You can’t understand the state if you don’t understand capital

by Jehu

One of the fundamental problems of Marxism’s explanation of the role of the state is its rather weak grasp of capital itself.

Richard NixonIn my last post I argued there was nothing extraordinary about the failure of social democracy in the 1970s, nor its success in the 1960s. Even if we leave politics out of the equation altogether, we would expect wages to rise during booms and fall during busts. This is pretty much what occurred in fact according to Simon Clarke. Clarke attributes the cause to the success or failure of social democracy, when in fact, social democracy had no real impact on wages.

Where Keynesian policies did seem to work, however, is during the depression of the 1970s. During the 1970s, the depression never led to the fall in output and employment that was seen in the Great Depression. While social democracy is not necessary to explain the rise and fall of wages, it does seem to have an effect on output and employment. In the depression, we should have seen output collapse severely and a population of excess workers to form up in all advanced countries.

In the US, for example, between 1964 and 1981 employment fell year over year only once in 1975:

US Employment 1964-1981

US Employment 1964-1981

Seen not just in GDP figures, but also in employment figures, there was no depression during the 1970s; yet, we know something happened, since real wages peaked in 1970 and began plummeting. This implies that even as total hours of labor were increasing, total real wages were falling.

If the 1970s depression was produced by a fall in the rate of profit, the response seems to have been an increase in both absolute (total employment) and relative (total wages) rates of surplus value. And here social democrat politics appears to have made all the difference in the world. Again, we don’t need politics to explain what we already know must happen, but only what we don’t expect to happen. In a depression we already expect wages and prices to fall, but we don’t expect employment and output to increase. Nevertheless, this is what actually happened in the 1970s and we need to explain it.

So far as I know, no labor theorist has ever explained the bizarre occurrence of employment increasing in the middle of a depression. And this, mind you, is not because they cannot explain it — they are entirely capable of doing so: They haven’t explained it for the simple reason that they don’t even know a depression happened in the 1970s.

When it comes to the “crisis” of the 1970s, labor theorists have focused entirely on dollar denominated values. These dollar denominated values are simply the prices of commodities denominated in one or another state issued currency. When Nixon closed the gold window in August of 1971, many labor theorists expected this would bring capitalism to an end.

An example of this sort of simplistic thinking was admitted in 2012 by the labor theorist, George Caffentzis:

“I remember quite clearly watching with comrades in a Capital study group on Sunday August 15, 1971 the broadcast of Nixon’s announcement that he had ordered the ‘closing of the gold window.’ Given that we were reading for the previous few months passages like the following from Capital: ‘money–in the form of precious metal–remains the foundation from which the credit system, by its very nature, can never detach itself’ (Marx 1994:606), we left each other that night with the thought that either Capitalism or Marxism was coming to an end before our very eyes!”

According Caffentzis, then, commerce could not continue without commodity money serving as the standard of price. In fact, contrary to Caffentzis’ expectation, after a period of “adjustment”, commerce continued just as before. Thus Caffentzis came the assumption that Marxism was dead: Marx was shown to be wrong.

In fact, the “adjustment” took the form of a violent and sudden 90% depreciation in the amount of value represented by a single dollar. Restated in a form that is familiar to most people: the “price” of gold went from the official $35 per ounce of gold to $400 per ounce — it amounted to a sudden official devaluation of the US dollar by Washington. But, stated another way: It was the same as a sudden devaluation of all capital and wages in the US by 90 percent.

Which is important to labor theory analysis, since a depression is nothing more a sudden devaluation of capital and wages in a crisis. Essentially, the devaluation of capital was achieved simply by allowing the standard of price to fall by floating the dollar. Thus, the real devaluation of capital and wages was expressed in the simultaneous collapse of the purchasing power of the dollar, or, as we know it in more familiar terms, by rampant inflation of prices. In any case, with the floating of the dollar, after 1971 two different measures of economic activity emerged. In one of those measures of economic activity, there was a full blown depression; in the other measure, no depression at all.

Since 1971, labor theorists have ignored the commodity measure of labor time, despite the fact this is the only theoretically valid measure of socially necessary labor time in labor theory. Instead, like bourgeois economists, they have insisted state issued fiat can play the role in labor theory that Marx insisted his entire career could only be played by commodity money. But Marx never backtracked on this issue and all arguments to the contrary, such as that made by Caffentzis, are ridiculous.

This is the conclusion arrived at by an exhaustive study of his writings by Anitra Nelson: There is only one measure of the socially necessary labor time contained in a commodity: another commodity. And the socially necessary labor time contained in the commodity is its value. The measure of GDP in gold or another commodity money is the only valid measure of socially necessary labor time of the output of a country.
There is no exception to this in labor theory.

In Simon Clarke’s book, “The State Debate”, the contributors are each trying to explain the relationship of the state to capital. They are trying to do this blindly, i.e., without any way of determining the actual operation of national capitals. How are you going to determine the relationship of the state to capital, when you don’t even realize capital is going through a depression? Not a single contributor to Simon Clarke’s book ever realized there was a depression happening right under their noses. And this was because the very state whose relationship to capital they were trying to explain was preventing the depression from being expressed in a fall in employment and output.