Financialization and Marx — Pt 1. Do Skilled Workers Own ‘Human Capital’?

The 2009 Review of Radical Political Economics published a paper by Dick Bryan, Randy Martin and Mike Rafferty entitled “Financialization and Marx, Giving Labor and Capital a Financial Makeover.” A friend wants to know my opinion of the paper.

The paper raises many questions about the recent changes in the capitalist system, as well as the relationship between neoclassical marginalist economics and Marxist economic theory. Since the questions raised by Bryan, Martin and Rafferty are of extreme importance if we are to understand the evolution of present-day imperialism, I have decided to examine them here. However, these questions are too complex to deal with in a single reply. I have therefore decided to break my reply into a series of sub-replies that will focus on particular points.

Their paper shows that Bryan, Martin and Rafferty are familiar with Marxist economic theory but in my opinion have not fully understood it. The influence of marginalist ideas is pretty obvious as well. It seems that the marginalist ideas that they were undoubtedly exposed to in their own university studies are getting in the way of their achieving a full understanding of Marx’s economic discoveries. The positive thing is that they are wrestling with Marx and taking him seriously. Perhaps in time they will achieve a full understanding and put the false theories they learned in school completely behind them.

In this reply, I will examine the most important part of Marx’s theory: the sale at its value of the one commodity the workers have to sell—their labor power—to the industrial capitalists, and the consequent production of surplus value.

Their paper indicates that Bryan, Martin and Rafferty have not yet fully understood Marx’s discoveries in this area. Among the questions raised by Bryan, Martin and Rafferty are these: To what extent if at all can labor be considered a form of capital? Exactly what is the relationship between labor and labor power? What exactly did Marx mean by the term commodity capital? Is variable capital a form of commodity capital? And if not, why not?

In this reply, I will focus on these questions. I will also examine and critique the ideas of both marginalist and Marxist economists on the relationship between skilled and unskilled labor. Closely related to this question, though Bryan, Martin and Rafferty don’t directly raise it as such, I will deal with what the bourgeois economists and media call “human capital.” How does the concept of “human capital” relate to Marx’s theory of value and surplus value? Is the concept of human capital compatible with Marxist theory, and if not, why not?

I think that complete clarity is necessary on these questions before we can examine the main question that Bryan, Martin and Rafferty are examining: How does the “financialization” phenomena that has developed with such vigor since the “Volcker Shock” of a generation ago affect the relationships between the main social classes of capitalist society—the capitalist class, the working class and the intermediate class, what Marxists traditionally have called the “petty bourgeoisie.”

Paul Volcker’s Banking Reform Proposals and Socialist Revolution

A reader wants to know what I think is behind Paul Volcker’s banking reform proposals.

Paul Volcker (1927- )—yes, the same Paul Volcker who was the chief architect of the “Volcker Shock” a generation ago, and a long-time Democrat—is currently head of President Obama’s Economic Recovery Advisory Board. On January 21, Obama with Volcker at his side proposed a series of reforms that Obama dubbed the “Volcker Rule.”

Volcker’s proposed new regulations would ban commercial banks from owning or investing in hedge funds and private equity firms. Essentially, Volcker’s proposed rule would ban, or at least limit, any firm engaged in commercial banking from owning and trading stocks, corporate bonds, commodities and derivatives for its own account.

Unlike his predecessor, Republican Alan Greenpan (1926- ), Volcker is highly dubious about so-called “financial innovation.” He has remarked that “the only useful banking innovation was the invention of the ATM.”

In August 1979, then U.S. Democratic President Jimmy Carter appointed Volcker to be chairman of the Federal Reserve Board—the government body that controls the U.S. Federal Reserve System. Volcker reversed the Keynesian policy of attempting to keep interest rates low by increasing the rate of growth in the quantity of token money that the Fed creates. Instead, he allowed interest rates to increase to a level never seen before—or since.

For example, at one point under Volcker, the federal funds rates—the rate of interest that commercial banks pay on overnight loans they make to one another—hit 20 percent, a far cry from the Fed’s current federal funds target of between 0 and 0.25 percent! These unprecedentedly high interest rates sent the U.S. economy into a tailspin pushing even the official unemployment figures into the double digits for the first time since the end of the 1930s Depression.

But the high interest rates—known as the “Volcker Shock”—did halt the depreciation against gold of the U.S. dollar and the other paper currencies linked to it under the dollar system, bringing the 1970s “stagflation” to an end.

The Volcker Shock marked the transition from the reformist “Keynesian” era of making concessions to the working class and to the oppressed countries to the period of “neo-liberalism” with its rising imperialist exploitation of the oppressed countries combined with the global offensive by the ruling capitalist class against the world working class aimed at raising the rate of surplus value. The abnormally high interest rates, which lingered for many years after the Volcker Shock, also witnessed the emergence of the phenomena now called “financialization.” I plan to examine financialization in a future reply.

The Monthly Review School

One of our readers wants to know what is my opinion of the “Monthly Review School.” Before reading this reply, I strongly urge readers to read my reply on the “transformation problem” if you have not already done so. This reply depends in part on the arguments developed in that reply.

The Monthly Review School is a tendency in U.S. Marxism centered on the monthly socialist magazine Monthly Review, which has been published since 1949. Though it has never been organized in the form of a political party, it is held together by certain common ideas in both economics and politics.

The book “Monopoly Capital,” published in 1966 and co-authored by the Marxist economists Paul Sweezy (1910-2004) and Paul Baran (1910-1964), is considered by its members to be the leading work produced by the school. The central figure of the tendency was the remarkable Harvard-trained U.S. economist Paul Sweezy.

In addition to Paul Sweezy, the most important figures in the Monthly Review School included Paul Baran, who like Sweezy was a professional economist and author of the “Political Economy of Growth” (1955); Leo Huberman (1903-1968), a talented popularizer of Marxist ideas; Harry Braverman (1920-1976), who was an industrial worker and trade unionist before joining Monthly Review and whose main work is “Labor and Monopoly Capital”; and economist Harry Magdoff (1913-2006), author of the “Age of Imperialism” (1969) among other works.

The current editor of Monthly Review, is John Bellamy Foster (1953- ), a professor of sociology at the University of Oregon. He can be considered the school’s current leader. He is very knowledgeable in economics, and has written much about Marx’s views on ecology and agriculture.

The Monthly Review School bears the marks of the society that produced it, that of the United States. The United States not only had by far the highest degree of capitalist development in the last century. It was—and is—the center of world imperialism. Along with Great Britain, the United States by the beginning of the current century had become the leading example of the decay of capitalism in the imperialist countries.

Value Theory, the Transformation Problem and Crisis Theory

This reply owes a lot to the work of Professor Anwar Shaikh of the New School, especially his 1978 essay “Marx’s Theory of Value and the Transformation Problem” and his 1982 article “Neo-Ricardian Economics: A Wealth of Algebra, A Poverty of Theory”

The transformation problem in classical political economy

The law of value as developed by classical political economy held that the value of a commodity is determined by the amount of labor that under the prevailing conditions of production is on average necessary to produce it.

According to the classical economists, the value of a commodity determines its natural price around which market prices fluctuate in response to changes in supply and demand. The fluctuations of market prices around values—or what comes to exactly the same thing, according to classical political economy, natural prices—regulate the distribution of capital among the various branches of production.

As far as the classics were concerned, natural price (to use Adam Smith’s terminology) or cost or price of production (to use Ricardo’s preferred terminology) was identical to the value of the commodity.