1

Karl Marx on the Contradictory Dynamics of Capitalism: Innovation, Globalisation and Competition in the Grundrisse[*]

by

Phillip Anthony OHara, November 2006 Global Political Economy Research Unit Economics Department Curtin University GPO Box U1987 Perth. WA. 6845 Australia
philohara@runbox.com Draft. Latest Version online at: -

http://pohara.homestead.com/files/marx.doc [8,509 words; 4pm, 17 November 2006]

ABSTRACT This paper examines an important substantive, but little known, series of theoretical innovations developed by Karl Marx in the Grundrisse (1857-58). This triad of innovations include, first and foremost, an explanation of endogenous contradiction linked to technological change; attempts to surmount this barrier through expanding consumer wants, needs and global markets; and the dynamic outcome of competition. We formalise Marxs examples of technological contradiction; illustrate how it links to globalisation through a model developed by Marx; and then relate it to the competitive distribution of surplus value. The significance of this work is then explained vis--vis Marxs project of the political economy of capitalism.

Keywords Karl Marx, Grundrisse, technological change, marginal surplus labour time, globalisation, competition
Phillip Anthony OHara is Professor of Global Political Economy and Governance in the Global Political Economy Research Unit, Curtin University, Perth Australia. He has published more than 60 articles in refereed journals and edited books, and is on the editorial board of the Review of Social Economy, Intervention Journal of Economics and the International Journal of Human Development.

Karl Marx on the Contradictory Dynamics of Capitalism: Innovation, Globalisation and Competition in the Grundrisse
ABSTRACT This paper examines an important substantive, but little known, series of theoretical innovations developed by Karl Marx in the Grundrisse (1857-58). This triad of innovations include, first and foremost, an explanation of endogenous contradiction linked to technological change; attempts to surmount this barrier through expanding consumer wants, needs and global markets; and the dynamic outcome of competition. We formalise Marxs examples of technological contradiction; illustrate how it links to globalisation through a model developed by Marx; and then relate it to the competitive distribution of surplus value. The significance of this work is then explained vis--vis Marxs project of the political economy of capitalism.

Keywords Karl Marx, Grundrisse, technological change, marginal surplus labour time, turnover, competition

1. Introduction Marxian political economy has historically emphasised the rate of profit and its many factors in determining the tendency to crisis and instability. Usually variables such as the organic composition of capital, the rate of surplus value, the turnover of capital, competition, and the role of money and finance have been seen as the critical elements affecting the rate of profit, business cycles and the dynamics of capital. This is influenced by Karl Marxs (1818-1883) analysis in the three volumes of Capital (Marx 1867, 1885, 1894). It has to be mentioned, however, that it took some considerable time for the factors emphasised in volumes two and three of Capital (which were completed in the 1870s) to fully come to play in the literature, given the lateness with which they were published and then translated in English and thus examinable by a larger audience.[1] Marx had, however, already provided a comprehensive outline of his research program in the Grundrisse manuscripts of 1857-58. Written entirely for selfclarification, it is perhaps understandable that their availability in any language was severely constrained (very much more than Capital). For instance, it wasnt until 1939-41 that a very limited (2 volume) edition appeared in German, and 1973 that it was published in English. [2] The English translation led to a flurry of articles in the late 1970s and 1980s, especially on methodology.[3] It wasnt apparent to many scholars, however, that any substantive innovations might appear in the manuscripts. Yet in the Grundisse Marx did create a model of technological change that led to endogenous contradictions likely affecting the rate of profit, business cycles and the

reproduction of capital, that were never even mentioned in any of his other documents, including Capital. The current paper, therefore, scrutinises closely this contradiction affecting capitalism, and explains how it links to Marxs analysis of surplus labour time, globalisation, and competition. The paper commences with a brief outline of the significance of the Grundrisse. Then the innovatory theory of contradiction is outlined, followed by a formal model of how the contradiction affects surplus labour time. A further section explains how Marx viewed circulation as potentially transcending this contradiction, while creating a further layer of barriers and limits. Next the influence of new markets and turnover is linked to competition as a potential way of overcoming the limits of profitability. Then the significance of these Grundrisse innovations are discussed vis--vis Marxs political economy of capitalism.

2. Method in the Grundrisse Marx developed his political economy of capitalism through a whole series of books and manuscripts in the 1840s-1870s. In 1844 he wrote the Paris Manuscripts where the role of labour and alienation was developed (Marx 1844). Later, in 1846-47 he wrote a political economy critique of Pierre Proudhons Philosophy of Poverty in his Philosophy of Poverty (Marx 1846-47). Around the time of the 1848 revolutions he wrote the Manifesto of the Communist Party with Engels, where some critical hypotheses are developed on the global trend of capitalism and the inner contradictions associated with the positive and negative tendencies of the system (Marx and Engels 1847-48). He wrote that the major contradiction of capitalism lies in the incessant global drive to accumulation and profitability while the social fabric is subject to instability and destruction. Then in the 1850s he studied political economy at the British museum and while an economic crisis was emerging he quickly wrote down the foundations of his political economy of capitalism. This 800-page manuscript, written

entirely for self-clarification, was called the Grundrisse der Kritik der Politischen konomie (English title: Grundrisse: Foundations of the Critique of Political Economy, Rough Draft), written between August 1857 and June 1858. Here for the first time was a detailed analysis of Marxs alternative political economy of capitalism. As Allen Oakley says of these Grundrisse manuscripts: [I]t was an incredible first effort at a substantially independent critical analysis of the political economy of capitalism. In one relatively short burst of effort, Marx revealed a deep critical insight into the law of motion of the system that would carry through into the rest of his critical theory. The Grundrisse was to be very much the foundation piece for the magnum opus, Capital. It represents Marxs first large scale attempt to set down his critical theory and its analyses went far beyond those in any known earlier writings in their degree of sophistication. The studies of the early 1850s and earlier were now coming to fruition. (Oakley 1983: 53) Three things stand out in the Grundrisse from the point of view of comprehending the contradictory dynamics of the system. First, Marx situated his analysis within the context of a six book plan, in which he thought it necessary to develop six successive models, including: A1. Capital 2. Wage Labour 3. Landed property B4. The state 5. Foreign trade 6. World market and crises

Variations on this plan were developed during 1857-1862, but the essence of them was that Marx sought to comprehend capitalism through the method of successive approximation. The model of capital would be linked to that of wage labour, and then landed property; followed by linkages to the state, foreign trade and the world market. By the time the framework was linked to the world market, crises could then be comprehended in their full complexity

and concreteness. Hence, capital was to be the first of a whole series of models about capitalism. Whether he finally changed his mind about what he could complete in his lifetime, or whether he modified the whole analysis, it is probable that he believed in the need to link the dynamics of capital to wage labour, landed property, the state, foreign trade and the world market and crises. Secondly, his analysis of contradictions in the Grundrisse was very complex and holistic inasmuch as he viewed contradictions as emanating from many aspects of capital: the sphere of production, the sphere of circulation, competition, and likely also wage labour, landed property, the state and the world market. Under the influence of G.W.F. Hegel (1770-1831), whose Science of Logic Marx re-read around this time, contradictions were seen as the endogenous conflicts that emerged from the many-faceted dynamics of the system, where the positive and negative forces were both necessary for and inextricably linked to each other (Hegel 1812-16). For instance, the positive elements of capital associated with the incessant drive to technological change, opening up new markets and creating new needs and demands were endogenously linked to the major negative elements of the system associated with business cycles, unemployment, and inequality. Marx was the economist par excellence in comprehending the way in which elements of the system were structurally connected. Thirdly, because the Grundrisse elaborated material that went beyond Capital volumes 1-3, it is possible to gain substantive knowledge from the 1857-58 manuscript that is not found in his most well-known works. And it is still true that despite much being written on the Grundrisse in the late 1970s and 1980s there is much to learn from this document that is still largely hidden from view. For instance, there is a clear analysis of a core contradiction involved in additions to surplus value emanating from technological change; the circulatory tendencies of the system through the world economy; and competition. This thread of argument is the focus of this paper. In developing an understanding of contradictions and laws of motion, Marx was to concentrate on the capitalist mode of production, and abstract from all elements that were not central to this system. As he said:

Whenever we speak of production, then, what is meant is always production at a definite stage of social development production by social individuals. [T]he result of the process of production and realization is, above all, the reproduction and new production of the relation of capital and labour itself, of capitalist and worker. This social relation, production relation, appears in fact as an even more important result of the process than its material results. (Marx 1857-58: 85, 458; original emphasis)[4] It is within the framework of this method to concentrate on the specifics of the system that we delve into the contribution of the Grundrisse and in particular to examine the linkages between technological change; the tendency to expand needs, demand and circulation on a world scale; and competition. The first stage of this comprehending Marxs analysis of the dynamics of surplus labour time vis--vis technological change is analysed in the next section.

3. Surplus Labour Time Contradictions of Technological Change Marx developed in the Grundrisse a model of a crucial contradiction emanating from technological change that was never discussed in any of his other works. The foundation of it was the well-known model of the necessary and surplus portions of the working day, whereby the original division of the working day is 0.9 for necessary labour time (to produce wage goods) and 0.1 for surplus labour time (to produce commodities for realising profit). Here, of course, we are working purely within the sphere of production and not yet examining the extent to which the surplus becomes valorised through exchange. Marx applies this necessary-surplus labour time model to his main contradiction of technological change. He came up with a verbal and

arithmetic explanation of the results of technological change on labour productivity for what we call marginal surplus labour time (MSLT). His discussion of this production contradiction took more than 100 pages (Marx 1857-58: 333-447). We can start formalise this by stating the main assumptions as follows:

Assumptions of the Surplus Value Technological Change Model 1. The total working day (labour time) is constant (10 hours) (1.0); 2. The original division of the working day is 9 hours (0.9) for necessary and 1 hour (0.1) for surplus labour time; 3. Each successive time period (t, t+1, etc) represents a doubling of productivity relative to the previous period; 4. 5. There are two classes: workers and capitalists; Innovation tends to substitute capital for labour;

6. The economy is closed with no foreign trade or overseas capital movements; 7. Labour time is realised through exchange into value and surplus value.

We can now introduce three equations related to this model, below: (1) Nt = St = (1 ) (1 )

(2)

(3) St St-1 = (1 where:

N = necessary labour time (proportion of total workday);

t = the magnitude of increase in the productive forces for every movement through time (t1=1, t2=2, t3=4, t4=8, t5=16, t6=32, etc); S = surplus labour time (proportion of total workday); t = 1, 2, 3, 4, 5,, n (for successive time-revolutions of the productive forces). Below we examine the impact on surplus labour time of successive technological changes that revolutionise production. The results are shown below for ten time periods: Figure 1: Technological Change and Marginal Surplus Labour Time
Necessary Surplus Time Labour Time Labour Time (t) Marginal Surplus Labour Time Marginal Surplus Labour Time St St-1

Nt

St

(1

)(1

)=

1 2

0.9 (N1) 0.45000 0.22500 0.11250 0.05625 0.02813

0.1 0.55000 0.77500 0.88750 0.94375 0.97187 0.45000 0.22500 0.11250 0.05625 0.02813

(1(1(1(1(1-

) (1) (1) (1) (1) (1-

)= )= )= )= )=

10
7

0.01406 0.00703 0.00352 0.00176

0.98600 0.99297 0.99648 0.99825

(1(1(1(1-

) (1) (1) (1) (1-

)= )= )= )=

0.01406 0.00703 0.00352 0.00176

10

This model expresses what Marx develops verbally and conceptually. The main point he is making is that a critical barrier or limit to capital is that the greater the level of productivity the lower the marginal expansion of surplus labour time. Although surplus labour increases, it does so through smaller and smaller amounts over time. As the model shows, surplus labour time diminishes by half every time productivity doubles, until it approximates zero. This is a major limit to capital. As Marx said: The surplus value [sic] of capital does not increase as does the multiplier of the productive force. Thus if necessary labour = of the living work day and the productive force doubles, then the value of [surplus] does not double, but grows by 1/8 Its surplus value rises, but in an ever smaller relation to the development to the productive forces. Thus the more developed capital already is, the more surplus labour it has created, the more terribly must it develop the productive force in order to realise itself only in smaller proportion, i.e. to add surplus value because its barrier always remains the relation between the fractional part of the day which expresses necessary labour, and the entire working day. The selfrealisation of capital becomes more difficult to the extent that it has already developed. (Marx 1857-58: 339-340) This decline in marginal surplus labour time (MSLT) is an endogenous contradiction in the sense that the very dynamics of capitalism propelling

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technological change create limits or barriers of declining additions to surplus labour time. This is inextricably linked to the process of capitalist production and reproduction. Marginal surplus labour time tends towards zero through long historical time, which impacts decisively on the system. It poses substantial barriers to its self-reproduction, and necessitates changes in other areas of its functioning. It constitutes a fundamental limit, within the sphere of production, to what would later constitute profit within the sphere of circulation. Indeed, marginal surplus labour time is equal to the necessary labour time, indicating that variable capital is the critical factor in the magnitude of marginal surplus.[5] Marx then shows the significance of the declining surplus labour time for the major barriers to capital.[6] He posits four relationships concerning the limits to capital relating to this declining surplus, which illustrates that the contradictory limits are complex and multiple. As he said: These inherent limits have to coincide with the nature of capital, with the essential character of its very concept. These necessary limits are: (1) Necessary labour as limit on the exchange value of living labour capacity or of the wages of the industrial population; (2) Surplus value as limit on surplus labour time; and, in regard to relative surplus labour time, as barrier to the development of the productive forces; (3) What is the same, the transformation into money, exchange value as such, as limit of production; or exchange founded on value, or value founded on exchange, as limit of production. That is: (4) Again the same as restriction of the production of use values by exchange value; or that real wealth has to take on a specific form as distinct from itself, a form not absolutely identical with it, in order to become an object of production at all. [Marx 1857-59: 415-416] Here, firstly, the declining necessary labour time poses a limit to the wages of the working class, which constitutes a barrier to the reproduction of capital in terms of sales and demand. In general, necessary labour time poses a limit since it may be too high or low for the general interests of capital; and here Marx is stressing the lower limit. Secondly, a limit to the expansion of surplus

12

value from innovation restrains technological change in the future, due to the declining marginal conditions of potentially investible surplus. The declining marginal surplus labour time constrains surplus value, which in turn inhibits further innovation due to the marginal limits to investment. At the same time, the declining margin pushes capital to expand technological change even faster to propel marginal surplus. Thirdly, the ability to realise surplus labour time through money is limited by these production barriers, since circulation requires expanding production conditions. Exchange is based on productive capital and cannot expand capital of itself. And lastly, there are limits to the generation of use values set up by the declining marginal conditions, as useful production is the basis of productive exchange in the market. Use values of a consumption, production, service and spatial nature must be generated in order for exchange to be sustainingly reproduced. Marx thus sees the contradictions from many angles as production and circulation must take on a unity in order to be reproduced in a sustainable fashion. There are thus limits in relation to wages, innovation, exchange and use values in these declining marginal conditions. These manifest themselves in instability, crises and uneven accumulation. As Marx said: Further, as we have seen, relative surplus value rises much more slowly than the force[s] of production, and moreover this proportion grows even smaller as the magnitude reached by the productive forces is greater. But to the same degree as the mass of products grows, so grows the difficulty of realizing the labour time contained in them because the demands on consumption rise. (Marx 1857-58: 422) Marx shows here that the declining marginal surplus labour time is both necessary to technological change under capitalism and also sets up a barrier to reproduction. Consumer goods demand is limited as the variable capital operates in proportion to the declining marginal surplus labour time. Working class demand and surplus thus do not grow anywhere near proportionately to the increasing rate of production. He goes on to say that we have overproduction: ie the sudden recall of all these necessary moments of production founded on capital since the higher development of capital, the more it appears as [a] barrier to production hence also to consumption

13

(Marx 857-58:416) Marx then seeks to understand how these contradictions, which limit capitalist reproduction, are sought to be surmounted in order to potentially resolve the limits and barriers. In this he also shows how this surmounting process generates further tapestries of problems as the contradictions play out at a higher level. We must thus introduce the sphere of circulation associated with demand, turnover and globalization.

4. Contradictions between Production and Circulation Demand, Turnover and Globalization When Marx analysed production in the Grundrisse he recognised the endogenous generation of contradictions concerning problems in expanding additions to surplus labour time through technological change. He realised that capitalism is the most revolutionary system as yet seen on Earth, and being a dynamic system it seeks to overcome such barriers through expansion. Periodic overproduction is inherent in the tendencies of technological change. But capital responds by propelling circulation activities through the enhancement of wants, new commodities, markets, and globalisation. The circulation process must thus overcome to some degree the limits of production by expanding over these barriers and creating new opportunities by market expansion. As Marx said: A precondition of production based on capital is therefore the production of a constantly widening sphere of circulation. The tendency to create the world market is directly given in the concept of capital itself. Every limit appears as a barrier to be overcome. [T]he increase and development of the productive forces, requires the production of new

14

consumption; requires that the consuming circle within circulation expands as did the productive circle previously. First, quantitative expansion of existing consumption; secondly: creation of new needs by propagating existing ones on a wide scale; thirdly: production of new needs and discovery and creation of new use values. (Marx 1857-58: 407, 408) Capital must seek to overcome the barriers of production, even as it expands technology further to counter the declining margin of surplus, by expanding the sphere of circulation to enhance the turnover of capital. This it does through opening up the world market, suspending direct use-values not entering into exchange, substituting and transforming non-capitalist formations, generating new needs and new potential exchange values, creating new branches of production, more intensively exploiting the natural environment, transforming rural economies into industrial towns and cities, and capitalising land holdings.[7] In short, capital must perform its historic task through propelling the turnover of capital and expanding the dual production-circulation dynamics of the system. In this way, it can exploit areas where marginal surplus labour time is greater (and hence less developed) and expand the circuit of capital through market demand. Marx then developed in the Grundrisse a series of mathematical models and conceptual analysis to explore changes in the turnover of capital through reductions in circulation time.[8] Marxs work on this circulation time problem was analysed for more than 150 pages (Marx 1857-58: 537-690). He was interested in how changes in market demand may counter problems associated with declining marginal surplus labour time. To comprehend the forces at work Marx differentiated between production and circulation time in the way outlined in the Figure 1, below: Figure 1. Reproduction Time of Capital

Production Time Necessary Labour Time 0 30 Surplus Labour Time Circulation

Time 60

90

15

Imagine an economy based on the production of ships in a slipway. If each ship takes 60 days to be produced, and another 30 days to be sold, then the individual reproduction time (r) equals production time (p) and circulation time (c):

(1) r = p + c = 90 = 60 + 30,

which adds to 90 days. In a year, total reproduction time, (2) R = P + C = 360 = 240 + 120, equals 360 days (R), including total production time of 240 days (P), and total circulation time of 120 days (C). Within production, individual necessary labour time (n) equals 30 days, while individual surplus labour time (s) equals 30 days: (3) p = n + s = 60 = 30 + 30 Hence, in a year there is a reproduction time (R) of 360 days, and the rate of turnover (T) is 4: (4) T = R/r = 360/90 = 4 Thus there are 4 ships produced in a year, and they turn over at the rate of one every 90 days, bearing in mind that it takes 60 days to produce them and 30 days to be sold. Hence: (5) R = pT + cT = 360 = (60 x 4) + (30 x 4),

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And the total annual surplus labour time (S) equals 120 days: (6) S = sT = R nT cT = 120 Thus if there is a decline in the marginal surplus labour time as productivity advances, one way to enhance total annual surplus labour time is to cut down on the time of circulation. This can be done through speeding up the market through globalisation, enhancing needs, or stimulating the rate of spending through a drop in uncertainty. In the extreme case, as a result of a combination of these factors, the circulation time may drop to zero (C = 0, P = 60, R = 360, T = 6) resulting in a total annual surplus labour time of 180: S = sT = 30 x 6 = 180. Hence, expansion of the market can indirectly enhance productive capital and thereby increase the annual surplus labour time immensely; in this case from S = 120 to S = 180. Expanding globalisation, advertising and demand can thus possibly be more successful than introducing technological change that results in a larger surplus but a diminishing marginal surplus. It is a way of propelling greater annual surplus to try and overcome the barriers of production. Table 2 summarises some results of Marxs turnover-reproduction model of capitalism, comparing the influence of globalisation and innovation: Table 2: Innovation and Globalisation: Marginal Additions to Surplus Labour
T=P+C r = p + c [+ cc] P=n+s T = R/r S = s.T Variable

360=240+120

90 = 60 + 30

60 = 30 + 30

4 = 360/90

120 = 30(4)

(Initial Conditions)

360=240+120

90 = 60 + 30

60 = 25 + 35

4 = 360/90

140 = 35(4)

Innovation

20

360=254+106

85 = 60 + 20 [+ 5]

60 = 30 + 30

4.24=360/85

127.2=30(4.24)

Globalisation

7.2

17

R = yearly reproduction time (days); P = total production time; C = total circulation time; S = aggregate yearly surplus labour time; T = number of turnovers in a year; r = single (turnover) reproduction time; p = single (turnover) production time; c = single (turnover) circulation time; n = single (turnover) necessary labour time; s = single (turnover) surplus labour time. cc = pure circulation costs

Here we present some simple results of technological change and pure circulatory impacts on marginal surplus labour time. The technological change enhances productivity by 33 percent while globalisation reduces circulation time by 33 percent. Each of them enhances marginal additions to surplus value, but by different magnitudes. The initial conditions correspond to the model above, of a single period of turnover of 90 days and 4 turnovers in a year, with a realised surplus labour time of 120 days. The innovation case exhibited diminishing marginal surplus labour time, and was the reason for the circulatory response. Innovation reduced necessary labour time per turnover from 30 to 25 days while increasing surplus labour time from 30 to 35; representing an increase in surplus labour time per year of 20 days per year (from 120 to 140), a decrease from comparable previous innovations. In response, the pure circulatory activities of advertising and accounting activities promoting global sales reduced circulation time by 10 (from 30 to 20 days) per turnover (from 90 to 80 days), while it contributed to circulatory costs equal to 5 days per turnover or 21.2 days per year. This results in an

18

increase in marginal surplus time of only 7.2 days per year (increase from 120 to 127.2). This modest increase, however, increases surplus only insofar as the drop in circulation time enabled an expansion of productive turnovers and hence surplus over the year. Does the globalisation, market expansion and enhanced demand solve the problem, or does it lead to further layers of anomalies and problems for capital? In the Grundrisse, Marx believed that it created further tapestries of contradictions of a positive and negative nature which may temporarily solve problems but set up a further pattern of instability and anomalous reproduction. Some that Marx discusses relate to circulation costs, used in the example, representing merely the faux frais de production (p. 633), such as those associated with accountancy, advertising, credit, merchandising, fictitious capital, and certain exotic financial assets. These costs of circulation as such, do not add anything to the value of the product, are not value-positing costs, regardless of how much labour they involve; they are merely deductions from the created value (Marx 1857-58: 624; see also 548). They increase the price of the product while reducing the surplus value available for accumulation, while in addition the circulation of capital realizes value (p. 543). Thus the expansion on the world market through an increase in unproductive activities poses a limit to the reproduction of capital, and thus adds further tapestries of barriers to capital (p. 539). A society where such circulation costs have risen to a large level runs the risk of upsetting the productive basis of capital through the creation of speculative bubbles, instability and crises. A monetary economy based on capital is subject to these contradictory moments when finance dominates production and real value becomes a sideshow to the instabilities of market valuation. By propelling capital in other countries it seeks to universalise the limits of production and generates potential circulation problems in the process. Global expansion, from the perspective of circulation, heightens the potential for discontinuity between sales and purchase and between credit and repayment. Marx also links this to the development of fictitious capital, bubbles, and financial crises, as the entire credit system and the overtrading, over-speculation etc. connected to it, rests on the necessity of expanding and leaping over the barrier to circulation and the sphere of exchange (p. 416). Hence in as much as [capital] both posits a barrier specific to itself, and on the other side equally drives over and beyond every barrier, it is the living contradiction (Marx 1857-58: 421).

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5. The Contradictions of Competition After recognising the limits of production and the unproductive nature of circulation costs, Marx then turned to the question of whether competition can ameliorate the anomalies of capital. If innovation expands the surplus but at a diminishing rate, and circulation enhances turnover while increasing unproductive costs, could competition be the panacea for promoting positive dynamics. Marx explores this in a number of places in the Grundrisse (e.g., Marx 1857-58: 649-52, 657-58, 745-65). He concluded that it temporarily resolves some of the limits while also adding another layer of instability to capitals inner dynamic. But ultimately competition does not change the barriers and limits imposed by production and circulation. The central processes of competition in relation to surplus value generation and distribution are outlined below in Figure 3, where we formalise what Marx explained verbally and arithmetically.[9] Figure 3: Transfer of Surplus Value in the Competitive Process
Firm c+v+s $m Value $m COP COP POP times No = $m 15x14= 210 110 110 680 Rev $m (Rev- COP) Rate Transfer $m % $m

(c+v) Per $m Unit $m

70+30+30 130 = 60+40+40 140 =

100

$7.14

100

$8.33

15x12= 180

80

80

40

20 3 50+50+50 150 = 40+60+60 160 = 30+70+70 170 = 100 $10.00 15x10= 150 50 50 0

100

$12.50 15x8=

120

20

20

-40

100

$16.67 15x6=

90

-10

-10

-80

Total/Av./ Balance

s=$250m =$750 m

$10m Av.

=$750 =$250m m

Where: c = constant capital; v = variable capital; s = surplus value; COP = cost of production; POP = price of production; No = number of commodities produced; Rev = revenue; = monetary profit; = rate of profit; No = number of commodities produced.

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Imagine the existence of 5 firms in the ship building industry, where the firm with the highest productivity, firm 1, is able to produce the greatest revenue ($210m) through employing the latest technology and thereby having the lowest cost of production per unit ship ($7.14m) The firm that has the lowest productivity, firm 5, has the most ancient technology and the highest cost of production per unit product ($16.67m). Other firms are in between the highest and lowest productivity (and cost of production per unit) in the industry. The critical point for our purposes is that the highest profit of $110m goes to Firm 1, with the highest productivity and the most expensive and most elaborate machinery and equipment; while the lowest profit (loss) of -$10m goes to Firm 5, with the most ancient technology and equipment. In Marxs analysis, this occurs in conformity with the theory of value through the transfer of surplus value from the firms with the lowest productivity to those with the highest productivity. Hence, $80m of surplus value transfers from Firm 5 to Firm 1, and $40m from Firm 4 to Firm 2. It is in this fashion that certain firms are able to adopt the latest technology and in the short term receive a partial monopoly rent. Marx goes on to say that the extra surplus value of the leading firms declines as competitors move into the industry, while some existing firms change technology (or go into bankruptcy); thus making the law of value by variable capital the determinant factor. The laws of competition that lead firms to introduce new technology and reduce the ratio of necessary to surplus labour time, also lead other firms to adopt the technology and eventually inhibit surplus profit from leading sectors as the technology becomes general (Marx 1857-58: 747-50). In the process, competition leads to new layers of contradictory limits to capital through periodic crisis and instability as profitability slumps[10]. But, more specifically, only in competition are the laws of capital, its tendencies, realised (p. 751). Marx here comes to the subject of the rate of profit, where a rise in the ratio of constant capital to total capital (or other forces) will likely reduce the rate of profit, and competition plays a role here in enhancing the instabilities of accumulation. But overall he concludes that: Competition can permanently depress the rate of profit in all branches of industry, i.e. the average rate of profit, only if and in so far as a general and permanent fall in the rate of profit, having the force of a law, is conceivable prior to competition and regardless of competition. (Marx 1857-58: 752) Thus, competition is not a panacea, but rather enables the barriers and

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limits of capital to manifest themselves through transfers of surplus and then generalising the impact through industry. Competition speeds up the declining surplus and expands circulation tendencies, while also stimulating instabilities and crises. Production and circulation barriers come to the surface through the competitive forces. As a consequence, [t]hese contradictions lead to explosions. The violent destruction of capital [occurs] not by relations external to it, but rather as a condition of its self-preservation. [Marx, 1857-58: 749-50]

6. The Significance of Marxs Analysis There are three main points to emphasise in terms of the significance of these issues analysed in the Grundrisse. Firstly, technological change that revolutionises productivity has an inner contradiction inasmuch as it creates a declining surplus labour time. This generates a tendency for overproduction as variable capital declines and thereby limits effective demand. This is thus a limit on potential profit, and in response to this Marx emphasised the tendency for capital to expand wants, needs and global reach. This is linked to the tendency of capital to reduce total reproduction time and expand the turnover of capital so as to enhance the realised surplus. This analysis of Marx in the Grundrisse, including (especially) the production contradiction and (also) the potential resolution of this contradiction through circulation, is an original and critical model of capitalism never developed anywhere else in his work. Technically and theoretically the production contradiction is a major endogenous limit to capital, which adds an important tapestry to Marxs analysis of the contradictory dynamics of capital.

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When Marxs verbal and arithmetic examples of declining marginal surplus labour time are modelled, as done in section three of this paper, it becomes clear how critical the formulation is to understanding internal processes and barriers. It is different to his work on the rate of profit and its countertendencies, although it complements this analysis. Certainly it should become part of a typical account of Marxs political economy of capitalism and be incorporated into the secondary literature. Secondly, one way of counteracting the influence of the declining marginal surplus labour time is for circulation costs to increase significantly in the form of credit, advertising, accounting, plus mercantile and fictitious capital in order to enhance global profit for individual capitals. Effective demand was a crucial part of Marxs circulation analysis in the Grundrisse in potentially countering the limits posited by production, while simultaneously creating further limits and barriers to the reproduction of capital. Marxs models of turnover in the Grundrisse were more technically sophisticated than those of Capital, volumes one and two, as well as the chapter on turnover written by Engels in volume three of Capital. To the extent that circulation costs and related unproductive activities increase (sometimes more than the expanded realised surplus) this can be a problem for the circuit of social capital. The power of financial and mercantile capital may thus expand relative to industrial capital, leading to problematical long-term accumulation and profit, economic crisis and/or stagnant long-term dynamics. And thirdly, the expansion of relative surplus labour time brought about by technological change, and the enhance turnover of capital brought about by a reduction in circulation time, cannot be undermined by the competitive process. Competition, according to Marx, is the means by which the barriers and limits are able to be realised in reality. The profit rate emanating from production and circulation will be driven home by the competitive process. Temporarily, competition creates a driving force for accumulation, innovation and declining circulation time, but it may fail to solve the core problems inherent in the inner movement of capital.[11] The analysis of competition in the Grundrisse thus complements the work on production and circulation dynamics and barriers. The Grundrisse works on production limits, circulation processes and competitive dynamics thus form a whole, and explain eloquently the contradictory dynamics of capitalism in its general form. As Marx said about these contradictions leading to attempts to surmount them, which lead to further tapestries of barriers and limits to capital:

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But from the fact that capital posits every such limit as a barrier and hence gets ideally beyond it, it does not by any means follow that it has really overcome it, and, since every such barrier contradicts it character, its production moves in contradictions which are constantly overcome but just as constantly posited. Furthermore. The universality towards which it irresistibly strives encounters barriers in its own nature, which will, at a certain stage of its development, as being itself the greatest barrier to this tendency, and hence will drive towards its own suspension. (Marx 1957-58: 410) 7. Conclusion The purpose of this paper has been to examine critical aspects of the Grundrisse associated with technological change, turnover and competition. The model of marginal surplus labour time was never analysed by Marx anywhere else in his works, and does represent an interesting and important barrier or limit to capitalist production. In particular, it provided Marx with an insight into the technical contradictions of capital that lead to anomalous dynamics. Declining marginal surplus labour time puts a limit on accumulation, and led him to examine potential ways of capital transcending these limits of insufficient demand. This leads to Marxs hypothesis that the technical limits of marginal surplus propel capital, of necessity, to expand on the world scale, create new needs and products, and increase demand in order to generate production and realisation of the surplus. Globalisation enables business to operate in nations with higher marginal surplus labour time, and may also propel demand where market realisation is forthcoming. The expansion of wants, needs and new products enhances relative surplus value through further technological change and also greater demand. In brief, the turnover of capital needs to be heightened in order to temporarily transcend the barriers of production. But contradictions are not limited to production since they encompass all major aspects of reproduction. Circulation, for instance, leads to barriers as globalisation, advertising and financial calculation represent unproductive deductions from the surplus value. While it may indirectly increase the surplus

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it may also grow to represent a limit on productive activities. Expanding accounting, finance, advertising and other unproductive costs may lead capital to reduce the rate of productive accumulation through a systemic change in business strategy. Globalisation may in some cases lead to a rise in circulation time through a limit on the spatial dynamics of capital, and the potential for supply-demand discontinuity. Marx then examined competition is a facilitator of both the dynamics of capital and also its contradictory limits and barriers. Competition generates higher profits for the leading firms and sectors, but in the long run is subject to the rates of profit determined by the general actions of industry. It cannot eschew forces that periodically reduce the rate of profit. The law of value requires competition for its social validation. The Grundrisse provides insights into marginal surplus labour time and the need for globalisation, demand and turnover for the temporary moderation of contradictions. It recognises that competition is a way of putting into practice the necessary forces of capital. It provides insights, particularly, into the barriers and limits of production linked to marginal surplus labour time. And it provides a insights into the forces of overproduction and crises not found in his other works. It is thus an original work with key insights and substantive elements not generally recognised by scholars.

Endnotes

[*] I wish to thank (without implicating) Harry Bloch, Frank Harman, Lewis

Havercamp, Garth Hartley, John King, John Pullen and Herb Thompson for comments and assistance on earlier versions of this paper.

[1]. Volume 1 of Capital was first published in German in 1867, then in French in 1872, English in 1887 (translated by Samuel Moore and Edward Aveling), and thereafter many other languages. Volume 2 was first published in German in

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1884 and English in 1909 (translated by Ernest Untermann); while Volume 3 was first published in German in 1894, and English in 1909 (translated by Ernest Untermann). (See Hal Draper 1985: 187.)

[2]. Martin Nicolous (1973: 7) points out that a limited edition of the Grundrisse was published in Moscow in two volumes during 1939 and 1941. Roman Rosdolsky (1968: 15) states that there were only three or four copies of [this] edition in the West. Then a photoreproduction of the Moscow edition was published in Germany in 1953. (See Hal Draper1985: 189.) David McLellen (1971) edited an edition of about 1/6 of the full Grundrisse manuscripts,; while finally Penguin published the full manuscripts (Marx 1973) as translated by Nicolous. Terrell Carver (1975) published Marxs Introduction to the Grundrisse, (see footnote 3, below), along with an extensive commentary written by Carver (with Marxs Notes on Adolf Wagner, again with extensive commentary).

[3]. For instance, articles on the Grundrisse especially started appearing in the journal, Economy and Society; such as the work by Rafael Echeverria (1978), John Mepham (1978), and Terrell Carvey (1980). Mostly these articles were linked with the famous so-called Introduction of the Grundrisse manuscripts, which Marx (1859) alluded to as probably being an early Introduction to A Contribution to a Critique of Political Economy. Nothing much outside of methodological, epistemolgical break, annotation (Lallier 1989), and evolutionary (Oakley 1984) themes were published important as they were, up to a point about the Grundrisse. One of the important

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exceptions is the work on economic crises and profit rate by Michael Lebowitz (1976); but even he ignored the production contradiction. This methodological emphasis is surprising in view of the rich and entirely original substantive analysis done by Marx on the endogenous contradictions of production (especially) and their link to circulation and competition.

[4]. And as Marx says elsewhere in the Grundrisse: If, then, the specific form of capital is abstracted away, and only the content is emphasized, as which it is a necessary movement of all labour, then of course nothing is easier than to demonstrate that capital is a necessary condition for all human production . The proof of this proceeds precisely by abstraction from the specific aspects which make it the moment of a specifically developed historical stage of human production. Capital is conceived as a thing, not as a social relation . (Marx 1857-58: 258; original emphases)

[5]. Few of the secondary works on Marx have ever recognised this declining marginal surplus labour time model. The exceptions are James Becker (1977), Phillip OHara (1978) and Adalbert Lallier (1989). However, neither Becker nor Lallier link the declining marginal surplus labour time to the changes in variable capital, nor to the added tapestry of capital being required to expand on the world scale, enhancing needs and further sources of demand, and propelling further reproduction to temporarily overcome the endogenous limits of production. Rather, Becker goes on to talk about enhanced unproductive labour causing problems of reproduction, while Lallier merely continues his annotated summary of the Grundrisse devoid of the thematic

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linkages between production limits and circulation-production requirements. In short, while Becker at least recognises Marxs model, the literature is both scant on this general innovation developed in the Grundrisse, as well as underplaying barriers to production and how they can be temporarily surmounted through productive circulation, while going through further layers of barriers in the process.

[6]. Perhaps an even more important contradiction of production relations is this following comment of Marxs (which he develops in terms of alienation and estrangement in the Grundrisse to a higher level than that of the Paris Manuscripts of 1844): the question [arises] how, while [capital] has the tendency to heighten the productive forces boundlessly, it also and equally makes one-sided, limits etc. the main force of production, the human being himself, and has the tendency in general to restrict the forces of production (Marx 1857-58: 413).

[7]. For a modern day critical analysis of the contradictions of neoliberal globalisation see OHara (2006), where the contradictions of the current global political economy are examined from the point of view of transnationals, global money and trade, international production, community relationships, and governance.

[8]. Marx was working on the sphere of circulation in January (at least) of 1858, since he wrote in a letter to Engels that I have now reached a point in

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my work on economics where I need some practical advice from you, since I cannot find anything relevant in the theoretical writings. It concerns the circulation of capital its various forms in the various businesses: its effect on profit and prices. If you could give me some information on this, then it will be very welcome (Marx 1858: 51).

[9]. The methodology used for tabulating the process whereby surplus value is transferred between firms in the competitive process is borrowed from Shinzaburo Koshimura (1956: ch VIII; see also Koshimura 1977). The only problem with this method is that the inputs of constant and variable have not been transformed from their value to price calculations. However, this could easily be done through use of the various methods of solving the transformation problem (eg, using the method developed by L. von Bortkiewowicz (1952), and Anwar Shaikh (1977: ch 7).

[10] As Marx also says in Capital, volume one: this extra surplus value vanishes as soon as the new method of production is generalised, for then the difference between the individual value of the cheapened commodity and its social value vanishes. The law of the determination of value by social value makes itself felt to the individual capitalist who applies the new method of production by compelling him to sell his goods under their social value; this same law, acting as a coercive law of competition, forces his competitors to adopt the same method. [Marx 1867: 436]

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[11]. Indeed, these same three forces may be negatively impacting on the contemporary economic environment. Technological change may be limiting profit through declining marginal surplus labour time. Rising unproductive financial and mercantile capitals may be crowding out industrial and public capitals in many nations as globalisation and deregulation expand. Similarly a slump in aggregate demand may be in part responsible for the recessed profit rate and accumulation. Greater global competition may also be reducing the rate of profit and accumulation over the past couple of decades in the global economy. If this is true then the Grundisse may provide insights into the workings of modern capitalism that have hitherto not been sufficiently recognised.

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