Two Reviews: Andrew Kliman’s ‘Reclaiming Marx’s Capital’ and ‘The Failure of Capitalist Production’

By Ravi Bali

Via Northern Lights on August 20, 2013

When Karl Marx wrote Capital, it was the crowning achievement of a lifetime spent in political and theoretical struggle. Published in three volumes, with a further three books on Theories of Surplus Value which, taken together, constitute the fourth volume, Capital runs to thousands of pages. It is a critique of the previous best attempts to explain the laws that shape capitalist development, such as the classical economists like Adam Smith and David Ricardo.

Due to the sheer length and complexity of Capital, few people have actually taken the trouble to read it carefully. Capital must rank as one of the best-known but least-read works ever published; most of us will have gleaned what we know about Capital through commentators or interpreters. And therein lies the problem. Marx’s explanation of capitalist development is far removed from conventional accounts of how our society functions — in particular, the Anglo-Saxon tradition that takes the isolated individual as its starting point. This is not a coincidence, as the viewpoint of the isolated individual corresponds more closely to the surface appearance of how we relate to our society and are expressed in the liberal ideals of opportunity, meritocracy, and self-reliance.

The viewpoint of the isolated, self-determined individual is the default setting for anyone considering their place in our capitalist world. This means any analysis that is not based on this subjectivist attitude will seem counter-intuitive. Moreover, the philosophical ideas that dominate our society and frame our thinking are those that accompanied the birth and rise of capitalism. These ideas, embodied in the industrial and scientific revolutions, were those of mechanical materialism – including the use of metaphors derived from mechanics to describe society. But when looking at social phenomena we can get only so far in using mechanical metaphors. As thinking beings, we are not reducible to cogs in a machine, our subjectivity also has to be accounted for. Here organic metaphors can be more useful, in that they capture unfolding possibilities. However, this too can be taken too far: there is no predictable fixed outcome that societies are definitely heading towards, and unlike plants and animals, we can influence our form of development.  This is the importance of dialectics, looking at objective social processes as constituted by beings with subjectivity and consciousness.

The difficulties of making Marx’s ideas correspond with our common sense notions is what often leads to problems in getting to grips with his work.  To understand Marx is to initially plunge into an unfamiliar mode of thought.  It is to think historically and (that much abused word, dialectically).  One cannot hope to grasp the meaning of Marx by simply applying rules of formal logic. Dialectical thinking recognises that social development is the process of both un-becoming (moving away from one state) and becoming (towards a different state). At any time, any social object (e.g., a society) may both be one thing and contain within itself the possibility of becoming other than what it is.

When familiarising oneself with Marx’s work, and Capital in particular, one must bear this dialectical way of thinking in mind. To look at society as a historically produced entity with its own laws of development and to capture these in concepts that we can understand is a formidable task. Because of this, it is not easy or straightforward to comprehend Capital in its entirety and lots of people have got lost in the effort of trying. There are a quite a number of commentators on Marx who have failed to see the whole of Capital as advancing a single picture of capitalism as a social system.

Andrew Kliman is someone who has studied Marx very closely and believes that the old revolutionary still has something vitally important to tell us about how our society works.  He has pulled off a remarkable feat with his two recent books, Reclaiming Marx’s Capital and The Failure of Capitalist Production. In these, Kliman has not simply given us another guide to Capital, but rather has drawn out its central purpose and shown its contemporary relevance.

While each book stands alone as a very worthwhile read, I recommend you start with Reclaiming Marx’s Capital, as it establishes the foundation for The Failure of Capitalist Production. In Reclaiming Marx’s Capital, Kliman deliberately restricts himself to the question of the theoretical consistency of Capital. Here, he argues that if Marx’s argument can be proved to be self-contradictory then it can be dismissed as irrelevant. So only once Marx’s work has been acquitted of the charges of internal inconsistency can Kliman move on, in his second book, to the applicability of using these theoretical categories to explaining the current economic crisis.

This review will look at each book in turn.

Reclaiming Marx’s Capital is an extended treatise countering the attacks on Marx’s crisis theory, arguing that those critics and “defenders” of Marx who support these attacks have misunderstood his work, making it appear incoherent. For Kliman, many who have claimed to be working in the tradition of Marx have done great violence to the legacy of his thought. When Marx is interpreted according to his own assumptions rather than those incorrectly attributed to him by both his critics and those “defenders” who feel his work needs their correction, Marx’s central argument stands as entirely consistent. But this is not a straightforward case: various passages in Marx’s work are ambiguous and the intended meaning contested.

The subtitle of Reclaiming Marx’s Capital is “A Refutation of the Myth of Inconsistency”. The book’s main target, then, is the variety of misunderstandings of Capital that have led commentators to accuse Marx of inconsistency. Kliman’s purpose is to give a reading of the argument in Marx’s Capital that shows it to be a coherent whole. He makes clear in his first book that he is not trying to establish Marx’s theory as true, but rather attempting the more modest task of showing it as coherent, that it makes sense on its own terms. Kliman’s hope is that if the hasty dismissal of Marx’s crisis theory as inconsistent can be exposed as based on clear misunderstandings, it may be possible to create a new audience for his work.

The most central aspect of Marx’s thought that Kliman seeks to defend is the tendency for the rate of profit to fall, though Kliman uses the abbreviation LTFRP (law of the tendential fall in the rate of profit). The LTFRP is the expression of how the introduction of labour-saving technology has the effect over time of depressing the rate of profit. Marx’s contention in Capital was that there are specific laws that regulate the way in which capitalists accumulate wealth. Capitalist accumulation generally takes place by advancing a certain quantity of capital used to employ labour (and other means of production such as raw materials, land, and machinery) to produce something for the market.  This product is then sold on for more than was initially advanced and the capitalist increases the size of his capital. This making of profit is both the incentive and motor force of capitalism. As long as sufficient profits are being made, then capital can accumulate, and we will have economic growth. If something interrupts this making of profit, then capitalism grinds to a halt.

Based on a modified labour theory of value, what Marx was able to show was that there is a consistent trend for capitalism to continually undermine the basis of its profit, and thereby its own functioning. This arises from the fact that any individual capitalist will try to improve the efficiency of his operation through introducing labour-saving technology. He can for a period either make higher profits by having a more streamlined operation while charging the same price for his product than his now less efficient competitors or alternatively undercut his competitors on price and gain a greater market share. These technological improvements will eventually be adopted by his competitors, thereby making this more efficient level of production the new industry standard. This has the effect of squeezing out the living labour that is the source of all profits. This in turn has the eventual effect of lowering the general rate of profit. It is thus ironically the profit maximising behaviour of each individual capitalist that ultimately has the effect of reducing the rate of profit for the capitalists as a whole.

The reason why this most important of Marx’s laws of capitalist motion is counter-intuitive is that I assumed that improved productivity, cheapening the production process, should for a smaller outlay allow us to make higher profits (assuming we sell at the same price). Assume this for the operation of the whole economy. In a system based on market exchange, as labour-saving technology spreads there is a general effect of lowering the market price of the finished product(s) over time. The interests of each individual capitalist is to raise their labour productivity (reduce labour time for making their individual product) but this ends up reducing the rate of profit for all capitalists. Therefore, the underlying pattern of capitalist development is for a rising proportion of the capitalist’s outlay to be on machinery and materials (called constant capital) and a falling proportion on paying workers (called variable capital). This is referred to by Marx as the rising “organic composition of capital”. It is the reason that there is a LTFRP: living workers that are the only source of surplus value and therefore of profit are reduced as proportion of total capital, therefore the ratio of profit to total capital goes down. Of course, the LTFRP is not the only tendency in capitalism: otherwise the system would have long since collapsed. There are factors that slow and can even temporarily reverse the direction of an ever higher proportion of constant to variable capital, but these do not stop for long the dominant trend of technological improvements causing the LTFRP and thereby the possibility of economic crisis.

Kliman knows that anyone who is familiar with Marx will be aware of his labour theory of value. He goes on to demonstrate that the many people who have tried to correct Marx’s argument on the LTRPF fail to use it. He painstakingly goes through the variety of ways in which those who say that Marx’s argument is inconsistent are in fact not basing their own arguments on his value theory, but instead are smuggling in their own assumptions. These assumptions, Kliman argues, violate Marx’s principle that socially necessary labour time is the only source of a commodity’s value and that surplus labour (labour performed by the worker that is not paid for by the capitalist) is the sole source of surplus value and profit. Having failed to develop their arguments from his premise, their “improved” interpretations of Marx are always going to be at variance with Marx’s own arguments and conclusions.

It is in using the criterion of the need to understand Capital as a whole that Kliman goes through the different ways in which those who accuse Marx of inconsistency misread him. He argues that all the objections to Marx’s argument that have been maintained for the last 30 years are down to the same root cause: the simultaneous valuation of inputs and outputs in production. A simultaneous (or replacement cost or current cost) valuation is one that takes the inputs that went into production and values them at what would be paid if one were using the same inputs today. The alternative, a temporal valuation, is taking the actual cost of the inputs that go into production as the basis for working out profits and profit rates. Kliman argues that the simultaneous form of costing is not one that one that would be understood by anyone in business, and more importantly, it is not what Marx would have understood as a cost when studying capital accumulation and the formation of a rate of profit.

The book continues with a detailed discussion on the implications of this form of valuation. If the value of an output is always assumed to be an equivalent to what its value was as an input, rather than the value observed at the moment of production, increasing productivity over time will be understood one-sidedly as just a higher quantity of output. This fails to account for the lowering value of each item during the production period as a result of this technological change. This, in turn, will have the effect of overestimating the real profit and rate of profit. It also would contradict Marx’s LTFRP since rising productivity of labour through introduction of machinery is going to result in a greater quantity of output, with no corresponding fall in value, resulting in an ever rising rate and mass of profit. Kliman shows how simultaneous valuation of inputs and outputs leads to physicalist conclusions, i.e. that a rise in physical quantities produced means greater total value. This diverges from Marx’s insistence that a certain amount of socially necessary labour time represents the same value irrespective of how much is produced. Higher productivity, for Marx, simply means that the value represented by a certain amount of socially necessary labour time is spread over a greater number of items.

There is a particularly impressive section in chapter 6 in which Kliman gives a forensic reading of a paragraph from Marx’s Economic Manuscripts (1861–1863). He quotes a 20-line passage in full, adds a numbering to demarcate each separate point being made then shows why a simultaneous (or replacement cost) valuation interpretation is incompatible with the passage as a whole. He shows why simultaneous valuation interpretation only superficially seems to make sense of part of the passage but flatly contradicts the rest of it. By contrast, when read in Kliman’s preferred temporal manner, the whole passage is made coherent. Since this passage in question is one often cited as evidence of Marx being in favour of simultaneous valuation, Kliman’s demolition of this misinterpretation should have settled this controversy. There are however still radical economists who continue to give a simultaneous interpretation of Marx and call for a modified version of his theory.

If you have not followed some of the academic controversies in value theory of the last few years, then Kliman’s Reclaiming Marx’s Capital is a clear and well-argued account of them. It is necessarily and explicitly partisan, in that it presents the case for Marx’s crisis theory, particularly the LTFRP, as internally consistent and coherent. However, perhaps the best reason for reading it is as a primer for his second book, The Failure of Capitalist Production, where Kliman uses his interpretation of Marx’s categories to analyse the current economic crisis.

The Failure of Capitalist Production argues that the roots of the current economic crisis lie in the unresolved problems of over-accumulation that re-emerged at the end of the postwar boom in the 1970s. This is not an entirely novel insight, but Kliman presents it comprehensively and he is combative in challenging many misconceptions that have arisen in both radical and mainstream commentaries on the current crisis.

Kliman shows why it is not a failure of policy or regulatory framework that is to blame for today’s economic woes, but rather an integral feature of how capitalism as a system (mal)functions. He examines not just the main tendency of a falling rate of profit but also the counteracting influences that have slowed and shaped the trend towards crisis. It is the exhaustion of the counter-crisis measures that are most important in explaining the timing and form of the current crisis. The virtue of Kliman’s book is in demonstrating how every effort to compensate for a falling rate of profit (whether conscious or otherwise) ends up reproducing the problems in both a more intensive and extensive way. The expansion of credit and rising debt can mask underlying problems of low profitability and sluggish growth for a time, but these cannot be extended indefinitely before there is a “correction”: a crisis that affects the whole of society.

Kliman’s discussion of the events leading up to the collapse of Lehman Brothers is as lucid an explanation of the unfolding crisis as you will find anywhere. He shows how in response to the sluggish state of the American economy after the bursting of the dot-com bubble, the US establishment was keen to avoid following the example of the “lost decade” in Japan. To avoid the danger of deflation and stagnation, the Federal Reserve maintained artificially low interest rates to encourage borrowing for the purpose of investment. But in conditions of low profitability this did not stimulate investment. Instead, it encouraged financial institutions to borrow this extremely “cheap money” from the government and lend it to people who used it to buy houses. As money poured into the housing market it fueled the explosion in housing prices. However, Kliman emphasizes that if the Federal Reserve had pursued a different policy, the crisis would simply have manifested itself in a different way. Given that the fundamentals of the economy (rate of profit) were so shaky there was no avoiding the crisis happening in some form. Under capitalism, any policy aimed at avoiding crisis altogether is just wishful thinking.

Kliman is at pains to show that even though the LTFRP is the most important law of capitalism it is not the immediate cause of the crisis. The LTFRP will always generate a response within capitalism which can temporarily abate its effects only to reproduce it later, impacting on wider sections of society and with more devastating results. In this case, sluggish growth due to low profitability necessitated a government response which triggered a housing bubble. Once this bubble burst, it led to the great recession, which quickly spread globally. The LTRFP is the underlying ultimate cause of capitalist crisis; but the immediate cause or actual trigger will be different according to how that underlying problem is “managed” in any particular situation. These counter-measures never eliminate the LTFRP which is intrinsic to capitalism’s functioning as a value producing system, but determine its specific form of manifestation at a given time.

Kliman follows with an empirical investigation into what happened to the US economy during the 1980s and 1990s and the impact of neoliberalism. The period of neoliberalism is held by many to have led an improvement in performance and growth. Kliman disputes this account, showing that there was no real recovery, and in fact despite the rhetoric used he argues neoliberalism did not involve the level of restructuring that might hope to facilitate such a recovery. Unlike some commentators on the left, Kliman does not accept that through increasing the exploitation of workers US capitalism underwent a revival in the neoliberal era. He shows there was no marked shift in the share of total national product away from workers to capital, and that when including transfers out of taxation, the share received by workers remained remarkably steady. Instead, it was the slowdown of economic growth that most people experienced as the end of the continually rising living standards they had gotten used to. Kliman therefore also rejects the notion of any real recovery of profitability and growth on the back of this non-existent redistribution from labor to capital.

The following two chapters rework some of the arguments presented in Reclaiming Marx’s Capital. Kliman shows why there is no single measure that will give you an unambiguous answer as to what we should consider a rate of profit, and gives the reasons for selecting and presenting the data he has and what he thinks it shows: namely that capital accumulation (economic growth) can be shown to track corporate profitability very closely. It is in these chapters that the theoretical and methodological framework of Marx’s Capital is used to unpack the plethora of economic data the US produces each year. The next chapter is a development of the previous two chapters on the rate of profit and its centrality for capitalist growth. He discusses why the rapid development of information technology has sped up the depreciation of constant capital. He also explains the development of the idea of MELT (monetary equivalent of labour time) as a way of working out the component of variable capital. In offering the evidence for the validity of the LTFRP, he gives a nuanced explanation of many theoretical issues in using government statistics for these purposes.

Finally, there is a very good chapter on “underconsumptionism”: according to Kliman the dominant way in which Marx’s idea of crisis is generally understood. This is the idea that a crisis is caused by an insufficient share of the national income going to workers and thereby generating effective demand. Having shown that there was no redistribution of total product away from workers, Kliman argues why if it had actually moved in their favour it would still not alleviate the crisis, as this is caused by the low rate of profit. Here in the UK, the trade unions, most of the radical left, and mainstream economists all read Marx through this “underconsumptionist” lens. This radical spin on Keynes has nothing in common with Marx’s crisis theory. It is the ubiquity of these faulty interpretations of Marx, Kliman suggests, that are a major problem for understanding his work. Kliman himself, by contrast, is very much in the tradition of the Henryk Grossman’s and Paul Mattick’s interpretations of Marx, maintaining that the central problem of capitalism is the tendency for the rate of profit to fall caused by a rising organic composition of capital. This problem is not susceptible to any kind of redistribution but points to the need to transcend capitalism itself.

This book is a brilliant account of the great recession which began in 2008 and continues to this day.  It is Kliman’s relentless drive to get to the truth and avoid glib easy answers that makes it such an essential read. It is not that there was a falling rate of profit that continued to the point where US capitalism experienced a breakdown. That simple account parroted by some leftists,  is not supported by the data.  It was rather the expression of this tendency up to the 1970’s that left a historic legacy of a low rate of profit. The availability of cheap money and expansion of credit masked the underlying problem for a period. However, the low rate of return on investment left the whole economy vulnerable to shock, and when this came in 2008 after the previous temporary fix was exhausted, our current difficulties began.

There has been criticism of Kliman for concentrating too much on US developments.  This is not reasonable as America is the archetypal capitalist economy, and for now still the world’s largest.  America expresses today the same laws of development that Britain did when Marx was writing in the nineteenth century. The examination of the trends shown through US data is not a parochial narrowness but a valuable contribution. Moreover, Kliman defends his concentration on US developments on the grounds that the available data is of a higher quality and that it was the epicentre for the crisis that swept the world. It should ideally serve as inspiration for those of us operating in other countries. We could do with quite a few more like Kliman.

The bar has been set very high for explaining the current crisis. Kliman should at least be seen as an important point of reference for all other commentators. He avoids the orthodoxy amongst many radicals of being “practical”, in that he refuses to offer suggestions to how to make capitalism function better. As an implacable revolutionary, Kliman has done a great service to those who wish to understand the world with a view to transforming it.