Wednesday 15th February at 6pm till 8pm in NK03 New Kings.
We are happy to announce our second movie screening this semester. Freakonomics is a movie which tries to explain the field of economics and discovers that it studies more than simply economies or businesses, it can also help explore human behavior and how it reacts to incentives.
Economist Steven D. Levitt and journalist Stephen J. Dubner host an anthology of documentaries that examines how people react to opportunities to gain, wittingly or otherwise. The subjects include the possible role a person’s name has for their success in life, why there is so much cheating in an honor bound sport like sumo wrestling, what helped reduce crime in the USA in the 1990s onward and we follow a school experiment to see if cash prizes can encourage struggling students to improve academically.
Snacks and drinks will be provided.
We are looking forward seeing all of you and invite you to stay for interesting discussions after the movie.
Wednesday 8th February at 4pm till 6pm in NK11 New Kings.
Aberdeen Political Economy Group is proud to announce the start of a series of reading groups featuring different authors which are relevant to the fields of economics and politics. We will start off with an introductory reading group to Marx’s Capital Volume 1. Together we will strive to find out how Capital might still help us to understand economics today. We will try to get a grasp on Marx’s very special style of writing and his very particular approach to economics. This is is a group for everyone who is interested in finding out what Marx was getting at and in critically discussing his ideas. No prior knowledge is required and everyone is welcome.
The reading group will meet every two weeks on Wednesday afternoon from 4 – 5.30 pm, starting with our introductory session on February the 8th 2017. We will announce each session separately beforehand.
We will be using various resources during the group. First and foremost, of course, the famous Capital Volume 1 written by Karl Marx himself. We will use the penguin books version (with an introduction by Ernest Mandel), which can be found on Amazon
Furthermore, David Harvey has written a very helpful book, “A companion to Marx’s Capital”, which we will also use frequently during our sessions. It can also be bought on Amazon, or on Verso following this link:
Apart from that, David Harvey has a very insightful lecture series on the Capital which is available for free on Youtube
For our first session on Wednesday the 8th of February please read the introduction to Capital Volume 1 by Ernest Mandel and the introduction to Harvey’s “Companion to Marx’s Capital”. We look forward to interesting discussions and critical reflections! See you on the 8th of February!
26 January at 18:00 to 21:00 in New Kings NK11 at the University Kings Campus
We would like to invite you to join us for our first event this semester. Since we all just came back from holidays we wanted to start off the semester with a nice evening together watching “Inside Job”, a 2010 movie about the financial crisis and its effects on the world. After the movie, we are going to have some discussions about it. Food and drinks will be provided.
If you are interested here is some more information about the movie itself:
“Inside Job” provides a comprehensive analysis of the global financial crisis of 2008, which at a cost over $20 trillion, caused millions of people to lose their jobs and homes in the worst recession since the Great Depression, and nearly resulted in a global financial collapse. Through exhaustive research and extensive interviews with key financial insiders, politicians, journalists, and academics, the film traces the rise of a rogue industry which has corrupted politics, regulation, and academia.
We are looking forward to see you!
An Alternative Analysis
1. Venezuela at Face Value
Have you ever asked yourself why current affairs in Venezuela are reported by major Western based media outlets the way they are?
Headlines leave much to be answered for. Last year for example, morning commuters were greeted with, ‘Hungry locals break into zoo and butcher horse’, in the Metro and Guardian readers saw ‘Venezuela on the brink’, before browsing paragraphs on commodity inflation, malnutrition and crime waves.
The Economist ran headlines of, ‘The angry 80%: How a much-loathed regime hangs on to power’, which detailed how ‘the regime shows no desire to correct policies that have wrecked the economy, such as price controls and artificial exchange rates’.
Courtesy of the Social Workers Party, the left gave us an apparently alternative perspective: ‘Venezuela election shakes left government’. The origins of which it directed at Hugo Chavez’s and Nicolas Maduro’s, ‘tight alliance with some bosses and corrupt figures of the old guard, demobilising the support they counted on from ordinary people’.
2. Christmas Toys Sabotage
Much of Venezuela’s situation referenced above can be seen in basic commodity shortages. Recently, Venezuelan officials confiscated nearly 3.8 million toys from Kreisel, accusing the company of planning to sell them at inflated prices during the Christmas season. Statistics, show that Kreisel intended to hoard the commodities for profits as high 25,000%, and Government officials claim that Kreisel have held some of the toys since 2008 to do so.
Reporting on this example via citing anonymous critics and two random individuals Twitter accounts, one of which ‘expressed surprise that her tweet inspired a CNN article, adding, “Aunque, no soy venezolana” — “Although, I am not Venezuelan.”’ CNN presented a double glazed, yet highly relevant window into Venezuela’s current crisis.
2.1. Food Sabotage
Nevertheless, situations like this are familiar to Venezuela. Sometime after the 2015 parliamentary elections, – where The Democratic Unity Roundtable (Mesa de la Unidad Democrática, MUD) gained a 112 out of 167 majority in the National Assembly – basic food products then in shortage began reappearing back on the shelves of stores.
Products such as floor and mayonnaise produced by the The Heinz Kraft Company started reappearing 5 months past their sell-by date. At the same, Officials from the National Bolivarian Guard of Venezuela uncovered more than 50 tons of food, including detergent and toothpaste in the north-western port of Maracaibo. Other products included sugar, rice, coffee, noodles, beer, soda, detergents, chlorine, guns etc. In addition, around 300 identity documents used to purchase the goods from stores.
President of Heinz Food of Venezuela, Alexandre Magno Reis, in an interview for the World Economy and Business said that, “we are taking a big bet to guarantee production. The important thing to is understand well what is happening, from the hand of farmers. We must do more and produce in the country. I believe in the team formed by the government, the farmer and the company”.
Now, one cannot deny that currently – as was the case in the past – there are serve food and commodity shortages in Venezuela. However, I is not reported honestly by major Western media outlets who see ‘Socialism’ as the go too cause; ‘Thanks to Socialism, Venezuelan Parents Giving Up Children They Can’t Feed’.
For example, a conveniently overlooked observation regarding these commodity shortages is that they only affect poor areas whilst more wealthy areas appear to overstocked. Basque executive, Agustin Otxotorena (who lives in Caracas) grew tired of phone calls from friends and relatives in Spain telling him that there was no food in Venezuela. So, on the 20th May 2016, Otxotorena photographed his local grocery store. Surprise, surprise, they were fully stocked.
“If you have money there is champagne … vodka, Belgian chocolates … lobster, brand-name clothes, exclusive restaurants … nightclubs, beaches … yachts, golf clubs—a whole country within a country where there are no poor, women and children are blond, go to exclusive schools, exclusive universities, and vacation, where Blacks or poor are the waiters …” he posted on his Facebook page.”
Whilst the remaining class divide in Venezuela has not yet dealt with by the Bolivar Revolution, plenty of facts do remain unreported, unexplained or not analysed correctly. If there was a general commodity shortage in Venezuela, shouldn’t everyone being feeling it’s affects? I sincerely doubt that Socialism is benefiting the rich and destroying the poor. It is not the, ‘magic realism of Hugo Chavez’s great Bolivarian socialist revolution’, that has turned Venezuela into ‘a crumbling socialist-run petro-state’. So, what has? And why has it?
3. Venezuela in the Crosshairs?
Firstly, arguing in favour of Venezuela collapsing based on the above would be somewhat historically incorrect. Since of the 1950-1953 Korean War, it has also been stated that the Democratic People’s Republic of Korea is on the verge of a collapse that has never happened.
As an OPEC member, Venezuela is granted it a certain power in the world via oil prices and has traditionally been an economic colony of the United States through the purpose of supplying oil to the country. The coming to power of Hugo Chavez and the nationalization of Venezuela’s oil via Petróleos de Venezuela (PDVSA), gave new oil revenue to the United Socialist Party of Venezuela to begin producing alternatives to U.S. owned corporations and domestic oligarchies. Mass mobilization turned entire shanty towns into mini enclaves which were given loans to begin infrastructure development. These semi-communities gave a new autonomy to the poor. Slum-lords, who had brutalized their tenants for years had their buildings confiscated and handed to a council of tenants These tenants, then had the option of taking a loan to improve their collective home.
In response, money began flowing from the United States Central Intelligence Agency to non-government organizations in Venezuela. The National Endowment for Democracy began efforts to destabilize the country via disinformation campaigns. As the Bolivarian Revolution continued, the United States restored to using terrorist attacks against the country’s oil industry. This effort, to bring Venezuela to ruin continues to this day with the economic sabotage by Citi Bank. ‘”With no warning, Citibank says that in 30 days it will close the Central Bank and the Bank of Venezuela’s accounts,” Maduro said in a speech, adding that the government used the U.S. bank for transactions in the United States and globally.”
During late 2015 until present there has been a food crisis in Venezuela. Simple mindedly, Socialism as a system is being blamed via low-brow explanations that equate to, “they always run out of other people’s money”. Those that bother to look for an actual explanation are meet with claims such as, “a significant proportion of oil revenues were stolen”. Cato Institute’s Juan Carlos Hidalgo however, gives no actual explanation of how this caused food shortages. Other sources claim that the Venezuelan Government simply allowed production of food to fall, whilst not providing anything too demonstrate this. Wouldn’t proponents of this argument support the government in not monitoring things like that if this were the case? The reason is because they can’t.
Venezuela is held as a single crop economy in terms of oil, most food in Venezuela is imported. These circumstances are not an economic coincidence. A United States embargo against Venezuela’s single commodity export could seriously damage economic growth. This is not uncommon for many developing countries placed under imperialist pressure, but this is particularly the case for Caribbean and Latin American countries.
Since the history of imperialism in Venezuela has forced a neglect of other industry, it exacerbates the problems it faces now. President Nicholas Maduro has already called for changes in the economy to include necessary goods.
“The Bolivarian Economic Agenda has several branches, the first is urgently address the crisis, another one is lay the foundations for the new economy, our country must find the accurate road to national development, looking for exits in complicated times and searching ways out of the pit where we fell due to the neoliberal model,” The new policy involves a “specially centralized plan, which favors domestic production and stimulate] both national small and medium industry, and the social economy.”
However, this move could take quite a while to bring into full swing.
5. Monetary Manipulation Caused the Shortage
So… what is caused (and are still causing) the shortage itself? The culprits are the large grocery chains and importers which remain in the hands of the economic elite. The weapon they are using is the multiple exchange rates. Essentially, this conversion of Bolivars into U.S. Dollars (USD) facilitates the great import fraud by the capitalist class. Currency manipulation is used side-by-side with falsehoods about the importation of food.
The trick work like this:
There are multiple exchange rates in Venezuela that convert the Bolívar to USD. The idea, was to give a preferential exchange rate to importers so that they could purchase imports more easily. This preferential exchange rate and the growing gap in exchange rates, is what is allowing large retail businesses and importers to cause the shortage.
When a company wants to import essential goods i.e. food, they’re required to go to the central bank to purchase USD at the preferential rate for necessary imports. The rate is about 6.3 Bolivars to the USD (current figures put it around 10 Bolivars.) The company then gives those USDs to whomever they wish to import from. Alongside this exchange rate is the illegal parallel market rate. This rate is set at 500 Bolivars per USD. This difference is where the swindle takes place.
A private importer goes to the central bank and requests to exchange Bolivars for USD.
To do this, he claims he purchased 100 cases of groceries for $1000 USD. In actuality, he only purchased only 50 of them.
The 50 he did import, he sells to businesses at the illegal parallel market rate. Each case cost him 10$ USD or 63 Bolivars, but he can sell each one at 5000 Bolivars due to the parallel rate. This massively inflates the price of necessary goods, while allowing the importer to pocket a gigantic profit. So, what about the other 500 USD? Usually, the importer will exchange those USD at the illegal parallel market rate for 250,000 Bolivars.
In many cases the importer doesn’t exchange the left-over Bolivars. Instead, they take the money overseas for investment, or they place it in a hidden account. In other cases, they take the whole $1,000 and move it to an offshore account. Doing this on a large scale has caused a currency flight from the country. The amount estimated for this loss is around 300 billion Bolivars between 2003 and 2016.Western mainstream media claim this money gets stolen by corrupt officials.
However, it is far more plausible that this money has been taken out of the country by the economic elite who remain in Venezuela. How much is $300 billion? It’s greater than the GDP of many countries around the world, including Finland ($272,217), Pakistan ($243,632), Ireland ($238,020), Greece ($235,574), Portugal ($230,117), Iraq ($223,500), New Zealand ($199,970).
Not only are Venezuela’s economic elite cyphering off vast amount of money from the economy, they are also inflating prices well beyond what they should be. The next time this subject this comes up, ask an opponent of the Bolivarian Government to explain why prices are so high whilst supply is so low. Almost always they won’t give you an answer, other than to say it’s the “fault of socialism.”
6. Legitimate Criticisms & Short-Term Responses
It is only possible to carry out this scam because of the multiple exchange rates. The policy is absolutely wrong! In this case, I blame the Bolivarian Government for not nationalizing the import industry and grocery stores. I also blame them for having an ineffective exchange rate policy.
In response, the government opened the boarder, enabling citizens were free to cross into Colombia to purchase the essentials. Unfortunately, they were met with exorbitant prices. Colombia is facing its own price problems which are going relatively unreported in the media. “Goods like flour and sugar are scarce now, so the supply is limited,” said Pedro, a Colombian grocery store owner. Many stores place a limit on how much a single customer could purchase.
It should also be noted that Venezuela was listed as having almost abolished hunger by the UN Food and Agriculture Organization (FAO) in 2015.
Opening the boarder is not the only measure they’ve taken. Since the shortages have started, the government has accelerated existing food programs that supply much needed groceries to the public. Along with this acceleration, they have implemented a few modifications to their programs and approaching problems in new ways.
A new program that creates a synergy between local grass roots organization and the government. The Local Provisioning and Production Committees (CLAP) organizes an alternative food distribution network in all 24 states.
“CLAPs have a twofold purpose. In the immediate term, they are working to combat lines, shortages, and speculation by delivering basic food products directly to people. The government purchases goods directly from both private and state enterprises, which the CLAPs distribute house to house based on community censuses. The project is seen as a temporary stop-gap solution to the current shortages, aimed at the most vulnerable fifth of the population. In the longer term, CLAPs are also intended to engage in local food production and processing. In tandem is a major push for urban agriculture, overseen by a newly formed Ministry of Urban Agriculture. A recent hundred-day planting campaign involving 29,000 urban productive spaces throughout the country aims to increase the amount of fresh produce, eggs, fish, and animal protein available locally. These efforts are complemented by a renewed push for production in the countryside.”
Citizen participation in agriculture has exploded. People are engaging in backyard farming, bartering vegetables, exchanging seeds, and carrying out their own cooperatives. Many are also creating their own small food businesses. As it stands right now, agriculture represents 3% of GDP, 10% of the labour force.
“A reduced supply of industrial agriculture inputs is also driving a transition toward organic practices and agro ecology, in what some are likening to Cuba’s special period. The shortages are also causing a shift from processed foods and a renewed appreciation of local foods and traditional food ways. Many activists see these developments as elements of a new food system, a project they have been trying to advance for many years.”
In July, the Government seized a large Untied States owned producer of goods in Venezuela, Kimberley Clarke. About a month earlier, the company fired 900 workers claiming that they lacked the raw materials necessary to continue production. The factory was seized by the government and handed over to the workers who were previously employed there. Once the factory had been handed over, President Nicholas Maduro authorized 22 million to be loaned to the enterprise to purchase the raw materials they needed to begin operations again. Its products are certainly essential as ‘The factory can produce, every month, 25 million diapers, 18 million sanitary napkins and 33 million rolls of toilet paper – products that have been in short supply throughout Venezuela.’
7. Long-term Responses & What is to be Done?
The big question remains… what do they do now? What measures would be necessary to repair the economy and allow Venezuela to exercise self-determination whilst minimizing interference by the imperialists?
- Immediate economic reform is vital. The multiple exchange rate should be abolished without delay and one moderate exchange rate should be established.
- The price of Venezuela oil should be raised and subsides for domestic oil consumption should be eliminated. This subsidy general benefits to middle to upper classes due to the lower classes not consuming much in the way of oil. The reduced domestic rate mostly serves to help those who can afford the oil anyway. Government revenues would increase significantly, allowing funds to be transferred to much more important social programs.
According to an International Monterey Fund, October 2015 database, revenue from petroleum exports accounts for more 50% of Venezuela’s GDP and roughly 95% of total exports. Raising the price of oil for export would mean a small percentage could alleviate the drop-in revenue from the global oil price decrease.
- Manufacturing in the country should also be increased. Venezuela already produces heavy industry products such as steel, aluminium, cement etc. The actual means of production need to be added to the manufacturing sector, not just the circulating constant capital. More specifically, the government should invest in the production of Department 1 Commodities; a category made up of constant capital, machinery, software etc. Basically, the means of production that other capitalists purchase for carrying out production.
The benefit of producing these in Venezuela, is to insulate itself from the global price system for the oil industry and constant capital. As this industry grow, embargo’s and sanction against the oil and technology industry effectively won’t work on Venezuela. However, it currently remains vulnerable here due to its oil based economy. Plus, the country will benefit from what they export and free up the necessary capital for food imports.
Now, one of the mistakes Venezuela has made is not re-investing enough oil prices back into production, and some of it’s technology is falling behind as a result. A significant re-vestment of capital will increase the efficiency of the industry leading to lower costs of production in the long-run, and by extension, more oil based revenue. With oil as their primary national industry it is nothing short of neglectful to do otherwise.
In Marxism, commodities are divided into two departments:
- Department 1: contains the means of production. Capital invested in producing materials, machinery, and anything else a capitalist would need for carrying out production, including inputs like steel.
- Department 2: contains the means of living. The consumer goods of society for workers and capitalists, also including luxury items.
In traditional Keynesianism, the State spends funds on public projects to simulate demand for goods and services. But since Marxists make a differentiation between these two type of commodities – we build up first which productive forces, which can produce the consumer goods that will enter in to demand because of wage increases. In this way, you build up the productive forces necessary to facilitate the production of new consumer goods that will be in demand. This is the path the Soviets took which proved to be completely correct. The necessary means of production are built to carry out the industrialization process.
8. Mounting Foreign Debt
Since the price of oil and other raw materials have collapsed, Venezuela (and others) has been left with huge budget shortfalls. National income from oil used to account for 96% of the foreign currency earnings. After the collapse, it represents only 75%. This make it difficult to pay foreign debt. Instead of using foreign currencies of a higher value, Venezuela uses its own lower currency to pay those debts. This means they have to use much more of it to pay it down. For example, at the time of this writing the Venezuelan Bolivar is worth 10 cents to 1 U.S. Dollar. Paying back a loan in their own currency, thus means they have pay ten times as much
This situation severely hinders their ability to pay off foreign debts. The Venezuela Government must keep on dipping into their reserves of foreign currency to service the debt. At other moments, they carry out Monetary gold swaps. Many will recall how they called in all their international gold holdings and kept them in the Central Bank in 2014. The foresight of this move was brilliant. Selling off gold reserves in foreign currency to use to pay for foreign debts as necessary and a smart move in this situation.
The debt problem in Venezuela is far worse than it seems. This is due to incorrect ideas about the economy’s ability to pay them. It is viewed as possible to pay the debts because it is compared to the GDP converted into USD. This is being at their current dipro rate of 1 Bolivar to the 10 USD. When you divide the contracted GDP by such an exchange rate, you created an overestimation of the GDP. Thus, you get distorted picture of the foreign debt as a percentage of the GDP. This is an underestimate which make the situation look manageable.
Others have a false idea that the debt can be paid via oil price increases. They’re looking at an artificial increase created by OPEC Countries by restricting the supply of oil. The idea is that if they restrict the supply the market will raise the price, yet these attempts have already failed and are also ineffective at recovering liquefied foreign currency.
The reality of the situation in Venezuela is quite dismal. Their foreign currency reserves have been reduced to a mere $12 billion USD. Something must be done to rectify the situation immediately. This foreign currency is necessary to carrying out import needs and paying down foreign debt. The second nose around the neck is the compensation cases placed upon Venezuela by the International Centre for Settlement of Investment Disputes. Companies that have been refusing to produce have been appropriated and put back to work. Those companies are now demanding compensation of their lost enterprises. In the context of revolution, these companies shouldn’t be given anything considering they were engaged economic sabotage.
9. Eliminating the Debt
Something needs to be done, otherwise there will be total collapse of the Bolivarian Government and the Venezuelan economy. The dangers are very real and require careful planning and strong leadership if they are to be handled. As many see it, there are only two options to take at this point.
- Eliminate the multiple exchange rates and create a single moderate and high rate to beginning paying down the debts in a more valuable currency.
- Create a moratorium on debts whilst payment can be restructured.
The most effective would be the latter. Venezuela should tell its creditors that it will be paying back less than what is called for. Less money should be given to the creditors and instead steered towards industrial production i.e. the creation of commodities for export. The point would be to use the money for investment in expanding the GDP via creating more employment, but production in wages are taxable which would give the State the revenue necessary to pay off the debts more quickly. A reduction in debt paid today, would save an astronomical amount of interest in the future. Or even worse, a possible total economic collapse.
Certainly, there will be a political backlash against the country for taking such a route. Creditors don’t like it when you don’t pay back the money they loaned you. The biggest such threat however, is the possibility of asset and property seizures. Most devastating would be for that to happen to state oil company (PDVSA). Right the PDVSA has 44 oil tankers, 13 refineries and numerous bank accounts around the world. Their freezing would hurt the economy greatly, given that it is depended on oil exports. This would also create an embargo situation.
It wouldn’t be in the interests of creditors to freeze such assets because it would only make it harder for Venezuela to pay back its debts. Essentially, if you cripple a person’s ability to pay back a loan, you won’t get the money. They’d be much better off allowing Venezuela to reduce its debt whilst they continue with value creation, enabling them to pay the money they owe. The problem in this situation, is that some creditors want Venezuela to collapse so they can bring in a right-wing government and bury the country under neo-liberal economic policies. So, it’s a gamble.
It could be argued that if a county defaults on it loans, no-one will loan to them in the future. This is not likely. No-one will exclude Venezuela from the financial markets long term because it has something to pay back its loans with: Oil. So long as oil and minerals exist in Venezuela there will always be an ability to pay and a reason to invest. No one will pass up such investment in the long-term.
Venezuela doesn’t have a long-term solvency crisis, it has an immediate liquidity crisis. The debt held by Venezuela creditors isn’t being sold off to other investors because they know the price of oil will raise again, leading to an ability to pay off those debts eventually. There is low risk of default in the future as oil and raw material costs raise. Some action can be taken to lessen the debt pressure without defaulting on them. The government could purchase some of the debt back from creditors. This will eliminate payments on the capital and interest, creating some breathing room for the government to manoeuvre. An alternation in the deal with Perocarbide to charge a higher rate for energy would boast revenue. Currently, Petrocarbide provide a subsidized oil program to the Caribbean nations. The price comes in at a low rate and then increases over time. If they adjusted the price to its intended full price, it would provide important funds.
Domestic production of commodities currently imported is an absolute necessity. Many who produce domestically are refusing to produce out of protest. Just recently, Kimberley Clarke was seized by the Venezuelan government and handed over to its workers with a loan to begin production again. Within a short period of time, 2 million sanitary pads were back on the market. Freed up money to spent on investment and domestic production of good would solve two problems: First, it would reduce the need of foreign currency for imports, freeing it up to pay foreign debt. Second, it would produce industry and wages which could be taxed as the economy expands. Physical capital creation via commodity production is just plain forgotten about in todays financialized economies.
Venezuela could also restructure payments coming in from other countries into USD. For example, Venezuela is currently paying for infrastructure projects in China, Brazil, Iran, and others whose re-profiling due dates are seclude to take place next this year or sometime even next year. Asking for USD would inflate their foreign currency reserves, and bonds that are about to expire to could be substituted for the new ones that are longer term. Finally, there could be a reduction in military spending, in an effort made in the financial markets to rehabilitee the reputation by correcting mistaken ideas about their reputation.
Defaulting on some debt whilst re-orientating economic policy could be a tremendous benefit to the country. These large creditors can get some, if not most of their money back or none of it at all. What is it going to be? Creditors are being much harder on Venezuela than is necessary and the financial markets are making Venezuela look worse than they are in regards to debt. No doubt, this is part of U.S. foreign policy to attack the Venezuela which is struggling to free themselves of imperialist tyranny.
Labour Value Revalued and Re-evaluated – this post sets out some notes and comments on the Labour Theory of Value compare to the Marginal Utility approach following the joint society debate on What is Value on 16 November 2016
Congratulations to the organisers of the joint society debate held on Wednesday 16 November 2016 on What is Value. This was a bold move and a well attended session. However I would like to add a dimension to the discussion concerning the comparison of the two theoretical frameworks (marginal utility (MU) versus the Labour Theory of Value (LTV)) which we did not have time to cover. This concerns the way in which these theories underpin different perspectives of the way the capitalist economy works. By framing much of the debate in terms of value theory and price formation the focus of a lot of the discussion tended to be limited to the micro level of individuals, households and, at best, markets. These two theories however underpin much more significant and vital rival ways of understanding how capitalism functions (or not). So the discussion, as the organisers I am sure will agree, is not some remote esoteric or abstract discussion but one which gets to the heart of understanding the economy and explaining its fluctuations and crises. So a good grasp of these theories and the assumptions which underpin them is vital for anyone interested in how the economy works.
So a more demanding challenge is to ask how well these theories stack up when it comes to explaining how the capitalist economy works. From such a view point it is also much easier to question how well they address the other two themes of the debate – gender and nature. Here I will just give the bare bones of the issues with suggestions for further reading, most of which are freely accessible for download.
My perspective is from a Marxist LTV which is really the only one that counts in my view so any MU advocates may wish to post separately. At the outset, however, one good and challenging text to consult covering both perspectives is by Andy Brown in the Cambridge Journal of Economics volume 36 pp 781 – 798 (1). Brown starts from the historic 1932 essay by Lionel Robbins (2,3), considered by many as the daddy of maintream economics (or one of them anyway!) which argued that the task of economics is to develop, step by step, a realistic understanding of the economic system based on a theory of value. Brown reviews the theories and argues that MU does not meet the requirement Robbins originally envisaged for it.
MU fails as a theory of capitalism on a number of counts: its flawed conception of the economy, building on the individual (or representative agent at most restrictive) – and making use of an approach known as methodological individualism(4). Further assumptions which are flawed are rationality in behaviour (5) and expectations; the notion of maximisation and that of equilibrium. For an in depth critique of the core axioms and assumptions of mainstream economics and its neoclassical alter ego, see: Varoufakis and Arnsperger (6,7). For a critique of general equilibrium theory from inside mainstream economics see Kirman (8). For a review of the evolution of economic thought, providing a useful historical context see the article and book by Fine and Milonakis (9).
Elegant maths model building is also a characteristic of mainstream economics which can be traced back to MU theorising. However, based on flawed assumptions such as those of MU leads to flawed outcomes. For a critique of mathematical deductivist modelling – see Lawson (10).
Behavioural economics has demonstrated experimentally the flaws in some of the simplistic psychological assumptions of MU but itself remains rooted in an individualistic approach to the economy relying on such notions as ‘animal spirits’ (derived from Keynes) to explain ‘investor sentiment’ or ‘over exuberance’ in financial markets. Few mainstream economists predicted the economic crisis of 2007 and fewer have an explanation that goes much beyond the cliché of imperfect markets or the aforesaid animal spirits. LTV in fact can explain better where these sentiments come from but has generally been much attacked and vilified. However, it remains the only theory that can explain profit under capitalism and the concept of capital (a social relationship as well as ‘economic value in motion’ taking successive forms of money capital, commodity capital and productive capital). Capital then , on the one hand is a relation of production in which labour power, the products of labour, and goods and services more generally, become commodities. On the other hand, capital is a class relation of exploitation. Although LTV is largely ignored by mainstream economists, the issue of labour productivity dominates much popular economic discourse – empirical evidence of the importance of labour power for capitalism!! You don’t get many economists talking about utility maximisation in news bulletins on the economy!
LTV sees capitalism as a specifically historic formation based on historically specific social relationships, particularly the fact that labour power itself has become a commodity to be bought and sold with the unique use value that it has the capacity to create in production more value (11) than it costs in terms of the value of wage goods bought through workers’ pay. This gives exploitation a quantitative and relational character rather than simply a normative one.
It is only in passing that LTV is a theory of prices – the criticisms of the so called transformation problem miss the point that capitalist competition is predicated on prices deviating from values which provides the incentive for capitalists to move in and out of particular sectors to build profits – such competition then tending to equalising profits across circuits.
As Alfredo Saad-Filho (12), a prominent Marxist political economist puts it, the LTV helps explain important features of capitalism which other schools of thought, including the neoclassical, Keynesian and institutionalist, have difficulty analysing. For example, the necessity and origin of money, technical progress and the rising productivity of labour, conflicts over the intensity of labour and the length of the working-day, the growth of the wage-earning class, the inevitability of uneven development, cycles and crises, and pressure on incomes of workers – not because of declining living standards (although that can also happen, as recently evidenced during the economic crisis) but, rather, because of the growing distance between their ‘needs’ and what they can afford to buy, often leading to debt and overwork.
Through innovative theoretical developments like social reproduction theory Marxist feminist political economists (13) have expanded on the labour theory of value to look at the role of unpaid household labour in capitalism and the oppression of women. So how LTV connects to gender studies can be examined from this perspective and that will be the subject of a further post. Similarly, Marxist orientated scientists and political economists have developed a number of studies of ecology, as well as the development and application of science under capitalism and climate change. These enable a better orientation on how the LTV understands the treatment of nature under capitalism. For Marx, wealth consists of use values and is produced by both nature and labour. In contrast, the value/exchange value of the capitalist commodity economy is derived from the exploitation of human labour power alone. The contradiction between wealth and value lies at the core of the accumulation process and is directly associated with the degradation and disruption of natural conditions. (See Foster and Clark (14).
These issues will also be the subject of another post.
My apologies for the length of this post but I hope these comments and the resources referenced below will assist anyone interested in acquiring more knowledge of Marxist political economy in general and the LTV in particular.
18 November 2016
- The CJE can be accessed as an e journal via the University library site and the article can be downloaded as a pdf. Andy Brown also has an earlier article exploring recent developments in LTV theory also in CJE (208) vol 32 pp125 – 146. I also have a power point presentation by him on LTV v MU which is very clear.
- for overview of Robbins see: https://en.wikipedia.org/wiki/Lionel_Robbins
- to download a free copy of his famous essay which contains his famous, if widely contested, definition of economics go to here for the second and revised 1935 version of his essay https://www.scribd.com/document/14242989/An-Essay-on-the-Nature-and-Signi%EF%AC%81cance-of-Economic-Science-Lionel-Robbins
- for a historical review of the theory of Methodological Individualism see Stanford Encyclopedia of Philosophy http://plato.stanford.edu/entries/methodological-individualism/ For a critique of Methodological Individualism in economics, see: Hodgson, G Meanings of Methodological Individualism http://www.geoffrey-hodgson.info/user/image/meanmethind-free.pdf
- for critique of rational choice and marginal utility see: http://et.worldeconomicsassociation.org/files/ETHodgson_1_1.pdf
- Varoufakis Y 2012 A Most Peculiar Failure –
On the dynamic mechanism by which the inescapable theoretical failures of neoclassical economics reinforce its dominance
Accessible from: https://yanisvaroufakis.eu/2012/04/03/so-what-is-neoclassical-economics-and-what-is-not/ This paper forms the first chapter in his book: Economic Indeterminacy published by Routledge https://yanisvaroufakis.eu/books/economic-indeterminacy/
- Yanis Varoufakis was famously Greek Minister of Finance from January to July 2015, when he resigned. Varoufakis was also a Syriza He has written extensively from a political economy point of view on the euro crisis and the crisis of the Greek economy)
- Kirman A Kirman 1989 The Intrinsic Limits of Modern Economic Theory: The Emperor has No Clothes The Economic Journal, Vol. 99, No. 395,
- Fine, B and Milonakis 2011 ‘Useless but True’: Economic Crisis and the Peculiarities of Economic Science Historical Materialism 19.2 (2011) 3–31 Note this Journal and therefore this article is also available as an e journal through University of Aberdeen Library. The Fine and Milonakis book on the evolution of economic thought is: From Political Economy to Economics (2009) published by Routledge
- Lawson, T 2009 The current economic crisis: its nature and the course of academic economics Cambridge Journal of Economics 2009, 33, 759–777
- Marx distinguished between two forms of value – use value – how useful a commodity is in consumption, essentially a subjective matter and value as the socially necessary labour time required to produce a commodity. This takes the form of exchange value, which is expressed in monetary terms, the priority of which dominates the logic of capitalist development. Not every use value is a commodity – as use values like sunlight, air open spaces created naturally are not exchanged for money in the market place. The commodification of nature through business land ownership of natural forests and so on, is of course a feature of capitalism – see below.
- Saad-Filho 2002 The Value of Marx: Political Economy for Contemporary Capitalism Routledge This is an excellent guide to Marx’s LTV and is Available as a free download from: http://politicaleconomy.ie/wp-content/uploads/2012/10/Value-of-Marx.pdf For an introductory text get Marx’s Capital by Ben Fine and Alfredo Saad-Filho (Pluto, 2004) or Unravelling Capitalism by Joseph Choonara (Bookmarks, 2009)
- For a topical introduction to social reproduction theory – see a recent edition of the journal Historical Materialism Special Issue on Social Reproduction Historical Materialism issue 24.2 (2016) The introduction to this edition by Susan Ferguson et al and her article on Intersectionality and social reproduction are particularly useful.
- On Marxism and nature, there are numerous references but recent publications include: Land and Labour: Marxism, Ecology and Human History by Martin Empson published by Bookmarks;
Capitalism in the Web of Life by Jason W. Moore published by Verso
And a series of books by John Bellamy Foster on Marxism and Ecology from Monthly Review Press which can be accessed from the Monthly Review (MR) Journal site:
Foster and other co writers have numerous articles in the MR Journal –see http://monthlyreview.org/subjects/ecology/ A good theoretical article by Foster and Clark in which they offer a critique of Moore and others from within the Marxist camp is available free at: