O'Hara, Phllip Anthony 2006 'Karl Marx on the Contradictory Dynamics of Capitalism-- Innovation, Globalisation and Competition in the 'Grundisse'' (Nov., 32 Pp.)

7/27/2019 O'Hara, Phllip Anthony 2006 'Karl Marx on the Contradictory Dynamics of Capitalism-- Innovation, Globalisation an

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Karl Marx on the Contradictory Dynamics of Capitalism:

Innovation, Globalisation and Competition in the Grundrisse[*]

by Phillip Anthony OHara, November 2006

Global Political Economy Research Unit

Economics Department

CurtinUniversity

GPO Box U1987

Perth. WA. 6845

Australia

[email protected]

Draft. Latest Version online at: -

http://pohara.homestead.com/files/marx.doc

[8,509 words; 4pm, 17 November 2006]

ABSTRACT

This paper examines an important substantive, but little known, series oftheoretical innovations developed by Karl Marx in the Grundrisse (1857-58).This triad of innovations include, first and foremost, an explanation ofendogenous contradiction linked to technological change; attempts tosurmount this barrier through expanding consumer wants, needs and globalmarkets; and the dynamic outcome of competition. We formalise Marxs

examples of technological contradiction; illustrate how it links to globalisationthrough a model developed by Marx; and then relate it to the competitivedistribution of surplus value. The significance of this work is then explainedvis--vis Marxs project of the political economy of capitalism.
mailto:[email protected]://pohara.homestead.com/files/Marx.docmailto:[email protected]://pohara.homestead.com/files/Marx.doc


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Keywords

Karl Marx, Grundrisse, technological change, marginal surplus labour time,globalisation, competition

Phillip Anthony OHara is Professor of Global Political Economy and Governance inthe Global Political Economy Research Unit, Curtin University, Perth Australia. Hehas published more than 60 articles in refereed journals and edited books, and is onthe editorial board of the Review of Social Economy, Intervention Journal ofEconomics and the International Journal of Human Development.

Karl Marx on the Contradictory Dynamics of Capitalism:Innovation, Globalisation and Competition in the Grundrisse

ABSTRACT

This paper examines an important substantive, but little known, series of

theoretical innovations developed by Karl Marx in the Grundrisse (1857-58).

This triad of innovations include, first and foremost, an explanation ofendogenous contradiction linked to technological change; attempts to

surmount this barrier through expanding consumer wants, needs and global

markets; and the dynamic outcome of competition. We formalise Marxs

examples of technological contradiction; illustrate how it links to globalisation

through a model developed by Marx; and then relate it to the competitive

distribution of surplus value. The significance of this work is then explained

vis--vis Marxs project of the political economy of capitalism.


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Keywords

Karl Marx, Grundrisse, technological change, marginal surplus labour time,

turnover, competition

1. Introduction

Marxian political economy has historically emphasised the rate of profit and its

many factors in determining the tendency to crisis and instability. Usually

variables such as the organic composition of capital, the rate of surplus value,

the turnover of capital, competition, and the role of money and finance have

been seen as the critical elements affecting the rate of profit, business cycles

and the dynamics of capital. This is influenced by Karl Marxs (1818-1883)

analysis in the three volumes of Capital (Marx 1867, 1885, 1894). It has to be

mentioned, however, that it took some considerable time for the factors

emphasised in volumes two and three of Capital (which were completed in

the 1870s) to fully come to play in the literature, given the lateness with

which they were published and then translated in English and thus examinable

by a larger audience.[1]

Marx had, however, already provided a comprehensive outline of his researchprogram in the Grundrisse manuscripts of 1857-58. Written entirely for self-clarification, it is perhaps understandable that their availability in any

language was severely constrained (very much more than Capital). Forinstance, it wasnt until 1939-41 that a very limited (2 volume) editionappeared in German, and 1973 that it was published in English.[2] The Englishtranslation led to a flurry of articles in the late 1970s and 1980s, especially onmethodology.[3] It wasnt apparent to many scholars, however, that anysubstantive innovations might appear in the manuscripts. Yet in the GrundisseMarx did create a model of technological change that led to endogenouscontradictions likely affecting the rate of profit, business cycles and the


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reproduction of capital, that were never even mentioned in any of his otherdocuments, including Capital.

The current paper, therefore, scrutinises closely this contradiction affecting

capitalism, and explains how it links to Marxs analysis of surplus labour time,globalisation, and competition. The paper commences with a brief outline ofthe significance of the Grundrisse. Then the innovatory theory of contradictionis outlined, followed by a formal model of how the contradiction affectssurplus labour time. A further section explains how Marx viewed circulation aspotentially transcending this contradiction, while creating a further layer ofbarriers and limits. Next the influence of new markets and turnover is linkedto competition as a potential way of overcoming the limits of profitability.Then the significance of these Grundrisse innovations are discussed vis--visMarxs political economy of capitalism.

2. Method in the Grundrisse

Marx developed his political economy of capitalism through a whole series of

books and manuscripts in the 1840s-1870s. In 1844 he wrote the Paris

Manuscripts where the role of labour and alienation was developed (Marx

1844). Later, in 1846-47 he wrote a political economy critique of Pierre

Proudhons Philosophy of Povertyin his Philosophy of Poverty(Marx 1846-47).

Around the time of the 1848 revolutions he wrote the Manifesto of the

Communist Partywith Engels, where some critical hypotheses are developed

on the global trend of capitalism and the inner contradictions associated with

the positive and negative tendencies of the system (Marx and Engels 1847-48).

He wrote that the major contradiction of capitalism lies in the incessant

global drive to accumulation and profitability while the social fabric is subject

to instability and destruction.

Then in the 1850s he studied political economy at the British museum andwhile an economic crisis was emerging he quickly wrote down the foundationsof his political economy of capitalism. This 800-page manuscript, written


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entirely for self-clarification, was called the Grundrisse der Kritik derPolitischen konomie (English title: Grundrisse: Foundations of the Critiqueof Political Economy, Rough Draft), written between August 1857 and June1858. Here for the first time was a detailed analysis of Marxs alternativepolitical economy of capitalism. As Allen Oakley says of these Grundrissemanuscripts:

[I]t was an incrediblefirst effort at a substantially independent criticalanalysis of the political economy of capitalism. In one relatively short burstof effort, Marx revealed a deep critical insight into the law of motion ofthe system that would carry through into the rest of his critical theory. TheGrundrisse was to be very much the foundation piece for the magnumopus, Capital. It represents Marxs first large scale attempt to set downhis critical theory and its analyses went far beyond those in any knownearlier writings in their degree of sophistication. The studies of the early1850s and earlier were now coming to fruition. (Oakley 1983: 53)Three things stand out in the Grundrisse from the point of view ofcomprehending the contradictory dynamics of the system. First, Marx situatedhis analysis within the context of a six book plan, in which he thought itnecessary to develop six successive models, including:

A1. Capital

2. Wage Labour

3. Landed property B4. The state

5. Foreign trade

6. World market and crises

Variations on this plan were developed during 1857-1862, but the essence of

them was that Marx sought to comprehend capitalism through the method of

successive approximation. The model of capital would be linked to that of

wage labour, and then landed property; followed by linkages to the state,

foreign trade and the world market. By the time the framework was linked to

the world market, crises could then be comprehended in their full complexity


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and concreteness. Hence, capital was to be the first of a whole series of

models about capitalism. Whether he finally changed his mind about what he

could complete in his lifetime, or whether he modified the whole analysis, it is

probable that he believed in the needto link the dynamics of capital to wage

labour, landed property, the state, foreign trade and the world market and

crises.

Secondly, his analysis of contradictions in the Grundrisse was very complexand holistic inasmuch as he viewed contradictions as emanating from manyaspects of capital: the sphere of production, the sphere of circulation,

competition, and likely also wage labour, landed property, the state and theworld market. Under the influence of G.W.F. Hegel (1770-1831), whoseScience of Logic Marx re-read around this time, contradictions were seen asthe endogenous conflicts that emerged from the many-faceted dynamics ofthe system, where the positive and negative forces were both necessary forand inextricably linked to each other (Hegel 1812-16). For instance, thepositive elements of capital associated with the incessant drive totechnological change, opening up new markets and creating new needs anddemands were endogenously linked to the major negative elements of thesystem associated with business cycles, unemployment, and inequality. Marx

was the economist par excellence in comprehending the way in whichelements of the system were structurally connected.

Thirdly, because the Grundrisse elaborated material that went beyond Capitalvolumes 1-3, it is possible to gain substantive knowledge from the 1857-58manuscript that is not found in his most well-known works. And it is still truethat despite much being written on the Grundrisse in the late 1970s and1980s there is much to learn from this document that is still largely hiddenfrom view. For instance, there is a clear analysis of a core contradictioninvolved in additions to surplus value emanating from technological change;

the circulatory tendencies of the system through the world economy; andcompetition. This thread of argument is the focus of this paper.

In developing an understanding of contradictions and laws of motion, Marx wasto concentrate on the capitalist mode of production, and abstract from allelements that were not central to this system. As he said:


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Whenever we speak of production, then, what is meant is alwaysproduction at a definite stage of social development production by social individuals. [T]he result of the process of production and realization is,above all, the reproduction and new production of the relation of capitaland labour itself, of capitalist and worker. This social relation, productionrelation, appears in fact as an even more important result of the processthan its material results. (Marx 1857-58: 85, 458; original emphasis)[4]

It is within the framework of this method to concentrate on the specifics of

the system that we delve into the contribution of the Grundrisse and in

particular to examine the linkages between technological change; the

tendency to expand needs, demand and circulation on a world scale; and

competition. The first stage of this comprehending Marxs analysis of the

dynamics of surplus labour time vis--vis technological change is analysed in

the next section.

3. Surplus Labour Time Contradictions of Technological Change

Marx developed in the Grundrisse a model of a crucial contradiction

emanating from technological change that was never discussed in any of his

other works. The foundation of it was the well-known model of the necessary

and surplus portions of the working day, whereby the original division of the

working day is 0.9 for necessary labour time (to produce wage goods) and 0.1

for surplus labour time (to produce commodities for realising profit). Here, of

course, we are working purely within the sphere of production and not yet

examining the extent to which the surplus becomes valorised through

exchange.

Marx applies this necessary-surplus labour time model to his maincontradiction of technological change. He came up with a verbal and


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arithmetic explanation of the results of technological change on labourproductivity for what we call marginal surplus labour time (MSLT). Hisdiscussion of this production contradiction took more than 100 pages (Marx1857-58: 333-447). We can start formalise this by stating the main assumptionsas follows:

Assumptions of the Surplus Value Technological Change Model

1. The total working day (labour time) is constant (10 hours) (1.0);

2. The original division of the working day is 9 hours (0.9) for necessary and1 hour (0.1) for surplus labour time;

3. Each successive time period (t, t+1, etc) represents a doubling ofproductivity relative to the previous period;

4. There are two classes: workers and capitalists;

5. Innovation tends to substitute capital for labour;

6. The economy is closed with no foreign trade or overseas capitalmovements;

7. Labour time is realised through exchange into value and surplus value.

We can now introduce three equations related to this model, below:

(1) Nt

=

(2) St

= (1 )

(3) St

St-1

= (1 ) (1 )

where:

N = necessary labour time (proportion of total workday);


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t

= the magnitude of increase in the productive forces for every movement

through time (t1=1, t

2=2, t

3=4, t

4=8, t

5=16, t

6=32, etc);

S = surplus labour time (proportion of total workday);

t = 1, 2, 3, 4, 5,, n (for successive time-revolutions of the productive forces).

Below we examine the impact on surplus labour time of successive

technological changes that revolutionise production. The results are shown

below for ten time periods:

Figure 1: Technological Change and Marginal Surplus Labour Time

Time(t)

NecessaryLabour Time

Nt

SurplusLabour Time

St

Marginal Surplus

Labour Time

(1 )(1 )=

Marginal SurplusLabour Time

St

St-1

1 0.9 (N1) 0.1

2 0.45000 0.55000 (1- ) (1- ) = 0.45000

3 0.22500 0.77500 (1- ) (1- ) = 0.22500

4 0.11250 0.88750 (1- ) (1- ) = 0.11250

5 0.05625 0.94375 (1- ) (1- ) = 0.05625

6 0.02813 0.97187 (1- ) (1- ) = 0.02813


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7 0.01406 0.98600 (1- ) (1- ) = 0.01406

8 0.00703 0.99297(1- ) (1- ) =

0.00703

9 0.00352 0.99648 (1- ) (1- ) = 0.00352

10 0.00176 0.99825 (1- ) (1- ) = 0.00176

This model expresses what Marx develops verbally and conceptually. The main

point he is making is that a critical barrier or limit to capital is that the

greater the level of productivity the lower the marginal expansion of surplus

labour time. Although surplus labour increases, it does so through smaller and

smaller amounts over time. As the model shows, surplus labour time

diminishes by half every time productivity doubles, until it approximates zero.

This is a major limit to capital. As Marx said:The surplus value [sic] of capital does not increase as does the multiplier ofthe productive force. Thus if necessary labour= of the living work dayand the productive force doubles, then the value of [surplus] does notdouble, but grows by 1/8 Its surplus value rises, but in an ever smallerrelation to the development to the productive forces. Thus the moredeveloped capital already is, the more surplus labour it has created, themore terribly must it develop the productive force in order to realise itselfonly in smaller proportion, i.e. to add surplus value because its barrier

always remains the relation between the fractional part of the day whichexpresses necessary labour, and the entire working day. The self-realisation of capital becomes more difficult to the extent that it hasalready developed. (Marx 1857-58: 339-340)

This decline in marginal surplus labour time (MSLT) is an endogenous

contradiction in the sense that the very dynamics of capitalism propelling


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value from innovation restrains technological change in the future, due to thedeclining marginal conditions of potentially investible surplus. The decliningmarginal surplus labour time constrains surplus value, which in turn inhibitsfurther innovation due to the marginal limits to investment. At the same time,the declining margin pushes capital to expand technological change evenfaster to propel marginal surplus. Thirdly, the ability to realise surplus labourtime through money is limited by these production barriers, since circulationrequires expanding production conditions. Exchange is based on productivecapital and cannot expand capital of itself. And lastly, there are limits to thegeneration of use values set up by the declining marginal conditions, as usefulproduction is the basis of productive exchange in the market. Use values of aconsumption, production, service and spatial nature must be generated inorder for exchange to be sustainingly reproduced.

Marx thus sees the contradictions from many angles as production andcirculation must take on a unity in order to be reproduced in a sustainablefashion. There are thus limits in relation to wages, innovation, exchange anduse values in these declining marginal conditions. These manifest themselvesin instability, crises and uneven accumulation. As Marx said:

Further, as we have seen, relative surplus value rises much more slowlythan the force[s] of production, and moreover this proportion grows evensmaller as the magnitude reached by the productive forces is greater. But to the same degree as the mass of products grows, so grows thedifficulty of realizing the labour time contained in them because the demands on consumption rise. (Marx 1857-58: 422)

Marx shows here that the declining marginal surplus labour time is both

necessary to technological change under capitalism and also sets up a barrier

to reproduction. Consumer goods demand is limited as the variable capital

operates in proportion to the declining marginal surplus labour time. Working

class demand and surplus thus do not grow anywhere near proportionately tothe increasing rate of production. He goes on to say that we have

overproduction: ie the sudden recall of all these necessary moments of

production founded on capital since the higher development of capital, the

more it appears as [a] barrier to production hence also to consumption


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(Marx 857-58:416)

Marx then seeks to understand how these contradictions, which limit capitalistreproduction, are sought to be surmounted in order to potentially resolve thelimits and barriers. In this he also shows how this surmounting processgenerates further tapestries of problems as the contradictions play out at ahigher level. We must thus introduce the sphere of circulation associated withdemand, turnover and globalization.

4. Contradictions between Production and Circulation

Demand, Turnover and Globalization

When Marx analysed production in the Grundrisse he recognised the

endogenous generation of contradictions concerning problems in expanding

additions to surplus labour time through technological change. He realised

that capitalism is the most revolutionary system as yet seen on Earth, and

being a dynamic system it seeks to overcome such barriers through expansion.

Periodic overproduction is inherent in the tendencies of technological change.

But capital responds by propelling circulation activities through the

enhancement of wants, new commodities, markets, and globalisation. The

circulation process must thus overcome to some degree the limits of

production by expanding over these barriers and creating new opportunitiesby market expansion. As Marx said:

A precondition of production based on capital is therefore the productionof a constantly widening sphere of circulation. The tendency to createthe world market is directly given in the concept of capital itself. Everylimit appears as a barrier to be overcome. [T]he increase anddevelopment of the productive forces, requires the production of new


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consumption; requires that the consuming circle within circulation expandsas did the productive circle previously. First, quantitative expansion ofexisting consumption; secondly: creation of new needs by propagatingexisting ones on a wide scale; thirdly: production of newneeds anddiscovery and creation of new use values. (Marx 1857-58: 407, 408)Capital must seek to overcome the barriers of production, even as it expandstechnology further to counter the declining margin of surplus, by expandingthe sphere of circulation to enhance the turnover of capital. This it doesthrough opening up the world market, suspending direct use-values notentering into exchange, substituting and transforming non-capitalistformations, generating new needs and new potential exchange values,creating new branches of production, more intensively exploiting the naturalenvironment, transforming rural economies into industrial towns and cities,

and capitalising land holdings.[7] In short, capital must perform its historictask through propelling the turnover of capital and expanding the dualproduction-circulation dynamics of the system. In this way, it can exploitareas where marginal surplus labour time is greater (and hence lessdeveloped) and expand the circuit of capital through market demand.

Marx then developed in the Grundrisse a series of mathematical models andconceptual analysis to explore changes in the turnover of capital throughreductions in circulation time.[8] Marxs work on this circulation time problemwas analysed for more than 150 pages (Marx 1857-58: 537-690). He was

interested in how changes in market demand may counter problemsassociated with declining marginal surplus labour time. To comprehend theforces at work Marx differentiated between production and circulation time inthe way outlined in the Figure 1, below:

Figure 1. Reproduction Time of Capital

ProductionTime

Necessary Surplus CirculationLabour Time Labour Time Time

0 30 60 90


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Imagine an economy based on the production of ships in a slipway. If each ship

takes 60 days to be produced, and another 30 days to be sold, then the

individual reproduction time (r) equals production time (p) and circulation

time (c):

(1) r = p + c = 90 = 60 + 30,

which adds to 90 days. In a year, total reproduction time,

(2) R = P + C = 360 = 240 + 120,

equals 360 days (R), including total production time of 240 days (P), and total

circulation time of 120 days (C). Within production, individual necessary

labour time (n) equals 30 days, while individual surplus labour time (s) equals

30 days:

(3) p = n + s = 60 = 30 + 30

Hence, in a year there is a reproduction time (R) of 360 days, and the rate of

turnover (T) is 4:

(4) T = R/r = 360/90 = 4

Thus there are 4 ships produced in a year, and they turn over at the rate of

one every 90 days, bearing in mind that it takes 60 days to produce them and

30 days to be sold. Hence:

(5) R = pT + cT = 360 = (60 x 4) + (30 x 4),


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And the total annual surplus labour time (S) equals 120 days:

(6) S = sT = R nT cT = 120

Thus if there is a decline in the marginal surplus labour time as productivity

advances, one way to enhance total annual surplus labour time is to cut down

on the time of circulation. This can be done through speeding up the market

through globalisation, enhancing needs, or stimulating the rate of spending

through a drop in uncertainty. In the extreme case, as a result of a

combination of these factors, the circulation time may drop to zero (C = 0, P =

60, R = 360, T = 6) resulting in a total annual surplus labour time of 180:

S = sT = 30 x 6 = 180.

Hence, expansion of the market can indirectly enhance productive capital andthereby increase the annual surplus labour time immensely; in this case fromS = 120 to S = 180. Expanding globalisation, advertising and demand can thuspossibly be more successful than introducing technological change that resultsin a larger surplus but a diminishing marginal surplus. It is a way of propellinggreater annual surplus to try and overcome the barriers of production.

Table 2 summarises some results of Marxs turnover-reproduction model ofcapitalism, comparing the influence of globalisation and innovation:

Table 2: Innovation and Globalisation: Marginal Additions to Surplus Labour

T = P + C r = p + c [+ cc] P = n + s T = R/r S = s.T Variable S

360=240+120 90 = 60 + 30 60 = 30 + 30 4 = 360/90 120 = 30(4) (Initial

Conditions)

360=240+120 90 = 60 + 30 60 = 25 + 35 4 = 360/90 140 = 35(4) Innovation 20

360=254+106 85 = 60 + 20 [+ 5] 60 = 30 + 30 4.24=360/85 127.2=30(4.24) Globalisation 7.2


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R = yearly reproduction time (days);

P = total production time;

C = total circulation time;

S = aggregate yearly surplus labour time;

T = number of turnovers in a year;

r = single (turnover) reproduction time;

p = single (turnover) production time;

c = single (turnover) circulation time;

n = single (turnover) necessary labour time;

s = single (turnover) surplus labour time.

cc = pure circulation costs

Here we present some simple results of technological change and purecirculatory impacts on marginal surplus labour time. The technological changeenhances productivity by 33 percent while globalisation reduces circulationtime by 33 percent. Each of them enhances marginal additions to surplusvalue, but by different magnitudes. The initial conditions correspond to themodel above, of a single period of turnover of 90 days and 4 turnovers in ayear, with a realised surplus labour time of 120 days. The innovation caseexhibited diminishing marginal surplus labour time, and was the reason for thecirculatory response. Innovation reduced necessary labour time per turnover

from 30 to 25 days while increasing surplus labour time from 30 to 35;representing an increase in surplus labour time per year of 20 days per year(from 120 to 140), a decrease from comparable previous innovations.

In response, the pure circulatory activities of advertising and accountingactivities promoting global sales reduced circulation time by 10 (from 30 to 20days) per turnover (from 90 to 80 days), while it contributed to circulatorycosts equal to 5 days per turnover or 21.2 days per year. This results in an


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increase in marginal surplus time of only 7.2 days per year (increase from 120to 127.2). This modest increase, however, increases surplus only insofar as thedrop in circulation time enabled an expansion of productive turnovers andhence surplus over the year.

Does the globalisation, market expansion and enhanced demand solve theproblem, or does it lead to further layers of anomalies and problems forcapital? In the Grundrisse, Marx believed that it created further tapestries ofcontradictions of a positive and negative nature which may temporarilysolve problems but set up a further pattern of instability and anomalousreproduction. Some that Marx discusses relate to circulation costs, used in theexample, representing merely thefaux frais de production (p. 633), such asthose associated with accountancy, advertising, credit, merchandising,fictitious capital, and certain exotic financial assets.

These costs of circulation as such, do not add anything to the value of theproduct, are not value-positing costs, regardless of how much labour theyinvolve; they are merely deductions from the created value (Marx 1857-58:624; see also 548). They increase the price of the product while reducing thesurplus value available for accumulation, while in addition the circulation ofcapital realizes value (p. 543). Thus the expansion on the world marketthrough an increase in unproductive activities poses a limit to thereproduction of capital, and thus adds further tapestries of barriers to capital(p. 539). A society where such circulation costs have risen to a large level runsthe risk of upsetting the productive basis of capital through the creation ofspeculative bubbles, instability and crises. A monetary economy based oncapital is subject to these contradictory moments when finance dominatesproduction and real value becomes a sideshow to the instabilities of marketvaluation.

By propelling capital in other countries it seeks to universalise the limits ofproduction and generates potential circulation problems in the process.Global expansion, from the perspective of circulation, heightens the potentialfor discontinuity between sales and purchase and between credit and

repayment. Marx also links this to the development of fictitious capital,bubbles, and financial crises, as the entire credit system and the over-trading, over-speculation etc. connected to it, rests on the necessity ofexpanding and leaping over the barrier to circulation and the sphere ofexchange (p. 416). Hence in as much as [capital] both posits a barrierspecific to itself, and on the other side equally drives over and beyond everybarrier, it is the living contradiction (Marx 1857-58: 421).


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5. The Contradictions of Competition

After recognising the limits of production and the unproductive nature of

circulation costs, Marx then turned to the question of whether competition

can ameliorate the anomalies of capital. If innovation expands the surplus but

at a diminishing rate, and circulation enhances turnover while increasing

unproductive costs, could competition be the panacea for promoting positive

dynamics. Marx explores this in a number of places in the Grundrisse (e.g.,

Marx 1857-58: 649-52, 657-58, 745-65). He concluded that it temporarily

resolves some of the limits while also adding another layer of instability to

capitals inner dynamic. But ultimately competition does not change the

barriers and limits imposed by production and circulation.

The central processes of competition in relation to surplus value generationand distribution are outlined below in Figure 3, where we formalise what Marxexplained verbally and arithmetically.[9]

Figure 3: Transfer of Surplus Value in the Competitive Process

Firm c + v + s

$m

Value

$m

COP

(c+v)

$m

COP

Per

Unit$m

POP

times

No =

$m

Rev

$m

(Rev-COP)

$m

Rate

%

Transfer

$m

1 70+30+30=

130 100 $7.14 15x14= 210 110 110 680

2 60+40+40=

140 100 $8.33 15x12= 180 80 80 40


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3 50+50+50=

150 100 $10.00 15x10= 150 50 50 0

4 40+60+60= 160 100 $12.50 15x8= 120 20 20 -40

5 30+70+70=

170 100 $16.67 15x6= 90 -10 -10 -80

Total/Av./

Balance

s=$250m =$750m

$10mAv.

=$750m

=$250m 0

Where:

c = constant capital;

v = variable capital;

s = surplus value;

COP = cost of production;

POP = price of production;

No = number of commodities produced;

Rev = revenue;

= monetary profit; = rate of profit;

No = number of commodities produced.


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Imagine the existence of 5 firms in the ship building industry, where the firmwith the highest productivity, firm 1, is able to produce the greatest revenue($210m) through employing the latest technology and thereby having thelowest cost of production per unit ship ($7.14m) The firm that has the lowestproductivity, firm 5, has the most ancient technology and the highest cost ofproduction per unit product ($16.67m). Other firms are in between the highestand lowest productivity (and cost of production per unit) in the industry.

The critical point for our purposes is that the highest profit of $110m goes toFirm 1, with the highest productivity and the most expensive and mostelaborate machinery and equipment; while the lowest profit (loss) of -$10mgoes to Firm 5, with the most ancient technology and equipment. In Marxsanalysis, this occurs in conformity with the theory of value through thetransfer of surplus value from the firms with the lowest productivity to thosewith the highest productivity. Hence, $80m of surplus value transfers fromFirm 5 to Firm 1, and $40m from Firm 4 to Firm 2. It is in this fashion thatcertain firms are able to adopt the latest technology and in the short termreceive a partial monopoly rent.

Marx goes on to say that the extra surplus value of the leading firms declinesas competitors move into the industry, while some existing firms changetechnology (or go into bankruptcy); thus making the law of value by variablecapital the determinant factor. The laws of competition that lead firms tointroduce new technology and reduce the ratio of necessary to surplus labourtime, also lead other firms to adopt the technology and eventually inhibitsurplus profit from leading sectors as the technology becomes general (Marx1857-58: 747-50). In the process, competition leads to new layers ofcontradictory limits to capital through periodic crisis and instability asprofitability slumps[10]. But, more specifically, only in competition are thelaws of capital, its tendencies, realised (p. 751). Marx here comes to thesubject of the rate of profit, where a rise in the ratio of constant capital tototal capital (or other forces) will likely reduce the rate of profit, andcompetition plays a role here in enhancing the instabilities of accumulation.

But overall he concludes that:Competition can permanently depress the rate of profit in all branches ofindustry, i.e. the average rate of profit, only if and in so far as a generaland permanent fall in the rate of profit, having the force of a law, isconceivable prior to competition and regardless of competition. (Marx1857-58: 752)

Thus, competition is not a panacea, but rather enables the barriers and


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limits of capital to manifest themselves through transfers of surplus and

then generalising the impact through industry. Competition speeds up the

declining surplus and expands circulation tendencies, while also

stimulating instabilities and crises. Production and circulation barriers

come to the surface through the competitive forces. As a consequence,

[t]hese contradictions lead to explosions. The violent destruction of

capital [occurs] not by relations external to it, but rather as a condition of

its self-preservation. [Marx, 1857-58: 749-50]

6. The Significance of Marxs Analysis

There are three main points to emphasise in terms of the significance of these

issues analysed in the Grundrisse. Firstly, technological change that

revolutionises productivity has an inner contradiction inasmuch as it creates a

declining surplus labour time. This generates a tendency for overproduction as

variable capital declines and thereby limits effective demand. This is thus a

limit on potential profit, and in response to this Marx emphasised the

tendency for capital to expand wants, needs and global reach. This is linked to

the tendency of capital to reduce total reproduction time and expand the

turnover of capital so as to enhance the realised surplus. This analysis of Marx

in the Grundrisse, including (especially) the production contradiction and

(also) the potential resolution of this contradiction through circulation, is an

original and critical model of capitalism never developed anywhere else in his

work. Technically and theoretically the production contradiction is a major

endogenous limit to capital, which adds an important tapestry to Marxs

analysis of the contradictory dynamics of capital.


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When Marxs verbal and arithmetic examples of declining marginal surpluslabour time are modelled, as done in section three of this paper, it becomesclear how critical the formulation is to understanding internal processes andbarriers. It is different to his work on the rate of profit and its counter-tendencies, although it complements this analysis. Certainly it should becomepart of a typical account of Marxs political economy of capitalism and beincorporated into the secondary literature.

Secondly, one way of counteracting the influence of the declining marginalsurplus labour time is for circulation costs to increase significantly in the formof credit, advertising, accounting, plus mercantile and fictitious capital inorder to enhance global profit for individual capitals. Effective demand was acrucial part of Marxs circulation analysis in the Grundrisse in potentiallycountering the limits posited by production, while simultaneously creatingfurther limits and barriers to the reproduction of capital. Marxs models ofturnover in the Grundrisse were more technically sophisticated than those ofCapital, volumes one and two, as well as the chapter on turnover written byEngels in volume three of Capital. To the extent that circulation costs andrelated unproductive activities increase (sometimes more than the expandedrealised surplus) this can be a problem for the circuit of social capital. Thepower of financial and mercantile capital may thus expand relative toindustrial capital, leading to problematical long-term accumulation and profit,economic crisis and/or stagnant long-term dynamics.

And thirdly, the expansion of relative surplus labour time brought about bytechnological change, and the enhance turnover of capital brought about by areduction in circulation time, cannot be undermined by the competitiveprocess. Competition, according to Marx, is the means by which the barriersand limits are able to be realised in reality. The profit rate emanating fromproduction and circulation will be driven home by the competitive process.Temporarily, competition creates a driving force for accumulation, innovationand declining circulation time, but it may fail to solve the core problemsinherent in the inner movement of capital.[11] The analysis of competition in

the Grundrisse thus complements the work on production and circulationdynamics and barriers.

The Grundrisse works on production limits, circulation processes andcompetitive dynamics thus form a whole, and explain eloquently thecontradictory dynamics of capitalism in its general form. As Marx said aboutthese contradictions leading to attempts to surmount them, which lead tofurther tapestries of barriers and limits to capital:


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But from the fact that capital posits every such limit as a barrier andhence gets ideally beyond it, it does not by any means follow that it hasreally overcome it, and, since every such barrier contradicts it character,its production moves in contradictions which are constantly overcome butjust as constantly posited. Furthermore. The universality towards which itirresistibly strives encounters barriers in its own nature, which will, at acertain stage of its development, as being itself the greatest barrier to thistendency, and hence will drive towards its own suspension. (Marx 1957-58:410)

7. Conclusion

The purpose of this paper has been to examine critical aspects of theGrundrisse associated with technological change, turnover and competition.

The model of marginal surplus labour time was never analysed by Marx

anywhere else in his works, and does represent an interesting and important

barrier or limit to capitalist production. In particular, it provided Marx with an

insight into the technical contradictions of capital that lead to anomalous

dynamics. Declining marginal surplus labour time puts a limit on accumulation,and led him to examine potential ways of capital transcending these limits of

insufficient demand.

This leads to Marxs hypothesis that the technical limits of marginal surpluspropel capital, of necessity, to expand on the world scale, create new needsand products, and increase demand in order to generate production andrealisation of the surplus. Globalisation enables business to operate in nationswith higher marginal surplus labour time, and may also propel demand where

market realisation is forthcoming. The expansion of wants, needs and newproducts enhances relative surplus value through further technological changeand also greater demand. In brief, the turnover of capital needs to beheightened in order to temporarily transcend the barriers of production.

But contradictions are not limited to production since they encompass allmajor aspects of reproduction. Circulation, for instance, leads to barriers asglobalisation, advertising and financial calculation represent unproductivedeductions from the surplus value. While it may indirectly increase the surplus


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it may also grow to represent a limit on productive activities. Expandingaccounting, finance, advertising and other unproductive costs may lead capitalto reduce the rate of productive accumulation through a systemic change inbusiness strategy. Globalisation may in some cases lead to a rise in circulationtime through a limit on the spatial dynamics of capital, and the potential forsupply-demand discontinuity.

Marx then examined competition is a facilitator of both the dynamics ofcapital and also its contradictory limits and barriers. Competition generateshigher profits for the leading firms and sectors, but in the long run is subjectto the rates of profit determined by the general actions of industry. It cannoteschew forces that periodically reduce the rate of profit. The law of valuerequires competition for its social validation.

The Grundrisse provides insights into marginal surplus labour time and theneed for globalisation, demand and turnover for the temporary moderation ofcontradictions. It recognises that competition is a way of putting into practicethe necessary forces of capital. It provides insights, particularly, into thebarriers and limits of production linked to marginal surplus labour time. And itprovides a insights into the forces of overproduction and crises not found in hisother works. It is thus an original work with key insights and substantiveelements not generally recognised by scholars.

Endnotes

[*] I wish to thank (without implicating) Harry Bloch, Frank Harman, LewisHavercamp, Garth Hartley, John King, John Pullen and Herb Thompson for commentsand assistance on earlier versions of this paper.

[1]. Volume 1 of Capital was first published in German in 1867, then in French

in 1872, English in 1887 (translated by Samuel Moore and Edward Aveling), and

thereafter many other languages. Volume 2 was first published in German in


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1884 and English in 1909 (translated by Ernest Untermann); while Volume 3

was first published in German in 1894, and English in 1909 (translated by

Ernest Untermann). (See Hal Draper 1985: 187.)

[2]. Martin Nicolous (1973: 7) points out that a limited edition of the

Grundrisse was published in Moscow in two volumes during 1939 and 1941.

Roman Rosdolsky (1968: 15) states that there were only three or four copies

of [this] edition in the West. Then a photoreproduction of the Moscow

edition was published in Germany in 1953. (See Hal Draper1985: 189.) David

McLellen (1971) edited an edition of about 1/6 of the full Grundrisse

manuscripts,; while finally Penguin published the full manuscripts (Marx 1973)

as translated by Nicolous. Terrell Carver (1975) published Marxs Introduction

to the Grundrisse, (see footnote 3, below), along with an extensive

commentary written by Carver (with Marxs Notes on Adolf Wagner, again

with extensive commentary).

[3]. For instance, articles on the Grundrisse especially started appearing in

the journal, Economy and Society; such as the work by Rafael Echeverria

(1978), John Mepham (1978), and Terrell Carvey (1980). Mostly these articles

were linked with the famous so-called Introduction of the Grundrisse

manuscripts, which Marx (1859) alluded to as probably being an early

Introduction to A Contribution to a Critique of Political Economy. Nothing

much outside of methodological, epistemolgical break, annotation (Lallier

1989), and evolutionary (Oakley 1984) themes were published important as

they were, up to a point about the Grundrisse. One of the important


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exceptions is the work on economic crises and profit rate by Michael Lebowitz

(1976); but even he ignored the production contradiction. This

methodological emphasis is surprising in view of the rich and entirely original

substantive analysis done by Marx on the endogenous contradictions of

production (especially) and their link to circulation and competition.

[4]. And as Marx says elsewhere in the Grundrisse: If, then, the specific form

of capital is abstracted away, and only the content is emphasized, as which it

is a necessary movement of all labour, then of course nothing is easier than

to demonstrate that capital is a necessary condition for all human production.

The proof of this proceeds precisely by abstraction from the specific aspects

which make it the moment of a specifically developed historical stage of

human production. Capital is conceived as a thing, not as a social relation.

(Marx 1857-58: 258; original emphases)

[5]. Few of the secondary works on Marx have ever recognised this declining

marginal surplus labour time model. The exceptions are James Becker (1977),

Phillip OHara (1978) and Adalbert Lallier (1989). However, neither Becker nor

Lallier link the declining marginal surplus labour time to the changes in

variable capital, nor to the added tapestry of capital being required to expand

on the world scale, enhancing needs and further sources of demand, and

propelling further reproduction to temporarily overcome the endogenous

limits of production. Rather, Becker goes on to talk about enhanced

unproductive labour causing problems of reproduction, while Lallier merely

continues his annotated summary of the Grundrisse devoid of the thematic


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linkages between production limits and circulation-production requirements.

In short, while Becker at least recognises Marxs model, the literature is both

scant on this general innovation developed in the Grundrisse, as well asunderplaying barriers to production and how they can be temporarily

surmounted through productive circulation, while going through further layers

of barriers in the process.

[6]. Perhaps an even more important contradiction of production relations is

this following comment of Marxs (which he develops in terms of alienation

and estrangement in the Grundrisse to a higher level than that of the Paris

Manuscripts of 1844): the question [arises] how, while [capital] has the

tendency to heighten the productive forces boundlessly, it also and equally

makes one-sided, limits etc. the main force of production, the human being

himself, and has the tendency in general to restrict the forces of production

(Marx 1857-58: 413).

[7]. For a modern day critical analysis of the contradictions of neoliberal

globalisation see OHara (2006), where the contradictions of the current global

political economy are examined from the point of view of transnationals,

global money and trade, international production, community relationships,

and governance.

[8]. Marx was working on the sphere of circulation in January (at least) of

1858, since he wrote in a letter to Engels that I have now reached a point in


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my work on economics where I need some practical advice from you, since I

cannot find anything relevant in the theoretical writings. It concerns the

circulation of capital its various forms in the various businesses: its effect on profit and prices. If you could give me some information on this, then it will

be very welcome (Marx 1858: 51).

[9]. The methodology used for tabulating the process whereby surplus value is

transferred between firms in the competitive process is borrowed from

Shinzaburo Koshimura (1956: ch VIII; see also Koshimura 1977). The only

problem with this method is that the inputs of constant and variable have not

been transformed from their value to price calculations. However, this could

easily be done through use of the various methods of solving the

transformation problem (eg, using the method developed by L. von

Bortkiewowicz (1952), and Anwar Shaikh (1977: ch 7).

[10] As Marx also says in Capital, volume one: this extra surplus value

vanishes as soon as the new method of production is generalised, for then the

difference between the individual value of the cheapened commodity and its

social value vanishes. The law of the determination of value by social value

makes itself felt to the individual capitalist who applies the new method of

production by compelling him to sell his goods under their social value; this

same law, acting as a coercive law of competition, forces his competitors to

adopt the same method. [Marx 1867: 436]


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[11]. Indeed, these same three forces may be negatively impacting on the

contemporary economic environment. Technological change may be limiting

profit through declining marginal surplus labour time. Rising unproductive

financial and mercantile capitals may be crowding out industrial and public

capitals in many nations as globalisation and deregulation expand. Similarly a

slump in aggregate demand may be in part responsible for the recessed profit

rate and accumulation. Greater global competition may also be reducing the

rate of profit and accumulation over the past couple of decades in the global

economy. If this is true then the Grundisse may provide insights into theworkings of modern capitalism that have hitherto not been sufficiently

recognised.

References

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Nicolous, Martin. (1973) Forward to Grundrisse. Harmondsworth: Penguin.Oakley, Allen. (1983) The Making of Marxs Critical Theory. London and Boston:Routledge and Kegan Paul.

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O'Hara, Phllip Anthony 2006 'Karl Marx on the Contradictory Dynamics of Capitalism-- Innovation, Globalisation and Competition in the 'Grundisse'' (Nov., 32 Pp.)