The Limits of the Mixed Economy. Paul Mattick 1969



Marxist criticism of bourgeois society had to encompass more than proof of the exploitation of labor by capital. The idea of surplus-value was inherent in the labor theory of value, and socialists prior to Marx had utilized it in their arguments. In order to show once more that profit or surplus-value is gained in production and not in exchange, Marx found it advisable to disregard the effects of market competition on value relations. This is possible only in theory, because the production process cannot actually be divorced from the exchange process. Yet, according to Marx, the laws of capitalist production “cannot be observed in their pure state, until the effects of supply and demand are suspended, or balanced.”[1] This was not meant to suggest that such an equilibrium is actually possible because, in fact, supply and demand never balance.

In bourgeois economic theory prices are determined by supply and demand. On the assumption that supply and demand discrepancies cancel one another in the “long run,” it appears reasonable to abstract from them and look upon the market as an equilibrium mechanism. Even when it is admitted that extra-economic forces affect price relations, the conviction prevails that such interventions, by operating on either the supply or demand side, will finally issue into a state of equilibrium.

Bourgeois economic theory does not recognize class exploitation, for the commodities entering the market do not betray the division of labor and surplus-labor through the twofold character of labor power as an exchange-value and as a use-value. It asserts that the market relations assure to each and all the equivalent of their particular contributions to the production process, and that it is precisely the maximization of private self-interest which leads to the optimum of social well-being. The maximization of private self-interest, Marx pointed out, could have quite other effects, if “private interests were not already socially-determined private interests, whose realization depended on social conditions, and on the means provided by these conditions, as well as on their reproduction requirements.”[2] Otherwise, sheer self-interest could just as well slip into the utter chaos of a struggle of all against all. It is the law of value which gives expression to the socially-determined nature of private interests, and for that reason explains whatever “order” there is in capitalism.

This “order” is itself subjected to the evolution of capital production. Marx saw no reason to deny that market competition affects price relations and the allocation of labor and capital. But this does not imply that the various actually-existing averaging and balancing processes yield the market equilibrium of bourgeois theory. It merely means that the social character of production subjects individual producers to a series of restrictions beyond their control.

This loss of “self” to uncontrollable market events subordinates the whole of the economy to the dynamics of capital accumulation. To speak of a law of value is to say that the exchange relations in capitalism appear as an independent power controlling the producers instead of being controlled by them. It relates to the simple historical fact that the increasing “socialization” of production and exchange took place under the auspices of private property relations, so that individual conditions of production came under the social control of market relations. Individual successes or failures on the market lead to shifts in the sphere of production and these shifts lead to new market situations, which then require individual producers to take still other actions in order to maintain themselves. Success, however, is simply the realization of extracted surplus-labor in the form of profits within the price mechanism, as determined by the competitive supply and demand relations which indicate the peculiar “social needs” under conditions of capital production.

Market relations derive their definite shape, at any given time, from the quantity of value and surplus-value actually produced. They are “essentially conditioned on the mutual relations of the different economic classes and their relative economic positions, that is to say, first on the proportions of the total surplus-value to the wages, and secondly, on the proportion of the various parts into which surplus-value is divided (profit, interest, rent, taxes, etc.).[3] Whatever takes place in the market sphere can take place only within the definite boundaries which events in the sphere of production and the peculiarities of the distribution of the social product establish.

This is not to say that supply and demand discrepancies cannot affect the economy independently; they do so constantly. But it does imply recognizing that market relations are essentially derivative, circumscribed as they are by the capacities and limitations of the production process. Because it is impossible in practice to separate the production process from the circulation process, the effects of the increasing productivity of labor upon the basic production relations as value relations appear only in the modified form of price and profit relations determined by the competitive supply and demand mechanism. But the fact that market relations can only be price relations in no way alters the primary fact that the supply and demand relations are circumscribed by social production relations and the character of social production as the accumulation of capital. In Marx’s view, it is not the price system which “regulates” the capitalist economy but, rather, unknown yet capitalistically-determined necessities of production acting through the price mechanism. The “regulatory” competitive price mechanism is itself “regulated” by the law of value, just as the law of value may, in turn, be overruled by natural and social necessities transcending the capitalist system.

Because “society can no more cease to produce than it can cease to consume,” the social production process is continuous. In capitalism, the social production process is at the same time a reproduction process on an enlarged scale. “The development of capitalist production,” Marx said, “makes it constantly necessary to keep increasing the amount of capital laid out in a given industrial undertaking, and competition makes the immanent laws of capitalist production to be felt by each individual capitalist, as external laws. It compels him to keep constantly extending his capital, in order to preserve it, but extend it he cannot, except by means of progressive accumulation.”[4] The need to accumulate determines the activities of all capitalists, and it is through their activities that the social production and reproduction process appears as the “self-expansion” of capital. The control of the producers by the market is thus simultaneously the control of the producers and the market by the accumulation of capital.

Since capital is appropriated surplus-values the qualitative and quantitative nature of the social production process depends on the ability or inability to extract fresh surplus-value. Accumulation is the source and goal of capitalist production but capitalists do not concern themselves either with total social production or with the proportional relationship of its necessary- and surplus-labor. As regards the reproduction of the working class, the capitalists leave “its fulfillment to the laborers’ instinct of self-preservation and of propagation. All the capitalist cares for is to reduce the laborer’s individual consumption as far as possible to what is strictly necessary.”[5] The workers, on their part, may try to raise their wages at the expense of profits without regard for the accumulation requirements of capital production. Both attitudes find unknown yet definite limits in the conditions set by the social production relations as value relations.

The market is the stage on which all competitive activities are played out. But this stage itself is set up and bound by the class nature of the social structure. Whatever the market relations, they must fit the social production relations; surplus-value must be adequate to the value of capital for the market-play to go on. The criterion for adequacy is accumulation, for without it there may be production but no capitalistic production, i.e. no production of capital. The rate of accumulation or, what amounts to the same thing, the rate of surplus-value or profit, is the “ordering” element on which the regulatory functions of the market are based.

Competition averages commodity prices and profit rates. Obviously, this averaging process presupposes individual differentiations. The sphere of production determines the social supply, and the social demand disregards individual differentiations in the sphere of production. The market demand of the laboring population cannot exceed the equivalent of the wage capital and consists generally of consumption goods. The surplus-value to be realized outside the capital-labor exchange is basically split up into profit, interest, and rent. Part of it is reinvested, another part consumed. Surplus-value is convertible into capital “because the surplus-product, whose value it is, already comprises the material elements of new capital.”[6] Accumulation, as abstention from consuming the whole of the surplus-value, appears to the capitalists as a “saving process,” and profits as the reward of this “abstinence.” Actually, of course, the more “capital increases by means of successive accumulation, the more does the sum of the total value increase that is divided into consumption-fund and accumulation-fund. The capitalist can therefore live a more jolly life, and at the same time show more ‘abstinence.’ And, finally, all the springs of production act with greater elasticity, the more its scale extends with the mass of the capital advanced.”[7] Nonetheless, the accumulation-fund cannot be any larger than what is left of the surplus-value after the consumption demands of the non-laboring population have been met. The smaller the total social consumption relative to the total social product, the larger the residue of surplus-value for purposes of accumulation.

In bourgeois theory, “postponement” of current consumption by way of “savings” is merely the way to a richer future consumption. This “postponement,” however, is continuous, no matter how much has been “saved” and reinvested in new means of production. Although consumption does increase in the course of capital expansion, capital accumulation increases faster. There can be no “equilibrium” between production and consumption, at any particular time or in the long-run, because progressive capital expansion means widening the gap between the two. Market “equilibrium” can exist only in abstract value terms: it exists when the market demand is one that will assure the realization of surplus-value by way of capital expansion. The semblance of a supply-and-demand “equilibrium” exists only within the process of capital accumulation. It is only in this sense that the law of value “maintains the social equilibrium of production in the turmoil of its accidental fluctuations.”[8]

Even so, in maintaining the “social equilibrium of production,” the law of value asserts itself just “as the law of gravity does when a house falls upon our ears.”[9] It asserts itself by way of crises, which restore, not a lost balance between supply and demand in terms of production and consumption, but a temporarily lost but necessary “equilibrium” between the material production process and the value expansion process. It is not the market mechanism which explains an apparent “equilibrium” of supply and demand but the accumulation of capital which allows the market mechanism to appear, at times, as an equilibrium mechanism.

1. Capital, Vol. III, p. 223.

2. K. Marx, Grundrisse, p. 74

3. Capital, Vol. III, p. 214.

4. Capital, Vol. I, p. 649.

5. Ibid., p. 627.

6. Ibid, p. 636.

7. Ibid., p. 667

8. Ibid, Vol. III, p. 1026.

9. Ibid, Vol. I, p. 86.