UMass-New School Workshop
Class and the Expansion of Total Output
Mohammad R. Moeini
UMass Amherst
Introduction
The aim of this draft is to level the theoretical ground for a study, from a Marxian perspective, of the relationship between class and the expansion of output in the US economy in the past. Class has been defined as the process of production and appropriation of surplus and its distribution. Although the literature on economic growth produced by mainstream economists is vast, it seems that mainstream economics is still challenging to answer, in a convincing manner, why the dual causes of growth, i.e.
accumulation and technical changes result in expansion of output. This paper argues that accumulation and technical change result in higher levels of class exploitation and it is through the exploitation of labor and the distribution of surplus that total output in capitalist society grows. Also, it will be argued that different patterns of surplus distribution will result in different patterns of economic growth.
Towards Developing a Theoretical Core
The literature on economic growth produced by mainstream economists is vast and it is beyond the scope of this draft to survey such a huge body of intellectual effort to explain the causes of economic growth and its consequences. However, a quick look
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at the mainstream economic growth literature reveals that the there are two main lines of research, capital fundamentalists who view capital accumulation as central to the increasing rate of economic growth and those who focuses on the role played by technological changes on economic growth through changes in labor productivity
(King and Levine, 1994). Both these theoretical approaches to the problem of growth and the research methodologies that have been developed parallel to them have some counterparts in Marxian economics, although in Marxian Economics growth is neither the focus of attention, nor the entry point. Instead, Marxian theory focuses on the growth of class exploitation. It will be shown that the gap between these two theories might be bridged by developing a dynamic model of surplus production, appropriation and distribution.
Two Class Processes
Marxism is an extremely large body of literature produced as a result of a tireless intellectual effort to understand how societies work in general. Marxian economics is a multidimensional economic paradigm the aim of which is to explain how different modes of production (i.e. economic systems in modern language) work. As far capitalism as a mode of production is concerned, society’s goal is to increase the surplus value produced by labor. This seems to be a somewhat generally accepted fact among Marxist scholars. What seems to be less accepted a fact is that production and appropriation of surplus value require the capitalists to spend a portion of the surplus already appropriated on those activities that are necessary for the continuation of the class process. In other words, a portion of surplus already produced by laborers and appropriated by capitalists needs to be spent on those activities that are required to satisfy the condition of existence of the process of class exploitation as the fundamental process in a capitalist society (Resnick and Wolff, 1987). To distinguish the latter processes from class exploitation as a fundamental process, we call them subsumed class processes . Likewise, expenditures on subsumed class processes are called subsumed class payments (SSCPs). Using the language of Accounting:
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(1)
SV = ∑ SSCP.
Equation (1) above implies that the source of SSCPs is surplus value already produced by laborers and appropriated by capitalists. Subsumed class payments include such expenditures as payments for capital accumulation, rent payments, managerial fees, financial fees, expenditures on R&D, taxes paid to government at different levels (local, state, federal), guard labor expenditures and expenditures on suppressive forces, conspicuous consumption, etc.
Relationships between the Two Processes
To initiate the process of capitalist production, capitalists hire both constant capital (C) and labor as the variable one (V). In order to make a profit, this process should yield some surplus value (SV). At the end of the working day, total output (W) --in value terms- can be measured by the sum-total of C+V+S. In other words;
(2) W = C+V+S
Referring to what was mentioned earlier, capitalists have to ensure that the fundamental class process is reproducible. In other words, it should be ensured that the condition of existence of the capitalist class exploitation is definitely going to be satisfied. To this end, a portion of surplus value should be spent in the form of subsumed class payments to guarantee the sustainability of fundamental class process, i.e.
class exploitation. So far, this is a more or less a static picture.
But can we draw a more dynamic picture of capitalist processes?
To answer this question, we must distance from a time-free relationship between fundamental and subsumed class processes and try to put that relationship into a
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temporal framework, i.e.
a move from a static version of Marxian model to a dynamic one. Our dynamic model should be able to explain the relationship between distribution of surplus among a variety of subsumed class expenditure items -- ranging from (re)investment of capital goods, to expenditures on technological innovations, to expenditures on managerial innovation …-- and surplus value in an intertemporal framework.
Also, it should it enable us to study the feedback effects of SSCPs on the surplus value to be generated in future. It is crucial to consider the relationship between fundamental and subsumed class processes in a dynamic context, because on one hand each round of capitalist production is heavily dependent on the previous one through the distribution of SSCP among different subsumed-class expenditure items, and on the other surplus value produced and appropriated in the first round is the source of SSCPs to be spent on the next round.
Decisions as to how much SSCP should be spent on what subsumed-class expenditure item are made by owners of means of production (capitalists themselves according to traditional Marxism) or their agents (managers, CEOs, i.e
. capitalists according post-Modern Marxism). Also is important decisions made by government regarding tax codes. But prior to the distribution phase, another decision should be made as to how much SV must be produced from the outset.
The former decision is important because SV produced during the first round of class exploitation process determines the size of the pie of the SSCP to be distributed during the second round and most possibly during the future rounds.
The pattern of distribution, including the magnitude of different cuts of SSCPs in turn determines –-along with variety of other factors such as the population of the labor force, the availability of natural resources the size of the SV produced and appropriated in the second round. In other words, the growth over time in surplus value becomes complexly connected to the growth over time in various subsumed
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class distributions. So the pattern of subsumed class expenditures impacts how and in what ways surpluses grow, while the size of surplus determine how much resources are available for future subsumes class payments:
(3) SV SSCPs
Generally speaking, the processes shown above are of long term nature. In this sense, the objective of a capitalist system is not only to enjoy the fruits of labor solely in a single period of time, but to sustain it in next periods also. Because class processes, both fundamental and subsumed, flow over the course of time, it is useful if we start with attaching a time tag to our class variables here. So, if SV t stands for surplus value in time t and SSCP i t for a specific subsumed class payment of category i in time t , then the distribution of surplus can be shown as:
(4) SV t
=∑ i
SSCP i t
This simple accounting relationship can help us to dig one level deeper into the source of the expansion of a capitalist economy. To achieve this goal, we assume that subsumed class payments in each period have an impact on the size of surplus value to be produced and appropriated in the next period. As it was mentioned above, this assumption is crucial, because on one hand reproduction of a capitalist system, like any other economic system, is only possible if the conditions of existence of such a system is satisfied. On the other hand, by definition, the existence of a capitalist system is closely tied to its ability to extracting surplus from labor.
Hence, reproduction of such a system simply becomes equal to the reproduction of its ability to extract surplus. The question is how capitalists are going to finance those activities that are required for guaranteeing the continuation of surplus production and appropriation, i.e. to satisfy the condition of existence of class process. The answer: by spending surplus already appropriated! The time t surplus becomes the source of financing the time t+1 class process in. Using the language of simple mathematics:
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(5) SV t+1
= f (∑SSCP t
).
Now, given (4) and (5) one can easily conclude that:
(6) SV t+1
[= f (∑SSCP t
)] = f (S t
).
(6) is interesting because it shows that how surplus in each period of time is related to surplus produced in previous time. Using the methodology of difference equations, one can easily show that:
(7) SV t+n
[= f n
(∑SSCP t
)] = f n
(S t
).
Neither (6) nor (7) above still don’t reveal the relationship between surplus and total output, although such a relationship is implicit in both equations. In order to draw a clearer picture between surplus and total output one can refer to the concept of accumulation.
Among Marxists it is widely accepted that surplus is the source of accumulation.
Using the concept of subsumed class payments, accumulation expenditures
(∆C + ∆V) are critical components of SSCPs. Again, it is noteworthy that accumulation in time t is supposed to be financed by surplus produced and appropriated in previous times * . In line with what has been said above, there is (a) not only an intertemporal relationship between SSCPs in time t and surplus in time t+1 , but also (b) there is another relationship of the same nature between
SSCPs in time t and accumulation in time t +1 :
*
Availability of credit is also an issue. But one can easily show that credit expenditures are also a subsumed class expenditure item.
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(8)
(9)
(C +V) t+1
= g (∑SSCP t
), and hence:
(C +V) t+n
= g n
(∑SSCP t
).
How much a capitalist can spend on accumulation in future depends on how much resources (in value terms) are available to him/her now.
Now, given that at any time period such as t:
(10) C t
+ V t
+ S t
= W t
, it can be easily concluded that (from (7) – (10) above):
(11) S t+n
+ (C +V) t+n
= ( S + C + V) t+n
= W t+n
= h n
(∑SSCP t
)].
Recalling (4) above:
(4) SV t
=∑ i
SSCP i t, one can easily conclude that:
(12) W t+n
= h n
(SV t
).
Equation (12) shows that production and appropriation of surplus value at time t and its distribution is foundational
†
to the production of total output in later periods .
In other words, the magnitude of total output is determined by a chain of previous SVs and SSCPs. As it was mentioned above, this enables us to study the capitalist production of total output from an intertemporal point of view. To
† Consciously, I am using the term “foundational” here to avoid the expression “deterministic relationship” between W and S.
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borrow from both mainstream Economics, total output becomes a function of surplus. Having said that, it can be shown that rates of economic growth are also dependent on the rates of surplus production and appropriation:
(13)
A Change in Entry Point d W t+1
= d F (S t
) = F′ d S t
.
Above equations have been worked out based on a change of entry point, a shift from accumulation and technological changes as the allegedly source of growth to class as the most important characteristic process of a capitalist society. This change of entry point may be deployed to show that the debate between procapital accumulation growth economists and pro-technical-change economists can be reduced – at a more abstract level though- to a common denominator, i.e. changes in the magnitudes of surplus production and the rates thereof . I use the expression common denominator to carry the meaning that in the final analysis the contribution of both capital accumulation and technological change is nothing but a change in surplus production and appropriation. So, by changing our entry point we can overcome this artificial dichotomy between capital accumulation and technological change.
Patterns of SSCPs and Output Expansion
Subsumed Class Payments: The Problem of Tradeoffs
Based on a quick review of the literature, it seems that even in Marxian camp, the following is an understudied issue: depending on the pattern of spending the
SSCP, different amounts of surplus will be produced and can be appropriated in next round(s) of class process. What cut of SV is put aside for what specific SSCP
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expenditure item, such as managerial fees, financial fees, tax payments, R&D, guard labor, etc has a direct impact on how much S can be produced in future have. As an example, public expenditures by the US government in such activities as public education will make a difference in the US labor productivity, and hence in class exploitation. Guard labor is employed to ensure that working day is intense enough. Financial expenditures have an enormous impact on how much capital can be accumulated in near future, etc. Hence, a careful study of the distribution of surplus value becomes required.
Such a study is crucial because (a) not all individual items of SSCPs equally impact the amount of S to be produced and appropriated in future, and (b) some items have a direct impact on future SV while other items have an indirect impact or no impact at all. The impact of that cut of SV spent on capital accumulation is not necessarily equal to the impact of the other cut of surplus spent on managerial and supervisory activities. Also, items such as dividends paid to the shareholders and conspicuous expenditures have no direct impact on the capital accumulation in one hand and on the volume of supervisory and managerial activities on the other. However, that how much is spent on shareholders fees and conspicuous expenditures determines how much surplus is left over to be put aside for capital accumulation in one hand and managerial and supervisory activities on the other.
This can be shown more clearly using the SSCPs equation:
(14) SSCPs = SSCP
∆C + ∆V
+ SSCP
R&D
+ SSCP other
Referring to (14) above, one can easily conclude that the higher SSCP other
, the lower ∆C + ∆V, given other things constant. As an example, what portion of SV is spent on the salary of subsumed class managers determines how much is left for the accumulation of capital, given a fixed amount of surplus value.
A little bit of Politics
Also, (14) above prepares us to bridge over the gap between class exploitation and
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technical change. This bridge is important because in many ways the essence and hope of non-Marxian theory is the following: if output grows, then over time capital and labor can both enjoy the fruits of that growth and need not struggle with one another. Also, because another source of technical change is education in human beings, government expenditures can serve the goal of diminishing the risk of class struggle between capital and labor. The Marxian story is that technical change embodied in subsumed class expenditures can not only foster product growth, but also it can contribute to raise surplus value over time, hence higher chances of class struggle. In other words, even in a highly productive society such as the US, class struggle does not become unnecessary simply because of the higher standards of living of labor class !
To put it differently, the source of expenditures on technical change is SSCPs. The more successful the technical change, the higher the chance to increase the rate of surplus value. So, in one sense capitalists exploit labor in order to exploit it at even higher rates later down the road! Technical change embodied in subsumed class expenditures can not only foster product growth but also raise surplus value over time. This implies that, as far as class struggle is concerned, even a higher standard of living for labor is not a sufficient condition for the termination of labor’s struggle to eradicate the process of class exploitation.
Conclusion
Static Marxian model of distribution of SV among SSCPs pays enough attention to the structural relationship between two fundamental class processes. A dynamic version of the above mentioned relationship is needed to shed some light on the relationship between surplus and the expansion of total output through explaining the dynamical relationship between current and future values of both
SVs and SSCPs. Also, such a dynamic model can be used to resolve the debate between pro-capital accumulation growth economists and pro-technical-change economists on one hand, and to shed some light on the mystery of technological
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changes and their impact on growth on the other.
Reference s
Works directly referred to:
King, Robert and Ross Levine (1994). “Capital Fundamentalism, Economic
Development and Economic Growth”. World Bank Policy Research Paper
Series # 1285. Available through: http://ideas.repec.org/p/wbk/wbrwps/1285.html
Resnick, Stephen and Richard Wolff (1987) Knowledge and Class: Marxian
Critique of political Economy
Works used but not directly referred to:
Marx, Karl. (1967) Capital Vol. III
Moseley, Fred (2000) “Hostile Brothers, Marx Theory of Surplus Value in the Volume 3 of Capital.” Available at: http://www.mtholyoke.edu/~fmoseley/working%20papers/VOL3.pdf
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