Capital & Class. - 1988. - Issue 35 issue 35

r

Mike Hall

The international debt crisis : recent developments

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The Crisis Continues Five years after its maturation in 1982, the international debt crisis continues to act as a deflationary influence on the international economy and haunts the capitalist world with the possibility of a major international dislocation - the bankruptcy of international banks and the incapacitation of the international financial system . In such an event, trade finance, investment flows, and, indeed, the international payments system would be more or less disrupted, making international depression inevitable . While these eventualities are still possibilities rather than probabilities, the fact that the stakes are so high makes the debt crisis remain one of the central problems of the international economy .

Creditors' Strategy Since 1982, when the debt crisis began to boil over, the creditor establishment,

7

Capital& Class 8 comprising the international commercial banks, governments and international agencies 1 have attempted to manage it on an ad hoc basis . Their central objectives were, first, to avoid open default by a major debtor, and, second, to prevent any alliance of debtors forming to face creditors with common demands. The first objective was to be achieved by rescheduling debts, advancing further loans, and obliging the debtor to follow an International Monetary Fund (IMF) `adjustment' programme designed, among other things, to reduce imports by cutting public and private consumption in the debtor country ; the second, by divide and rule through negotiating reschedulings one case only at a time . Recently, the banks have elaborated on this strategy. Once a country has reached agreement with the IMF, the banks approach the problem of managing its debt armed with a so-called `menu' of financing alternatives including the exchange of debt for equity investments, and `exit' bonds which allow banks to escape from being repeatedly asked for new money by replacing their loans with low interest securities . Exit bonds, which enable the banks to cut their ties with a country at the cost of lower interest rates, are, in fact, a complicated type of refusal to lend any more, or even to reschedule . However, the banks can also actually make money through such arrangements . Thus, in November, Mexico suspended its debt-for-equity swap programme for two weeks, in part because banks can buy a Mexican debt in the secondary market `at just over half its face value and then exchange it with the Mexican government for as much as 90 cents on the dollar [albeit] . . . redeemed in pesos linked to agreed investment programmes . . . in export sectors'

(The Financial Times, 6th November 1987). It must also be said that the creditor establishment, whilst not actually welcoming the debt crisis, has made the best of a bad job by using it as an opportunity - via the IMF and the World Bank - to force governments to implement 1980s' style free market policies in the debtor countries . Thus, `a senior us official' speaking in the name of the us government at the recent meeting of the IMF's policy-making Interim Committee, voiced `implacable opposition to proposals that the IMF and World Bank establish a new facility to "buy up" the debts of heavilyindebted nations' on the grounds that `[such proposals] . . . would completely undermine efforts to persuade debtor nations that major economic adjustment programmes were the key to the eventual resolution of their problems .' (The Financial Times, 12th April 1988) It must be remembered that these `major' adjustment programmes have the aims, on the one hand, of promoting the indigenous usually comprador - capitalist class, and on the other, of integrating the industry and agriculture of the countries concerned firmly into the international circuitry of capital, or in the worlds of the Baker plan [see below, p . 4] `encouraging the private sector and allowing market forces a larger role in the allocation of resources .' The creditors have had little option but to pursue their strategy of crisis management and damage limitation for they have little influence over the fundamental causes of the debt crisis which lie in the slowing of international capital accumulation which began in the mid-1970s . The us Senate's Church Report of 1977 noted that commercial banks began to lend to Third World countries as early as 1970 in response to the paucity of demand for finance from corporate capital, and that

International debt

some

had built up large debts even they were obliged to borrow again in order to finance worsened external deficits caused by OPEC's oil price rises of the later 1970s (us Senate, 1977) . The recession of the early 1980s and the tight money policies pursued by the USA and the leading imperialist countries as the latter abandoned their Keynesianwelfare state concensuses brought the debt crisis to a head . Interest rates and the dollar rose, increasing debt servicing burdens quite dramatically, while at the same time, Third World countries hard currency earnings were squeezed as demand for their exports fell and commodity prices dropped with the slowing of accumulation in the imperialist countries . The growth of protectionism directed `LDCs'

before

against Third World goods further exacer- 9 bated the problem .

The Baker Plan In October 1985 the us Secretary of State, James Baker attempted to move the creditors a small step beyond the case-bycase approach with his so-called Baker plan . The plan had three elements, first, debtor countries would, as previously, be required to implement austere 'adjustment' policies, but with greater stress on 'longer-term structural reform, encouraging the private sector and allowing market forces a larger role in the allocation of resources .' (House of Commons, 1986-7, p .xxxii) ; second, an increase in lending by commercial banks of $20bn . over three

Table 1 : Leading banks' lending to Mexico, Brazil, Argentina and Venezuela at end December 1984 and the impact of the special provisions of 1987 1

NatWest Barclays Lloyds Midland Citicorp Bank of America Chase Manhattan Manufactures Hanover J P Morgan Chemical NY Bankers Trust First Chicago Sources: American

2 of

3 % of

Lending

capital2

capital'

(UK £m . ; US $m .) 2253 2309 3676 4712

(end-1984) 73 62 165 204

(mid-1987) 62 52 112 159

10300 7420 6705 6769 4427 4022 2818 2287

140 122 142 173 103 134 114 103

100 100 104 118 86 96 90 80

Banks from Salomon Bros ; UK banks from City estimates ; The Banker, September 1987, p .31 . The first two columns are taken from C Huhne, Debt time-bomb under the banks The Guardian, 15th August 1985 .

Capital & Class 10 years - the decision to lend, however, was to remain a matter for the banks' commercial judgement ; and, third, a continued central role for the IMF and an enhanced role for the multilateral development banks, involving an increase from $6bn to $9bn annually in loans from the World Bank and the Inter-American Development Bank to the principal debtors over the next three years . The key element of the Baker plan was also its weakest, namely the $20bn voluntary increase in lending to the principal debtors on the part of the commercial banks . Not only was this sum regarded by many - not only the debtors - as inadequate, but leaving the decision to lend to the commercial judgement of the bankers could mean only one thing : a failure to meet even the conservative target of the plan . In fact, bank lending fell rather than rose in 1986, with the World Bank and the development banks, as well as the commercial banks, failing to increase their lending in line with the Baker suggestions . Indeed, the naivety of calling for increased commercial bank lending when it had been falling for four years led critics of Baker's initiative to conclude that `it was too much of a political initiative geared to defuse resistance amongst debtors to debt servicing .' (Griffith-Jones, p . 29, 1987)

The banks make a move In February 1987, Brazil, the largest single debtor country, together with other smaller debtors declared a moratorium on interest payments . In May, largely in response to Brazil's action, Citicorp, the parent corporation of the largest and most influential money-centre bank, Citibank, added $3bn to its loan loss reserve and, as a result, took the largest loss in the history of international banking . Despite

worries that Citicorp's action would expose the inability of other us and UK banks to follow suit, by the end of the summer of 1987, twenty-two of the thirty us banks with assets of more than $20bn ., together with all the UK clearing banks had made special provisions against their largest Third World debts . The total losses resulting from these actions amounted to $10 .7bn . (see The Banker, September 1987, p .31). Table 1 gives an estimate of the banks' exposure to just four major Latin American debtors before and after their allocations of special provisions . Other estimates of the banks' exposure in the Third World suggest that us and UK banks have now set aside loan loss provisions of 25-30% against the debts of 25-30 debtor countries . (The Banker, September 1987, p . 31) . In general, the allocation of special provisions mean that the major creditor banks now have reserves which provide cover against the default of any single major debtor country - even Brazil . They are, nevertheless, still vulnerable to an alliance of major debtors . Thus, for example, in Britain, Lloyds' and Midlands' special provisions cover only 50% and 42% respectively of their aggregate lending to Brazil, Mexico and Argentina . These bare figures, however, do not give a complete picture of the banks' collective vulnerability. For, firstly, banks are exposed domestically as well as internationally : the UK Treasury and Civil Service Committee notes that the us banks' dubious international loans are complemented by seriously deteriorated domestic loans in real estate and energy. Moreover, `In a number of countries, including both the us and the UK, banks are worried about their loans to certain branches of manufacturing industry.' (House of Commons, pp . xxi-xxii, 1986-7) . Secondly, the

International debt profusion of international interbank lending means that that the banking system of one country cannot be insulated from the risks borne by those of others . In particular, the UK banks' Latin American exposure is compounded by' . . . their extensive lending to other banks, particularly in the USA, which themselves are at risk in Latin America .' (ibid .) . Through the medium of interbank lending, then, the fortunes of UK high street clearing banks are connected via a chain of links to those of us regional banks with their uncertain real estate and energy assets . It is through such linkages that international financial crisis would spread in the event of major debt defaults .

Implications of the banks' provisions The banks' reinforcement of their loanloss provisions is, at first sight, profoundly ambiguous . On the one hand, it could mean, as Kaletsky of The Financial Times puts it, that the banks are facing the facts at last, and are able and willing to `make sizeable concessions to the debtors .' (The Financial Times, 21st May 1987). On the other hand, the banks' move has been interpreted as a hardening of their stance, and the first step towards their disengagement from the Third World, a view brutally expressed as follows ; `If Citicorp can get to the stage of having written off or provisioned most of its bad debt, then when the rescheduling begging bowl [sic!] comes round again, it can shake its head, fold its tents and steal away.' (Boolney, 1987) Indeed, it is difficult to imagine why banks, which have taken large losses in order to provide insurance against their loans to Third World countries should want to re-expose themselves to these same countries . It is far more likely that, while the loan-loss provisions will enable

the banks to entertain concessions to de- 11 btors, actual concessions will be made only as the price of disengagement4. Where disengagement is not advantageous or possible, then the banks will continue to insist on repayment and servicing at full face value s .

Disengagement and the official point of view There is no doubt that the banks are keen progressively to reduce their exposure in the Third World, and the increased loan-loss provisions should be seen in this context . The banks are insisting that alternatives to bank loans should be used to finance the Third World ; a recent report from the Washington-based Institute of International Finance sets out guidelines which ' . . . specifically exclude the banks from filling gaps in LDCS' financing needs . It demands that debtor countries and the IMF/World Bank replace general purpose lending with lending for specific purposes (trade and investment), and create better conditions for banks to exchange loans into equity.' (The Financial Times, 24th June 1987) . Nevertheless, the sheer scale of the banks' exposure in the Third World will make it impossible for them to disengage in the foreseeable future by means of measures such as debt-equity swaps alone 6 . In the meantime, the creditor governments and the multilateral financial institutions must consider the debt crisis from a broader perspective than the banks . At stake is the legitimacy in the Third World of the free-market capitalist strategy of the 1980s, and, ultimately the capitalist system itself as a credible future for the debtor countries From this point of view, it is important for the official side of the creditor establishment to keep the banks `filling gaps in LDCS' financing needs'

Capital & Class 12 (which are far too great to be filled by the IMF and the World Bank) and to retain them as allies in a strategy for the Third World - this is the import of the foundering Baker plan, which would be publicly buried by disengagement on the part of the bankss . The banks' strategic alternative to the Baker plan is to demand that bank finance be replaced by official loans tied to policies intended to attract private direct and portfolio investment by obliging the Third World to grow capitalistically. The banks would then either gradually securitise their outstanding loans by means of debt-equity swaps, or sell them to official or private investors . However, since, Third World growth depends on demand from the `North', the banks' alternative amounts to a demand that the industrialised capitalist world expands faster than it appears willing or able to do, and to reduce its trade barriers against Third World exports more than it is willing to do . The rational kernel of such demands is their implicit recognition that the roots of the debt crisis lie in the limping growth of international capital accumulation since the 1980s .

The Third World squeezed During 1986, Third World countries were squeezed by a series of adverse developments : a worsening of debt service ratios (the result of meagre international growth and low commodity prices) ; an increase in protectionist pressures in the industralised countries ; and a tendency for interest rates to rise - thereby offsetting the lower interest margins negotiated during rescheduling. The situation has been exacerbated by the increasing reluctance on the part of the banks to lend more to the debtors - despite the rhetoric of the Baker plan . In fact, since 1981, there has

been a steep decline in bank lending to the Third World . In 1981, before the debt crisis had matured, Third World countries received $87bn . from this source . By 1985 bank lending had fallen to only $19bn ., and reached a new low of $10bn . in 1986 . The bulk of this $10bn . is not new lending, but funding for outstanding interest payments as part of rescheduling deals . Moreover, most of the decline is accounted for by the reduction in lending to countries having difficulty in servicing their debts (IMF, Annual Report, 1987, p . 28) . New lending is now only partially offsetting the payments of interest to the banks . Thus, `debtor countries, instead of receiving money to help them (and the international economy, Mx) grow out of their problems, have suffered huge outflows of resources in order to pay interest on their debts' (The Financial Times, 2nd October 1987). The net transfer from the debtors to the bankers is becoming very large . Thus, the World Bank reports that longterm net disbursements to all developing countries totalled about $36bn . in 1985, while interest payments on long-term debt reached almost $58bn. If medium term debt servicing is added, the picture worsens dramatically : net disbursements in 1985 remain at `around $36bn .' ($35 .6bn . to be precise) while total service payments rise to a staggering $114 .9bn . (The World Bank, Annual Report, 1986, p . 44 and Table 2-5). The debt ratio for all Third World countries steadily increased from 82% in 1980 to 169% in 1986, while their debt service ratio9 increased over the same period from 13% to 25% . As is often the case, these averages disguise significant deviations, notably in Latin America with the largest debtors and in Africa with the poorest countries . In Latin America, debt ratios increased from 183% in 1980 to 349% in

International debt 1986, and debt service ratios from 34% to 50% (all figures from the IMF, Annual Report, 1987, Table 10 p . 30) . In subSaharan Africa, the debt burden has doubled since 1982, and now represents 54% Of GDP, or almost 400% of 1986 export earnings . Individual country debt ratios now exceed 50% on average, and are much higher for many of the poorer countries (The Financial Times, 30th November 1987). It is worth stating bluntly just what these figures mean : in Latin America, and sub-Saharan Africa, debtor countries are, on average, being required to use 50% of their total (not net) export earnings to service their debts .

Debtors revolt in Latin America? Not surprisingly, the burden of debt servicing is making the working classes, the peasantry, and even sections of the bourgeoisie of the debtor countries increasingly unwilling to service the debts . As a result, it is becoming much more difficult for governments, especially in Latin America, to implement the procapitalist austerity policies imposed by the creditor establishment . Thus, President Raul Alfonsin of Argentina, who, in 1987, negotiated an IMF agreement, a Paris Club rescheduling and a new bank loan and rescheduling, has suffered electorally to the extent that the opposition now has a majority in the two houses of the Congress, and holds 20 out of the 22 provincial governorships . The Argentinians are already missing some of the economic targets in their IMF programme and to date have faced eleven well-supported one-day general strikes in protest against the government's IMF-directed economic policies . The dilemma facing Alfonsin is stated bluntly by The Financial Times: `To accomodate the trade unions means a rupture with the banks . To muddle

through with his present economic team 13 or to strike a deal with Mr Alsogaray [leader of the right-wing Centre democratic Union], however, implies all-out war with the unions' (The Financial Times, 6th November 1987). Thus, despite some optimistic developments (from the creditors' viewpoint) in oil-producing Mexico and Venezuela, and in Chile, it is becoming more and more difficult for creditors, and compliant governments to impose their policy of rescheduling and austere economic adjustment in Latin America . During 1987 a growing number of Latin American debtors joined the revolt against their creditors with Brazil halting interest payments in February, and Peru almost completely isolating itself from international finance capital . This development recently reached what The Financial Times called an `historic' turning point, when the `Group of Eight' (Brazil, Mexico, Argentina, Venezuela, Peru, Columbia, Uruguay, and Panama), meeting for the first time independently of the us-dominated Organisation of American States ' . . . threaten[ed] - in a conciliatory tone, but with unmistakeable intent - to take unilateral action against creditors if they do not obtain what they want' (ibid .) . The Group of Eight's total debts represent some 30% of total Third World debt . What they want is a cut in interest rates to the real levels of the 1970s (about half the present rate), and a debt service level calculated on the secondary market value of their debts, which is, in all cases, less than half of their face value . Such terms, threaten the more overexposed banks with insolvency, even after their allocation of special loan-loss provisions for, as noted above (see pp . 7-8), while the special provisions have insured the major creditor banks against loss of value or even default in the case of one

Capital & Class 14 major debtor, they are insufficient to cover the united action of an alliance of the biggest debtors, such as the Group of Eight . Fortunately for the banks, the Group of Eight seem not to have followed through their threat since their `historic' meeting . Indeed, of the biggest debtors in the Group, Brazil, after the withdrawal of trade credits by the banks, has ended its interest payments moratorium and is about to negotiate with the IMF ; Mexico has attempted (without much success) to induce the banks to swap part of its debt for equity ; Argentina has reached agreement with the IMF, and Venezuela has resumed borrowing with a $100m . Eurobond offer. Not without reason does the financial press talk of a new spirit of cooperation in Latin America, and a return to the tradition of 'muddle-through' (see The Financial Times, 16th February and 15th March 1988) . The apparent failure of debtors to repudiate their debts - whether unilaterally, or in alliance with one another - is an indication of the great international power of multinational finance capital . Sir Kit McMahon, chairperson of Midland Bank noted recently, `For sovereign states to disavow their debts [requires] them to be willing and able to sustain themselves while indefinitely divorced from commercial and financial relations with the rest of the world .' (The Financial Times, 14th April 1988). This is a prospect which no country bent on a capitalist future can afford to contemplate .

A ring fence around Africa The squeeze experienced by the poor African countries also resulted in limited revolts during 1987, notably in Zambia . The desperate situation of these countries has prompted an initiative from the credi-

tor governments, proposed by Lawson, the British Chancellor in April 1987, and adopted `in principle' by the Paris Club of creditor governments . The Lawson proposals had three elements : loans in bilateral aid programmes should be converted into grants ; other official loans should be rescheduled with new maturities of up to twenty years and longer grade periods for capital repayments ; and finally, interest rates on loans should be set at concessional rates . In order to qualify for the proposals, ` . . . countries would have to be among the poorest and the most heavily indebted, and have set in train satisfactory programmes to overhaul their economies .' (The Financial Times, 9th April 1987). The Lawson proposals are extremely limited . Firstly, they affect only the official debts of the poorest African countries - a total of something less than $70bn . of debt - and do not go far enough for the debtors, who are asking for rescheduling over 50 years . Secondly, the proposals are, to a great extent, an acceptance of the inevitable . As Lawson himself recognised `there is no realistic prospect of actually securing anything like full repayment if rates are not reduced' (The Financial Times, 23rd July 1987) . In addition, of course, the proposals provide yet another opportunity for the creditor establishment to insist upon pro-capital `adjustment' programmes . While the Lawson plan affects official debt only, it is not, on this count, without potential benefit to Africa's private creditors . In reducing the burden of servicing the continent's $200bn . of external debt, the majority of which is official, the plan makes default and interest payment moratoriums less likely on the minority private component of that debt . At the same time, the policy concessions to be wrung from the debtors will include - implicitly, if not explicitly - the continued servicing

International debt of private debt . Despite these advantages for the creditors, however, the Lawson proposals, with their element of debt write-off, go against one of the dearest principles of the banks - that no debts should be forgiven . Nevertheless, the premise underlying the proposals is recognised as realistic : the debts of the poorer African countries cannot be serviced or repaid in full under present conditions . However, the creditors fear that the proposals will be taken as a precedent by wealthier [sic] debtors in Africa and elsewhere . Hence, for the creditors, if the Lawson proposals are to be implemented, ` . . . a `ring fence' should be placed around the hopeless cases, allowing them to be granted special relief without thereby compromising negotiations with richer, but relatively intransigent debtors such as Brazil .' (The Financial Times, 7th April, 1987). 'Thus far, the creditors' fears have proven groundless : Lawson-style agreements have been implemented only in Mozambique, Zaire, Mauretania and Uganda, and these countries have benefited only from extended maturities . Even in Africa, then, debts have not yet been officially written off . The final judgement as to the success or failure of the Lawson proposals must remain in abeyance : at the moment it is too early to say whether the creditor establishment is accepting an international strategy which differentiates between the poorest debtors and the rest, although the fate of the Lawson plan thus far suggests only the most grudging of acceptance on the part of governments that their African debts need to be written down .

Contradictions and Dilemmas The international debt crisis is not simply a `problem' for debtors and creditors this term implies that there is some

straightforward solution to be found . The 15 debt crisis is more accurately described as a complex of contradictions and dilemmas . Firstly, the creditor establishment's policy of obliging debtor countries to increase their trade surpluses at almost any cost is, on the one hand, clearly necessary if the debtors are to be able to service their debts . However, in the context of sluggish international growth, the creditors' policy - if it were to succeed - would exacerbate another of the world's central problems : the massive trade imbalances, and, in particular, the payments deficit of the USA . The fact is that the largest debtors are the Latin American countries, that the Latin Americans are substantial trading partners of the us, and that a large proportion of their exports include precisely the manufactures that the us needs to export in order to reduce its trade deficit . Even the World Bank analyses this situation in terms of contradiction and potential explosion lo Secondly, the austerity policies embodied in the IMF's `adjustment' programmes, currently imposed upon some 50 countries, may be rational from the point of view of an individual debtor (and its creditors) who require, as a matter of priority, the largest possible trade surplus as soon as possible in a single country. Quite apart from their disastrous effects on the workers and peasants of the country in question, they are contradictory and self-defeating from the global economic viewpoint in that they initiate a deflationary spiral within the international economy : while an individual country may temporarily generate a series of surpluses through domestic austerity, other debtor countries will be obliged to follow suit with similar policies which negate the advantage of the first country, and reduce demand domestically and internationally

Capital & Class 16 still further. In the 1930s, such policies were recognised as attempts to 'beggarthy-neighbour' . Today, the overall effect is to make it progressively more difficult for debtor countries, as a whole, to earn the trade surpluses they need to service their debts - in short, to beggar them all . Thirdly, the banks face the dilemma of whether to lend or not to lend . Should the banks continue to refuse to lend to the Third World, then their inaction will, of itself, add a further depressant to world economic growth, and, in doing so, exacerbate the difficulties debtors face in earning sufficient foreign exchange to service their existing debts . More significantly, a refusal to make new loans will make the austere policies required to generate temporary trade surpluses in individual countries even more severe in their effects on the peoples of those countries . This will make their implementation even less politically feasible . Yet without such policies, individual debtor countries will not earn the foreign exchange with which, to service their debts - even temporarily. The banks' refusal to lend, then, would make defaults, and therefore the insolvency of banks, more likely. Alternatively, should the banks continue to lend, then they face a different set of unacceptable eventualities . New loans to the debtors will not be sufficient to offset slow international growth resulting from the policies of Japan, West Germany and (in the future) the us . In this context, there is little chance that borrowers will be able to earn sufficient foreign exchange from trade to service increasing debts . There is even less chance that debtor governments will find it politically possible to adopt the economic policies which would enable them (temporarily) to do so . In this situation, new loans would be used (as they are already) to service old debts . This process could not continue for much

longer without these debts being recognised - formally or informally - as defaulted . The banks are determind to avoid this scenario which they regard as a `generalised slide into forgiveness' (The Financial Times, 2nd October 1987) and which could bankrupt the more exposed of them . The World Bank describes this very dilemma, albeit from a different point of view, when it notes that `The duration of the [debt] crisis has also increased the dilemma facing regulatory agencies . Increased bank exposure to problem countries is clearly necessary to prevent a major disruption to the financial system and to safeguard banks' assets . Yet, traditional rules (and equal treatment with domestic loans) require increased provisioning against banks' assets in developing countries . That, in turn, discourages increased exposure' (The World Bank, Annual Report 1986, p . 45). In short, banking prudence dictates that banks should, at the same time, both increase and decrease their exposure in the Third World! It appears, then, that whether the banks lend more to the debtors, or whether they refuse to do so, they cannot avoid three brute facts of the debt crisis : firstly, the inability of Third World debtors, in the context of low rates of capital accumulation internationally, to earn sufficient amounts of foreign exchange to service their debts - without the implementation of austere economic policies" ; secondly, the growing political unacceptability in debtor countries of these very economic policies, and of the transfer, year after year, of a significant proportion of their GNP to banks in the rich capitalist countries of the `Northi12 ; thirdly, the global contradictions stemming from their own policies of imposing trade surpluses with austerity policies on the debtor countries .

International debt Notes 1 Notably the International Monetary Fund (IMF), the World Bank and the multilateral development banks, the `Paris Club' of creditor governments, and the Organisation of Economic Cooperation and Development's `Group of Seven' : USA, West Germany, Japan, France, Italy, Canada, and the UK . 2 There is no single accepted definition of banks' capital . Table 1 attempts to estimate it on the American regulators' definition . This makes the situation look marginally worse than British ratios, because no allowance is made for the revaluation of banks' fixed assets and provision must be made for deferred taxes . 3 Column three is calculated from columns 1 and 2, plus figures given in The Banker, September 1987, p . 31, and the interim results of the four UK clearing banks, end-June 1987 4 John Reed, chairperson of Citicorp, asserts, `We want to . . . trade out and liquefy our loan portfolio . In the next two to three years we will engage in debt-equity swaps, debt sales and other approaches . The effect will be to take charges against the new reserves' (The Financial Times, 21st May 1987). In other words, Citibank is willing to take losses in order progressively to disengage . 5 The President of Citibank Argentina : `there is no question at all of taking a loss on Argentina's debt, or indeed of any country's debt . There will be no write-down of loans and we intend to continue negotiating solutions that will help to stimulate growth in these countries . We are willing to continue refinancing within the Baker context .' (ibid .) 6 `Even if the present amount of debt-equity swaps . . . were multiplied many times, it would have little impact on a debt mountain several billion dollars high .' (The Financial Times, editorial 24th June 1987) . 7 `For many Africans, the IMF and its austerity measures have become synonymous with bread riots, cuts in social services and the evils of capitalism .' (The Financial Times, 5th March 1988). 8 `Mr Norman Bailey . . . a former member of the [us] National Security Council staff, describes Citicorp's action as marking the final `coup de grace for the so-called Baker initiaC&C 35-B

tive.' (The Financial Times, 16th June 1987) 17 9 A `debt ratio' is a country's debt as a percentage of its exports of goods and services ; a `debt service ratio' is annual servicing payments as a percentage of exports of goods and services . 10 `The contradiction between the capital markets' demand that debtor countries generate trade surpluses and the frictions the surpluses have created with trade partners remains a potentially explosive issue .' (The World Bank, Annual Report, 1986 p . 38) . 11 But note that during 1985, even appropriate policies, were unable to maintain high rates of export growth in the face of stagnant demand .' (The World Bank, Annual Report 1986, p . 41) 12 The Financial Times (30th September 1987) reports that even under optimistic assumptions, the servicing of the Brazilian debt would require the transfer of' . . . 2 .5% of GNP in debt service payments, year after year, for many years .'



Capital &a Class 18

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Donna Pankhurst Hunger in Western Sudan In June, July and most of August 1987, many in Western Sudan feared to utter what people dreaded : that the early rains which had been so heavy as to excite hopes of a rainy season `like the old days' were in fact going to be all the rain they would get for the whole wet season . In El Obeid, the regional capital of Kordofan Region, the townspeople are still connected to the plight of whose who live in the arid countryside . Many still have relatives who work the land and/or tend animals for a living, but even those who are members of families long-established in town still suffer from El Obeid's bad and short water-supplies . In 1984, water was brought in tanks from further east . In August 1987, a two-week deadline was 19 estimated when once again the water would run out . At the end of the month, however, the heavens opened, bringing the welcome sight of . flooded roads being traversed by ample merchants deftly holding up their jellabia above the mud .

Capital& Class 20

All the same, these powerful merchants may come to be targets of abuse once more, as the heavy rains came at the wrong time for many farmers and pastoralists, forcing people to rely even more heavily on other means of getting food . Grain prices, if determined solely by `market forces', will almost inevitably rise, in spite of there being large stocks of dura (sorghum) within the country. The spells of heavy rains which fell in most of the region (there were further heavy rains as late as October in some parts) have lessened the burden of finding drinking water, but their timing and uneven spread means that for some people, problems are likely to become as great as those caused by the disastrous drought of 1982-4 . Meanwhile, the majority of people in Kordofan live with this situation . In the last twenty years many of them have had to change their lifestyle completely . In North Kordofan particularly, where the changes in the rainfall patterns have been most acutely felt, many people have changed from being predominantly dependent upon livestock to being much more dependent on working the land . They either work as peasant cultivators, or labourers for richer members of the community, or often a combination of both . Wage labour generally has become much more important and takes many forms ; it can be done locally, or in the mechanised rainfed sector in South Kordofan or further afield in Sudan, and by individuals or whole family units . Besides agricultural labour, many seek work in Omdurman, Khartoum and El Obeid itself, as well as in Libya and the Gulf states . During the bad years of 1982-5, many did this for the first time . Some who felt they had nothing to go back to have not returned home, although exact numbers are not known . So how did this situation arise? The

article by John Markakis (Capital and Class, Spring, 1987) was useful in identifying the inadequacies of the Derg and the Nimeiri regimes in alleviating the difficulties of the poorest people in the Horn . Doing this in the absence of careful analysis of the specific nature of those difficulties, however, can facilitate a slide into mere posturing . There are several areas in which this is possible in a reading of the Markakis piece, which takes as a general explanation of famine in the Horn a combination of drought, population increase (of people and animals) and state policies, as do other commentaries on the famine in Sudan . I argue below that in seeking an explanation of famine it is necessary to consider more than this . In particular, the task is one of striving to uncover the ways in which people have lost their ability to feed themselves (which may not have been simply through cultivation). This requires a historical perspective on socioeconomic and environmental change . I have used the Region of Kordofan, in the west of Sudan, as a case study, because it is often ignored . More international attention was paid to Darfur (the other western Region) than to the other Regions which suffered in Sudan, perhaps because it was the most remote and thus attracted foreign journalists (and Bob Geldof) . Neighbouring Kordofan suffered to a similar degree (although the response from the local state and logistics of the relief operation were different) and the problems of the Sudanese in the Eastern Region were neglected for much longer than those in the West . What happened in Kordofan Region and the way it has been analysed and presented also illustrates wider issues . The first relates to conceptualisations of the environment and drought, which inhibit an understanding of their significance in the famine . The

Famine second concerns a mistaken assumption that it is the actions of only urban-based groups and the state per se which are responsible for the plight of those who are sufficiently impoverished to be vulnerable to famine . Conceptions of drought and the environment In the aftermath of the Sahel famine of the 1970s there was a revolution in the conceptualisation of its causes, which revealed the importance of examining the social causes of famine, rather than attributing it solely to drought - the natural versus man-made debate . The legacy of this challenge to the inevitability of famines in arid lands was a denial that drought, or changes in the environment more generally, could explain the occurrence of famine . The extreme nature of such changes in the 1980s, in Ethiopia, Eritrea, Tigre and Sudan in particular, has forced a reconsideration of this position . Exactly how one should conceive the importance of the environment remains a problem . Most commonly drought is thought of as a trigger event, on a par with war, but often, as in this case, the problem is actually more complex . The drought itself was different in the 1980s from that of the 1970s . The difference lies as much in the uniformity with which it affected the West of Sudan, however, as in the intensity ; parts of this region experienced drought of comparable intensity to that of the Sahel in the 1970s and to the most intensely affected areas of the 1980s . For the Region as a whole, the dryness of the wet season in 1983 was unprecedented this century, only to be over-taken by that of 1984, which remains the worst on record . The option of migration elsewhere, in order to continue the same mixes of cultivation, pastoralism and employment as before, was certainly

curtailed to a far greater degree in the 21 1980s because of the wide area affected by the drought . Having said that, it is very difficult to assess the real significance of drought, and often the temptation to fall back on other explanations of the famine win out . Stereotypically these are often either direct exploitation by the state and capital on the one hand, or the backwardness and inefficiency of peasants and pastoralists on the other. The reason why drought is still all too often not integrated in explanations of famine is that we are still extremely ignorant about the past, current and likely future patterns of rainfall . It is important that we acknowledge the range of different scenarios, rather than simply adopting an alternative posture to those who cite backward peasants as the explanation . This means that it is necessary to keep an open mind about some things until further research sheds more light . None of the views say droughts will not occur again in the near future, but their likely intensity, and views of the situation in the long-run are different . Given the great effect that small changes in the weather can have on people's ability to survive, planning intervention without better knowledge of the future climate is a risky business . Pessimistic predictions about the chances of good rain in the future make it necessary to analyse the implications of people trying to continue the same relationship with their physical environment . This consideration leads people to assume, as does Markakis, that environmental change itself can largely be explained by the actions of people, whether they be capitalist farmers (ultimately acting with the support of the state and Saudi capital) or too many local inhabitants . All too easily, the importance of drought is lost here . When the importance of drought is underplayed, it is a

Capital & Class 22 small step to saying that there are too many people, or that they need to be moved . There may well be too many people, given that form of production and a certain pattern of rain, but of these two variables, the former often gets ignored completely. There is contradictory evidence to suggest that in the absence of drought the environment will recover, given the same form of production . This is usually ignored, probably because it appears as an anomaly. The issue then becomes how must social scientists and planners evaluate the evidence of environmentalists (whether there are contradictory theses or not)? The question may seem rather obscure to those seeking simple and immediate explanations to the famine, but it is at the very heart of the matter . If an alternative approach were adopted which took as its focus the chances of survival of certain factors within an ecosystem, rather than the status quo of the ecosystem before any change occurred, the information could be quite different, and potentially of much more use . Clearly such an analysis requires far more than the scientific skills of the environmentalist, and actually puts centre stage the issues of concern to social scientists . There then has to be a conscious choice about what the main concern should be . Such an approach should also make it easier to avoid a pre-occupation with the preservation of a physical environment, at the expense of its connections to the people who rely on it for their survival . OXFAM were recently confronted with a situation which cried out for such analysis when Kababish nomads described the state of the pastures in North Kordofan . They said that although there had been quite dramatic change in the last twenty years (generally described by others as degradation, i .e . narrowing of tree and

grass species, scarcity of wild animals etc), they had noticed grass species that had previously flourished in the remote grazing areas in the drier reaches of the far northern desert fringe were beginning to establish themselves much further south . If they continued to do so they would provide valuable grazing resources in the areas which have aroused so much concern because of their degradation . Using such an analysis in this area would still leave the problem of how to evaluate the significance of drought, but it would facilitate making more meanngful observations about the environmental change which is occurring.

Blaming the state It is true that the political imperatives of the Nimeiri government prevented effective international action being taken until many people had died and many others suffered . This focus points towards agrarian strategy as a cause of the problem . Indeed, the agricultural strategy promoted under Nimeiri has caused enormous problems for members of some communities who have lost rights to land, and in the long term has been shown to undermine small-scale (peasant) agriculture in a number of ways . It is also true that in recent years mechanised farming has increased in the southern (wetter) provinces of Darfur and Kordofan . The consequent loss of land has caused considerable problems for those who have been relying on access to that land now, or will be relying on access to the land in the future, for their survival . However, those in the Southern Provinces of Kordofan and Darfur survived far better during the drought than those in the Northern Provinces . Moreover, the mechanised rainfed sector, which formed the centre-piece of the `breadbasket strategy' islargely to be

Famine

found in the Central Region, not in the West . Hence the connection between these strategies and the famine cannot be a simple one of the direct loss of land, if they are directly connected at all . This connection has been documented for some communities and has been important in showing up the ways in which impoverishment has taken place . These communities are not on the whole those which suffered most between 1981-5 . Recent research suggests that it was not those who had been employed on these enterprises who were the victims who struggled to the camps . Moreover, employment in this sector (in the Central, Darfur and Kordofan Regions) was in fact an important strategy of survival for many people . It may seem rather contradictory to talk of increased employment in agriculture during a drought, and it is true that production, and therefore employment, on the big farms was apparently lower in 1988 than the previous two years . However, this should be seen in the context of the fact that 1981/2 was a bumper year (3 times the previous 5 year average) and 1982/3 and 1983/4 were normal when considered against the previous 5-year average . Moreover, during the whole of this period, production remained above the best years of the 1970s . Moreover, in a famine, the high price of grain makes increased production attractive to farmers, as well as merchants (although they are also often the same people in Sudan) and make the risk of expanding production seem worth it . Thus the irrigated schemes were turned over from castor to dura and some research suggests that more dura was planted by those who could afford it . Also, 1985 was a good year for cotton, which employs many people at harvest time . It is likely that for the people in the Western Regions, employ-

ment in the Southern Provinces was more 23 important than in the Central Regions, nonetheless, it is important to see such employment as a survival strategy for some people at certain times, rather than simply as a means through which impoverishment takes place . In the 1970s what distinguished Sudan from other Sahelian countries was its comparatively large national production of food in the capitalist sector, and it seems that this was very important in enabling people to survive . Their 'entitlements' to food were through purchasing grain in times of drought (pastoralists did this every year in any case) with income generated through the sale of crops, animals and labour. In the 1980s many of those who travelled in desperation to Omdurman were either nomads who had no history of this kind of employment, or settled people who, for various reasons, were unable to gain access to such employment . I do not dispute the problems with the state agricultural policy in Sudan and the capialist production of grain outlined by Markakis, but suggest that these did not lead directly to the hunger and social breakdown which resulted in famine . In addition to the severity and uniformity of drought, social change which has roots both within the Western communities themselves, as well as links to the national class structure were highly significant, as considered below Roots of social change It is not the case, as is implied by an analysis which focuses on agrarian strategy as a principal cause of famine, that the victims of famine were in 'subsistence' sectors which were cut off from the rest of the economy, producing only use values . As in many African countries, a process of commoditisation amongst

Capital & Class 24 rural populations in Sudan began under colonial rule . During this time, the needs of capital and the state (for labour and crops) were the driving force behind many government actions which encouraged the intensification of commoditisation and integration of rural populations into world markets . Even geographically remote communities were not cut off, but were integrated into markets locally, nationally and internationally before the colonial period, and their integration intensified under colonial rule . The general trends have continued since independence (although recent research shows some of the ways in which these trends have been resisted by sections of rural communities . The following crops are all now grown on a commercial basis in the so-called `traditional peasant sector', and some have been since pre-colonial times : groundnuts, sesame, sorghum, kerkedeh, melons, tobacco and vegetables . All these are sold through local merchants and/or the state . Groundnuts and sesame are sold through the Sudan Oilseed Company . Until the 1960s, Kordofan was also the largest producer of gum arabic and still produces a considerable proportion of world supply. This has always come entirely from the peasant sector, and is sold through the Gum Arabic Corporation, which is owned jointly by the state and private capital . The difference between the international price and that paid to farmers for these crops has largely accrued to the state and private capital . In addition, for most of its history, Kordofan has been a net exporter of romoted k rearers alone were responsible for up to 20% of GDP, and the traditional sector as a whole for producing about 40% oflivestock . (In the early 1980s it was estimated that from this sector, livestoc export revenues) . Crops and animals have always been

sold from this sector in order to meet basic needs, such as clothing, utensils and certain food items, but two things have made this become a greater imperative . Firstly, more and more basic needs are purchased, rather than produced directly or obtained through some other kind of reciprocal exchange or kin relationship . (Elsewhere this has been termed the commodification of reproductive needs .)Secondly, the terms of trade between their products and those commodities needed for reproduction have declined internationally . These effects have been felt more extremely by the pastoralists in North Kordofan as they have always purchased most of their staple grain and the terms of trade between animals and grain specifically have declined (as they have elsewhere) . Hence there has been a decline in the value of the products of these communities, both in terms of the price they receive for their products, and in terms of the amount of labour which is necessary to meet their reproductive needs . Such changes have not been experienced in a uniform way within these communities . There has been very little research done which shows the ways in which these changes have had differential effects within pastoralist groups, but several things may be inferred from what is known . It is not true that the whole of these groups now have no stock and it is certainly true that some were able to survive better than others because they had more animals . The poorest groups sold animals when they were desperate and it is likely that they sold to others within their communities . Sections of the pastoralist population have been dropping out of pastoralism, being unable to maintain viable herds, at least since the early 1970s, but at a much faster rate in the early 1980s . Those who dropped out earlier went as destitutes to

Famine towns ; sold their labour as herders in Sudan or Libya, or as agricultural labourers elsewhere in Sudan ; or were able to change their lifestyle to undertake cultivation on a more permanent basis, perhaps managing to keep what few animals they had left . In any case there is no evidence to suggest that they were able to take advantage of any `traditional' redistributive mechanisms to help them restock . This could be simply because the whole community has become so impoverished that no one is in a position to fulfil `traditional' obligations . It could also be that such relations have themselves become commodified (as happens elsewhere) and hence the poorest would not be able to take up any opportunities to borrow or buy animals . Glib suggestions are often made about pastoralists and the size of animal populations, as though this were unproblematic (as does Markakis) . It is important to remember that it is not an inherent quality of pastoralists across all societies to increase their herd size beyond that which allows regeneration of grazing land : such a dynamic arises from particular conditions . Theoretically these most commonly occur when the value of their product is declining (both in terms of what they can buy for it and what it costs them in terms of labour to produce). An important way in which differentiation has taken place in communities more reliant on cultivation is through their access to labour. In most of Kordofan, access to land is not difficult for a household to obtain (although access to land of a particular quality can in places be an important distinction). Migration to work outside Sudan has provided many with the capital to employ labour locally. Also there have always been richer members of rural communities, either being recognised as local leaders / religious figures, or known

as merchants . In effect this strata behaves 25 like classic kulaks, in that they invest in the most profitable areas of production, which are not always simply production . They often own the only local forms of mechanised transport, are the only local source of consumer goods, the only outlet to sell crops, own the only processing equipment (eg camel-driven sesame presses) and sometimes even sell the only local sources of water. In addition, many people have been made more dependent upon cultivation than they once were, as they used to have far more animals than they have now . Some communities have changed lifestyle completely from being highly dependent on livestock to adopting a settled way of life . Animals remain essential for survival in many areas in the Northern Provinces, being vital beasts of burden and means of travel (camels and donkeys) as well as for savings and actual production (also goats, sheep and poultry). Given the official concern about the absolute numbers of livestock in these areas which has continued without break from early colonial days to the present, it may seem odd to be describing the loss of animals as a major problem . The explanation is at least partly to do with the increase in the total number of people, but also with the unequal concentration of animal wealth within communities . In other countries, increased concentration in fewer hands has coincided with an increase in the frequency with which practices which are thought to damage or destroy grazing are used . The loss of animals for some has been compensated for, to some extent, by the sale of labour, as well as increased cultivation, but not everyone has been able to do this successfully and others retain a strong dependence on cultivation . This in turn has made people much more vulner-

Capital & Class 26 able to drought - both because they are settled and because it is such a precarious activity in the arid northern part of the region . Hence it is not simply the effects of employment in the rainfed mechanised farming sector which has made them vulnerable to drought . Nor is it simply their incorporation into different systems of exchange . The effects of a decline in the value of their products, and of the differentiation within communities has meant for some people an increased dependence on cultivation over time, a decrease in the ability to produce use-values and hence also an increased vulnerability to drought . Pastoralists who have become impoverished have found even fewer ways to adapt successfully to new means of surviving and enter social relations in the agricultural sector on an even more disadvantageous footing. These processes all occurred generally in the context of a disarticulated economy, where the capital invested in the rainfed mechanised farming sector has no long term interest in ensuring the spending power of people as they are not essential as a market . The national state does have this interest, but is not powerful enough to counteract the effects of international capital . The intense drought brought these things into perspective and exposed the vulnerability of the poorest sections of the population . The current situation Many people found new ways to survive during the drought and its aftermath, and these are being taken up at much earlier stages of crops and grazing land failure than before . This is partly because they have more knowledge of opportunities, but also because they have fewer reserves of grain, animals, or any resources which can be sold . Jobs which were seen before

as being too unattractive are now being taken up . In a sense the crisis is over, in that there are now no longer many people in immediate danger of dyingthrough lack of food and water, but the relationships which helped to create such vulnerability continue to exist . Debts have to be repaid, and local merchants often remain the only outlets for transport, goods and credit . The legacy of the drought and famine for most has been trying to start again with no or fewer animals and no reserves . Many people have found new ways of coping, but they are in new, even more precarious positions . Although it is very difficult to say anything definite about the rain, people still have to live with this unpredictability, often in situations which make them even more vulnerable to the vagaries of the weather. Moreover, there is certainly no guarantee that there will not be another drought, or that the rain that does come will come at the right time . If anything, the experience of the last few years has made people more worried that it might happen again . Many will be in no better position to survive than they were last time, and many are in a worse position . In the climate of crisis, greater intervention from outside was desired by those who were suffering and by those who were to be held accountable for their plight . Such intervention was eventually forthcoming, but at a cost of making similar action, ie food distribution, seem more likely in the future. Indeed, piecemeal free food has been distributed each year since then . The enormity of the problems makes the imperative to act so great that to counsel waiting and analysing further is often not politically feasible . On the other hand a lesson was learned in some sense in Kordofan in that food aid at its `best' caused many problems, and even

Famine is not keen to repeat that particular experience . This has paved the way at least for dialogue about alternative types of intervention, such as public works programmes in times of bad rains, like those which operate in India . The problems at the macro level in Sudan remain enormous :the difficulties of massive debt, an unresolved war and political crisis were daunting enough to dissuade the army from taking over on recent occasions when it was thought likely that they would . At present those who are in danger of not even managing to survive the year are hidden from view, within communities, camps outside towns and within households . The vast majority in Western Sudan somehow struggle on, with great resilience and a bitter acceptance of the different place in society this crisis has shaken them out at . USAID

Notes 1 Data about previous patterns is notoriously patchy, but even when extrapolations are made, the caution expressed by authors is often ignored by other people . The same applies to theories and models about the causes of Africa's changes in climate, where people choose those which suit their own purposes best . For instance, models which suggest that pollution from the West may well be responsible for a reduction in rainfall in parts of Africa are rarely mentioned alongside those which suggest that the removal of vegetation in situ is an important cause of drought . 2 Ulf Helldon, `A Remote Sensing Study of Desertification in Kordofan, Sudan', Lund University, research paper no 61, 1983 (also published by Khartoum University) . 3 OXFAM, El Obeid, were conducting research as to the state of the pastoralists in the northern part of North Kordofan . 4 For instance, see Jay O'Brien, 'Formation of the Agricultural Labour Force', Review of African Political Economy, no 26, 1983, pp 15-34 ; and `Sowing the Seeds of Famine', Review of African Political Economy, no . 33, 1985, pp 23-32 . 5 The term `mechanised farming' is used in Sudan to refer to farming which uses mechanisation at any stage of production, and generally still requires a great deal of labour. 6 See O'Brien, op cit . 7 This was shown in data gathered during fieldwork in 1987, and in the statistics of the Kordofan Regional Government and various agencies . 8 Migration away from the `home' area by many settled people caused overcounting of those in need in Kordofan itself, many of whom sought employment elsewhere .

27

Capital & Class 28

9 In interviews, big farmers from South Kordofan complained in 1987 that the price had been much lower that year and they could no longer enjoy the benefits they had during the drought . 10 See Jay O'Brien, `The Calculus of Profit and Labour-Time in Sudanese Peasant Agriculture', Journal of Peasant Studies, 1987 11 Sidgi Awad Kaballo, `The Supply Response of Traditional Oilseed Producers in Kordofan', Economic and Social Research Council, Bulletin no 117, Khartoum, 1984; and Abdel Aziz Mohammed Farah and El Rasoul Hag El Saeed, Agricultural Prices in Sudan ; A Historical Review and Analysis 19790-1984, Ministry of Agriculture and Natural Resources, Khartoum, 1985 . 12 Part of the reason for this is that for part of the year groups split up, enabling some to travel great distances in search of grazing and leaving others with no anim-

als . However, the staple food is grain at almost all times of the year . 13 Animal ownership is normally by no means egalitarian in most pastroalist societies .(See ILO, Rural Labour Markets and Employment Policies, ILO, Geneva, 1983, p 7 14 See Jay O'Brien, `Formation of the Agricultural Labour Force', Review of African Political Economy, no 26, 1983, pp 15-34 . 15 Many of the problems were related to an inability to assess need accurately . Logistical difficulties added to the problem and made successful targetting of food impossible . It is thought that perhaps those in most need of the food never received any . 16 In August 1987 there was a period of no legal government in Sudan and, by this time, there was growing dissent from many quarters about the government's performance .

M N Paul Corrigan

Gerbil : The Education Reform Bill Market mechanisisms and social engineering

ME

ca

The Government's belief in the efficacy of the market system as a major tool for social change is not a new phenomenon . Its passion for privatisation in both central and local government has attempted to reintroduce a much purer cash nexus to the social relations of what used to be the public sector . Within the shrinking public sector itself there are various attempts to introduce profit oriented systems of organisation into every aspect of our work . In the health service this leads to some tragic decisions about life and death, while in local government it can often lead to farcical decisions, but generally organ- 29 isations such as the Audit Commission will give you strong advice on introducing markets to everything from maternity services to crematoria . Of course, even the wets in the Tory Party have pointed out that with a lot of

Capital& Class 30 this privatisation, the reality of competition is very far from happening . For example, the creation of Mercury in the telecommunications world will not suddenly transform British Telecom into the petite bourgeoisie's image of the market place so central to Thatcherism . All Cecil Parkinson's clever wheezes from the Dept of Energy will not make the market sparks fly in the electricity industry . We know that this has much more to do with large scale finance capital and its progress and size as a sector of the economy than it has with an aspect of social engineering through the market place . Are we then facing the usual relationship between the petit bourgeois ideology of the market being used to mask a rapacious growth of monopoly whose main aim is to drive out the competition posed by the `little person'? Is the reality of record petit bourgeois bankruptcies during Mrs Thatcher's second term alongside massive finance capital growth to be repeated, and can the Left rest easy with its past analysis about reality and illusions of the market place? Apart from the enforced reality of the enterprise culture on large numbers of people in the `informal economy' (the nervous laughter at Harry Enfield's `Loadsamoney'* from the Left is caused by a recognition of his power and our weakness), it looks as if it is in the Education Reform Bill that we will find the most powerful intervention of a market mechanism as an essentially social and economic mechanism . Compared to the crude way in which most `socialist' educators think about the relationship between ideology and educational policy, the Education Reform Bill contains a brilliant transposing of a market mechanism into the core of the education system . A transposition that Ministers, in introducing the Bill, have

been crystal clear about . In the committee state of the bill we could begin to have realistic discussions about `bankrupt schools' and `training for heads to package and sell' their institution . Crucially the transposition takes place because the importance of markets for capitalism is not just about money. Other activities can become commodified and can be put into competition one with another if some form of `currency' can be created . It is the social relationships of this commodification and competition that are so vital, and not necessarily the money profit that is produced on each occasion . It is the creation of new forms of exchange value and the eradication of simple use values external to any exchange commodification that is important and not the simple `cutting' of capital or revenue budgets in local government . How does the Education Bill achieve this? What will be its effects and how can we deal with it? Firstly, the underlining of the market mechanism in education only has any real chance of practical success if it takes place in the ideological context of present parent-child relationships . Put in its extreme form, a further commodification of education will only work because, for a significant section of parents their children represent commodities through which they realise themselves . My apologies if this infusion of what may appear psychoanalytical language into a political article may appear odd, but it is at the bedrock of the government policy. Many middle class parents' interest in their children's education and future seems to go beyond the straightforward `wanting what's best for their children' to a passionate drive for their children to `succeed' beyond all notion of `care' or `parental love' . Many parents who say `they will do anything for their children' (let's be hon-

GERBIL est some of whom may well be readers of Capital and Class) seem to see their children's successful future as a final vindication of their own lives . It is as if, for some people dealing with a mid life feeling of failure, `their' Tara's successful A levels makes it all worthwhile . If many parents had a more relaxed attitude to their children and their education, the passion with which Minister for Education Angela Rumbold sees schools fighting each other in the market lace would be a stupid ideological vision . As it is, she and the government can depend upon a powerful deep ideological relationship to drive their market model . A relationship they do have to intervene in it is true, (making parents who put care before competition in their children's lives feel guilty for being bad parents for example), but one that can be depended upon for a section of the population . This is a useful lesson for the Left to learn in its social and economic policy considerations . Before coming up with a state mechanism, first ensure that the mechanism interacts correctly with a mass hegemonic movement . When it does the reality of the mechanism and its effect disappears under a welter of `normal social relationships' . In this case the market mechanism becomes subsumed within the `reality' of parental `choice' and parental `power' . Secondly, the Bill enhances the ability of parents to `choose' which school to send their children . Of course, this is nothing new . Like all clever changes it too relies upon its continuity with the past . Parents have been choosing schools for their children for many years so it is not something so radical . The Bill though changes this relationship by extending the effects of this `choice' . At the moment the power of choice is guided by the experiences of a local education authority that can influence that choice in a

number of ideological ways . It is true that 31 since 1986 if a parent wants to hold out against this they have considerable rights . The 1988 Act will enforce those . But the main change in the nature and form of choice for the parent is in the size of schools that will exist . Now the unwary may believe that the size of the school is something which is in some way determined by some set of objective material circumstances . But like all simple beliefs in objectivity, you would be wrong . The size of an entry into a school has been negotiated by three major factors. Most significantly, the local authority has been able to change the size of the entry in relationship to their planning for local authority secondary education . With the radical changes in the birthrate a local authority with a duty to provide education for both the present and future generations in their area, need to make sure that not only are there sufficient schools in their locality for the existing pupils but for the rise in the number of 11 year olds they know are coming. In Tower Hamlets in East London, for example, the number of primary school pupils has more than doubled in five years - an equivalent change in secondary school pupils is likely. Consequently, whilst it may be advantageous at one moment for a local education authority to close a secondary school, in the long run they may know the school will be necessary . In the meantime it will be in their interests to reduce the entry to other schools to provide sufficient pupils for all the schools . Under these circumstances, given the existence of any form of `consumer choice' it is the `unpopular' school which has the smallest entry that is perceived as being `kept going' and it is the `popular schools' to which entry is seen as being denied by some parents `in order to keep a bad school going' . Under

Capital & Class 32 other circumstances, the more progressive local education authorities may decide that it is important not to allow all the `middle class' children in one area to congregate in that school and produce either a one class, or in many urban areas a `one race school' . There is considerable evidence that local authorities have tried to `guide' the market of parental choice away from the creation of single race schools . There are however many thousands of schools that are `all white' and over 200 where 90% or more of the children are from one minority ethnic group . (The former is not seen as any real problem but the latter is seen as a `matter of concern'). There are then local education authorities that have used their power over student numbers to ensure some form of distribution of education on other than simple class or ethnic lines . The Dept of Education and Science has played a role in the definition of standard pupil numbers in a different way. They have tried to limit the power of local education authoriies to renegotiate their secondary education offers, particularly when they attempted to close down a `popular school' . The Bill, as in so many other areas settles this struggle . From the moment the Bill is enacted, the standard entry for every school will be the number of pupils that that school accepted for entry in 1979 . (An important date, but Ministers were very coy about why they choose that particular year) Governors can appeal to the Dept of Education and Science to have that number reduced, and can also appeal to have it increased . But the Secretary of State sets the student number and the local education authority is to have no power over that at all . Consequently, there can be no `artificial' lowering of those numbers . The school can recruit until it is full .

Having created an engine for the market force, ie parent `choice', and having increased capacity in as many of the organisations that are to be marketed as possible, the Bill completes its powerful mechanism by giving power to those organisations over their own production and marketing capacity. More significant than the radical 'optout proposals', the provision of local financial management for schools ensures that each school will survive and grow as an independent institution, providing there are more than 200 pupils in the school . Such an institution is not `tied' to any local authority financial, curriculum or equal opportunity policy. It exists as a separate institution whose `success' and `failure' depends totally upon its ability to attract students in the market . Each school, in order fully to play a role in that market, must publish its results . The local education authority must then publish them in a league table . The final part of this whole mechanism is to be found in the testing procedures at 7, 11, 13 and 16 years of age . These tests provide the currency which will allow the market mechanism of parental choice have the form of a set of equivalences . School x is better than school y because of these results . School x gets the pupils, school y does not and closes . If school z wants to teach something different, outside the `national curriculum', it has every right to do so . But if its pupils do worse in the National Curriculum tests then it may not be able to keep open if the currency of examination results is universally accepted . All of this is a very powerful set of reforms which are aimed at turning schools into institutions dominated by the fear of closure, or `bankruptcy', if they cannot gain enough currency to attract sufficient cusomers . The long run effect of this to anyone

GERBIL who understands class and race relations in contemporary society is obvious . Indeed, as Lady Hooper, the Government's educational spokesperson in the House of Lords, who obviously does understand, said `If parental choice leads to racially segregated schools then so be it' . Most importantly, with this market mechanism as with every other, not all individuals who are a part of society have an equal part in the mechanism . But, as Thatcher would be the first to say, they do have formal equality. Each parent can chose this or that school . If there are more pupils fighting for a place than there are places available, then the Head and the governors can decide whether they are the `right sort of person' for the school ; we know on what criterion this decision will be made . More importantly the nature of this market depends upon a middle class power that is almost though not totally white . This Bill was constructed with a particular view of `parents' in mind . Parents who will make the mechanism work through power, knowledge and a belief in their children shaping the future of society . The rest will get shaped . Yet to return to an earlier point, this mechanism only works if there is a powerful ideology within civil society to make it work . The mechanism remains impotent without the efficacious power of parentchild ambition that is also expressed in directly competitive terms . Whilst there are many legislative and directly `political' things that must be done to reduce the engineering aspects of this Bill, and whilst it is true that we must find ways of endorsing the local authorities' powers to intervene, in essence the attack on this mechanism must take place with parents and their children . The reduction of education to a kind of futures market on the floor of life C&C 35-C

is not something that meets with the 33 agreement of vast numbers of parents . We need to provide a different form of education that people want, one that contains more elements of social co-operation . But if we can't make it popular it just won't happen .

* For the benefit of overseas readers, 'Loadsamoney' is a satirical TV character, young, has loads of money from being a self-employed building worker which he happily flaunts, and above all a reader of Mr Rupert Murdoch's popular reactionary Sun `newspaper' .

"it N Jonathan Nea le Afghanistan : the horse changes riders

s

34

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ONE The Russo-Afghan War is over . The killing has not finished yet . Tens of thousands will still die, a few of the sons of Kiev and Tashkent, many of the sons and daughters of Herat and Kandahar . That is always the way with Geneva settlements . But the issue has been decided . The Soviet army has been defeated . The Mujahedin have won . For forty years the USSR and the USA have policed the world . This is Russia's Vietnam : a major defeat for imperialism . As such it is more than welcome . It increases the space for popular movements in Poland and Hungary, in Armenia and in Moscow. But if this is a defeat for helicopter gunship `socialism', it is also a victory for the mullahs and the landlords . The Mujahedin are an authentic mass movement : the Afghan peasantry in arms . But the leadership and the politics of that movement are reactionary. Whichever faction

Afghanistan of the resistance finally consolidates power in Kabul, they will lead a brutally repressive right-wing government . How did this happen? Why? What is likely to happen next? These are the questions this article will tackle .

TWO A small demonstration on the dusty main street of the town of Lashkaragah, in southwestern Afghanistan, during the autumn of 1971 . It is the fast of Ramadan, and teeth are on edge . About fifty secondary school students are gathered around an upturned box . The bravest among them take turns mounting it to deliver speeches . The speeches are simple : no more than a few shouted slogans . But it takes courage to give those speeches . The most common slogan is `Death to the Khans .' This is not an abstract political statement . The students have in mind a small number of men they have known all their lives . They are declaring their intention to build a political movement large enough to kill these men . The khans are the large landlords who hold power in the villages . In other parts of Afghanistan they may go under the title of arbab or malik or pasha . Everywhere they are the ruling class . A khan may own much of the land in one village, or in several villages . In some villages two khans compete for power. Sharecroppers work their land, and the khan takes between two thirds and four fifths of the crop . Their power is brutal : if a poor man stands in their way they have him killed . They hold their land rights partly by inheritance and partly by the legal theft of the land of weaker men . It takes courage for these boys to defy the khans . There are secret policemen in the watching crowd, and the Afghan state

in 1971 is based on the khans. There is a 35 King in Kabul and even a sort of parliament . But in every constituency outside Kabul the Mo is either the most powerful local khan or one of his relatives or henchmen . The King rules through the khans, and does not challenge their power . It's a brutal state . As one Communist teacher puts it : `In the fifties we had dictatorship, and they took a man away and all his brothers and killed them all . Now we have democracy. They take only one man and they only put out his eyes .' The boys are not all Communists . But the bravest of them are . And they are part of a national student movement that looks to the Communist parties and hopes for revolution . They have good reason to want revolution . In 1972 I visited a friend, a poor yoghurt peddler, in the TB sanitarium in Kabul . It had taken a bribe to get him into the hospital . Once he was in, it took a bribe to get the hospital workers to give him his food . It took a bribe to get the prescribed medicines actually given to him . When he needed an operation, his mother had to go beforehand to the bazaar to buy the blood in case a transfusion was needed . The hospital workers had sold the blood . I asked him why there were so many bribes . Afghanistan, Zulumistan', another patient said . `The Land of the Afghans, the Land of Tyranny.' All the patients smiled . A few years before there had been a robbery and murder near the camp of tents where the yoghurt peddler lived . The police had taken one of his uncles away for questioning . The next day they brought him back . The body was black from beating and his stomach torn open . They dumped him on the ground in front of his widow, told her he had eaten a bad watermelon at the police station, and laughed .

Capital& Class 36

There is a small crowd watching the boys demonstrate on the streets of Lashkargah . They are the peasants and sharecroppers of the surrounding villages . Their faces are shut : showing nothing . Like the boys, they hate the khans . But they also fear the state . In the evening, they will warn their sons of their folly, but some will be secretly proud . It is these peasants and sharecroppers who will determine the fate of Afghanistan in the next seventeen years . The tragedy of those brave boys in Laskargah is that they will end up making war upon that crowd .

THREE In 1971 there were roughly fifteen million people in Afghanistan . (All Afghan figures are rough guesses : there has never been a census .) Something like twelve million of them lived on the land, two million were nomadic shepherds, and a million lived in towns and cities . It was an arid country, with about two per cent of the land under cultivation . In the countryside there were three main classes, the khans, the middle peasants and the sharecroppers . The middle peasants owned enough land to feed themselves and might employ one or two sharecroppers or own a shop . They hated the khans and hung onto their land . The khans were always a small minority. In the high mountains there were usually a lot of middle peasants and in the irrigated plains there were usually more sharecroppers . But on a national scale the sharecroppers were probably the majority. Among the nomads the class structure was the same . A few powerful khans owned large flocks . Many nomad families owned their own small flocks and might employ one or two shepherds . And many worked only as shepherds for a share of the lambs each year or for a wage .

In the cities there were very few industrial workers, perhaps less than 20,000 . There were more construction workers and casual porters and labourers, pehaps 200,000 . The industrial workers went on strike : the others did not . Workers, sharecroppers and shepherds lived at subsistence level . A man's income was enough to buy bread for himself, a wife and two children, and almost nothing else . Afghanistan was a country of many nationalities . The Pushtuns (Pathans) lived in the south and east and were about half the population . All the kings but one and all the Communist Presidents have been Pushtuns . In the central mountains were the Hazaras, speakin Farsi (Persian) and claiming descent from Ghengiz Khans . In the East and around Kabul the majority were Persian speaking peasants called Tajiks . In the north the Turkish groups predominated, particularly Uzbeks . But in most areas there was a mixture of ethnic groups, divided by a history of warfare and disputes over land and water . And there were many other smaller nationalities : the Aimaq, the Turkoman, the Kirghiz, the Pashai, the Nuristani, the Baluchi, the Brahui, the Wakhi and so on .

FOUR In 1971 the Afghan state was in crisis . The roots of the crisis lay in fiscal problems of the monarchy. Afghanistan was a poor country, mostly desert . The good lands to the north had been seized by Tsarism, to the east by British India and to the west by Persia . Since about 1800 the Afghan king had always depended upon the support of the more powerful khans to hold his throne . This meant that while he might at times

Afghanistan have the power to bring most of the country under his military control, he did not have the power to extract a sufficient surplus from the countryside, because he did not have the power to extract it from the khans . So until 1838 there was an almost continuous civil war between the barons, rather like the Wars of the Roses . In that year the British invaded and were defeated by a mass popular uprising . So from 1842 onwards they settled upon the King enough of a subsidy and enough arms for him to run the state without breaking the khans . In 1878 they invaded again and were again defeated by an uprising . From then on until 1919 they gave enough money and arms to Abdur Rahman and his son Habibullah to enble them to consolidate the state without breaking the khans . In 1919 Habibullah's third son Amanullah killed him and declared war on the British . They conceded formal independence to Afghanistan and withdrew their subsidy. Amanullah tried to raise a surplus by taxing the countryside and breaking the khans . Another popular uprising deposed him . By the next year Nadir Khan had taken the throne with the help of British arms and money. His son, Zani-Shah, ruled from 1934 to 1973 . After Indian and Pakistani independence the Afghan monarchy looked around for new sources of subsidy. They found them in the Cold War .

FIVE Throughout the fifties and sixties the USSR and the USA competed for influence by pouring military aid and money into Afghanistan . The Americans gave more, but the Afghan monarchy used Russian aid as a counter weight . The sums involved were not large from

the point of view of the superpowers, but 37 they revolutionised the position of the Afghan state . Reliable figures are impossible to come by, but aid provided probably more than half the budget of the Afghan state . The chronic financial instability of the state was solved . Finally they could build a large standing army and bring most of the country under central control . But they had a problem spending the money. The King and the khans did not want to develop the economy. To do so would have created a bourgoisie and a proletariat : two classes that would have challenged their power. So the government spent the money on the army, on education and on the government bureaucracy. By doing so they created the class that destroyed the old state . There were suddenly thousands of univesity students and tents of thousands of secondary school students . The government pacified them each year by hiring the university graduates to man an expanding state bureaucracy, as teachers, civil servants and police and army officers . In a more developed economy these students could have been drawn from established urban classes and the children of landowners . But the expansion in Afghanistan was so rapid that the majority of students came from the families of the middle peasants in the countryside . They brought with them their parents' hatred of the state and the khans . To this they added their own frustrations . As in many third world countries, this new class saw its historical task as the modernization and development of the state . But in feudal Afghanistan this is precisely what they were forbidden to do . So their jobs were often meaningless . Many civil servants had nothing at all to do . All were ashamed of the corruption of

Capital & Class 38 the state . And their wages were low, even by Asian standards . A teacher earned twice as much as a poor shepherd or sharecropper. A University lecturer earned three times that, no more than his father the poor peasant . From the 1960s on two political forces competed for the allegiance of the students and the new middle class . One were the two Communist parties . The Khalk (People's) Party was led by Taraki . It was the larger of the two, more radical, at the base more Pushtun, more rural and poorer. The Parcham (Flag) Party of Babrak Karmal was somewhat smaller, more moderate, with a better base among more affluent Kabulis and in the non-Pushtun areas . Both parties were orthodox Communist parties who looked to the USSR as a model for socialism . (There was also a Maoist Party which was important until 1973 and strongly anti-Pushtun .) The other political force were the Muslim fundamentalists, whose stronghold was the Theology Faculty at the University of Kabul . They learned their politics from Al-Azhar University in Cairo and were much influenced by the Muslim Brotherhood . In the early seventies they fought each other at Kabul University and in the streets and secondary schoolds of the capital . They used fists, axes and guns . But above all they argued for the minds of the uncommitted students . In Kabul the Communists won the argument among the new middle class . In the villages they lost it . As some villagers near Kabul put it to me, they had at first supported Babrak Karmal as their MP . But then the mullahs had mounted a campaign to prove he was no Muslim, and they realized the mullahs were right . Both the Communists and the Muslims hated the state . The King attempted to

balance between them . But in the early seventies two things weakened the state decisively . One was structural . After 1968 the American state began to withdraw its aid . The Vietnamese defeat and economic weakness led them to decide it was not worth such a massive direct investment . This threw the state into fiscal crisis . How were they to employ all these students? How were they to pay the army? How were they to raise revenue? Tax the Khans? Then there was a famine in the north and east . The local officials and the khans stockpiled aid grain and sold it off at ten times the going rate . Hundreds of thousands starved . A journalist asked them why they did not storm the grain stocks . The peasants said the Air Force planes would bomb them . The planes were Russian MIGS flown by American trained pilots . Fury over the famine and fiscal crisis meant the writing was on the wall for King Zahir. In 1973 Kabul was full of rumours of coup and countre-coup . While the King was abroad, Mohammed Daoud struck first with a military coup .

SIX Daoud's project was an attempt to square the circle . He was brought to power by a conspiracy of younger army officers, many of them influenced by the Communists . He himself was a former Prime Minister and the King's first cousin . He announced the end of the monarchy and the introduction of 'Islamic Socialism' . This meant that in foreign affairs he would lean towards the Soviet Union and attempt to get more aid that way. In domestic affairs he would preserve the power of the old ruling class through a harsher and more military dictatorship . The Parcham communists made the

Afghanistan classic mistake and supported Daoud until he didn't need them any more . Then he turned on them and drove them underground . The Khalq communists, more radical, went underground from the first . So did the Islamic fundamentalists . In 1975 they attempted to lead an insurrection and were smashed . Their leaders fled to Pakistan, and are now the leadership of the fundamentalist wing of the Mujahedin . Daoud ruled from 1973 to 1978, but could only postpone the crisis . The Parcham and the Khalq united underground (probably at Russian insistence) into the People's Democratic Party of Afghanistan, the PDPA . One thing they had learned from Daoud was the importance of building underground among army officers . They began to prepare a coup . In April 1978 Daoud arrested the entire Central Committee of the PDPA. It was probable they would kill him . The army officers who supported the PDPA knew they would be next, and soon . They launced a coup, killed Daoud and gave power to the PDPA . SEVEN At first the April Revolution' seemed successful . There was fighting in Jallabad, but little elsewhere . This was because the PDPA had a real social base : the educated middle class . The army officers supported the PDPA because they were part of that class . The Daoud regime had a base only in the old ruling class, and that was by now a small and isolated force . So almost nobody fought for him . And from the point of view of the PDPA, it seemed there was no choice . If they had not staged the coup, they would have been killed . But they had one decisive weakness . Their support was among the officers, not the soldiers . In the sixties and early seven-

ties they had tried to win the political 39 argument in the countryside and they had comprehensively failed . So now they had to attempt to make a revolution from above . They set about doing so . They were not reformists or time-servers or believers in class compromise or the parliamentary road . They were the flower of their generation . They hated the society they had grown up under. They meant to change it . Almost immediately they passed two important sets of decrees . One was on land reform : all holdings over 15 acres were to be broken up and the land given to poor peasants and sharecroppers . This was a full scale assault on the khans . The second set of decrees announced more education for girls and reduced brideprice to a token amount . These may not seem like revolutionary measures . But in the Afghan context they were a declaration of support for women's liberation and an attack on Islam . Feudal Afghanistan was deeply sexist . Brides were bought, and the price ranged from three years wages for a poor man to ten years wages. A man without sons could not defend his land against larger families . A really poor man could never marry. And because each family's hand was turned against the other in chronic disputes over land and water, no poor man could easily defend his marriage . Divorce was illegal, women worked from before dawn to after dusk, and were beaten if they refused to work . If somebody stole a man's wife, he shot him if he was powerful and ate great shame if the other man was a powerful khan he dare not challenge . The oppression of women was central to the tradition of Afghan Islam . Mullahs preached the veil and threw acid at the legs of unveiled women in Kabul . Most

Capital & Class 40 poor women had to work in the fields and their husbands could not seclude them . But the richer families in each village could, and the poorer men aspired to be like them. For the sharecropper lucky enough to marry or the poorer peasant with little land, his wife was all he could control . If he lost her he lost all love, all possibility of children, all support in old age . In an unequal and corrupt society, Islam preached equality and honesty. The Law would be obeyed . All orders of men prayed together in the mosque, all equal before God . And if only the rich could protect the modesty of their women in reality, Islam said that the community as a whole would punish adulterers in the name of God . The Afghan communists had grown up in these families . They knew the oppression, the personal bitterness, the sexual pain . And many of them were women . For them, as for the Muslim right, the position of women was a fundamental issue . But to push through land reform and bring women's equality, they had to make their revolution from the top down. That meant doing it through the Afghan state . And the Afghan peasants hated the state . In the non-Pushtun areas they regarded the state as a form of Pushtun conquest . But in most Pushtun areas too people had memories of local wars against the state . Everywhere there were more recent memories of the secret police . And for Afghans anarchy was not a utopia . In most areas people remembered when they had been independent of the state. Along the Pakistani border hundreds of thousands still lived in effective independence . The mullahs began to organize . They said that the communists were infidels (mostly true) and tools of the Russians

(not true) . And there was a long history of rebellion against the state and imperialism under the banner of Islam . The Afghans had fought two successful Jihads against the British in the nineteenth century and an insurrectionary Jihad in 1928 had brought down King Amanullah . This tradition was remembered . The PDPA had to win the arguement against the mullahs in the countryside . If they had had a real base in the countryside and among the conscript soldiers, they could have fought for their reforms from the bottom up . They didn't . So they sent in jeeps full of men in Western suits protected by ambivalent conscript soldiers . The peasants looked at them, and saw the enemy coming.

EIGHT The first risings were in the traditional centres of rebellion against the state : Nuristan and Pakhtia . But everywhere the mullahs and their followers tried demonstrations and isolated shootings at government officers from behind the rocks . Without a local base, the PDPA could only react with arrests and torture : police terror. And in fact their politics fitted with this . They looked to the Soviet Union as a model, and there too an enlightened minority ruled with police terror . But Afghanistan in 1978 was not Stalin's Russia in 1928 . The arrests only fueled the resistance . The families of those who died in custody looked for revenge . And as the local resistane grew stronger, the PDPA turned to helicopter gunships to bomb the peasantry into submission . But while police action can be a selective form of terror, napalm could only be a form of class war against the peasantry . And so it united the peasants behind the mullahs and fed the resistance .

Afghanistan Of course, the resistance had nothing like the scale of popular support it now enjoys . But the PDPA's base was a weak one simply because the urban middle class was a weak class in an overwhelmingly peasant country. And as the repression increased that base began to splinter. Under these pressures the PDPA itself began to splinter. The old Parcham activists said that they were going too far too fast and should hold off the reforms to win the peasants . The old Khalkis said that only repression could keep them in power and push through the reforms . Both were wrong . Neither repression nor moderation could win over the peasantry now. So the communists began to kill each other. The Khalk faction took control of the state and filled the jails with Parchamis . The Khalk itself began to break, and in the autumn of 1978 its leader, President Taraki was killed by the radical Mohammed Amin . None of this stopped the collapse . The prisons and the graves filled as the government lost control of the countryside . Then, in December 1979, the Russian army invaded .

NINE The Russians had not planned the April Revolution' . (Whatever the American right may say.) Daoud's was a friendly government, and the Russians are not in the habit of orgnaizing social revolution against friendly governments . The PDPA saw itself as a communist party, but not as a tool of the interests of the Russian state . Their revolution was home grown . But when they seemed to succeed the USSR treated them as effectively part of the Soviet bloc . But the deep social conservatism of the cPSU meant that they were appalled that the Khalk was risking

everything on a program of real reform . 41 They argued strongly with the PDPA for calling off the reforms and building a `Fatherland Front', a coalition with the khans and the mullahs . They saw Mohammed Amin, the effective leader of the Khalk, as the main opposition to this . And indeed Amin was the leader of those communists who were not prepared to become Russian puppets . First the Russians supported the Parchamis . After they were arrested or went into exile in the Soviet bloc, the Russians persuaded the Khalqi President Taraki to kill Amin . In the ensuring gun battle Amin killed Taraki instead and took over as head of state . The Russians tried another assasination attempt and failed . Then they invaded . It is difficult to be absolutely sure why. (Kremlinology, like Contragatology, is an opaque science .) But it looks like there were several reasons . Firstly, it looked like the Afghan government would fall . No part of the Soviet block had ever fallen to a popular insurrection . And this was a state on the Russian border with a Muslim fundamentalist opposition . It was just after the Iranian revolution, and the Russians must have been worried about reverberations in the Muslim south of the USSR . But secondly, they probably thought they could do it . The Red Army did not expect to lose a war to a bunch of bandits in the hills. And thirdly, they seemed to have believed that if they could remove Amin and implement a sensible moderate strategy, they could win over the peasants So they killed Amin and put Karmal, the leader of the Parchamis, in his place . Karmal proceeded to call off the reforms, pray ostentatiously on television and promise to call off the repression . The Russian strategy failed . Nobody believed Karmal . But even if they had,

Capital & Class 42 there were now over 100,000 foreign troops in Afghanistan . The mullahs had been saying the PDPA were Russian tools . Amin had not been . Karmal was . This was a nation with a living tradition of successful Jihad against imperialist infidel invaders . The tradition was revived . The Afghan peasants swung solidly behind the Islamic resistance . So did the urban middle class, the old base of the PDPA . The students demonstrated in Kabul, led by the girl's school that had been the centre of agitation against the veil under King Zahir. The civil servants went on strike and joined the demonstration . Some of the Khalk led sections of the army mutinies . The peasants took up arms .

TEN And so began eight years of war . But if Afghanistan is Russia's Vietnam, the Mujahedin are unlike every other national liberation movement . They are not united, they are not led by one party, and they are deeply reactionary . Classic guerillas are a disciplined force relying on popular support . the Mujahedin are not an army swimming in the sea of the people : they are the people themselves in arms . The Russian strategy since 1980 has been to hold the cities and towns . In rural areas they have relied on sending in tanks and armoured infantry supported by helicopter gunships and bombing . With this strategy they can kill a lot of people . Several hundred thousand have died . They can also drive out most of the farming population and the nomads in the areas they choose to make free fire zones . Of about 15 million Afghans, over 3 million are now in refugee camps in Pakistan, 2 million scrap a living in the slums of Iranian cities, and a million

refugees live in Kabul . But this strategy cannot defeat rural guerillas . The russians have clearly found the cost of leaving the shelter of their tanks too high . So they send in the planes and armour, the Mujahedin melt away, the russians return to base and so do the Mujahedin . In most rural areas there is a sort of stand off. Both sides shoot at each other. The local garrisons of the conscript Afghan army have an informal agreement not to fight . If the Mujahedin attack the cities, the Russian army will come to the villages and massacre . So the killing goes on and the battle lines do not change much . The building blocks of the Mujahedin are the `base units . Each base is the old `gaum', the old local units in arms . In some areas each small village is a base . In some villages which were split in the old days between two factions each faction is now a base . In valleys with more than one nationality or sect each one will have it's own base . so, quite typically, a small valley with six villages may have ten bases . Each base has an operational and military independence . There is no overall commander. Bases in the same area may combine for a raid on a nearby army post . But they may not . People fight in or near their homes . If they can, they farm their land . If it is a free fire zone, the women and children and old men go to the camps in Pakistan . The men take turns going back into Afghanistan to fight . When they can, they keep an eye out for planes and continue farming their land . And they farm the land of the absent khan. For the old ruling class are conspicuous by their absence from the struggle on the ground . They sit in Peshawar and Paris and New York . They have abdicated

Afghanistan their power. With the partial exception of the strategic Panjshir Valley, no commander controls a mobile army he can order into battle where it is needed . Several base units may combine from the Pakistani camps to the home village . But they try to avoid fighting on the way. And they pay cash for food on the way.

ELEVEN Each base is affiliated to one of the seven parties of the Mujahedin in Peshawar. Different bases in the same valley often belong to different parties . The choice may be ideological, but it also reflects old rivalries between villages, nationalities, factions and clans . The leader of a base will often take his men to another party . `I was with the Harakat, but my enemy kept saying bad things about me, so I went over to the Hezb .' The parties are the conduit for money and guns . The Americans and the Saudis supply the most money, and the Chinese some . The Pakistanis supply little money, but without their base in Pakistan the resistance would probably have collapsed . A lot of the money and guns never reach the fighters on the ground . Various Americans and Saudis doubtless skim . But the bulk of the theft is by Pakistani bureaucrats and the national and local leaders of the Afghan parties . This combines with the corruption produced by the hugely profitable drug trade . In many areas of Afghanistan opium is the cash crop best adapted to local conditions, and no central authority has an interest in closing it down . Nor do the pious Americans, for the Mujahedin have to eat . The effect has been to slowly rot the Pakistani state and army. But if many resistance leaders are individually corrupt, they are very serious

about their politics . And they are deeply 43 divided . The main political division is between the `traditionalists' and the 'Islamists' . The traditionalists are based on the old ruling class and the mullahs . One (Gailani's) looks to the old King, Zahir, now waiting in Italy. One (Mujaddidi's) is more frankly secular and one (Muhammadi's) is based on the network of traditional Pushtun mullahs . But the traditionalist wing is the weaker. The mullahs have been active on the ground : the khans have not . The traditionalists have tried for some time to organize a 'loe jirga', a traditional national tribal council of the ruling class inside Afghanistan, to call for the return of the King . They have failed . The CIA tends to favour them as a relatively moderate force . But when Professor Majrooh, a leading traditionalist, was recently assasinated in Peshawar, everybody knew the Isamists had done so . Yet none of the traditionalists had the courage to say so . They complain in private about the Islamists; they do not feel strong enough to argue publicly. There are four Islamist parties ; two of them are important . One is the relatively `moderate Jamiyyati Islami . They are led by Rabbani, a former Professor of Theology in Kabul University. Their cadre are University students and mullahs, and most of them are Farsi speaking Tajiks from the North . Like all the Mujahedin parties they want to install a truly Muslim state in Kabul . Unlike the traditionalists, they mean it . They continue the tradition of looking to Al-Azhar and the Muslim Brotherhood . The radicals are the Hizbi Islam of Hekmatyar, the Party of Islam . Hekmatyar himself was an engineering student at Kabul University in the 60s and a leader of the Muslim right then . Even more than

Capital & Class 44 Rabbani's, this is the party of that part of the new middle class that hated the King and the State but looked to an Islamic revolution . The Party is much more organized and disciplined than the other organizations . They definitely see themselves as the future government of Afghanistan, and all other parties complain that the Party attacks their base units and assasinates their militants . Rabbani is to some extent an Islamic utopian . Hekmatyar is completely so . He looks forward to an Islamic state without oppression, without wasteful riches, without injustice, without indecent women and without an opposition . And with private property, of course . It is a dream of a bourgoisie state without greed . But it is not a dream of a return to the old feudal ruling class . They are firm that there should be no return to the King and his ways . Hekmatyar's Party talks abstractly of social justice and means an end to the power of the khans . Both parties, and particularly Hekmatyar's, are the political expression of the right wing of the new middle class created by education . In class terms, they are the same people as the communists . Their leading cadre is not the product of the Russian invasion . Masood, Rabbani's commander in Panjshir, for instance, is often represented as a heroic nationalist . But he was a student militant of the Muslim right in the early seventies, like Hekmatyar and Rabbani, and had to flee to Pakistan after the Islamic insurrection of 1975 was crushed . The political goal of this cadre remains what it was then : to take control of the Afghan state and build a centralised bourgeois dictatorship . TWELVE Are the resistance party simply tools of the CIA? No . The Mujahedin would have

collapsed without American, Saudi and Pakistani support . But the relationship is not simply one of master and puppet . Nothing illustrates this more clearly than the debate in the American government over Stinger missiles . Since 1980 the Mujahedin have been loudly demanding surface to air missiles . They felt that these would immobilize the Russian helicopters and air cover, and make a decisive shift in the military situation . The Jesse Helms wing of the Reagan administration supported them . The CIA has been against it . Helms is an ideologue: the CIA has the actual job of managing the American empire, and a much clearer idea of what is happening on the ground . They were more than happy to supply the Afghans with enough money and arms to be a thorn in the flesh for the Russians, and a continuing propaganda plus in the Muslim world. But a victory for the Mujahedin would be something else again . The two great enemies in American domestic propaganda in the 80s have been the drug peddler and the Islamic fundamentalists . A Mujahedin victory could well bring to power a regime that was to the right of the Ayatollahs . That regime would preside over a state faced with the choice of tolerating a massive drug trade or trying to deprive millions of poor peasants of their livelihood . If Noriega has been embarrassing, that could well be far worse . Moreover, it would be a regime the Americans supported and were in some sense responsible for. But it would not be a malleable client state . Hekmatyar's Party in particular would be a nightmare . When the Mujahedin leaders went to the UN, Reagan invited them to Washington for a photo call . They had to refuse, because Hekmatyar refused to shake

Afghanistan Reagan's hand . He holds that both super powers are imperialist and anti-Islamic . Two yeas ago the CIA lost the argument in Washington . They stalled for months on actually delivering the Stinger missiles . But in the end they had to do so . The military consequences have been dramatic . For the last two years the Russians have been losing one helicopter or plane a day, on average . That costs them a lot of money.

THIRTEEN The Stingers have been one element in the Russian defeat . Of course, the Russian withdrawal is part of a much larger project . The USSR faces an economic crisis . On the domestic front, the Gorbachev wing of the cpsu sees no alternative to rationalization of industry (perestroika) . On the international front, the cost of military competition with the USA has become too high . This is at the heart of Gorbachev's worries over Star Wars and his desire for a deal on limiting missile expenditure . It has also led to serious attempts to negotiate settlements with the South Africans over Angola and Namibia and with Pol Pot, Sihanouk and the Americans over Kampuchea . The Afghan withdrawal is part of this . The cost of the war has been too much . Of course the main cost has been half a million to a million Afghan dead . Only some 10,000 to 20,000 Russian troops have died . But for the Russian state the economic bill has been more important . Precise figures are unavailable, but the best guess is that for the last three years the cost has been running between four billion and twelve billion dollars a year. It is, in Gorbachev's words, a `bleeding soe . And they have not won the military battle . The countryside is in the hands of

the resistance . For years now the Mujahe- 45 din have held the suburbs of Kandahar, the second city, and been able to operate in the city centre at night . The Russians hold Kabul, but the Mujahedin can regularly bring down Soviet planes landing at Kabul airport, two miles from the city cente . The strategy of junking reforms and winning over the tribal leaders to a `Fatherland Front' has also failed . In a last attempt the Russians deposed Karmal and replaced him with Najibullah, supposedly a more moderate and acceptable negotiator. As he was for years the head of the secret police, it is not surprising that the Afghan masses have not flocked to his banner. So the Russians have lost the political battle and the military battle . Of course, they have not suffered total defeat . They could hang on indefinitely. They could even win if they were prepared to commit two million men and suffer ten times the casualties . But the Americans could have stayed in Vietnam if they had been prepared to commit five million men . The French could have stayed in Algeria on the same terms . But in both cases the resistance meant that the political and economic cost was too high for the occupying power . And in a situation short of total war, like 1939-45, that is what defeat means .

FOURTEEN Within a year, the Russian army will be gone . Without Russian support, the Afghan army will not fight . Diplomats in Kabul now debate whether the regime will collapse in three months or two years . Rumour says that the leading cadres of the PDPA are sending their families abroad . The Mujahedin will take power . But

Capital & Class 46 which Mujahedin? There is no one disciplined army. For the moment the Peshawar parties have cobbled together a provisional government . But the political and personal differences are too large for that government to hold together. And the Afghan peasantry is armed . They are still organized along the traditional ethnic, tribal and factional cleavages . They have fought for their freedom . They will be happy to see an Islamic government in Kabul, but not happy to submit to the real authority of that state . There are the makings of a hundred local land wars . The khans preserved their landholdings by force and their links with the old state . Now they will come back to claim that land . But force and legitimacy will lie with those who remained to fight the war . For the moment there has been a labour shortage on the land with so many men in the refugee camps . But when they return there will be pressure on the land . That pressure will be exacerbated because so many of the irrigation works and chains of wells have been destroyed during the war. If everybody returns to the land at once, they face ecological disaster and starvation . But anybody who does not return risks losing the control of their fields . At first the state will have no repressive apparatus independent of the base units . And many of those base units will be tempted to fight each other for control of land rights and water rights they have sullenly disputed for generations . If these feuding base units join up with opposing parties, there could be the makings of a civil war. And there is the national question . The Jammayati Islami is majority Tajik : the Party of Islam is majority Pushtun . And in the central mountains the Hazara people have been independent for eight years .

The Hazaras, fifteen per pcent of the population, are Farsi speaking mounain people claiming Mongol descent . They have always been the lowest and most despised ethnic group . They return that hatred for the Afghan state and the Pushtuns . From the the first the Russians decided it was not worth the effort of conquering their montain region . At first the old ruling class set up the shura, the committee, to run the Hazarajat in the old way. But unlike the other Afghans, the Hazaras are Shiahs . Those who hated the old ruling class looked to the Iranian example . The Peshawar parties are all resolutely Sunni . They have been influenced by the Iranian example, but they have contempt for the Iranian regime . This is because the Ayatollahs have done nothing to help the Afghan resistance . They have provided no arms, no money, and no refugee camps . They consider the USA the larger threat and do not wish to cross the USSR . But the more militant ex students and middle peasants in the Hazarajat had always hated the khans who made up the Committee . They organized into two parties, both modelled on the Iranian example . The first was Nasr, a fundamentalist party that began to attack the Committee . They were joined by the Sepah, a direct client of the Iranian Pasandaran (Revolutionary Guards, a sort of Freikorps .) An alliance between the Sepah and the Nasr drove the Committee and the Khans from the Hazarajat. The base units of the Sunni Peshawar parties now cross the Hazarajat to their homes in the north . The Nasr and Sepah extort money and guns from them . The Peshawar parties say they must not fight the Hazaras now : the current need is for unity against the Russians . But they say that when the Russians go they will settle with the Nasr and Sepah . They will, and

Afghanistan it will be bloody. The Hazaras have tasted independence, and they have their arms .

FIFTEEN There will be many small land wars . These may or may not combine into a civil war. The new state will certainly move to crush the independent power of the bases . It will not be easy. Who will win? One of the Peshawar parties . It is impossible to say which one, but the fundamentalist parties have the best chance . The traditionalists stand for a discredited class . The fundamentalists have the enormous advantage of focusing on control of the state. In a fragmented and shifting political situation, that concentration of effort will probably be decisive . As the new middle class won in the Hazarajat, one fundammentalist party or another is likely to win on a national scale . The resulting regime will be extremely right wing . It will be the enemy of women, of sharecroppers, peasants and workers . And that is the tragedy of the Afghan communists . In 1978 when Daoud moved to kill them, it seemed to them as if they had little choice. But because they tried to make a revolution through the officers rather than the enlisted men, through the state from the top down rather than from the bottom up, they have met with a fate far more shameful than death . They chose the path of helicopter gunship socialism . Napalm and electrodes have destroyed any possibility of socialist organization in Afghanistan for a generation . Those boys in that street in Lashkargah in 1971 will now be men in their thirties . Some will have been killed by other communists, and some by the Mujahedin . Some will have gone over to the resistance . But as the last Russian helicopters leave

their base at Lashkargah, one may scram- 47 ble for safety. As the Americans did in Vietnam, the Russians will push him back . This time he will not face a reeducation camp . He will face death . Those boys who appealed to that peasant crowd against the state went on to use the state against the peasants . Now that crowd will be coming for them .

SIXTEEN On a world level, the Russian defeat is a blow against imperialism . The American defeat in Vietnam opened up the space for mass movements in Nicaragua, Iran, the Philippines, Haiti and Korea . The Russian defeat is not on the same scale, but it will be felt . The Russian army and the Russian state have not suffered a defeat for sixty years . Their grip on the Soviet bloc has much to do with the feeling that the state is invulnerable . In 1980-81 the Polish activists were always looking over their shoulder for the tanks . Now in Warsaw and in Budapest and Prague the militants can say, maybe the tanks will not come . Maybe they can be defeated . The Russian army in Afghanistan was a conscript army on tours of duty, like the Americans in Vietnam . Perhaps 600,000 citizens of the USSR have lived through a defeat of the Russian state . Some of them will have been on the streets of Armenia . Since 1945 the world has been policed by the us Marines, the Sixth Fleet and the Russian tanks . Now that grip is breaking on both sides . In the space that opens up, there will be a place for mass movements such as has not existed for forty years . The Mujahedin victory is welcome for creating part of that space . After 1979, there was never any way forward for a democratic and socialist movement in

Capital & Class

48 Afghanistan than support for the Mujahedin . But whatever part of the Mujahedin wins power, they will not be a regime any socialist can support . In Afghanistan, it is time to welcome peace after long years of war. It is time to recognize that as the TB patients said, the land of the Afghans will still be the land of tyranny. It is time to weep for the tragedy of Afghan communism .

Further Reading

The three essential things are Jonathan Neale, `The Afghan Tragedy', International Socialism, 2 :12, 1981, also available in German as Der Afghanische Tragodie, translated by Kurt Stronski, Aurora Verlag, Hamburg, 1982 ; M . Nazif Shahrani, `State Building and Social Fragmentation in Afghanistan : A Historical Perspective, in Ali Banuazizi and Myron Weiner, editors, The State, Religion and Ethnic Politics : Afghanistan, Iran, and Pakistan, Syracuse University Press, 1986 ; and Olivier Roy, Islam and Resistance in Afghanistan, Cambridge University Press, 1986, available in French as LAfghanistan : Islam et Moderne Politique .

In addition : the best book on Afghan communism, from the point of view of the American state, is Henry S . Bradsher, Afghanistan and the Soviet Union, Duke University Press, 1985 edition . Most journalistic books on the Mujahedin are Boy's Own or Girl's Own adventures : the exception is Arthur Bonner, Among the Afghans, Duke Universit Press, 1987. I have condensed a very complex history : for the detail see my 1981 artice and Shahrani . There are several excellent ethnographies : Robert Canfield, Faction and Conversion in a Plural Society : Religious Alignments in the Hindu Kush, University of Michigan Museum of Anthropology. Papers, No . 50, 1973 ; Thomas J . Barfield, The Central Asian Arabs of Afghanistan : Pastoral Nomadism in Transition, University of Texas Press, 1981; M . Nazif Shahrani, The Kirghiz and Wakhi of Afghanistan : Adaptation to Closed Frontiers, University of Washingto Press, 1979 ; Veronica Doubleday, Three Women of Herat, London, 1988 ; and Nancy Tapper's 1979 London Ph .D . thesis, `Marriage and Social Organization among Durrani Pushtuns in Northern Afghanistan', which should be published immediately.

LO H John Pickles Jeff Woods

C

s CO

Reorientating South Africa's international links `. . . dis my soort mense ( . . . they are my kind of people) S A Prime Minister about the Taiwanese'

Introduction The 1980s have been a period of great paradox and pain for South Africans . The reform policies of Botha have developed under a system of increasing centralization of power and militarization of government at all levels . South Africa in the 1980s is a state in crisis, challenged first and foremost internally on the ground by a crisis of control and legitimacy arising out of its thoroughgoing policies of oppression and inequality, and second by an external challenge which has ariseab02n 49 from the changing geo-politics of the southern African region and the increasing pressure for sanctions in Europe and the us . As a result the fortunes of the South African state are tied closely to those of the South African economy : eco-

Capital & Class 50 nomic growth is vital to continued political control, if not to stability. The heated and angry debates in South Africa over the sanctions and disinvestment movements in the us and Europe further reflect the pressure on the already sluggish South African economy, and on the ability of the state to maintain control and effect reforms . The apparent outcome is a state in disarray, operating in incoherent and often seemingly contradictory ways . It is against this background that the recent debate about Botha's reform policy should be seen, involving a far reaching restructuring of all aspects of the South African system and its external relations . Chris Heunis, Minister of Constitutional Development and Planning, suggests that `The response of the P W Botha government to these challenges is reflected to a

large extent in its national strategy, which is a unique plan . . . that adresses itself to domestic, regional and international issues simultaneously. i 2 Much has been written about this restructuring in the context of regional, urban, military, social, or industrial policy, but little attention has yet been given to South Africa's restructuring of its international links . The death of 30 Taiwanese in the crash in the sea off Mauritius of a South African Airways jumbo jet on its way from Taipei to Johannesburg in December 1987 serves to focus atention on this reorientation in South Africa's international links . During the 1980s South Africa has shifted its emphasis in diplomatic and trade contacts from its historically dominant connections with Western Europe and North America, by broadening those interna-

Table 1 .

South Africa's imports and exports to selected countries (main components as % of total trade in each direction - excluding gold)

Country

Exports to SA

Imports from SA

Taiwan

Textiles (27%) Machinery (22%)

Minerals (29%) Metals (40%)

Hong Kong (1985) :

Cotton fabrics (9%) Telecommunications (5%) Watches and clocks (16%) Toys and sports eq (12%)

Coal (3 1%) Iron and steel (22%) Precious stones (6%) Paper (5%) Vegetable oils (4%)

S . Korea (1985) :

Chemical products (42%)

Animal products (14%) Chemical products (12%) Paper (11%) Metals (17%)

Source : p . 297

(1985) :

Hanlon, J . and Ormond, R . The Sanctions Handbook . Harmondsworth : Penguin,

1987,

tional contacts to include other nations, particularly those in the Indian Ocean and Asia : Taiwan, Hong Kong and South Korea . Not only are the former markets drying up as pressures to impose sanctions on South African trade begin to take effect, but also it is these Asian markets which ave experienced some of the fastest economic growth in the 1980s . Moreover, as us corporations withdrew from South Africa under pressur at home, and as average annual after-tax returns on investments for us corporations dropped from 31 per cent in 1980 to 7 per cent in 1983, new investment capital was needed to replace that being lost . South African trade with Asian economies has risen rapidly in the 1980s, from 19 per cent of South Africa's exports in 1980 to 31 per cent in 1987 Imports from Asia have also grown . With the imposition of sanctions and the threat of further boycotts and withdrawals by Western interests, trade with the fast-growing Asian and Pacific Rim countries takes on a new significance, particularly because in many ways the economies of south Africa and East Asia are complementary. South Africa is a source of temperate agricultural products and raw materials for the Asian Newly Industrialising Countries (ANics), and serves as a market for manufactured goods and investment from those countries . (Table 1)

Taiwan : Trade and cultural links Among the ANICS, Taiwan has expanded its South African ties in the 1980s most markedly. In part this reflects both countries' increasing diplomatic isolation . South African Prime Minister (now President) P W Botha visited Taiwan in 1980 and South Africa is one of the few countries to host a Taiwanese Embassy. South Africa increasingly emphasizes its connec-

tions with Taiwan : it held a memorial 51 service for the late President Chiang Ching Kuo in 1988 at which the main speaker was foreign Minister R F Botha, and sent a contingent of government officials to the funeral in Taipei . Recently, South Africa revised its immigration laws relating to Taiwanese Chinese, and in late 1987 the two countries signed an extradition treaty for economic crimes, including debt and fraudulent foreign investment . The Vice President of Taiwan attended the ceremonies to mark the inauguration of the new Constitution of South Africa in 1984, and General Johann Coetzee, the Commissioner of the South African Police was awarded the Taiwanese Medal of Yun Hai for promoting the `traditional friendship and military cooperation' between the two countries . This `traditional friendship' would be made more concrete by the academic exchange program of lecturers and students of South African and Taiwanese universities announced in 1987, and the visit of a South African admiral to Taiwan would firm up the `long-standing' ties between these two nations! Underpinning the changed cultural and political relations between these states is a strengthening of economic ties . Bilateral trade has increased rapidly from $546 million in 1986 to $911 million in 1987, a 67 per cent increase, and Mr C C Kan the Taiwanese economic counsellor in South Africa predicts trade at $3 billion by 1990 with a potential of $8 billion in the long term . Unlike many countries who wish to keep South African contacts at arms length . . . `We are not satisfied with present levels . . .' said Mr Kan . 3 Bilateral conferences and Ministerial discussions have addressed trade, business, investment and joint projects, South Africa has a permanent display at the Taipei world Trade Centre to broaden its presence in

Capital & Class 52 the burgeoning Pacific Basin markets, about 1000 visas a month have been issued to Taiwanese businessmen to visit South Africa and a similar number issued for South African businessmen to visit Taiwan, shipping services between the two countries have been increased, and an increase in the number of flights is under consideration . Taiwan is the main, but not the only, country in Asia involved in this reorientation. Others include Hong Kong, South Korea, and the Philippines, but Taiwan appears to be taking the lead .

Taiwanese investment in South Africa South Africa's interest in the far East is not just to increase exports but also to promote new sources of foreign investment to make up for the drying up of investment from its traditional sources . Taiwan, with its regular annual surplus on world trade ($19 billion in 1987) and healthy foreign exchange reserves, currently standing at $75 billion, is worth wooing especially since Taiwanese residents can now invest overseas up to $5 million per person . Investment in South Africa is very attractive for Taiwanese investors . High levels of government financial incentives and cheap labour permit a high return on a small investment . The bulk of Taiwanese investment has gone to the `Homelands', where approximately 120 factories have been established by Taiwanese investors . Generally speaking the investments have been relatively small amounting to about $100 million in total (compared, for example to over $500 milion by Taiwanese investors in Thailand), but their significance for the Homelands far outweighs this . Homeland leaders are keen to encourage investors to their territories . Prime Ministers Mpephu of Venda and Phatudi of Lebowa both vi-

sited Taiwan in 1983 and President Sebe of Ciskei travelled there in 1984 . Sebe later commented that 'Ciskei will ned much stronger promotion overseas', and that ' . . . a large proportion of present investment in Ciskei is from abroad and it is vital that this trend be maintained . i 4 The KwaNdebele National Development Corporation has a full-time office on the island . Investors are attracted by munificent financial incentives available through the South African industrial decentralisation policy. Companies investing in a range of government designated `industrial development points' and 'deconcentration points' (many of which are in the homelands) receive subsidies of up to 95 percent of the wage bill, 80 percent of rental costs of factories, and 60 percent rebate on transport costs . One Taiwanese investor went so far as to describe them as `the best incentives in the world' . The companies also benefit from cheap labour due to staggering levels of unemployment, and the absence of trade unions due to repressive homeland government labour legislation . As a result wage levels can be half the rate of those in the `white parts of South Africa . A further attraction, seemingly paradoxical, is the ability to use South African Certificates of origin, at a time when producers might otherwise shy away from such a status in face of possible embargoes on South African made products . However, these certificates enable ANICS to get around trade restrictions imposed on exports from their home bases by the United States and European Community. This is particularly the case for textiles which form a high percentage of investment from ANIC sources, and which are restricted under the MultiFibres Agreement . South Africa's exporters had not achieved the limits of their quota, offering an opening for new expor-

ters . By mid 1986 approximately 85 per cent of South African textile exports were coming from Taiwanese concerns . 5

Indian Ocean Basin realignment policy The importance of this reorientation of trade and investment ties with Taiwan and other Asian countries is underlined by South Africa's attempts to strengthen diplomatic and economic ties with the governments of Indian Ocean islands, especially those with large airstrips to accommodate long distance flights . South African attention has been focussed on the Comoros, the Seychelles and Mauritius . A coup in the Seychelles in 1977 deprived South Africa of its landing rights at Mahe airport . Flights were rerouted through Mauritius, an island which has taken on a key position in South Africa's overseas links . It already serves as a break of service point for flights between South Africa and Australia since the Australian

government withdrew South African Air- 53 ways' landing rights there . Hong Kong, Singapore and Taiwan provide a similar break of service function for South African flights . In February 1988 it was announced that Air Mauritius would increase the number of its flights on the 1500 mile flight between the island and Johannesburg after purchasing a newly developed Boeing 767-300 extended range jetliner. The extended range version would not be needed particularly for this route . However, in April 1988 a -200 version of one of these planes flew nonstop the 8,700 miles from Canada to Mauritius opening up the possibility of direct flights to North America if certain international safety regulations were altered . Significantly, the bulk of the route was over the sea . The flight was met by the Prime Minister and the entire Cabinet of Mauritius on landing for the official handing over of the airplan to the Mauritian airline. South African influence has not always

Table 2 .

South Africa ; approvals for foreign investors in decentralisation and deconcentration points (selected NICS). Applications

Capital investment

Employment opportunities

Apr 182Mar 31 85 Taiwan Israel Hong Kong Philippines

63 23 10 1

94 .7 44 .8 10.8 5 .3

16,293 5,020 2,580 1,410

Total ANICS

97

155 .6

25,303

Total all foreign inv.

159

312 .1

34,183

Reports, Board for the Decentralisation of Industry . Data on the source of foreign investment is no longer provided by the Decentralisation Boards . The information is now considered `confidential' . Approximately half of all approvals result in actual investment . Source: Annual

Capital & Class 54 been established in a benign way. In 1978 a coup in the Comoros by mercenaries led by Robert Denard (of Congo `fame') resulted in the installation of a pro South African regime . It is reported that South Africa currently pays the operating costs of the Presidential Guard, the real power behind the throne, although the South African government denies its `aid' is used in such a way. In 1981, another ex Congo mercenary leader, `Mad' Mike Hoare led an abortive coup in the Seychelles to overthrow the left-leaning government . Among thoe captured was a member of the South African National Intelligence Service . Hoare later claimed that the South African military had provided logistical support . South Africa has attempted to consolidate its position with friendly governments through doses of foreign aid and investment to boost the local economies, ranging from hotel development in the Comoros to assistance and investment in agricultural projects in Mauritius to help that islands' economic diversification program . Some 16 per cent of Mauritius' foreign tourists in 1987 came from South Africa . It is not just the Indian Ocean islands which are the recipients of South Africa's attention and largesse - similar stroking is going on with the governments of Equatorial Guinea and Madeira . South Africa was also reportedly involved in a failed coup attempt on the island of Sao Tome in March 1988 . These moves may be seen as part of a broader strategy for developing sanctions-busting transshipment points and avoiding landing rights embargoes on South African airlines .

Restructuring and total strategy In total the levels of new investment from the ANICS are not very large, and

certainly have not yet reached the levels withdrawn by American and European companies in recent years . However, when seen in the light of the broader reorientation sketched above they are significant . Moreover, they are part of a wider strategy - `total strategy' - which seeks to restructure South Africa's internal and international relations in a fundamental way, and in parallel with the restructuring of South Africa's role in the sub-continent . The restructuring of the 1980s is on a scale as large as was the apartheid project in its time . To adapt to change while still maintaining control, to `adapt or die in P W Botha's words, is the principal aim and the real dimension of `total strategy' . As under Apartheid the location and control of the black population remains central to the issue . But, whereas under apartheid, coercion and the bureaucracy were the chosen methods, the ultimate failure of these has led to a turn to cooptation and the market . Economic growth is a vital element in this scenario in order to provide sufficient economic surplus to broaden distribution . However, the seemingly more benign means of the current period are belied by the levels of violence necessary in the townships and the homelands to enable the restructuring to proceed . Two key elements remain : externally, international links and access to foreign capital, and internally the legitimation of the homelands . One of the aims of the industrial decentralisation policy is to create an environment which will be sufficiently attractive to foreign investors and which will keep blacks from moving to the white areas by providing jobs and housing in the homelands . Growth in the economy as a whole is necessary to finance this policy, and increased investment in the homelands in particular. However, the traditional sources of foreign investment

have exhibited extreme reluctance to commit funds by locating in South Africa . The turn to Taiwan and the Pacific Rim takes on its significance in this light, and intermediate points between South Africa and the Far East become involved in global realpolitik . Notes 1 . D . Colborne, `South Africa and East Asia', South Africa International, XIII, 3 (1983), p . 469 . 2 . Financial Mail, 18 July 1986, p . 36 . 3 . Africa Research bulletin (Economic Series), 31 March 1988, p. 9026-27 4 . Financial Mail, 11 July 1986, p . 44

5 . Ibid . 7. The Times, 27 April 1988, p. 11 .

55

Andrew Kliman Ted McGlone The transformation non-problem and the non-transformation problem I have thrown overboard the whole doctrine of profit up till now . By mere accident . . . I leafed through Hegel's Logic again and found much to assist me in the method of analysis . (Marx, 1983a : 50) Most criticisms of Marx's attempt to solve the transformation problem focus on his failure to separate value and price calculations . It is argued here that there is nothing wrong with Marx's approach once it is construed as an exercise in dialectics rather than some attempt to map mathematically values on to prices . Consequently, much of the debate over values and the 56 transformation of values has been wrongly directed at matters of mathematical technique when the real issue concerns one of method .

• Marx's theory of value continues to be a subject of controversy, as recent debates on abstract labour (Gleicher, 1983, 1985 ; Eldred, 1984) and joint production (Roberts, 1987 ; Rankin, 1987) in this journal show . Through such debates, radical economists' views on value theory have seemingly crystallised into two main approaches, characterised by de Vroey (1982) as the `technological' and `social' paradigms . As students of a third, humanist problematic, we hope in this paper to create a dialogue with proponents of other approaches by re-examining the key unresolved question of post-Marx Marxist' value theory - the `transformation problem' . Within the `technological' paradigm, both adherents to the labour theory of value (e .g . Meek, 1956) and those who reject value categories as redundant or worse (e .g . Steedman, 1978) confer upon technological relations a crucial role in the valuation process . Most of those working within the `social' paradigm hold to what Elson (1979) called the `value theory of labour' ; in this theory, `value refers to the validation of private labour through the exchange of commodities against money' (de Vroey, 1982 : 40) . Our own view is neither 'technicist' nor market-oriented, but a production-centred value theory of labour . In short, we take capitalist technological relations themselves to be social relations, class relations of dead to living labour in production . `[L]abour is expressed in value' because `the process of produc-

The transformation non problem

tion has mastery over man, instead of the opposite' (Marx, 1977 : 174-75) . We do not de-emphasise the quantitative aspect of Marx's value theory, however; this paper, for instance, attaches great importance to the aggregate equalities which obtain in Marx's transformation procedure . This unorthodox interpretation of Marx's theory of value arises out of the new problematic raised since the 1950s, by mass movements and intellectuals alike, in their call for new human relations . us coal miners fighting automation asked `what kind of labour should human beings do?' (Phillips & Dunayevskaya, 1984) ; East German workers and masses struggling against a new totalitarianism called for `Bread and Freedom' ; radical intellectuals in the `East', `West' and `South' returned to Marx's humanism, rooted in the Hegelian dialectic, as a philosophic-economic totality in need of re-concretisation (see, for instance, Fromm, 1965 ; Dunayevskaya, 1958 ; Fanon, 1961) . We argue below that because they view Marx's Capital as a narrowly `economic' work, post-Marx Marxists and others misread his transformation procedure in Volume III, Chapter 9, and consequently reject it as logically inconsistent . Both anti-Marxist and Marxist economists view Marx's `failure' to separate valueand price-calculation as a logical error . Yet, whereas the former see this `failure' as a sufficient reason to reject his analysis of the capitalist economy, the latter set out to resuscitate him . They hold that he himself was aware of the error ; only his lack of mathematical sophistication and/or failure to complete Volume III prevented him from presenting the `correct solution' . 2 Despite the near-universal rejection of Marx's procedure, the debate has not resolved the question of the relation of values to prices of production . Rather, it has reached an impasse and degenerated into chronic indeterminacy . The constantly expanding multiplicity of `solutions' to the `transformation problem' has itself become part of the problem . Since each new `solution' is necessarily opposed to all others, none of them can resolve the debate . 3 To help break through the apparent endlessness of this debate, we undertake here a defence of Marx's own procedure and a critique of `transformation problem' `solutions' . Ours is, admittedly, not the first recent work to defend Marx's procedure . 4 We believe, however, that previous responses adhere too closely to the ground of Marx's critics . All sides in the debate focus on the questions of `logic' and the internal (in)consistency of the labour theory of value . What is downplayed or even ignored 5 is the issue of method : the abstract, analytical method of formal logic versus concrete, dialectical self-development . The nondialectical understanding perceives each object as isolated,

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uniquely itself, a whole unto itself . Thus, for instance, separate `systems' of value- and price-calculation are demanded, `systems' in which value equals value, price of production equals price of production . Conversely, dialectic comprehends a judgement such as `value is price of production' because this judgement, like every other proposition taken singly, is inadequate . It must therefore continue to be developed until the original statement has undergone so much differentiation that we now fully comprehend how value becomes price of production . 6 Though little attention has been paid to this issue, rejection of the dialectical method was an inseparable part of BoehmBawerk's (1949) critique of Capital, a critique which has set the ground for the subsequent `transformation problem' debate . Boehm's accusation of inconsistency has been quoted widely in discussions which take the controversy to be a purely analytic one . Yet, what has been overlooked is his stipulation that `every logical thinker' will agree with him (Boehm, 1949 : 30, emphasis added), and his concomitant desire to distance his own view of logic from Marx's dialectical logic . Marx has not deduced from facts the fundamental principles of his system, either by means of sound empiricism or a solid economical-psychological analysis : he founds it on no firmer ground than a formal dialectic . This is the great radical fault of the Marxian system at its birth : from it all the rest necessarily springs . (101, emphasis added)

In his critique, Boehm thus recognised both the centrality of the dialectic to Capital and the methodological gulf which separated him from Marx . In contrast to other participants in the debate on the `transformation problem' we, too, view the question of the `internal consistency' of Marx's procedure to be inseparable from his method . In Section II, we first examine Marx's transformation procedure within the context of his critique of political economy as a whole . We argue that his illustration appropriately kept values and prices unseparated, though distinct, within a dialectical totality - the single `system' of capitalist production and circulation . The transformation of values into prices of production is but one of many `transformations into opposite', successive developments of the reification of labour and the fetishism of commodities, discussed in Capital. Conversely, we then argue, `transformation problem' `solutions' are expressions of antidialectical methodology and a divergent view of capitalist economic relations . These general equilibrium `solutions', however, neither compel rejection of Marx's view of the value-price relationship nor actually demonstrate any relationship themselves .

The transformation non problem Finally, we present a multiperiod continuation of Marx's one-period transformation procedure . Where Section I defends the `failure' to separate values and prices into two systems as methodologically apposite, Section III seeks to demonstrate that it is logically consistent as well . Retaining values and prices in a single `system', we illustrate the `transformation of input prices' in the context of simple reproduction .? The three aggregate equalities which result from Marx's procedure - the equalities of total value and total price, of total surplus-value and total profit ' s and the equal magnitudes of the `value' and `price of production' rates of profit - hold in each period and even in general equilibrium . A summary and conclusions follow in Section IV . . . . the material, the opposed determinations in one relation, is already posited and at hand for thought . But formal thinking makes identity its law, and allows the contradictory content before it to sink into the sphere of ordinary conception . . . in which the contradictories are held asunder . . . and so come before consciousness without reciprocal contact . (Hegel, 1969 : 835) `Come before consciousness without mutual contact' (the object) - that is the essence of anti-dialectics . . . thought must apprehend the whole `representation' in its movement . . . (Lenin, 1961 : 228)9 A single charge has dominated the criticism of Marx's transformation procedure : `it fails to keep separate rigorously enough the two principles of value- and price-calculation' (Bortkiewicz, 1952 : 8) . To correct this `failure', understood to be an error in logic, `solutions' to the `transformation problem' hold values and prices `asunder', `without reciprocal contact', in two opposed systems of calculation . We believe, however, that the demanded separation of value- and price-calculation is not a simple matter of `logic' . It reveals, on the contrary, the critics' methodological opposition to Marx's procedure as well as their divergent view of what a transformation procedure must illustrate . We turn now to these issues, first by examining Marx's transformation procedure in the context of his critique of political economy as a whole, and then by contrasting it to the host of `solutions' . The meaning and method of Marx's transformation procedure It is well-known that classical political economy adhered to two opposing principles which it was unable to reconcile and that, in Marx's view, this failure led to its disintegration . On the one hand, it discovered that labour is the substance of value and

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One `system' or two? : the transformation of values into prices of production vs the `transformation problem'

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that the magnitude of a commodity's value is determined by the labour-time needed for its production . On the other hand, it adhered to the prima facie contradictory view that profit rates tend toward equality and that a commodity's price therefore tends to be equal to the costs of its production plus an average profit . Even Ricardo failed to account for the determination of the level of the profit rate and held the disproportionality of prices and values to be an `exception' to the law of value . It is also well-known that Marx insisted that, rather than attempting to `rescue' the law of value by means of a `violent abstraction' of this sort, the existence of prices of production and a general rate of profit `have to be explained through a number of intermediate stages' (Marx, 1977 : 421 ;1968 : 174) . However, this stipulation is often interpreted as a call for successive relaxation of assumptions, for an even stricter adherence to Ricardo's method - the analytic method rooted in formal logic . In this view, the law of value is a `first approximation' based on assumptions, such as equal compositions of capital, which do not hold in the real world and which must be dropped as the model becomes more realistic . We view Marx's stipulation, instead, as an indication of his dialectical method. In Capital, Volume I, he sharply distinguishes this method from that of the `abstract materialists' whose `materialism . . . excludes the historical process' : Even a history of religion that is written in abstraction from [its] material basis is uncritical. It is, in reality, much easier to discover by analysis the earthly kernel of the misty creations of religion than to do the opposite, i .e . to develop from the actual, given relations of life the forms in which these have been apotheosized . The latter method is the only materialist, and therefore the only scientific one . (Marx, 1977 : 493-94n)' O What Feuerbach had done in the analysis of religion, 10 Ricardo and the classicists had done in the analysis of economic life . They 'discover[ed] by analysis' the earthly kernel - labour of the mystery of commodity-value . The manifold phenomena of price relations were reduced abstractly, without mediation, to this undifferentiated substance, labour. Yet, the starting-point in reality (prices) persisted in contradistinction to the startingpoint in theory (labour) . The gulf between the `real world' and the theoretical world, between appearance and essence, was not overcome . 11 Marx's approach was `to do the opposite, i .e . to develop from the actual, given relations of life the forms in which these have been apotheosized' . The difference is not only that Marx

The transformation non problem

maintained a consistent starting-point whereas the classicals vacillated between two inconsistent principles . Rather, instead of being a method of reconciliation, Marx's method is one of development through contradiction . His starting-point thus contains within itself a duality - the dual character of labour revealed within its product, the commodity . The duality between the concrete potentiality of the living workers and the abstract, value-producing character of their actual activity, i .e . alienated labour, is ever-present in capitalist production . It is as isolated, independent individuals that the workers `enter into relations with the capitalist . . . Their co-operation only begins with the labour process, but by then they have ceased to belong to themselves' (Marx, 1977 : 451) . Their activity is not their own, but is subjected to the domination of dead labour . The social relations between persons at work have been transformed into thing-like relations (Marx, 1977 : 166) . Through a succession of `intermediate stages', Marx traced the development of the fetishised forms in which this reification of labour manifests itself . The first of these forms is the commodity-product, the materialisation of the labour which is an `objective' factor of production rather than the workers' selfexpression . Each subsequent `stage' is still another transformation, an inversion in which the worker's subjectivity takes on yet another form of a false `objectivity', a `social relation between things' (Marx, 1977 : 166) . 12 However, capitalism manifests itself not only in industrial relations, but in the market and in the categories of even `scientific' political economy. Thus, in these realms which Marx examines in Volume III, still more transformations are revealed . As he writes in Chapter 2 : the way that surplus-value is transformed into the form of profit, by way of the rate of profit, is only a further extension of that inversion of subject and object which already occurs in the course of the production process itself. We saw in that case how all the subjective productive forces of labour present themselves as productive forces of capital . On the one hand, value, i .e . the past labour that dominates living labour, is personified into the capitalist ; on the other hand, the worker conversely appears as mere objectified labourpower, as a commodity . This inverted relationship necessarily gives rise, even in the simple relation of production itself, to a correspondingly inverted conception of the situation, a transposed consciousness, which is further developed by the transformations and modifications of the circulation process proper . (Marx, 1981b : 136)

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Thus, in Chapter 9 of Volume III, Marx argued that the consciousness of capitalists and bourgeois economists, though `transposed', is grounded in reality's appearance . 13 Even in the form of price of production (in which considerations of disequilibrium of supply and demand, interest, rent, etc . are excluded), price and profit for an individual capital differ quantitatively as well as qualitatively from value and surplusvalue . Because price appears to be determined by (not only equal to) the costs of production plus profit, and profit appears as a pure mark-up over costs, the law of value/surplus-value seems false . Nevertheless, the alien reality of capitalist production relations remains the essential determinant of these new forms and makes its presence felt. By making the total social capital the object of analysis, viewing capital as if it 'belong[ed] to one and the same person', 14 Marx was able once again to see the capitallabour relationship through the appearance of `many capitals' . Total value and surplus-value are proportional to total price and profit, respectively ; the general rate of profit is the ratio of total surplus-value to total capital advanced . Throughout Volume III, rather than analysing market phenomena as self-subsistent, in their seeming independence from the sphere of production, these phenomena are developed as transformed forms of production relations . Thus, in Marx's illustration of the `transformation ofcommodity values into prices of production', 15 value and price are conceived of as contradictory terms in one relation. Value takes on a transformed form of appearance, a form of appearance which differs from itself . The dialectical meaning of the term `transformation' thus differs from its use as a synonym for a mathematical mapping . Many, if not most, of Marx's critics view his transformation procedure precisely as a failed attempt to map a self-contained set of values onto another, self-contained set of prices of production (or general equilibrium prices) . Curiously, however, what goes unrecognised is that this transformation is but one of many transformations of the same sort discussed throughout the three volumes of Capital, none of which are mappings . Were this fact better understood, perhaps this particular transformation would not have been singled-out for criticism . Moreover, the failure to recognise that many transformations have preceded the transformation of values into prices of production is one factor that leads critics to charge Marx with logical inconsistency . Lacking this recognition, their misconceptions regarding the latter transformation's starting-point are significant . Firstly, some critics of Marx's procedure still interpret Volume III's reference to `value' as a reference solely to labour and labour-time, and thus claim that the dimensionality of

The transformation non problem values and prices of production are inconsistent (see, for example, Abraham-Frois & Berrebi, 1979 : 26-27) . Actually, after tracing the development of the value-form into the price-form in Volume I, Chapter I, Marx regularly (albeit confusingly) referred to sums of money as `values' .' 6 Moreover, in a letter to Engels explaining the transformation of `value' into price of production, Marx explicitly equates 'cost-price' with the `price of constant part of capital + wages' and notes that this transformation `presupposes' that various value magnitudes appear as sums of money (Marx, 1983a : 109 ; emphases added) . The development of the form of value is not our present concern . However, inasmuch as the relationship between the value- and price-forms will play a crucial role in Section III of this paper, let us briefly indicate what is involved . The value congealed in a commodity is always expressed as a money price, a sum of money, because it is always related to the value of the universal measure of value, money . Conversely, of course, a sum of money always represents a sum of value . As the universal measure of value, money is ever-present, even in the absence of an exchange, since it `serves only in an imaginary or ideal capacity' (Marx, 1977 : 190) . Hence, the initial input `values' in Marx's illustration of the transformation of `value' into price of production are actually sums of money which, through the ideal presence of money, implicitly represent sums of value . Therefore, both before and after the transformation of magnitudes, the valueand price-forms are related through a unique, necessary numeraire ; inputs and outputs have the same, dual, dimensionality . Secondly and relatedly, in Volume III `commodities are not exchanged simply as commodities, but as the products of capitals', as results of capital's process of production (Marx, 1981b : 275) . Capital-values, not the value of means of production and labourpower, constitute the starting-point of Marx's illustration . In circulation, capital is a sum of money which purchases means of production and labour-power . As Yaffe (1975 : 45-46) has noted, the value of the capital is the value represented by that sum of money, not the combined value of the means of production and labourpower. Clearly, the capital advanced to production does not cease to be a sum of value merely because it differs from the values of its material elements . At the beginning of Volume III, in discussing the transformation of value into cost-price plus profit, Marx did assume that cost-price equalled the combined values of the labour-power and means of production used up in producing the commodity . This assumption was made in order to grasp the qualitative transformation in its `purity', independently of any quantitative disproportionality . On the other hand, when he discussed the

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quantitative transformation of Chapter 9, Marx dropped this assumption, noting that `if the cost price of a commodity is equated with the value of the means of production used up in producing it, it is always possible to go wrong' (1981b : 265, emphasis added) . Because they interpret his procedure as having wrongly equated the two, his critics universally view this stipulation as an admission of error which, to be rectified, requires that values and prices be held apart in two `systems' . The passage, however, continues : ` . . . The cost-price of the commodity is a given precondition, independent of his, the capitalist's, production . . .' Marx thereby indicated that he took the cost-price as a datum, a given magnitude of value represented by a given price, without assuming that this magnitude equals the value of the means of production (and labour-power) used up . Hence, neither his transformation procedure nor its resulting aggregate equalities depend on this assumption, as is often supposed . As we shall see in Section III, this procedure accounts for prices of production and the aggregate equalities obtain even when inputs are purchased at their prices of production . That the initial magnitudes of value and price are data, established in the immediate past, implies that Marx's illustration was not a `system' which abstracted from time . Rather, it depicted one particular period of capitalist production and circulation within the process of history . History as a process contains and releases two aspects of time . Time is always complete at this point, a continuously moving `here and now', in human development . And it is simultaneously differentiated : past and future are sharply discontinuous within the `here and now' . The present is therefore different from both the past and the potential for a totally different future . [W]hen the limited bourgeois form is stripped away, what is wealth other than the [situation in which the human being] does not reproduce himself in one specificity, but produces his totality? Strives not to remain something he has become, but is in the absolute movement of becoming? (Marx, 1973 : 488) The non-transformation problem Marx's transformation procedure retains values and prices in one relation ; `solutions' to the `transformation problem' separate them into two opposed equational systems . We have defended the former procedure as the one appropriate to Marx's purpose illustration of the dialectical transformation of value into its opposite, price of production . Are not, however, the various `solutions' merely different means of achieving the same end

The transformation non-problem which Marx sought? To answer this question, we now examine their method, what they set out to demonstrate, and what they actually demonstrate . There is no doubt that these `solutions' correctly calculate general equilibrium relative prices and the general equilibrium profit rate . Were that their only purpose, they would be unobjectionable . Yet, insofar as they attempt also to disclose the relationship of equilibrium prices to values, it must be asked whether they do, in fact, achieve this additional goal . The very form of the `solutions', i .e . the separation of values and prices into two `systems', is not without its implications . We turn first to the value `system' . Values appear here as a set of price relations ('value prices') opposed to equilibrium price relations . Rather than conceiving of price as a form of value, value becomes another form of price . The question to be answered thus becomes : in what way are these two pricing systems related? While there is nothing `wrong' with this question, its source is Boehm-Bawerk's (1949) misconception of Marx's value theory rather than that theory itself. Boehm, as is well-known, misinterpreted Volumes I and III as advancing two contradictory theories of exchange ratios . In response to this critique, `solutions' to the `transformation problem' attempt to affirm that these two systems of exchange are indeed related . But, unlike Ricardo, Marx did not advance a labour theory of exchange ratios . The `value price' system therefore has no basis in Marx's theory and the question of its relation to equilibrium prices is, from this standpoint, moot . In contrast to all schools of bourgeois economics, Marx refused to look at the market as a world unto itself, possessing its own reality, distinct from and unaffected by the underworld of production relations . Instead, value relations, the thing-like relations which distinguish the capitalist mode of production, are so essential to it that they pervade all realms, assert themselves through all appearances . Circulation is but one moment of capital's process of production and reproduction, the means through which value relations continually re-create themselves . The question Marx (1983a : 148) asked, therefore, was precisely how value relations assert themselves ; his transformation procedure was part of the answer to this question . When value is conceived of as a form of price and isolated into a separate `system', this question cannot be answered . The market and the factory never come into contact ; the unity of production and circulation is broken, a priori ; the analysis becomes focussed on different market forms alone . Moreover, since `value prices' are abstracted from real prices, there has arisen a tendency to view value relations as abstractions from price CaC 35-s

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relations, rather than as the reality of the factory . For instance, constant capital may indeed be mathematically equivalent to past wage outlays plus compound interest . But the economic significance of the former in production - the specific manner in which, as a use-value, it confronts the workers and its impact on their fate as a class - evaporates when reduced to the latter . 17 Marx's analysis of capital's process of production becomes an overly elaborate statement that workers do not receive the full product of their labour, for which Morishima's (1973) 'Fundamental Marxian Theorem' serves as an elegant substitute . We now turn to the price system . `Solutions' which begin with two sets of simultaneous equations formulate the price system as a set of n equations and n+ 1 unknowns - the prices of the n commodities (which appear on both sides of each equation) and the equilibrium profit rate . Though the magnitudes of these variables are unknown, the variables themselves are taken as given, postulated . In other words, the existence of general equilibrium prices and the general equilibrium profit rate is assumed . This procedure is legitimate if one wishes only to calculate the magnitudes of these variables . If, however, the objective is to show these variables to be forms of value - to show, in other words, how they come into existence through the operation of the law of value - then, in this context, their existence cannot be postulated . To do so is tantamount to assuming what must be demonstrated . The meaning of these variables can only be revealed through the conceptualisation of the real process of their determination . Mathematical 'determination'- i .e . calculation of magnitudes - not only differs from the real process of determination (Shaikh, 1982) ; by its nature, it cannot investigate the meaning of the variables which it assumes . The manner in which simultaneous `solutions' obtain prices and the equilibrium rate of profit provides additional evidence of this conflation of mathematical and conceptual questions . All relative prices are `determined' within the price system, without reference to the value `system' which lies beside it . And, since prices appear on both sides of the equations, the system is circular : prices determine prices . 18 Again, no fault can be found with this procedure on grounds of mathematics or logic . Yet what does it offer as economic theory, as inquiry into the meaning of prices and their relation to values? Secondly, the conception of the rate of profit as an unknown, to be solved within the price system, differs markedly from Marx's conception . That the latter's transformation procedure leaves the rate of profit unaltered has received little notice, as if this result were a mere 'by-product' of that procedure . However, its significance for Volume III of Capital is crucial . At

The transformation non-problem pains to dispel the illusions which competition creates, Marx sought to demonstrate that, given a certain advance of capital, the level of the profit rate depends only on the degree to which capital succeeds in pumping-out surplus-labour . It is therefore determinable upon the completion of the production process, before commodities go to market . Competition merely effects the equalisation of profit rates at this previously determined level . The mathematical results of simultaneous `solutions' seem to discredit these contentions . The rate of profit appears to be `determined' by the price system itself - that is, either by competitively determined prices or by planning which utilises shadow prices . Since this rate differs from the profit rate obtained through the value `system', its appearance as a magnitude relatively independent of production relations is reinforced . However, inasmuch as the value `system' is an irrelevancy, so too is the discrepancy between its profit rate and the equilibrium profit rate . As we seek to demonstrate in the next section, when the value of the capital advanced is not confused with the value of its material elements, the (theoretical) existence of the general equilibrium profit rate no longer implies its determination outside of production relations . Calculation, then, cannot replace the `power of abstraction' (Marx, 1977 : 90) which is needed to comprehend the value-price relationship . The claim that Marx could not `solve' the 'transformation problem' because he lacked the mathematical tools overlooks the difference between the two . Though Marx was not familiar with simultaneous equations, his Mathematical Manuscripts (Marx, 1983b) reveal not only his mathematical sophistication, but his critique of mathematicians' method . Newton, for example, discovered the differential operation . Though he used it to obtain correct results, Marx criticised his lack of rigour in working out the process of its derivation . 19 Furthermore, even the equations of the relative and equivalent forms of value, which Marx employs at the beginning of Capital, are not abstract identities . They are, rather, asymmetrical and imply a specific direction of movement . 20 Our present critique of `transformation problem"solutions' must be judged on its own, independently of any `appeal to authority' . But this evidence of Marx's mathematical practice is relevant to the history of thought : it indicates that he would not have considered the use of simultaneous equations as either the necessary corrective to, or an adequate substitute for, his own transformation procedure . Even if they are of the iterative form instead of the simultaneous form,21 `solutions' to the `transformation problem' must employ one or another `normalisation condition' or `invariance postulate' . Because the value and price `systems' are in them-

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selves unrelated and the dimensionalities of values and relative prices are inconsistent, 22 only the adoption of a normalisation condition can create some relation between the two . It is generally recognised that, since `there does not seem to be an objective basis for choosing any particular invariance postulate in preference to all the others . . . the transformation problem may be said to fall short of complete determinacy' (Seton, 1957 : 153, emphasis omitted) . This indeterminacy indeed turns the `transformation problem' into an endless exercise . The number of possible normalisation conditions (and therefore `solutions') is limitless and each is, objectively, as good as any other . 23 Even in principle, then, the `transformation problem' cannot resolve the question of the relation of values to prices . Perhaps even more significant is the fact that none of the `solutions' actually demonstrates any relation of values to prices . Whereas Marx's procedure obtains aggregate equalities on the basis of the given data, the value-price relationships which result from `transformation problem' `solutions' come from the theorists' heads alone . Because normalisation conditions are asserted a priori and imposed externally on the otherwise unrelated value and price `systems', 24 the resulting relationships are only assumed ones . In short, first the theorists negate the internal relation of values to prices, then they substitute whatever arbitrary relation they choose . Marx characterised this `tendency to form arbitrary unmediated connections between things that belong together in an organic union' as `[c]rudeness and conceptual nullity' . 25 In the `transformation problem', the theorist is the `external mediator' who comes from outside of the problem bearing a normalisation condition that dictates how values will be reconciled with prices . The external mediator in actual life, however, must be some social force, `independent' of both capitalists and workers, that can dictate a reconciliation of production with the market - in other words, the `classless technical intelligentsia' responsible for planning the economy and establishing social equilibrium . Indeed, use of input-output models and equilibrium shadow-pricing form the foundation of the state planning of our day . Are not `solutions' to the `transformation problem' therefore the ideological representations of a harmonious, state-planned economy? Yet, in production itself, there has been no reconciliation . To those who remain inside the factory, the plan is not classless but represents a `social formation in which the process of production has mastery over man, instead of the opposite . . . production by freely associated men, [which] stands under their conscious and planned control' (Marx, 1977 : 175, 173, emphasis added) . There is only the domination of labour by capital or the internal trans-



The transformation non-problem 69

formation of this reality, by those who live under it, into its opposite . [Ricardo's Principles] gives rise to weariness and boredom . As the work proceeds, there is no further development . Where it does not consist of monotonous formal application of the same principles to various extraneous matters, or of polemical vindication of these principles, there is only repetition or amplification . . . (Marx, 1968 : 169) The foregoing discussion has indicated that Marx's concern was to show the transformation of values into prices of production to be only a `further extension' of the transformation of workers' subjectivity into an antagonistic economic `objectivity' . Comprehending this process of `transformation into opposite' requires that values and prices be retained in a single relationship, not separated into different `systems' of calculation . The charge of logical inconsistency, which derives from Marx's `failure' to keep values and prices separate, is therefore misplaced . While we reject this central criticism of Marx's transformation procedure, so often referred to as his failure to `transform input prices', in another - quite real - sense the issue of `input price transformation' remains . One capital's output does become the other's input and, in this interchange, the commodity's price generally does diverge from its value . Our defence of Marx's procedure can, admittedly, only retain its force if we can account for this process without separating value and prices into separate `systems' . We therefore show presently that a simple continuation of Marx's own procedure, as interpreted above, can illustrate both the transformation of input prices and the transformation of values into prices of production . In a general sense, then, our illustration does constitute a response to the criticism that Marx `failed' to account for the transformation of input prices . Like many `solutions', moreover, it will depict the transformation of input prices as occurring within the context of simple reproduction (without fixed capital or joint production) . 26 We, however, will adopt Marx's conception of simple reproduction, not the conception formalised in the general equilibrium, input-output pricing models utilised by `transformation problem' `solutions' . Some marked differences exist . Space does not permit full discussion of this issue, which will be taken up in a future paper . We must nonetheless briefly digress in order to outline the following conceptual distinctions between `transformation problem"solutions' and our illustration : (1) `Buying back vs advance of capital . Were Marx to have assumed technologically inter-related departments in his illustra-

The transformation of input prices : an illustration

Capital & Class 70

tion of the transformation of values into prices of production, the aggregate output price of any component of social production (e .g. wage goods) generally would not have equalled the aggregate input price of that same component (e .g . the total wage bill) . This fact, originally noted by Bortkiewicz (1952), is taken as `proof of logical inconsistency and all such inequalities are indeed absent from `transformation problem"solutions' . Actually, these sort of inequalities entail disruption of social reproduction only if one accepts the implicit underconsumptionist premise that the components of social output must be `bought back' . For Marx, conversely, social reproduction is a question of the advance of capital, of `investment' . Money advanced for means of production and subsistence enables the previous period's outputs both to be sold and to serve as inputs (directly or indirectly) in the upcoming period . There is thus no reason why the input price of either means of production or means of subsistence in any period must equal its output price in that same period. (2) General equilibrium prices vs prices of production . `Solutions' to the `transformation problem' look for a set of unique, equilibrium (relative) prices as the means of achieving the necessary interdependence of the various industries . These prices alone are called `prices of production' . In contrast, we do not regard the prices of production to which Marx refers as general equilibrium prices . 27 They are indeed the prices that (a) obtain when supplies and demands are equal, (b) permit each capital to receive the same profit rate, and (c) form the `centre' around which market prices oscillate . As will be seen, however, many different sets of prices can at different times fulfill conditions (a) and (b), even when technology and real wages remain unchanged . (Abstracting from the process of competition, we will show no market price oscillations .) (3) Reproduction of prices vs reproduction of use-values . As unique, general equilibrium magnitudes, the relative prices obtained in `transformation problem' `solutions' are continually reproduced in a timeless fashion . Implicitly, these `solutions' assume either that material reproduction cannot occur under other prices or that this sort of `price stability' constitutes an additional condition which must be fulfilled if the system is to be truly in balance . When Marx discussed reproduction, on the other hand, he was concerned with a prior question : in what specific quantities and proportions must the system produce two distinct use-values, means of production and articles of consumption, if it is to materially reproduce itself at a certain level? The technical relations of production were thereby considered as a class relation - the relation of dead to living labour in production - irreducible to exchange relations among capitalists . Marx

The transformation non problem (1981a : 469-70) explicitly abstracted away from changes in values and deviations of prices from values, regarding them as irrelevant to the question at hand, and therefore held values fixed . In principle, the simple reproduction of material relations can take place at any set of prices . Moreover, if all profit rates are equal at the prevailing prices - whether or not they are general equilibrium prices - it is reasonable to suppose that no further incentives for capital flows exist and that supplies and demands should therefore actually equilibrate at these prices . Other than assuming simple reproduction, in the above sense, we modify Marx's own illustration in one substantive respect alone : we continue his one-period illustration into successive periods . This is necessary because, whereas the transformation of values into prices of production can be depicted in a single period, the transformation of outputs into inputs and thus the `transformation' of output prices into input prices takes place between one period of production and the next . It is clear that Marx (1977 : 711, 716) regarded simple reproduction as a continuously renewed process taking place in real time . And, though he did not illustrate the transformation of input prices mathematically, his verbal discussions indicate that he viewed it similarly: [E]ven if a commodity's cost price may diverge from the value of the means of production consumed in it, this error in the past is a matter of indifference to the capitalist . The cost price . . . is a given pre-condition, independent of his, the capitalist's, production, while the result of his production is a commodity that contains surplus-value . . . (1981b : 265, emphasis added) [E]very commodity which enters into another commodity as constant capital, itself emerges as the result, the product, of another production process . And so the commodity appears alternately as a pre-condition . . . and as the result of a process . . . In agriculture (cattle-breeding), the same commodity appears at one point of time as a product and at another as a condition of production . (1971 : 167-68, emphases added) These passages conceive of input price transformation as part of a real process : commodity prices are not simultaneously the preconditions and results of the same period of production, but alternately the results of one period and the pre-conditions for the next . Hence, cost-price is always a given pre-condition in each period - inputs cannot be retroactively re priced. Each period therefore has new pre-conditions which enable it to emerge as a new period, distinct from those in the past .

71



Capital & Class

72

To illustrate this process, we must therefore begin (and indeed begin again in each new period) with given input prices . These prices are money prices, sums of money . As we noted in Section II A, the appearance of values as sums of money and hence the existence of money (which possesses a definite value) are necessarily presupposed . We assume that the value of money equals 1 ; every number in our illustration therefore signifies both a price and an amount of value . Table 1 presents a specific two-department illustration . 28 We assume that, in every period, each department obtains half of the means of production that have been produced by Department I, and that the consumption goods produced by Department II are allocated as follows : one sixth and one third go to the workers in Departments I and II, respectively ; half are consumed by the capitalists who represent the two departments . The definitions of the symbols used in Table 1(opposite) are : m capitalists' personal revenue M money-capital before production C commodity-capital before production MP price of means of production L price of labour-power P productive-capital : process of production LL (price expression of) hours of living labour added ; generation of new value (not shown in table) s (price expression of) surplus-value C' commodity-capital after production M' price of production; money-capital after production 7T profit e rate of exploitation ; rate of surplus-value r general rate of profit Beginning with money (M), the collective capitalists of Departments I and II each purchase two commodities (C), means of production (MP) and labour-power (L), at given prices which represent given sums of value . (Solely in order to facilitate comparison with `transformation problem"solutions', we begin without any 'error[s] in the past ; i .e . initial values are equal to the values of means of production and labour-power .) In production (P), the means ofproduction become constant capital and labour-power becomes labour, the labourers' activity as variable capital . Upon entrance into the sphere of production, no change in material or value occurs . But production results in new outputs of greater value (C+s), due to the extraction of surplus-value (s) - labour for which no equivalent has been paid . These outputs are priced, not at their value, but at their price of production (C'-M'), which equals their cost-price (C) plus an

Table I MP . . . P

M-C

s . .

C + s

C'-M'

<

IT

General rates ofprofit and surplus-value

Department

m

I

-

150 .00 200 .00 350 .00

100 .00 100 .00 200 .00

50.00 100.00 150 .00

150.00 200.00 350 .00

50 .00 100 .00 150 .00

200 .00 300 .00 500 .00

214 .29 285 .71 500 .00

64 .29 85 .71 150 .00

r = .4286 e = 1 .0000

I II Total

59 .52 83 .33 142 .86

154 .76 202 .38 357 .14

107 .14 107 .14 214 .29

47 .62 95 .24 142 .86

154 .76 202 .38 357 .14

52 .38 104.76 157 .14

207 .14 307 .14 514 .29

222 .86 291 .43 514 .29

68 .10 89 .05 157 .14

r = .4400 e = 1 .1000

I II Total

62 .86 82 .86 145 .71

160 .00 208 .57 368 .57

111 .43 111 .43 222 .86

48 .57 97 .14 145 .71

160 .00 208 .57 368 .57

51 .43 102 .86 154.29

211 .43 311 .43 522 .86

226 .98 295 .88 522 .86

66 .98 87 .31 154 .29

r = .4186 e = 1 .0588

13

I II Total

65 .14 84 .86 150 .00

165 .14 215 .14 380 .27

115 .14 115 .14 230 .28

50 .00 100 .00 150 .00

165 .14 215 .14 380 .27

50.00 100.00 150.00

215 .14 315 .14 530 .28

230 .28 300 .00 530 .28

65 .14 84 .86 150 .00

r = .3945 e = 1 .0000

14

I II Total

65 .14 84 .86 150 .00

165 .14 215 .14 380 .28

115 .14 115 .14 230 .28

50 .00 100 .00 150 .00

165 .14 215 .14 380 .28

50.00 100.00 150.00

215 .14 315 .14 530 .28

230 .28 300 .00 530 .28

65 .14 84 .86 150 .00

r = .3945 e = 1 .0000

Period

1

2

II Total

L

A

0 A

0a V W

Capital & Class

74

average profit (7r) . Average profit differs from the surplus-value each department extracts, such that each receives the general rate of profit - the ratio of (1) the price expression of the surpluslabour extracted by the total social capital in production (totals) and (2) the total cost-price of the social capital (total M-C) . The general rate is determined in production, before circulation commences, so that its magnitude would be the same were outputs sold at their values . This process of pricing and profit determination, identical to Marx's own, will hold for all periods . We note that the sum of values (total C+s) equals the sum of prices (total C'-M') and the sum of surplus-value (total s) equals the sum of profits (total 7x) . 29 The first circuit of money capital is now completed . For simple reproduction to occur, each department must replace the precise quantities of the specific use-values which have been used up in this period . In our illustration, the collective capitalist of each department must lay out 107 .14 to obtain 1/2 = 107 .14/ 214 .29 of the means of production which have been produced in Department I . Further, Department I's collective capitalist must lay out 47 .62 in wages, enabling its workers once more to purchase 1/6 = 47 .62/285 .71 of the consumer goods produced by Department II . Similarly, Department II's collective capitalist must advance wages of 95 .24, enabling its workers to purchase 1/3 = 95 .24/285 .71 of the consumer goods . The productive consumption of these means of subsistence reproduces the labourpowers of these workers . Each department's total price (C'-M') in period 1, minus the sum of its advances to production (M-C) in period 2, equals the revenue (m) which the collective capitalists consume unproductively on output purchased from Department II . We note that the sum of the revenue, though less than the sum of profit, nonetheless enables them to purchase 1/2 = 142 .86/285 .71 of the output of Department II . The entire social product has thus been bought and sold at its price of production . Furthermore, each department's sales equal its purchases : 107 .14 worth of means of production are purchased by Department II and 47 .62 + 59 .52 = 107 .14 worth of consumer goods are purchased indirectly by Department I . Since the elements of cost-price have been obtained by the two departments, their use-values can be consumed productively - the activity of production can recommence . And since we are considering simple reproduction, and thus the reproduction of the same labour-powers, the use-values of these labour-powers which accrue to the respective departments are the same in this period as in the last . Put differently, workers in Department I again perform 100 hours of labour (the sum of necessary and surplus-labour) at the same intensity, and workers in Depart-

The transformation non problem ment II perform 200 hours . The portion of this labour for which no equivalent has been paid is different in this period than the last, because means of subsistence are cheaper and capital can obtain the use-value of labour-power at a lower price . Since the total price and the total value of the first period are the same, 500, the wages and capitalists' consumption expenditures, totalling 285 .71, which exit the circuit of capital between periods of production, are sums of value as well as price . The remainder, 500 - 285 .71 = 214 .29, is thus both the value and price of that part of capital which recirculates, the constant capital even though this diverges from the value of the means of production . When we add to this 214 .29 the 100 + 200 = 300 in newly generated value, we obtain 514 .29, the total value of the second period . This total differs from the total value produced during the first period, but only because an additional value of 14 .29 has been incorporated into the social capital in the second period . 30 The sum of surplus-value in the second period, 157 .14, does not equal the newly-added labour hours minus the value of labourpower. As the sum of the newly-added labour hours for which no equivalent has been paid it is, nevertheless, a sum of surplus-value . 31 And, since the value and price of the capital advanced in the second period are equal, it follows that the general rate of profit for the second period - the ratio of surplusvalue to capital advanced - is a'price of production rate of profit', but also a `value rate of profit'. In this period as in the first, the addition of the resulting average profits to the cost-price yields a total price which equals total value, and the subtraction of the total cost-price from this total price of production yields a total profit which equals total surplus-value . The process we have just outlined continues in the same manner for all periods . In each period, new prices of production are formed . They differ from the prices of production of the preceding period because more value is incorporated into capital . This divergence continues as long as the sum of profits exceeds the sum of revenues and the rate of surplus-value is higher than its rate in the preceding period . Eventually, these differences become extremely small and, in this illustration, a general equilibrium is approached . At the terminal point of this convergence, the value rate of profit would equal the `equilibrium rate of profit' and prices of production would become general equilibrium prices . However, we caution against interpretating our continuation of Marx's transformation procedure over time as an iterative (or any other sort of) `solution' to the `transformation problem' . It is noteworthy, first of all, that such `solutions' illustrate only movements in prices, not movements in values . In other respects, however, our continuation is undeniably

75

Capital & Class

identical to an iterative `solution' on a purely formal, mathematical level . Yet, it begins from different conceptual premises and its results are, accordingly, conceptually different as well . As we have emphasised, period 14's prices and profit rate should not be compared, as a separate `system', to the values and profit rate of period 1 . Each period is discrete . The difference between the total price of the 14th period and the total value of the first period is due, not to a deviation of total price from total value, but to the incorporation of additional value into the social capital in the interim, so that the total price and value of the 14th period are equal . The incorporation of additional value into capital also accounts for the different profit rates in these two periods . Similarly, the difference between the total profit of any period and the total surplus-value of the first period is due to the difference in the surplus-values extracted in these periods, not to any deviation of total profit from total surplus-value . Finally, we consider each period's prices of production to be `correct' for that period, since both departments obtain the general rate of profit and demand equal supplies . Because our procedure accounts for the determination of prices of production in the absence of general equilibrium, convergence to equilibrium is not necessary . The feature of our illustration which produced convergence, the constancy of total living labour hours over time, was therefore not imposed as an equilibrium-producing normalisation condition . Rather, it follows from the assumption of simple reproduction in every period . Illustration of convergence was important for a different reason . We earlier objected to the view that the mathematical equalities of general equilibrium contradict Marx's transformation procedure or, indeed, the law of value. Our illustration has now indicated a diametrically opposed view of general equilibrium relations . Beginning with cost-price as a known magnitude of value, and proceeding `through a number of intermediate stages' on the basis of the law of value and Marx's procedure, it arrived at general equilibrium prices and the general equilibrium profit rate as forms and determinations of value . Even in general equilibrium, the sums of price and profit equal the sums of value and surplus-value, respectively, and the general profit rate is the ratio of surplus-value to the value of capital advanced .

76

Summary and conclusion

We have defended Marx's transformation procedure neither on `doctrinal' ground, nor solely on logical ground, but as a procedure which was both internally consistent and appropriate to his purpose - illustration of the dialectical transformation of value into its opposite, price of production . Criticisms lodged by post-Marx Marxists, neo-Ricardians, neoclassicists, etc . reveal

The transformation non problem their methodological and theoretical differences with Marx, not the `logical inconsistency' of his procedure . The value-form of labour's product, we argued, is the immediate result of the transformation of workers' subjectivity into an antagonistic, falsely `objective' `thing' . This inversion takes place in production ; subsequent transformations in Capital are only its `further extension', including price of production as its form of appearance in the market . Consequently, the transformation of values into prices of production cannot be understood apart from the transformations developed earlier in Capital . Moreover, comprehension of price of production as a form of appearance of value - a form in which value relations do manifest themselves in the market - requires that values and prices be retained `in one relation', not kept apart in two `systems' . `Solutions' to the `transformation problem' neither develop Marx's critique of political economy nor even demonstrate that an alternative conception of the value-price relationship is warranted . While they do correctly calculate general equilibrium relative prices and the general equilibrium profit rate, the theorists arbitrarily link the price and value `systems' by imposing an assumed value-price relationship onto these otherwise unrelated opposites . Finally, we accounted for the `transformation of input prices' without separating values and prices into two `systems' . A simple multiperiod continuation of Marx's own transformation procedure, developed on the basis of his conception of capitalist reproduction, easily resolved this allegedly `logical' problem . In particular, our procedure illustrated that (1) the aggregate equalities of value and price, surplus-value and profit, and `value' and `price' rates of profit hold in each period as well as in general equilibrium ; and (2) inter-period changes in total price are due only to changes in the magnitude of value incorporated into the total social capital . These results depend crucially on Marx's distinction between the value of capital advanced and the value of the capital's material elements . The point of this exercise was not to defend `the' labour theory of value, but to comprehend price phenomena as necessary manifestations of alienated labour . It is only in the aggregate, however, only when the total social capital is considered as 'belong [ing] to one and the same person' - that the real relations of capital to labour, centralisation and concentration of capital at one pole and the revolt of labour at the other, pierce through the illusions created by competition .

77



Capital & Class 78

Acknowledgements We would like to thank Shaun Hargreaves Heap, Capital & Class referees, Summer 1986 uRPE participants, and numerous friends and colleagues for their comments on earlier drafts .

Notes

1. The term 'post-Marx Marxists', as a pejorative designation, comes from Dunayevskaya (1981) . 2. This view appears charitable . Yet, it implies incompetence or even disingenuousness on Marx's part, since he relied on the specific conclusions of his transformation procedure to develop further his view of price of production and profit as forms of appearance of value and surplusvalue . Thus, Marx's critics imply that he deduced certain features of capitalist society solely on the basis of a mathematical `model' he constructed . Even worse, he proceeded in these deductions despite his awareness that the `model' was flawed . Bortkiewicz (1952 : 13) for one was well aware of these implications of his critique of Marx : '[H]e holds the nature of the object to which his theoretical construction refers, responsible for the inner contradictions afflicting this construction .' 3. Failure to resolve the relationship of prices to values led to the disintegration of the Ricardian school . Is it not possible that the persistence of the `transformation problem' is a sign that post-Marx Marxist economics is likewise disintegrating? That the `transformation problem' appears to post-Marx Marxists as a technical issue to be solved by the specialist's `box of tools' is only one expression of the predominance in our day of what Lenin called the `administrative mentality' . However, just as the many crises of our age have not yielded to technical `solutions', neither has the `transformation problem' . 4. We know of no thorough review of `transformation problem' literature, but Hunt (1979) discusses the history of this approach to the value-price relationship, with reference to early `solutions' . Recent works defending Marx's procedure include Mattick (1972) ; Yaffe (1975); Mandel (1981) ; Mandel & Freeman (eds) (1984) ; Fine (1986) ; and Carchedi (1986) . 5. See, for instance, Mandel & Freeman (eds) (1984) . Mandel's introduction in particular ignores the issue of method while emphasising those of `science', `logic', and the labour theory of value : it even goes so far as to imply that rejection of Marx's transformation procedure is purely a neo-Ricardian (and neoclassical) vice . In his haste to unify `orthodox Marxists' against neo-Ricardianism, Mandel not only neglects to ask why almost all `orthodox' adherents to the labour theory of value likewise reject Marx's procedure, he even ignores the fact itself . One recent article (Carchedi, 1986) which we discovered just before this paper was accepted for publication, does stress that methodological differences between Marx and his critics are crucial to the 'transformation problem' debate . We also recommend Carchedi's discussion of the starting-point of Marx's transformation procedure as complementary to our own . However, we cannot accept Carchedi's central claim that prices of production are `social values', the realised forms of potential, 'individual values' . Because it fails to recognise that the commodity as a value is itself the social `realisation' of alienated labour, this novel formulation denies the actuality of value as distinct from price . Capital Volume 1 is



The transformation non problem not fully appreciated as Marx's theoretical penetration into the reality of capitalist production relations, but is regarded as a more or less abstract reflection of concrete market phenomena . 6. We hasten to add that Marx's philosophy of human liberation is neither separate from nor reducible to his methodology . Unfortunately, the particular content of this paper does not permit discussion of either the entirety of Marx's work or the dialectic of freedom in Capital. 7. `Transformation of input prices' refers to the re-evaluation of the constant and (usually) variable capital advanced to production . This is held to be necessary because the prices of production of the material elements of the advanced capital, means of production and subsistence, are not proportional to their values . Proponents of the `new solution' to the `transformation problem' (Dumenil, 1983 ; Foley, 1982 ; Lipietz, 1982) do not re-value the variable capital . 8. As we will discuss below, the transformation is, strictly speaking, a transformation of the simple price-expression of value into price of production . These equalities thus refer to the fact that the aggregate price of output and aggregate profit are not affected by the formation of a general rate of profit and prices of production . We will follow the shorthand convention of referring to the simple money-forms as `value' and 'surplus-value', except where confusion might result . 9. With the simultaneous outbreak of World War I and the collapse of the Second International, Lenin, through his study of Hegel's philosophy, transformed his philosophical views . `Unity of opposites' and 'transformation into opposite' became especially significant to his new comprehension of the movement of reality and thought . His subsequent analyses of the transformation of competition into monopoly and of part of the proletariat into a `labour aristocracy', his call to transform the imperialist war into a civil war, and his support of national liberation struggles against imperialism all testify to this fact . 10 . Cf. Marx's fourth thesis on Feuerbach . Feuerbach `resolv[ed] the religious world into its secular basis . But that the secular basis detaches itself from itself and establishes itself as an independent realm . . . can only be explained by the cleavages and self-contradictions within this secular basis [which] must then itself be destroyed in theory and in practice .' McGlone (1985) provides a more thorough discussion of Marx's break with Feuerbach and abstract materialism . 11 . '[I]f the commodity has a double character . . . then labour contained in the commodity must also be of double character, while mere analysis of labour as such, as with Smith, Ricardo, etc ., must everywhere come up against the inexplicable . This is indeed the whole secret of the critical conception .' (Marx, 1983a : 125) 12 . We are here reviewing the development of the fetish . The development in Capital always remains two-sided, precisely because Marx grasped labour in its duality - as objectified labour (the substance of value) and as the living labourer (the human being as subject of history) . Capital's oppressive reduction of the labourer to `one-dimensionality' is itself what drives her to oppose it in her struggle to become a `totally developed individual' (Marx, 1977 : 618) . 13 . Banaji (1979) correctly stresses the objectivity of appearance in Hegel's and Marx's work. 14 . Marx (1981b: 259) . Cf. Marx (1981a : 509): `it is necessary . . . to avoid looking at things as if a society based on the capitalist mode of

79

Capital & Class 80

production lost its specific historical and economic character when considered . . . as a totality . This is not the case at all. What we have to deal with is the collective capitalist .' 15 . This phrase (without emphases) is part of the title of Capital Vol. III, Chapter 9. 16 . For just one example, see Marx (1977 : 417) . 17 . For examples of this reduction, see Bortkiewicz (1952) and Lipietz (1982) . 18 . Brody (1974) acknowledges that the definition of prices is circular . However, he considers circular definitions to be both fruitful and indispensable . 19. Regarding this differential operation, Brokmayer (1986: 46) notes that `Marx characterises the process of its derivation as negation of the negation which was hidden in the mystifying methods of mathematics because they could not conceive how something could come out of nothing .' 20 . Arthur (1979) stresses the asymmetry (as well as the non-reflexivity and intransitivity) of these equations . Their implicit undirectional movement was pointed out to us by Ron Brokmeyer, in a personal communication . 21 . The best-known iterative `solution' is that of Shaikh (1977) . Morishima (1973 : 77n) and Brody (1974 : 90) also propose iterative `solutions' . It is to Shaikh's credit that he does not begin by severing values and prices into two distinct `systems' . In addition to adopting a normalisation condition, however, he takes only the final, general equilibrium prices to be ' "correct" ' prices of production, thereby interpreting Marx's procedure as only the first approximation to an adequate `solution' . 22 . The dimensionality of unit values is (labour hours/commodity unit), and the dimensionality of their price expressions is (monetary unit/commodity unit) . The dimensionality of relative prices is (unit of numeraire commodity/commodity unit) . 23 . For instance, one could let total value equal the total price of means of production and subsistence, thereby `showing' that profit is a pure `mark-up' on top of commodities' real value . Though this would violate the entire spirit of Marx's theory, it constitutes a `solution' to the `transformation problem' which is no less legitimate than any other . 24 . That a numeraire is needed to obtain absolute prices does not justify the arbitrary imposition of a normalisation condition . While the price-form itself entails that a commodity find expression in some amount of money, the declaration that a specific aggregate of commodities must equal a specific sum of money is only the theorist's whim imposed upon the actual data. 25 . Marx, quoted in Lukacs (1971 : 9) . Cf. Nicolaus's translation in Marx (1973 : 88) . Ironically, though Samuelson (1971) himself does not recognise the `organic union' of values and prices, his suggestion that an eraser be used to effect the transformation indicates that he considers the use of normalisation conditions to be an arbitrary way of relating values to prices . 26 . This does not imply acceptance of Bortkiewicz's (1952) or subsequent `proofs' of error on Marx's part . For the `general case' Marx examined, in which no particular input-output relations are specified, no critic has proposed an alternative to his transformation procedure . All



The transformation non problem such `proofs' depend crucially on the substitution of technologically interdependent `departments' or `sectors' for Marx's independent `branches' . We therefore consider these proofs illegitimate : though they alter the problem Marx's procedure is made to address, they do not permit the procedure to be modified accordingly . 27 . To interpret Marx's concept of prices of production as general equilibrium prices has become common, if not standard . Ironically, however, those who advance this interpretation generally charge that his transformation procedure is internally inconsistent - because the prices obtained are not general equilibrium prices! `Analytical Marxists' and Eastern European planners may wish that Marx had formulated a general equilibrium pricing system . Unless it can be demonstrated that he attempted to depict such a system, however, the charge of internal inconsistency is not justified . 28 . That Marx's procedure and its aggregate equalities hold for any number of technologically interrelated sectors is shown in an Appendix available upon request from the authors (Department of Economics, University of Utah, Salt Lake City, UT 84112, USA; and Department of Economics and Finance, St John's University, Staten Island, NY 10301, USA, respectively) . 29 . Each department's price of production equals its cost-price x (1 + general profit rate) . No normalisation condition is needed as an additional `closing equation' because the known data in each equation serve to calculate a price of production . Input prices and therefore cost-prices are given initially . As the price expression of total surplus-labour divided by cost-price, the general profit rate is calculated on the basis of the known total expenditure of living labour and the initially given input prices and value of money (see the Appendix for the exact mathematical expressions). We also note that, because cost-prices are sums of money and the profit rate is a pure number, the equations directly express prices of production as sums of money, not relative prices . 30 . Since, for all t, =

EC ;

(2) EC;

=

EM;,

;" ; (3) IM

=

EM' ;

(1) EM' ;

+

Es;,

-

Em;+',and

= EM' ; (4) Es; = 1771 it follows that EM ;+' - EM'S _ (EC; +' - EC') = (EMi ' - IN) = (EM' ; - Em, - ) - EM;)

-

+ (EsLt

EM;, + (Es; + ' - Es;) +`

-

Esi)

+ (Esl' - Es;)

+ (Es,+' - Es ;), = (Es ; - Em;+') (from (1), (2), (3), and (4), respectively. Thus, the increase in total price between any two periods is due to (a) the portion of surplus-value which does not exit the circuit of capital as revenue, and (b) the difference in surplus value between periods . The latter is the result of the difference in money wages which exit the circuit of capital . More briefly, the increase in total price is due only to the incorporation of additional value into the total social capital . C&C 35-F

81

Capital & Class 31 . The workers must work for a greater or lesser amount of time in order to buy back these commodities (to replace them) and must therefore perform more or less necessary labour than would be needed if the prices of production of their necessary means of subsistence did coincide with their values .' (Marx, 1981b : 309, emphasis added)

82

References

Abraham-Frois, G. & Berrebi, E . (1979) Theory of Value, Prices and Accumulation . Cambridge : Cambridge University Press . Arthur, C . (1979) `Dialectic of the Value-Form', in D . Elson (ed .), Value: The representation of labour in capitalism . London: CSE Books . Banaji, J . (1979) `From the Commodity to capital : Hegel's dialectic in Marx's Capital', in D . Elson (ed .), Value : The representation of labour in capitalism . London: CSE Books . Boehm-Bawerk, E . von (1949) Karl Marx and the Close of His System, Paul M . Sweezy (ed .) . New York : Augustus M . Kelley . Bortkiewicz, L . von (1952) `Value and Price in the Marxian System', International Economic Papers, No . 2. Brody, A . (1974) Proportions, Prices and Planning: A mathematical restatement of the labor theory of value . Amsterdam : North Holland Publishing . Brokmeyer, R . (1986) `The Fetish of High Tech : Marx's Mathematical Manuscripts vs . "Computer Consciousness" ', QuarterlyJournal of Ideology 10 :4. Carchedi, G. (1986) `The Logic of Prices as Values', in B . Fine (ed .), The Value Dimension: Marx versus Ricardo and Sraffa . London: Routledge and Kegan Paul . de Vroey, M . (1982) `On the Obsolescence of the Marxian Theory of Value : A critical review', Capital & Class 17 . Dumenil, G . (1983) `Beyond the Transformation Riddle : A labor theory of value', Science and Society 47 :4. Dunaveyskaya, R . (1958) Marxism and Freedom: From 1776 until today . New York : Bookman Associates . Dunayevskaya, R . (1982) Rosa Luxemburg, Women's Liberation and Marx's Philosophy of Revolution . Atlantic Highlands, NJ : Humanities Press and Sussex : Harvester Press . Eldred, M . (1984) `A Reply to Gleicher', Capital & Class 23 . Elson, D . (1979) `The Value Theory of Labour', in D . Elson (ed.), Value : The representation of labour in capitalism . London: CSE Books. Fanon, F . (1961) The Wretched of the Earth . New York : Grove Press . Fine, B . (1986) `Note : A dissenting note on the transformation problem', in B . Fine (ed .), The Value Dimension : Marx versus Ricardo and Sraffa . London : Routledge and Kegan Paul . Foley, D . (1982) `The Value of Money, the Value of Labour Power, and the Marxian Transformation Problem', Review ofRadical Political Economics 14 :2 . Fromm, E . (ed.) (1965) Socialist Humanism: An international symposium . New York : Doubleday. Gleicher, D . (1983) `A Historical Approach to the Question of Abstract Labour', Capital & Class 21 . Gleicher, D . (1985) `Note: A rejoinder to Eldred', Capital & Class 24 .

The transformation non-problem Hegel, G .W .F . (1969) Hegel's Science ofLogic . London: Allen & Unwin . Hunt, E . K . (1979) History of Economic Thought : A critical perspective . Belmont, CA : Wadsworth Publishing . Lenin, V.I . (1961) Collected Works Vol . 38, Philosophical Notebooks . Moscow : Foreign Languages Publishing House . Lipietz, A . (1982) `The So-called "Transformation Problem" Revisited', Journal of Economic Theory 26. Lukacs, G . (1971) History and Class Consciousness : Studies in Marxist Dialectics . Cambridge, MA : MIT Press . McGlone, T . (1985) `Absolute Negativity, Labor, and the Dialectics of Revolution' . Allied Social Science Association conference paper . Mandel, E . (1981) Introduction to K . Marx, Capital, Volume III . New York : Vintage Books . Mandel, E . & Freeman, A . (eds) (1984) Ricardo, Marx, Sraffa : The Langston memorial volume. London : Verso . Marx, K . (1968) Theories of Surplus-Value, Part II . Moscow : Progress Publishers . Marx, K . (1971) Theories of Surplus-Value, Part III . Moscow : Progress Publishers . Marx, K . (1973) Grundrisse: Foundations of the critique ofpolitical economy . New York : Vintage Books . Marx, K . (1977) Capital : A critique of political economy, Vol . I . New York: Vintage Books . Marx, K . (1981a) Capital: A critique of political economy, Vol . II . New York: Vintage Books . Marx, K. (198lb) Capital: A critique of political economy, Vol . III . New York: Vintage Books . Marx, K . (1983) The Mathematical Manuscripts of Karl Marx . London : New Park Publications . Mattick, P . (1972) 'Samuelson's "Transformation" of Marxism into Bourgeois Economics', Science and Society 36 :3 . Morishima, M . (1973) Marx's Economics : A Dual Theory of Value and Growth . Cambridge : Cambridge University Press . Okishio, N . (1961) `Technical Changes and the Rate of Profit', Kobe University Economic Review 7 . Samuelson, P. (1971) `Understanding the Marxian Notion of Exploitation : A Summary of the So-called Transformation Problem between Marxian Values and Competitive Prices', Journal of Economic Literature 9:2 . Seton, F . (1957) `The "Transformation Problem" ',Review ofEconomic Studies, 24 . Shaikh, A. (1977) `Marx's Theory of Value and the "Transformation Problem" ', in J . Schwartz (ed .), The Subtle Anatomy of Capitalism . Santa Monica, CA : Goodyear Publishing . Shaikh, A . (1982) 'Neo-Ricardian Economics : A Wealth of Algebra, a Poverty of Theory', Review of Radical Political Economics 14 :2 . Steedman, I . (1977) Marx after Sraffa . London : New Left Books . Seeezy, P .M . (1970) The Theory of Capitalist Development . New York : Monthly Review Press . Winternitz, J . (1948) `Values and Prices : A Solution of the So-Called Transformation Problem', Economic Journal. Yaffe, D . (1975) `Value and Price in Marx's Capital', Revolutionary Communist 1 .

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Mike Geddes The capitalist state and the local economy : 'restructuring for labour' and beyond • There has been considerable debate over the past couple of years about the London Industrial Strategy (Lis) and other `restructuring for labour' economic strategies adopted by left Labour controlled local authorities . This article argues that the debate has largely failed to adequately theorise/problematise the state . As a result, the political directions advocated by many contributors to the debate are highly questionable . The limited perspectives on the state of much of the `restructuring for labour' debate is reflected in the widespread conflation of the terms `state sector' and `public sector', as if the former really was the latter, and the general use of the term `intervention' (by the local state in the local economy), reflecting bourgeois, fetished perceptions of separated `economic' and `political' spheres . Putting it another way, much of the debate adopts relatively uncritically social-democratic, Keynesian and 'Labourist' conceptions of the state, in considerable contrast to what is often a sophisticated Marxist analysis of capital . In this, the debate follows the LIS itself. The LIS counterposed `the public economy' to `the private market economy', arguing for the centrality of the `public economy' to a restructuring for labour approach on the grounds that as the state is financed from taxation, it can operate on criteria of social need rather than of profit . The LIS Introduction attempted to problematise the `public economy' as `a continual battleground

The first half of the 1980s saw the development by a number of Left Labour local authorities of radical local economic strategies aimed at `restructuring for labour' rather than for capital . But while these strategies often reflected a quite sophisticated marxist-based analysis of capital, their failure to develop an adequate critique of the State has meant that the debate about local economic policy has remained largely in a Left Keynesian paradigm of `State intervention' . Basing his own argument on a conceptualization of the capitalist State as a particular form of the capital relation, and of the crisis of the Fordist State, Geddes criticizes this politics of using the State against capital rather than struggling to transform the State itself.

85

Capital & Class between the economics of capital and the economics of labour' (p26), a battleground which is particularly contested in today's `crisis of the market economy' . (Note though, a crisis only of the market economy, not of the state). But the bulk of the LIS failed to follow up this promising perspective . The sectoral chapters, while innovative in many ways, largely abandon any theorised distinction between `private' and `public' sectors . Indeed, in relation to key `public' sectors such as local government, the LIS had very little indeed to say, and largely reverted to the conventional Labourist perspective in which the state 'intervenes' to bring about progressive change in the private sector . Indeed the Lis's `reclaiming production' strategy may be said to press this conception of the state beyond previous, more conventionally Keynesian and social-democratic limits .

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The debate

Following one or two earlier contributions (Cochrane, 1983, Boddy, 1984) the last year or two has seen a burst of critical evaluation of the LIS and other restructuring for labour local economic strategies . (Rustin; Palmer ; Cochrane, 1986 a) and b) and 1987 ; Eisenschitz and North ; Gough, 1986 a) and b) ; Newman; Benington, 1986 ; Mawson and Miller; Sharples ; Goodwin and Duncan ; Mackintosh and Wainwright ; Nolan and O'Donnell). Most of this debate is however primarily concerned with the limits to what `restructuring for labour' strategies can achieve, as a result of the nature of the accumulation process in which the state is `intervening' .' If we ask what the debate has to say about the state, a number of perspectives of decidedly varied provenance can be briefly identified . While Keynesianism is seldom explicitly expoused, it is not infrequently betrayed in a technicist conception of capital and its problems and what the state can do about them, with little conception of class or class struggle . Another mostly implicit but quite widespread tendency is to locate problems encountered by `restructuring for labour' strategies in an inadequately-theorised problematic of state agents and procedures, focussed on the way in which radical policies become incorporatd and depoliticised in the state bureaucracy, and on the problems of recruiting personnel with both adequate technical skills and socialist politics . 2 A rather more substantial thread in the debate links the emergence of left local economic policy to changes in the social base of the Labour Party, in particular the rise of the so-called new urban left, but largely fails to position this party-political change in a wider theorisation of the state . By contrast the two most relevant perspectives in the debate

Local economy and the state

each advance an explicit critical theorisation of the state . The first of these focuses on the local state . Thus Goodwin and Duncan, in particular, pose the question of local economic policy in the context of the relation between state and civil society, and, within the state, the tension between central and local state . The local state is contradictory in that it is both agent of, and obstacle to, central control, having to represent both locally and centrally dominant social interests . In the current restructuring of social relations in the crisis, they argue, this makes the local state and local economic policy an important terrain of struggle between Thatcherite or alternative policies . The second perspective on the state which appears to be becoming influential in the debate about local economic policy draws on the concept of Fordism to advance the notion of a 'Fordist state' : `the Keynesian welfare state . . . resembles Fordism without Ford' . (Hoggett 1987b, 223). Like Fordist private capital, the Keynesian welfare state, including the local state, has developed by way of mass production of a limited range of standardised goods and services ; economies of scale have been emphasised ; and `production has in fact been organised on an "assembly line principle", withh professional and semi-professional "people processors" replacing the material processing lines of mechanised factories' . (Hoggett 1987b, 223 ; Murray 1986b) . Recent developments in local state policy are then associated with the contemporary crisis of the Fordist state, paralleling/linked to the crisis of Fordist capital, and the emergence of elements of 'neo-Fordism' in the state . The concepts of the local state and the Fordist state are crucial ones which will be taken up later in this article . There are however certain problems with the way in which they have been utilised in the analyses referred to here, particularly a failure to address the general question of the relation between state and capital, and to define the specificity of the state as a form of social relations in capitalism . What form do class relations take in the state? In what ways do they differ from the class relations of private capital, with what implications for working class organisation and struggle?

An adequate theorisation of the state, capable of addressing the questions just posed, must be developed at various levels, from the mode of production and particular phases of its evolution to the level of specific social formations . An attempt will now be made to suggest some general characteristics of the capitalist state and then to develop a further analysis of the Fordist state in Britain . The position taken here is intended to avoid the pitfalls of,

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The capitalist state

Capital& Class 88

on the one hand, those analyses which fail to differentiate adequately between the state and (private) capital, and on the other those bourgeois and Althusserian formulations which exaggerate the autonomy of the state from capital . In particular I find it useful at this point to think about the state not as `politics' opposed to `economics' but in terms of certain key differences in the conditions and relations of production between the state and private capital . The capitalist state is a particular form of existence of the antagonistic class relation between capital and labour; a form into which some of the contradictions of capitalism may move . (Holloway and Picciotto), This `state form' of capital has developed historically, but I will focus first not on the historical development of particular state practices and institutions 3 but on certain general characteristics of the capitalist state . These derive from the fact that the' state is distanced from the direct operation of the law of value, and from the representation by the state of a class-neutral common good . The state is distanced from the direct operation of the law of value (although not of course from class struggle) in that it is financed from taxation as a deduction from surplus value : the state is not dependent for its survival on itself returning a profit . The social relations and contradictions of state agencies are therefore not the same as those of private capitals . Workers in the state do not directly confront capital but the rule of law implemented by bureaucratic management and elected representatives of bourgeois society. However, the state is only distanced from the law of value to a limited degree, and those limits are set by the subordination of the distribution of surplus value to its production at the level of capital as a whole within the confines of the state's authority. These limits set the parameters for the level of taxation - generally growth in periods of expansion, cutbacks in periods of falling/low profitability. Moreover, while capital does not directly confront labour within the state, management practices derived from private capital act as surrogates for the direct rule of valorisation objectives . Lastly, the representation by the state of the common good involves only limited forms of bourgeois democracy, and at the same time the ideological concept of the political equality of an undifferentiated citizen body denies the existence of contradictory class relations and class struggle . Theorised in this way, the state must be seen as a relation of class struggle, but struggle under specific conditions, offering specific opportunities and problems . Because it is distanced from the law of value, the state may, at times, offer greater possibilities for the production of use values rather than exchange values and possibilities for the working class to pressure



Local economy and the state

and control certain parts of the state apparatus which are particularly open to democratic forms . However, a frequent tendency of state-focused politics is to take at face value the apparent autonomy of the state from capital and the inflated claims of bourgeois democracy, leading to an exaggerated estimation of real possibilities . While in some circumstances the financing of state activities by taxation may permit the state to operate with looser financial constraints than many private capitals, at other times (such as today) the reverse may be the case . At such times it is also likely that capital and its political representatives will seek to reshape the state apparatus in ways which restrict its openness to democratic pressure . Moreover, while the ideology of the common good can be used in the state to legitimate some demands which go against the direct interests of capital, that same ideology makes it very difficult to press demands as class demands, in ways which build on and strengthen specifically class forms of organisation . Such demands are, therefore, often mediated into the ideology of community. Finally, the fact that state activities are not judged necessarily and solely according to the criterion of profit but according to looser and more diverse criteria introduces serious problems of efficiency and effectiveness in the state . 4

We turn now from these general features of the state form to the historical development of the state in Britain in the midtwentieth century. This can best be achieved by returning to the concept of Fordism . 5 A central element of the Fordist regime of accumulation in the UK has been greatly increased state activity in both production and consumption, from macro-economic regulation and state sector, state-maintained or subsidised production to the provision and/or regulation of transport, education, health, social security, etc, etc . We may therefore legitimately speak of a 'Fordist state . In doing so, we are not merely referring to the functions undertaken by the state, but also to the organisation of production within the state, from the production and execution of `policy' in the civil service or local government, to the NHS, DHSS, and so on, according to methods and by labour processes derived from Fordist capital, in which a mass of tendentially deskilled labour performs fragmented and repetitive tasks according to the dictates of a flow-line work process controlled directly by technical, professional and managerial strata, indirectly by the corporate management of the `business' . (Murray, 1986b ; Hoggett, 1987b .) The Fordist organisation of work in the state represents a dual class exploitation/domination : both the direct domination of workers in state labour processes

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The crisis of the Fordist state

Capital & Class 90

and, through the subordination of the needs of the consumers of state services to the requirements of Fordist production processes, the domination of the working class in the moment of consumption . As Fordist social relations were extended and deepened in postwar Britain, local government - the local state - became a key element in the Fordist state apparatus . The specificity of the local state arises from the way in which the general characteristics of the capitalist state form - distancing from direct valorisation imperatives, representation of a class-neutral common interest - develop in the context of the local state's main functions, 7 associated with the reproduction of labour power and the organisation of certain external conditions of production (housing, education, planning, transport etc .) In the first place, the fiscal basis of the local state - only partly financed by local taxation, and that a relatively progressive tax, rates, increasingly by central state grants - enabled local politicians and officials to expand local services with relatively little regard for cost, so that local govenment expenditure became an increasing element in state expenditure as a whole . Secondly, the closeness of the local state to local society tends to promote an identification on the part of local politicans of the local state with the `local community', especially in localities where local state-delivered collective consumption is important and political representation is stable, as in many traditional Labour areas (see for example Blunkett and Jackson). This identification was however seldom shared to any great degree by the working class, certainly as Fordist forms of organisation became more pronounced and `local government became big business' . (Benington, 1976 .) Cockburn's influential critique of the class character of local state practice in the 1970s, when a combination of corporate managerialism and 'community participation' became the new model of local state regulation of the mounting urban crisis, showed the oppressive character of the Fordist local state's `service delivery' . The practice of the Fordist state was crucial to the integration of the working class into Fordist accumulation . The Fordist class compromise - worker acceptance of the role of Fordist labour power in exchange for a regularly enhanced wage and social wage - was both a recognition of the strength of organised Fordist labour, and a means of harnessing and controlling it . The central problem of Fordist production - the stable supply of mass collective power - was resolved in a way which tied the labour movement to the prosperity of Fordist capital, by a statist politica 6 absorbing Labour Party and trade unions into capitalist planning and the translation of working class needs into commodity consumption . (Holloway, 1987) The system of accumula-

Local economy and the state

tion centred on Fordism has however broken down during the 1970s and 1980s . A phase of crisis has seen the collapse of the Fordist class compromise and the abandonment or 'rationalisation' of Fordist productive capacity. At the same time, there has been a progressive introduction of post-Fordist 7 production relations, which both extend and modify Taylorism and Fordism in order to break the strength of Fordist organised labour and overcome some of the contradictions inherent in the mass production/consumption regime . This has significantly lowered production costs for some existing commodities and also extended the commodity form into new areas . An integral dimension of the crisis of Fordism has been a crisis of the state . This initially appeared as a crisis of state expenditure, as the escalating demands on the state made both by uncompetitive capitals and by unemployed labour had to be met from a declining mass of surplus value . (Holloway and Picciotto) This problem is aggravated by the limits to the full application of Fordist/Taylorist methods of work organisation in the state itself. (Mandel 1972 ; Blackburn, Green and Liff.) The imperviousness of some state functions to deskilling, flowline production etc, applied to the absence of direct valorisation criteria, reduces the ability of state management to organise some labour processes, especially those controlled by stronglyentrenched professional and quasi-professional groups, on Fordist lines in order to cut costs . (Hoggett, 1987b .) The abandonment of Fordist productive capacity, through the creation of long-term high unemployment, has provided the essential basis for the change in the balance of class forces which has permitted new production relations to be introduced . The weakening of organised labour by high unemployment has been powerfully reinforced by the systematic restructuring of the Fordist state . The abandonment of full employment policy with deflation and the replacement of tripartite corporatism by anti-trade-union legislation have massively weakened the bargaining power of labour. Cuts in state expenditure have generated a similar process of labour shedding in the state to that in private capital, while wage control in the state sector has helped to restrain wage demands on private capital . Rationalisation and closure has been at least as prevalent in nationalised industries as elsewhere . The reduction of the welfare state, in particular the erosion of the value of welfare support to the unemployed and the institution of Msc-based low-wage work has similarly shifted labour market conditions towards capital . Such changes point towards a post-Fordist state, representing a fundamental redefinition and reconstruction of the state form of the capital relation . First, while the `rolling back' of the state is easily

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exaggerated (Gretton, Harrison and Beeton) a very significant reduction in state functions is resulting from, on the one hand, the transfer of activity to private capital by privatisation, deregulation and sale of assets (both to reduce the demand for state revenue and as a result of new profit opportunities offered by post-Fordism) and on the other the transfer to the domestic and `voluntary' sectors of some responsibilities in the field of reproduction of labour power/social reproduction . Secondly, post-Fordist production methods, associated particularly with the control of the production process via information technology, offer the opportunity to thoroughly reorganise some labour intensive state processes, in order to reduce the cost of collective consumption and at the same time move towards more individualised forms of provision (Blackburn, Green ad Liff, Bonefeld .) These tendencies are being promoted by the tightening of surrogates for valorisation criteria in the state, ranging from increased use of audit procedures stressing cost effectiveness and the development of cost centre based institutional reorganisation to the imposition of harsh financial regimes on the nationalised industries . Thirdly, changes in the structure and mode of functioning of the state apparatus, away from static, standardised, universalised, routinised principles towards selective, dynamic and 'bespoke forms (Jessop et al) reflect both short-term imperatives of the transition from Fordism, and the emerging post-Fordism itself$ . Similarly the old Fordist corporatism (state-capital-TUS) is giving way to a new tripartism of capital-state-consumers . All these tendencies, it should be said, denote the emergence of neither a weak nor a strong state, but a much more flexible state. One of the major arenas in which class struggle over the state form has been most intense, has been the local state . There has been a marked strengthening of the central state (eg increased reference to the law ; tendential transfer of power from parliament to government to prime minister ; powerful new institutions such as the mtsc) . The erosion of Fordist mass production in fields like health and education is proceeding by a combination of strong central control with redefinition of state/capital/union/ consumer roles at local level. Similarly, in areas of state practice like urban renewal, the reduction of local government's powers and resources is paralleled by the creation of new, ad hoc agencies, tightly controlled from the centre, like Enterprise Zones and Urban Development Corporations - the small-batch, flexible specialisation approach to the inner cities . The fiscal crisis of the Fordist local state has been accentuated by the very factor which enabled its earlier rapid expansion, the nature of its tax base . Central government has cut back hard on central



Local economy and the state financing and is now moving to replace rates by a class-regressive form of local taxation . These moves have been accompanied by a right-wing critique of local state collective provision and `profligate' expenditure which has exploited the oppressive realities of the local state's relations with the working class . (Ridley) At much the same time, the recomposition of the working class has led to changes in the social and cultural composition of local labour groups `controlling' some local state institutions, particularly a decline in the influence of manufacturing-based trade unionism and the rise in some places of groupings more associated with state sector unionism and community activism `in and against' the Fordist state . This new urban left has paralleled the right in its critique of the Labourist local state, but its capacity for action has been progressively restricted by the Thatcherite squeeze on local government resources and autonomy. These changes involve a significant shift from the decentralisation of the state to the local level (ie with a significant degree of local autonomy) to a model of 'centralisationdeconcentration' in which strong central control is exercised over localised apparatuses and functions . (Jessop et al) This reflects not only the post-Fordist necessity to override those class interests entrenched in the local state which are irrevocabley associated with the Fordist regime either in terms of high levels of locally-administered collective consumption (eg inner cities) or in relation to declining Fordist industry (old industrial areas), but also those local interests which prioritise consumption over the production of profit, as in the issue of levels of industrial and residential development in the shire counties around London . For the left, the transition from one regime of accumulation to another is apt to appear most obviously not as a crisis of capital but as a crisis of its own direction, strength and capacity. The current crisis is a crisis of the existing forms and practices of the labour movement which grew up within as much as against Fordist capital and the Fordist state, and an imperative to come to terms in one way or another with the emerging forms of exploitation, oppression and domination represented by postFordism . This is nowhere more apparent than in the local state and local economic policy as the site of a significant labour movement practice . The transition from Fordism to postFordism has generated increased demands on the local state to `intervene in the local economy. These have come both from struggling capitals and from labour and communities in old industrial and urban areas abandoned by the rationalisation of Fordist production and not touched by the limited development

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Local state and local economy in the transition from Fordism to Post-Fordism

Capital & Class 94

of post-Fordism . Simultaneously however traditional Keynesian forms of local and regional economic policy have become discredited by a right critique (of both the expenditure implications and corporatist politics of Keynesian policy and of its effect of subsidising inefficient capitals) in which the social-democratic centre has either acquiesced or been powerless to resist, and the Thatcherite right has developed its characteristic new forms of local economic policy. While the difference of some of the new measures from previous forms of `intervention' can easily be exaggerated, there has nonetheless been a marked trend towards measures to restructure the labor market towards flexibility and to manage surplus labour, rater than restructuring of capital . Institutional forms like Enterprise Agencies promote a quasiprivatisation of the local state role in the local economy, while Enterprise Zones and Urban Development Corporations seek to displace rather than support local communities and their political representation . This Thatcherite local economic policy has been called `restructuring for capital' but in that it is often as hostile to many local capitals as it is to labour, `restructuring against labour' might be a better term . Faced with the collapse of Keynesianism and the need to counter the radical right, it may be suggested that the left has developed two broad categories of response, which may be termed `left Fordism' and `left post-Fordism' . While in practice elements of both of these are normally mixed in the practice of any particular local authority it is useful to clarify what each involves . Left Fordism is the attempt to push traditional Keynesianism and social-democratic policies in a left direction . The basis of policy is managed capitalism ie the contention (against the Thatcherite emphasis on the market) that state planning and `strategic intervention' (eg by national or local level enterprise boards) is the route to the modernisation of the British economy and hence job creation . `Left Fordist' local economic policy would appear to be a major strand in the practice of the West Midlands Enterprise Board . WMEB strategy has been focused on manufacturing industry traditional to the region, and has been predicated on a critique of the failure of British financial institutions to invest in domestic manufacturing . wMEB has therefore sought to fill this `investment gap' in local firms, operating in conjunction with investing institutions, banks and company managements . (Mawson and Miller) Left post-Fordism by contrast abandones the Keynesian conception of macro-economic state planning and control, arguing rather than post-Fordist production and consumption patterns can offer significant opportunities for labour given

Local economy and the state

selective and specific state interventions to modify the market and the labour market and to invest in capital in support of labour in specific sectors and firms . Left post-Fordism was an important element in the GLC's London Industrial Strategy and in associated GLEB investment strategy in relation to economic sectors such as the furniture, clothing and cultural industries . (GLC 1985) Both of these strategies have more and less radical versions . Left Fordism shades on the right into an `old realism' which merely calls for a return to traditional Keynesianism . In the last couple of years, a number of previously more radical local economic development agencies have reverted increasingly to this posture . (Clarke and Cohrane; Centre for Local Economic Strategies .) On the left, it is associated with a conception of left corporatism in which the social-democratic tripartism is modified so that, rather than being a state-capital partnership with organised labour as the junior partner, the dominant force becomes a state-organised labour alliance . Local economic policy on Merseyside under Labour control may illustrate one variant of this . (Mulhearn) . It is often associated with stronger versions of proposals for nationalisation . Left post-Fordism shades on the right into a populism in which `anything goes', as in the GLC's strategy for the cultural industries (GLC, 1985) ; in its stronger versions (restructuring for labour) the `democratic centralism' of left-Fordism is replaced by a decentralised radical politics positioned `in and against the organised labour movement' . This is the dominant perspective in the recent account of GLC economic policy given by members of the GLC's Economic Policy Group and Popular Planning Unit . (Mackintosh and Wainwright). 9 In this analysis, the politics of local economic policy is seen to focus around the tensions in the relations between the local state, trade unions, and marginalised groups in the labor market (women, ethnic minorities, the unemployed) . The state and the trade unions both tend to be seen as hostile structures, in and against which a radical politics of local economic development must be undertaken by a process of `popular planning' with activist workplace trade unionists, womens' and ethnic minority organisations etc . The way in which very diverse currents can coexist within the policies of one local authority is instanced by the very different approach to the furniture and cultural industries pursued by the GLC `popular planning' activists compared to that of the GLEB . (Mackintosh and Wainwright) . This is also the case with the interesting and penetrating analysis of GLC policy by Gough . (1986b) . Gough is concerned with the debate about flexible specialisation and local economic policy. He identifies certain strands in the London

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Industrial Strategy which he characterises as `postmodern' or at any rate not sufficiently distanced from postmodernism . Postmodern (ie post-Fordist) strategy promotes essentially marketbased forms of restructuring, and rejects state intervention in, or direction of, production as inevitably bureaucratic and clumsy. Overall, Gough argues, the LIS compromises on this question and avoids a direct challenge to capital and a strong defence of public ownership and planning. Gough himself by contrast proposes `strong intervention' in sectors where flexible specialisation is occurring, in order to increase workers' control over production and combat deskilling . He tries to suggest forms of intervention in such `fragmented' sectors which will help build strong and independent working class organisation and avoid divisions among workers . This means arguing for interventions which increase the scale of ownership of the fragmented sector. He then recognises that such interventions are likely to fail except in a context of `coercive state powers' and nationalisation of the sectors concerned . Gough thus combines a critique of left post-Fordism with a defence of elements of traditional leftFordist strategy. The problem with this position is that Gough is so keen to dissociate himself from the post-modernist rejection of state planning that he fails to acknowledge the historically profoundly problematic nature of the state sector for the working class means that he does not specify the procedures/mechanisms/ struggles which would be necessary to transform relations of production within the state . What unites - and makes problematic - all the above perspectives is their confinement within the social-democratic notion of `state intervention in capital' as the basic parameter of the local state-local economy relation . In this perspective, the state is a power base and a machine which, once `captured' through electoral politics, can be used to impose change on the private sector. This fails to understand either the limits or the opportunities presented by the specific contradictions of the capitalist state . State investment in private capital is an inherently problematic practice for the left in that it abandons a potential advantage for labor of the state form, its distancing from the immediate demands of valorisation . As a number of critics have pointed out, a local authority or local enterprise board `faces conflicting objectives as the investor of capital in support of labour in a situation where market forces still predominate . (Newman) This is especially true of traditional forms of regional and local economic policy which merely redistribute surplus value, via the state, between capitals . Here any gains for labour, such as jobs, are strictly as a form of capital, labour power, and are purely contingent on capital's profit strategies . But even

Local economy and the state

radical state investment strategies which try to strengthen labour against capital have to do so directly subject to valorisation imperatives . This is the underlying reason for many of the problems and failures that have been experienced by 'restructuring for labour' strategies . The subordination of the state to capital inherent in even radical `investment in capital' strategies is evident in the way in which some `restructuring for labor' strategies have relapsed into much more conventional support to capital (Centre for Local Economic Strategies) . It might be suggested that, at most, such programmes should only be pursued when demanded of the state by strongly-organised labour where it has a good prospect of consolidating and building on gains made as a result of state investment . 10 Policies which attempt to alter the balance of class relations in the private sector through the use of state sector economic leverage rather than direct state investment, such as contract compliance policies, are subject to similar contradictions, and are likely to have a limited impact while they are legally/bureaucratically imposed rather than relying on concerted labour movement strength inside and outside the state sector . It is often argued that the main gain associated with the radical `restructuring for labour' strategies over the last few years has not been the extent of material change in class relations in industry (because inevitably the resources deployed by local authority investment programmes have been minimal in relation to investment by capital) but the political gains arising from the propaganda effect of `exemplary' investments on behalf of labour. By showing that an alternative does exist to right-wing restructuring and deindustrialisation, it is argued, radical local economic policy has been an important element in mobilising opposition to Thatcherism . (Goodwin and Duncan ; Blunkett and Jackson ; Palmer etc .) There is some force in this argument . Particularly, it may be suggested, the London Industrial Strategy and others like it have shifted the debate about the local economy away from an exclusive focus on the spatial distribution of employment towards issues concerning the social relations of production . But, in the end, those who argue this position cannot avoid the fact that the effectiveness of the propaganda must depend on the material results of the exemplary investments, and we are therefore confronted again with the contradictions of state investment in capital to strengthen labour. The model of local economic policy in which the state is treated as a relatively unproblematic vehicle for `intervening' in private capital is also vulnerable to the serious criticism that it fails to attempt to implement similar change in the state itself . The record of the recent GLc administration is a case in point . C&C 35-G

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The London Industrial Strategy, while arguing that `the state is not the centre of economic power' does indeed envisage a vital role for the `public' sector a sphere which `can be seen as ideally suited for socially useful production' based on criteria of need not profit . (GLC, 1985 : 39 and 26). Unfortunately, however, as the strategy is unfolded sector by sector, this role fails to materialise in any concerted way, and the question of the GLC itself and the London Boroughs as major employers is largely avoided . This reflects the very limited success which the Labor administration achieved in `restructuring for labour' within the GLC itself. The attempts which were made took two main forms . In the first place, the 1981 Labour manifesto included commitments to reduce wage inequalities and low pay, to introduce a more integrated career structure and more industrial democracy and promote equal opportunities. Of these, considerable progress was made in relation to equal opportunities, and some on pay differentials and opening up the career structure . Nonetheless, up until the time when the GLC was abolished, the division of labour remained hierarchical, discriminatory and inefficient. The administration failed to achieve a form of organisation which was either effective in serving their policy objectives or which gave the mass of workers power over what they did (Soto), and this failure not only hindered its attempts to act on the outside world, but crippled the fight against abolition, in that the absence of strong support from the workforce reduced it to parliamentarist and media forums . This failure may be traced partly to simplistic views on the part of the administration about the GLC workforce (including both a tendency to categorise the whole workforce as hostile, alongside a belief that changing key chief officers or the way councillors worked with them was the key to getting the system to work)" but beneath this to an apparent lack of real commitment to transforming social relations at County Hall . This fitted in with the second, apparently easier, approach to changing the GLC, that of modifying the institution's structure rather than transforming its social relations . Thus in order to formulate and implement economic policy the Economic Policy Group and Popular Planning Unit were inserted into the County Hall `machine and the Greater London Enterprise Board was set up at arm's length from the GLC . But measures such as these fall far short of a radical transformation of the local government structure. In effect, what the Labour administration did was to install new, mostly politically radical professional and managerial personnel into the upper echelons of the existing state structure, rather than making any real change to the fundamental pattern of social relations within the state management change rather than `restructuring for labour' . Not

Local economy and the state

surprisingly this led to tensions and conflicts between the new arrivals and the existing bureaucracy (let alone between different elements of the new) in which the old guard outnumbered the new arrivals and moreover often knew the rules of the bureaucratic game better. Thus, for example, the EPG fought a long and losing battle with the Valuer's Department over property strategy, in which the valuers were able to deploy their control of GLC property and their market-based interpretation of their professional code to frustrate the development of a radical property strategy - a major omission from the LIS . In parts of the GLEE, conflicts between professional staff sympathetic to the `restructuring for labour' approach and others much more aligned to conventional bourgeois professional ideologies were endemic, and were one of the reasons for the failure of Enterprise Planning . Such problems are inevitably exacerbated in a quango such as GLEE by its remoteness from working class/community pressure . The failure of the Labour administration to `restructure for labour' within the GLC empire was nowhere more significant than in relation to the construction industry. Here, the GLC and ILEA direct labour organisations (London Community Builders), if effectively linked to the GLC's Housing, Architecture and Construction branches, could have provided a large-scale base for exemplary `restructuring for labour' in the state sector, in an industry where action on unionisation, pay, conditions and equal opportunity should have been a priority . But for a variety of reasons - lack of co-operation between the GLC and ILEA, failure to prevent obstruction and negativism by officials - LCB was starved of business (Collingham) . There is a glaring contrast between the failure of the GLC administration to restructure for labour in a `big firm' under its own control, 12 and the high-profile attempts which were made to support labour in private sector multinationals like Ford. The low priority accorded by the GLC and some other radical local economic strategies to restructuring for labour within the state itself is problematic for a numbe of reasons . It fails to build on the substantial role that local authorities have in their local economies by virtue of their employment compared to their strictly limited ability to invest in private capital . It fails to address the difficult but crucial questions posed for left local administrations by virtue of their role as employers as well as managers of service and spending programmers . It reflects implicitly if not explicitly - either an easy assumption that, having been `captured' by a left council, the state is already socialist, or else a concept of socialism as something to be imposed on others not acted upon oneself . Finally, it fails to

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acknowledge the serious criticisms of the Fordist state and the social relations by which it produces and delivers services, which are endemic among both state employees and the consumers of state services . Radical analyses of the capitalist state have achieved wide circulation on the left in recent years and 'anti-statist' acitivists have been among the most important components of the `new urban left' . Nonetheless, left Labour groups have still tended to focus their manifestos and programmes on what they would use the local government `machine' to do, rather than on how they would propose to transform it . Serious thinking about the local state apparatus has often only happened incidentally to, or as a result of, the imperatives of externally-oriented policies . In contrast to the way in which they have embraced critical, marxist-based analyses of capital, left-Labour administrations have largely failed to develop and act upon a class analysis of the state . This is not to argue that the attempt to `change the world by getting elected to local councils is . . . absurd' (Sparks) To deny any possibility of progressive change in and via the state is as simplistic as to assume the state is already socialist . It is to argue that what is necessary is a conception of the (local) state as a capitalist state, of the specificity of the state form, and of the need for appropriate forms of struggle within/against it .

Struggle over the local state

However, even if it still remains the case that a left practice on the state is seriously underdeveloped, there are a number of positive exceptions to this tendency, amid strong forces which are pushing the left, more or less willingly, to problematise the existing structures and social relations of the state, with the local state in particular a crucial arena of struggle . Firstly and most limitedly, the left has been forced to defend its positions in the local state against the Conservative government's radical and rapid redefinition of the capital-state-society relation in a postFordist direction through expenditure reductions, privatisation and deregulation, and the erosion of local government autonomy by an increasingly authoritarian central state . Initially and still to some extent this has involved only a negative defence of existing state forms (anti-cuts, anti-privatisation) but increasingly mere defence has given way to a progressive critique of the existing state form . Prominent examples include the experiments in socially useful production, `popular planning' and decentralisation in various localities ; and attempts to promote direct labour organisations and `municipal enterprise . This section of the paper will attempt a constructive critique of initiatives such as these . This will involve the

Local economy and the state contention that left strategy for the state must be a socialist strategy directed against capitalist social relations not a radicalpopulist one . Central to a socialist strategy, as Gough argues, must be the unity and strength of the working class, which means both seeking to retain those gains in organisation associated with Fordism and to transcend the limits to that organisation in the transition to post-Fordism . It will also be argued that a clearer vision of what the state ought to be like is an essential element of such a strategy. A strategy which focuses on working class unity in relation to the state must recognise five main parameters of division and disunity. These are : 1 . The division of labour between state and private sectors, 2 . the division of labour within the state, 3 . tensions between state workers and consumers of state services ie within the working class between the `moments' of production and consumption, 4 . the division between employed and unemployed, 5 . the division between organised and unorganised labour. To an important extent, of course, these divisions are aligned with and reinforced by gender and ethnic divisions within the working class, and sustained not just by the management practices of capital and the capitalist state, but by sectionalism and conservatism in the labour movement . Decentralisation One of the most interesting recent attempts to transform the local state in a radical way has been the policy of decentralisation or `going local' attempted by a considerable number of local authorities, most notably perhaps Walsall, Islington and Hackney. (Hambleton and Hoggett; Hoggett and Hambleton) Decentralisation policies typically combine the geographical dispersal of certain local government functions within the local authority area with a reorganisation of working practices within new local offices . Decentralisation is intended, first, to make the local state more accessible and responsive to the needs of consumers of state services, and in more radical versions to introduce an element of `community' control over the state . It is thus a response to the alienated and oppressive character of the Fordist state, and to the limitations of a Labourist politics of welfare . Secondly, decentralisation policies involve an attack on both the horizontal and vertical division of labour in the state, and in particular reflect a critique of the role of the professions, both the way in which professional boundaries create a system of departments operating like warring feudal baronies to the detriment of the overall

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direction of the local authority, and, more fundamentally, the professional appropriation of skill and control over the labour process . In this respect, decentralisation policies are influenced by that radical critique of the professions which argues that their role is one of social control, the reproduction of relations of domination, the management and depoliticisation of the working class in the sphere of consumption . Decentralisation thus takes on board a critique of the oppressive character of the state and its . ideological claim to represent the common good . (Hoggett, 1984 .) 13 It is no accident that decentralisation policies have often (though not always) been pursued by Labour administrations dominated by councillors with backgrounds in community action and anti-statist campaigns rather than private or state sector trade unionism : decentralisation policies implicitly tend to challenge the dominant position in the local state of skilled, white male labour.So far so good, in principle . But problems have arisen in practice because the limited forms of decentralisation which have been introduced have posed more of a threat to lower-grade workers than to local state management and professionals, and have often exacerbated rather than reduced tensions between state workers and `consumers' . Because decentralisation has only involved a limited decentralisation of a limited range of local government functions, and because the professionals have been able to severely limit the reorganisation of the division of labour in and related to local offices, the position of managerial and professional strata has not been seriously challenged . At the same time, while councils have attempted to `sell' decentralisation to lower-grade workers on the basis of improved quality and conditions of work (job enrichment, less alienated relations with `the public') the reality has been somewhat different . Decentralisation may allow top management (not of course decentralised) to exercise tighter control over the labour process ; work may be intensified ; workers are more exposed to a frequently hostile `public' ; and geographical dispersal of workers makes collective organisation more difficult, while the restructuring of existing labour processes threatens union organisation built around them . (Heery, 1984 and 1987) Such problems have been exacerbated by the limited financial resources available to local authorities to implement decentralisation . Consequently there has often been strong opposition from trade unions representing lower as well as higher grade workers, and not only because of trade union `dynamic conservatism' as it sometimes implied . (Hoggett, 1987a) Finally, the opportunity for consumers to influence and control state services offered by decentralisation has been strictly limited, not primarily because of union opposition but because of the unwillingness of Labour councillors to relinquish their

Local economy and the state own power and control deriving from representative electoral democracy and bureaucratic hierarchies . Considerations such as these have led to a suspicion, even by supporters of decentralisation, that it may turn out in practice as a `progressive capitalist model' for the local state rather than a socialist one . Thus Hoggett, particularly, recognises the parallels with post-Fordist decentralisation of production in the private sector and wonders uneasily whether decentralisation in future may become more managerialist, less radical - `the emerging techno-managerial paradigm' . (Hoggett, 1987b) From this perspective it is indeed easy to see how limited versions of decentralisation, involving an element of `consumer sovereignty' linked to the fragmentation of local state `service delivery' in local offices organised on a basis of labour flexibility at lower levels but tightly controlled (with the aid of new technology) by central management, would serve to weaken labour organisation in the state `a la Benetton' . If such a tendency is to be avoided, a number of things would seem to be necessary . First, restructuring of the labour process must involve a thoroughgoing attack on managerial and professional power, in order to break the link between professional status and expertise and control within local authority functional departments . This needs to be linked to serious action against pay and conditions differentials and against gender and ethnic inequalities both within and between occupation divisions. 14 This would in turn require forms of education and training to underpin such a policy, to provide not the contradiction-in-terms of `socialist professionals', but to start to separate the possession of skills from exclusivity of ownership and control, and transform the class and gender content of many of the skills themselves . Secondly, there would need to be a much more thorough-going attempt to move beyond bourgeois democracy plus community and consumer participation towards fuller and more direct forms of democracy. Clearly, this takes us well beyond a politics of geographical decentralisation towards a class politics of the state, focused on a revolutionisation of the labour process, which would involve a major reconceptualisation of the state on the part of many local politicians and state workers and their respective organisations . The flexible state? The idea that the left (as well as the right) should break with Fordist state practices is explored in recent work by Murray . (Murray, 1987) Building on work at the GLC, Murray argues that local socialism is now exploring ways of transcending the

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'Morrisonian' model of the state instituted in the 1940s which has proved neither efficient nor democratic, and that the failure by the left to address the question of the organisation of production within the state sector has led to slack accountability, over-centralisation and failure to innovate . He calls for less emphasis on state (or council) power, more on popular involvement and control, in a variety of institutional forms - trusts, co-ops, muncipal-trade union- and user-controlled enterprises, and for choice and competition in the state sector. While he attributes many of the shortcomings of the Fordist state too its subordination to the market enforced through capitalist-derived financial and managerial disciplines, Murray also believes that the state now needs to learn new lessons from post-Fordist capital . Thus the left's response to the current Tory offensive against the state on the theme of consumer choice must involve an acceptance of the need for `public rivalry if not competition' (p .36) (although he does not explain how this is consistent with job security and therefore with working class unity). In order to encourage innovation in the state, he suggests the adoption of post-Fordist organisational structures of decentralised productive units subject to centralised control, although without defending the bald assertion that this need not lead to the fragmentation and weakening of labour. Some of Murray's ideas - for joint ventures between state and capital, for the use of contemporary market research techniques, for `operative competition' and competitive tendering in the state sector, for example - seem such as to reinforce the very subordination to `the market' which he rightly criticises . Thus while these proposals are extremely valuable as an intial attempt to recognise and face the challenge posed to socialists on the question of the state by post-Fordism, unfortunately Murray appears in danger of being seduced by capital's answers to the crisis of Fordism . Further, while Murray's advocacy of a variety of forms of popular involvement and control is positive in its acknowledgement of the importance of popular organisation and initiative outside the state, in opposition to the Labourist view that all provision, and the working class itself, must be managed by the state, the problem is that he fudges and blurs the issue of class . This, as has been noted, is a particular problem with `local socialism' because its localism leads easily to a communiy rather than a class politics . Thus Murray's politics stress the experience of guerilla movements, the women's, black and peace movements and `a multitude of progessive community campaigns', rather than the trade unions or the workers' party . This leads not only to a rather romantic analogy between local socialism and guerilla struggle, but more

Local economy and the state substantially to a politics which is radical-populist or radicaldemocratic rather than socialist. A socialist politics must be a class politics, not (just) in the empirical sociological sense of its primary relation to working class people and their needs, but in the marxist sense of struggle against class relations of exploitation and oppression . Because the central focus of Murray's critique of the state is of the failure of its inefficient bureaucratic structure to delivery variety, choice and quality of product not of the state as a class relation, a form of the capital relation, the weakness of his programme - valuable as his vision of a decentralised, democratic states often is - is that it is essentially a programme for a consumers', rather than a workers' state . In this respect, it reflects an increasing and disturbing tendency on the part of the Labour left in local government to try to improve its electoral prospects with the consumers of state services at the expense of (some of) its employees .' 5 Socially useful production? One of the central reasons why the rights holds the initiative in the transition from Fordism to post-Fordism is that it has been able to sustain the hegemony of capitalist relations of production . Despite mass unemployment, the dominant class has been able to defend the association between private profit, competition and efficiency and hence shield capitalist production relations from effective challenge . The social-democratic left has hardly attempted to challenge the validity of such an association, yet it is crucial for the left not only to break the perceived link between private ownership and efficiency, but also to popularise alternative social relations of production associated with more real definitions of efficiency . An influential notion in this respect which has been important in several radical local economic strategies, has been that of socially useful production . Socially useful production is normally defined in terms such as the conception, production and distribution of goods and services according to criteria reflecting use value rather than exchange value . (Bodington, George and Michaelson) . The London Industrial Strategy, as we noted above, argues that the fact that the state is funded from taxation and that state-produced goods and services need not be sold at a profit means that in principle `the public economy can be seen as ideally suited to socially useful production', but in practice `all parts of the public sector have been a continual battleground between the economics of capital and the economics of labour' (GLC, 1985, 26) . This is close to our own theorisation of the state, which would suggest that the fact that the state is distanced from the direct operation of valorisa-

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tion criteria may offer space for socially useful production but also poses serious problems of efficiency (defined in either use-value or exchange-value terms) given the lack of any clear alternative accounting procedures to capitalist profit-based ones . In this context, the importance of various experiments and pioneering developments such as Sheffield's cheap public transport policy, or combined heat and power and district heating (CHP/DH) schemes, has been to develop models of sociallyefficient production which bring together the local state, trade unions and working people as consumers (GLC Popular Planning Unit). Some of the recent attempts to develop and use `social auditing' or `social accounting' techniques are also interesting in this respect. (Geddes) . The idea of socially useful production involves, therefore, like Murray's flexible state, a valuable recognition of the need to transcend the inefficient unaccountable and unresponsive character of state sector production Yet as a basis for struggle `socially useful production' has certain limitations . These include its vagueness - who is to decide what is socially useful and how? (Rustin) - and also its tendency to emphasise issues of consumption rather than relations of production . In focusing on `use value rather than exchange value its essential critique is of what is produced rather than how; of the failure of the market mechanism to meet social need rather than of the exploitation of labour power. Those socially useful production experiments which transcend this limitation in practice do so by shifting the emphasis to include production as well as consumption relations . A particularly impressive example of this approach in the state sector is the Haringey school meals project, which attempted to link issues of women's work, food policy, and employment by radically transforming school meals production into a democratically organised and responsive `service which would be defensible against privatisation . (Haringey Womens Employment Project). This approach to transforming the state sector is also well articulated by Kline and Mallaber, in a critique of the Audit Commission, who stress the need not just for alternative technical criteria to `value for money' ones for local government activities, but for political organisation linking the workforce and working people as consumers to transform state provision . The local state and full employment: local jobs plans? The approaches to transforming the local state which we have discussed so far - decentralisation, the flexible state, socially useful production - are all primarily focused on the nature of state production and hence on the tensions within the

Local economy and the state

division of labour and between the moments of production and consumption . This reflects the emphasis which recent radical local economic initiatives have placed on qualitative rather than quantitative aspects of employment . To an extent, this has merely reflected a realistic appraisal of the limits to local authority capacity, but it is also linked much more problematically to the current unfashionableness on parts of the left of full employment demands . In this context, an important recent development was the the Labour campaign prior to the 1987 General Election to promote `local jobs plans' as key elements in the party's electoral strategy in relation to unemployment . These plans, produced by a number of local authorities, were designed to `create jobs both in the local authority and, indirectly, `in the private sector . . . to meet the real social needs . . . of the communities which they exist to serve (Campbell et al, 5) The jobs plans built on earlier `jobs audits' by some local authorities, notably Sheffield, and reflected an increasing focus in local economic development on the local authorities' own role in the local economy, as well as `intervention' in and subsidy to private capital . The Sheffield Jobs Audit (Clark, Critchley, Hall, Kline and Whitfield) was seen as a means of building political support for the local state from its workforce and more widely in the locality, partly in response to the threat of privatisation. Particularly important was the recognition that such support will only be forthcoming if the nature of local authority activity and employment is examined critically. The jobs audit publicised much information, by no means all of it favourable, on pay levels and qualitative aspects of local government employment compared to the private sector . Following the election, the Centre for Local Economic Strategies has drawn together the various local jobs plans, and argues that a nationally-coordinated set of local jobs plans could form a crucial element in a state programme to generate jobs and reduce unemployment . This constitutes a valuable redirection of the focus of local economic policy towards the unemployment problem, and the barriers to working class cohesion which the division between employed and unemployed represents . In particular, the emphasis which the local jobs plans place on the role of the (local) state sector in any serious attack on unemployment and the way in which they link quantitative and qualitative employment issues, is important. Nonetheless, there are serious limitations to the focus of the local jobs plans campaign . Firstly, the various individual local plans vary markedly in their perspectives, from left to right and on the spectrum from Fordism to post-Fordism . Secondly, the argument which the jobs plans make about the role of the state sector in reducing unemployment is severely compromised by coun-

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ching the argument in conventional Keynesian mixed-economy terms . Potentially, the local jobs plans exercise could serve to demonstrate the inability of capital to produce full employment in the foreseeable future, and to argue for state sector employment in terms which stress the contradiction between social need and the accumulation process . Instead, by arguing in terms of the cheapness of state sector jobs, the harmonious relation between `public' and `private' sectors, and so on, the effect is to revive a reformist and localist rendering of the old AES, a programme for using the state to prop up the wage relation . (Brooks, Charnley, Pratt and Wahlberg) Particularly, use of the argument that the plans would not crowd out private sector investment misses a real chance to argue for such a crowding out, for an expansion of the state sector in innovative and progressive ways, at the expense of private capital, as a counter-strategy against privatisation . There are several arguments for this, starting with the fact that state sector production can be more cost-efficient than contracting out to private capital, especially if local authorities are able to cooperate and achieve economies of scale and specialisation . In such circumstances expansion of state sector production could then provide the context for the development of new models of democratic control and organisation of production within which issues of quality of work and product could be effectively addressed . While legal and resource problems currently make the extension of `municipal enterprise' difficult, the longer term objective should be to `roll back the frontiers of the private sector' . There are also strong equal opportunity arguments for such an approach . The conventional support-to-capital approach to local economic policy inevitably marginalises gender issues because of the way in wich capital's definition of `the economic' and the economy excludes a major part of women's work, domestic labour . (Massey) 16 But, as the chapter of the LIS on domestic work and childcare argued, the distancing of state activity from direct valorisation criteria can provide an opportunity for the socialisation of elements of domestic labour. A left politics of full employment might well argue for the reallocation of subsidies to capital to the comprehensive provision of nursery education and laundry facilities, and the reshaping of public transport to meet working women's needs (Mackintosh) The concept of an imaginatively extended state sector is also one of the most relevant aspects of Murray's flexible state programme . Murray envisages a more integrated and innovative state sector, more self-sufficient and thus less dependent on the level of private sector profit for revenue, in which, for example, local government direct labour would be employed on Electricity Board construction and state-owned



Local economy and the state companies would supply NHS drugs . (Murray, 1987). 17 Moreover, the development of the post-Fordist economy is creating major new areas of growth - in the recreation, leisure and tourism fields, for example - where the rapid advance of capital (often in partnership with the local state) makes urgent the development of alternative forms of production which contest the commodity form . Movement in this sort of direction would start to overcome the problem for socialist strategy that the state appears to people essentially as an expense, a deduction from the wage, a tendency exacerbated by the Keynesian problematic of `state expenditure' and the need to minimise it, and by the tendential confinement of the state to unprofitable activities and the absence of clear alternatives to profitability criteria for state-sector operations . This appearance of the state as a deduction from the wage is a basic source of tension and conflict between state-sector and private-sector workers, a tension which has increased in the crisis of Fordism with the combination of mass redundancy in the private sector while state sector jobs and wages have often been preserved . An expanded, integrated and more self-sufficient state sector within which a radical transformation of the relations of production and consumption could be effected, ought therefore to be the context within which local jobs plans are formulated . To some, this may seem a strange time to call for socialists to direct their attention to the state, and particularly, the local state . After all, local government is under sustained assault from the Thatcher government . The scope for local government to 'intervene in the local economy, or indeed to organise its own employment as it might wish, is being severely eroded . We are no longer in the expansive phase of `restructuring for labour' local economic strategies of the first half of the 1980s . The easy response to this situation is a `new realism' which, without much demur, retreats to the reservation allocated by the new right, to a post-Fordist conception of the local state as a junior partner and an enabler for private capital, and as the poorhouse manager for the marginalised sections of the working class . This is a growing tendency which appears to be seductive even to some radical left Labour administrations tiring of the seemingly unequal fight against the government. Yet it is a strategy which not only abandons socialism for a weak version of social democracy, but which fails both to recognise that while local state is indeed under threat it will undoubtedly remain a sector of major significance in both employment and functional terms in the (local) economy, and to exploit the contradictions of postFordism. 18

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The state and socialist planning

Capital & Class 110

Our stress so far has been on the need for a left politics of the state which seeks to defend and extend, rather than weaken, the unity and organisation of the working class, against the lines of fracture between state and non-state workers, between the consumption and production moments, between organised and unorganised, employed and unemployed workers and within the division of labour inside the state . We will now argue that this requires a clearer vision of the sort of state we are trying to build . An important recent argument for a Marxist perspective on the transformation of the state is that of Panitch . Arguing that the path of the new right `market populism' has been smoothed not just by the impasse of social-democratic politics and the crisis of the Keynesian welfare state, but by the failure of Marxism to offer much more than a negative critique of the capitalist state, Panitch concludes that a crucial question for the credibility of socialism is that of the nature and form of socialist democratic political institutions, and the need for `a new socialist politics that would seek to develop such political agencies in the struggle against capitalism as would presage such a state (Panitch, x) He reminds us of Raymond Williams' recent proposals for initial steps towards the transformation of the state which might be taken by a left Labour government . Williams outlined a broad programme of legislative, institutional and wider cultural change, to radically extend popular control in and around the state, to build popular majorities for socialist politics at national and local level . His proposals included workers' and consumers' plans for nationalised industries, direct election to replace monopolistic appointment to state bodies, and imaginative utilisation of new technology to facilitate democratic discussion and decision about the economy and investment . This argument can be taken further by reference to Mandel's important article `In Defence of Socialist Planning' . (Mandel, 1986) The context of Mandel's `defence' is a critique of Nove's `market socialism', and this is very relevant here, despite the context of Eastern European `actually existing socialism' in which Mandel largely argues, because Nove's acceptance of the neccesity of markets for efficiency reasons in complex modern economies finds strong echoes not only in Labour's new `realism' but in the flexible state proposed by Murray, for example . Mandel starts from the fact that the growing objective socialisation of labour (which continues, of course, if in different form, with post-Fordism) continually extends the sphere of planning (in the general sense) vis-a-vis the sphere of market decision . Objective tendencies in the advanced capitalist countries indicate both the potential for socialist planning, and the costs of its current absence in the forms of mass unemployment, super-

Local economy and the state

exploitation of labour, ecological destruction etc . Mandel's argument, therefore, is for socialist planning on grounds of `social efficiency' . Mandel criticises Nove and other `market socialists' for focusing on consumption relations and leaning towards an ideology of consumer choice which ignores the effect on producers of being forced to respond to consumption . Given that most workers are still primarily producers, the fundamental need remains the democratic organisation of production . If the nature and balance of production and consumption time is determined by the associated producers, consumption differentials arising from unequal reward can be progressively reduced . Mandel then sets out a detailed structure for `articulated workers' selfmanagement' of the economy, based on a system of elected worker-consumer councils . He argues for the superior efficiency of workers self-management over market mechanisms on the grounds of the inherent interests of workers, once in control of the economy, in reducing labour time . Product mix of consumer goods would be decided by consultation between workers' councils and democratically elected consumers conferences, following public testing of samples via showrooms, publicity etc, with direct allocation 'by asking people what they want' thus coming to replace the interposition of money and markets in satisfying demands for choice and variety. Mandel argues that compared to current market mechanisms this would reduce wasteful overproduction and give far greater innovation and consumer choice . 19 My proposition here is that arguments such as Mandel's are vital today in restating the case for socialist planning, and that the content of socialist politics in the struggle over the local state and the local economy must be based on some such vision of a workers' state .20

Many contributors to the debate about the Lts and other `restructuring for labour' strategies have recognised that the abolition of the GLC and the metropolitan counties has brought the evolution of this sort of policy more or less to a halt, at any rate temporarily. But while abolition is seen as having cut short a productive experiment by the left, there has been surprisingly little comment on the implications of this . Yet the rapidity and ease with which dominant interests in the state were able to eliminate problematic parts of the apparatus in the face of public opinion is clear testimony to the limits to the possibilities for oppositional `capturing' of the local state by electoralist politics . The fact is that, if the politics of `restructuring for labour' was

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one of mobilising a new left alliance around the local state, abolition showed the failure of this when the crunch came . Consistent with the high level of anti-abolition rhetoric from GLC councillors and radical professionals, the defence of the GLC was conducted almost exclusively in parliamentary/council chamber and media forums, along with the innovation of the rock concert wake . There was little mass action of any note, even by workers due to lose their jobs or have their working life disrupted . Despite the widespread popularity of the GLC/ Livingstone public image, the Labour administration was unable to call on a strong labour movement, strongly rooted in local society, to defend it . The comparison between this low ebb of labour movement organisation in and around the local state, and the contemporaneous long struggle of the miners, is inescapable and instructive . The mobilisation by the NUM in defence of its pits and mining villages was not matched by any similar defence of the GLC (or indeed of the `socialist republic' of South Yorkshire) . It is from this contemporary low point that struggles over the state must needs be mounted . It is not, as Mandel for one shows, that we should lack confidence in the potential of a planned economy to meet need more efficiently than a capitalist one . It is that, in the current conjuncture, the labour movement is so great . In this situation, it is difficult to see either how `state intervention' can effectively challenge capital in the private sector, or how further bouts of nationalisation per se can do much except replicate on a larger scale the current contradictions of the state for the working class . The need is rather to struggle within the state against these contradictions . This means a clear break with the social-democratic and labourist tradition . The `local socialist' economics of the the first half of the 1980s must in retrospect be considered as an attempt to push to its leftward limits the social-democratic politics of using the state against capital . The lessons of that experience are that the state, like capital, must be transformed not used . The crisis of the Fordist state opens the way for the supersession of the old, paternalist, labourist, statist politics by a critical politics of the state : a politics aimed at the revolutionisation of the social relations of the capitalist state . In the transition from Fordism to post-Fordism, the state, and within it the local state, is a major arena of struggle, in which many contradictions exist for the left to exploit . This is not to suggest that the struggle for socialism should be confined to, or necessarily focused primarily upon, the state ; but that there must be strugle in and against the state alongside workers' struggles in and against capital .



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Acknowledgements I would like to acknowledge the support of Irene Breugel on behalf of the Capital & Class Editorial, and the helpful and extensive comments on previous drafts by herself, Allan Cochrane and Werner Bonefeld . Responsibility for the final version is of course mine .

1.

At least three main areas of discussion have emerged :

• The `flexible specialisation' debate . This is concerned with the question of how much space for labour gains is offered to local economic policy by the tendency towards flexible specialisation in contemporary capitalism (eg Gough, 1986b) . • British disease or crisis of capitalism? It is argued that the misconceptualisation by the Lts of London's industrial decline in terms of `British exceptionalism' rather than the tendencies of capitalism as a whole means that at best the strategy will create jobs for Londoners at the expense of workers elsewhere and may exacerbate the crisis by impeding the devalorising of capital (eg Eisenschitz and North) . • Capitalism as many capitals . Selective intervention in particular firms by local authorities is liable to be undermined in various ways by the process of competition between capitals (eg Newman, Goodwin and Duncan, Gough, Eisenschitz and North, Nolan and O'Donnell) . 2. This perspective runs through much of the recent evaluation of GLC economic policy produced by a group of ex GLC activists (Mackintosh and Wainwright) . In A Taste of Power many of the failures and limitations of GLC initiatives are attributed to the shortcomings of (well-meaning) councillors especially their lack of grasp of state procedures, or to (malevolent) `officials' and their control of procedures; and successes are frequently closely associated with the energy/enthusiasm/ commitment of the radical individuals who emerge as the `stars' of the GLC `show' . To the extent that A Taste of Lower seeks to explain the activities of individual agents, it tends to rely on radical-populist notions of the relation between state and society . Progressive policy is constantly defined as `democratic', although the specific nature of the democracy in question is often vague . This populism is evident in the employment of the term `officials' to denote pejoratively high and middle-ranking state agents who are unsympathetic to, or obstruct, progressive policies . This poses the problem of the state in terms of an opposition between `officials' and `the people, with councillors/politicians and lower-grade state workers somewhere in the middle . 3. The development of the capitalist state must be associated in general terms with the tension between the objective of capitalist production, valorisation, and the need for the capital relation to be reproduced in society. (Clarke) Concrete capitalism appears to require the support of an institutional structure distanced from the law of value and individual capitals, and representing a seemingly class-neutral common interest, abstracted from the inequality of access to the means of production which actually divides one class from another . The precise csc 35-H

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forms and functions of the state then reflect the concrete forms in which these general determinations impose themselves through the process of class struggle . thus, historically, the state has reflected a shifting combination of the three fetishised forms of law, bureaucracy and bourgeois democracy. (Wells) State functions have tended to include the monopolistic exercise of physical force (`defence and `law and order') ; the management of certain basic conditions of commodity production and exchange (commercial law, the money supply) ; areas of necessary but tendentially unprofitable production such as working class housing, and the reproduction of labour power. 4. This is not intended to imply that profit-oriented production is necessarily efficient even in its own terms, merely that valorisationderived operational criteria do raise the question of efficiency more directly and insistently than is the case in the state . 5. The analysis is at the level of an empirical discussion of the crisis of the Fordist state in Britain . I am not able here to enter the wider debates about Fordism or the Fordist state . I attempt to follow the analysis of Fordism initiated by Aglietta and developed in relation to the UK by, for example, Dunford and Perrons and Blackburn, Green and Liff . In relation to the Fordist state and its crisis I have drawn particularly on the work of Jessop et al, while considering their aproach to be over-politicist, and also Bonefeld's critical review while accepting by no means all of his reservations about the concepts of Fordism and post-Fordism . In relation to the local state I have drawn empirically on Hoggett's work while remaining critical of his theorisation of Fordism (see note 13). 6. It is interesting to consider social democracy, and its left variant, Labourism, as the politics of Fordism . The leading role of Fordist professional, managerial and technical class strata is linked to a conception of politics as policy, as administrative action by the party leadership in the state, with collective working class action reduced to occasional voting. The scope of politics is largely limited to distributional questions, to be resolved through a neutral state machine and under the rule of law by a process of gradualism within the mixed economy. Hence the centrality to social democratic politics of Keynesianism, in which an activist conception of an autonomous state - the public as opposed to the private sector - conceals a largely uncritical acceptance of capitalist production relations . 7 The backward-looking term post-Fordism is used to emphasise the absence of any acceptable term expressing better the nature of the emerging regime of accumulation . (Maybe CSE should run a competition?) 8. A distinction may need to be made between changes in the state specifically associated with the transition from Fordism and emergent post-Fordist state forms `proper' . The tendency to a centraliseddeconcentrated state has been notable in other periods when new accumulation imperatives have forced an attack by the central state on localities committed to the old regime, such as Gaullist France or to a limited extent Wilsonian Britain . In this respect such structures may turn out to be transitional rather than a central long-term feature of a post-Fordist state, as may perhaps the tendency towards a flexible state, able to respond rapidly and selectively according to the confused and

Local economy and the state uneven demands of a transitional period . On the other hand, the redefinition of the relative spheres of private capital, the state and the domestic/voluntary sector may turn out to be more truly post-Fordist . 9. Although certain contributors - eg Hayter - do not share this perspective . 10 Hayter provides a good empirical example of the real possibilities and problems of sustaining gains for labour via state investment . 11 . This view comes across strongly in Ken Livingstone's memoirs . (Livingstone) 12 . LcB employed nearly 2000 building workers when Labour took over the GLC in 1987 13 . Hoggett's treatment of class relations in the state focuses on the role of professionals . But his characterisation of professional labour within the state as `a pre-Fordist craft productive system', invoking a 'professional mode of production' (Hambleton and Hoggett, 1984 : 16-30) is problematic in a Marxist analysis and leads to the identification of the crisis of the Fordist state as arising out of the tension between Fordist and pre- or non-Fordist elements, rather than out of the general contradictions of Fordism as a regime of accumulation . 14 . As a movement in this direction, see for example Scottish Local Government Information Unit . 15 . See for example the recent statement by the Labour Coordinating Committee . 16 . It is also notable that the traditional - and to some extent more radical - form of local state investment in capital is a practice largely undertaken betwen male capitalists and male local government councillors and officials . 17 Murray's ideas could be extended to the notion of joint ventures, not with private capital but with socialist states, especially in the Third World . 18 . It is intriguing to note that the poll tax legislation, if it becomes law in its current form, will break the fiscal link between local state and local capital, in that the uniform business rate will mean that a local authority will no longer make a direct gain through increased tax income by industrial promotion . (Flannery.) It would be ironic indeed if it were to be the effects of this Thatcherite legislation which persuaded the left to abandon the attempt to build local socialism by investing in capital . 19 . A particular feature of Mandel's argument is his treatment of need . Avoiding the problematic use value versus exchange value dichotomy, Mandel adopts the notion of a hierarchy of needs . While need is historically-culturally determined, with the growth of the productive forces saturation of consumption is possible (in the advanced countries) in respect of the most intensely felt needs, and problems of meeting need pass tendentially to secondary and luxury areas . As there is not therefore a limitless growth of need, the proportion of goods capable of being distributed free of charge can progressively increase. As the saturation of need by non-priced goods advances the role of money in the economy could be progressively reduced. 20 . Mandel's workers' state provides, for example, a perspective from which to consider some recent experiments with the local state apparatus . One influential attempt to move from the old model of the local state

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towards more direct democracy has been the idea of `popular planning' . In this model, the local state's resources and practice are aligned with trade union activists, community groups, women's and ethnic groups' organisations . In some situations where such grassroots organisations are strong and strongly-rooted in the local working class, popular planning has had some important successes . Often however its impact is more limited and controversial, and one important reason for this is that popular planning attempts not so much to transform the local state structure as use it for radical purposes, producing tensions betwen even the most well-intentioned state officials and the local people they are trying to help . (Brownill .) On the other hand some womens' committees, while maybe too frequently ignoring class divisions, have shown how representative democracy in the local state can be shifted towards a more direct democracy.



Local economy and the state Aglietta, M . (1979) A Theory of Capitalist Regulation New Left Books . Beecham, D . (1983) A Practical Disaster. Socialist Review 57 : 19-21 . Benington, J . (1976) Local Government Becomes Big Business, CDP Information and Intelligence Unit . Benington, J . (1986) Local Economic Strategies : Paradigms for a Planned Economy? Local Economy 1 : 7-24 . Blackburn, P, Green, K ., & Liff, S . (1982) Science and Technology in Restructuring Capital and Class 18, 15-37 Blunkett, D . & Jackson, K . (1987) Democracy in Crisis : The Town Halls Respond Hogarth Press Boddy, M . (1984) Local Economic and Employment Strategies, in Boddy, M . & Fudge, C . Local Socialism? Macmillan . Bodington, S ., George, M . & Michaelson, J .(1986) Developing the Socially Useful Economy Macmillan Bonefeld, W (1987) Reformulation of State Theory. Capital and Class 33, 96-128 Brooks, S ., Charnley, J ., Pratt, D . & Wahlberg, M . (1987) A Future for Building Workers . Unpublished Paper, Bartlett School of Architecture & Planning, University College London Brownill, S . (1988) The People's Plan for the Royal Docks : some Contradictions in Popular Planning . Planning Practice and Research 4, 15-21 Campbell, M . et al (1987) Economic Sense : Local jobs plans - A National perspective Centre for Local Economic Strategies Centre for Local Economic Strategies (1987) Enterprise Boards, Their Contribution to Economic Development & Investment Clark, N ., Critchley, R ., Hall, D., Kliner, R ., & Whitfield, D . (1987) The Sheffield Council Jobs audit - Why and How? Local Economy, 1,4 : 3-22 Clarke, A . & Cochrane, A . (1987) Investing in the Private Sector : The Enterprise Board Experience, in Cochrane, 1987, op .cit . Clarke, S . (1978) Capital, Fractions of Capital and the State : neo-Marxist analyses of the South African State . Capital and Class 5 : 32-77 Cochrane, A . (1983) Local Economic Policies : Trying to Drain an Ocean with a Teaspoon, in Anderson, J . et al Redundant Spaces in cities and Regions, Academic Press . Cochrane, A . (1986a) What's in a Strategy? The London Industrial Strategy and Municipal Socialism . Capital and Class 28 : 187-193 . Cochrane, A . (1986b) Local Employment Initiatives : Towards a New Municipal Socialism? in Lawless, P & Raban, C . The

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Contemporary British City, Harper & Row. Cochrane, A . (ed) (1987) Developing Local Economic Strategies Open University Press . Cockburn, C . (1977) The Local State : Management of Cities and People Pluto . Dunford, M .E & Perrons, D . (1986) The Restructuring of the Postwar British Space Economy, in Partin, R & Rowthorn, B . (eds) The Geography of Deindustrialisation Macmillan. Eisenschitz, A . & North, D . (1986) the London Industrial Strategy : Socialist Transformation or Modernising Capitalism? International Journal of Urban and Regional Research 10 : 419-439 . Flannery, K. (1987) More Than Just a Ill Tax: The economic impact of the local government finance bill . Centre for Local Economic Strategies . Geddes, M . (1988) Social Audits and Social Accounting in the UK : A Review Regional Studies, 22, 1, 60-65 . Gretton, J . & Harrison, A ., with Beeton, D . (1987) How Far have the Frontiers of the State Been Rolled Back Between 1979 and 1987? Public Money, December, 17-25 . Goodwin, M . & Duncan, S . (1986) The Local State and Local Economic Policy : Political Mobilisation or Economic Regeneration? Capital and Class 27 : 14-36 . Gough, J . (1986a) The Purpose of Local Industrial Policy . Local Economy 2 : 69-76 . Gough, J . (1986b) Industrial Policy and Socialist Strategy : Restructuring and the Unity of the Working Class . Capital and Class 29 : 58-81 . Greater London Council (1985) London Industrial Strategy London : GLC. Greater London Council Popular Planning Unit (1986) The People's Plan for Combined Heat & Power . London Strategic Policy Unit . Greater London Enterprise Board (undated) More than Bricks and Mortar: Making Property Work for People . Hambleton, R . & Hoggett, P (eds) (1984) The Politics of Decentralisation : Theory and Practice of a Radical Local Government Initiative . University of Bristol, School of Advanced Urban Studies, Working Paper 46 . Haringey Women's Employment Project (1986) Women and Privatisation : School Meals in Haringey . HWEP . Hayter, T. (1987) Industrial Democracy - The GLEB Experience, in Mackintosh and Wainwright, op . cit 137-196. Heery, E . (1984) Decentralisation in Islington, in Hambleton and Hoggett, op . cit, 45-61 . Heery, E . (1987) A Common Labour Movement? Left Labour

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Councils and the Trade Unions, in Hoggett and Hambleton, op . cit 194-214 . Hoggett, P (1984) Decentralisation, Labourism and the Professionalised Welfare State Apparatus, in Hambleton and Hoggett, op . cit 16-34 . Hoggett, P (1987a) Waste Disposal : Making Municipal Socialism Work . New Socialist 47 : 30-35 Hoggett, P (1987b) A Farewell to Mass Production? Decentralisation as an Emergent Private and Public Sector Paradigm, in Hoggett and Hambleton, op. cit . 215-232 . Hoggett, P & Hambleton, R . (eds) (1987) Decentralisation and Democracy : Localising public services . University of Bristol, School for Advanced Urban Studies, Occasional Paper 28 . Holloway, J . (1987) The Red Rose of Nissan, Capital and Class 32 : 142-64. Holloway, J . & Picciotto, S . (1977) Capital, Crisis and the State . Capital and Class 2 : 76-101 . Jessop, B ., Bonnett, K ., Bromley, S . & Ling, T (1987) Popular Capitalism, flexible Accumulation and Left Strategy . New Left Review 165, 104-122 . Jessop, B . (1988) Regulation Theory, Post-Fordism and the State Capital and Class 34, 147-168. Kline, R . & Mallaber, J . (1986) Whose Value? Whose Money? How to Assess the Real Value of Council Services Local Government Information Unit and Birmingham Trade Union Resource Centre . Labour Coordinating Committee (1988) Labour Councils in the Cold, A Blueprint for Survival.

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Livingston, K . (1987) if Voting Changed Anything, They'd Abolish It Collins Mackintosh, M . (1987) Planning the Public Sector : An Argument from the Case of Transport in London, in Cochrane, 1987, op . cit . Mackintosh, M . & Wainwright, H . (eds) (1987) A Taste of Lower: The Politics of Local Economics Verso . McDonnell, K . (1978) Ideology, Crisis and the Cuts . Capital and Class 4 : 34-69 . Mandel, E . (1972) Late Capitalism New Left Books . Mandel, E . (1986) In Defence of Socialist Planning . New Left Review 159 : 5-37 Massey, D . (1987) Equal Opportunities, The GLEB Experience, in Cochrane, 1987, op . cit . Mawson, J . & Miller, D . (1986) Interventionist Approaches in Local Employment and Economic Development : the Experience of Labour Local Authorities, in Hausner, VA . (ed), Critical Issues in Urban Economic Development, vol . 1 .

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Clarendon . pp . 145-199 . Mulhearn, C . (1986) Economic Development in Merseyside : A Critique of Mercedo . Local Economy 3 : 20-32 . Murray, R . (1986a) Towards a London Property Strategy - in Relation to Industry and Employment Paper to Future of Planning Conference, Greater London Council . Murray, R . (1986b) Transforming the State . Draft Chapter 22 of unpublished GLc London Economic Strategy . Mimeo . Murray, R . (1987) Breaking with Bureaucracy: Ownership, Control and Nationalisation . Centre for Local Economic Strategies . Newman, I . (1986) Greater London enterprise Board : Vision and Reality. Local Economy 2 : 57-68, Nolan, P & O'Donnell, L . (1987) Taming the market economy? A critical assessment of the GLC'S experiment in restructuring for Labour. Cambridge Journal of Economics 11, 251263 . Palmer, J . (1986) Municipal Enterprise and Popular Planning . New Left Review 159 : 117-124 . Palmer, J . & Wainwright, H . (1983) Plans, Co-operatives and the Struggle for Socialism . Socialist Review 57 : 15-17. Panitch, L . (1986) Working Class Politics in Crisis : Essays on Labour and the State . Verso . Ridley, N . (1988) The Local Right : enabling not providing. Centre for Policy Studies . Rogers, A. (1983) When the Boss is a Labour Left . Socialist Review 57 : 11-14 . Rustin, M . (1986) Lessons of the London Industrial Strategy . New Left Review 155 : 75-84 . Scottish Local Government Information Unit (1986) Local Authorities as Employers SLGIU .

Sharpies, N . (1986) The New Local Economics : A Reply to John Benington . Local Economy 1 : 7-24 . Soto, PM . (1987) Setting an Example? The GLc as an Employer, in Mackintosh and Wainwright, op . cit, 80-104 . Sparks, C . (1983) A Reformist Strategy. Socialist Review 57 : 18-19 . Ward, M . (1983) Labour's Capital Gains ; the GLc Experience Marxism today, December, 24-29 . Wells, D . (1981) Marxism and the Modern State Harvester Williams, R . (1981) An Alternative Politics . Socialist Register, 1981 .

Geert Reuten

The money expression of value and the credit system : a value-form theoretic outline • The aim of this paper is to provide a systematic account of money starting from its most abstract determination . In particular the purpose is to theorise credit money, without having recourse to commodity money . First the general theme of the paper will be introduced, in reference to recent theoretical debate and development . After that follows a brief methodological introduction and an overview of the further contents of the paper . In orthodox economics after the middle of the 20th century, money is either absent, or it is a commodity money, or its existence is taken for granted . Even if money is conceived to be of crucial significance in a capitalist economy, its existence is not theorised from within and at the level of the foundation of economic theory . If theorised at all, then only the functions of money are theorised ('Money is defined by its functions'-Hicks, 1967 : 1) . In Marxist economics money is theorised at the level of the abstract foundations of the theory . More specifically it is theorised along the lines of Marx (in particular Marx, 1867) . The most important characteristics of this theorisation of money are, first, the grounding of money in commodity money and the derivation of credit money from it (for a lucid exposition see de Brunhoff, 1973) . Secondly, money is conceptualised prior to the conceptualisation of capital and capital accumulation (cf . Bellofiore, 1985 : 72-73) . Thirdly, the separate treatment of the

In most of Marxist economics the theory of money is grounded in commodity money . This grounding calls for reconsideration in the light of recent debate over the Marxist theory of value and recent analysis of developments in the capitalist monetary institutions . It is shown in this paper that money, credit money and a fully developed credit system can be conceptualised at the level of abstract theory, without resort to commodity money . It is also argued that this resort at the level of abstract theory is inappropriate from the point of view of method .

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concepts of money and money capital (cf . Harris, 1976 : 153154) . These characteristics are of course closely connected, and in fact they all derive from the conceptualisation of money at the level of the commodity (and relatedly, the way the commodity itself is introduced - cf. Reuten, 1988) . There are two issues that call for a reconsideration of the grounding of money within Marxist theory . The first is the debate in the 1970s over the Marxist theory of value . For the neo-Ricardian strand in this debate (itself situated between a Sraffian and a labour-embodied theory of value - cf. de Vroey, 1982 : 39-44) there is perhaps less need for such a reconsideration . A foundation of money in commodity money seems quite consistent with it . But this is far less so with the other strand, the abstract-labour theory of value (the Rubin School) . Within this approach there seem to be no grounds for privileging commoditymoney to be the measure of abstract labour, rather than any other expression of value, such as credit money . Therefore, commodity money cannot consistently be theorised at the most abstractgeneral level of theory (but rather, for the purposes of e .g . an historical account of money, at a more concrete-particular level of theory) . The second issue calling for a reconsideration of the conceptualisation of money is the theorisation since the second half of the 1970s, of the post-war development in the capitalist monetary institutions (led by the French Marxist monetary school, stemming from de Brunhoff & Cartelier, 1974 ; de Brunhoff, 1976 ; and Aglietta, 1976 ; for a more recent treatment see Lipietz, 1983 ; in the UK the work of e .g . Ergas & Fishman, 1975 ; Harris, 1976 ; Innes,1981 ; Coakley & Harris, 1982 ; and Evans, 1985, can be mentioned) . Without any doubt all of these authors stress the major importance of credit money for the development, and many of them conceive it to be the capitalist money par excellence . Nevertheless, this is again not reflected in the abstract theorisation of money . The way this anomaly is usually covered, is to introduce credit money via an historical treatment of money from commodity money to the evolution of credit money . Of course there is nothing wrong with an historical description in itself, on the contrary, but historical description cannot be a substitute for abstract theory ; and historical order need not correspond to logical order . The need for reconsideration of the foundations of the theory of money was recently stressed by Bellofiore (1985). He argues that whilst the Marxist theory of value has both a synchronic and a dyachronic level of analysis-hence it is designed to explain capitalist development as well as crisis - the theory of commodity money is constructed only at the synchronic level.

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He concludes that : The essentiality of commodity-money in Marx derives from the fact that in his theory the introduction of money is first aimed at underlining the opposition equilibrium-crisis at a synchronic level, before taking valorization and accumulation into account . This first step conditions all further developments in Capital's monetary theory. . . . An important task is to verify . . . whether the abstract labour theory of value can be reformulated without commoditymoney . In either case, the link between (credit) money and accumulation must be introduced into Marxian theory . (Bellofiore, 1985 : 73) Whilst Bellofiore argues for the need of reconsideration from the point of view of a Schumpeterian reading of Marx, the reconsideration below is written from the point of view of Hegel's Logic (1817) . In particular it is based on a form-theoretic dialectical method . Whilst such a line of argumentation is not absent from Marx's work (especially Marx, 1859 ; 1867' Appendix, and 1939, more so than in the third and fourth editions of Capital I, and Capital II and III) it has been highlighted some years ago by Backhaus (1969) (see also Eldred & Roth, 1978 ; Eldred & Hanlon, 1981 ; Eldred, Hanlon, Kleiber & Roth, 1982/85 ; Eldred, 1984 : introduction ; and Eldred, 1984a) . I shall start with some remarks concerning this method insofar as it is relevant to the current paper (these remarks summarise the section on method in Reuten, 1988 ; for an extensive account see Reuten & Williams, 1988 : part one) .

The social phenomena around us (oppression, wealth, poverty, deflation, Thatcherism, or any other list of them) have manifold determinations . The object of social theory is to grasp these diverse phenomena as concrete, as interconnected . That is to grasp them as the `concentration of many determinants, hence unity of the diverse' (Marx, 1903 : 101 ; cf. Hegel, 1833 : 83) . If these are interconnected, and hence if systematic theory can be applied to these phenomena, then they must have common determinants that unite them and nevertheless make them different from each other . The task of social science is to theorise this interconnection . In the end there must be an abstract notion from which this difference in unity may be conceptualised . (The most abstract is of course Hegel's notion `being' .) Thus the starting point of the presentation of the theory is an abstract universal notion . But this does not spring from the air . The starting point is the result of a

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process of inquiry, of critical appropriation of empirical perceptions and existing theories (cf . Marx, 1867 : 102 ; 1903 : 100). But thinking cannot conceivably make anything of such an abstract universal notion (such as `being'), other than by thinking its abstract negation and its abstract particularisation . In both cases (negation and particularisation) opposed concepts are applied to the same thing or notion, and in this specific sense these opposites are contradictions . In this sense also, to think these things and notions is to articulate their doubling (that is, the universal doubles into the universal and its opposite universal, or into universal and particular) . (E .g . at a somewhat lower level of abstraction, useful objects and activities double into use-value and value; in capitalism useful objects are both these at the same time and hence they are contradictory . The value-capital opposition is an example of particularisation .) But contradictions can by themselves have no existence . The theory has to show how the abstract contradictions can have concrete existence (in capitalist society), that is, theory has to determine their conditions of existence . This is the way the presentation of the theory moves forward ; by the transcendence of contradiction and by providing the ever more concrete grounds - the conditions of existence -of the earlier abstract determination . In this forward movement the earlier abstract determination is not dissolved but transcended in the conditions of existence . Or, the ground provides the unity of the opposed moments . (Thus, e .g ., the existence of money grounds more concretely the existence of value, hence the use-value-value opposition .) But at the same time it is a further, more concrete determination of the difference, a difference previously posited only in itself ('an sich', potentially, implicitly), as it now appears . So the differences that were previously not set forth as such now come into (abstract) existence . (Thus, e .g . the particularities of money can only be posited at the level of money and not at that of value .) But the ground appears at this new level itself as an abstract existence showing the contradiction that it cannot exist for itself (`fur sich', actually), hence the presentation has to move on in order to ground it in its turn, so as to provide its conditions of existence (Hegel, 1817 : §§120-124 ; 1833 : 81-83) . (Thus below e .g . the abstract existence of money, requires itself to be grounded in more concrete conditions of existence, i .e . the credit system .) And so on, until the presentation claims to have reached the stage where it comprehends the existing society as actual, as actuality ('Wirklichkeit'), in the sense that its conditions of existence have now been determined such that it is indeed actual, concrete self-reproducing or endogeneous existence, which requires no external or exogeneous determinants for its systematic

Money, value and credit reproduction (see further below) . The presentation then is one of conceptual reproduction of the concrete in successive steps (levels of abstraction) ; if successful, the presentation is able to grasp the concrete as mediated by the theory (that is to theoretically reconstitute the empirical `facts', which were at the basis of the initial inquiry) . Such a process of inquiry and reconstruction can of course never be posited as definitive and completed . But that conceptual reproduction may only be possible insofar as the phenomena theorised are necessary to the existing society . That is, to the extent that these necessarily determine the existing society as a system . (For example, whilst money may be necessary to existing society, commodity money may be only contingent to it . If that is the case then commodity money cannot be explained as co-determining the internal unity of many determinants, thus not as necessary, but only as an external determinant .) Therefore, levels of abstraction may further be characterised by degree of necessity versus degree of contingency of the elements theorised . It is the purpose of the theory to single out what elements of the object of inquiry may be theorised as necessary to the object, and what elements are (merely) contingent . Of course the more the presentation moves towards lower levels of abstraction, the more (historically) contingent elements have to be incorporated . The presentation in this article pre-supposes the theorisation of value, the most abstract determinant of capitalist society ; § 1 below merely summarises this . In §2 the existence of value is grounded in the abstract existence of money . At this level no further concretisation (in commodity money, accounting entries or whatsoever) can be given, nor are they required at this level . It is the introduction of valorisation and accumulation of capital (§4) that further concretise the existence of money . The theorisation of valorisation and accumulation of capital - themselves the conditions of existence of value and money - are again presupposed in this article . The existence of accumulation then is first grounded in the existence of credit . From it derives the doubling of money into money of account and means of payment and the doubling of money into means of payment and money capital (§6) . Next, credit is concretised in the existence of banks, credit money and ultimately Central banks (§§7-9) . The last paragraph then provides an abstract determination of the interest rate consequent upon the way money capital has been theorised . Together this conceptualisation provides the monetary conditions of existence of value, valorisation and accumulation of capital . Tendencies of accumulation and the existence of the

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state and economic policy may consistently be theorised from this starting point (see Reuten & Williams, 1988) . Only then, at a much lower level of abstraction, can we take into account concrete and contingent historical developments such as, e .g ., the concrete complexities of financial markets . But at a lower level of abstraction also, could we go into the concrete historical analysis of the contingent guises that money may take such as - in this view - commodity money or plastic money for that matter . The existence of commodity money is not incompatible to the theory proposed here ; the point is that commodity money cannot be theorised as the abstract-general existence of money . Nevertheless it is possible, as is shown below, to theorise at a fairly abstract level such notions as `hoarding', without having recourse to commodity money . The presentation below does not of course start from scrap . The theorisation of money has a history longer than any other subject in economics . Consequently many of the issues by themselves will be familar . But it is the order of their presentation and their particular interconnection that should render their comprehension . The systematic order is indeed important to the argument . In order to distinguish the main argument from its further explication and location in the literature, the following arrangement of the text has been adopted : In the numbered paragraphs (S 1, §2, etc .) the systematic argument is set out . Mostly these are followed by additions (52a, §2b, etc .), which further explain the systematic argument, and locate it in the literature . In a few cases these also merely replace footnotes. The money expression of value

51 . The value form

The capitalist mode of production belongs to a category of modes of production with the general characteristic that units of production and units of consumption are separated . This dissociation of human activity necessarily requires a moment of association, recognising the useful objects produced, as socially useful objects, and with that the labour performed independently, as social labour. Exchange aligns production to consumption, it is the first condition of existence of this association . In the particular capitalist mode of exchange, human activity and useful objects are reduced to a unitary form, or common denominator . Value is the suis generis of this common denominator . Thus the particular capitalist mode of association requires human activity and useful objects to take on the value form . Without them being validated as such, they are socially non-existent . With it, useful objects double into use-value and value, whence they are con-

Money, value and credit stituted as commodities . Thus value is a social dimension ; it is established in the market and it has no independent existence prior to exchange (such as labour-embodied in Ricardian and neo-Ricardian-Marxist theories) . Nevertheless validation is anticipated during production, hence the production process itself is value-form determined . (For a more rigorous presentation of the contents of this paragraph, see Reuten, 1988) . §2 . Money as general equivalent Value is a general-abstract social dimension the existence of which is concretised in money . Because value is a common denominator, i . e. it has to commensurate heterogeneous entities, the first condition of existence of money is that it is measure of value . Next, if it is to be a measure of value beyond accidental exchange, and if value is to be anticipated during production, money necessarily has to be a fiduciary store of value. Thus from the point of view of value-form theory, it being measure of value is the first determination of money, store of value being its proximate condition of existence . The second condition of existence of money as measure of value is that it can be the medium of circulation (medium of exchange) . An entity can be measure of value, because it proves and reproves itself to be the actual medium of circulation . Money as means of circulation reinforces it being a fiduciary store of value . Because the degree to which sales and purchases synchronise is undetermined, the means of circulation has to bridge, at least pro tem, this non-synchrony as a fiduciary store . These three determinations of money constitute it as the general equivalent . Over and against the use-value of a particular commodity, money has no essential content - neither bullion, nor paper, nor plastic, nor accounting entries-rather its essence is that it is pure form, a one-dimensional quantity . In this sense money has no value, only an infinite number of exchange-values, one against each commodity (cf. de Vroey, 1981 : 187) . It is the substantial existence of value : a pure transcendental form . §2a . As mentioned in the introduction, this conceptualisation of money diverges from most Marxist as well as Marx's (1867) grounding of money in the concept of commodity-money . However, in Marx (1867) there is also ample evidence of a form-theoretic line of argument. But he does not push his line of argument to its logical conclusion that the essence of money is pure quantitative form . Nevertheless, in Marx (1867)-as well as of course in many other treatises on money - we find the same three determinations (measure of value, store of value, medium

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of exchange/means of circulation) though in different order . (For a good exposition of Marx on money, see de Brunhoff, 1973 .) A grounding of money in commodity money - even if credit money is given a predominant place - is all the more remarkable with authors such as e .g . Aglietta (1976) who not only have the benefit of hindsight from an era in which money has sloughed-off all necessary connection with any commodity but who also adhere to an abstract-labour theory of value . (Of course within a labour embodied theory of value, even if wrong from our point of view, commodity-money could be theorised consistently .) De Vroey (1984 : 382-383) on the other hand - who works within the Aglietta type of approach - rejects a grounding of money in commodity money : `Money in its basic determination (i .e. legal money) cannot be considered a commodity .' 52b . Money is determined at this abstract level as fiduciary, whilst being the measure of value, a store of value and medium of circulation . That is the answer to the question what money is . Any further answer as to its concrete existence is premature . (Why would one have to press on further at this stage? Would one also, if we discuss the concept animal, say, but what is it, is it perhaps my cat Mitsy you mean to describe? In the same vein one might perhaps think of pieces of metal or cigarettes or pieces of paper or electric pulses as money . But that is beside the point without being necessarily wrong . It is the concept money we are after . It is beside the point inasmuch as it is beside the point to think of Mitsy when it is the concept animal we are after . Nor does history help us out here . When I was four years old I had a lamb, and she certainly represented the concept animal to me. Unfortunately she is dead . Anyway my concept of animal has changed since then . Similarly we know of course that in history, gold has been money, and that perhaps it represented the concept of money at that time .) S2c . This form-theoretic conceptualisation of money does not tell us anything about the historical emergence of money . From a systematic point of view, being measure of value is the most abstract determinant of money, even if historically some entity was (accidentally) the medium of exchange before it was generalised as the measure of value . §3 . Store of value and the possibility of hoarding Because money is a store of value it can also be withdrawn from circulation for reasons other than non-synchrony of sales and purchases . That is, money can be hoarded . c3a . Hoarding is introduced here consequent upon the level of abstraction where a fully integrated banking system - see §9



Money, value and credit 129

below - is blended out . Hoarding is not-consuming and notinvesting . Our primary point of application for hoarding is the possibility of withdrawing money from circulation by industrial capital when commodities have been realised . It is not the same thing as saving : savings may circulate when the money is lent out (cf. Robertson, 1933) . Nevertheless savings might of course be hoarded . Hoarding to the extent that it is not savings, then holds up investment . Thus the application of hoarding is a Marxist (hoarding versus investment) rather than a Keynesian one (hoarding versus lending) . (See also de Brunhoff, 1973 : 42-43 .) §3b . We have indicated that being a store of value is a necessary determinant of money . Hicks (1967 : chapter 1) has argued that money could adopt the medium of exchange function without being a store of value . Harris has shown that in Hicks's argument, which is based on market clearing in a single day (hence at the end of the day all bank accounts are reduced to zero) a confusion as to time occurs, because `although bank balances in his model cannot be carried forward to the next day, they do act as store of value during the market day' (Harris, 1981 : 10) . Thus Hicks in fact aims to assume a synchrony of sales and purchases, in which case money indeed does have to be a store of value for it to be the medium of exchange . But as we have indicated, even then it would still be a condition of existence of money to be the measure of value (cf . Hicks, 1967 : 10) . Note however that for Hicks (1967 : chapter 2) money has to be store of value for it to be `full money' .

54 . Valorisation and accumulation of capital Value is the driving force of production, hence production ideally takes on the double form of technical labour process, and abstract-labour process or valorisation process . Valorisation is the expansion of capital (M-M') . As it is not consumption but profit which is its driving force, the logic of valorisation is that it be further expanded (M-M'-M") : first by means of an increase in control over the labour process by capital, and secondly by accumulation of capital . §4a . This §4 summarises Reuten & Williams, 1988 (chapter 2, section 1) . It is merely the abstract existence of accumulation that is posited, and not the development of accumulation . The first is a reserve of labour . This condition is not pursued in this paper . The second is the credit system (see the next section) . These two conditions are on a par . (The parity of these conditions is well revealed - at a lower level of abstraction - in the order of de Brunhoff's 1976 .) C&C 35-I

Accumulation of capital

Capital & Class 130 The credit system : reproduction of money and money capital

§5 . Money and the expansion of the circuit of capital The grounding of the accumulation of capital, in particular the expansion of the circuit of capital, concretises the concept of money . In the absence of credit the validation of commodities produced, requires the actual presence of money . Accumulation and the expansion of the circuit of capital therefore further determine money quantitatively . §Sa . To say that `in the absence of credit' validation requires the presence of money is somewhat dubious . Money already involves the fiducian (the guarantee) that is is the general value equivalent . Implicitly - but not yet set forth - it is generalised credit . Therefore there is no discrete separation between §5 here and §7 below when `credit money' (a near tautology) is introduced . To the same extent that money-in-general is to be present to validate commodities, credit money must also be present . However, conceptually credit-in-general (§6) is prior to credit money . §6 . Credit: money of account, means ofpayment and money capital The circulation of commodities does not necessarily require the actual presence of money . The circulation of money, equally, does not necessarily require the actual presence or even the previous production of commodities . Each of those forms of circulation involves a different form of credit, trade credit in the first case and production credit in the second case. With trade credit commodities are sold and delivered but the payment is deferred by contract (bill of exchange) . Payment, however, is not necessarily to settle each contract ; chains of credit may arise . With trade credit, money as a means of circulation doubles into money of account and means of payment. Only when credits and debts do not balance is it necessary that money is actually present as means of payment . With production credit commodities and sold and paid for, but the delivery is deferred until the commodities are produced . Or, what materially amounts to the same thing, money capital is lent out (by the buyer) against a share in the future profit (interest) . So with production credit, money as means of circulation doubles into money capital (or finance capital) and means of payment . (See the top part of Figure 1 .) The important similarity of both these forms of credit is that they are based on past production and on an accumulation of commodity capital (in the case of trade credit) or money capital (in the case of production credit) . No money circulates which is not the result of previous production and valorisation . Another

Money, value and credit way of expressing this is to say that both these forms of credit are on an aggregate level based on a closed circuit of money (cf . however de Brunhoff, 1973 : 80-81, 94n, who seems to suggest otherwise) . Thus it is merely the title to capital that is substituted from the one holder to the other . §6a . We can see now that credit is implicit in every act of market exchange. It is a matter of time . Depending on what is handed over first, commodity or money, it is always implicit trade or production credit . 56b . With credit the piece of paper that is handed over as a promise, or the oral promise (in both cases a contract), adopts the role of medium of circulation within a private relationship . §7 . Banks and the issue of credit money : private pre-validation The non-synchrony of sales and purchases, the clearing of chains of trade credit and the bringing together of the demand for and supply of money capital, generate the activity of money dealing (or, financial intermediation) by banks . As a potentially profitable activity money dealing itself takes on the value-form, hence it is constituted as money dealing capital . Other institutions than banks participate in this intermediation . The differentia specifica of banks is, of course, that they are not merely credit brokers, but also issue credit money which is accepted as medium of circulation . This activity of banks is necessary to resolve the limit to the expansion of capital, which would otherwise be imposed by a fixed quantity of money . The existence of credit money is predicated upon the doubling of the medium of circulation into money of account, means of payment and money capital . Its acceptance as medium of circulation is predicated upon it being an, at least temporary, fiduciary store of value . Whilst credit money originates in a private relationship between bank and client, it subsequently acquires a social character, by circulating as a representative of the general equivalent (Aglietta, 1976 : 335) . Credit money is either issued by substitution, or it is issued against loans, that is created ex-nihilo. The crucial difference between these is that the former is an act of mere money dealing and this credit money in circulation is substituted for money which has validated previous production . But ex-nihilo created credit money in circulation is an anticipation of production and realisation in the future . The bank which advances this credit money on the basis of a loan performs a private pre-validation of production, whilst the actual social validation only occurs when the anticipated production is realised (de Brunhoff, 1976 : 46 ; see also Aglietta, 1976 : 332-335) . Whilst this kind of credit is similar

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Capital & Class 132 Figure 1 :

Scheme of the interconnection of money and the credit system

value-form (§1) V money (§2) V measure of value (§2)

V fiduciary store of value (§2)

V medium of circulation (§2)

0



credit -V 0 production credit trade credit F -- (§6) -(§6) 1 V V V V means of payment money of account Money Capital (§6) (§6) (§6) I 1 money dealing ex-nihilo credit money < (§7) V

redeemable in legal tender : capitalist money (§9)

V credit money by substitution (§7)

Money, value and credit to production credit in that it is an anticipation of production, it is not based on a compensatory withdrawal of money from circulation, thus its circuit is not closed (cf. de Brunhoff, 1973 : 94 ; de Vroey, 1984 : 385) . It can therefore act as a lever to the expansion of accumulation of capital . 57a . Very often the existence of the credit system - introduced above and briefly developed below - is conceived as merely a matter of costs, and not as a necessary condition of existence of the expansion of capital accumulation in a developed capitalist system . This is also the way Ergas & Fishman (1975 : 7) introduce the credit system . For them `servicing the stock of the moneycommodity' represents costs . And for them, as for Marx, these costs are `reduced by the centralisation - in the government and the banks - of the tasks to which they correspond.' Credit in capitalist production arises from the formation of gaps between 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 . At the basis of such a view is a commodity money approach . Nevertheless Ergas & Fishman appear to introduce another approach alongside it . This is reflected in a dichotomous divorce of the first four from the last three sections of their 1975 paper . It is remarkable that they introduce this other approach not from an elementary discussion of money and capital, but via a discussion of the price level and the `Banking School'-position, for which the basic function of bank credit is to provide working capital for industry . Rather by the way they add that, `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' (p . 10) . 58 . The social expression ofprivate pre-validation In pre-validating future production of a capital by way of ex-nihilo creation of credit money, the bank of course anticipates the success of the borrowing capital . If the borrowing capital is successful in that the pre-validation is followed by production and actual social validation of commodities (i .e . the sale of commodities), then the credit money returns to the bank, and the credit is cancelled . (It should of course return to the bank together

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with a share of the industrial profit, the interest .) A necessary condition for this is that the ex-nihilo created credit money manages in the event to close the circuit which it breaks initially, the break being the influx of credit money into the circuit . The point is that the pre-validation of the production of a capital, thus the anticipation of the expansion, has to be confirmed at some stage by the real expansion of other capitals . Expansion indeed can only be validated by expansion . Other capitals must accumulate, say, for the sake of argument, the value equivalent of the credit money that they received from the pre-validated capital in payment for, e.g ., means of production, or, indirectly for consumer goods out of wages, and thus effectuate extra demand . In this case credit money is indeed a successful medium of circulation . If the borrowing capital is not successful, there are three possibilities . (In any case the bank now suffers a loss in that it foregoes the principal as well as the interest agreed upon ; thus in any case it affects the bank's solvency . The cases differ in the consequences it has on the bank's liquidity .) The first possibility is that whereas the borrowing capital fails, other capitals do nevertheless accumulate and expand . Thus the credit money that other capitals receive from the borrowing capital keeps on circulating in an expansionary way . Therefore whilst the bank's solvency position is affected, its liquidity position is not . The second possibility is that the credit money keeps on circulating in an inflationary way . Thus the expansion of other capitals (and the expansion of the capital circuit as a whole) is a fictitious expansion . In this case the equivalent of the bank's loss (the principal) is socialised in that it affects all holders of money (as well as creditors and debtors) . Again, whilst the bank's solvency is affected, its liquidity is not . The third possibility is that other capitals do not expand at the same time . In this case other capitals withdraw the value, received directly or indirectly from the borrowing capital, from circulation . That money must now act as a store of value (unless other capitals use it to cancel their own credit with their banks) . For that to be so, credit money must be a full and not merely a temporary store of value . In this case the original bank's creditors may withdraw money, the effective general equivalent, from that bank, and should the bank's liquidity be insufficient, this may provoke chain reactions, eventually the extent of bankruptcy . Because a fragmented banking system is particularly vulnerable to this underlying threat, there is a tendency for banks to extend their domain of operation and to collaborate in inter-bank credit . Thus the Central Bank becomes the banker's bank . §8a . From a purely monetary point of view, it could be argued that will full capacity utilisation, even one initial pre-

Money, value and credit validation always has an inflationary effect . However, this is compensated for by a concomitant deflation when the additional (pre-validated) production is performed and realised, and when on the basis of this expansion the production is continued . This may be illustrated with a simple example . A bank provides production credit to some enterprise x . Call the aggregate of all other enterprises y . The credit is used to buy additional labourpower (with the income from which the labourer then buys consumer goods) and means of production . This drives up prices and profits of y . If this price and profit increase of y does not stimulate (extra) capital expansion of y, prices remain at the increased level . But the production of capital x (or its equivalent) would not then be realised, and money would be withdrawn from circulation . Only if the price and profit increase of y stimulates extra expansion, would the extra production of (say) enterprise x be realised . It may then cancel its credit and be left (if successful) with a profit . Next period's capital x (which now requires less credit) meets the expanded production of y, and y's prices may decrease again . 59 . Central Bank money and its issue as pseudo-social validation: the banking system as a fully developed credit system For the ongoing expansion of capital and its validation, the expansion of money as medium of circulation is necessary . A fragmented banking system issuing credit money against debts, provides these necessary means of circulation . However, as long as credit money is not accepted as a full store of value, it cannot function as full money, so it may be stripped of its function as medium of circulation (§8) . Therefore, the reproduction of money as general value equivalent and its conditions of existence as measure of value, means of circulation and store of value (§2) is further concretised as Central Bank money . The Central Bank derives not only from its being the banker's bank (§8) but also from its legally enforced status granted by the state (see Williams, 1987 ; and Reuten & Williams, 1988 : chapter 7 ; cf . de Brunhoff, 1976 : 40-48 ; and Evans, 1985 : 103) . Within its domain Central Bank money potentially functions as full money, because it is the legally enforced currency . It is a store of value because it is the enforced means of payment - legal tender . Because of this state backing, the attempt to prevent bank crises is at the discretion of the Central Bank . But in doing this the Central Bank sustains the private pre-validation of the banks . The effect is that it reinforces credit money as a fiduciary representative of the general value equivalent on a par with Central

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Bank money . With it - and ultimately to the extent that the Central Bank guarantees that credit money is redeemable in Central Bank money - the credit system is fully developed within the banking system . (Of course this guarantee may only apply to selected credit monies, namely, to those banks that conform to the rules set by the Central Bank .) In particular, therefore, credit money develops into a full store of value, and hoarding takes the form of deposit accounts, expressed by a decrease in current accounts (credit cancelling) or an increase in deposit accounts, resulting in an increase in the bank's reserve ratio . But with this guarantee of redeemability, the Central Bank shifts the frictions inherent in the private pre-validation by banks (§8) to the aggregate social sphere . We have seen that, when private pre-validation by a bank, through the ex-nihilo creation of credit money, is not turned into actual production or when it is not realised in the market, the bank makes a loss . If this loss is covered by the Central Bank, through the provision of its money against a loan to the bank, the private loss (whilst remaining a private loss) is balanced by a social loss . The non-realisation is then expressed in a devaluation of the currency and inflation, that is, the private loss is socialised - equally shifted to all holders of (credit) money (cf. Evans, 1985 : 103-104) . So the initial rupture of the circuit by the pre-validation - which is not closed by the integration of extra production - now is closed by a decrease in the purchasing power of a unit of money . The additional money issued by the Central Bank, socially validates the private pre-validation, but because it does not operate as a realisation of private labour and the commodities produced by it, it is rather a 'pseudo-social validation' (de Brunhoff & Cartelier, 1974 ; Aglietta, 1976 : 350 ; de Brunhoff, 1976 : 46-47) . With it, the condition for some money functioning as the general value equivalent, namely that it is measure of value, medium of circulation and store of value, is eroded . The association of private labour through the value-form (§1) then comes into conflict with its state-enforced mode of regulation . This conflict and the contradictions to which it gives rise is played out in the articulation of the accumulation tendencies and state economic policy (cf. Reuten & Williams, 1988 : part four) . §9a . Not only is commodity money merely an historically contingent guise of money (and so should be dispensed with when theorising the abstract determination of money) it is also incompatible with the concept of a fully developed credit system as presented in §9 . More specifically, uncompromising pseudo-social validation by Central banks is not possible when Central Bank money is redeemable legal tender . It is only possible when money is stripped of all connection with any commodity . On the other

Money, value and credit hand, such uncompromising pseudo-social validation also implies that credit money gains (legal) redeemability into Central Bank money . The Central Bank's guarantee that credit money is redeemable in Central Bank money is a condition of existence of a fully developed credit system . (In this context de Vroey (1984 : 383) uses the phrase of `all bank money being unified by central bank money' .) This condition need not be established formally . It and the particular institutional relations between banks and Central Banks, including the rules the former have to obey for this guarantee to be met, are contingent . Indeed the redeemability of Central Bank money in yet another entity, e .g . gold, does not fit a fully developed credit system, nor therefore a fully developed monetary system, nor therefore a fully developed capitalist system . From that perspective such a system did not exist prior to the 1930s or rather internationally - prior to the 1970s . §9b . As we have indicated, all money is fiduciary, and this also applies to Central Bank money (cf . Hicks, 1967 : 59) . The Central Bank provides money with a certificate so to say - as it also did in the old days via its imprint on coins - which, for what it is worth, of course depends on fiducian (the personnified guarantor) in the Central Bank . §10 . Banks, money capital and the rate of interest With the banking system as a fully developed credit system, credit money is constituted as the capitalist money par excellence, in that it overcomes the monetary limits to the accumulation of capital . With respect to the accumulation of capital no sensible borderline can be drawn between money and money capital (cf. §6) . The expression of both money and money capital is in bank accounts and their transfers : 1 . Central Bank money typically tends to be deposited with banks, and money in circulation typically takes the form of current account transfers . Withdrawing money from circulation (i . e . hoarding) is typically expressed in deposit account increases (or, alternatively, in credit cancelling) and implies an increase in the banks' reserve ratio and a downward pressure on the interest rate, and vice versa for the expansion of money in circulation . 2 . Lending and borrowing of money capital between nonbanking capitals is reflected in current account transfers . Bank intermediation has the same effect : it is reflected first in substitution of current accounts for deposit accounts (by the lending capital) and next by current account increases (for borrowing

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capital against a loan) . Withdrawing capital from investment equally implies an increase in the bank's reserve ratio (also expressed in a disparity of lending and deposit accounts) and a downward pressure on the interest rate, and vice versa . Whilst the interest rate is determined by the bank's reserve ratio, that ratio itself is determined by the demand for money (as well as by monetary policy - not introduced here) . And the demand for money is derived again from the rate of accumulation and the rate of profit on industrial capital . Fundamentally then, the rate of interest and the amount of money in circulation are demand-determined . Ultimately banks and non-banking providers of money capital may only decide whether to lend or not, at any rate of interest . §10a . Quite apart from the fact that we have not yet introduced the state, economic policy and the international monetary system, this abstract determination does of course not grasp the complexity of money and capital markets . It is also no complete theory of the determination of the interest rate . I rather want to indicate how a theory of the interest rate may be connected to the theory of money as proposed here . As Harris (1976 : 145) notes, the category of interest has received little attention from Marxist economists, whilst Marx's writings on the matter `are confused and at times appear contradictory' (p . 149) . What nevertheless stands out from Harris's examination of Marx's work on the subject (Harris, 1976 : 145-55), is that Marx denied the existence of a price (value) of money-capital `around which the market rate fluctuates and which equals the market rate when supply and demand "coincide" .' Thus in contrast to later neo-classical theory he rejected a `natural' rate of interest (p . 147) . Whilst § 10 above is in conformity with such a view, it questions the usefulness of a borderline between money and money capital in this context (and here it is different from Harris's account, see pp . 1530155) . Finally, the thesis that the rate of interest is fundamentally demand-determined is presumably in agreement with Harris's account (cf. p . 153), although he does not take it to the conclusion (§ 10) that ultimately suppliers may only decide whether to lend or not, at any rate of interest . 510b . That there is no sensible borderline between money and money capital in the context referred to, is also made clear by de Vroey (1984 : 387) : `We see it (money) as capital-money, the possession of which or the access to which is the preliminary condition for starting a private production initiative' . Further, the view that money creation is demand-determined is also stressed by de Vroey (p . 385) as well as by post-Keynesians such as Kaldor . Again as our discussion in §8 reveals, we also agree with de Vroey (1984 : 388) as to the difference between our and the .

Money, value and credit Kaldor position in that the argument that the quantity of money is demand-determined, does not preclude the possibility of inflation to be generated via the quantity of money .

Money, credit money and a fully developed credit system can be theorised without taking resource to commodity money . Indeed to theorise commodity money at the abstract level of money in general, is to confuse a particular historically contingent expression of money with the abstract-general determination of money . This comes to the fore as an anomaly within Marxist theory, especially when recent developments in the monetary institutions are theorised . In this paper the accumulation of capital is grounded in the credit system, as one of its major abstract conditions of existence . From the two forms of commercial credit - trade credit and production credit - money of account, means of payment and money capital have been developed . From these again we derived banks and credit money . Most important to the accumulation of capital is the unity of ex-nihilo created credit money and production credit, i .e . the private pre-validation by banks . It has been argued that the comcomitant break in the circuit of capital has to be closed by production and social validation of that production, otherwise the break takes the distorted form of inflation together with a decrease in the solvency of banks. But insolvency and eventual bankruptcy threaten this necessary pre-validation . This determines the grounding of the banking system in the existence of the Central Bank as the banker's bank . The Central bank reinforces credit money as fiduciary money . With it, the conflicts inherent in private pre-validation by banks, are necessarily shifted to the social aggregate sphere . Whilst the Central Bank in its role of preventing bankruptcy indeed provides the conditions of existence of continuous pre-validation, its lending to banks (a precaution against the failure of social validation) now takes the form of a pseudo-social validation . Generalised inflation results, and with it, money is stripped of its ability to be the measure and a store of value . Pre-validation by banks is reflected in their reserve-ratio . In a fully developed credit system, no sensible borderline can be drawn between money capital and money (in typical form they are accounts), and `hoarding' (withdrawing money from circulation) is expressed through an increase in the bank's reserve ratio, and a downward pressure on the rate of interest . The rate of interest and the amount of money in circulation are demand-determined . Ultimately non-banking money capital and banks may only decide whether to lend or not, at any rate of interest .

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The abstract of an earlier version of this article was presented at the 1987 CSE Conference . It arises from a long-term research project with Michael Williams of Brunel University . Many of the insights presented here, in particular those related to the elementary grounding of money, arose in discussion with him .

References

Aglietta, M . (1976) Regulation et Crises du Capitalisme . Calmann-Levi. English translation David Fernbach, A Theory of Capitalist Regulation: The us Experience. NLB, London, 1979 . Bakhaus, H-G . (1969) 'Zur Dialektik der Wertform', in Schmidt, A . (ed .), Beitrage zur Marxistischen Erkenntnistheorie . Frankfurt a . M ., 1969 . English translation M . Eldred & M. Roth, `On the Dialectics of the Value-form', Thesis Eleven, no. 1, 1980 . Bellofiore, R . (1985) `Marx after Schumpeter', Capital & Class 24, pp . 60-74 . de Brunhoff, S . (1973) La monnaie chez Marx . Editions sociales, Paris . English translation Maurice J . Goldbloom, Marx on Money . Urizen Books, New York, 1976 . de Brunhoff, S . (1976) Etat et Capital . Presses Universitaires de Grenoble & Maspero. English translation Mike Sonenscher, The State, Capital and Economic Policy . Pluto Press, London, 1978 . de Brunhoff, S . & Cartelier, J . (1974) 'Une analyse marxiste de l'inflation', Cronique Sociale de France, no . 4 . Coakley, J . & Harris, L . (1983) City ofCapital. BasilBlackwell, Oxford . Eldred, M . (1984) Critique of Competitive Freedom and the Bourgeoisdemocratic state: outline of a form-analytic extension of Marx's uncompleted system . Kurasje, Copenhagen . Eldred, M . (1984a) `A reply to Gleicher', Capital & Class 23, pp . 135-140. Eldred, M . & Hanlon, M . (1981) `Reconstructing Value-Form Analysis', Capital & Class 13, pp . 24-60 . Eldred, M . & Roth, M . (1978) A Guide to Marx's `Capital' . CSE Books, London . Eldred, M ., Hanlon, M ., Kleiber, L . & Roth, M . (1982/85 1 , 1984 2 ) `Reconstructing Value-Form Analysis 1, 2, 3, 4', Thesis Eleven, no . 4, 1982 ; no . 7, 1983 ; no . 9, 1984; no . 11, 1985 ; modified as `A value-form analytic reconstruction of Capital', appendix to M . Eldred (1984), pp . 350-487 . Ergas, M . & Fishman, D . (1975) `The marxian theory of money and the crisis of capital', Bulletin of the Conference of Socialist Economists, Vl . IV/2, pp . 1-15 . Evans, T . (1985) `Money makes the world go round', Capital &Class 24, pp. 99-123 . Harris, L . (1976) `On interest, credit and capital', Economy and Society 5/2, pp . 145-177 . Harris, L . (1981) Monetary Theory . McGraw-Hill, New York . Hegel, G .W .F . (1817 1 , 18303 , 19704) Enzyklopddie der Philsophischen Wissenschaften im Grundrisse I, Die Wissenschaft der Logik, ed . E . Moldenhauser & K . M . Michel (1970), Suhrkamp Verlag, Frankfurt a .M ., 1986 . English translation of the third edition (1873 1 ), W . Wallace, Hegel's Logic, Oxford University Press, Oxford 1985 .

Money, value and credit Hegel, G .W.F. (1833 1 , 1840 2, 19403 ) Einleitung in die Geschichte der Philosophie (of 1823, 1825, 1827) ed . J . Hoffmeister, 1940. English translation (first English translation of 2nd edition, E .S . Haldane, 1892) T .M . Knox & A .V . Miller (1985), Introduction to the Lectures on the History of Philosophy . Clarendon Press, Oxford, 1985 . Hicks, J . (1967) Critical Essays in Monetary Theory . Oxford University Press, Oxford . Innes, D . (1981) `Capitalism and Gold', Capital & Class 14, pp . 5-35 . Lipietz, A . (1983) Le monde enchante. Editions la Decouverte, Paris . English translation Ian Patterson, The Enchanted World: Inflation, Credit and the World Crisis . Verso, London, 1985 . Marx, K . (1859 1 , 1897 2 ) Zur Kritik der Politischen Okonomie . MEW 13, Dietz Verlag Berlin, 1974 ; English edition (first English translation N .I . Stone, 1904) by Maurice Dobb, translated by S .W . Ryazanskaya, A contribution to the Critique of Political Economy . Lawrence & Wishart, London, 1971 . Marx, K . (18671 , 1894) Das Kapital, Kritik der politischen Okonomie, Band I, Der Produktionsprozess der Kapitals . Dietz Verlag, Berlin, 1973 . English translation (1886 1 ) Ben Fowkes (1976), Capital, A Critique of Political Economy, Volume One . Penguin Books, Harmondsworth, 1976 . Marx, K . (1867 1 first edition) Das Kapital etc. Anhang, Die Wertform (pp . 764-784; dropped in subsequent editions) . English translation (A . Dragstedt 1976 1 ) M . Roth & W . Suchting (1978), `The Valueform', Capital & Class 4, 1978, pp. 134-150. Marx, K . (1903 1 ) (written 1857) 'Einleitung (zu Grundrisse der Kritik der Politischen Okonomie), ed . Karl Kautsky, Die Neue Zeit, 1903 . English translation (1904 1 ) Ben Fowkes, 1973 . See Marx 1939/53, pp . 83-111 . Marx, K . (1939-41 1 , 1953 2 ) ( written 1857-58) Grundrisse der Kritik der Politischen Okonomie (RohentzuurJ) . English translation Martin Nicolaus (1973 1 ), Grundrisse . Penguin/NLB, Harmondsworth, 1973 . Reuten, G . (1988) `Value as social form', in Michael Williams (ed .), Value, social form and the state . Macmillan, London ; revised and expanded from, `Elements of production of use-value and value', CSE Conference Papers, 1986 . Reuten, G . & Williams, M . (1988) Valueform and the State : the tendencies of accumulation and the determination of economic policy in capitalist society . Forthcoming . Robertson, D . (1933) `Saving and Hoarding', Economic Journal, September . Reprinted in D. Robertson, Essays in Money and Interest, selected by J . Hicks. Collins Fontana, 1%6. de Vroey, M . (1981) `Value, Production and Exchange', in I . Steedman, P . Sweezy et al, The Value Controversy . Verso/NLB, London, pp. 173-201 . de Vroey, M . (1982) `On the Obsolescence of the Marxian Theory of Value : A Critical Review', Capital & Class 17, pp. 34-59. de Vroey, M . (1984) `Inflation : a non-monetarist monetary interpretation', Cambridge Journal of Economics Vol . 8, pp . 381-399 . Williams, M . (1987) `State form and economic policy', CSE Conference Papers.

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SOCIALISM IN THE WORLD 12th Annual Conference Cavtat (nr Dubrovnik) Yugoslavia 20th-23rd October 1988 Since 1976 the Yugoslavian journal of marxist and socialist thought Socialism

in the World has hosted annual international conferences . The intention of these conference discussions is to contribute to a better understanding and critical theoretical confrontation among marxists and other socialist theoreticians and revolutionaries acting under different socio-historical circumstances. In 1988 we focus upon the moving spirits of our times . The recent past has seen a great rethinking and reconstruction of ideology, a questioning of the material and economic values of life, a reassertion of human freedoms and rights, and growing calls for an emancipation from the 'world of work' . A theoretical challenge has been mounted against the rationalistic basis of the natural sciences and social sciences . In art and architecture, postmodern forms proclaim themselves . There has been a resurgence of religious and theological systems . 'Life-styles' have entered the language of our times, and concern with motivations in life and the values associated with ways of living have become important. In East European countries, 'perestroika' commands attention, while in the West neo-conservatism stalks the land, but in the South important rethinking of socialist forms and local paths to development are posed . Throughout the world, fast frozen and fixed ideologies are beginning to be challenged from within and from without . This diversity is a challenge for marxists and socialists to understand, to reappraise, and to provide a materialistic basis for a liberating view of humanity . For this reason the theme and the title of this year's conference is

40

Socialism and the spiritual situation of the age Contact: Socialism in the World 11000 Beograd, Trg Marksa i Endelsa 11, Postanski fah 233 (tel : 011/334-189)

This issue sees the launch of a `survey' section in Capital and Class . The aim of this section is to provide a series of articles which survey from a Marxist perspective recent developments in different fields within economics . The first article by Richard Walker connects a review of the growing literature on competition with discussions in value theory. It exposes a sharp difference between the Marxian (and other radical) strategies for understanding the economy and the approach which is found in neoclassical economics . This difference can be expressed in a variety of ways : disequilibrium versus equilibrium, dynamic versus static, or historical versus logical . In one way or another what each of these oppositions speaks to is a fundamental difference in the way that the economy is conceptualised. Put baldly, the difference resides in how chance and stability are incorporated in economic analysis . Neoclassical economics exhibits a bias towards understanding the economy in terms of equilibrium states and stability . This bias is revealed in two ways . Firstly, neoclassical economics tends to treat many of the crucial variables like technology, market structure and preferences/tastes of individuals (and changes in these variables) as exogenous . Secondly, the notion of equilib-

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rium so dominates neoclassical analysis that `dynamics' are reduced to comparative statics (the comparison of different equilibrium positions). Of course, the addition of a time subscript permits the logical introduction of time and so neoclassical economics has `dynamic' equilibria and comparative dynamics . But, the point remains the same : there is precious little theorisation of the behaviour of the economy out-of-equilibrium and there is equally little understanding of the process through which an equilibrium might be achieved . For instance, to take the simple case, there is actually not much more than hand waving when it comes to explaining the out-of-equilibrium dynamics which support the equilibrium price formed by the intersection of the textbook demand and suply curve (for a frank recognition of this gap by one of the high priests of neoclassical economics, see Hahn (1987)) . At one level it is not difficult to understand why neoclassical economics has ignored out-of-equilibrium behaviour : it can be thought of a taboo precisely because it touches on what ought to be a source of significant embarassment . Consider, for example, the claims of neoclassical general equilibrium theory. Much is often made of the elegant existence proofs in this branch of economic theory. But, little is said on the failure to provide either uniqueness or stability proofs, except under very special conditions (viz gross substitutability). Yet, if this failure is taken seriously, the claims of the existence proof lose much of their charm : after all if there are several equilibria surely we ought to demand of a theory some indication of which is more likely to be achieved : and to address this problem seriously is to recognise the need for an analysis of out-of-equilibrium behaviour . In other words, the need for out-of-equilibrium analysis is really a reminder of the fact that the claim of equilibrium analysis has lost much of its cutting edge when there are multiple equilibria . And as such, it is often perhaps easier to forget than address : or to use Hahn's metaphor, it is easier to sweep it under the carpet . There is a yet further worry here for neoclassical equilibrium theory because it seems likely that their notion of an equilibrium may have to change if its dependence on out-ofequilibrium behaviour is taken seriously (see Binmore (1987)) . This is not the place to develop these difficulties, the point to be made is that neoclassical economics is in difficulty

Survey: Dynamics of value, price and profit

(and it is a difficulty which is beginning to be recognised internally . Witness Hahn (1987) and Binmore (1987)) at precisely the juncture where marxian (and other radical) analyses have aimed their critique and developed alternative theories . The Walker article provides a very useful survey of these developing alternatives ; where, by contrast, the economy is conceptualised as disequilibrium process which is driven by accumulation . Several surveys for this series have been commissioned . Each goes through the normal editorial process and we would welcome suggestions or offers for future issues . Those in the pipeline are ones on Managerial economics . Public Sector economics, Development economics, and Monetarism . In fact, the Walker article was originally submitted as a `regular' article . But the editorial board decided that since it combined both a lucid summary of an important and developing debate in Marxian economics with . an original contribution, and it touched on area where there is sharp and critical difference with neoclassical economics, it was an excellent way to begin these surveys .

References : Binmore, K . (1987), `Modeling Rational Players', Economics and Philosophy, 3 . 1987, ppl79-214 . Hahn, E (1987), `Information, Dynamics and Equilibrium', Scottish Journal of Political Economy, November 1987. pp321334 . C&C

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Richard Wa I ker The dynamics of value, price and profit •

Neo-Classical economics has infected every social science

discipline, including my own, geography. Breaking with this conceptul universe has proven remarkably difficult, and has This article argues that in place of the fundamentally static neoclassical concept of an economy in equilibrium, economic theory is in need of a dynamic vision of growth as a disequilibrating process which is driven by competition and the accumulation of capital . The theory of price and profit shold be errected on 146 these foundations . This was the project of classical economics, and it reached its apogee in Marx's Capital .

forced most of us at one time or another to make forays into the realm of economic theory in order to clarify basic issues . l . My target here is no less than the process of economic growth itself. For the geographer it is abundantly clear that what needs to be understood it, above all, industrialization of new places as capitalism expands around the globe and the deindustrialization of older places as industry shifts gears to keep in the race of the global accumulation of capital . This process cannot be understood in the terms of (neo) Classical location theory, which conceives of the distribution of economic activities as a problem of optimal spatial allocation in an exchange framework (eg Isard, 1956). What needs to be grasped is the way that industries generate places at the same time as they produce commodities and develop their productive powers, how industri alization is driven by the forces of strong competition, technical change and accomulation, and how the spatial division of labor is repeatedly uprooted by the disequilibrating forces of economic growth (Storper & Walker, 1988) . In conventional economics, prices and profits are the crucial signals guiding business behaviour, perfect competition the spur to optimal behaviour and equilibrium the state to which all



Survey : Dynamics of value, price and profit things tend. Satisfying individual consumer wants is the goal of economic activity, exchange the means to this end and efficient resource allocation the harmonious results of a properly functioning market . Technological change consists of smooth substitution within or between production functions, in response to market signals . This is thoroughly backwards . The goal of capitalism is accumulation, and the production, investment and expansion of surplus value the principal means to this end . Competition arises from the drive to accumulate and spurs capitalism to further exertions to survive and gain advantage over their fellows, and these efforts, in turn, constantly disrupt existing conditions of production . Furthermore, technological change evolves in an uneven and inconstant fashion, always keeping the production system out of joint . Equilibrium is a possibility always just out of reach, uncertainty an ever-present condition of business operation. The `market' is a set of practical institutions for economic exchange, and prices and profits proximate guides in a rapidly shifting world of production in which there are no absolutes . In short, what is wanted is not a theory of resource allocation via exchange, but a theory of growth based on the production of surplus value, the accumulation of capital, competition, and technological change . Growth must be understood as a fundamentally expansionary and disequilibrating process, and a theory of prices and profits erected on that foundation . This was the project of Classical economics, which reached its apex in Marx's Capital, before the marginalist counter-revolution drove all such disturbing issues out of economics (Pasinetti, 1981 : 11-14) . This paper is intended to clarify the issues and contribute in small measure to the purpose before price in economic theory.

Neo-Classical economics begins from the realm of exchange and works back to production (Nell, 1972 ; Pasinetti, 1981). Prices are established exogenously in the market by supply and demand, responding to conditions of consumer taste and resource scarcity . Prices are the key signals for business behavior, to which production responds . Capitalists seek to maximize profits, or the difference between revenues and costs, but all `excess' or 'deficient' profits disappear under the force of perfect competition . Profit is a residual that goes to zero at equilibrium, as firms equalize revenues and costs at the margin by making adjustments freely along their production frontiers . Capital is simply equipment, one of several factors of production, which may be bought or leased . Capital does not make profit, only a `fair

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return' for its contribution to production . Classical theory is quite the opposite . It begins from production, out of which come the commodities to be exchanged. That production constitutes the wealth of nations was the great discovery of the Physiocrats and Adam Smith in the 18th century. Profits and prices are likewise produced, flowing from the technical and social relations of production . Market prices are regarded as strictly secondary variables in production and accumulation, resulting from the erratic play of short-term supply and demand . In Classical theory, costs of production - whether called natural price (Smith), cost-price (Ricardo), or prices of production (Marx) - are the determinants of price on the average . These provide a centre of gravity around which market prices oscillate . 2 The supply of reproducible goods adjusts to long run changes in levels of demand, and average costs shift in the process if constant to scale do not obtain . Short-run demand fluctuations, on the other hand, have little influence on prices, even though market prices cannot be expected to coincide exactly with their centers of gravity (Farjoun & Machover, 1983 : 75 ; Dumenil & Levy, 1987) . Non-reproducible goods, which generate rents, are treated as a secondary problem - whereas neo-Classical theory made scarce goods the archetype of `the economic problem' (Pasinetti, 1981 : 16 ; Kalecki, 1971). Profit in Classical economics is neither a cost nor a disappearing residual . It is surplus cost, and a distributive claim on social wealth made by the owners of capital (Ricardo, 1821 ; Marx, 1863) . The proportion of surplus retained as profits depends, in the first instance, on the relative power of workers and capitalists . Further claims are made on gross profit in the form of interest payments to financiers, dividends to shareholders, executive remunerations, rent to property owners, and taxes to governments (for an empirical treatment, see Hill, 1979) . The remaining quantity is `profit on enterprise, or net profit . Gross profit does not mean `excess profit' and net profit does not tend towards zero (Shaikh, 1982) . Classical theory in modern form divides into two approaches, the Marxian and the Ricardian . They differ, most of all, on the centrality of labor . For Marx, the application of labor to transform nature to humand ends is the fundamental human activity and starting point for human history . The latter can be understood in terms of modes of production, such as capitalism, that rest on particular combinations of forces of production and social relations under which surplus labor is extracted by a ruling class . Under capitalism, labor takes the peculiar form of wage-labour and abstract labor becomes the

Survey : Dynamics of value, price and profit measure of commodity values in a system of generalized exchange (Gleicher, 1983) . The centres of gravity for market prices are provided by labor values, defined as socially necessary labor time, both direct and indirect, i .e . variable plus constant capital . 3 The origin of profit in the scheme is surplus value, or the difference between the value produced by labor and the cost of that labour (value of labor-power). Marxists models thus establish the cost of labor-power (the `conventional wage') before proceeding to discuss profits and accumulation (Marglin, 1984 : 118) . The rate of surplus value is thought by Marxists to be substantial, both over time and across industries and countries . 4 Ricardian theory has been revived by Piero Sraffa and his followers (Sraffa, 1960 ; Pasinetti, 1977) . Sraffa returned to the Classical foundations of price formation, the generation of a social surplus and the priority of class distribution over prices . In such models, production appears as a technical process, or production of commodities by means of commodities, in which labor is just one among many inputs . Labor time cannot, therefore, serve as the universal measure of value ; it is replaced as the `numeraire' by a composite commodity made up of all goods that enter onto the production of every other commodity ('basic goods') . Given this numeraire and the ratio of profits to wages, one can uniquely determine all prices in the system . Concommitantly, profits are seen as deriving from surplus output rather than surplus value . As a result, labor values, and Marxian economics, are considered redundant by certain disciples, such as Ian Steedman (1977). Orthodox Marxists have countered by calling the technical equations of Sraffa a form of `commodity fetishism' (Roosevelt, 1975) and pointing anew to the living process of labor as the central fact of human production and capitalist exploitation (Laibman, 1983-84; Walker, 1988a). In fact, the differences have often been overdrawn . Both Marx and Ricardo considered labor values to be a good first approximation to market prices (Marx, 1863 : v 3, 177-178), and in modern estimates labor costs have been shown to explain about 80% of the variance of commodity prices, across sectors and over time (Shaikh, 1984 ; Petrovic, 1987 ; Farjoun & Machover, 1983 : ch 5) . Further, both schools stress the determination of wage and profit rates independently of factor productivity, in contrast to neo-Classical theory . Indeed, contrary to Steedman, Sraffa was always close to Marxism . 5 Both he and Pasinetti have earnestly pursued the `chimera' of reducing prices to dated labor. Although Sraffa abandoned the effort in the case of `joint outputs', it appears that this technicality can be got round (Pasinetti, 1981) . In any case, it is fair to say that Ricardo, as an advocate of the industrial bourgeoisie, was not concerned with

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origins of profit so much as the fare of the rate of profit (Kregel, 1980). The Classical economists also shared an overriding concern with economic growth . Classical value theory, it is sometimes said, is no more than Walrasian general equilibrium by another name ; but this is in error. It is more accurate to call it `general disequilibrium theory' (Dumenil and Lavy, 1987 : 136) . Nonetheless, much of the debate over value and price has proceeded as if the issue were primarily one of the solution to an equilibrium set of equations - demonstrating, perhaps, the grip that Walras holds over even radical economists in our time . The Ricardians have been the most remiss in failing to put `history over equilibrium' (Bhaduri & Robinson, 1980 ; Harcourt, 1985) . Fortunately, recent contributions from both sides have focused attention on the revival of Classical political economy as a whole, and to the centrality of production, competition, distribution and growth in economic theory (eg Pasinetti, 1981; Semmler, 1984 ; Semmler, 1986). First digression: Price stability in a classical system 6 With the revival of Classical price theory, a side-issue has arisen that threatens to become the focus of attention. Vigorous debate has broken out recently about the stability of properties of Classical models, if one drops an assumption of Walrasian equilibrium (Semmler, 1986). The issue of whether prices converge around long-run centres of gravity and profit rates equalize, if either is disrupted by market shifts, competition, etc . The difficulty of assuring such stability was first posed by Nikaido (1983) . It revolves around the adjustment capacity of the economy. Again this, Dumenil and Levy (1986, 1987) argue, using computer simulations, that within reasonable parameters prices do converge on long-run norms, given three kinds of adjustment : price, quantity and capital movement . That is, inventories serve to cushion variations in markets, prices are adjusted in light of inventories and investment moves towards sectors with higher profits . Steedman's (1984) neo-Ricardian view is that deviations from equilibrium may be exacerbated by adjustments in one sector if it is purchasing produced inputs from other sectors with radically different compositions of capital (capital-labor ratios) ; that is, below-normal prices can be consistent with an abovenormal profit rate (see also Nell, 1983) . While such situations do exist, they are not essential because movements of prices in the adjustment process do indeed have a straightforward effect on rates of profit (Dunmenil & Levy, 1987 : 153). In general the

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proximate cause of profit rate disequilibrium (and price deviations) is always the ill-behaved nature of the market mechanism . No one should be surprised that the allocative mechanize can, indeed, work perversely in certain circumstances . For example, where the mass of profit is unbalanced, low profit rate regions of the economy can continue to grow faster than high profit rate ones (Webber, 1987). But market misbehavior is a weak reed on which to build a theory of growth or crisis . No one claims that convergence must be obtained under any and all circumstances, and the stability debate leads directly into the long-standing issue of growth cycles and capitalist crisis, which we will not take up here (see instead Harvey, 1982) . While this debate is by no means settled, the orthodox resolution suggested by Dumenil and Levy does not satisfy all the critical conditions of the Classical model, as they hope . In particular, they adopt a weak form of competition, in which capitalists make adjustments but not innovations, and do not consider the systematic disequilibrium created by accumulation and strong competition . I shall put greater emphasis on investment as the instrument of both adjustment and change in a dynamic setting of growth and price formation . All these matters receive further consideration below.

For neo-Classical economics there is only one kind of circulation : the passing to and fro of commodities in the market . Economic life consists of the transfer of goods to maximize satisfaction and income . Capital and labor are themselves commodities, which differ only in that they are `rented' by the day or the year, their rewards are profit (interest) and wages, paid at some rate over time. Economic growth in the neo-Classical model is a process of `adjustment' to factor supplies, consumer preferences savings decisions, and exogenous shifts in the production function . In the sense that expansion occurs for reasons lying outside the system, neo-Classical theory `is no theory of growth at all' (Harris, 1977 : 247) . The Classical recognized another form of circulation : that of capital . They all shared the view that economic growth revolved around the accumulation of capital (Smith, 1776 ; Ricardo, 1821) . Capital begins as money thrown into circulation in the hope of making a profit . In Marx's clearly developed presentation, the circuit of industrial capital begins with money committed to plant and equipment; labor-power and materials are then purchased, production takes place, sale of output follows and money returns to the capitalist in the end . But the money value of capital invested has now grown by the addition of surplus value.

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Marx's formula for the circuit of capital is M-C-RC'-M' . The circulation of capital is therefore at the same time the accumulation of capital . Capital is restless, always in motion . Surplus value is repeatedly thrown back into production in search of further surplus value . Profits are the short-term return on investment, expansion of capital (as money, capital stock and output) the long term goal . Accumulation of capital is the driving force of capitalist production and capitalist growth, not `profit maximization' (Marx, 1863 : ch 24) . Profit-maximization is a term appropriated from neo-Classical economics . This is not to say that the profit rate is an uninteresting operand in the process of accumulation : high profits signal that all is well while falling profits indicate dimming prospects for accumulation . Nonetheless, the fundamental concept in growth theory is the rate of accumulation not the rate of profit (Nell, 1983 : 115). The problem of capital accumulation languished among economists in the face of the sterile equilibria of neo-classicism . The classical Marxists such as Hilferding, Lenin and Luxemburg, kept the notion alive through their debate over imperialist expansion and crisis tendencies in the early 20th century. But in the mid-20th century, the initiative passed to the Keynesian school on the issues of finance and investment (eg Keynes, 1936; Kalecki, 1954, 1971 ; Robinson, 1956 ; cf. Marglin, 1984) . In particular, the puzzle of money, which had so preoccupied Marx, was curiously let slip in favour of the `real' economy (Harvey, 1982). In this respect, the neo-Ricardian school has been even more wedded to the technical structure of production . A considerable debt is owed the Keynesians, in particular, for focusing attention on investment (good surveys include Kregel, 1973 ; Harris, 1977 : ch 8 ; Eichner & Kregel, 1975) . Several aspects of investment - emphasized by Keynesian writers, but all commensurate with Marx's treatment of capital need to be incorporated into a satisfactory model of growth . The most well known concerns whether incomes are converted into expenditures : without effective demand markets will not clear at full employment levels . The incomes in question are wages, profits and taxes . Keynes' ideas have been taken up by governments making effective use of their fiscal powers of taxation and expenditure, but the larger issue concerns the behavior of workers and capitaliats . Keynesianism has made Marxists more aware of the macroeconomic effects of wage income and worker consumption, as in Sweezy's (1942) theory of 'underconsumption' or French 'regulationist' theory (Aglietta, 1977) . But Keynes' own focus was on investment demand, and it is this that needs to be brought more forcefully into Marxist thinking (Marglin, 1984 : 128) . Investment is central to any theory

Survey: Dynamics of value, price and profit

because vigorous capital investment is the leaven on which long upswings of economic growth rise, and overinvestment is the main pendulum that drives accumulation into the excesses that precipitate crisis (Harvey, 1982 ; Devine, 1980 ; see also Abramowitz, 1976). As a general rule, Marxists would argue that the rates of surplus value and technical change ought to determine the rates of profit, potential investment and accumulation, while Keynesian models reverse this, making the rate of investment the driver of growth and determinant of the profit rate . Neither is quite right, as we shall see . Three other closely related functions of investment need to be considered. First, investment is a principal tool of competition (Robinson, 1956). When we say that capital `flows' towards higher profit opportunities, we mean that investments are being made (as loans and as direct purchases) . Investment is also the central lever pursuing competitive advantage, by expanding productive capacity (adding fixed capital, labor power). Second, investment is necessary for introducing new techniques, as well as for research and development on future technologies . Investment thereby affects the rate of technical change (Kalecki, 1971 : ch 15). Third, investment must be made under conditions of uncertainty - the essential unknowability of the future (Robinson, 1979 : xi). No amount of `rational expectations' can overcome this fact of economic life, which is rendered worse by the great volatility of capitalist competition and technological change . As a result, investment can more easily stagnate despite possible opportunities or overrun the real potential for profit making . Roy Harrod (1948), among the Keynesians, tried to investigate the stability properties of the economy over the longer run . He did so by means of a one-sector (aggregate) model in which the parameters of expansion establish a `warranted' rate of growth which investment must track . Such a device has proved very useful for investigating the disequilibrium tendencies of capitalism over time, among other things (for a review see Harris, 1978 : ch 2) . But it relies on population growth as the exogenous determinant of the warranted growth rate . This will not do, for three main reasons . Growth of the labour force is endogenous, in the manner elucidated by Marx's theory of `relative surplus population' ; this also limits wage demands within certain parameters set by the rate of accumulation (Marglin, 1984 : 120) . Technical change propells growth at a faster rate than natural increase (one cannot assume constant returns to scale) (Pasinetti, 1981 : 55ff) . And growth is uneven among sectors . We shall return to all three of these issues later, in an effort to go beyond Harrod's Keynesian concerns in formulating a growth theory.'

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Keynes got no further in explaining investment demand than `the animal spirits' of the capitalists . For Marx, on the other hand, accumulation of money, as the general form of value and power over commodities, provides the historic basis for capitalist behavior (Marx, 1863 : 1-132,592) . Two further elements of the Classical theory of growth, to which Keynesians pay too little attention are the competitive spur put to the side of the slacking capitalist and the changing technology that offers a vessel into which investment may be poured . We shall turn to these at some length before returning to investment . Second digression : The ill-behaved profit rate We must take a moment to dispense with the illusion that the rate of profit - defined as the mass of profits over total capital (a flow over a stock) - guides investment activity . Although capital is invested in search of profit, the rate of profit is an unreliable regulator of investment behavior (on the empirical record, see Jorgenson, 1971) . This is devastating for neo-Classical theory, for which the profit rate must be well behaved if firms are to establish optimal levels of output and mixes of inputs . Many Marxists and neo-Ricardians also see the rate of profit on enterprise as a clear signal for capitalists to shift their investments across sectors, disinvest in old plants, or moving to foreign climes (e .g. Bluestone & Harrison, 1982). Yet the rate of profit (especially the market rate) is manifestly not a wellbehaved variable . There are, first of all, problems of calculation . There is no single way to calculate the rate of profit . Indeed, throughout the 19th century companies computed only profit margins, with investment charged as part of current operating costs! The method of determining the rate of profit on invested capital was invented in the 1920s (Chandler, 1962) . Persistent difficulties still arise in handling such things as depreciation charges, inventories, joint production, variable age of capital stock, and inflation (Hill, 1979). Furthermore, businesses are forced to rely on accounting rates of return because these are the only practical data available (Hill, 1979) . Second, long run rates of profit are rendered obscure by the variability typical of short-run profits . Profits are not only cyclic but fluctuate wildly from year to year (Farjoun & Machover, 1983 : 178 ; Capoglu, 1987 : 32) . How does a company find a clear trend line? The problem rests, at one level, in the fact that profits are a residual, and any change in conditions of demand, cost, currency values and so forth can have disproportionate effects on profit rates . At a deeper level, the cause lies in the shifting



Survey: Dynamics of value, price and profit currents of production ; with technical change the centers of gravity for prices can change radically, making for serious adjustment problems (Semmler, 1984 : 31) . A third element is the reciprocal determination of profits by investment activity itself. As Kalecki said, `workers spend what they get and capitalists get what they spend' . In other words, because investment plays a crucial role in keeping the accumulation process afloat, greater investment creates more profits . Obviously this turns neo-Classical theory on its head, and for this reason, Keynes downplayed the role of prices and price-led behavior (Kregel, 1980) . The reciprocal effect also challenges neo-Ricardian theory, in which profits are determined solely by the distribution of incomes between capital and labor, not their levels of expenditure . Moreover, the mutual determination of investment and prices adds further force to the idea of investment bandwagons . The converse situation is self-reinforcing underinvestment as in Keynes' `liquidity trap' . These difficulties in the performance of the rate of profit as a regulator are not an obstacle for Marxist theory. Capitalists may be said to sit atop a mountain of surplus value generated by the vast production system they command . They by no means want to operate at bare-bones efficiency, even if they were able . They are content to ride the current in the stream of profits, and only notice the rocks when the level falls sharply (Farjoun & Machover, 1983). This does not mean they are indifferent to profit rates, only that the satisfactory performance of the capitalist economy does not rest fragilely on the regulatory signals of profits and prices . In other words, we must demote the profit rate from the heights it usually occupies in economic analysis .

Competition is our third fundamental force of capitalist growth, after the production and accumulation of surplus-value . Successful accumulation causes firms to grow and come into competition with one another. As this encounter is made, competition becomes a further spur to action, lest one fall beneath the feet of the herd galloping along beside (Weeks, 1981 : ch 6) . s Competition only becomes a central incentive as capitalism develops . Contrary to the myth of a golden age of 'competitive capitalism', competition was historically very poorly developed, especially across space . Capitalist development brings with it more intensified and widespread competition, to the point where the war among capitals now rages freely on a worldwide basis (Clifton, 1977) . Although most Marxists since the 1930s (eg Baran & Sweezy, 1966) have seen in `monopoly capitalism' the negation of true competition, there is a strong

155

The two faces of competition

Capital & Class 156

current of marxist thought now in revolt against this idea (eg Weeks, 1981 ; Shaikh, 1980, 1982 ; Harvey, 1982 ; Wheelock, 1983 ; Semmler, 1984). The theory of monopoly capital focuses undue attention on the price sphere and supposed distortions of free markets, and it treats competition as a question of number of participants rather than fierceness of strategy and rate of change in the parameters of production (Weeks, 1981 : 153). There are two sides to competition, however, which have not been adequately sorted out. The strong sense of competition is the way capitals are pitted against one another in a struggle for survival, in which the weak perish and the successful grow even larger. It is a dynamic process in which capitalists are driven to revolutionize production to gain advantage over their fellows . The weak sense of competition is the way capitals jockey for advantage in markets : for market-share, for labor-power, for materials, and for money-capital . Neo-Classical economics emasculates both sense of competition . In place of the active struggle to survive it portrays firms as passive price-takers who meekly sell what they can ; each is small in relation to the market, and cannot hurt its competitors even if it wanted . In place of competition of and for capital it stresses competition of commodities . Capital flows are actually irrelevant because every firm earns the same rate of profit . Smooth, homogenous production functions make for perfect adjustment, so profits cannot be out of equilibrium and no one can go out of business . Even when firms are recognized as having some size and power, in the modified version known as `imperfect competition', their focus is price-control in commodity markets not productive change and destruction of their fellow combattants. A most uncapitalist world! This abolishes all the characteristic features of capitalist production : money, fixed capital, concentration and centralization, profit on enterprise, rivalry and collusion between firms, and even time itself (Shaikh, 1982 : 78) . Weak competition and equilibration Competition in markets has the effect of shifting labor and capital away from ineffective firms and sectors towards more efficient ones . Weak competition thus acts, in Classical models, as a regulatory mechanism for the allocation of social labor and capital, along with price and quantity adjustments (Dumenil & Levy, 1987) . For competition to effect this reallocation, capital must flow from lower to higher profit industries . The circulation of capital is this mode of production's instrument for regulating social production . Circulation does not, therefore, only involve

Survey : Dynamics of value, price and profit intertemporal flows of investment in a single industry, as depicted in the previous section ; it is an intersectoral process weaving together many industries (Marx, 1863 : v 2, ch 21) . Prices and profit rates act as signals in the integrative / regulatory system of competition and intersectoral capital flows . The competition for capital rewards profitable firms and industries with capital to expand while denying funds to the others, causing them to run in place or even fall back . The result of weak competition is a tendency for profit rates to equalize . High profit areas will attract funds, creating new capacity and new competitors . Expanded output tends to lower prices, while the outlays needed to stay competitive - for larger plants, new technologies, greater marketing efforts, etc . - tend to rise . As a consequence, profit rates fall. Low profit areas will expell funds, restricting the growth of supply relative to demand, giving a lift to market prices and keeping costs in harness . Strong competition The stronger and more important function of competition is to drive capitalists to greater exertion to increase their rates of profit and accumulation . By gaining competitive advantage over its rivals, a firm can capture an extra measure of surplus value, or surplus profit . This dynamic vision of competitive 'superprofits' was emphasized by Marx in the discussion of capital accumulation (Mandel, 1975), and picked up subsequently by Joseph Schumpeter and his followers (Schumpeter, 1934, 1939) . Such competition has a beneficial effect on accumulation as a whole, as other firms in the industry rush to follow the leader . If the product is a capital good, a lower price or better functioning will raise the rate of profit in sectors using it as constant capital . If it is a wage good, and its value falls, the reproduction cost of labor will decrease, and the overall rate of surplus value will increase . If the product opens up new markets and employs an additional increment of labor, more value is added to the system . Competitive advantage is usually treated by Marxists only in terms of costs, but it holds equally well for product innovations, as Schumpeter realized (cf . also Pasinetti, 1981 : 68). Capitalist competition thus has two sides, the allocation and the dynamic . The latter has very different implications for the rate of profit than the former, however, Strong competition disrupts the tendency towards equalization of profits and drives profits away from the norm : `According to both [Marx and Schumpeter], competition has a double nature, being at the same time the tendency to give rise to extra profits and to level them out' (Bellofiore, 1985 : 33-34; Farjoun & Machover, 1983 : 34) .

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The economy is forever being thrown out of equilibrium by the efforts of capitalists to get ahead of each other. In such circumstances, equal profits are a sign that no one is innovating, that competition has come to a halt . An equilibrium state is a contradiction in terms for capitalism, synonomous not with calm but with crisis (Harvey, 1982 : 389-90) . Disequilibrium is essential to capitalism, not something introduced by exogenous shocks, as the neo-Classicals claim . Competition cannot be reduced to a gentle jostling that smooths the profit surface like so many grains of sand ; the economy does not seek a level, but persistent inequality cum competitive advantage . Furthermore, competitive advantage cannot be confined within industrial sectors, while profit rate equalization is assumed to obtain across sectors (eg Semmler, 1984 : 36) . Strong competition operates between as well as within sectors ; it even operates between regions and countries . The motor of competitive advantage is change in the conditions of production . Competition leads capitalists to create new products, new machines, new divisions of labor, new methods of labor control and so forth . Because they are doing different things in different ways, some better, some worse, their profits vary, and do so systematically. We shall take this up below, but must first consider two common misconceptions of the origin of surplus profits and equalization of profits through capital mobility. Two digressions: Perfect mobility and imperfect competition Before proceeding, we must first cope with two paths of radical thought that branch off from the model of weak competition, and therefore skirt the central terrain on which the contest with neo-Classical and neo-Ricardian economics must be entered, that of production dynamics . Perfect capital mobility : If money-capital were perfectly mobile and productive-capital perfectly adjustable, profit rate discrepancies would persist for no more than an instant . There would be no prospect of competitive advantage, no possibility of uneven development and no problem of `capital switching' between declining and growing sectors, regions or countries (Harvey, 1985 : ch 1). This is a neo-Classical never-never land, however. Profit rate inequalities exist because production takes place with real materials, real people, in real time and space . Perfect mobility is something capital strives for, but never achieves. On the one hand, money capital can move about the world with great swiftness in the present age, a fact that has enormous

Survey: Dynamics of value, price and profit significance for the ability of capitalists to invest in far-flung places in search of more advantageous combinations of inputs and markets, labor forces and technology, and to withdraw profits from the site of past investment . This raises the spectre of deindustrialization (Bluestone & Harrison, 1982 ; Martin & Rowthorn, 1986) . The rapid `global scan' of contemporary capitalists gives them new leverage over workers and communities, by increasing the effective pool of people and places competing for the blessings of capital investment (Walker & Storper, 1981) . On the other hand, capital must encase itself in the straitjacket of fixed capital, in order to raise the productivity of labor. This leaves capital temporarily immobile, and makes it subject to a degree of leverage by workers, communities and governments . It may take a crisis to devalue such capital both technically and economically, so that it poses less of a barrier to disinvestment and locational change than before (Harvey, 1982) . Capital immobility also involves the spatial fixity of workers and communities, and the value of labour productivity and continuity in a given place (Storper & Walker, 1983) . Thus capital is in a bind : mobility and immobility have both advantages and disadvantages . If capital has become more mobile in certain respects, it has also become increasingly encased in a frozen landscape of immense proportions, in huge industrial complexes and cities . Remaking these to suit the ever-changing needs of accumulation is a titantic endeavour, fraught with financial and political pitfalls . Capital must therefore unleash periodic gales of what Joseph Schumpeter aptly called `creative destruction' which free up new forces of production from the embrace of the old . This process of `modernization' can be highly disruptive to all who live through it, including capitalists . The trick, therefore, lies in maintaining a sufficient balance of mobility / immobility of capital, not just maximizing mobility and change (Harvey, 1982) . Monopoly and imperfect competition : In the theory of imperfect competition or `monopoly capital', the concentration of capital in larger and larger firms eclipses the classic laws of competition and value (eg Bran & Sweezy, 1966 ; Kalecki, 1971 ; Bain, 1956) . Competition is limited by barriers to entry and measured by industry `concentration ratios', or shares of output markets enjoyed by a few dominant firms . Monopoly power and collusion allow big firms to set artificially high prices, and thereby generate excess profits . In fact, empirical studies of the relation of profit rates to industry concentration ratios have made a very poor showing, with weak methodologies and abysmal regression statistics (for a good review, see Semmler, 1984 : ch 4). Nor do wage shares or

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capacity utilization rates show any better relation to concentration ratios (ibid : 129-13 1) . Furthermore, concentration ratios and firm size have been shown to be chiefly a function of the capital intensity of certain mass production industries (Weston & Ornstein, 1973), while collusive price manipulations appear to be more the result of low profits than a cause of highprofits (Ash & Seneca, 1976). Finally, small firms actually have similar short run profit rates to their larger brethren but their long run performance is worse because their profits are much more unstable over the business cycle (Singh & Whittington, 1968 ; Eatwell, 1971). Imperfect competition, despite appearances, relies on the neo-Classical conception that competition is primarily about buying and selling commodities, price determination and the passive choice of techniques . The theory of imperfect competition is the `dark side' of the theory of perfect competition, as Shaikh puts it . `In perfect competition all of the tactics and strategy of real competitive battles are spirited away . Then, when faced with the unavoidable discrepancy between the fantasy world of perfect competition and the elementary facts of real competition, instead of overthrowing perfect competition orthodox theory seeks to reform it . Hence imperfect competition .' (Shaikh, 1980 : 82) Competition is not principally about high short-term profit rates from monopoly, but advantage from greater investment, efficiency, product quality, labor control, or good marketing (Weeks, 1981) . High prices may or may not be useful to this end . Those early corporate giants who had any illusions on this score were soon disabused of them (Chandler, 1962) . Monopolistic power is fundamentally hedged by the shifting ground of capitalist production . While centralization of capital is part of the normal evolution of capitalism, the key advantages of larger firm size lie in increased powers of production, more extensive marketing empires, better labor force control, diversified risks and financial clout - not monopoly power. At the same time, the growth of corporate and finance capital has intensified rather than diminished the scope of the struggle among capitals (Clifton, 1977 ; Harvey, 1982 ; Wheelock, 1983) .

Uneven growth and technical change

We have so far developed a model of an economy based on surplus value, driven by capital accumulation, and agitated by strong competition . The last of the structuring forces at work in capitalist growth is the development of the forces of production, or what is usually referred to as `technological change' . Adam Smith begins his investigation into the wealth of nations with the

Survey : Dynamics of value, price and profit discussion of how manufacturing has raised the productivity of labor through division of labor (Smith, 1776 : 3 ff) . Ricardo was sidetracked by the dispute with the landed class into the dismal Malthusian concern with diminishing returns and economic stagnation - an obsession that Jevons later made into a pillar of neo-Classical economics . Marx returned to a careful analysis of technical change or the drive for relative surplus value (increasing labor productivity) . But he set Smith against Ricardo by arguing that technical progress was doomed, under capitalist relations of production, to generate a falling rate of profit (Harvey, 1982 ; Harris, 1983). In the 20th century, mainstream economics (including Keynesianism) hardly discussed technical change at all, with the notable exception of Schumpeter (1934, 1939) . Like Marx, he argued that because of the strong drive for competitive advantage, capitalism has been profoundly revolutionary of the forces of production . For Schumpeter, however, the wellspring of technical invention, science lies mainly outside the economy. He therefore failed adequately to theorize three things : the role of learning and the importance of labor as a `force of production' ; the dynamics of investment in propelling growth and crisis ; and the way industrialization is constrained and enabled by the technological structure of every industry (Walker, 1985). Later, however Schumpeter (1943) does see science and technology as endogenous, even to the point of seeing the entrepreneurial function being displaced by bureaucratized systematic research and development . (Freeman, Clarke & Soete, 1982) . Two basic aspects of technical change in the process of industrialization shall occupy us here : the uneven development of industries and the general expansive powers denoted by the phrase `increasing returns to scale (cf . Pasinetti, 1981 : 66-71). The history of capitalism is the history of its industries . Yet economists have given surprisingly little attention to the specifics of different industries in both micro (film-level) and macro (national) models (but see Kalecki, 1954 ; Steindl, 1952) . Capital accumulation and strong competition promote the adoption of new technologies and methods of extracting surplus labor, but do not determine the exact course of technical change . In short, there are `systematic and persistent' forces at work setting the parameters of growth across industry (Nell, 1983) . Industries differ systematically in a number of ways : rates of growth in output, rates of growth in productivity, rate of technical innovation, and size of research and development budgets (Chenery, 1960 ; Kendrick, 1961, 1973 ; Salter, 1966 ; Mansfield, 1981) . Of particular importance in light of our discussion of competition and capital mobility, profit rates among sectors are persistently C&C 35-K

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Capital & Class unequal, with no evident tendency towards convergence (Weeks,

162

1981 ; Farjoun & Machover, 1983 ; Semmler, 1984; Capoglu, 1987) . Rates of profit are not random, however. Empirical studies consistently show significant relationships of profit rate differentials to productivity, capital intensity, wage costs, market share and growth of output (on industries see Schwartzman, 1959 ; Ornstein, 1973 ; on firms see Ravenscraft, 1981 ; Gale, 1972 ; for a review see Semmler, 1984 : ch 4). Such differences rest on the fact that industries make different things, using different raw materials, machinery and labor processes (Walker, 1985, 1988a) . Industries rest on different technical foundations that keep movements out of step with one another ; they develop along

divergent trajectories (Rosenberg, 1976 ; Nelson & Winter, 1982) . Thus we see a succession of fast-growing `leading sectors' such as steel in the 1880s, plastics in the 1950s, or microelectronics in the 1980s that outperform other industries (for a history, see Schumpeter, 1939) . Industries grow because their products open up new worlds of useful consumption for individuals and other industries, and because they can be produced with increasing ease, lower costs and better capabilities . Other industries limp

TREND PROFIT RATES IN U .S. MANUFACTURING INDUSTRIES, 1957-1981 Paper Primary Metals Electric Machinery Food . . . Textiles . •∎ Nonelectric --- Fabricated Metal

16

14 .

12



~~ Chemicals Motor Vehicles Rubber --- Stone

I , .I

+

ftft 'tl ll .

~~

4-

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1981

1957 (After Capoglu, 1987)

Survey : Dynamics of value, price and profit along because their day in the sun has passed or has yet to come : their products are too expensive or too limited in capacity to have a large market or to be produced at a reasonable cost . Technological progress has often been called `dynamic economies of scale', although it includes much more than advantage of size in the strict sense ; it means better machine, better designs, greater labor skills, a wider division of labor, and so on . The secret of industrialization is creating more from less . In the dynamic process of economic growth, technical change proceeds not on the basis of factor substitution in response to relative prices, as in neo-Classical models, but by leaping over existing factor constants to produce something that was not there before, in ways that were not imaginable before . While today's prices are not to be entirely gainsayed in the application of resources, nonetheless growth pushes past the present structure of prices to create a new fabric of production (necessary labor time, technical coefficients), on which a new set of prices will arise (Kaldor, 1961, 1972). 9 One cannot confine industry growth and difference to technology alone, of course . Consumption patterns are not entirely reducible to technical capacities and costs of production - although `learning by using' with new product technologies is an important part of the development of demand (Rosenberg, 1982). Changing tastes and expanding income can pull an industry forward . Then, too, wage rates are crucial to the success of industries . Per-unit wage rates over time depend on the dynamics of learning, labor supply and employment relations, including such things as on the job training, immigration flows and union organizing drives (Stroper & Walker, 1983) . Wages are therefore dynamic over time . Because consumer demand and wage rates are not reducible to technology, the fashion garment industry does very well year after year on the basis of shifting tastes alone, while standard garments rack up profits by employing cheap immigrant labor. Silicon Valley has grown even faster than it might otherwise have done owing to the spur of military demand and the lack of unionization in the region . But for all that, the age of microelectronics has been opened up by the breakthroughs in semiconductor technology . The wage-profit split it secondary in most cases to progress in the labor process, once capital moves from the production of absolute to relative surplus value, ie once capital begins systematically to develop the forces of production (cf. Brenner, 1977) . Over the long haul wages have been irresitably pushed upward by the working class in some reasonable relation to productivity advances (Kaldor, 1956) . In general growing industries can afford to pay their workers (or key segments) well, sharing some of the excess

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Capital& Class 164

profits that rapid accumulation brings : this has happened repeatedly, from Singer's machinists to Ford's assembly line workers Silicon Valley engineers . This is not to say that fastgrowing industries always do pay well ; they can sometimes grow even faster by paying workers badly, as in California agriculture . Nonetheless, low wages in sectors such as garments today are fundamentally conditioned by difficulty of technical change . Cheap labour and absolute exploitation are the low road to industrialization, important principally in the early stages of capitalism ; technical change and relative exploitation are the high road that most industries hit as capitalism takes hold of the forces of production ."

Disequilibrium growth and prices of expanded reproduction

We arrive, as is proper, to the problem of price and profit rate formation at the end of our theory of growth . But what has come before leaves prices and profits riding on very stormy seas . Taking a reading of one's position on such roiled waters requires that we find some steady points for our calculations, one relatively fixed, the other responsive to movement . As shall be seen, these two points are rates of sectoral growth and investment targetting. Profit

rate

equalization and prices of production

The Classical problem of price determination has been posed in debates over Marx and Sraffa in the following static, multisectoral formulation . (Weak) competition, in moving capitals towards high profit sectors and away from low profit ones, reallocates the total surplus value available . There is a tendency to distribute surplus value according to the capital invested ." That is, every chunk of capital invested in industry demands its fair share of the social surplus value produced, represented roughly by an average rate of profit . In this manner prices come to `deviatefrom labor values . To deal with this, Marx, following Ricardo's lead, developed the concept of `prices of production', defined as cost price (cost of capital and labor-power) plus profits . Prices of production are a second approximation to market prices, if you will . 12 If we assume that profit rates settle down to equality across sectors, and that the rate of surplus value is uniform, then prices of production are the same as values only if the composition of capital is equal across all sectors ; if capital / labor ratios differ across sectors, prices will not equal values . Following Sraffa's inventive solution using a `standard commodity' everyone agrees that the problem is soluable in some form, but debate still rages

Survey: Dynamics of value, price and profit over what it all means . One thing is for sure : disaggregation, heterogeneous capital and variable capital / labor ratios explode neo-Classical capital theory, in which profits are a reward for the marginal value productivity of equipment (Harcourt, 1972 ; Harris, 1977). Distribution cannot be derived from the technical conditions of production : it depends on class relations of exploitation and conflict over who gets how much . But the effects on the labor theory of value are highly contentious (Steedman et al, 1981 ; Mandel & Freeman, 1984) . Steedman (1977) denounces value theory, making much of the apparent violation of Marx's precept that total values ought to equal total prices of production and total surplus value equal total profit . On the other hand, Sraffa's treatment of profits ignores the relation of profits to exploitation of workers, and leaves profit rate determination curiously ungrounded from the real development of wage levels (Laibman, 1983-84 ; Goodwin, 1986). Shaikh (1982, 1984) provides what is, to me, a convincing solution, showing that the apparent deviation of total surplus value and total profit is due to the `loss' of value created in luxury (non-basic) goods in the calculation of prices of production . He interprets it as the expectable results of the circulation of capitalist revenues and the relative autonomy of the sphere of circulation from the sphere of production, but a simpler solution suggests itself. Profit and prices are determined by the social and technical conditions of production and reproduction : labor time, fixed capital, the wage bill, and so forth . The one part of profit that is free from such productive determination is that which goes to `revenues', which capitalists may spend as they like without regard for reproduction of the economy (cf . Pasinetti, 1981 : 152) . The dilemma of unequal profit rates Nevertheless, for a dynamic system the traditional representation of the formulation of prices of production is inadequate . Shaikh is right to chide the neo-Ricardians for relying on a model of competition and equilibrium that is suspiciously close to neo-Classical theory (Shaikh, 1978 ; 1980 ; 1982). A glaring first-order problem with the conventional transformation is inequality of profit rates . Without equalization of profit rates there is no longer a determinate solution to the simultaneous price equations (Farjoun & Machover, 1983 : ch 6 ; Robinson, 1977). The answer proposed by Farjoun and Machover is a purely stochastic one, that profits and prices are, beyond the level of values, random . Values may be a good first approximation of prices, but

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there remains the second order problem of allocating capital among different sectors . Prices must include some redistribution of surplus value according to capital invested (including depreciation and new capacity) . If not, it would never pay to raise the organic composition of capital by investing in fixed capital, as no extra measure of surplus value would accrue to the sector that does so : its rate of profit would fall immediately. Capitalism would thereby be rendered static . 13 . The only way to solve the price problem is to allow for uneven profit rates generated by structural conditions of growth in different sectors . Prices with uneven technical change Technical change further complicates the price equations because the parts of the interrelated production system are moving in different directions . This instability of input-output coefficients creates a fiercesome `index problem' . The ineluctable change in the products and processes of industry renders every commodity, every machine, every measure of output transient . In a sense, this makes an ever stronger case for labor as the single standard of value that is invariant over time (Freeman, 1984 ; see also Walker, 1988a) . This is the approach taken by Luigi Pasinetti (1981), who constructs a model of `structural change in a pure industrial system on Classical foundations . Pasinetti, while closely identified with Sraffa, puts technological progress not input-output relations at the center of his model . It is still multisectoral, for the lesson of Quesnay, Marx and Leontief about heterogenous industry has been learned . But he controls for the interpretation of sector by means of a standardizing device as clever as Sraffa's standard commodity - the vertically integrated sector - which makes the entire economy appear as a set of mutually independent final commodity producing sectors (Pasinetti, 1981 : ch 6) . Every industry is then allowed a characteristic `natural rate of growth' owing to technical change . In this Pasinetti follows the method of Harrod in establishing a `warranted' or `potential' growth path from which capitalism may deviate . 14 But his approach allows for many rates of growth among industries and bases them on technical change and expansion of consumer demand rather than population growth . Solving for prices in such a dynamic system of production equations requires the use of a `dynamic standard commodity' weighted in terms of the rates of change of labor requirements of its component parts (1981 : 104-106) . Pasinetti's price and profit solution has the remarkable feature of returning to a pure labor theory of value, in which the

Survey: Dynamics of value, price and profit price of any commodity is the weighted sum of its constituent direct labor, indirect labor (used up constant capital), and 'hyper-indirect' labor (new fixed capital that expands productivity over time) (1981 : 132) . The measure of labor time is, in this case, a moving one that takes into account the rate of change in labor productivity. Pasinetti holds to the classic principle that labor is the only ultimate `factor of production' and that the essence of technical progress in economic terms is the development of labor's productivity (1981 : 132-33) . Prices as pure labor values depend, however, on the restrictive assumption that profit rates are equal to sectoral rates of increase in per capita output (and consumption) (1981 : 130) . Profit must, in short, be equal to investment, which perfectly matches an exogenously determined rate of growth in production and demand . Pasinetti argues, in the fashion of Marx, that prices cannot be equal to values under capitalism due to the tendency for profit equalization (1981 : 151) . He, too, falls prey to the veil of weak competition, and in so doing abandons the central fact of uneven sectoral development from which he began . In my view, a multisectoral dynamic model such as Pasinetti's `natural system' is the proper foundation for a valid theory of price formation . That is, the transformation from values to prices needs to take into account both different capital/labor ratios between sectors, as in the static account, and different rates of investment in new capital . This conception of price formation corresponds to the spirit of Classical political economy . I suggest the term prices of expanded reproduction to capture the dynamic element . That is, centres of gravity are now set by long run conditions of uneven growth in different industries, which are determined by the real terms of production, but in way that includes change . Unit costs (and behind them, labor time) are still the foundation for price formation, but in a way that combines both levels in the present and change over time . Surplus value is still generated from labor and reallocated among industries, not just in terms of already invested capital and its composition, but in terms of future build up of production in faster- and slower-growing industries . Because of the latter, prices of reproduction are a third approximation to market prices . Complications in the price calculations must necessarily arise in practice from relaxing certain simplications in the model, of course . The tendency to profit equalization created by weak competition will certainly cause measurable deviations from warranted profit rates, as capital is torn between equalizing returns on equal investments and promoting the rapid development of advanced sectors for faster accumulation . Luxury consumption from capitalist revenues will also inevitably distort

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prices by a determinant amount (Pasinetti, 1981: 151), as we saw previously. The method of constructing vertically integrated sectors is a useful simplication that bumps up against the highly imperfect constitution of industries in practice, and may be questioned in terms of its correspondance to the meaningful bases on which technology develops ; for example, microelectronics forms one of the most powerful angles of attack on product and productivity change today, yet cannot be meaningfully aggregated in terms of final commodities (Walker, 1988b ; 1985) . I wish to make two further modifications of Pasinetti's line of thought in light of our first principles about the capitalist economy (cf Harris, 1982) . Pasinetti is thoroughly Ricardian in his `naturalization' of the economy in the name of abstracting from actual social relations . This device, while useful for isolating the force of production, cannot be taken too far . First, he has no concept of surplus value, so wages, not profits, appear as the residual (1981 : 140). While I agree that long-run wage increases are largely a product of technical progress, capitalist rates of growth across sectors or nations are affected as well as wage rates (absolute surplus value) and the resultant level of profits and reinvestible funds . All the advanced capitalist countries have developed in good measure through wringing absolute surplus value from their workers at various places and times . Favorable wage and labor conditions have to be included in the parameters of sectoral growth, not just an abstract technology. (Aggregate wages and effective demand will also be a factor in the speed and sustainability of growth (Aglietta, 1977 ; Harvey, 1982)). Second, Pasinetti lacks a theory of capital circulation propelling growth . Capital accumulation consists of the expansion of real capital goods - in the hands of certain people - not a circuit beginning with money (Pasinetti, 1983). As a result, investment is a curiously passive instrument, and there are no capitalist actors . Industry simply adjusts to the exogenous conditions of `structural change, as the crucial variables `unfold in full view' (Harris, 1982 : 41) . A model of an economy growing along a golden age equilibrium path has a rarified quality that does not help us capture the mechanisms for coping with the degree of disequilibrium in the system . Is it possible to retain the Classical scheme of prices of (re)production where any attempt to create fixed equations involves an artificial freeze-frame of a system in motion? Some post-Keynesian theorists, such as Joan Robinson and David Levine, think not (Harcourt, 1981) . There is too much flux, too much uncertainty. But this converts the unknowable into the inconsequent . The difficulty is to wrestle with a system in

Survey : Dynamics of value, price and profit motion that is structural and yet indeterminate in its actual outcomes - a common problem in social science (Sayer, 1984) . We therefore need to abandon unduly ordered models for an assessment of the more rough and ready approach that capitalists actually practice - one that confronts uncertainty and the active role of capital investment head-on .

Investment and Dynamic Price-Setting Investment plays a pivotal role in economic growth and thus in price formation, investment has the basic function of moving capital from lower to higher profit opportunities . But it also acts as a means of unlocking competitive advantage and the growth potential in promising situations and of coping with the inherent uncertainty of competition and change . Investment is thus a key instrument in the hands of capitalists - which brings us full circle in our search for a dynamic theory of prices and profits . The first role of investment is to realize the growth potential of various industries . Recall that in Pasinetti's model the condition of stable growth is that investment enlarge productive capacity at a rate consistent with the underlying warranted rate of expansion in each sector . In this view, the growth trajectory . sets the rate at which a sector absorbs profitable investment empirically, a very reasonable starting point (Jorgenson, 1971) . The real growth rate thus becomes the rate of accumulation of capital . 15 We require, of course, means by which such an outcome may be arrived at, such as adjustment of investment plans in light of the utilization rate of fixed capital (Dumenil & Levy, 1986 ; Jorgenson, 1971) . But even a dynamic adjustment model is not sufficient, for it assumes that investment does all the adjustment and the rate of technical change is exogenous and known . Investment has a more forceful role to play than adding capacity according to known specifications, however : an industry's growth potential must be actively unlocked by investment . Much has been said about the process of `learning by doing' through experimentation, problem-solving and experience in production (Rosenberg, 1976; David, 1975). This idea has been used to attack the simple notion of technical change as 'embodied' in fixed capital . Nonetheless, learning and technical change in dynamic industries are never particularly 'disembodied,' either, because they must be backed up by resources, labor and fixed capital, in a continual interaction between investment and innovation. In short, the rate of technical change (or `warranted growth rate', in general) is not known or ever

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knowable beforehand . Such an assumption makes an insupportable division between technical invention and industrial practice . 16 Investment rates are thus not established unambiguously by conditions of sectoral growth and technical change, even though they are certainly structured by the underlying long-run conditions of particular technologies and their potentials . Computers are, after all, not shoes . Pasinetti's neo-Ricardian theory shares unwarranted assumptions of exogenous technological change and knowledge aforethought with Schumpeter and the neoClassicals . Schumpeter treated `invention' as the fount of economic growth, but had it triggered by developments in science and engineering lying outside the ambit of the economy, from whence it was introduced by entrepreneurial capital . Growth cycles rise and fall entirely on the basis of clusters of innovations (Mensch, 1979). Neo-Classical models assume that production functions present a well ordered menu of alternative techniques among which one can choose, and that this choice can be extended to future techniques in terms of rational expectations and investment in R&D . Neither approach is sustainable (Freeman et al, 1982 ; Nelson & Winter, 1982 : 195-205 ; Walker, 1985) . Once again, there is no Archimedean point from which all else follows, whether it be labor time, technical coefficients or growth rates . Capitalism is, after all, an imperfect system of organizing production that unleashes a torrent of unforeseen change, and should be modeled as such . Allowance must be made not only for random fluctuations in supply and demand, as in stability models, but for anticipating and creating the future course of a dynamic industrial economy . There must therefore be a degree or freedom for investment in our model . Investment acts as leaven in the process of growth, not merely in terms of aggregate spending (investment demand) - as in Keynesian theory - but also in terms of developing the forces of production . But I do not allow investment the liberties accorded it by most post-Keynesians (eg Robinson, 1962 : 82-83) . In Keynesian theory the conditions of production are little considered, or treated as exceedingly pliable (for further discussion see Harris, 1977 : ch 8) . 17 Investment has to reverberate off the structure of production, which it cannot create out of whole cloth . Uncertainty and Investment Targeting Capitalist growth is structured along the contours of its varying industries, but at the level of the agents, parameters are uncertain . Capitalists operate in the dusk, if not in the dark . They have some sense of the potential for profitable investment,

Survey: Dynamics of value, price and profit given past performance . But they cannot treat existing profit rates and prices as infallible guides because where disequilibrium and change are rife, it is impossible to know what the future may bring . Instead they require flexibility in determining prices and output, as in adjustment models . More than this, they actively use profit and price as means to an end : an effective investment strategy that may lead to competitive advantage and growth in a dynamic environment, The Keynesian theory of investment has the virtue of treating uncertainty in investment and pricing very seriously. For the same reason, however, post-Keynesians have not been warm towards the Classical theory of production prices as centers of gravity because of what this seems to imply about known parameters . They have instead emphasized pragmatic `rules of thumb' in the way capitalists actually establish prices . Kalecki (1971) argued that prices are simply conventional mark-ups over unit costs, which depend on monopoly power (Kalecki, 1971) . Alfred Eichner (1976, 1980) has gone beyond this imperfect competition model to portray mark-ups as a practical means of generating funds in a dynamic setting . In his model, investment precedes price setting and profit determination . A level of investment is chosen that requires commensurate capital funds . Such funds are raised internally through profits . Prices are `targeted' at a level sufficient to generate the profits needed to finance the desired flow of investment (see also Kenyon, 1979) . Investment targeting needs to be anchored to the long-run growth trajectories of different sectors, however, and not left free-floating according to the spirits of various capitalists . Gokhan Capoglu (1987) has shown that industry prices can be estimated closely as a function of costs plus unit profits, where unit profits are explained in terms of investment levels . Investment, in turn, is a function of industry growth rates (Jorgenson, 1971 ; Clark, 1979). 18 In other words, capitalists generate characteristic growth rates for their industries by adjusting price and quantity expansion through their investment policies . High prices (relative to unit costs) allow fast-growing sectors to generate extra funds for expansion, while in declining sectors low prices undercut competitors and keep out new investments . This implies a greater degree of coordination among price, quantity and capacity variables over the medium to long-run than in the supply-demand adjustment models discussed previously. Investment targeting also works to allocate capital across sectors in relation to unequal growth rates . External funds (loan capital) can be attracted and repaid by this method . 19 Giving capitalists a measure of control over prices and profits accords with reality, and further reduces the independent

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role of `markets' in setting the parameters of production (cf . Walker, 1988b). Business practice has been added to production conditions as the real basis of exchange . Contrary to neoClassical theory, in which prices hem in producers, prices have a good deal of play in a dynamic setting . Elevating price to increase investment, for example, does not immediately dampen demand by cutting painfully into consumer incomes or the profits of other firms . This is clearly so where technical change is causing the price of a product to fall, and the question is only one of keeping prices relatively elevated with respect to falling unit costs . Growing industries always create their own market through the attractiveness of new or improved products, as well . Businesses and individuals are willing to pay a premium for commodities that have a special payoff in usefulness . Furthermore, as a product becomes integrated into the processes and products of other industries, or the infrastructure of everyday life, the elasticity of demand decreases . The result is that firms operate in the inelastic portion of demand curves (Koutsoyiannis, 1984). Divergent industry growth paths provide a structure around which disequilibrium growth occurs, and prices and profit rates must be established that bear some relationship to the underlying conditions of growth in various industries . Yet because investment has a measure of causal force, such divergent growth rates are not absolutely `warranted' by exogenous forces . There is, of course, no presumption of a perfect fit between investment activity and the growth potential of industries . Discovering that potential is a problem to be solved by capital, and is always solved imperfectly, even badly. There can be too much investment in an industry and or the economy as a whole, leading to a crisis of overinvestment . There can also be a misallocation of funds among sectors, so that fast-growing industries are starved for funds and slow-growing ones glutted . That is, 'microeconomic behaviour is not in accord with the macroeconomic constraints imposed by the structure of the system' (Harcourt, 1981 : 50). General convergence around long run centers of gravity, or warranted growth sectoral rates, does not imply stability (Dumenil & Levy, 1987) . 20 Price Targeting and Prices of Reproduction The imperfections and `agency' of price targeting might appear to abolish the need to have recourse to prices of reproduction . But this is no more true for targeted prices than for the wobbling of market prices set by supply and demand in Classical models . Investment in such models acts simply as a

Survey: Dynamics of value, price and profit means of adjustment to other circumstances . I have introduced a different source of imperfections in the alignment of actual prices with prices of reproduction, which is the uncertainty and anarchy under which capitalists operate . These might be called practical prices of reproduction . I also allow for long-run change in the centers of gravity themselves, due to the actions of capitalists . While the Classical formulation allows for changes in market conditions affecting centers of gravity in the long run, and the warranted growth path model makes the uneven shift in sectoral centres of gravity a persistent aspect of the economy, in both cases investment follows the `real' determinants of growth . In the present model, long run costs change according to the endogenous impetus to growth from the expansion or contraction of investment (and learning by doing) . Demand levels are also affected by the buoyancy of investment (and learning by using) . The investment rate is treated as having an independent (if secondary) influence on growth . I thereby let Keynes into the house of Classicism by the back door - a door opened by Marx in his analysis of the circuit of industrial capital . There is nothing elegant about price determination in this environment of competition, dynamism and disequilibrium : no exact transformation from values to prices, so well-behaved profit rates, no certainty that investment will pay off . Yet still capitalism functions, in its imperfect way. The trick is in capturing the essentials of a complex and messy industrial system that is changing over time . The solution does not lie in tidy mathematical equations that make too many restrictive assumptions, in stopping time, in probabilistic models, or allowing excessive scope for subjective behaviour. It lies in joining together enough facets of the capitalist economy as we know it to create a suitably supple account of how the system works .

Our discussion opened with critical remarks on the neoClassical, or exchange, theory of the economy and its obsession with marginal matters . We have seen that prices and profit rates can be returned to the secondary position they once held in Classical political economy : revolving around conditions of production and long term reproduction . They still hinge on the allocation of social labor and of capital to different industries, but now according to evolving sectoral technologies and rates of accumulation . Furthermore, practical price determination requires the action of capitalists probing an uncertain future . By thus freeing ourselves from the grip of neo-Classical price theory,

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we may return to questions of industrialization in time and place with a clear mind. This was my original purpose . I have tried to present the case for a Classical theory of production and growth in an undivisive way, without remaining merely eclectic . We need to bridge some of the chasms that divide left economic theorists, in the spirit of the `revival of Classical political economy' now in process, through constructive dialogue among the Marxian, Ricardian and Keynesian traditons . Sraffa and neo-Ricardians have reasserted the importance of putting production and distribution before price, and of the unity production and consumption in an input-output system . Keynes and the post-Keynesians have insisted on the significance of investment in the accumulation of capital and of uncertainty about the future of business behavior . Other threads of the Classical heritage have also been recovered, with the help of Pasinetti and Schumpeter : the priority of change over fixity, of strong over weak competition, and of disequilibrium over profit equalization, and of technological change over distribution in the evolution of industrialization . In the end, however, I still believe that Marxian theory provides the most thoroughgoing set of categries with which to approach the capitalist economy and its expansion . I do not read Pasinetti as a vindication of Ricardo nor Robinson of Keynes, brilliant though their insights have been . This paper should not be misread as `arriving' at the conclusion that either technical change or investment is the answer to the price question . On the contrary, I have sought to build out a well-rounded model from the foundations laid down by Marx (though one could surely take all of this much farther) . To reiterate, the theory of value grounds prices in the conditions of production, and particularly in the central fact of social labour for human industry . The theory of surplus value explains the origin of profits as a surplus gleened from social labor, and removes any illusions about zero profit margins ; efficiency is secondary to exploitation among the functions of the capitalist class . The theory of accumulation make it clear that this is a system always in motion, for which equilibrium is anathema . The theory of circulation shows the way capital flows through the hands of capitalism as investment and back again . The theory of competition provides a specific mechanism for the urgency with which capitalists seek out new sources of surplus value . The theory of technical change (and relative surplus value) introduces the transformative power of industrialization, as capitalism unleashes the forces of production . Marx's theory of capital still offers the soundest approach to economic growth and decline in the contemporary capitalist world .

Survey : Dynamics of value, price and profit

1. I would like to thank Gokhan Capoglu, Michael Storper and Donald Harris (unbeknownst to him) for guiding me along the line of thought developed in this paper . Thanks also to Shaun Hargreaves-Heap and Jane Wheelock for their editorial comments . 2. Unit costs have an unambiguous effect on prices in every empirical study. For an excellent discussion of the Classical center of gravity concept, and review of the empirical literature on price determination, see Semmler (1984), especially chapter 2 and pp 69-76 . It is doubtful that Keynes returned to a Classical formula of price based primarily on costs, despite Robinson (1979 : xix, also Harcourt, 1981) . 3. For a well-reasoned argument as to why labor is the best measure of value, see Farjoun and Machover (1983 : ch 4). 4. Farjoun and Machover's (1983 : 180-81) estimates put it very close to 2/1, which was always Marx's working approximation, but their very rough measure of value added over wages is suspect . See also (Amsden, 1981) . 5. Joan Robinson has observed that 'Piero [Sraffa] has always stuck close to pure, unadulterated Marx and views my amendments with suspicion' (Robinson, 1977 : 56n). 6. The reader can pass over this section and subsequent digressions without losing the thread . Such `digressions' are not a product of my wandering mind, however, but of real issues which have sent the debate on value, price and profit down side paths . 7 Steve Marglin (1984) has lately used a one-sector model in an effort to reconcile the Marxian emphasis on surplus value (interpreted loosely as the priority of the wage rate) and the Keynesian emphasis on investment demand in determining rates of profit and growth . The union is achieved by recourse to the rate of inflation as a critical mediator between the demands of workers for wage-increases and of capitalists for investment funds (accumulation) . This is a very suggestive line of reasoning, which allows for the `veil of money' to play an independent role in the class struggle over distribution . But I must persist in excluding money from the discussion here . 8. Many marxists reverse things by arguing that competition creates the drive to accumulate, basing their argument on a single line from Marx (1967 : 1-592) and missing the larger argument of Volume 1 about the rise of money and drive to accumulate capital . 9. Robinson (1979 : xiv) was right to chide Sraffa for getting bogged down in the 'reswitching' of techniques . Puzzles as to which technique to choose at different wage-rates pale before the dynamics of growth (also Pasinetti, 1981 : 188-98). Sraffa's wrong turn took him right back toward Marshall (see Sraffa, 1926). 10 . Sraffa's formulation of price equation allows a misleading degree of freedom to wage and profit variation, compared with either the Marxian or Keynesian (Robinson, 1977) . 11 . The capital intensity of an industry (capital to output ratio) may or may not reflect the physical composition of capital, or degree of mechanization, as Pasinetti makes clear (1981: 181-88). Marx implies that development of the latter implies growth of the former, but, as is well known, such 'counter-tendencies' as the declining cost of capital goods

Notes

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renders the long-term movement rather neutral (Harris, 1983) . Leontief fell into the same trap as Marx in posing his famous `paradox' of international trade (Pasinetti, op . cit.). 12 . Estimating prices by moving from a base of values and adding levels of causality, or by moving from the abstract to the concrete, is part of Marx's method (Shaikh, 1982 : 70). I consider four layers of determination in this paper : labor-time, capital, invested, rate of growth and investment under uncertainty. I do not deal with price-value deviations caused by rent (Walker, 1975 ; Barnes, 1988). 13 . We cannot therefore dismiss the formation of prices of production as a purely distributional attribute of capitalist social relations, with no effect on allocative efficiency, as Weeks (1981) does . 14. The composite represents a sort of `super golden age equilibrium growth path (Harris, 1982) . We are not concerned here with deviations from such norms, on which Pasinetti takes a Keynesian view of the unlikelihood of full-employment equilibria being realized (see 1981 : ch 10) . Edward Nell puts it thus : `What the systematic and persistent forces determine, then, is the rate of accumulation . . . All that is necessary, in this view, is to redefine the long-period method with the rate of growth playing the role formerly assigned to the rate of profit' (Nell, 19832 : 115). 15 . The rate of accumulation combines both rate of turnover and mass of capital . A sector with high profit may not be able to absorb much investment due to a limited growth rate (Nell, 1983 : 114). 16 . This error, which is very widespread, can be traced back to Schumpeter (see Walker, 1985) . 17 I recall this clearly from a course taken from Joan Robinson at Stanford in 1969, although most of what that brilliant woman said was beyond my ken at the time! 18 . Capoglu achieves very high regression coefficients, better than Eichner's (1976), using a similar equation for prices (p = f [cost + investment]) but explaining investment in real terms . 19 . The role of credit in raising funds varies across countries . In the us, industrial corporations have long preferred to generate funds internally, keeping the ratio of investments to internal funds (t/IF) close to 1 .0 across all industries (Capoglu, 1987) . (Internal Funds (IF) defined the net of dividend payments) . Equity financing is only about 2% of new capital funds raised each year in the us . In Japan and Germany, on the other hand, external funding by banks is much greater, and I/IF is lower about 2/3 in Japan, 4/5 in Germany. The test of the model depends only on the variance of industries around the national average : faster growing industries and firms manifest relatively lower I/IF ratios (greater borrowing), and vice versa . Disparate national borrowing practices rest on long-standing institutional relations between banks and industrial companies . German and Japanese industrialists have very close ties to banks, including common holding companies ; this encourages them to risk high leverage financing because they expect the bank to bail them out owing to its greater loan exposure and `special relationship' to that one company (Economist, 1986). US industry remains much more independent of the banks, borrowing from many banks and having special relations with none . Bank regulation and anti-trust enforcements have helped prevent cosier

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relations . 20 . Interlocking sectors raises the added problem of maintaining proportionality where industries are moving at different speeds . If industries do not mesh as they grow, there will be a grinding of gears in industrial expansion, with shortages of some intermediate goods and glut of others (Marx, 1863 : 11-495 ; Mandel, 1975 ; see also Hawkins, 1948) . Pasinetti (1981) drives the point home by showing that every possible equilibrium is immediately upset by the uneven development industries . The uncertainty problem facing capitalists is thus compounded by the fact that the variable potentials of different sectors must be unlocked at rates that maintain technical proportionality in growth .

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David, Paul (1975) Technical Choice, Innovation, and Economic Growth (New York : Cambridge University Press) . Devine, James (1980) Overinvestment and Cyclic Economic Crises (Unpublished Ph .D . dissertation, Department of Economics, University of California, Berkeley Dumenil, G . & Levy, D . (1986) `Stability and instability in a dynamic model of capitalst production' in Semmler, W (ed) . Competition, Instability and Nonlinear Cycles (New York : Springer-Verlag) 132169 . Dumenil, G . & Levy, D. (1987) `The dynamics of competition : a restoration of the classical analysis' Cambridge Journal of Economics II, 133-64 . Eatwell, John (1971) `Growth, profitability and size - the empirical evidence in R . Marris & A . Woods, (eds) . The Corporate Economy (Cambridge University Press) 379-422. The Economist (1986) `Corporate Finance : Topsy Turvy' June 7,3-38 . Eichner, A . & J . Kregel (1975) 'An essay on post-Keynesian theory' journal of Economic Literature (December) . Eichner, Alfred (1976) The Megacorp and Oligopoly: Microfoundation of Macrodynamics (Cambridge : Cambridge University Press). Eichner, Alfred (1980) A general model of investment and pricing' in Nell, E . (ed) . Growth, Profits and Property (New York : Cambridge University Press) 118-34 . Farjoun, Emmanuel & Moshe Machover (1983) Laws of Chaos (London: Verso) . Freeman, Alan (1984) `The logic of the transformation problem' in Mandel, E, & A . Freeman (1984) Ricardo, Marx, Sraffa (London: Verso) 221-64 . Freeman, Christopher, John Clark & Luc Soete (1982) Unemployment and Technical Innovation (Westport: Greenwood Press) . Gale, B . (1972) `Market share and rate of return' Review of Economics and Statistics 54/4, 412-423 . Gleicher, David (1983) 'A historical approach to the question of abstract labour' Capital & Class 21, 97-122 . Goodwin, Richard (1986) `Swinging along the autostrada' in Semmler, W (ed). Competition, Instability and Nonlinear Cycles (New York: Springer-Verlag) 125-31 . Harcourt, Geoffrey (1972) Some Cambridge Controversies in the Theory of Capital (Cambridge : Cambridge University Press) . Harcourt, Geoffrey (1981) `Marshall, Sraffa and Keynes : incompatible bedfellows?' Eastern Economic Journal 7/1, 39-50 . Harcourt, Geoffrey (1985) 'Post-Keynesianism : quite wrong and/or nothing new?' in Arestis, P & Skouras, T (eds) . Lost Keynesian Economic Theory (Armonk: M . E . Sharpe) 125-45 . Harris, Donald (1978) Capital Accumulation and Income Distribution (Stanford : Stanford University Press). Harris, Donald (1982) `Structural change and economic growth: a review article Contributions to Political Economy I, 25-45 . Harris, Donald (1983) Accumulation of capital and the rate of profit in Marxian theory' Cambridge journal of Economics 7, 311-30 . Harrod, Roy (1948) Towards a Dynamic Economics (London: Macmil-

Survey : Dynamics of value, price and profit

Ian) . Harvey, David (1982) The Limits to Capital (Oxford : Basil Blackwell). Harvey, David (1985) The Urbanization of Capital (Baltimore : Johns Hopkins University Press) . Hawkins, David (1948) `Some conditions of macroeconomic stability' Econometrica 16, 309-22 . Hill, T P (1979) Profits and Rates of Return (Paris : OECD). Isard, W (1956) Location and Space Economy (New York : Wiley) . Jorgenson, Dale (1971) `Econometric studies of investment behaviour : a survey' Journal of Economic Literature 9, 1111-47 Kaldor, Nicolas (1956) 'Alternative theories of distribution' Review of Economic Studies 23/2, 143-56 . Kaldor, Nicholas (1961) `Capital accumulation and economic growth' in F Lutz & D . Hague (eds) . The Theory of Capital (New York : St . Martin's Press) . Kaldor, Nicolas (1972) `The irrelevance of equilibrium economics' The Economic Journal 82, 1237-1255 . Kalecki, Michael (1954) Theory of Economic Dynamics (London : Allen & Unwin). Kalecki, Michael (1971) Selected Essays on the Dynamics of the Capitalist Economy, 1922-1970 (Cambridge : Cambridge University Press) . Kendrick, John (1961) Productivity Trends in the United States (Princeton : Princeton Univ Press for NBER) . Kendrick, John )1973) Post-War Productivity Trends in the United States, 1948-49 (New York : National Bureau of Economic Research). Kenyon, Peter (1979) `Pricing' in A . Eichner (ed). A Guide to PostKeynesian Economics )White Plains NY : M . E. Sharpe) 34-35 . Keynes, John Maynard (1936) The General Theory of Employment, Interest and Money (London : Macmillan) . Koutsoyiannis, A (1984) `Goals of oligopolistic firms : an empirical test of competing hypotheses' Southern Economic .7ournal 51, 540-67 Kregel, J . A . (1973) The Reconstruction of Political Economy : An Introduction to Post-Keynesian Economics )New York : Wiley, Halsted) . Kregel, J . A . (1980) `Marx, Keynes and social change : is post-Keynesian theory neo-Marxist?' in Nell E . (ed) . Growth, Profits and Property (New York: Cambridge University Press) 267-75 . Laibman, David (1973-74) `Values and prices of production : the political economy of the transformation problem' Science & Society 37/4, 404-36. Mandel, Ernst (1975) Late Capitalism (London : New Left Books) . Mandel, Ernst & Alan Freeman (1984) Ricardo, Marx, Sraffa (London : Verso) . Mansfield, Edwin (1981) `Composition of R&D expenditures : relationship to size firm, concentration and innovative output" Review of Economics and Statistics 63, 610-15 . Marglin, Stephen (1984) `Growth, distribution and inflation : a centennial synthesis' Cambridge Journal of Economics 8, 115-44 . Martin, Ron and Bob Rowthorn, (eds) (1986) The Geography of Deindustrialization (Dobbs Ferry NY : Sheridan House) . Marx, Karl (1863) Capital (New York: International Publishers - 1967

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edition). Mensch, Gerhard (1979) Stalemate in Technology (Cambridge : Ballinger). Nell, Edward (1972) `Economics : the revival of political economy' in, R . Blackburn, (ed) . Ideology in Social Science (Fontana/Collins : no city) 76-95 . Nell, Edward (1983) `Review of Murray Milgate's Capital and Employment' Contributions to Political Economy 2, 109-115 . Nelson, Richard & Sidney Winter (1982) An Evolutionary theory of Economic Change (Cambridge : Harvard University Press) . Nikaido, H . (1983) `Marx on competition' Zeitschrift fur Nationaloekonomie 43/4, 337-62 . Ornstein, S . I . (1973) `Concentration and profits' in Weston, J . & Ornstein, S . (eds) . The Impact of Large Firms On the US Economy (Lexington : Lexington Books) 87-102 . Pasinetti, Luigi (1977) Lectures on the Theory of Production (Cambridge : Cambridge University Press) . Pasinetti, Luigi (1981) Structural Change and Economic Growth (New York : Cambridge University Press) . Pasinetti, Luigi (1983) `The accumulation of capital' Cambridge Journal of Economics 7, 405-11 . Petrovic, Pavle (1987) `The deviation of production prices from labour values: some methodology and empirical evidence Cambridge Journal of Economics II, 197-2 10 . Ravenscraft, D . (1981) The Principles of Political Economy and Taxation (London: John Murray). Robinson, Joan (1956) The Accumulation of Capital (London : Macmillan). Robinson, Joan (1962) Essays in the Theory of Economic Growth (London : MacMillan). Robinson, Joan (1979) 'Foreward' to Eichner, A . (ed) . A Guide to Post-Keynesian Economics (White Plains : M . E . Sharpe) xi-xxi . Roosevelt, Frank (1075) `Cambridge economics as commodity fetishism' Review of Radical Political Economics 7/4, 1-32 . Rosenberg, Nathan (1976) Perspectives on Technology (Cambridge University Press). Rosenberg, Nathan (1982) Inside the Black Box : Technology and Economics (Cambridge : Cambridge University Press) . Salter, W. E . G . (1966) Productivity and Technical Change (Cambridge University Press). Sayer, Andrew (1984) Method in Social Science : A Realist Approach (London : Hutchinson). Schumpeter, Joseph (1934) The Theory of Economic Development (Cambridge : Harvard University Press) . Schumpeter, Joseph (1939) Business Cycles (New York : McGraw-Hill). Schumpetcr, Joseph (1943) Capitalism, Socialism and Democracy (Unwin University Books). Schwartzman, D . (1959) `The effect of monopoly on price Journal of Political Economy 67, 352-62 . Semmler, Willi (1984) Competition, Monopoly, and Differential Profit Rates (New York : Columbia University Press) . Semmler, Willi, Ed . (1986) Competition, Instability and Nonlinear Cycles

Survey: Dynamics of value, price and profit

(New York: Springer-Verlag) . Shaikh, Anwar (1978) `The political economy of capitalism : notes on Dobb's theory of crisis' Cambridge Journal of Economics 2/2 . Shaikh, Anwar (1980) 'Marxian competition versus perfect competition' Cambridge Journal of Economics 4/1, 75-83 . Shaikh, Anwar (1982) 'Neo-ricardian economics : A wealth of algebra, a poverty of theory' Review of Radical Political Economy 14/2, 67-84 . Shaikh, Anwar (1984) `The transformation from Marx to Staff' in Mandel, E . & Farjoun, E . (eds). Ricardo, Marx, Sraffa (London) Singh, A. & G . Whittington (1968) Growth, Profitability and Valuation (Cambridge : Cambridge University Press) . Smith, Adam (1776) The Wealth of Nations (New York: Modern Library Edition, 1937). Sraffa, Piero (1926) `The laws of returns under competitive conditions' Economic Journal December. Sraffa, Piero (1960) Production of Commodities by Means of Commodities (Cambridge : Cambridge University Press) . Steedman, Ian (1977) Marx After Sraffa (London : New Left Books) . Steedman, Ian (1984) `Natural prices, differential profit rates and the classical competitive process' The Manchester School June : 123-40 . Steedman, Ian, and ten authors (1981) The Value Controversy (London : Verso) . Steindl, Joseph (1952) Maturity and Stagnation in American Capitalism (Oxford : Basil Blackwell) . Storper, Michael & Walker, Richard (1988) The Industrial Imperative : territory, technology and capitalist growth (New York : Basil Blackwell) forthcoming. Swanson, Paul (1986) `The labor theory of value and fixed capital' Review of Radical Political Economy 18/3, 44-64 . Sweezy, Paul (1942) The Theory of Capitalist Development (New York : Monthly Review) . Walker, Richard (1975) `Contentious issues in marxian value and rent theory : a second and longer look' Antipode 7/1, 31-54 . Walker, Richard (1985) `Technological determination and determinism in industrial growth and location' in Manuel Castells (ed) . High Technology, Space and Society (Beverly Hills : Sage Publications) Walker, Richard (1988a) `Machinery, labour and location' in S . Wood, (ed) The Transformation of Work? (London: Hutchinson) (forthcoming) Walker, Richard (1988b) `The geographical organization of production systems' Society and Space (forthcoming) . Walker, Richard & Michael Storper (1981) `Capital and industrial location' Progress in Human Geography 5/4, 473-509 . Webber, Michael (1987) `Rates of profit and interregional flows of capital' Annals of the Association of American Geographers 77/1 . Weeks, John (1981) Capital and Exploitation (Princeton : Princeton University Press) . Weston, J . & Ornstein, S ., (eds) (1973) The Impact ofLarge Firms On the US Economy (Lexington : Lexington Books). Wheelock, Jane (1983) `Competition in the marxist tradition' Capital and Class 21, 18-48 .

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Capital& Class 182

Engels and fhe "Nonhistoric" Peoples : The National Question in the Revolution of 1848 By Roman Rosdolsky Translated, edited and introduced by John-Paul Himka Author of "The Making of Marx's Capital" produces a seminal work on the national question . A critique of Engels' writings and an analysis of the relationship between nation and class .

"One of the few significant Marxist texts on the national question since the time of Lenin":

Order From : Critique, c/o Bob Arnot, Dept of Economics, Glasgow College of Technology, Glasgow G4 OBA, Scotland .

Perry Anderson

220 Pages £8/S12

Nicaragua Statistics Fund Please support Nicaragua's survival through the Nicaraguan Statistics Fund . Money will be used for Spanish texts, solar calculators and floppy disks . Anyone taking holidays in, or visiting Spain or any other Spanishspeaking country, and passing through a University town, make a point of buying one or more Spanish textbooks ; translations of standard English-language texts are always useful . Visit Nicaragua to learn of the situation and to work if you are able . Make contact through the fund with your counterparts in Nicaragua . Statistics in Nicaragua : A Report is available from the Nicaragua Statistics Fund, c/o 242 Keighley Road, Bradford BD9 4JZ, UK, price £1 (Sponsored by the Radical Statistics Groups and the British Societyfor Social Responsibility in Science)

Terrel Carver A Marx Dictionary, Polity Press, 1987 ISBN 0 7456 0196 0 hb £17.95 Reviewed by Paul Smart There is always ample room for this kind of introductory work, and Carver's contribution plugs a gap at the beginner's end of the market . Trying to enlighten novices to the singular impact of Marx's work is, to put it mildly, a daunting task and any aid to ease the initial struggle is welcome . This is precisely Carver's intention and his slim volume fits the bill by lacking the intimidation of the several lengthy, and sometimes distorting `introductions' that prop-up library shelves . What the Dictionary also seeks to achieve is the gentle initiation into the complexities of the Marxian corpus without succumbing to the temptation of relying on extensive quotes from the `classics' for an explanation of particular aspects of his work . It is this misleading tendency which often leads students to the conclusion that Marx's system consists of self-sustaining and discrete concepts and categories such as `Alienation', `Mode of Production' and `Revolution', a tendency only reinforced by a plethora of books that are concerned solely with one concept or another. Carver attempts to avoid such pitfalls by emphasizing the necessary interconnectedness of Marx's concepts and categories both in the biographical introduction and in the dictionary itself. This leads me to the structure of Carver's book . This consists of two major sections : the first is a biographical 183 sketch which follows the now familiar tale of material penury and intellectual productivity, familiar, that is, apart from a couple of departures from the norm which I shall comment on shortly. The second section comprises the main body of the

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Book reviews work, the alphabetically arranged summary of concepts and categories, sixteen of them in all . Each entry traces the development of a particular aspect of Marx's system and the role it plays in the system as a whole . The latter is achieved by cross-referencing, a task jointly performed by an entry finder - which lists the sixteen terms and related concepts and by the incorporation in the text itself of connected terms highlighted by the use of bold type. In general, Carver's ingenious system works, but I am not sure that the dictionary format is the most effective means by which the novice can gain an appreciation of the interdependency of the Marxian conceptual schema . Also, some may take issue with the author's selection of categories, (a criticism he indeed anticipates) surprised at the inclusion of some and puzzled by the absense of others . But more on this later. Finally there is a bibliographical essay, which along with comments on Marx's more important contributions, deals with some recent interpretations . First then, the biography. Due partly to the restriction of space, but perhaps more importantly a reflection of the authors own reading of Marx, the impression given is of a steady, linear development of a materialist analysis of history, an analysis which was conditioned principally by the desire to construct a revolutionary political economy. Although Carver admits that his approach to Marx may well be at variance with many other accounts, and that he has excluded some secondary works because he has found them unhelpful in his teaching, I am not sure whether the almost total absense of references within the biographical text to other viwepoints on key aspects of the marxian analysis and its development perhaps gives the impression that Marxism is itself a closed system . There may

well be occasional admissions that admit 185 the existence of `a large critical literatue, but the student is not directed, at this stage, to the contributions by particular contemporary authors to discussions concerning the importance to Marx's intellectual development of particular concepts or of particular works . So although I am prepared to accept Carver's reasons for not considering post-Marx marxism in such an introductory work - shortage of space, no wish to submerge students in esoteric arguments over detail - I nevertheless believe that some bibliographical reference to the `classic' debates would have been beneficial to those who wished to pursue them . It must be admitted that there is a brief assessment of Engels's role in the reformulation of the marxian system, but apart from the mentioning of names readers are not directed towards examples of the marxism professed by its more celebrated exponents either in the biography or for that matter in the rest of the dictionary, including the bibliographical essay. A similar tendency is also reflected in the emphasis placed on some of Marx's works at the expense of others . For example, one might believe that the Communist Manifesto, due to its eight pages of coverage in this twenty-nine page section of the book, was a major landmark in the process of Marx's selfdevelopment, whereas the Grundrisse, with its three line mention, may appear to be nothing more than an intellectual layby. No doubt an explanation for this imbalance could be that the Manifesto is more readily available and more accessible to a class of beginners than a weighty collection of idiosyncratic notebooks, (and after all, one does not want to put them off) . But surely the latter reveals more of an original mind at work, tussling with categories and concepts, than the former which shows us a rhetorical pole-

Capital & Class 186 micist rousing the masses . In fact the concentration on the Manifesto may only serve to reinforce a view of Marx that Carver himself expressly wishes to avoid, ie one which makes `Marx seem overly simple and dogmatic' . (p .x) In turning to the dictionary itself, my major concern is with its structure . I accept Carver's observation that many will contest the emphasis of some concepts and categories at the expense of others, but I do have my doubts about his alphabetical ordering of the entries . Perhaps a more effective marshalling of the topics would be along the lines of a thesaurus, following a chronological pattern, ie as Marx's thought develped, different concepts and categories were prioritized, whether consciously or unconsciously, reflecting the changes in his response to capitalism . Alternatively, again along the lines of a thesaurus, the entries could be grouped under thematic sub-headings such as `philosophy', `method', `politics', `economics', etc, this would assist an understanding of Marx's position on general questions, but, through the use of cross-referencing would also reveal his system's conceptual interdependency. Both these options would enhance the underlying view of Marx's project held by Carver (incidently, one that I share), that there are no radical breaks or discontinuities, merely changes in emphasis accompanied by an increasingly sophisticated conceptual framework . As to the entries themselves, most of them are skillful summaries of some pretty tricky marxian categories, of particular note are the longer pieces on labour, materialism, science and value, each of which, in hands other than Carver's often prove to be minefields of imprecision and tautology. With regard to the general analytical position adopted by Carver in the diction-

ary, it is, if anything, a little too economistic, ie the underlying impression is of Marx the mechnical determinist, the Marx of the 1859 `Preface to A Contribution to the Critique of Political Economy who established the conditioning relationship between the economic base and the political and social superstructure . This perspective has a noticeable impact on the description of key entries in the dictionary. The sphere of the forces of production, more often than not, is isolated as the determining base, giving the impression of a necessitarian and teleological marxian theory of history. The 'inevitability' thesis tends to predominate at the expense of the all important element of revolutionary subjectivity in Marx's revolutionary politics, and although the Eighteenth Brumaire of Louis Napoleon is referred to as an example of Marx's awareness of the potential for the state to be autonomous from the mode of production, there is no reference to the subtlety of the interelationship between the various moments of capitalism as discussed throughout the Grundrisse, and little acknowledgement of the continuence of this trend in Capital . Therefore alienation, for example, is seen as essentially an economic category, but this is surely only one aspect of a concept which enables us to expose the antagonistic and exploitative nature of civil society in general beyond the realm of production. This somewhat too generous application of the basesuperstructure metaphor is only enhanced by a separate entry of the same title, but elsewhere Carver himself appears uncertain as to the utility of the concept : `There is . . . no break between the "economic" and the "political" levels in society or in social science(p. 54), which may result in some confusion in the mind of the beginner when confronted by the following : `society has a real foundation in economic



Book reviews

activity from which arises a superstructure of legal, political and cultural beliefs and institutions' (p . 44). But perhaps Carver is merely revealing what he believes is an inconsistency in Marx's own analysis, if so, this could have been more clearly suggested to the reader who then might be directed to instances, other than the 1859 `Preface', where Marx discusses the relationship between the forces of production and social relations in ways that appear to soften the mechanistic division made elsewhere . This blurring of the boundaries, it could then be suggested, is anything but equivocation on Marx's part, rather it reveals the necessary mutual interdependency between theory and practice, the abstract and the concrete, tendency and action . As it is, in the Dictionary the over-emphasis of the base / superstructure metaphor only serves to elevate the understanding of social concepts as economic categories, at the expense of reading them in terms of the historical development of the social antagonism of capital and labour .

Antonio Negri 187 Marx beyond Marx : Lessons on the Grundrisse . Bergin and Garvey. ISBN 0-89789-018-3 . Hb . $27.95 . Reviewed by Werner Bonefeld Richard Gunn, Paul Smart and Hugo Whitiker In 1978, at the invitation of Louis Althusser, Negri presented a series of seminars on Marx's Grundrisse in Paris . This is the book of the seminars . Negri, a leading figure of the Italian Autonomia, was in France as a consequence of charges relating to revolutionary action brought against him by the Italian state . This context is important because it shows Marx beyond Marx as an irruption of Autonomist `revolutionary subjectivity' into the theoretical world of Althusserian structuralism . The seminars, and the book itself, are amongst other things a polemical response to Althusser's emphasis on reading (not the Grundrisse but) Capital, and to his view of the Grundrisse as a survival of lines of thought characterising Marx's 'premarxist' (ie Hegelian and humanist) days . Negri bends the stick in the opposite direction, away from Capital and towards the Grundrisse, in order to demonstrate class antagonism as the crucial and irreducible thematic of Marx . His view is that Marx's mode of presentation in the Grundrisse is superior to that in Capital in that it is less 'objectivist' and so allows this thematic to be clearly seen . Althusserian structural determinism is accordingly overturned by Negri into considerations of class agency, and Negri's reading of the Grundrisse as a revolutionary text plays back the organising concepts of Althusserianism, such as 'overdetermination', against Althusser himself.

Capital & Class

Telos

188

A Quarterly Journal of Critical, Thought Number 73

Fall 987

Special Section on Karl Polanyi Polanyi-Levitt and Mendell : Karl Polanyi : A Biographical Sketch Martinelli: The Economy as an institutional Process Gislain: On the Relation of State and Market Salsano : Polanyi, Braudel, and the King of Dahomey Symposium on Russell Jacoby's The Last Intellectuals Gross : Hope Among the Ruins Wortman : Last Intellectual Principles Taves : Missing and Accounted For: Public Intellectuals Elshtain: The Decline of the City Bookchin: On The Last Intellectuals Feffer : Coroners in the Academy Gonzales: Jacoby's Paradox Anderson and Simon : Counterinsurgency in Guatemala Pipa : Subversion vs . Conformism : The Kadare Phenomenon Minow : Law Turning Outward Kennedy: Carl Schmitt and the Frankfurt School : A Rejoinder R.G. Davis: On Platoon

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Whatever may seem one-sided in Negri's approach - for example, his downplaying of the importance of Capital - is a consequence of this polemical situation from which his text derives . Althusserianism in its narrow sense is no longer current, but the afterlife of structural Marxism is a long one and continues up to the present day. Negri's polemical targets are still extant ; his emphasis on a revolutionary renewal of Marxism is timely ; and his richly detailed reading of the Grundrisse is a delight . Marx beyond Marx aims towards a reconstruction of Marxist theory, a reconstruction that goes beyond Marx by going back to Marx, an angry Marxism summoned by the real possibility of communism . Negri's reconstruction of Marx follows Marx's dictum on the unity of theory and practice . His theorising focusses on class antagonism as the real movement of the enchanted world of capitalism . The unity of theory and practice does not merely provide a point of reference for Negri ; rather, it entails a political reading of Marx . This political reading is penetrated by the critique of politics, power and command as well as by the real possibility of overthrow ; in other words, it is informed by communism as the movement within capitalism inspired by revolutionary rejection of capital's command over every condition of life . Negri urges ' this view in a distinctive way. Far from endorsing the essentialist and romantic, or 'workerist', approach exemplified in Tronti's `Lenin in England' (1964), according to which labour's action always dictates the terms of capital's reaction, Negri remains a realist in that he rejects capital-logic and labourlogic approaches alike . His own view focusses on the antagonistic relation of capital and labour. It is the historical development of this relation in its contra-

dictory unity which conditions society in 189 terms of a continuous displacement and reconstitution of its own mode of existence . The historical determination of just this relation intensifies both capital's command over society and the possibility of overthrow. This inherent possibility is informed by the contradictory mode of existence of capital, that is, by the continous need for capital to revolutionise the relation between necessary and surplus labour in order to increase the latter. But surplus labour only exists in antithesis to necessary labour. It is here that capital's self-contradictory mode of existence becomes manifest in the most intense terms : capital depends entirely on living labour. Hence Negri's notion of the presence of labour within capital . The workingthrough of this antagonistic tendency compels capital to increase surplus labour to its maximum and thus to reduce necessary labour to its absolute limit . However, the tendency towards the elimination of necessary labour undermines the existence of capital as depending on living labour. Capital cannot autonomize (free) itself from living labour : the only autonomizing possible is on labour's side . What is labour without capital? Surely everything, in that it inverts the capitalist form of the relation between necessary and surplus labour into the revolutionary project of non-work . Negri's presentation of Marx's discussion of the relation between necessary and surplus labour in the Grundrisse is of major importance here . It entails capital's compulsion to produce relative surplus value and hence the expansion of capital's command through the subsumption of the production process in real terms . Capital's thirst for surplus value is progressively mediated by the replacement of living labour with constant capital, espe-

Capital & Class 190 cially in its fixed form . Hence the tendency of the rate of profit to decline - and crisis . Capital's solution to this intensification of the antagonistic tendency is a further mediation : it extends its command into society and into the world market . Thus circulation is the form in which capital normalizes crisis, a normalization which integrates society as a whole into capital . Social capital subjugates society ; society becomes social capital. In this way the transformation of capital from manufacture to big industry and to the `social factory' entails the totality of capital's command over society. This universalisation, however, is at the same time the generalisation of the presence of labour within capital . `On this level, capitalist relations are reduced to a relation of force' (Negri) . The extension of capital's command forces, correlatively, the `multiple variety of the constituting process of the historical individuality of the communist subject' (Negri again) . Negri presents his reconstruction of Marx along these lines methodologically . The antagonism of capital and labour is seen as mediating itself in an historical process of continuous de- and recomposition of the material world of capitalism . The antagonism of capital and labour is seen as the abstract determination of society which illumines this permanent process of de- and recomposition or, in Negri's terms, the continuous displacement and constitution of the mode of existence of the social relations of production . For Negri, it is the movement of the antagonism just outlined which implies the possibility of the autonomization of labour within and against capital . The working through of this tendency forces capital to expand and to displace its command, a displacement which only gives the antagonism a new

mode of existence or lease of life . Communism is thus seen as transition inscribed in capitalist society taken as a self-antagonistic whole . In our discussions of Marx beyond Marx, a number of issues struck us as important and/or as problematic . Various of these, but not all, have been touched on in the foregoing summary. We indicate the relevant issues here in order to supply signposts for a new reader in Negri's interpretively and substantively complex text . One important issue was Negri's understanding of the phenomena characterising capitalist society - money, social capital, etc - as mediations or in other words modes of existence of the antagonistic class-relation in which capital consists . For example, viewing all relations of capitalist society as modes of existence of struggle, Negri refuses to admit Marx's category of `value' independently of the category of `surplus value' so that objectivist and economistic readings of Marx are disallowed : antagonism is made the key to all else . This conception of the mediation of antagonism enables Negri to break with conventional `dualistic' readings of Marx, which turn on juxtaposing ideology and politics as `appearance to production as `essence', and also with the no-less-conventional readings according to which Marx announces a set of proliferating distinctions between societal `levels' as well as between class-fractions, capital-fractions and so on . Frequently, Marxists protest against understanding Marxism in a causalist basesuperstructure fashion ; no less frequently, however, such protests are gestural rather than real . Negri for his part demonstrates, eloquently and by sustained argument, the richness of a Marxist discourse in which the causalist dualism of base and superstructure has no place .

Book reviews Arising from his approach, however, we found it difficult to resolve the question of whether or not essentialism (with regard both to class struggle and to struggle itself) is not after all a danger to which Negri's reading of Marx is exposed . His emphasis on Marx's unwritten book on `The Theory of the Wage' - for Negri, not to be confused with the chapters discussing wages in Capital Volume One - raised, for us, a question about the manner in which the expansion of the realm of `necessary' (as opposed to `surplus') labour might function, in the way it appears to for Negri, as a realm of workers' selfvalorization and autonomy. Are not problems of alienation - problems of who consumes what and of what kind - raised by the notion of revolutionary subjectivity summond in these terms? And a further difficulty : Negri contends that, in Marx, the diachronic and synchronic dimensions of categories form a unity but this proposal remained, for us, unclarified . To be sure, and importantly, every categorical advance in Marx registers a fresh mediation (and thence site) of class struggle . But might not a diachronic/synchronic unity install a Marxism constructed as an essentialist `philosophy of history' once more? Most difficult of all, and in our discussions irresolvable, were two additional problems . (i) Why does Negri declare against what he calls Marx's `miserable' definition of productive labour, a definition which he may or may not think covers only manual labour but in which, at any rate, he believes a socialist 'axiology of manual labour' to be inscribed? The problem here is to relate Marx's definition of productive labour as (in capitalism) labour which produces surplus value and which is, for that reason, undeniably `miserable enough to Negri's own - fertile - insist-

ence that production is increasingly inter- 191 wined with capitalist circulation and with social capital itself. If all labour which extends the command of capital into society counts as productive, what social and political force does the term `productive retain? Does Negri excessively restrict the definition of `productive he imputes to Marx? Does he excessively broaden the definition he endorses on his own behalf? Or are Marx's and Negri's interpretations of the category 'produtive labour' compatible, despite Negri's own conviction that he must quarrel with what, on this score, Marx says? And (ii) when Negri urges that, tendentially, the law of value becomes sheerly a law of command, does he mean by this that the law of value no longer, in contemporary capitalism, obtains? (That the law of value is a law of command is clear enough, but what relation between 'command' and `value obtains in current terms?) Since Negri refers both to the `extinction' of the law of value and to the 'tranformation of its functioning' his formulations remain ambiguous in this regard . Possibly, his meaning is that the tranformation of the law of value into the law of command expresses the development of social capital towards total social power; if so, however, the way in which it does so is not directly evident in his text . And a final point : might not various of Negri's interpretive and substantive arguments - especially, that relating to 'command' - have been clarified and sharpened through a more sustained treatment of the state? The theme of the state is sounded throughout Marx beyond Marx, as it is throughout the Grundrisse, but nowhere does it receive discussion of a systematic kind . All this said, the issues raised in the areas above mentioned appear to us not so much as points which tell against Negri as



Capital& Class 192

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Rethinking MARXISM is a quarterly journal of Marxian thought that will begin publication in January 1988 . Rethinking MARXISM will provide a forum for discussing the exciting new advances in Marxism taking place across all disciplines and within diverse struggles for social change. One goal of Rethinking MARXISM is to insurclass analysis is an important part, but not the exclusive focus, of Marxian approaches to understanding social reality . Articles will explore the complex interconnections between class exploitation and race, gender, and other forms of social division and oppression . Rethinking MARXISM will also focus on the philosophical dimensions of Marxian theory . Advisory Board Rosalyn Baxandall • Michele Barred • Johnnetta Cole • Carmen Diana Deere • Terry Eagleton • Stephen Jay Gould • Fredric Jameson • Ernesto Laclau Dominique Lecourt • Rayna Rapp • Stephen Resnick • Sheila Rowbotham Meredith Tax • Comet West • Richard Wolff • Harold Wolpe First year's issues to include Samir Amin, "Accumulation on a World Scale : 30 Years Later"/Cornel West, "Rethinking Marxism: A Third World Perspective"/Stephen Resnick & Richard Wolff, "What is Communism?"/lack Amariglio, "Foucault Marxism and Post-Marxism" /Elizabeth Oakes, "Grenada After Reagan"/Fred Curtis, "Race and Class in South Africa"/Pawl Sweezy & Harry Magdoff, "Marxism in America : An Interview"/Harriet Fraad, "Marxism and Psychoanalysis"/Rosalyn Baxandall, " Elizabeth Gurley Flynn: A Sexual/Political Life" . . . and many other articles. Subscription rates: Individuals $24/lyear, $45/2 years ; Students $18/1 year; Institutions $40/1 year, $75/2 years (Please add $4 for all foreign subscriptions) . Make check or money order payable to Rethinking MARXISM .

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Book reviews

points vital for a reconstruction and renewal of Marxist thought . In setting the agenda for such a reconstruction, and in clarifying its priorities, Marx beyond Marx is a pathbreaking and an indispensable work.

Allan Cochrane (Ed). Developing Local Economic Strategies Open University Press, 1987 pp 86 . £4 .50 Reviewed by Mike Geddes This short book is a collection of four papers which, as the editor says in his (very brief) introduction, start to reconsider issues raised by local economic development strategy, especially the GLC experience . Two of the papers (Massey on equal opportunities in GLEB, Mackintosh on transport planning in London) reflect the authors' experiences within GLEB and the GLC, while the other two (Clarke and Cochrane himself on Enterprise Boards, Jefferis and Robinson on social investment in production) are by academics closely linked to `practice . All four of the papers are interesting and perceptive and are to be recommended to anyone working in the local economy C&C 35-M

field ; yet all four raise more questions 193 than they answer, and the volume as a whole is tantalising in the extreme in that no attempt is made to draw together, and draw out, the collective issues and implications . Clarke and Cochrane on Enterprise Boards (EBs) is a very succinct and useful summary of the different antecedents and trajectories of the various agencies in London, Lancashire, Merseyside, the West Midlands and West Yorkshire . Their argument stresses the contradictions of `restructuring for labour by investment in capital' and shows clearly but depressingly how the more radical objectives of certain of the EBs have given way over the last couple of years to a `new realist' consensus of a more conventionally social-democratic nature on the role of the local state in relation to the market . Limitations to Clarke and Cochrane's analysis are the way they explain the EB experiment, which stresses party politics and the symptoms of economic crisis rather than more structural tendencies in the accumulation process, and their reluctance to move beyond a discussion of specific contradictions of the EB-private capital relation to a more general problematic of state and capital . Rather similar limitations apply to Mackintosh on transport in London . She shows very effectively how the conventional approach to `public' transport management, based on neoclassical competition and welfare economics, has produced a negative and defensive approach to service provision which fails to meet social needs and thus opens the way to privatisation . GLC transport thinking is then used to demonstrate the possibility of a `propulsive' and positive role for transport in a co-ordinated, coherent and socially-responsive `public' sector, leading rather than following the market . Yet it is not merely carping to note that she fails to do more then mention the problematic

Capital & Class 194 social relations within state sector production and the need for (non-market) mechanisms to deal with problems of public sector performance . These limitations of two papers are all the more obvious because they are opened up much more substantially by the other two contributions . Massey's dissection of the failure of GLEE to get to grips with equal opportunities moves on from the particular problems within GLEE as an institution (especially its requirement of commercial viability criteria for investments) to the more general problem, inherent in the dominant EB definition of economic development as investment in private capital, of the tendential subordination of the `social' to the `economic' . The inability of an agency such as GLEE to set about rethinking the economic/social distinction, Massey argues, inevitably relegates equal opportunity issues to the periphery, as `the economy' is defined as waged work, excluding domestic labour. Thus GLEE failed to take up the London Industrial Strategy's thinking on domestic labour, not just because laundry or creche projects tend not to be commercially viable, but because GLEE adopted, unthinkingly, capital's definition of what constitutes `the economy' and implicitly defined its role as a response to the malfunctioning of that economy, whereas, in fact, (local) economic problems are an integral part of the way the accumulation process works . We need, she concludes, different methods of accounting from those currently in use in EBS and private capital alike, not just for EO, but for the whole process of rebuilding local economies . This issue is the starting point for Jefferis and Robinson . In their discussion of GLEB technology investments, particularly in cooperatives, they counterpose to the conventional accounting norm of economic investment for maximum return on

capital invested, the concept of a social return from social investments, as the appropriate basis for EBS intervening in production to restructure which has different and sometimes conflicting aims beyond financial return, and by social return they mean a gain returned to the investing agency which both strengthens its ability to make further investments and at the same time acts as a force for positive change in the social relations of production within the recipient enterprise . They cite as an example a report to the investing agency on the utilisation of new technology, drawn up by the enterprise with the involvement of workers, codifying good practice which could then be reapplied in other investments . Massey and Jefferis and Robinson thus each advance our thinking on certain wider issues of local economic policy in important ways . Yet, again, the connections between and beyond the two contributions are left entirely for the reader to make . Massey, on the one hand, having linked problems of equal opportunity and GLEE's accounting procedures to the capitalist construction of the economic, leaves us rather negatively up in the air with only a hint or two of how to move forward. Jefferis and Robinson, on the other, propose a `practical' alternative accounting system which really only implicitly challenges the centrality of the wage relation, and moreover, leaves one with some large questions. I think Jefferis and Robinson load more on the concept of social return than it can bear. Their insistence that social returns can be definitively and precisely defined (in contrast to social objectives which cannot) left me unconvinced ; and there is a worrying tendency for this new policy mechanism to assume the status of a `radical administrative fix' for a very large problem indeed .

Book reviews All in all, a worthwhile and thoughtprovoking read - I am just sorry the editor and contributors did not collectivise their thoughts more for our benefit .

Ron Ramdin The Making of the Black Working Class in Britain Gower Press, 1987 626p ISBN 0-566-00943-9 Hbk Reviewed by Clive Harris The history of the Black presence and struggles in Britain is now sufficiently established as a specialism as to sustain strong cycles of revisionism . Ramdin's broad account of this struggle and presence attempts reaches back to the rise of slavery, and forward to the present . It invites us to address not merely something called the `black community' but something called the `black working class' and its relationship to the development of British capitalism. In short, it invites comparison with EP Thompson's pathbreaking study, The Making of the English Working Class . Unfortunately, this comparison is the unmaking of Ramdin . The Making of the Black Working Class in Britain represents a further

attempt to revise the peroxided and 195 pomaded view of British history which Peter Fryer (Staying Power) J . Walvin (The Black Presence : A Documentary History of the Negro in England, 15551860) and F Shyllon (Black Slaves in Britain) have already sought to erode . Where Fryer in Staying Power is scant of the post-war period, readers will welcome Ramdin's extensive discussion of the postwar period in the field of industrial relations and black organisations . There are a number of real problems however with this text not the least of which is its tendency to rely heavily on secondary rather than original sources . Quite often in reading a particular theme, one keeps mentally noting that the author has been mining this or that book . For example, the discussion of a historically recent event such as Grunwick seems to be drawn almost exclusively on a few accounts particularly that by Dromey and Taylor, Grunwick : The Workers Story . Similarly, on Liverpool one knew that he had used extensively the thesis by St Clair Drake called Value Systems, Social Structure and Race Relations in the British Isles . The real criticism is not that Ramdin's relies so heavily on secondary material to the exclusion of the extensive primarily material, but that he seems incapable of moving beyond the narrative historiography popularised by writers such as Fryer, Shyllon and Walvin to the class analysis that is promised in the title . There seems to be an assumption almost that by sprinkling the phrase `working class' liberally throughout the text one arrives at class analysis . It is clear that despite the insistent command of the title, the author's analytical skills do not match his investigative zeal . Ramdin's argument focuses on three areas : (a) Blacks in the West Indies, (b) prominent blacks in Britain, and (c)

Capital & Class 196

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Book reviews Black struggles and organisations in the post-war period . The use of Trinidad in the first example is an odd choice . It clearly reflects an attempt to hitch his earlier book, From Chattel Slave to Wage Earner : A History of Trade Unionism in Trinidad and Tobago, to The Making . . . For a number of reasons Jamaica would have been a more sensible choice . There was always a more significant movement of people from all classes between Jamaica and Britain . Moreover, the 1831 Sam `Daddy' Sharp Rebellion and the Morant Bay Rebellion of 1865, it is well known, had a profound effect on the nineteenth century British psyche and caused a veritable frisson in British politics with lines being drawn and lectures on scientific racism being offered to justify the brutality of Governor Eyre in 1865 . It is astonishing that there is no discussion of the reverberations of this event in Britain . Even Marx, misquoted at the beginning by Ramdin, had something to say about `Quashee in Jamaica . If the making of the black working class is to be constructed around the documentation of prominent figures, then there are one or two significant omissions such as William Betton who was forever alerting the British public and the Colonial Office to conditions in the Caribbean islands . The strength of the book is its weakness . It is extremely good on detailing the numerous organisations that expressed the Black presence and struggle but at the same time incapable of knitting these into a thorough analysis of the racialisation of Black labour, changes in the labour process and the decline of British capitalism . We know, for example, that the struggle of the Colonial People's Defence Association was not simply concerned with preventing the repatriation of Black seamen but connected with the important transformation of the shipping labour process which had

seen `black jobs' such as stokers and 197 firemen disappear with the adoption of oil as a fuel . What effect did these have on the larger working class struggle? The Making . . . has all the solidity that one could desire ; stolidity almost . There is still it seems a `making' that has to be undertaken . References Peter Fryer, Staying Power : The History of Black People in Britain, London : Pluto Press 1984 . Ron Ramdin, From Chattel Slave to Wage Earner: A History of Trade Unionism in Trinidad and Tobago, London : Martin, Brian & O'Keefe, 1982 . F Shyllon, Black Slaves in Britain, London : our, 1974 J . Walvin, The Black Presence: A Documentary History of the Negro in England, 1555-1860, London : Orbach & Chambers, 1971 .

Capital & Class 198 Laurence Harris, Jerry Coakley, Martin Croasdale and Trevor Evans (Eds) New Perspectives on the Financial System London, Croom Helm 1988 Price £35 pp 410 ISBN 0-7099-3741-5 Reviewed by Andrew Kilmister This book comprises a number of papers mainly written by members of the Open University Financial Studies Group (FSG), under the direction of Laurence Harris, since 1979 . Many readers of Capital and Class will be familiar with the work done by the FSG, under the direction of Laurence Harris, since 1979 . Many readers of Capital and Class will be familiar with the work done by the FSG through books such as Coakley and Harris' The City of Capital and The Peculiarities of the British Economy by Harris and Ben Fine as well as several presentations to the CSE Money and Finance Group over the years . In fact, four of the chapters in the book under review were first published in this journal . Taken together, this work embodies a distinctive approach to the analysis of the financial system, and the book under review is chiefly notable for setting out much of the empirical research on which this has been based . After a brief introduction Laurence Harris outlines the theoretical framework adopted in the book and there follow accounts of international financial developments, relationships between banks and industry, the labour process and new technology in banking, and the use of pension funds by the GLC and the West Midlands Enterprise Board . The book concludes with case studies of the financial sector in Japan, South Korea and France under Mitterrand . A wealth of interesting empirical evidence is provided, mostly via

survey analysis and narrative accounts, though there is some highly provisional econometric analysis . Rather than reviewing the chapters in detail I shall try to describe the organising approach of the book and suggest some openings which might be pursued in the future in order to take the analysis further. A central concept for Harris is that of the economic power wielded by financial capital vis a vis industrial capital and the state . This power is ultimately founded on the `universality' and 'mobility' of finance . Tied neither by geographical location nor by immersion in particular productive investments, financial capital can pursue profit more freely than other forms of capital . It is able to gain this relative independence from industrial capital by means of the creation of `fictitious capital' ; in other words by using the stock market, and by lending to states and to other financial institutions in order to create sources of profit which are not directly tied to the health of industrial capital . This mobility of finance problematises the state's role as the guarantor of sound money, and can force states to adopt policies geared towards the interest of finance as opposed to industry. This approach is explicity differentiated from that of Hilferding, whose concept of finance captial was premised on the integration rather than the separation of finance and industry, although Harris argues that this integration may occur in specific circumstances, as in Germany, or Chile in the 1970s . This account could, I think, be extended in several ways, and I shall just mention five . Firstly, there is a case for a much more searching interrogation of the concept of mobility. As the authors recognise at points, industrial capital is itself becoming ever more mobile, while the lesson of

Book reviews the recent `debt crisis' is that finance, when embedded deeply enough in a difficult situation, may be much less mobile than it might wish . Mobility may be a much more complex trait than allowed for here . In particular, the explicitly spatial perspectives developed in recent years by Marxist geographers could usefully be linked with the stress in this work on geographical freedom, to the benefit of both schools of analysis . Secondly, there is room for a more detailed analysis of the factors underlying the relative influences of finance and industry over the policy of the state . To some extent this is covered, for the case of the UK in Fine and Harris' earlier book . However, as the work of Geoffrey Ingham and Harris' stress on the importance of state borrowing indicate, it is also important to study the independent interests of the state in order to determine the relative RADICAL PHILOSOPHY CONFERENCE SATURDAY 5TH NoVEMBER1988

strengths of different representatives of 199 capital at any one time . Thirdly, it is necessary to examine conjunctural factors encouraging integration or separation of finance and industry as well as the strucural conditions concerning the role of the state and the development of financial markets which Harris mentions . In particular, the stage of the business cycle may play a role here . In this context the work of Wladimir Andreff on the increasing links between multinational corporations and trans-national banks over the course of the current crisis is important . This approach might also allow for a more detailed examination of the link between conflicts between financial and industrial capital on the one hand and the primary capital-labour relation on the other . Fourthly, the relationship between the economy-wide power of finance and bankPOLYTECHNIC OF CENTRAL LONDON MARYLEBONE ROAD LONDON NW1

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Capital& Class 200 industry relationships at firm level remains problematic . The chapters in the book dealing with the latter are rather descriptive and their implications for the general approach adopted remain unclear. Fifthly, it would be worthwhile engaging critically with the growing body of literature now emerging within bourgeois economics which attempts to theorise the relationship of finance to the `real economy' (see Mayer (1987) for a representative example) . In Chapter 8, Coakley refers approvingly to one example of this work, by Stiglitz, but a sustained critique of more orthodox approaches might be a useful undertaking. These suggestions are not meant to diminish my appreciation of the work done in this book, which should be widely read . Unfortunately the very high price charged must limit its readership severely. It is to be hoped that a cheaper edition soon becomes available ; failing that, libraries should be prevailed upon to buy copies . References W. Andreff `The international centralisation of capital and the re-ordering of world capitalism' Capital and Class 22 G . Ingham Capitalism divided? The City and industry in British social development Macmillan 1984 C . Mayer `The assessment : financial systems and corporate investment' Oxford Review of Economic Policy 3, 4 1987 J . Stiglitz `Credit markets and the control of capital' Journal of Money, Credit and Banking 17,2 1985

Chris Smith Technical Workers : Class, Labourism and Trade Unionism Macmillan, 1987 ISBN 0-333-36321-3 Reviewed by Mike Hales This book deals with engineering technical workers - engineers, draughtsmen, Nc part programmers. For most readers the useful bit will be the critique of other class theorists in chapters 1 and 8 . The relatively few readers who happen to be activists in this particular area may also be able to use the stuff in the middle - an exposition of trade union organising conditions in the peculiarly buffeted UK aerospace engineering industry of the 70s . Smith aims to offset the 'frenchism' which tended to dominate marxist class theorising, pre-Braverman . Not only were some theories abstract and academic in the structuralist mould, but also French industrial traditions differed significantly from British . In addition, Smith criticises Braverman for abstract statements about the politics of Nc systems . He draws a picture of the multiple determinations and legitimations - of both CAD and the recomposition of skills among shopfloor electricians . Specificity in the texture of labour process relations is the book's virtue . Howev-

Book reviews er, I do detect the taint of an English disease which is just as problematic as the French : the `theorising : of workerist sects, which loses itself in `the conjucture' and post-hoc rationalisation of tactical splits, becoming effectively antiintellectual . I'm at a loss in drawing stragegic insights from Smith's analysis, because of its specificity. Smith's main premise is that, in contrast with clerical workers, `with technical workers the line between themselves and manual workers is not so clear cut' . He argues that `the majority of British technical workers are not excluded from the working class . They are productive, overwhelmingly non-supervisory and work through the possession of "knowledge" not cut off, via credentialism or monopoly, from those they instruct .' In particular, Although technical workers are placed in definite social relations of production with manual workers, these objective relations are not sufficient to indicate the relations in process at the factory level .' That is, British technicians don't police workers' work . This lets them (objectively) off the hook of exercising `capital functions' . `Craft' is a mediating tradition which makes the position of engineering technical workers - British workers - specifically different from both clericals and European/American technical staff . Smith sets out to bring the voice of workers into the picture, and to develop concrete descriptions of jobs and biographies. Here, I felt, was someone trying to write an intelligible and useful book and, in a particular way, to link practice with theory. First impression : this isn't just another piece by an industrial sociology hack . Chapters 2-7 detail technical and trade union practices at Britsh Aerospace, Filton, during the 70s . Smith stresses the national context, the sectoral setting, au-

thority positions of the actors, and their 201 place in the cycle of production . The picture is very specific, and in his attack on detached theory which tries to `read off' political conditions from macro phenomena, Smith almost makes the opposite case, that class analysis is invalid at any level higher than the factory or combine . This is a problem for his approach . On the basis of its introduction I thought I'd like this book . Smith counterposed abstract positions (in the literature) with the promise of an analysis of practices, wich I've always seens as the great (unfulfilled) potential of labour process theory. But no ; I plodded through detail which, with some personal experience of shopfloor engineering, I found impressive, compendious and convincing but indigestible . Being outside his sphere, I was soon fidgetting . Is this book relevant to other sectors : data processing and software production; maintenance services or maintenance work within a manufacturing sector ; telecom workers ; laboratory workers? I think the answer is No : it's not a generalisable analysis, being worked at such a specific level and offering no explicit discussion of methodology . There are two significant holes in the general kind of marxist theory represented by Smith's book . Firstly, the analysis of cultural production in production . This is central . Without it marxism can't, absolutely can't, be a theory of practice . If it's not that, what possible use could it be outside of academia? In pursuit of craftism (a culture) Smith seems blind to the need to be able to analyse `cultural' work . Even when he quotes Cooley -'as we design technological systems, we are designing sets of social relationships' - Smith is unable to follow this up, having no theoretical means of framing the problem . How do technicians and professional engineers act as produc-

Capital & Class 202 ers of social and cultural relationships (including the diminished reproduction of the craft tradition)? Smith doesn't, for example, ever refer to the Ehrenreichs' (us-oriented) theoretical propositions about the 'Professional-Managerial Class', who oppose the working class over the production of culture . And it's simply tragic that there should be such a gulf between Smith's kind of doggedly traditional `industrial' marxism and the 'cultrual materialism' of Raymond Williams' equally British but innovatory variety. Secondly, there's no analysis of the production of use value; the term is never used . Yet use value is intimately bound up with the delineation of productive labour . Even though strict marxist analysis admits only production of exchange value, use value enters when we look - as Smith, unusually, does - at what workers feel about their class position . This is sufficient reason for making use-value a category in the practical analysis of class . But the appropriate theoretical vocabulary is also important because of its implications for the strategic understanding of

`value added' in productive `service' activities . Smith notes, in support of his detailed approach, that `there is a translation stage at each moment in . . . information flow' . This is a correct and important `labour process' insight . But at the end, wage labour and the law of value do overdetermine the outcome . How has that happened? And how could that be subverted in the process, in technical practice at factory level? Smith isn't offering that kind of insight, he's interested in defensive tactics . And so, finally, what I miss most in this book is anything to connect with the socialist project of selfmanagement . Perhaps Smith politically disapproves of that tendency? Perhaps the strength of his analysis - a deep involvement in craftist and labourist practice - is also its weakness? Can this type of class analysis (and that type of political practice), for all its concreteness, make a creative contribution to the struggle for socialism? Conversely; does his analysis typify `scientific' marxism, and is my approach therefore just hopelessly utopian?

Capital & Class 203 Capital & Class/Review of Radical Political Economics

Call for Proposals : Special Issue Beyond the Nation-State: Global perspectives on capitalism Socialists everywhere have been faced in the 1980s with a global capitalist offensive . In all countries, we are debating how to respond to

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Economists (csE) propose to contribute to

used by both journals .

this analysis by devoting a joint issue of their

4 . Where a submitted paper is not selected

journals, The Review ofRadical Political

for the specials issue, it may be considered

Economics and Capital & Class, to current

alternatively for a regular issue of either C&C

trends in the world economy. The editorial

or the RRPE according to the author's wishes .

boards of the two journals have set up a joint

5 . The deadline for submission

of proposals is

committee to edit this special issue, which is

December Ist 1988. Proposals may be

planned to appear during 1990 .

submitted to either journal at the following addresses:

Guidelines for contributors I . The title of the joint issue provides an overall framework which we ask all

The Managing Editor

contributors to respect . Papers should deal

c/o Department of Economics

with current issues, and as far as possible point

The University of Utah

to policies and practices for social change .

Salt Lake City, Utah 84112

Articles should be limited to approximately

USA

RRPE

5000 words (20 pp.) and they should be accessible to a wide readership . 2. We are primarily looking for papers which focus upon: a) the impact of recent developments in _ world capitalism on key issues such as class

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Capital & Class

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CORRESPONDING EDITORS OF CAPITAL & CLASS

Australia: Stephen Castles Centre for Multicultural Studies, University of Wollongong, PO Box 1144 Wollongong, Australia 2500 Rachel Sharpe School of Education, Macquarie Universtiy Sydney, NSW 2109 Belgium Michel de Vioey Dept . des Sciences Ecananiques, Universit6 Catholique de Louvain, Le Place Mantesquieu 3, B-1349 Louvain-La-Neuve, Belgium (tel: 43-39-548) Brazil FredericoJayme Katz Department of Economics, University of Pernambuco, Recife, Brazil Canada A. Hamon Akram-Lodhi Department of Ecatanics FA 512, University of Manitoba, Winnipeg, Manitoba, Canada R3T 2N2 J. MacDonald 411-14 Carpenter Way, Ottawa, Ontario, K1K 4C9 Canada Denmark Peter Skott Institute of Ecananics, University of Aarhus, Building 350 DK-8000 Aarhus Denmark (tel : 45-6.13-01-11) France Alain Lipiets CEPREMAP 140, Rue de Chevaleret, Paris 75013 Went Germany David %bissert Fidicinstrasse 13, 1000 Berlin 61, W Germany Greece 4assilis Droucopoulos Technical University of Crete, 73132 Chania, Crete, Greece (work tel : 0821-58089/90/93) Lois Labrianidis Division of Urban and Regional Planning, University of Thessaloniki, Greece (work tel : 31-991586'992638) India Radha Kumar 33 Anand Lok, New Delhi 110099 Gail Omvedt Kasegaat, District Sangli, Maharashtra 415 404 Italy Vincenzo Ruggie o Via Po 2,10123 To rino Japan Makoto ltoh Faculty of Economics, Tokyo University, Hcngo, Bunkyo-ku, Tokyo, Japan 113 (work tel : 03-812-2111 x5645) (home tel: 03-774.0238) Prof. Mitsuhito 7Svruta Insttttute of Business Research, Chuo University, Tokyo, Japan Netherlands HenkOvorbeek Vakgroep Internationale Betrekkingen en Volkenrecht, Universiteit van Amsterdam, FSW a Herengracht 510, 1017 CC Amsterdam Geert Reuten Faculty of Economics, Department of Macro Economics, University of Amsterdam, Jodenbreestraat 23,1011 NH Amsterdam (tel: 525-4202) New Zealand Mike W'h'ams Department of Ecanarmios, Victoria University, Private Bag, Wellingeost, NZ (tel: 721-000) Spain Mires Echezarreta Department de Ecatania Aplicada, Facultad de Ciencias Eccnanicas, Universidad Autnara de Barcelona, Bellaterra, Barcelona, Spain (tel : 3.6920200 Ext. 1740) USA Jim Devine Economics Department, Loyola Marpmount University; Los Angeles, CA 90045 Nancy Folbre Economics Department, University of Massachusetts at Amherst, Thompso n Hall, Amherst MA 01003 (tel : 413-545-4703) Peter Meyer School of Urban Planning and Development, Brigman Hall, University of Louisville, Louisville, KY 40292, USA (tel : 502-588-2864) John Willoughby Department of Economics, The American University Washington, DC 20015 (work tel : 202-885-3770) (home tel : 202-387-6816) Yugoslavia DrJasminka S°ohinger Assistant Professor, Ekawmski fakultet Trg J . F Kennedy 6,4 1000 Zagreb (041-231-111)



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