The bourgeoisie, by the rapid improvement of all instruments of production, by the immensely facilitated means of communication, draws all, even the most barbarian, nations into civilization. The cheap prices of its commodities are the heavy artillery with which it batters down all Chinese walls. ... It compels all nations, on pain of extinction, to adopt the bourgeois mode of production; it compels them ... to become bourgeois themselves. In one word, it creates a world after its own image.
Karl Marx and Frederick Engels, Manifesto of the Communist Party (1848)
Karl Marx provided a impressive analysis of the dynamics of the capitalist system which remains valuable today. The first volume of Capital includes a incisive analysis of the internal dynamics of the capitalist firm, as well as a seminal theories of the trade cycle and of capitalist development. The second volume on the circulation of capital inspired Michal Kalecki to develop a theory of effective demand prior to, and independently of, that of John Maynard Keynes. The third volume contains much of the material which Nobel Laureate Lawrence Klein (1947) described as 'probably the origin of macroeconomics'.
Nevertheless, it is notable that Marx paid little attention to the analysis of different varieties of capitalist system. Perhaps we can excuse this because of the sheer span of his analytical imagination, covering all the social sciences and much of human history. However, the cost, as explained below, is enormous: it is in the path dependence of institutional variety that different histories are preserved.
A key analytical question here is how variety is to be treated. Marx readily acknowledged the existence of actual varieties of capitalism, but saw an underlying, single, essence. In analysing this essence he thought that the variety could be ignored. Marx adopted the prevalent analytical view that variations were accidental, and were unnecessary theoretical complications. On the contrary, the view promoted here is that the essence of the system cannot be understood without understanding the real basis and span of its potential and actual variety. Variety is not an accidental aberration: it is part and parcel of the potential evolution of the system. The argument for this standpoint is developed in this and the next chapter.
As noted in the preceding chapter, there is an important difference between the economics of Karl Marx and that of the classical, neoclassical and Austrian economists. Mainstream economists take the analytical starting point of the ahistorical, abstract individual. Marx's approach is different. As revealed in Marx's letter to Pavel Annenkov, written in 1846, the thrust of his criticism of Pierre Joseph Proudhon clearly applies to much of modern mainstream economics as well:
Mr Proudhon, chiefly because he doesn't know history, fails to see that, in developing his productive faculties, i.e. in living, man develops certain inter-relations, and that the nature of these relations necessarily changes with the modification and the growth of the said productive faculties. He fails to see that economic categories are but abstractions of those real relations, that they are truths only in so far as those relations continue to exist. Thus he fails into the error of bourgeois economists who regard those economic categories as eternal laws and not as historical laws which are laws only for a given historical development, a specific development of the productive forces. Thus, instead of regarding politico-economic categories as abstractions of actual social relations that are transitory and historical, Mr Proudhon, by a mystical inversion, sees in real relations only the embodiment of those abstractions. Those abstractions are themselves formulas which have been slumbering in the bosom of God the Father since the beginning of the world.
In Marx's view, ahistorical categories such as 'utility', 'choice' and 'scarcity' cannot capture the essential features of a specific socio-economic system. His recognition of the processes of historical development led him to choose concepts that capture the essences of particular systems. Thus Marx claimed that the core categories in Capital were abstract expressions of real social relations found within the capitalist mode of production. Such categories are held to be applicable to reality as long as such social relations exist.
In the 'method of political economy' section of the Grundrisse, Marx (1973b, pp. 100-1) argued similarly that discussions of concrete socio-economic systems must ascend 'from the simpler relations, such as labour, division of labour, need, exchange value, to the level of the state, exchange between nations and the world market'. This, he saw, was the 'scientifically correct method'. Marx's primary aim was to analyse the type of economy emerging in Britain and Europe in the nineteenth century. Thus in the Preface to the first edition of Capital he made it clear that the objective of that work was to examine not economies in general but 'the capitalist mode of production'. It was the 'ultimate aim' of that work 'to reveal the economic law of motion of modern society' (Marx, 1976a, pp. 90, 92).
Accordingly, unlike the modern textbooks, Capital does not start with a general and ahistorical 'economic problem'. This procedure would ignore the historically specific and characteristic structures and relations of the object of study. Instead, Marx's economic analysis started from what he regarded as the essential social relations of the capitalist social formation. Marx (1976b, p. 214) himself explained: 'What I proceed from is the simplest social form in which the product of labour in contemporary society manifests itself, and this is as "commodity".' This starting point and its elaboration are clear from the key words in the titles of the opening chapters of Capital: 'commodities', 'exchange', 'money', 'capital', and 'labour power'. Marx did not aim to write a text on economics that would adequately reveal the workings of all socio-economic systems. No such work, he rightly argued, would ever be possible. Instead it was necessary to focus on a particular socio-economic system, and the particular relations and laws that governed its operation and evolution.1
A prior conceptual framework is necessary in order to understand the world. Contrary to empiricism, all empirical analysis presupposes a set of concepts and an implicit or explicit theory. All statements of fact are theory-laden. Accordingly, in their analysis of socio-economic systems social scientists are obliged to rely on something similar to 'ideal types'. Ideal types are abstract descriptions of phenomena that indicate the general features upon which a theorist will focus for purposes of explanation (Commons, 1934, pp. 719-48; Schutz, 1967; Weber, 1949, 1968). It is impossible to include all details and all features in such a venture because socio-economic systems are too complex. A process of abstraction must occur where the essential structures and features of the system are identified. The crucial question, of course, is which abstractions to make, or which ideal type is to be selected in the analysis of a given phenomenon.
Marx had a specific answer to this question, as we shall see below. All social scientists are likewise forced to make abstractions or simplifications, of one kind or another. Neoclassical theory, for instance, assumes given individuals with fixed preference functions. It is frequently admitted that the axioms of individual rationality may be violated in the real world. But rational behaviour is still taken to be a worthwhile and universal approximation. Socio-economic complexity is thus addressed through the universal 'ideal type' of a system based on atomistic, rational, utility-maximising individuals. Similar remarks apply to the widespread assumption of 'perfect competition' in neoclassical economics.
Marx considered several possible types of socio-economic system, such as feudalism and classical antiquity. In his view, capitalism would eventually be replaced by communism. In specifying such distinct socio-economic systems, he saw the need to develop specific analyses of the structure and dynamic of each one. In particular, he aimed to show that capitalism has inner contradictions, leading to its breakdown and supersession by another social formation. Writing in the 1870s, Frederick Engels (1962, p. 204) echoed Marx's methodological approach:
Political economy is therefore essentially a historical science. It deals with material which is historical, that is, constantly changing; it must first investigate the special laws of each individual stage in the evolution of production and exchange, and only when it has completed this investigation will it be able to establish a few quite general laws which hold good for production and exchange in general. At the same time it goes without saying that the laws which are valid for definite modes of production and forms of exchange hold good for all historical periods in which these modes of production and exchange prevail.
The concept of a historically specific socio-economic system raises questions that are downgraded in neoclassical and other ahistorical approaches. For instance, the idea of historically specific socio-economic systems raises questions concerning the origin and transformation of each system. In turn, the accent on economic transformations and crises contrasts with the more static neoclassical preoccupation with economic equilibria and the theory of relative prices.
Clearly, the definition of each type of socio-economic system is crucial. This is pre-eminently the case with capitalism. Capitalism is essentially a type of market system involving extensive private property, capital markets and employment contracts. To examine this in more detail we first explore Marx's definition of 'the capitalist firm'. This is regarded by Marx (1976a, pp. 291-2) as an institution where:
1. 'the worker works under the control of the capitalist to whom his labour belongs';
2. 'the product is the property of the capitalist and not that of the worker';
3. further, such capitalist firms produce commodities for sale in the pursuit of profit.
Point 1, as Marx elaborated elsewhere in Capital, implies an employment relationship between employer and employee. Points 2 and 3 imply the existence of private ownership of the means of production. They also are tied up with the fact that the capitalists, rather than the workers, are the 'residual claimants': they take up the profits and losses from the sale of the products, after all other costs are paid. The definition has formal and legal, as well as cultural and informal, aspects. It entails an employment relationship and excludes co-operatives and one-person firms, as Marx himself made clear on repeated occasions.
The capitalist social formation was regarded by Marx as a system in which most production takes place in capitalist firms. Commodities were understood by Marx as goods or services that are destined for market or other contractual exchange. Exchanges involve the consensual transfer of property rights. By the above definition, the products of capitalist firms are commodities. Marx (1981, p. 1019) clearly identified a 'characteristic trait' of the capitalist mode of production as follows:
It produces its products as commodities. The fact that it produces commodities does not in itself distinguish it from other modes of production; but that the dominant and determining character of its product is the commodity certainly does so. This means, first of all, that ... labour generally appears as wage-labour ... [and] the relationship of capital to wage-labour determines the whole character of the mode of production.
In short, for Marx, capitalism is generalised commodity production.2 It is generalised in a double sense, first because under capitalism most goods and services are destined for sale on the market, that is, they are commodities. An important example is the existence of a market for capital. Second, because under capitalism one type of item is importantly a commodity: labour power, or the capacity for work.3 In other words, an important feature of capitalism is the existence of a labour market in which labour is hired by an employer and put to work according to the terms of an employment contract. Within capitalism, there are markets for both capital and labour power, and these have crucial regulatory functions for the system as a whole. However, markets and private property are necessary but not sufficient features of capitalism: not all market systems are capitalist systems.4
Although Marx refers most frequently to capitalism in Britain, his aim is not to analyse any specific variety of capitalism but capitalism in general. Rather than any specific form of capitalism, capitalism per se is chosen as an ideal type because the dynamism of that system is attributed to its general relations and structures rather than national or cultural specificities. Cultural and structural variations were recognised by Marx, but they did not play a core analytic role in Capital. Instead of encompassing variation in his analysis, Marx focused on the unique, definitional essence. Relations that defined the capitalist system were used by Marx to validate the primary deployment of core concepts such as the commodity, exchange, money, capital, and labour power. In particular, the foremost use of the concept of the commodity was validated by the generality of the commodity-form under capitalism itself.
At least at first sight, such an approach seems eminently reasonable. If capitalism is a specific type of socio-economic system, with its own structural features and dynamics of development, then economics has to identify these specific features and dynamic processes. On the basis of their conceptualisation, a specific theory - with greater explanatory power than any theory based on universal and ahistorical presuppositions - could be constructed as a result.
An upshot of this methodological procedure is that Marxian economics is distinguished radically from classical, neoclassical and Austrian economics. Unlike the other approaches, Marxian economics is not based on ostensibly universal assumptions. Through this methodology, Marxism is connected with what could be regarded as the structural core of the mode of production that presently dominates our planet. Whatever the merits or flaws of Marx's analysis in Capital, no other theoretical system in social science has related itself so closely and directly to the general features of the capitalist socio-economic formation.
Marx's vision of history as a succession of different socio-economic systems was illuminated not only by the intellectual influence of Hegel but by his ideological commitment to a socialist future. Marx's strong political belief in the possibility and desirability of the revolutionary overthrow of the existing order, and in the construction of a quite different type of economy and polity, led him to focus analytically on what he thought were the distinctive features of the exploitative capitalist system. But whatever the impulse behind his thinking, his general idea that history has been a succession of different socioeconomic systems, each to some degree with its own structure and dynamic, can be separated from the ideological energy that fuelled its creation, and even from the contentious question of the feasibility of socialism itself. Even if socialism is unfeasible - or undesirable - Marx's segmented vision of past history remains. His formulation of the problem of historical specificity remains relevant, to the past and the present, and to whatever future that we do indeed face.
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