Reflections on Fine and Filho's "Marx's Capital"

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[Source and Courtesy: Marx's Capital, Ben Fine and Saad Filho, Pg. 62, Figure 5.1] 

This post is a specific reflection on the above Diagram- Economic Reproduction in Capitalism[1], as depicted in the worth-studying book- Marx's Capital by Ben Fine and Alfredo Saad-Filho. This book is one of the most reliable introductions to all the four volumes of Marx's Capital. The above diagram shows, in essence, how economic activities- specific to capitalist mode of production[2], are reproduced, in simple[3] as well as expanded[4] commodity production. More such commentaries on other concepts dealt in the book, shall be put in future.

Preliminary Observations:

Some important preliminary observations may be noted here-

1. The circuit above correctly brings out the geo-spatial motion of 'capital'. It necessarily presents a dynamic[5] view of the economy, which is constantly in motion.

2. The process of reproduction may be divided into two parts:

[A] Department 1(D1)- 'Means of Production' department: Thus, the lower half part of the circuit is D1.

[D1- Department 1, of means of production]

[B] Department 2(D2)- 'Means of Consumption' department: Thus, the upper half part of the circuit is D2. 

[D2- Department 2, of means of consumption]

3. The areas of circuit representing P1 and P2 depict the Production part of the entire process.

4. Consequently, the area representing 'Exchange' depicts that part of circuit wherein the sales and realization of commodities produced is done in the economy. In other words, it represents the market exchanges.

Some reflections:

'M' represents the total pool of money in the given economy. Looking at this model from a macro level will give a better understanding of how Marx's system analyzes the capitalist economy, giving an alternative view to other approaches. As we are analyzing two departments, D1 and D2, 

M = m1 + m2 

and also

M = m'1 + m'2

where, m1 = total money with the producers of D1, and m2 = total money with the producers of D2. At the end of the numerous transactions, entire amount, assuming zero savings, returns to the money pool M. This movement of money, to the extent it is capital advanced and then sales realized, is constant, disrupting frequently thought, and causing crisis[more on this in future posts].

The capitals advanced are:

for D1: c1+v1

for D2: c2+v2; 

where, c1 and c2 are "constant capitals", and v1 and v2 are variable capitals[6].

The capitals- raw materials, etc.,[represented by C1 and C2 ] of respective departments flow within the economic unit of production- firm, pass through Production[P1 and P2], then get converted into commodities ready for sale[C'1 and C'2]. These are then sold, i.e. exchanged for money through market exchange. 

The point of production is Profit. What if the same amount of Money M returns back in the hands of the owner? This would negate the entire purpose of production of commodities. Hence, it is very much essential for an excess amount to be received, which surpasses the original capital advanced. This, we call as per the model- m'1 and m'2 respectively for Departments 1 and 2.

m'1 in the model above is c1+v1+s1, m'2 is c2+v2+s2 respectively for their concerned departments. The mystery then is this 's'- surplus value. The orthodox belief will suggest that this surplus value- the amount excess to the original capital advanced[M1 and M2] has come through the market exchange. But as the model suggests, that's not the case. As soon as the production process is over- P1 and P2, we find the  emergence of surplus values- s1 and s2. Hence, we have a mystery.

This mystery, we shall keep unsolved till future posts. 

Notes and References:

1. Economic Reproduction means the constant generation/production of given social-economic conditions of production, and the production of commodities in a particular given manner, that reinforces the particular mode of production.

2. Capitalist mode of production may also be called, for the sake of simplicity- Capitalism.

3. Simple economic reproduction is wherein the surplus value produced- 's', is not ploughed back into production, but utilized for personal consumption. 

4.Expanded reproduction is where this surplus value 's' is put into production of commodities[Goods or Services], which thus increases the pool of money 'M', every time this happens.

5. By dynamic, we mean an economy constantly in motion rather than a static version of it. This constant movement is seen in the national and global economy as a whole.

6. Variable capital here means the amount of money advanced as 'wages' to the workers[in any enterprise producing any commodity(goods or services)]. Constant capital means the amount of money put into raw materials, machines, tools , equipments, other expenditures, etc. These definitions are different than mainstream definitions.

The fallacy of balanced approach

Interesting News article today: Left out: Marx, Engels to play minor roles in Bengal school books

It is surprising to see that Politicians/Academicians in West Bengal are striving to reduce/remove Marx and Engels from History. We can ignore the Economics part as hardly anywhere in world is Marxian economics taught. A News channel debate today explained that the 34 years rule of Communists in West Bengal resulted in a lot of Marxism being taught. It didn't explain than that why didn't a Communist revolution occured in WB in last 34 years? Why was Social democracy so closely knit into the political fabric of Bengal for these many years and not pure Communism? Why was there 'State Capitalism' in WB and not Communism as envisaged by Marxist ideas?{1} Many more questions remain unanswered though.

This is yet another instance why Marx is being suppressed and neglected as much as possible. These bourgeois personas of West Bengal's ruling party think they can suppress Karl Marx. Even if that's done, it makes no difference to Marxist methodology at all! As such, who needs mainstream syllabus to teach anything relevant today?

Today's case of Bengal clarifies how much afraid the dominant politicians and their bourgeois compatriots are of Marx{2}. Schools, Colleges and Universities are centers of brainwashing young population so that they can obey the dominant ideology and safely skip what they must actually know.

No doubt then, that most of the syllabus in India is filled with ideological biases of the ruling class. If they feel threatened by Marx's ideas, they can indeed reduce/remove him. Still, these ideas will return, with far more strength and endurance. Sad that History is being politicized. And sad that hardly anyone understand's Marx's ideas except that he was a Communist{3}.

Can there be a balanced approach?

The fallacy of balanced approach is very clearly visible in mainstream History and Economics curricula. Every new political party in power wishes to introduce its own ideological standpoint so as to bring changes it wants. That's not bad per se{4}. What is bad is that Marx's ideas are hardly taught in their correct, real form. What is presented in the name of Marxism is a critical analysis of his ideas by some other ideologues who have completely different ideological standpoints. This is dangerous. Such a trend will destroy the very future of our young generations. If we wish to have a better India, we need to allow "bias-free" flow of ideas. 

Balanced approach in Economics and History is a fallacy, and a dangerous one. It is to fool people that the committees framing curriculum is a bias-free, neutral set of humans. That's not possible. Every human has an ideology, whether she knows it or not. In the name of balanced approach, a different ideology is presented. The brainwashing still continues.

Agreed. Marxist ideas may have been overdosed in Bengal due to the Communist party's rule there for many years. But that is not a good reason to say that the now-ruling party is a balanced party. Far from it. A newer ideology will be put. Pro-Capitalism, Pro-markets and Pro-capitalist ideas will be fostered, maybe to create a well-obeying, pro-capitalism youth that turns out to be a 'productive' labour force{5}.

Is Marx really understood today?

Talking in terms of India, Marx is hardly even known to majority of the people. A nation where a large chunk of population resides in poverty/sub-poverty/near-poverty levels, its hard to expect them to read Marx and forget about their stomachs. That's not possible for now. But even the well-off sections of society do not understand Marx except the experts in various related subjects. Common populace must understand Marx's ideas in its originality rather than learning it in schools and colleges from ideological tutors- who nevertheless will promote their own ideologies. 

Today, we have a growing number of Austrians in Government colleges. They're able to help people understand their ideas well by engaging in productive teaching which is a healthy sign. Same must be done by Marxians. Just like Marx's ideas, even Austrian Economics is hardly taught or even understood in India. Dare you find a book by Ludwig von Mises or Murray Rothbard in school, college libraries{6}. You might find Marx though- but that's the only good thing. 

This boils down to one simple point: There's nothing like a balanced approach in History and Economics. Both are the pillars of Politic's justification in its present form. Common people must disapprove such a move. The brouhaha about introducing Indian point of view of History is equally fallacious. It is being talked as if only Marx was taught in Bengal's curricula till now, and Indian history was kept aside. There too, comfortable ideas will be put, challenging ones reduced/removed. People must resist such political manoeuvres. Let us focus more on solving nations's immediate problems 

rather than politicizing academic subjects which can be best left 

to academicians to sort out.

In the end, we can say that there's not too much of Marx in Bengal's schools, but a lot of politics to justify the society in its 
current form and skip the ideas people now really need to understand.

Notes:

1. State undertaking decisions that private competing firms must be taking is merely capitalism replaced by political executives taking those decisions. That's far more harmful.

2. This might be the case in face of the recent crisis in Capitalism that has engulfed most of the capitalist countries- E.U., U.S., etc. Justification for the American model of Capitalism is possible when it is justified and taught as if it were the best way to achieve human freedom.

3. The common people in India hardly understand Marx other than the mainstream ramblings against his ideas. Former USSR, Eastern countries,  &c. are publicized as failure of Marxism- as if they had anything to do with Marx.

4. Healthy spreading of one's ideology is always good. World needs different ideologies. But replacing something to introduce another while calling it a balanced approach is very mediocre.

5. Indeed, if wage-labour system is justified in the minds of young people, they'll end up accepting it as the sine qua non of modernity. That's dangerous too. It keeps radically different viewpoints about History, Economics and Future deliberately away from them. We can't afford that.

6. There is a lack of awareness about Austrian Economics in India. Moreover, one will hardly find the literature by this school of thought in Economics- except a few. At least this blog's author has experienced so. That's unfair. Such radically different ideas, diverging from mainstream perspective must be fostered and promoted. Combustion of ideas is the key to prevalence of truth.

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The Greatest Parliamentarian in Indian History

Today, i.e. on 26th March, in 1902, Gopal Krishna Gokhale, carefully trained in Indian Economics, made his first seminal speech on the Budget of the then British India. The British authorities took pride in the budgetary surplus that they had saved. Just then a man stood up and took lock, stock and barrel the entire British administration for their shameful deeds. 

He pointed out that having a budgetary surplus while majority was either starving or dying, wasn't a thing to be proud of. He then took up the annual budget, clause by clause and brought out the negligence and apathy of the Colonial administration, concluding that India was poor because its Economy was subservient to British interests.

Since that day, he's known as the Greatest Parliamentarian in the history of India. His views are very much true even today! While today's authorities and the "booming" middle class are busy in 'maximizing their marginal utilities', about 80% of Indian population resides and struggles at $1,25/day. There seems to be a need for another Gopal Krishna Gokhale.

The blind pursuit of consumption-maximization, the idea that a nation can be happier with more material wealth to consume, the old trickle down theory of Economics and the lack of interest in the larger field called Society, are some of the reasons for the contradictory state of world we live in. On one hand we have Consumers who want to maximize their marginal utilities and feel 'free to choose' in the market; on the other hand its this very class of consumers who has to produce in order to be able to consume. The lack of interest of people in Production while understanding the society isn't a healthy sign and must be reformed.

We don't need Economists to help us make our lives better. We need Social scientists who can rather help us understand the larger phenomenon called Society. And you know what- there's someone who can help us here; Karl Marx!

Following are some links that will help readers know more about Gopal Krishna Gokhale:

AICC's website: Click here.

Wikipedia's article: Click here.

Commodities, Production & Poverty- Part 1

Commodities. How essential and omnipresent this phenomenon is. It embodies a sort of magical character, phantom-like as Marx would say. A key difference between human species and other animals is that of possession of commodities. Before we embark upon a brief journey about this phenomenon, lets look at the its meaning:

Commodity: 

A Good or Service that has a use-value(utility) for users and an exchange-value(price) on market. Food, House, Cars, Pens, Fan, Tubelight, Petrol, Diesel, Bed, Spoon, Mobiles, Laptops, Facebook, Google, you name it! How fascinating this is. We humans are surrounded by a plethora of commodities. It is the prime objective phenomenon that differentiates us from other animal species.

Human Kingdom vs. Animal Kingdom:

Homo sapiens produce, distribute, exchange and consume commodities(both Goods and Services) on a large scale, not matched by any other organic species. Our lives are 'defined' by the commodities we use. A basic difference between a poor and a rich is the differences in the 'possession and utilization of commodities', isn't it? A rich family would be characterized by qualitatively and quantitatively better consumption as compared to a poor household. Suppose if all had the same houses, cars, &c, i.e. exactly same amenities. there wouldn't be any differentiation in rich and poor.

Of course, some of the readers might argue that its the amount of 'money' owned that makes this difference. I shall have two arguments against this proposition:

1. Money, in itself is not the end- though its a debatable issue in today's commodity fetish society. Its the amount of 'purchasing power' that money commands is what makes it an end; thus in the end the amount of commodities it can purchase.

2. Even if money were an end in itself- again, today this might be so in many cases, still money too is a commodity.  Thus money as an end, is after all a commodity as an end.

Why commodities are essential to human existence?

Commodities give shape to human life. They define our method of survival(even in Darwinian sense). They also smoothen  our organic processes. We wouldn't go in detail of this role of commodities, but briefly putting it, these add to the enrichment and easing of our day-to-day processes; Eg. Sleeping, Eating, Working, Travelling, Communicating, Thinking and so many more. Thus, commodities are very essential for leading a better life- both materially and immaterially. 

Economics and Commodities:

Marx begins in his magnum opus Capital-Volume 1:

"The wealth of those societies in which the capitalist mode of production prevails, presents itself as ―an immense accumulation of commodities, its unit being a single commodity. Our investigation must therefore begin with the analysis of a commodity."(1)

An a priori assertion, though a valuable one. He's one of the few Economists who give a completely fresh way of looking at the society and economy around us. Here, we can understand that accumulation of commodities is an essential feature of a capitalist society. Indeed it is. The prime aim of majority of population is gathering(or in market terms- earning) money, it being a commodity or commodity-buying power. The constant consumption of commodities is what keeps the flow of Economy going. 

A simple model of Economy: The PEDEC model

Production > Exchange > Distribution > Exchange > Consumption   

{PEDEC model}

Two stages are of prime importance. One- Consumption and Two- Production. Production is the source of Consumption and Consumption is the reason for Production.

Thus, we find an interconnected, contradictory but unitary relation between these two processes of Economy. It becomes crucial then, to point out that modern economics is mainly 'Consumption-focused' economic theory. Not just that. We as consumers are hardly concerned about the Production side of the commodity under our scrutiny. What matters is its objective appearance, its use-value and its exchange value.

Production and Economics:

Having said that, Production is still a very important process that needs to be emphasized for a better understanding about the Economy around us. One may call it capitalistic, socialistic, mixed, based on whatever one's ideological standpoint. But, production side of the coin remains equally crucial to focus. Modern Economics is the culmination of years of combustion and application of many competing ideas. Still, the excess focus on Consumption process of the Economy is debatable. 

Production: Two major components:  

We may thus define Production as the expenditure of human labour on natural resources and other raw materials to transform them into consumable commodities. Note that Capital Goods such as Machinary, Equipments, etc. are all the product of human labour. We consider them here as non-natural resources of production. Natural Resources are the Primary source of all the production that occurs. 

Then comes Human labour, that transforms the natural resources into the commodities we use as consumers. Here, we may include the Entrepreneurs who perform specific important functions in the economy(2){more on 'Entrepreneur' in future posts}. Hence, every commodity is a product of many different sorts of labour(3){more on types of labour in future posts}. The pencil that comes in our hand, is but a product of numerous labourers and the expenditure of their labour. The breakfast on our tables is a product of so many labourers. Its fascinating how wonderful the Production process can be if we can just rewind the many economic activities behind any given commodity. Human labour hence is the Secondary source of all production that occurs.

GDP- A mass of numerous commodities:

GDP- Gross Domestic Product, is today the most essential indicator of Economic growth of an Economy. Globally, policy-making is extremely sensitive to GDP growth rate and its trend. Recent RBI's monetary tightening vs. economic growth(4) phenomenon was an important indicator of the importance of GDP and its effects on the growth of a nation.

Let us try to understand GDP's importance from the above discussion we had. GDP, as said above is a mammoth mass of numerous commodities(both Goods and Services) which indicate the available wealth of a nation. This wealth, then has to percolate through the entire economic spectrum of a nation. This shall result  in, argue Macroeconomists, upliftment of the poor section of the society.

If we look at this statement, a crucial fact emerges. A poor is one who has very less or no access to commodities, as simple as this! Lack of commodities and access to them is poverty. The scale of this 'lack of access' may change as per the nation, need, economy, &c. But the fact remains that Poverty removal means enhanced availability of Commodities. Once enough commodities are available to a poor household, they are uplifted from the poverty trap. This availability may be in the form of increased money availability, but as argued above in the beginning, money is but a commodity. 

Hence, the key reason on GDP growth lies in the fact that more the commodities, more its availability, subsequently more access to them for the deprived. Again, access to commodities is an issue that cannot be solved by merely having increased GDP growth. This requires sufficient measures to facilitate percolation of increased wealth to the "Bottom of the pyramid" to quote C.K. Prahald(5). Also, an active and a major involvement of the Private sector is needed. This is possible if rural India is seen as a huge and potential market opportunity, both by the Private and Public sector.

Conclusion

Commodities. How essential and omnipresent this phenomenon is indeed. It provides a fresh new way of looking at Capitalism. They surround us everywhere, that is what differentiates human species from other animal species. Excessive focus on Consumption process in modern economics must give some more space to Production process too. Commodities are not merely the products of the magic of markets, but a product of numerous diversified labourer and representative of expended human labour- including that of the Entrepreneurs.

GDP is a huge mass of commodities of numerous kinds that satisfy human needs. High importance of this measure of economic growth lies in the fact that it can enable enhanced access to commodities for the poor and deprived. Poverty is merely the absence of sufficient commodities to consume. This sufficiency is based on many variables and differ as per the country in question. Both public and private sector must look at Rural India, as brought out by the late C.K. Prahlad in his book "Bottom of the Pyramid", as a huge, untapped market opportunity.

References and Notes:

1. Capital, Volume 1, Karl Marx, 1890, Chapter 1, Section 1, Paragraph 1.

2. Entrepreneurs are Labourers after all. Labour here is used in terms of expenditure of human labour power. In Economics, Labour and Entrepreneurs are two different Factors of Production.

3. Here we refer to concrete labour in Marx's language. This means different types of labour such as weaving, tailoring, singing, &c.

4. Recently, headline inflation came down form +9% levels to below 7% figures. This succeeded a crucial debate nationally about the constraints RBI had over its tightening monetary stance. After more than 13 consecutive hikes in lending rate, RBI had to stop for two major reasons: A). GDP growth constraint and B). Waiting for the lag-effect of tightened policy to show results. Indeed, it has shown positive results, at least for now.

5. Bottom of the Pyramid is an excellent work by a Management Professor- Late Shri C.K. Prahlad. It brings out the hidden, untapped market opportunity in the Rural regions of India which represent a dynamic and a brand-conscious consumer segment. It busts many of the myths about Poor, their consumption habits and much more. Interested readers may purchase it here.

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