Lecture
As we begin our introductory remarks, let us state right away: the introduction preceding the main text of our textbook is aimed not only at the beginning reader (for whom textbooks are chiefly written), but also at the professional—most likely a teacher—to whom we wish to explain the place of our book within the multidimensional space of various economic theory textbooks. That is why we strongly recommend that both the student (and any other reader who is just beginning to study economic theory and wishes to become a true professional) and, especially, the instructor intending to make at least partial use of this textbook in teaching, become acquainted with the texts offered below. As we noted in the preface, this textbook's engagement with the heritage of classical political economy is no accident. On the one hand, this science proved its significance by becoming, in the eighteenth and nineteenth centuries, the main current of economic theory, and it remained so within the world system of socialism in the twentieth century. On the other hand, classical political economy has for more than a century now lain "on the other side" of the mainstream of economic research and, accordingly, outside the main directions of the teaching process. Figuratively speaking, one might say that by the end of the twentieth century our science had been banished from most universities in Europe and the United States, and subsequently from those of other countries, including Russia. This "banishment," however, is now resulting in substantial losses both in the field of theoretical economic research and in the process of teaching economic theory, which is gradually leading to a reassessment of the role of classical political economy. As a result, economic theory over the last quarter century has been marked by a number of interesting shifts, three of which we would like to highlight, devoting the first section of our introduction to them.
The first shift is the growing attention of the intellectual community, both in our country and abroad, to the large-scale historical and socio-spatial changes taking place before our eyes. Both theorists and practitioners are becoming increasingly convinced that the "end of history" did not, in fact, occur, and that the world is entering a period of substantial change that cannot be described through modifications and increasingly elaborate models of how a market economy functions. The discourse of "history" is knocking at the door of economic science.
The second is the widely known phenomenon of the growing "economic imperialism." Its expansion is almost self-evident: suffice it to note that an ever-increasing number of Nobel laureates receive their prizes in economics for research into objects that are not, strictly speaking, economic at all. This looks like a new triumph of neoclassical theory. The paradox, however, is that the very phenomenon of "economic imperialism," in our view, increasingly serves as a kind of "proof by contradiction" that economic theory must examine not only the functioning of the market, market transactions, and "market failures," but also certain other phenomena that lie "on the other side" of the traditional subject matter. Thus, reflection on the criteria for successful economic development gave rise to the "economics of happiness"; research into "human capital" led to the "discovery" of long-term altruistic needs; engagement with the phenomenon of "social capital" allowed neoclassical theory to "discover" the existence of relations of solidarity as an important factor in economic progress; and theorists of the new institutionalism are seriously analyzing not only market forms of interaction among economic actors, even in areas where there is no state "intervention"...
The third shift is a kind of "return" of classical political economy. To most representatives of the "mainstream" of economic science, this has gone largely unnoticed. True, during the global economic and financial crisis of 2007-2009, interest in Marx's Capital rose sharply—but what of it? If the crisis has not been entirely overcome, for most countries it has receded into the past, along with interest in the Marxist economic legacy... Yet matters are far from so unambiguous. Analysis first of the post-industrial economy, and then of the imperatives of reindustrialization, has compelled foreign authors, and following them domestic ones as well, to attend to the need to include, within the scope of economic-theoretical research, the processes of production (and not merely in its role as a precondition for exchange). Moreover, serious social contradictions are increasingly compelling scholars to turn to the genuine study of objective economic relations and the interaction of social forces acting as a whole, and of the contradictions within the socio-economic relations of large socio-economic communities, moving away from the principle of methodological individualism and advancing into the sphere of other research methods and a different categorial apparatus than that characteristic of the so-called "hard core" of microeconomics.
None of these shifts is accidental. The fact is that the modern economy is characterized by two opposing trends. One is the total expansion of the market and capital into all spheres of social life, including those lying outside the traditional understanding of the production and exchange of goods and services—into the sphere of interpersonal relations, leisure time, and so on. The other is the development of socio-economic relations that cannot be reduced to the market and its "failures." Both of these phenomena compel us to take a step "beyond" the "market-centric" model of economic theory (we shall return to this theme later in the introduction). In addition, there is yet another—historical-spatial—dimension to all these processes, which we mentioned above. And economic science has gradually begun to respond to these objective challenges. But it does so, again, inconsistently. In most cases, the reductionist device typical of the early stage of any inquiry is employed: the new role of the human being in the economy is declared to be "human capital"; the same theoretical apparatus used for profit maximization is applied to the study of the pursuit of happiness, and so on and so forth.
Meanwhile, heterodox economic theory has existed, continues to exist, and continues to develop—one that makes it possible to study all these phenomena using methods, language, and a categorial apparatus adequate to them... This space of economic theory is diverse and is represented by different currents (from classical Marxist political economy to post-Keynesianism and classical institutionalism), many of which are close to one another and, to varying degrees, intertwined with orthodox economic theory; but the "hard core" of heterodox theory consists of the methodology and categorial apparatus that grow out of Marxism. The fact that neoclassical theory, while rejecting many propositions of classical political economy, nevertheless borrowed a great deal from it, goes largely unnoticed in most contemporary works. But this does not make it any less a fact, and below we shall briefly comment on it, formulating the following thesis: neoclassical theory borrowed a great deal from classical political economy, becoming a theoretical reflection of the inverted forms of the capitalist world. It has now become customary to "forget" that modern economics and its microeconomic theoretical foundations (the theory of marginal utility, marginal productivity, and the theories of human behavior, the firm, money, and so on that grow out of them) were simultaneously both a continuation of and a repudiation of classical political economy, above all the work of Adam Smith. As for Ricardo, and especially Marx, neoclassical theory is generally perceived as something wholly unconnected to this current of economic thought. This claim is valid only in a certain respect. Indeed, the basic tenets of Marxist political economy are rejected within neoclassical theory.
This applies both to the subject and method, and to the theory itself. In the first case, neoclassical theory abandoned the study of objective economic laws (though it ultimately arrived at a whole series of theoretical conclusions used precisely as a reflection of the laws of the "market economy" and partly borrowed from classical political economy), and abandoned any claim to constructing a system of categories that dialectically, through ascent from the abstract to the concrete, reflect the system of production relations (though it arrived at a set of rigid formulas, reproduced as axioms in every work grounded in the "hard core" of microeconomics). In the second case, neoclassical theory advanced theoretical alternatives to the labor theory of value, the theory of capital and exploitation, and so on. Yet much from the classics (including, strangely enough, from Marxism) made its way into neoclassical theory, albeit without any acknowledgment (at least in contemporary works) of the theses borrowed from its opponents. Let us single out just a few of these. The foundational category of the Marxist political economy of capitalism—the commodity—presupposes a unity of value and use-value. The latter is the capacity of a thing to satisfy the need of a person other than the producer—that is, in modern parlance, the utility of the thing for the buyer. This is the starting point of any theory of utility. Furthermore, neoclassical theory naturally cannot dispense with the category of costs, which ultimately turn out to be nothing other than the sum of expenditures of living and objectified labor. In the end, it turns out that neoclassical price theory is grounded in the relationship between labor expenditure and utility. Recalling that in the analysis of the form of value (which most critics of Marxism conveniently "forget") Capital asserts that the only mirror in which the value of commodity A can be reflected is the use-value (that is, the utility) of commodity B, it is easy to see that neoclassical theory rests, in large part, on the very same axioms as Marxism. Why? Quite simply: because practice dictates them. The difference lies in the fact that diametrically opposite conclusions are then drawn from these same basic concepts...
Let us continue.
Another seeming paradox is the entirely non-coincidental convergence of the essential definitions of a market economy in classical political economy and in neoclassical theory. Although, within the latter paradigm, the market is defined in extremely varied and, in many cases, maximally general terms—so general that it coincides with any system of exchanging goods whatsoever (in which case both feudal natural economy and the economy of the USSR turn out to be merely particular kinds of markets)—at the core of neoclassical theory lies a rather clear understanding of what a market actually is. It is enough to pose to a neoliberal expert well-versed in the axioms of neoclassical theory a question about a transition to direct product exchange, or about expanding the free-of-charge provision of goods to consumers (say, in education or healthcare), or about introducing directive planning, or even about restricting the free movement of goods and capital, and he will immediately object—such measures, he will say, lead to the restriction or even the undermining of market relations—and he will be right. For, in fact, he proceeds from the premise that the attributes of a market are the social division of labor and the separateness of producers. Remove the former, and you get a natural, pre-market economy.
Remove (or even merely restrict) the latter, and you find yourself in a world of deliberate economic regulation, which consistent proponents of the free market economy strive by every means to prevent. Strangely enough, Marxists are in complete solidarity with them on this point. Moreover, the understanding of the essence of commodity production—going back to Smith and Ricardo, but developed far more profoundly by Karl Marx—rests precisely on this rigorous, dialectical definition of economic space-time, whose form is the market. The dialectical unity of the social division of labor, which makes the labor of producers social, and the separateness of producers, which makes their labor private, is precisely the basis of the contradiction and unity of abstract and concrete labor, of value and use-value, which together constitute the two inseparable sides of the commodity—the "cell" of the system of relations of commodity production that neoclassical theory calls the "market." In this sense, consistent proponents of the free market—the most rigorous and consistent neoclassical economists—implicitly but consistently rely on precisely the Marxist definition of the market, rather than some vague, indeterminate definition drawn from "common sense." The difference is that Marxists, proceeding from this definition of the essence of commodity production, draw the conclusion that it is historical in character, demonstrating the causes and nature of its genesis and its eventual undermining, its progressive and regressive roles, and so on, whereas neoclassical economists stop at affirming a once-valid proposition about the progressiveness of the "market" (compared to a natural economy), and then go on to turn it into an eternal, "natural," and uniquely effective form of economic organization.
Moreover, the logic of Capital, which sublates the achievements of the preceding classical political economy, goes on to derive (not postulate, but genuinely derive, testing the theory against practice) a whole series of other attributes of commodity production, which have likewise been incorporated into the theoretical arsenal of neoclassical economics. Let us single out just one of them—the theory of commodity fetishism. In this brief section, K. Marx critically develops Adam Smith's idea of the so-called "economic man," showing that the drive to maximize monetary wealth (goods, money) is not some "natural," eternal passion instilled by God or by an immutable human nature, but rather the result of the dominance of a particular type of production relations—the relations of commodity production—which itself forms this particular type of human being, along with its values and motives. Accordingly, a different system of economic relations forms a different type of human being, examples of which the history of social life has known and continues to know. This is a simple but fundamentally important theoretical proposition, belonging to the ABCs of nineteenth-century Marxism, which neoclassical theory—through only a handful of its representatives, and in an extremely truncated form—only "discovered" at the end of the twentieth century, when theories of "social" and similar forms of capital appeared, along with the recognition that a person may, over the long run, maximize something other than merely his private income, and that this must be taken into account in economic theory. Continuing the logic of Capital, let us point to the theory of money, in which K. Marx demonstrated not only its essence and functions, but also its quantitative dimension.
First, this is theoretical baggage that neoclassical theory has lost—entirely needlessly, we might add, for it remains highly relevant in light of the analysis of the contradictions of today's virtual money and financial bubbles, since it makes it possible to show the causes of their emergence and the ways of resolving them. Second, neoclassical theory has used it—quite literally, in fact—without any reference to the original source, and with the attribution of Marx's discovery to another name entirely. It is well known that the famous "Fisher equation" is nothing more than a borrowing (with simplifications, no less) of the formula for the quantity of money in circulation, which was derived (not postulated, as with Fisher) in Chapter 3 of Volume I of Capital.
Turning to the primary sources: the law of monetary circulation in K. Marx and the "Fisher equation"
"For the process of circulation over a given period of time: [sum of commodity prices] / [number of turnovers of like-named monetary units] * [the mass of money functioning as means of circulation]"1. Taking into account the existence of credit money, Marx's law of monetary circulation takes the following form: "If we now consider the total sum of money circulating during a given period, it will be found that—given a certain velocity of circulation of the means of circulation and of payment—it is equal to the sum of the commodity prices to be realized, plus the sum of the payments falling due, minus the payments that mutually cancel out, and, finally, minus the sum of transactions in which the same money functions alternately as a means of circulation and as a means of payment"2.
For clarity, this law of monetary circulation, as derived by K. Marx, may be represented in the following form: MD = (TP - CP + P - MP)/n, where MD is the quantity of money needed for circulation in a given period, TP is the sum of the prices of commodities to be realized, CP is the sum of the prices of commodities sold on credit whose payments fall due after this period, P is the sum of the prices of commodities sold on credit in the preceding period whose payments have now fallen due, MP is the sum of mutually canceling payments, and n is the number of turnovers of the monetary unit. Irving Fisher proposed the equation MV = PQ (where M is the quantity of money required for circulation, P is the average price level, Q is the aggregate volume of goods and services, and V is the velocity of money circulation) in 1911, in his work The Purchasing Power of Money1. As can be seen from the above, K. Marx's law of monetary circulation is more detailed than I. Fisher's equation of exchange2
It would be easy to continue presenting various kinds of such "inheritances" (though, as a rule, without any acknowledgment of the "kinship"). However, this would take us too far afield from the main subject matter of our introduction, so we shall confine ourselves to a simple indication of a few of the most important full or partial borrowings from the classics found among the neoclassical economists. Among these propositions is the thesis that profit is the product of the functioning of capital rather than of the hired worker's labor. In Volume 3 of Capital, Marx describes in detail the mechanism by which, on the surface of capitalist phenomena, a system of inverted forms arises that creates precisely this appearance. It is essential to note that Marx emphasizes: this appearance is objective, not accidental. It has its own causes and grounds—but it remains an appearance nonetheless. Ignoring the distinction between the content of economic relations and their inverted forms, between essence and appearance, neoclassical theory quite reasonably says: the process of the market's functioning proves that profit is created by capital. Marxism replies: yes, you are right. And Marx showed this before you—but, unlike you positivists, Marx examined not merely the immediate givenness of the facts, but also the causal relations underlying them, the grounds of the phenomena, and thereby showed that the surplus value underlying profit is created by the hired worker, while the process of the reproduction and, especially, the circulation of capital creates the appearance that profit is a product of capital. The same holds for wages: Capital shows how and why this form of income appears to be payment for labor, whereas in content it is the [inverted] form of the value of the commodity labor power. Neoclassical theory registers (quite reasonably) this inverted form—wages as payment for labor—as an objectively given fact of the market's functioning. Classical political economy, possessing, unlike this science, a dialectical method and set of tools, shows both what the actual content of this category is (the value of the commodity labor power) and why and how it acquires the inverted form of wages. And these are only two of the many examples showing that Marxist political economy investigates the fundamental grounds of those economic processes whose forms and manifestations neoclassical theory merely reflects.
✓ On inverted forms: features and examples:
By way of a digression, let us note: inverted forms are characterized by one very important property—they create the appearance of a foundation other than the real one. The very name of these forms indicates that they "invert" something [into something else]. Another rendering—"perverted forms"—is still harsher: these are forms that are something other than reality, something perverse, as it were "conjured" (like an illusion that a sorcerer conjures in a fairy tale). The meaning of this category of dialectical logic is that, under certain social conditions, the content of social processes is such that it objectively and inevitably manifests itself on the surface in the shape of phenomena (these very inverted forms) that create the appearance of a content other than the actual one. These preliminary remarks allow us to offer a first hint toward a possible definition: inverted forms are phenomena ("facts") belonging to the world of alienation, whose relations "turn inside out," "turn upside down," actual social practice. Examples of such forms are well known from K. Marx's Capital. Foremost among them is the phenomenon of commodity and money fetishism, which creates the appearance that commodities and money are the highest value of human society and something that determines the life of a person1.
The entire world of commodity relations proves that this is indeed so, even though in reality money and commodities are nothing more than one specific, historically limited form of economic wealth. Another category is wages. It is no accident that they create the appearance of being payment for labor. Yet labor is a process that, in itself, is neither bought nor sold. What is bought and sold is the commodity "labor power," whose value is fundamentally different from (less than) the value that the hired worker's labor creates. In just the same way, the category of "profit" is an inverted form, which, within the Marxist system of categories, again creates the objective appearance that the "surplus" (surplus value) is created by capital as a whole, rather than solely by the labor of the hired worker, whose labor power is purchased with a portion of capital ("variable capital"). These examples, however, say something meaningful only to those already well acquainted with Marxist political-economic theory. Below we offer another, simpler example. Let us imagine a marketplace square where a clumsy bear and a woman dressed up in costume are dancing for the crowd. A credulous peasant marvels that the bear dances better than the woman and claps his hands with delight. A slightly more attentive and less inebriated visitor to the market, however, will notice that the "bear" is not actually a bear at all, but a man who has put on the animal's hide; while the "woman," conversely, is a bear dressed in a colorful gown that has been trained to dance to a piper's tune. In both cases, we are dealing with the simplest examples of inverted forms.
1 A caveat should be made here at once: even in the world of alienation, by no means all empirically given phenomena can be treated as forms, and not all forms are inverted forms. Thus, the ascent from the abstract to the concrete initially fixes, as its limiting abstraction, the being of the system, which possesses both its immediate being (that which is directly given in practice) and an internal opposition between being-in-itself and being-for-another. Strictly speaking, therefore, the commodity—this fact of the practice of the market system—is not a form but the immediate being of that system. Commodity fetishism is another matter entirely. Here we already have the phenomenon of the transformation of the commodity (the immediate being of the system) into a social fetish—an inverted form of social life. Why this inverted form found its place in Volume I of Capital is a rather interesting question. But these are subtleties of interest to hardly anyone outside a narrow circle of specialists on the logic of Capital. Why, when, and how content acquires precisely inverted forms, we shall examine a little further below.
To the unsophisticated visitors to the market, things appear to be exactly as they actually are (note that this, too, is one of the definitions of an inverted form: it exists precisely where and when things seem to be exactly as they actually are). It seems that the bear dances well. And within the world of the marketplace, this is indeed so: the one who has put on the bear's hide really does dance well. Hence the "induced" content: bears dance better than women; the peasants are happy and pay their money. But this truth of the marketplace world is nothing more than an appearance, an inverted form (the "real," non-induced content is that the human dances better than the bear, even though the facts of marketplace life prove the opposite).
This simple example points to the first serious step toward understanding the nature of inverted forms: to the extent that we remain within the bounds of the social processes that gave rise to these inverted forms (the marketplace, in our example), the "induced" content remains the only reality. This content has a rather specific nature. It does not exist as such—not as the content of some real phenomenon (the man and the bear dancing in the square)—but solely as a consequence of the dominance of inverted forms. The "normal" relationship between content (which is primary) and form (which is secondary, though it does exert a reverse influence upon content) is, in the case of inverted forms and "induced" content, turned on its head: the latter is not merely generated by the form, it is generated solely by the form and does not exist apart from this generation (the bear dances better than the woman only because this is an appearance "induced" in the spectators by the costumes worn by the man and the animal). This very "induction," which brings about the inversion of the actual content, is itself generated by the very system within which this form and this content alone exist—the system of the marketplace performance. The empirical phenomena, the facts of marketplace life, prove only one thing: there are forms that look "ordinary" (an ordinary woman and an ordinary bear are dancing), there is content confirmed by the facts (a bear that dances well and a woman who dances poorly), and there are regularities in their relationship (the bear dances better than the woman). To penetrate the fact that here a transformation has occurred—an inversion of the actual content and an "induction" of an illusory content generated by the dominance of inverted forms—there is only one path: the path of the dialectical investigation of the paradox (the bear dances better than the woman). This investigation requires treating the given paradox not as a fact to be simply recorded (pragmatism), or, at best, generalized in a way that identifies certain functional relationships (positivism, mathematical modeling), but as an open problem that must be "sorted out" and analyzed. This process of investigation should begin by recognizing the fact not as dogma but as a form which may invert (or may also adequately reflect—the researcher still has to work this out) some particular content. Next, one must investigate exactly what content is concealed behind this given form. To do this, one must understand that the seeming content (the woman dances poorly, the bear dances well) may be false. Whether it is false or not can be understood only on the condition of a systemic, historical-logical approach, which will reveal the boundaries of the system within which these given inverted forms and this "induced" content alone exist. Thus, outside the system of the "marketplace," the performer who has taken off the bear's hide can, of course, dance better than a bear, while the animal, freed of its rags, dreams of running through the forest rather than suffering through the performance of a dance. In just the same way, labor power was not a commodity, was not bought or sold, and did not give rise to the inverted form of wages, under conditions of a non-capitalist economy.
Therefore, having introduced the concept of the qualitative (historical and theoretical) boundaries of a system, of its systemic quality, we can, by carrying a given phenomenon beyond the boundaries of the system within which it exists exclusively in an inverted form, show how this phenomenon "sheds" the "spell" that the system generating inverted forms "casts" upon it. It should be kept in mind, however, that in going beyond the bounds of a given system, we will find ourselves within the bounds of another system, where, in all likelihood, inverted forms will similarly hold sway, and we will simply exchange one spell for another. Nevertheless, comparing these spells may reveal that they are indeed inverted forms and nothing else. Proof that a researcher has genuinely demonstrated the inverted nature of these forms and uncovered the actual content concealed behind the induced content can be provided only by social practice, which dispels these spells by revolutionizing reality and purging it of inverted forms. Here, however, we must once again return to the caveat made above in the note: even in the world of alienation, by no means all empirically given phenomena are forms, and by no means all forms are inverted forms. By absolutizing these inverted forms, neoclassical theory provides them with a theoretical justification that stems precisely from the inverted nature of these economic forms. This is how theories of marginal utility, marginal productivity, and so on arise. Returning to the problem of neoclassical theory's inheritance (borrowing) of the classics' scientific legacy, let us point to the categories of unemployment, its forms and types; of costs, including the important classifications of circulation costs; the already-mentioned concepts of wages and profit, as well as the rate of profit; the specifics of loan capital, including the distinction between capital-as-property and capital-as-function (which is the fundamental basis of the neoclassical "principal-agent" problem and the theory of the "managerial revolution"); the self-negation of capital within the capitalist mode of production as a result of the development of joint-stock capital (the starting point of the so-called "diffusion of ownership" and "post-capitalism"); and many others.
And these are only some of the propositions of the classics of the eighteenth and nineteenth centuries, above all of Capital. Meanwhile, both in the twentieth century and at the beginning of the twenty-first, quite a few fundamental works have appeared that develop the traditions of classical political economy and provide considerable impetus for the development of the theory of monopoly and finance capital, state regulation of the economy, the social limits of the market, globalization, and much else, which has likewise been absorbed, to one degree or another, by the "mainstream" of economic theory. Let us emphasize: the point here is not a matter of settling questions of priority. Science always develops through the sublation of prior achievements, and the fact that many of today's neoclassical economists are "Ivans who do not remember their kin" is the consequence not so much of any ill intent on their part (which, in all likelihood, they do not have) as of the pathological indifference—alarming to any genuine scholar—of most representatives of this current toward the fundamental foundations of their own theory, the methodology of economic-theoretical research, and the history of economic thought. The matter lies elsewhere, in a far more important circumstance. The "forgetting" of the classical foundations that underlie modern economic theory, including neoclassical theory, and their neglect both in research activity and—what is especially alarming—in the process of teaching, leads to the loss of an enormous body of knowledge absolutely necessary for understanding the laws governing the evolution (and involution) of the modern economy, and provokes theoretical and educational gaps that lead to very dangerous mistakes in the activity of economic policymakers.
The authors of these lines, unlike certain other world authorities, do not believe that presidents and ministers do what their university professors taught them. Practice proves: economic policymakers act, first and foremost, in accordance with the interests of the ruling politico-economic class. The nuances of policy, of course, may be influenced by the academic baggage of those who carry it out. Nevertheless, a solid grounding in political-economic education is capable of influencing public opinion, which, in turn, is capable of shaping a public demand for a different economic policy. And this demand may, in the end, at the very least constrain the appetites of the ruling class, and, at most, lead to its replacement... Thus we come directly to the key problem of our text: what questions of economic life does classical political economy, along with its modern developments, actually answer?
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