[This past Febuary, a few of us were lucky enough to take part in a discussion of the structure of Capital led by Gerard Dumenil. I just unearthed my notes; for the sake of posterity, here they are.] Marx’s method Marx moves from the concrete, to the abstract, and back to concrete. Concrete reality is unitary, but concepts are necessarily partial. So the definitions of particualr concepts don’t matter except insofar as they form part of a particular science. Marx’s work contains several, at least partially independent systems of concepts. So for instance alienation is not part of the system of concepts, or science, constituted by value, capital, profit, etc. Capital begins with the commondity, builds via money to value, and then builds to capital. The error of idealism is to confuse the production of theoory with the exposition of theory; the latter builds up logicallly from the simplest concepts, while the former cannot. Exposition can follow a deductive method, but the original development of theory cannot. The three volumes of Capital Volume I is of course finished, Volume II is also largely finished, but Volume III is not. Capital is value in a movement of self-expansion. It is necessary, but basically indeterminate, to give one of these eleements priority in exposition. The commodity is the unity of use- and exchange-value, or of utility and value. Volume II is accounting. Volume I is explaining the class anture of capital. That’s why Marx begins with the self-expansion of capital, rather than the movement (circuit) of capital, even though either is equally acceptable logically. In a sense Volume I is all about unemployment. But it’s just as much about exploitation, and about technical-organizational change. It ends with primitive accumulation for political rather than scientific reasons – he wants to conclude with a topic that allows for a harsh condemnation of capitalism. Volume II then is the “movement” part of value in movement of self-expansion. Each “atom” of value moves through various forms, from money, to commodity, to the productive process, to different commodities, back to money – the familiar M-C-P-C’-M’. Volume II is really providing a form of accounting: the distribution of value among its various forms is like the asset side of a balance sheet. Together the discussion of circulation and the reproduction schemes articualt both aspects – movement and self-expansion. The reproduction schemes imagine all the circuits taking place together, in sync. The three sectors – I, constant capital; II, wage goods; and III, luxuries – correspond to the three forms of valorization – c, v and s. (Marx recognized the concept of national income before it was widely understood.) In Volume III the different conponents that have been described separately are integrated into a picture of the cpitalist process as a whole. Marx is no longer discussing basic concepts, but mechanisms. In some sense, the section on the Law of Capitalist Accumulation could better have gone here. Now we no longer assume prices are proportional to values, but introduce prices of production. (Probably not the best name to have used.) The mechanism governing prices of production is that excess supply of a good produces lower prices in the short run; lower output (Marx doesn’t emphasize this, but it is key); and less investment in that industry. In the long run, as this process equalizes profit rates across industries, market prices come into line with prices of production. Crises Marx’s theory of crises does not rely on disproportions, in fact he criticizes Ricardo for his focus on them. There really is no theory of short-run crises in Marx. (The Labor Theory of Value: What happens with long-run prices that are not proportionate to values? Marx should not have spoken of the “transformation” of values into prices.) The tendency of the Rate of Profit to Fall is fundamentally about the character of innovations – capital-saving innovations are rare. Increased competition is the result, not the cause, of the falling rate of profit. (Here we are at the limits of Marx’s analysis.) Historically there have been two main periods of declining profits, the late 19th century and the 1970s. The profit squeeze is part of the story of the 1970s fall – maybe one-third. An explanation based on intensified international competition, as in Brenner, is absolute bullshit. [Dumenil’s words.] Finance Only industrial capital makes the full circuit described above. Commercial capital is limited to the “commodity-handling” and “money-handling” parts of the circuit. All labor in these circuits is unproductive labor. Cases like transportation are tricky and can be placed in either circuit. Interest-bearing capital: this embodies the division between active and inactive capitalists. If the analysis in Volume II corresponds to the asset side of a balance sheet, the analysis of interest-bearing capital corresponds to the liability side, that is, how capital comes into the firm, how the firm is financed. (In Marx’s terms interest-bearing capital includes shares as well as debt.) The active capitalist has the chracter of an owner but also of a worker, pays self a wage. Eventually the active capitalist disappears and is replaced by a salaried manager: this was a very prescient observation by Marx. Banking capital: Banks become adminstrators of interest-bearing capital, while remaining one of the main embodiments of commercial capital. So financial institutions have two aspects: on the one hand, they carry out a specific commercial function, but on the other they are the representatives of the capoitalist class in general. Fictitious capital: This is not value in the movement of self-expansion. All interest-bearing capital is fictitious. Securities issued by corporations are “less fictitious” since they finance productive capital, but they are still not capital, because (1) that would be double-counting [with the productive capital they finance], and (2) their value may fluctuate independently. In any case, we should not fetishize the concept of fictitious capital. The question of how much of the income of the financial sector comes through fictious capital is superficial. Remember, banks are partly one industry among others, but partly the carriers of the status and claims of the capitalist class as a whole. (Over time capital ownership is becoming more collective.) Big financial institutions are the police of capitalism, enforcing capitalist logic on the management of firms. If the capitalist class loses control of finance, it loses control of the productive process. Consider the highest-income 0.1% of the population [in the United States], with incomes of at least $2 million per year. Half of their income takes the form of wages. (Not e however that a larger fraction of capital income than wage income is probably hidden, so the real share of wages may be smaller.) It is as if some part of claims on profits are shifting away from traditional forms of interest-bearing capital, and toward positions within financial institutions. But it is not as simple as saying that the highest wages are really profits or rents. The important point isn’t simply that wages are high, but that they come from control over production. Those who get the most “profit-like” wage income as executive salaries, bonuses, etc., are in the same families that own financial assets – the relationship [between the financial and “traditional” parts of the capitalist class] is now a love affair, not a conflict. The 1970s saw a revolt of the money capitalists, with new discipline imposed on managers, using the language of corproate governance, “shareholder value,” etc. This was very successful – of course top managers were happy to go along in the US. Managers in Europe and Japan were more reluctant. So in the US all those ideas of managerialism, “soulful corporation,” and so on, seemed to disappear. But this shift did not really extend to the inner workings of the firm – production is organized more than ever by professional managers. The difference is that managers no longer think of themselves as standing between owners and the popular classes. This earlier conception had been the result of a history of class struggle. The business cycle Marx’s theory of the business cycle is not found in any one section or chapter. It’s not a theory of disproportion, of the misallocation of capital between sectors. In Marx, a recession is a sudden contraction of activity. There are five phases of the cycle; one is overproduction, which requires a definition of “over” – relative to what? In Volume III, overproduction is over with respect to the supply of labor. This is what produces a short-run fall in the profit rate. In general, there are two short-term mechanisms producing recessions: wages and interest rates. One or both rises in expansions and encroaches on profits. This produces contractions, although how is not explicit in Marx. The phrase that the “ultimate ground of crises is the restricted consumption of the masses” sounds like a story of insufficient aggregate demand. But this is not what marx has in mind. As he says in Volume II, wages usually peak just before a crash. Marx supposes the typical cycle to be ten years long, but this is a vague gneeralization without any sophisticated reasoning behind it. This may be connected to technological factors, but the idea that a lack of real investment opportunities leads to excessive financial investment is total bullshit. [Again, GD’s phrase.] Stability and instability Volume III has a clear story about competition: If profits are higher in one sector, there will be investment there; if the output of a sector can’t be sold, prices will be cut. This can be modeled. It is difficult, but not impossible, to produce Marx’s results. Stability requires some reaction to imbalances, but not too much. The second question, is what determines the overall size of the economy? Imbalances between supply and demand in the goods market are dealt with by quantity (as well as price) adjustments. This “direct control of quantities” is present in Ricardo and of course Keynes but not Marx. Control of quantities makes it easier to get convergence in the model. The overall size of the economy is determined by the supply of credit. Credit creation is procyclical but the money supply is counercyclical. (Kalecki’s model needs a credit mechanism to allow investment to vary independently. It doesn’t have it – Kalecki never considered money.) We [D&L, not Marx] speak of proportions and dimensions. Proportion is investment abd relative prices between industries. Dimension is the overall size of the economy, the growth path. To model capitalism, we need to have stability of proportion and instability of dimension. Capitalism remains at the frontier of stability of dimension. (The price mechanism is slower than the quantity mechanism.) Inventories grow – if the quantity adjustment is too large there is an increase in inventories elsewhere that ouweighs the decrease at the first firm. The short-run dynamics are somewhat Keynesian. The development of the credit system creates the possibility of greater instability of dimension. This in turn invites more active control by the authorities. Take a simple two-factor model. Innovation is local – new technologies are similar to old ones. Innovation is random in the neighborhood of existing technologies. If an innovation raises the profit rate, it is adopted. In addition, Marx believes it is easier to innovate by raising the proportion of capital – technological change is biased in a capital-using direction. Hortatory You need to understand mechanisms. You need a global perspective. You need to know history. You need to be an activist. We absolutely need to get rid of the capitalist classes. You need to get some political culture. Don’t become stupid writing a dissertation. Do not attempt to derive concrete developments from abstract laws of value. Do not fall into idealism. If you’ve only read Capital you know nothing about the contemporary crisis. You need to explain what’s going on. This is not the end of history. Your research agenda will be determined by what happens next. Still, there are some principles: We live in a class society, classes are not going to disappear tomorrow. The basic marxist framework is not absolute, it may evolve, but it still applies. When you are told that your dissertation is too broad, listen with only one ear.