in
an increasingly sophisticated productive apparatus) must exert a downward pressure on the
rate of profit, the decisive regulator of capitalist accumulation.

The book’s theory of capitalist crises rests firmly on Marx’s law of profitability. But, as Smith
insists,

Marx’s law of value is merely a ‘necessary presupposition’ of this law of profitability, not
a sufficient one. Yet, there is a sense in which the latter stands as a corollary to the former,
even if not a theoretically ineluctable one. For capitalism is a mode of production in which
the goal of ‘economic activity’ is only incidentally the production of particular things to
satisfy particular human needs or wants, while its real, overriding goal is the reproduction of
capitalist social relations through the production of value, that ‘social substance’ which is the
flesh and blood of Adam Smith’s powerful yet also fallible ‘invisible hand’ – of our ‘Invisible
Leviathan’.

And so:

[T]hese laws provide a compelling basis for the conclusion that capitalism is, at bottom, an
‘irrational’ and historically limited system, one that digs its own grave by seeking to assert its
‘independence’ from living labour even while remaining decisively dependent upon the
exploitation of living wage-labour for the production of its very life-blood: the surplus-value
that is the social substance of private profit.

Smith is by no means content with a purely theoretical defence of Marx’s analysis of

capitalism’s Invisible Leviathan; he moves on to empirical verification of the ‘economic law of
motion’ of capital as postulated by Marx. I share his view that this is essential. The contrary
opinion of certain Marxists is that it is simply impossible to verify Marx’s laws, as the latter
are about labour values and official bourgeois data can only detect movements in prices,

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not values. Moreover, according to this line of thought, statistical verification of Marx’s
value-theoretic hypotheses is unnecessary, as the regular recurrence of crises under
capitalism is a self-evident fact revealing its obsolescence.

But this is passing the buck. Any authentically scientific socialism demands rigorous
scientific analysis and empirical evidence to verify or falsify its theoretical foundations; and
Marx himself was the first Marxist to look at data in an effort to confirm his theories. In this
connection, Smith writes:

Marxist analysis of the historical dynamics of the capitalist world economy ought not to
dispense with serious attempts to measure such fundamental Marxian (value-theoretic) ratios
as the average rate of profit, the rate of surplus-value, and the organic composition of capital.
To be sure, such attempts can never offer much more than rough approximations. Even so,
they are vitally important to charting and comprehending essential trends in the [capitalist
mode of production] – trends that can usefully inform, if only in a very general sense, the
political-programmatic perspectives and tasks of Marxist socialists in relation to the broader
working-class movement.

Murray Smith’s own empirical analysis is original and somewhat controversial. He revives
the approach of Shane Mage, whose pioneering empirical work of 1963 on the rate of profit
treated the wages of ‘socially necessary unproductive labour’ (SNUL) as a systemic
‘overhead’ cost that should not be regarded as a ‘non-profit’ component of (or absolute
‘deduction’ from) the surplus-value created by productive labour, but rather as a special
form of constant capital. In Smith’s view,

by conceptualising SNUL as a necessary systemic overhead cost, the constant-capital

approach emphasises that capital’s room for manoeuvre with respect to [persistent problems
of valorisation and profitability] is quite limited, giving Marx’s proposition that ‘the true
barrier to capitalist production is capital itself’ a somewhat new twist.

And indeed, his analysis of the US capitalist economy (from 1950 to 2013) does reveal a
long-term fall in the average rate of profit that is significantly correlated with a secular rise
in the organic composition of capital, entirely in accordance with Marx’s view. This hugely
important result has been replicated by many other Marxist studies in the last 20 years,
several of which appear alongside Smith’s in The World in Crisis, a volume edited by
Guglielmo Carchedi and myself. Many are also referenced in my own recent book The Long
Depression.1 (It is noteworthy that Smith’s initial empirical study of Marx’s law of the
tendency of the rate of profit to fall, employing data on the postwar Canadian economy, was
first published in 1991, with an updated version appearing in 1996. The results of those
studies, along with some others, are also to be found in the present volume.)

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Theory and evidence should lead to practice – which means not ‘waiting for Godot’. At the
end of the book, Smith refuses to evade the practical upshot of his theoretical and empirical
investigations:

The essential programmatic conclusion emerging from Marx’s analysis is that capitalism is
constitutionally incapable of a ‘progressive’, ‘crisis-free’ evolution that would render the
socialist project ‘unnecessary’, and furthermore, that a socialist transformation cannot be
brought about through a process of gradual, incremental reform. Capitalism must be
destroyed root and branch before there can be any hope of social reconstruction on
fundamentally different foundations – and such a reconstruction is vitally necessary to
ensuring further human progress.

In this bicentennial year of his birth, I can’t help thinking Marx would be pleased. The
enemies of his transformative, socialist vision will no doubt be disgruntled.

Michael Roberts

London

January 2018

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