Response to Graham - On Value Again

Dear Graham,

If we don't come to an agreement, we should at least understand each other's position. I am trying to understand yours but I don't find it easy. To my complaint that you don't give much argumentation for your view (that "immaterial labor" and services in general are not value-creating), beyond invoking the authority of Marx (and wrongly so, as I tried to explain), you respond by giving more authority-arguments: not just Marx, you claim, but no economist, Marxist or not, considers 'sunk costs' (such as R and D labor) as value-creating; and not just Marx, but "people who actually try to empirically measure the rate of surplus value" (an impossible task, in my opinion) believe that service industries do not produce value. And on top of that, the Stalinist bureaucrats found it difficult to measure the value of the work of teachers. (The latter should not surprise us. They found it difficult to measure anything, which is logical. Only the growth of money in M-C-M makes it possible to measure value. The state-capitalist Stalinist regime forced C-C directly in the circulation of constant capital, reducing money to a means to circulate consumer goods, necessarily in a forced way, so money's function as measure of value was rendered inoperable. More on this in my text: "The Roots of Capitalist Crisis, part 3," IP32, p22).

These claims reveal little of the substance of your argument. Rather than guessing what it is, I want to try to show why your position clashes with the logic of Marx' value theory. The question you open your latest text with, "Why is the issue of whether or not a particular activity creates value important?" is indeed a good way to begin.

1. The creation of value

We may agree on the irrelevance of this question for determining who is part of the working class. While it is true that the working class can be defined as "the class that produces all value," this is a definition from the point of view of capital. For the workers, what unites them is that they are all exploited, and that they produce society's wealth. Wealth and value are not the same. For the workers, selling their labor power to survive, it makes no difference whether what they do creates value for capital or not. Marx (in the context of analyzing what labor is value-creating) described and predicted fundamental changes in the working class resulting from the shift from formal to real subsumption to capital. From a mass of individual workers making products, the class becomes a "collective worker," of which each individual is a tiny limb, regardless of whether he is cleaning, working in a lab, supervising or assembling concrete commodities. The complexity of the process grows, and with it the interdependency of the limbs of the collective worker. Fixed professions tend to disappear in the age of "flexibility," the content of work is more and more, as Marx wrote, only labor time. People may shift from a productive job to an unproductive one without a change in the content of what they do or how much they get paid for it. They certainly have not changed classes. The development of the collective worker has made it more difficult to distinguish productive from unproductive work. It has also made it less relevant, certainly for the working class, to unravel this intertwined whole. It is the global collective worker who produces all commodities and services. His labor results in a fund of value that reproduces the collective worker, and a fund of surplus value consumed, invested or stored by capital.

There is another consequence of the shift to real subsumption to (or real domination of) capital that must be added to the picture: the penetration of the law of value, not just to all countries but to all aspects of human life. Sectors that, in Marx’ time, still stood largely outside of capital, such as health care, education, entertainment and culture, have all been commodified. Even churches and unions are run as wage labor-based capitalist enterprises. No question that this has extended the realm of capital tremendously, but has this extension been value-creating?

To understand capitalism, that remains a crucial question. For it is value-creating, productive wage-labor that "is the basis for the existence of capital" (301). Without it, it can’t survive. "Productive labor, in its meaning for capitalist production, is wage-labor which, exchanged against the variable part of capital (the part of capital that is spent on wages), reproduces not only this part of the capital (or the value of its own labor-power), but in addition produces surplus value for the capitalist. It is only thereby that commodity or money is transformed into capital, is produced as capital. (This is the same as saying that it reproduces on an enlarged scale the sum of values expended on it, or that it gives in return more labor than it receives in the form of wages. Consequently, only that labor-power is productive which produces a value greater than its own." (300) Again, value and wealth are not the same. A doctor or an independent craftsman contribute to society's wealth but they don’t sell their labor for a wage to capital, so they don’t create surplus value. Conversely, some workers create commodities that don’t add one iota to the real wealth of society (for instance missiles, or tawdry luxuries), but the product of their work embodies more labor time than what they receive in return, so they are productive, value-creating workers. Marx unambiguously defines productive labor on the base of its social form, not its content. It is "labor which is directly exchanged with capital," while unproductive labor "is not exchanged with capital, but directly with revenue" (most likely, revenue of a capitalist but that doesn’t matter, since no new capital (surplus value) is created as a result of this exchange). "These definitions are therefore not derived from the material characteristics of labor (neither from the nature of its product nor from the particular character of the labor as concrete labor), but from the definite social form, the social relations of production, within which this labor is realised." (303) Marx goes on, illustrating this with the example of a clown, working for a capitalist to whom he returns more labor than he receives in the form of wages, and an (independent) tailor patching the same capitalist's trousers: the first is a value-creating laborer, the second is not. Or, to make the point even clearer: the cooks and waiters in a hotel are productive laborers, but when their same services are consumed by the person who employs them, they are not. The cook produces the same amount of wealth in both cases, but only in the first case, does the surplus value extracted by the capitalist who employs him enter the bloodstream of capital as profit. There is no profit in the second case, although the amount of money the capitalist spends on personal services obviously influences to what degree he participates in the accumulation of capital by investing, or fattening the hoard of financial capital, or buying other commodities, thereby realizing the value contained in them. More on this below.

Marx then explains that, the more "capital conquers the whole of production” – a situation that came to fruition in our age- , the more all production and services are commodified, and the rarer personal services directly exchanged against revenue become. “Consequently only a quite insignificant part of these unproductive laborers can play a direct part in material production once the capitalist mode of production has developed.” Marx is more prophetic than descriptive here. In his time, domestic service was still the second largest occupation. He is talking about the real domination of capital, of which he witnessed only the beginning: a totally commodified world. That means that there are many sectors now in which value is created which were unproductive before, even when the real wealth they create is the same (it isn’t, but the point is that they don’t create exchange value because they produce more use-values, but because the social form has changed, because surplus value has been extracted).

When Adam Smith analyzed productive labor this way, as a social form through which new capital is created, not something determined by its content, "he hit the nail on the head," Marx writes, and he calls it "one of his greatest scientific merits." (303) But he criticizes Smith for halfway abandoning "the determination of productive and unproductive laborers by their relation to capitalist production" in favor of one based on the content of the labor. Thus, an independent craftsman who makes commodities is productive, according to Smith, while a domestic servant isn’t. Marx rejects this and insists again: "The same labor can be productive when I buy it as a capitalist, as a producer, in order to create more value, and unproductive, when I buy it as a consumer, a sender of revenue, in order to consume its use-value, no matter whether this use-value perishes with the activity of the labor-power itself or materializes and fixes itself in an object" (309) The conceptual difference is not whether "this labor fixes itself in a material object" that is potentially "a vendible commodity." The cook who is a domestic servant creates a use-value (a dinner) consumed by his master, but the cook who is a wage worker creates an exchange-value, containing surplus value, which enables the capitalist "to buy and eat the same dinner again a second time" (or to invest or hoard the surplus value).

Does that mean that Marx’s concept of productive labor is indifferent to the actual result of that labor? Not entirely. After insisting again and again that "the designation of labor as productive labor has absolutely nothing to do with the determinate content of the labor, its special utility, or the particular use-value in which it manifests itself," (1325) he sees the need for "a second, different and subsidiary definition": it is "a characteristic of productive laborers, that is, laborers producing capital, that their labor realizes itself in commodities, in material wealth."(1329) So the result counts, because if productive labor is the labor that creates capital, then the result must also be capital and capital of a greater quantity than the money that bought that labor. That capital can only reappear in the new form of commodities, in which the productive labor is materialized. A commodity is defined by its two aspects: use-value and exchange-value. The first is entirely subjective. Its usefulness "may be of the most futile kind" but the fact that a product is bought, proves that it has use-value for someone. (The specificity of the use-value is of no importance in the framework of this analysis, but it is very important for the reproduction of capital – see below). The second results from the social form in which the commodity is created, the fact that it embodies more value than the labor power that created it.

This criterion obviously doesn’t mean that the labor of an individual worker must result in a commodity, only that it must be part of a joint effort that does. Must that labor be "material"? Marx criticized Smith for taking the requirement that productive labor "materializes" itself in the commodity too literally. "It may be that the concrete labor whose result it is, leaves no traces in it," he cautioned, "for example, when a commodity is brought from China to England, etc, no trace of the labor involved can be seen in the thing itself (…) Therefore the materialisation of labor must not be understood in that way." (313) Productive labor may leave the form of the commodity untouched but change it spatially. That gives the commodity a different use-value and a greater exchange-value. Or it may contribute intellectually, rather than physically to the joint effort. Marx "naturally includes in the labor which fixes or realizes itself in a vendible and exchangeable commodity all intellectual labors which are directly consumed in material production. Not only the laborer working directly with his hands or a machine, but [all those] whose joint labor (cooperation) is required for commodity production." (307). That would include the labor of workers in R and D departments. But what if the result of the labor is itself immaterial, like software? Marx would have loved to set his teeth in this question. He only analyzed the case of labor that has no material result because the living labor is its own purpose, such as the performance of a singer, on which more further on. But this has no bearing on software. I don’t see on what basis it can be denied that it is a commodity created by productive labor, without leaving the framework of Marx' theory. Marx disagreed with Smith's tendency to think that the commodity should have a tangible, permanent form, approvingly quoting Adolphe Blanqui, who wrote of Smith: "In restricting the sphere of wealth exclusively to those values which are embodied in material substances, he erased from the book of production the whole boundless mass of immaterial values." (314)

The world of commodities can be divided in two parts, Marx wrote, the commodity labor power and all the others. Labor power is the essential commodity, its existence as a commodity is what defines capitalism. Its value, as of other commodities, is not determined by its specific use-value, but by the value of the labor that creates and reproduces it. So that labor is just as productive as the labor which creates other commodities. The labor power of a skilled worker has more value than the labor power of the unskilled, not because it is more useful (it probably is, but that doesn’t matter here) but because social labor time has been spent on the acquisition of these skills. That labor has increased the value of the worker, and if it has been accomplished by workers for capital, surplus value has been created, and materialized, albeit in an intangible, "immaterial," way, in the commodity skilled labor power.

So Marx refined his definition: "productive labor would therefore be such labor as produces commodities or directly produces, trains, develops, maintains or reproduces labor-power itself." (313) Smith excluded the latter from his category of productive labor and Marx criticizes him for this arbitrary omission. Labor power is a commodity, is capital, therefore living labor that adds value to it creates capital and is productive. It's true that Marx considered services unproductive labor but he defined "services" quite differently from the way the term is commonly used. For him, it is not the content of the labor or its specific use-value that defines a service, but the fact that the labor power is bought for its use-value, not for the creation of capital by way of extracting surplus value. "In the purchase of services the specific relation between labor and capital is in no way involved (1326). If I, a capitalist, hire a worker to paint my house, I buy his labor-power for its use-value, not to create exchange-value. He performs a service and is an unproductive worker. If I hire a company to paint my house, the same worker who does the job, does not perform a service but creates capital for his boss who appropriates his surplus value. In both cases I am a capitalist, but in the first I don’t act as a representative of capital. In both cases, the same work is done by the same worker, but in the first case he performs a service, in the second he is a productive worker.

The issue is not, as ER mistakenly states in a recent article on the same subject in the CWO-publication Revolutionary Perspectives ( "The Value of Capitalist Services", RP 36, p.22) that "no matter how 'valued' the service may be to the purchaser, in term's of society’s overall wealth they generate no new value because the recipient of the service pays for the full amount of labor expended in creating it." This isn't about "society's overall wealth," but about capital. The purchaser of the service may or may not pay the full amount of the value of the labor of the service-provider. More likely than not, he doesn't, because the supply of these services often exceeds demand, especially if it requires no special skills. The purchaser may buy the service under its value but he does not buy the labor-power as productive capital.

This context allows for a better understanding of the quote you use from the same chapter (chapter 4, not 3) of Theories of Surplus-value: "The doctor's services belong to the faux frais of production. They can be counted as the cost of repairs for labour-power. Let us assume that wages and profit fell simultaneously from whatever cause... If in such situation capitalist and workman wanted to consume the same amount of value in material things they did before, they would have to buy less of the services of the doctor, schoolmaster, etc. And if they were compelled to continue the same outlay for both these services then they would have to restrict their consumption of other things. It is therefore clear that the labour of the doctor and the schoolmaster does not directly create the fund out of which they are paid, although their labours enter into the production costs of the fund which creates all values whatsoever, namely the production costs of labour-power".

For you that shows that, for Marx, "doctors do not create value." True, but why? For you the content of the work is decisive, since even when the same health care is provided by a hospital run as a capitalist enterprise, "no value has been created at any point - the hospital has simply 'captured' some value created elsewhere." There you part ways with Marx. For Marx, all costs on services created outside the capitalist social form, are 'faux frais' (unproductive expenses) for capital, those of a doctor as well as of a blacksmith. The only reason the doctor and schoolmaster do not directly create the fund out of which they are paid, is that they stand outside capital (in Marx's time). "This relation has nothing to do with the exchange of capital for labor; therefore also it has nothing to do with the distinction between productive and unproductive labor" (1328). Whether or not they are paid out of revenue isn’t the issue. "All products in so far as they enter into individual consumption," are paid out of revenue, Marx remarks, but that doesn’t mean that no value is created and appropriated by capital in their production (310). The question of by whom the commodity is bought or for what purpose, does not enter into the determination of whether the labor that created it was productive or not. It pertains not to the creation of value but to the consumption of value, a separate issue which I'll discuss below. As for the result of the labor of doctors and schoolmasters, note that Marx in the passage you quote clearly states that it contributes to the production of labor-power. Provided that this labor is performed in the social form of wage labor, it clearly meets Marx’s standard for value-creating labor: "labor as produces commodities or directly produces, trains, develops, maintains or reproduces labor-power itself." Indeed it would be difficult to find a better example of labor that trains labor-power than that of a teacher, or of labor that maintains labor-power than that of the health-worker. On the case of the teacher, Marx is explicit: "A schoolmaster who instructs others is not a productive worker. But a schoolmaster who works for wages in an institution along with others, using his own labor to increase the money of the entrepreneur who owns the knowledge-mongering institution, is a productive worker." He adds: "But for the most part, work of this sort has scarcely reached the stage of being subsumed even formally under capital, and belongs essentially to a transitional stage" (Results 484). I’ve got news for you: the transition, in this regard, is over. Education has become a commodity in which value is materialized. Whether its production is organized by the state or by private companies is irrelevant, contrary to what ER states in the article quoted above. ER thinks that health workers and education workers are unproductive because they "are paid out of taxation, that is out of society's revenue and though they provide a more or less useful service, the cost of their labor power is a drain on the overall pool of surplus value" (op.cit., p.26). ER finds proof of this position in the fact that "Gordon Brown and Co. are quick to perceive education, hospitals and welfare spending in general as a drain" and try to cut it. ER confuses the state's attacks on the price and value of variable capital with attempts to reduce unproductive labor. ER further affirms that, when the state privatizes health-care, the health-care workers suddenly become productive. It seems to me that the CWO is taking the "capitalist" out of "state-capitalist."

The health worker and teacher, provided that they are wage workers, are not among those cases where there can be any doubt: in the Marxian sense, they are clearly productive, and thus value-creating workers. The same is true for workers employed in R and D, for example those who create new software. There are other categories of workers whose productivity is more doubtful. What about singers, entertainers, prostitutes? We're talking about a sector which was relatively insignificant in the wider economy in Marx's time but which has grown and is still growing in our days. For some of those laboring in the entertainment industry, their income does not reflect the value of their labor power but flows from the relatively monopolistic market position which their (real or imagined) unique qualities gives them. They are the stars that populate the spectacle and marginalize the lesser (or lesser pushed) entertainers, just like the big capitalists drive out the small ones. They obviously receive more value than they give and therefore don't create value; they are not workers, not to mention productive ones. But what about the many others, not so fortunate? Marx is not so clear on this question. More than once he affirms that they are productive, if they provide for their employer more labor-time than they receive in return: "A singer who sells her song for her own account is an unproductive laborer. But the same singer commissioned by an entrepreneur to sing in order to make money for him is a productive laborer; for she produces capital" (1324). But elsewhere he seemed to disagree with himself and to imply that this singer, even if she is a wage-worker, and even if her performance is sold as a commodity by a company, is not productive, not because she is paid out of revenue, but because “the commodity appears as past, objectivised labor, and that therefore, if it does not appear in the form of a thing, it can only appear in the form of labor-power itself; but never directly as living labor itself” (313). Not as a thing but in the form of labor-power itself, but never as living labor itself? Could you be more obscure, Karl? Sure he can, for he continues: "Except only in a roundabout way which in practice seems the same but whose significance lies in the determination of different rates of wages." Karl, please! He could have used a better editor sometimes. Anyway, I think he probably meant that, if the labor is not materialized in an actual commodity that is not consumed in the act of producing it, it must add value to the commodity labor power in order to be productive. That interpretation is consistent with his framework, but in practice it would be difficult, if not impossible to determine which labor actually contributes to restoring labor power and which doesn’t. Even in the poorest segments of the working class and at the worst of times, some form of entertainment, food for the imagination, is deemed a vital necessity. In that way even singers can be seen as contributing to the reproduction of the commodity labor power. I admit this is shifty ground. Marx wrote that Smith, by excluding work that contributed to the value of the commodity labor power from productive labor, was wrong but that he made this mistake "with a certain correct instinct." You have to include it, but this holds the risk that it "would open the floodgates for false pretensions to the title of productive labor" (313). Nevertheless. Take a resort that caters to working class families. Cooks, waiters, housekeepers, gardeners, lifeguards, accountants, musicians, all contribute to the package, the commodity that is sold to the customers and that makes them able to perform yet another year of stultifying labor. Some of them have created tangible objects, others fleeting sounds. It doesn’t matter. A commodity with a use-value and an exchange-value has been jointly created. This commodity is expanded capital, materialised in the profit of the resort and in the fact that the use-value and exchange-value of a rested, healthy worker is different from that of an exhausted and sick one.

There are many other occupations whose productive character is dubious. The absorption and transformation of many professions into "the collective worker" makes the borders of the category of productive labor fuzzy. The more the labor process is a collective, interdependent undertaking, the more difficult it is to evaluate which labor adds value to the product and which merely increases its price. After explaining that labor from many different sources (manual and intellectual, managing and executing) contributes value to the commodity, Marx asks: "(How far is this true of bankers, etc.?)" (308). He doesn’t answer the question. Although in general, banking is clearly parasitical to productive labor, doesn’t create any value but reshuffles value that has already been created, the case can be made that to some extent, in the financial sector too real commodities are created. Retail: to the extent that it puts the commodities at the disposal of customers, it is productive (like transport), to the extent that it is just buying and selling them, it is not. In general practically all companies employ to a greater or lesser degree unproductive labor. Then there are those where all labor is unproductive, because no commodities, and thus no value is created: such is the case for the labor of tax collectors, real estate agents, all those whose work consists of buying and selling, soldiers etc., they may be workers, but not productive ones. Less can be said of occupations whose function is directed against the working class and who are therefore outside of it, regardless of the level of their wages, such as politicians and policemen (which doesn’t mean that there is no difference between a lowly cop and a CEO).

So your view that "a service worker may be productive for a particular capital without being productive for capital as a whole," based on the material content of his labor, disagrees with that of Marx. I'm open to the possibility that he was wrong, but so far it seems to me that you're mistaken. Why is this mistake so common? I’ll let Marx answer:

"The desire to define productive and unproductive labor in terms of their material content has a threefold source.

(Results, 485)

The third one may be the most persistant source of confusion because it is a correct observation. In the process of reproduction, the material content of the labor, the specificity of the use-value of its product, IS very important. But that falls not under the creation of value, but its circulation (consumption) a question I'll briefly consider now. That you mix up those two distinct phases, is shown in the fact that you imply that "labor is not sufficient to create value; value is realized through the market." The latter is true, but a successful sale does not retroactively determine whether value has been created or not.

2. The consumption of value

"The production of surplus-value completes but the first act of the capitalist process of production –the direct production process. Now comes the second act of the process." (Capital III, p.244. Penguin). The second act must accomplish two things:

1.The commodities must be sold in order to realize the value materialized in them. That frees the exchange value they contain by giving it the form of "the universal commodity" (money) and thereby making it transformable again into any other commodity.

2.This process must circulate the value in such a way that capital reproduces itself in an expanded way: the means of production and of subsistence, the privileged wealth of the ruling class, the hoard of financial capital, are all essential components of the capitalist world and must be reproduced in a way that absorbs the value created in the first act. Now the material content, the specific use-value of the commodities becomes decisive.

"The transformation of one portion of the [total] product's value back into capital, the entry of another part into the individual consumption of the capitalist and the working classes, forms a movement within the value of the product in which the total capital has resulted; and this movement is not only a replacement of values, but a replacement of materials, and it therefore conditioned not just by the mutual relations of the value components of the social product but equally by their use-values, their material shape." (Capital II, p 470, Penguin) In order to achieve the necessary balance between the different components of the capitalist world, value has to be able to leave one material form and take on another, which is only possible if the sum of their specific use-values corresponds to the needs of expanding global capital. This is most obvious for the components of the production process: capitalist accumulation is possible only if the surplus product that contains the surplus value, already contains the material constituents of a new, expanded productive capital. That is what Marx analyzed in Capital II (he was lavishly praised for it even by the pope of bourgeois economics, Paul Samuelson, who called it a sterling performance. No economist before or after him even tried to analyze the coherence of global capital as M. did. Samuelson liked it because Marx showed that capitalism is an inherently growing, self-expanding mechanism. He showed how capital, through productive consumption of the value it had itself created, could grow if it achieved a proportionality between its branches of production, both in exchange-value and in use-values. Marx showed the possibility of this balance but also its necessity. By no means did he imply that it is achieved automatically through Smith's "invisible hand" (of the market). What he wanted to unveil is that capitalism is a cycle of value, not that this cycle is airtight. To the contrary, it is leaking value all over, but that is not what is analyzed in Capital II).

In order to become the new capital of the next cycle of production, surplus value must be productively consumed. But that doesn’t mean that accumulation requires that all of it is productively consumed or that accumulation will go smoother the more of it is productively consumed. A balance must be struck between productive and unproductive consumption. It is obvious that, if there is a "disproportionate diversion of productive labor into unreproductive articles, it follows that the means of subsistence or production will not be reproduced in the necessary quantities." (Results, 484) But it's also true that too much production destined by its material content for productive consumption will hurt accumulation. Productive consumption is not a goal in itself for capital. This is obvious as far as the consumption by the working class goes, which capital by definition seeks to limit as much as it can. But also “constant capital is never produced for its own sake but solely because more of it is needed in spheres of production whose products go into individual consumption" (Capital III). So if unproductive consumption is not large enough, the production of goods destined for productive consumption overaccumulates, and the value contained in them cannot be realized. Likewise, if the demand for unreproductive goods is too low, a portion of the surplus value contained in them cannot be realized and cannot be transformed in other forms of capital. So "luxury goods are absolutely necessary for a mode of production which created wealth for the non-producer and which therefore must provide that wealth in forms which permit its acquisition" (Results, 484).

Likewise, part of the value created must not be consumed, either productively or unproductively, but must be stored in financial commodities or goods that share with money a relative liquidity (transformability in other value-forms) and a (seeming) unperishability, a capacity to store value. Accumulation requires saving; exchange value must be able to leave circulation and return to it later. There must be a hoard of money capital which functions as latent productive capital, that flows into the sphere of production when accumulation requires it. Again it's a question of balance, of proportionality. Accumulation requires financial capital whose quantity is "sufficient for circulation [of the total product] and for the hoard-formation (reserve fund etc) conditioned by this circulation" (Capital II, p. 418). It can not be less than that without restricting accumulation, but neither can it exceed that, or the hoard-formation is unchecked by the value in circulation (on which the value of money ultimately rests) and a bubble of fictitious capital develops. Like today.

The point is, capitalism is not so much a healthy productive part burdened with a useless unproductive part than a complex system of precarious balances, of which the one between Department I and II is just one (admittedly the first one). Together they make accumulation, the value-cycle M-C-M, possible. But, as we in IP have analyzed in several texts, as a result of the transition to the real domination of capital, the expansion of exchange-value and of use-values are set on different courses which upsets all these balances. It upsets M-C as the general rate of profit falls, it upsets C-M as the balance between sectors of production and between reproductive and non-reproductive commodities is increasingly disrupted (more on that below) and it upsets M-C on the other end by the runaway growth of fictitious capital.

More on this in other texts. But the inbalance between sectors of production requires a bit more explanation here. Capitalist production is a hunt for the highest rate of profit but the movements of capital constantly tend to equalize the profit rate. The tendential fall of labor in production sets this rate on a downward course. The more this occurs –and the finality of productive demand vis a vis the ever greater capacity to produce spreads it and creates the threat of having to sell below value- the more the capitalist seeks to escape from it. There are basically two ways. One is to produce an existing commodity with a lower value than its social (market) value (realizing a surplus profit but also realizing the tendency of the profit to fall, by (over time) pulling the market value down). The other is to create a new commodity (or the perception of newness), thereby obtaining a (fleeting) monopoly over it and the ability to charge a monopoly-price and obtain a surplus profit (you and I discussed monopoly-profit before and agree on the analysis which shows that it does not come from the workers who make these new products (they are the source of the "normal" profit of that company and may be very low) but is obtained on the market and orginates in surplus value created elsewhere). Both of these ways to escape from the falling rate of profit depend on an elasticity that is not the same in different sectors of production. Department I (the production of means of production) is inherently more impacted by technological change than department II (the production of means of subsistence). That distorts the balance between them as is most visible in the gigantic moral depreciation of fixed capital: the discarding of machines or whole factories long before they have transferred their value because they are replaced by superior ones is a growing phenomenon which reveals chronic overaccumulation in dep.I. Economically, it is the same as overproduction: part of the value contained in commodities cannot be realized and is thrown away. But the sector can live with it because its more rapid pace of technological change lifts its profit-rate over that of Dep.II. Likewise, the opportunity of monopoly-profits is greater in regard to the needs of the privileged class than for means of subsistence in general. Newness, perceived or real, is more attractive for those who already have everything. So the creation of new use-values is primarily focused on unproductive consumption. The higher profit-potential implies that it is taking surplus value away from productive consumption, fostering an inbalance between them. 3. The value of software

The greater the general context of overaccumulation, the more important monopolism as a means to surplus profits, becomes. That I discussed already in my earlier answer to you. So that brings us back to the origin of this debate: the value of software.

Let's say that the creation of a particular new software requires 1000 hours of social labor time, most of it in R and D. Let's assume that the workers receive the equivalent of 500 hours of social labor time in return. The capitalist has received 500 hours for free. But that's not value, you say, because the software is not a commodity, it is not marketed in a one-time sale. Marx thought that the fact that a commodity is not directly put on the market doesn't mean that no value is created in its production. For example, a capitalist produces a means of production in his own factory, instead of buying it on the market. The value created in the development of that machine is realized, instead of by its sale, by its transfer into the final commodities. (313) That would be the case if the capitalist is a technological innovator and is the first to introduce a new machine. Marx observed somewhere in Capital I, I forget where exactly, that such innovators often went bankrupt, while other capitalists reaped the benefits of their work. Why? Not because the labor spent on the new machine was not value-creating. But that labor only determines the individual value of the machine, not its social value. The latter is determined by the socially average labor time needed to produce that machine, in other words, by its reproduction cost. Since the R and D cost must not be repeated, the reproduction cost and thus the social value fell and the innovative capitalist couldn't recuperate the value he created and went under. That is discouraging innovation while the competitive position of the national capital depends on it. Hence the increasing role of the state in R and D and the expansion of legal protection of monopolies over new products. The latter makes it possible to recuperate the value created in the prototype, either from the sale of the copies of the prototype if it itself is a final product or of the commodities that are made with it. It is the same thing with software, pharmaceuticals, biotechnology etc. today, except that the gap between the production costs and the reproduction costs are now much greater. The production costs are often very high, which has lead many global corporations leading in technological change to make cartel-like deals to share the costs of R and D. If it is not the value of their production costs that they seek to lower, then what is it? The production of computer chips is a good example of this. At the same time, the part of the direct production costs (constant and variable capital) in the price of the computer chips has fallen to single digits. The social value, the reproduction cost, falls ever lower.

Given the overall context of overaccumulation and of falling social value, the hunt for profit pushes capital more and more to monopolism. It doesn’t mean that every capital is oriented that way but that the general trend is in that direction and that this further aggravates capitalism's inbalances. As you noted, the cost of product development acts as a threshold to keep out weaker capitals. This too confirms Marx's forecasts. The value of the product falls in relation to the value of the means of production, and the faster the technological innovation, the more so. It is in this fall of value that the opportunity for surplus profit arises, but at the same time it realizes Marx’s law of the tendential fall of the rate of profit and impedes capital formation. One of the paradoxes of this dynamic is that the stronger capitals get access to more profit while capital as a whole weakens. The capitalist can read the figures. The highest rates of profit in the US are in the sectors with the greatest opportunities for monopolies based on new product development (pharmaceuticals, financial services, biotechnology, software, in that order, according to a recent report) (Standard & Poor's Compustat)

If I'm saying that the value of the original is recuperated through the sale of the copies, am I not saying the same thing as the comrades who claimed that the value of the original is transferred, and thus contained in, the copies? No. If the latter were true, there would be no need for legal protection, normal market forces would realize that value. This is not what happens. Without the state's intervention the market price would fall to the social value, which it more or less does where the state’s reach is weak. Whether this intervention allows for the recuperation of the value of the commodity or not or, more likely, much more than that, has little to do with the value created in it and much more with the power of the state. Intellectual property rights are being continuously expanded. What determines whether a patent lasts 5, 10 or 40 years? Not its value, only the strength of the state to enforce it.

So this trend of monopolism through technological (and other) changes, while creating opportunities to escape from the general tendency of declining profit, depends on the "rule of law," on capital's general control over society. But it also strengthens this tendency (of a falling profit-rate) by lowering the value of production and (paradoxically) raising the threshold too high for capital-formation and thus productive labor. And that weakens capital's general control over society. One of the consequences is that, the more it breaks down, the more prices fall to values, and the more the rule of the ruling class is resisted, the more goods with little or no value can be de-commodified, impacting the relations in which they function.

But the importance of that is in what it clarifies, in showing that the law of value is not a natural law that we are obliged to follow but an outdated human construct like horse carriages. So the significance of this de-commodification is political, not economic. The capitalist world is a complex totality so interwoven that it can only change as a totality, not by nibbling at its flanks and creating islands of communism. It would be easy to underestimate capitalism’s capacity to recuperate de-commodification. But in the longer run, I don't see how it can stop what causes it. In this regard, I agree with Raoul: the sense of history is going against capitalism. Call me an optimist.


Note - All quotes from Marx, unless otherwise indicated, are from Theories of Surplus Value and from The Results of The Direct Production Process, the so-called unpublished chapter of Capital (in the latter case the page number is preceded by the word Results). I used the manuscript-page numbers because that makes it easier to find the source of the quotations in different editions. )

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