Capitalism and public management of production

by Jehu

This is a prediction by Marx and Engels taken from “Socialism, Utopian and Scientific”:

“[The] official representative of capitalist society — the state — will ultimately have to undertake the direction of production. But, the transformation … does not do away with the capitalistic nature of the productive forces. The more it proceeds to the taking over of productive forces, the more does it actually become the national capitalist, the more citizens does it exploit. The workers remain wage-workers — proletarians. The capitalist relation is not done away with. It is, rather, brought to a head.”

“Socialism, Utopian and Scientific” was specifically produced as a primer by Marx and Engels to introduce workers to the core ideas of Marx’s theory. As an introduction, it offers no proof for these ideas, but simply lays it out in a comprehensive fashion in as simple a form as they could. In other words, Marxism was understood as a political movement that believed management of production had to become a public function.

The state would undertake management of the production process, Marx and Engels argued, even if it was “the State of today that effects this”. Which is to say, even if the proletariat failed to seize power from the capitalist class, the capitalists themselves would be forced to turn management of production into a public function. State management of production was inevitable, the contingent question was which class would implement it.

I say all this to emphasize public management of production is by no means a characteristic feature of socialism or communism; rather, it is a form of management imposed on society by the development of social production itself, no matter which class is in power. No matter the form of class rule, bourgeois or proletarian, the state must eventually undertake management of production.

Planning is not a unique feature of socialism

Unfortunately, many people today who identify as “socialist” or “communist” erroneously believe planned production is unique to a socialistic society. Now, we can debate whether this is true or not, but clearly neither Marx nor Engels held this view. To be perfectly clear on my point here, the centrally planned management of the Soviet mode of production does not mean it was socialist. It simply means the process of creating surplus value as a whole would eventually have to be managed the same way GM manages the production of automobiles.

Although Marx and Engels’s prediction in the 1880s has never been honestly acknowledged even by Marxists, It long has been reluctantly acknowledged the bourgeois state has been managing ‘the economy’ since at least the 1930s. Marx and Engels predicted the advent of state planned economic management 50 years before it happened, yet Marxists give them no props.

Why is this? I think there are two explanations: On the one hand, Marxists conflate planning with socialism; on the other hand, Marxists conflate production of surplus value with production of use values.

In the first instance, if planned production is erroneously equated with socialism, planning cannot be implemented by the bourgeois state. If it did this would amount to the argument socialism is compatible with the rule of the bourgeoisie. No Marxist I know makes this argument. Certain Marxists might argue the bourgeois state can implement certain ‘socialist’ measures, but, so far as I can tell, none argues socialism itself can be implemented this way. It follows that public planning of production, when equated with socialism, cannot be implemented. And people invent the most hilarious arguments why planning can’t overcome the anarchy of production, despite Marx and Engels stating it can

In the second instance, if production of surplus value is equated with production of use values, planned production must involve the state taking over the immediate production of use values. If capitalist firms are left to decide what is to be produced, and organize their production, while the state stands aloof, it is not planning production in the view of some people. Planning is thus reduced to the centralized management of the production process along the lines implemented by the Soviet state. Again, this is conflated with socialism in the minds of some Marxists. If the bourgeois state could directly undertake management of production, this would again amount to the argument socialism is compatible with the rule of the bourgeoisie.

The problem with these two objections is that, for Marx, “The purpose of capitalist production, however, is self-expansion of capital, i.e., appropriation of surplus-labour, production of surplus-value, of profit.” There is nothing in Marx’s definition of capital implying the state must in any way directly manage the immediate production of use values.

Planning and money

To give a relevant analogy: the owner of money-capital can manage self-expansion of his capital without managing production of use values. His money-capital begins as M and returns to him as M’, through a complex process he does not in any way manage or plan. What the money-capitalist manages is the expansion of his money-capital from M => M’, while the actual creation of surplus value, M => C => P => C’ => M’ take place entirely out of his view.

The final process looks like this schematically:

M => [M => C => P => C’ => M’] => M’

As most Marxists know — and all should know — this is the process as it appears to the owners of interest bearing money-capital. It is possible, therefore, that capitalist production process, defined here as the self-expansion of capital, can be managed without touching on the actual production of use values themselves. Since the lending out of money capital and its actual investment in productive employment are two separate things, profit can go to zero for causes having nothing to do with money capital. Moreover, in Marx’s labor theory of value, this becomes inevitable.

To understand why, we have to consider what happens when the actual production process itself produces no additional profit. This condition would look something like this:

M => C => P => C’ => M

First, money is advanced in the form of fixed and circulating capital plus labor power. Second, these are combined in the production process, resulting in new use value with more value than entered the process. However, when the commodities are sold, the exchange value realized for them is no more than was paid out initially. There has been an increase in the total mass of value — C => C’ but the exchange value realized, M, is no more than the initial M. The profit rate must be zero.

In place of:

M => C => P => C’ => M’

we get:

M => C => P => C’ => M

Where M’ minus M equals zero.

Marx calls this condition, absolute overproduction of capital:

“There would be absolute over-production of capital as soon as additional capital for purposes of capitalist production = 0.”

To the money-capitalist the reason for the reduction of his profit to zero is unknown, because he doesn’t know how his profits are created in the first place. He simply lends out his capital, M, and it returns to him as M’. When, for no apparent reason, M’ minus M = 0, he can’t explain why this happened. All the money capitalist knows is that for some inexplicable reason , money has ‘malfunctioned’. (To put it in the words of Ben Bernanke.) Bourgeois planning, therefore, begins with this alleged malfunctioning money, rather than the direct production of use values.

Demand management

This sort of planned production, which begins with money, has been called “demand management”. Wikipedia defines demand management this way:

“In macroeconomics, demand management is the art or science of controlling aggregate demand to avoid a recession.”

Aggregate demand is further defined as,

“the total demand for final goods and services in an economy at a given time.”

Aggregate demand in this sense can only mean the aggregate of money prices paid for the sum of commodities produced in the production process and sold in the market. A recession is thus a condition where the aggregate prices paid for commodities decline. Stated in commonsense language, therefore, demand management means the state intervenes to prevent aggregate prices from ever declining.

How does this relate to Marx’s argument?

Absolute overaccumulation of capital is the condition where the additional capital for purposes of capitalist production equals zero. As I have shown, this means M minus M’ equals 0. A recession or depression, as defined in bourgeois economics, is simply the condition where M’ minus M = 0.

Now, to the bourgeois economist, the condition where M’ minus M = 0 appears to be easily remedied by an increase in M such that M’ minus M is greater than 0. Pictured this way, various measures can be implemented to increase the total quantity of money demand in the economy; for instance, interest rates can be lowered; taxes can be reduced; and public expenditure can be increased by borrowing. The aim of each of these measures is to ensure that the initial capital laid out by the capitalist always results in a profit; which is to say, to ensure that M’ is greater than M.

For the money capitalist the crisis first expresses itself as the condition where M’ is equal to or less than the initial M advanced, however both M’ and M are simply different quantities of money. Thus. it appears as if the conditions of capitalist production, M’ > M, can be satisfied by an increase in the quantity of money in circulation.

Bourgeois state management works

The problem for communists is that as stupid as this appears, when explained logically, it fucking works! For more than 80 years now the capitalist state has been able to prevent a replay of the great depression simply by injecting enough new money into circulation to ensure the condition of capitalist production M’ > M is satisfied.

Of course there are several defects with this form of bourgeois management of the capitalist process of production of surplus value that communists should be aware of.

First, bourgeois state management is only concerned with two quantities of money, M and M’; it does not really address the underlying problem that the production of value in the form of commodities, C’, is not realized as a real increase over the initial capital M. Instead, the bourgeois state steps in after the fact and provides the necessary ‘stimulus’.

The problem, as Marx appears to argue, is that no increase in initial capital results in an increase in profit. This remains true and is even exacerbated by ‘demand management’; which is to say absolute overproduction of capital actually increases under bourgeois state management. If in the 1950s the ‘economy’ might collapse into a new depression without state demand management, today the problem is far worse.

Second, since the state increases the money supply to ensure the conditions of capitalist production are satisfied, it is devaluing money. This again has two aspects. In the first place money itself cannot be devalued; it must be replaced with a state issued token whose purchasing power can be devalued. If the gold standard were in place today, this would mean the dollar would need to be devalued constantly against gold; from 20.67 dollars to one troy ounce of gold to 35 dollars to one troy ounce of gold to 42 dollars to one troy ounce of gold and ultimately to 1200 dollars to one ounce of gold.

Since there are always additional tokens being injected into circulation to ensure M’ is greater than M, and since this injection lowers the amount of gold represented by each unit of the token, the purchasing power of the token is progressively devalued to zero. State management of the national capital is, therefore, inherently hyperinflationary.


There are several objection to this view capitalism and planning that I will address in a later post.