Reformism or Revolution: 6. An outline of Marxist economics

Before we examine the economic theories of comrade Dieterich, we will attempt to provide the reader with a brief summary of the basic economic laws of capitalism, which Marx explained long ago.

Before we examine the economic theories of comrade Dieterich, we will attempt to provide the reader with a brief summary of the basic economic laws of capitalism, which Marx explained long ago. They are analysed in great detail in the three volumes of Capital and other works. He wrote less about the workings of a future communist society, but what he did write in works such as The Critique of the Gotha Programme is more than sufficient to establish the basic functioning of a socialist economy, which differs fundamentally from capitalism - and therefore also from Heinz Dieterich's conception of 21st Century Socialism. In his Introduction to The Living Thoughts of Karl Marx, Trotsky restates the basic propositions of Marx in a masterly way:

"In contemporary society man's cardinal tie is exchange. Any product of labour that enters into the process of exchange becomes a commodity. Marx began his investigation with the commodity and deduced from that fundamental cell of capitalist society those social relations that have objectively shaped themselves on the basis of exchange, independently of man's will. Only by pursuing this course is it possible to solve the fundamental puzzle - how in capitalist society, in which man thinks for himself and no one thinks for all, are created the relative proportions of the various branches of economy indispensable to life.

"The worker sells his labour power, the farmer takes his produce to the market, the money lender of banker grants loans, the storekeeper offers an assortment of merchandise, the industrialist builds a plant, the speculator buys and sells stocks and bonds - each having his own considerations, his own private plan, his own concern about wages or profit. Nevertheless, out of this chaos of individual strivings and actions emerges a certain economic whole, which, true, is not harmonious, but contradictory, yet does give society the possibility not merely to exist but even to develop. This means that, after all, chaos is not chaos at all, that in some way it is regulated automatically, if not consciously. To understand the mechanism whereby various aspects of economy are brought into a state of relative balance, is to discover the objective laws of capitalism.

"Clearly, the laws which govern the various spheres of capitalist economy - wages, price, land, rent, profit, interest, credit, the Stock Exchange - are numerous and complex. But in the final reckoning they come down to the single law that Marx discovered and explored to the end; that is, the law of labour value, which is indeed the basic regulator of capitalist economy. The essence of that law is simple. Society has at its disposal a certain reserve of living labour power. Applied to nature, that power produces products necessary for the satisfaction of human needs. In consequence of division of labour among independent producers, the products assume the form of commodities. Commodities are exchanged for each other in a given ratio, at first directly, and eventually through the medium of gold or money. The basic property of commodities, which in a certain relationship makes them equal to each other, is the human labour expended upon them - abstract labour, labour in general - the basis and the measure of value. Division of labour among millions of scattered producers does not lead to the disintegration of society, because commodities are exchanged according to the socially necessary labour time expended upon them. By accepting and rejecting commodities, the market, as the arena of exchange, decides whether they do or do not contain within themselves socially necessary labour, thereby determines the ratios of the various kinds of commodities necessary for society, and consequently also the distribution of labour power according to the various trades.

"The actual processes of the market are immeasurably more complex than has been here set forth in but a few lines. Thus, oscillating around the value of labour, prices fluctuate considerably above and below their value. The causes of these fluctuations are fully explained by Marx in the third volume of Capital, which describes ‘the process of capitalist production considered as a whole'.

"Nevertheless, great as may be the divergences between the prices and the values of commodities in individual instances, the sum of all prices is equal to the sum of all values, for in the final reckoning only the values that have been created by human labour are at the disposal of society, and prices cannot break through this limitation, including even the monopoly prices of trusts; where labour has created no new value, there even Rockefeller can get nothing.

"But if commodities are exchanged for each other according to the quantity of labour invested in them, how does inequality come out of equality? Marx solved this puzzle by exposing the peculiar nature of one of the commodities, which lies at the basis of all other commodities: namely, labour power. The owner of means of production, the capitalist, buys labour power. Like all other commodities, it is evaluated according to the quantity of labour invested in it, i.e., of those means of subsistence which are necessary for the survival and the reproduction of the worker. But the consumption of that commodity - labour power - consists of work, i.e., the creation of new values. The quantity of these values is greater than those which the worker himself receives and which he expends for his upkeep. The capitalist buys labour power in order to exploit it. It is this exploitation which is the source of inequality.

"That part of the product which goes to cover the worker's own subsistence Marx calls necessary product; that part which the worker produces above this, is surplus product. Surplus product must have been produced by the slave, or the slave-owner would not have kept any slaves. Surplus product must have been produced by the serf, or serfdom would have been of no use to the landed gentry. Surplus product, only to a considerably greater extent, is likewise produced by the wage worker, or the capitalist would have no need to buy labour power. The class struggle is nothing else than the struggle for surplus product. He who owns surplus-product is master of the situation - owns wealth, owns the state, has the key to the church, to the courts, to the sciences and to the arts." [1]

Marx's great discovery

The basis of Marxist economics is the Labour Theory of Value: the basic regulator of capitalism. This marvellously profound law that Marx discovered determines prices and the allocation of capital to the various sectors of the economy. Thus, despite its anarchic nature, capitalism possesses a mechanism, which can make it work. And it has been working for about 200 years, with no plan, no Historical Project, and little or no conscious human intervention at all. Of course, the workings of the capitalist economy are very complicated. There are separate laws which govern the various spheres of capitalist economy - wages, prices, land, rent, profit, interest, credit, banking and the stock exchange, speculation, international trade, etc. But in the last analysis the basic regulator of capitalist economy is the law of labour value.

While the great classical economists, like David Ricardo, based themselves on the law of value, it was Marx who refined the theory and discovered the dual character of labour power and thus the real secret of capitalist economy. All surplus value arises from the labour of the working class. The working class however sells its labour power, which, while sold at its full value, is capable of creating new values greater than its own. Therefore, capitalism is to be understood not from its exchange of labour-time equivalents but from the capitalist's appropriation of surplus value. The class struggle is nothing more than a struggle over the surplus value. "An increase in wages", states Marx, "reduces the surplus value, while a lengthening of the working day and an increase in the intensity of labour add to it." [2]

The capitalist views this relation as a market-relation, in terms of prices and costs of production. Thus, it is the usual practice of bourgeois economics to seek the source of profits in exchange. But behind these market relations lie quantities of congealed labour-time that are incorporated into commodities in the process of production. The total labour time expended by capitalist society is divided between wages and profits. The means of production represent past expenditure of labour ("dead labour"). However, it is the continuous application of human labour is needed to make them worthwhile. In capitalist society, it is the owners of "dead labour" (means of production) who dominate "living labour" and subjugate it. "It is only the domination of accumulated, past, materialised labour over direct, living labour, which turns accumulated labour into capital." [3]

Like a body of which fresh and tissue must be continuously renewed if life is to be sustained, the physical substance of capital must constantly assume new forms. A factory or machine that remains idle deteriorates and becomes obsolete and brings no profit. But these in use give up their value to the commodities produced and once sold, the capitalists get back the values of this "dead labour" plus the new values added by living labour. Life for capital means making profit. Capital lives by being used. It must ceaselessly go through its cycle of transformations from money to raw materials, machines and wages of workers who use up these means of production in making new commodities, which are sold and transformed back into money. This is the cycle or turnover of capital. The quicker the turnover the greater the profit made. If stopped, profits are lost. The very existence of capital hinges on this unceasing turnover, which is underpinned by a series of limits imposed by the market.

Capital however is also divided amongst various capitals. Each sector yields different quantities of surplus value. Each employs different ratios of means of production (constant capital) to labour power (variable capital). As profit is surplus value measured against the total capital, on the surface, profits would appear to be higher where there was more variable capital employed than constant capital. Yet this is not the case because of the competition between different capitalists tends to result in the equalisation of the rate of profit, of an average rate of profit. Monopolies become a barrier to this process by ruthlessly keeping out competitors through all manner of means. Intel, for instance, the computer chip maker, controls 90 percent of all processors, and its market power is "magnified by its huge installed base, brand recognition and network effects", says the US Federal Trade Commission. But the magnitude of this average rate of profit is determined by the total mass of profit yielded by the total social capital.

Through the market, and its supply and demand fluctuations, capital tends to move from the more stagnant to the more developing/expanding industries, where there is a higher rate of profit. The latter is temporarily a higher rate than the average profit until the influx of capital has boosted production sufficiently to absorb the excess demand. This search for extra profit characterises capitalist competition. Again, the creation of monopolies cuts across this process, distorting the market, and maintaining monopoly prices. If the value or exchange value of commodities is made up from the amount of socially necessary labour involved in their production, increased investment leading to a rising productivity of labour, must result in every individual commodity containing less labour time than previously.

The amount of labour involved in production is spread over more and more commodities. This cheapening of commodities allows the capitalist who introduces new machinery/technology to undercut any rivals and increase his share of the market. The decrease in value of every single commodity is compensated by the increased number of commodities produced. Until the new technology is generalised, the new technologies will produce monopoly profits. The profitability of capital is increased, despite the lower prices. The commodity contains less newly added labour, but its unpaid portion grows in relation to its paid portion.

As Marx explained, the capitalist system has the potential to break down at a whole series of points. The separation of sale and purchase of commodities can be the starting point of crisis. "The possibility of crisis, which became apparent in the simple metamorphosis of the commodity, is once more demonstrated, and further developed, by the disjunction between the (direct) process of production and the process of circulation", states Marx. The process of capitalist production and circulation is summed up in the formula: C-M-C, or the metamorphosis of the commodity. The production of surplus value is only the first stage for the capitalist. So long as it remains surplus value it remains locked within the commodities. The next task is to sell these commodities on the market and realise the surplus value, i.e., turn it into money. At the point of sale, if the capitalist cannot find any buyers, the process breaks down. "The possibility of crisis..." states Marx, "lies therefore in the very separation between sale and purchase." [4] Here crisis appears in its simplest form.

Where does exploitation take place?

In every system based on the exploitation of one class by another, exploitation takes place not in exchange but in production. One would have thought that comrade Dieterich would be aware of this elementary proposition, but since he seems not to be acquainted with the ABCs of Marxist economics, we are obliged to restate them here. In the first volume of Capital Marx explains in great detail the historical development of the commodity form from accidental exchange in primitive tribal communism through all its manifold transitions, till we arrive at capitalist production - commodity production par excellence. The way in which workers are exploited under capitalism differs from all previous forms of exploitation.

In slavery, to begin with, there is no question of exchange, unless we say that the slave exchanges his or her labour for the blows of the overseer. Slavery is forced labour. The slave is not free and is forced to work under compulsion. For that reason slave labour is based on an extremely low level of labour productivity. It can only function as an economic system on condition of a sufficiently large mass of slaves, who can be worked to death in the mines and plantations and replaced cheaply through wars.

As we have already explained, there is no incentive to invest in labour-saving machinery, partly because the slaves would break sensitive machinery and partly because the existence of large-scale cheap labour renders machinery unnecessary. That is why the Greeks and Romans, for all their ingenuity, never developed the steam engine for productive purposes. Although Heron of Alexandria invented a steam powered rotating ball about 100 AD - the first recorded steam power - it remained a mere toy with no productive application.

Under feudalism things are somewhat different. The serfs were not chattel slaves but were tied to the land and compelled to give up a part of their produce to their master. In both slavery and serfdom exploitation is open and clear for all to see. There is no mystery about it. As in slavery and capitalism, so in feudalism exploitation takes place not in exchange but in production: the serf works his plot of land and hands over a portion of his produce (the surplus) to the landowner. Neither slavery nor serfdom was dependent upon exchange, although trade and money existed and played an increasing role and was an important factor in the dissolution of both systems, as Marx points out. But money did not play the same role in feudalism as it does under capitalism.

The basis of feudalism was subsistence agriculture. The feudal lords had no more reason to accumulate capital and invest in boosting production, science and technique than the slave owners of Greece and Rome. They spent their fortunes on feasting, or donated to the Church to say prayers for their soul after death. The magnificent medieval cathedrals of Europe bear mute witness to the complete lack of interest of the feudal ruling class in productive investment.

Capitalism is an entirely different system to either slavery or feudalism and it works in an entirely different way. The prior condition for its existence is a class of free labourers who sell to the capitalists the only commodity they possess: their ability to work. Through robbery of common lands, the Enclosure Acts and other acts of plunder and oppression at the dawn of capitalism, the peasants were impoverished and driven off their ancestral lands. The ruination of the peasantry provided a pool of labour-power in the towns and cities. The class structure became more simplified. On the one hand were the capitalists and on the other the propertyless proletarians. All that these workers possessed was their ability to work. The only way they could remain alive was to sell their labour-power to the capitalists in return for wages. In the process of production, the proletarian produces more value than he receives in wages, the surplus value being expropriated by the capitalists.

The value of labour-power

The possibility of the capitalist purchasing labour-power on the market presupposes the existence of a class of free wage-labourers. "For the conversion of this money into capital ... the owner of money must meet in the market with the free labourer, free in the double sense that as a free man he can dispose of his labour-power as his own commodity, and that on the other hand he has no other commodity for sale, is short of everything necessary for the realization of his labour-power." [5] The creation of this class of free wage-labourers is an historical phenomenon, the product of a whole serious of social and economic revolutions.

The capitalist looks upon the labour market as just another branch of the general market for commodities. Labour power, for him, is just another commodity. In fact, although the capitalist does not understand, and is not concerned with, the theoretical explanation, he is quite correct in this assumption. Labour-power is a commodity, governed by the same laws as other commodities. Its value is determined by the labour-time necessary for its production. Labour-power is the ability of the worker to work. It is "consumed" by the capitalist in the actual labour-process. But this presupposes the existence and health and strength of the worker.

The production of labour-power therefore means the workers' self-maintenance and the reproduction his species. The labour-time necessary for the workers' maintenance is the labour-time necessary for the production of the means of subsistence: the food, clothing, heat, etc. necessary to his survival as an animal and his ability to work every day. This varies in different countries, different climates and different historical periods. As opposed to other commodities, there enters into the determination of the value of labour-power a historical and moral element. Nevertheless, in a given country, at a given period the average quantity of the means of subsistence necessary for the labourer is practically known.

Apart from this, the worker must have enough to reproduce his species, to provide fresh generations of labourers to replace the worn-out labour power. Secondly, as the complexity of labour increases, a certain amount has to be provided for the education of the workers, to raise their productivity. Unlike most commodities, labour-power is paid for only after it has been consumed. The workers actually extend credit to the capitalist! There is also all kinds of petty cheating, obliging workers to a "week-in hand", bankruptcy leading to loss of wages and so on. However, in advanced capitalism these aspects are entirely secondary elements in the extraction of surplus value.

Labour power, like every other commodity, is bought openly on the market but used outside the sphere of the market, behind locked doors, in the sphere of production. The contract between Capital and Labour is freely arrived at, in the interest of both parties, on the basis of a fair exchange, and exchange of equivalents (from the standpoint of the market). The market price of labour power (wages) is determined, like any other commodity by supply and demand, although it can be influenced by trade union organization and the class struggle, which is ultimately a struggle between wage labour and Capital for the division of the surplus value produced by the working class.

Dieterich is therefore entirely wrong when he refers to "unequal exchange" under capitalism. It was Marx who first pointed out that what the worker actually sells to the capitalist is not his or her labour (as the vulgar economists suppose) but labour power. This is sold at its market value, and like any other commodity, the value of labour power (wages) is determined by the amount of socially necessary labour power expended in its production. This is not theft or unequal exchange, as comrade Dieterich imagines, but precisely the exchange of equivalents. To present it any other way is to abandon the scientific approach of Marx in favour of superficial impressionism and moralistic posturing.

Machinery and the working day

If we look at commodities as use-values (that is, from the standpoint of their utility), we see them as a "shoe", "watch", etc., and also as products of a particular kind of labour - the labour of the cobbler, watchmaker, etc. But in exchange, the special character of commodities is lost sight of and they appear as so many units of average labour. In exchange what is compared is quantities of human labour in general contained in the commodities: abstract human labour, not the labour of individual workers. In exchange, all labour is reduced to average simple units of labour.

Commodities produced by skilled labour contain more value than that produced by unskilled. Therefore in exchange, the units of skilled labour are reduced to so many units of unskilled, simple labour. For example, the ratio of 1 skilled unit = 3 unskilled units, or, to express the same idea in another way, skilled labour is worth three times as much as unskilled. Explained simply, the value of commodity is determined by the amount of average labour used in its production (or how long it takes to produce). But left like this, it would seem that a lazy worker or inefficient worker produces more values than the most efficient worker. A shoemaker who uses outdated methods to produce shoes would take a whole day to make a pair of shoes. But when he tries to sell them on the market, he will find that they will only fetch the same as shoes produced by the better equipped more modern factories.

If these factories produce a pair of shoes in, say half an hour, they will contain less labour (and therefore less value) and will be sold cheaper. This will drive the shoemaker using wasteful methods out of business. His labour producing a pair of shoes after half an hour is wasted labour, and unnecessary under modern conditions. On pain of extinction he will be forced to introduce modern techniques and produce shoes at least equal to the necessary time developed by society. In other words, all commodities must be produced in a socially necessary time. At any given time, using the average labour, machines, methods, etc., all commodities take a particular time to make. This is governed by the level of technique in society. Any more labour-time spent over and above this will be useless labour, causing costs to rise and making the firm uncompetitive. Thus, the value of a commodity is determined by the amount of socially necessary labour contained in it. Naturally, this labour time is continually changing as new techniques and methods of work are introduced. Competition drives the inefficient to the wall.

The difference between skilled and unskilled labour is a difference of degree. "All labour of a higher or more complicated character than the average labour is expenditure of labour power of a more costly kind, labour-power whose production has cost more time and labour and which therefore has a higher value than unskilled or simple labour-power." [6] In the production of value it is inevitable to express skilled labour in terms of unskilled: one hour of skilled = three of unskilled, etc.

Heinz Dieterich seems to be fascinated by information technology, but the fact that modern capitalism has developed this technology does not at all signify a reduction of the working day, although logically, it ought to do so. What is the reason for this contradiction? Long ago Marx explained that under capitalism the introduction of new technology, far from leading to a reduction of the working day and a lessening of the burden of labour, signifies precisely the opposite: the introduction of new technology under capitalism always leads to an increase in the hours worked.

This general rule is confirmed by the whole history of capitalism and the advent of computer technology, far from refuting it, provides the most striking example of this. In the past the "experts" of the bourgeoisie promised us a glorious vista of the future when, on the basis of applied science and technology, the burden of work would be done away with, hours reduced and the central problem of society would be what to do with our leisure time. How ironic these arguments about technology leading to excess leisure sound today! While million of unemployed languish in conditions of enforced "leisure", other millions with the good luck to remain at work find themselves subjected to ever-increasing pressures to work longer hours with lower pay and worse conditions, forced to spend the maximum exertions of their nervous system and muscle-power in the cause of greater "productivity" (read: profitability).

Comrade Dieterich thinks that inventions like the computer, the Internet and cybernetics will solve all our problems and lead straight to socialism. This argument, like all the earlier predictions concerning the possibility for reducing the working day, is partially correct. But it is abstract because it leaves out of account the small detail that under capitalism, as Marx explains, the introduction of new machinery and technology, which in principle should lay the basis for a reduction of the working day and the abolition of the slavery of wage labour, actually leads to a lengthening of the working day.

Dieterich repeatedly makes the same mistake - confusing abstract potential for concrete reality. The potential for a universal reduction in working hours - and thereby the abolition of unemployment - is implicit in the spectacular advance of technology in the past few decades. Moreover, this argument is not restricted to computer technology but applies to the advances of science and technology in general. Let us consider the implication of industrial robots.

Twenty years ago there were 500,000 of these machines in the world. Japan, with just 0.3 percent of the surface of the world, and 2.5 percent of its population, possessed more than 300,000 of the total - a number that had doubled in a five-year period. In the USA, the number of robots grew by 50 percent in the same period, according to figures published by the McKinsey Global Institute. Italy, France, Spain and other countries likewise increased their number of robots.

The introduction of these machines means that the number of workers in a factory can be drastically reduced, while the productivity of those who remain, vastly enhanced by machinery, registers a substantial increase. In France, for example, the two major car manufacturers have reduced their workforce by no fewer than 200,000 in a twelve-year period from the late 1980s, with an increased productivity of 12 percent in the same period. Similarly figures can be shown for Spain, Germany, the USA and other countries. Did the introduction of new technology lead to a fall in hours? No, it led only to a reduction in the workforce, higher unemployment and even greater pressure on those who remained to produce more.

The same technology of robot production can be applied to many other fields - the transformation of plastics, for example, or the textile industry. Even in the food industry, such operations as the packaging of cheese is done by robots, which can also be used to eliminate human participation in dangerous occupations. Robots mean greater quality, more flexibility in production, and speed. The universal application of such technology in the context of a rational and harmonious plan of production, with the democratic involvement of the workers at all levels, would signify a complete transformation of the life of society.

The working week could immediately be reduced to thirty hours without loss of pay, and at the same time production could be rapidly increased both in quantity and quality. Thereafter, the working day could be steadily reduced, thus providing the material conditions for such a flourishing of democracy, art, science and culture, as the world has never seen. This is precisely the material basis for socialism - a new and qualitatively higher form of human society. These are not utopian daydreams, but conclusions that flow logically and inevitably from the present state of knowledge and the actual demands of the productive forces.

And yet, at every step reality knocks its head against the potential of production and technique. Instead of a world of leisure and self-fulfilment, we have a social nightmare of mass "structural" unemployment on the one hand and relentless, inhuman squeezing of labour power on the other. This is especially true of computer technology. Such inventions as laptop computers, bleepers, pagers, mobile phones, etc. mean that the worker can be at the disposal of the employer 24 hours a day, seven days a week, and that, consequently, the working day can be prolonged indefinitely.

This also means that the white collar workers, who in the past had a relatively privileged position, and did not even see themselves as members of the working class, have been increasingly proletarianised and now suffer from an exploitation as severe as that which is found in many factories. Thus, the new technology, which in theory should lead to a lightening of the burden of labour, leads in practice to a further increase in exploitation and slavery for the working class. How can one explain such a crying contradiction?

Marx on machinery

In the first volume of Capital, Marx explains the reasons why the introduction of machinery under capitalism necessarily means a lengthening of the working day. The purpose of employing machinery is to cheapen the product by economizing on labour. However, there is a contradiction implicit in this. The profits of the capitalist are extracted from the unpaid labour of the working class. The increase in the productivity of labour made possible by the introduction of machinery is achieved by a heavy initial outlay on costly machinery, which in itself adds no new value to the end product, but merely imports to it, over a period, bit by bit, its own value:

"Machinery, like every other component of constant capital, creates no new value, but yields up its own value to the product that it serves to beget." [7] The only way to ensure a greater return on this outlay, is to make his machinery work non-stop, day and night, with no interruptions, while simultaneously squeezing every atom of surplus value from the worker, both by lengthening the working day through overtime, the abolition of tea-breaks, etc. (absolute surplus value), and by enormously increasing the intensity of labour by speed-ups, productivity deals and all kinds of pressure (relative surplus value).

Marx explains that "machinery, while augmenting the human material that forms the principal object of capital's exploiting power, at the same time raises the degree of exploitation." And again: "If machinery be the most powerful means for increasing the productiveness of labour - i.e. for shortening the working-time required in the production of a commodity, it becomes in the hands of capital the most powerful means, in those countries first invaded by it, for lengthening the working-day beyond all bounds set by human nature." [8]

Competition, the constant revolutionizing of the productive forces and techniques, the desire to "corner the market" and get an advantage over others, were the factors which, in the past at least, compelled the capitalist constantly to re-invest in expensive machinery. However, once having introduced new machinery, it is in the capitalist's interest to use it to the maximum. It cannot be allowed to stand idle for an instant, partly because it deteriorates, and partly because it can quickly become obsolete. That is why, under capitalism, the introduction of machinery leads to greater exploitation and an increase in the working day.

The introduction of new technology to a given branch of production means that in that branch, for a time, huge super-profits can be earned. Later, however, the other capitalists catch up and the rate of profit is levelled out. Ultimately, the amount of surplus value obtained by the capitalist depends upon two things: a) the rate of surplus value and b) the number of workers employed. However, the introduction of machinery tends to reduce the number of workers and therefore change the ratio of variable to constant capital. Machinery (constant capital), as we have seen, does not add any new value to the final product above and beyond what is already present in it. "Hence, the application of machinery to the production of surplus value," Marx explains, "implies a contradiction which is immanent in it." [9]

From what we have already seen the question that should be asked is not why there are crises under capitalism, but why the capitalist system is not always in crisis. The explanation is to be found in the fact that under capitalism production is divided into two parts: production of commodities and production of the means of production (machinery, etc.). In The Communist Manifesto, Marx and Engels explain that: "The bourgeoisie cannot exist without constantly revolutionising the instruments of production, and thereby the relations of production, and with them the whole relations of society. Conservation of the old modes of production in unaltered form, was on the contrary, the first condition of existence for all earlier industrial classes." [10]

It is ABC for any Marxist that the capitalists must constantly find new and profitable avenues of investment. In every period of capitalist development there have been such fields of investments - steam power and textiles in the industrial revolution; the railways, steam ships and telegraphs in the last part of the 19th century; Fordism and automobiles in the 1920s and 1930s; then electricity, airplanes, the radio, telephone, television, chemicals, plastics, computers and so on.

More recently information technology has been a major field of investment. In the 1990s it displaced cars and steel as the main motor-force of the US economy. Nine million people now work in this sector - more than steel or automobiles. This is the classical model of capitalist accumulation. By investing in machinery, the capitalists in this sector have secured huge increases in productivity, allowing them to obtain simultaneously high profits (not for nothing did Bill Gates become the richest man in the world) at that time (although he has now been displaced by Carlos Slim - a Mexican).

In common with most bourgeois economists, Heinz Dieterich thinks that the advent of information technology has completely transformed the economy. In fact, the relative importance of information technique in fomenting globalisation and boosting the world economy is far less than the invention of railways, steam ships and the telegraph in the 19th century. In the USA from 1869 to 1893, the miles of rail track quadrupled, and rail shipping costs dropped dramatically, opening up large parts of the country for manufacturing and commercial agriculture. The railroads themselves consumed much of the US steel and coal production and accounted for almost 20 percent of all investment. Overall, the railroads' expansion fuelled an economy that grew an average of five percent a year.

This kind of thing has always happened throughout the history of capitalism, the capitalists invest in order to earn the maximum profits. Where a new and profitable field of investment opens up, the first to exploit it can obtain very large profits. But inevitably, as others pile in, the rate of profit tends to average out. Prices and profits begin to fall. The initial investment required to build a high-tech factory or to create a programme or a microprocessor is huge, although the cost of actually producing the chips or software for sale is relatively low.

Rising demand drives average costs down still further, making it possible to charge lower prices and boosting demand even further. This cheapening of the elements of production has been - alongside the systematic holding down of wages of the workers and the systematic plundering of the economies of the underdeveloped capitalist countries - one of the main reasons for the absence of inflationary pressures in the US economy during the recent cycles. But now this has reached its limits and the world economy is entering into a recession, the results of which are unforeseeable.

Crises of overproduction

In order to realise value in the act of exchange, a commodity has to satisfy a real want, and must also contain only that amount of labour that is average for its production at a given stage. Assuming that only the social necessary labour time has been expended, then the price (leaving out of consideration any accidental miscalculation, which will soon be rectified by the market) is merely an expression in money terms of the value of the commodity - the amount of socially necessary labour time embodied in it. However, the constant revolutionising of the means of production can mean that overnight socially necessary labour becomes socially unnecessary: reduced prices of goods produced by new methods undermines the market for others. Even without this, a glut in the market is possible:

"If the market cannot stomach the whole quantity at the normal price of two shillings a yard, this proves that too great a portion of the total labour of the community has been expanded in the form of weaving. The effect is the same as if each individual weaver had expanded more labour-time upon his particular product than is socially necessary." [11]

The market is limited in terms of social need and purchasing power: if the amount of a given product exceeds the limits of the market then a portion of that product is useless. It is impossible to realise the value and surplus value contained in it. These periodic crises bring out all the inherent contradictions of the system. "What is most strange in overproduction", comments Marx, "is that the actual producers of the very commodities which overfill the market - the workers - suffer from lack of them."

"The conditions of direct exploitation, and those of realising it, are not identical", states Marx. "They diverge not only in place and time but also logically. The first are only limited by the productive power of society, the latter by the proportional relation of the various branches of production and the consuming power of society." [12] This fall in demand has dire consequences for realising the surplus value contained in commodities. If unsold, the value contained in these commodities is useless, and the labour employed upon them also unproductive labour. Thus the element of crisis exists potentially at the very beginning of capitalist money making. It is the contradiction contained in the commodity between use-value and exchange value. Crises "can only be deduced from the real movement of capitalist production, competition, and credit," states Marx. [13]

While under capitalism, overproduction gives rise to crisis, from the point of view of society there is no overproduction; on the contrary there is a shortage of means of production capable of satisfying human needs. But capitalism works on the basis not of general demand or needs, but what bourgeois economists call "effective demand", i.e. demand based on money. So it is not a crisis of scarcity, like all previous crises of pre-capitalist societies, but crises of overproduction. People starve not as a result of scarcity, but because there is too much produced. This is a unique phenomenon that is only found in capitalism. If commodities cannot find buyers, their surplus value cannot be realised and the capitalists are forced to cut back production and throw workers out of work.

While the elements of crisis are contained in the production of commodities themselves through the production and appropriation of surplus value, it first appears in the process of realisation, in circulation, or the reproduction of capital. "The circulation process as a whole or the reproduction process of capital as a whole is the unity of its production phase and its circulation phase, so that it comprises both these processes or phases. Therein lies a further developed possibility or abstract form of crisis... Crisis is the forcible establishment of unity between elements that have become independent and the enforced separation from one another of elements which are essentially one." [14]

Again, "Overproduction is specifically conditioned by the general law of production of capital: production is in accordance with the productive forces, that is with the possibility that the given quantity of labour, without regard to the actual limits of the market, the needs backed by the ability to pay. And this takes place through the constant expansion of reproduction and accumulation, and therefore the constant reconversion of revenue into capital; while on the other hand the mass of producers remain restricted to the average level of needs, and on the basis of capitalist production must remain so restricted." [15]

Unequal exchange?

The law of value states that the value of the product is determined by the average amount of socially necessary labour time expended on its production. This manifests itself through exchange. In exchange, however, commodities are sold above or below their value. Only accidentally is a commodity sold at its actual value. The "scientific economist" Dieterich has a position that resembles the vulgar notion that profits arise from buying cheap and selling dear. Marx answers this argument in Value, Price and Profit:

"What a man would certainly win as a seller he would lose as a purchaser. It would not do to say that there are men who are buyers without being sellers or consumers without being producers. What these people pay to the producers, they must first get from them for nothing. If a man first takes your money and afterwards returns that money in buying your commodities you will never enrich yourself by selling your commodities too dear to that same man. This sort of transaction might diminish a loss, but would not help in realizing a profit".

Following in the footsteps of Proudhon, Dieterich imagines that the profits of the capitalists are some kind of swindle, which he calls unequal exchange. This is merely an extension of the same vulgar idea, that the capitalists obtain their profits from exchange by buying cheap and selling dear (that is, through swindling the public). The whole idea of Dieterich and his genial mentor Arno Peters is that by establishing the "true price" of a commodity by calculating the amount of labour expended on its production, we can expose this swindle and thus create the necessary level of consciousness to introduce 21st Century Socialism.

As a matter of fact, capitalism is not based on swindling. There can, of course, be swindling in particular cases and in the very early stages of capitalism, when the market economy was gradually emerging out of the age-old system of barter that Heinz and Arno find so attractive, there was quite a lot of swindling as merchants systematically cheated and sold underweight and shoddy goods. But the development of the market inevitably produced money, credit and the standardization of weights and measures. When individual capitalists engage in swindling, they cheat not only the consumers and shareholders but also other capitalists: what one gains the others lose. This is not in the interests of the capitalist class as a whole, and therefore the state intervenes and when such sharp practices are discovered, the perpetrators can find themselves behind bars.

Apart from the daily reproduction of his labour power, and the reproduction of the species, at a certain stage in the development of capitalist technique, a certain amount has to be provided for the education of the workers in order to fit them for the conditions of modern industry and raise their productivity. Unlike most commodities, labour power is paid for only after it has been consumed. The workers thus philanthropically extend credit to their employers! Despite this, the worker has not been cheated. He has arrived at an agreement of his own free will. As with all other commodities, equivalent values are exchanged: the worker's commodity, labour power, is sold to the boss at the "going rate". Everybody is satisfied. And if the worker is not, then he is free to leave and find work elsewhere - if he can.

Of course, there are cases where individual capitalists cheat the workers and use all kinds of miserable tricks to cut wages - petty cheating and bankruptcy, leading to loss of wages, etc. In the early days of capitalism there was the "truck" system where workers had to buy their food, tools and other necessities from the company shop, which systematically cheated the workers and overcharged them, leading to crippling debts that virtually enslaved the workers to their employers. There was also a system of factory fines, which the bosses levelled on the workers for all manner of trivial reasons.

Such practices have virtually disappeared in the advanced capitalist countries but still exist in Asia, Africa and Latin America. In general, the more backward the economy, the more such practices exist. And the immigrant workers in advanced capitalist countries (such as Mexican immigrants in the USA or Eastern European workers in Western Europe) are frequently robbed, cheated and underpaid by unscrupulous employers. But with the development of capitalism and the strengthening of the proletariat and its trade union organizations, the bosses are being compelled to abandon this kind of oppression, which, in any case, and contrary to the opinion of Dieterich and Peters, have never been the basis of capitalist exploitation.

The sale of labour power poses a problem. If nobody is cheated, if the worker receives the full value of his commodity, where does exploitation come from? Where does the capitalist make his profits? The answer is that the worker sells the capitalist not his labour (which is realised in the work process), but his labour power - his ability to work. Having purchased this as a commodity, the capitalist is free to use it as he pleases. As Marx explained: "From the instant he steps into the work shop, the use-value of his labour power, and therefore also its use, which is labour, belongs to the capitalist". [16]

The secret of the production of surplus value is that the worker continues to work longer after he has produced the value necessary to reproduce the value of his labour power (his wages). "The fact that half a day's labour is necessary to keep the labourer alive does not in any way prevent him from working a full day." [17] The worker has sold his commodity and cannot complain about the way he is used, any more than the tailor can sell a suit and then demand that his customer must not wear it as often as he likes. The working day is therefore so organised as to give the capitalist the maximum benefits from the labour power he has bought. Herein lies the secret of the transformation of money into capital.

A moralistic approach

Heinz Dieterich waxes indignant about injustice, and we may agree that there is plenty of injustice in the treatment of workers under capitalism. But if I go to the doctor with a problem I do not expect him to start weeping and wailing about it but to provide me with a scientific diagnosis of my complaint and a recipe that hopefully will cure me. To rage about injustice may be acceptable in revolutionary agitation, but it is surely out of place in what after all was advertised as the work of a "scientific economist" (and sociologist). This sentimental and moralistic approach really does not advance our understanding of the workings of capitalism by one millimetre.

As we have explained, the value of labour power (the level of wages) is determined in the same way as that of every other commodity - by the amount of socially necessary labour power contained in it. However, the price of labour power, like other commodities, is determined by the laws of supply and demand. When labour is in plentiful supply (for example, in periods of high unemployment), the level of wages will tend to fall, while in periods of intense economic activity, when the demand for labour exceeds supply, it will tend to fall. This may be affected by other factors, such as the strength of the unions or anti-labour laws, wage freezes, etc. But in general, the laws of supply and demand will prevail.

Marx explained that wages rise in certain conditions and fall in others. But even in the most prosperous periods of capitalism, the relative improvement of living standards can never abolish surplus value, and can never change the social position of the worker: "But just as little as better clothing, food and treatment, and a larger peculium [a slave's allowance], do away with the exploitation of the slave, so little do they set aside that of the wage-worker. A rise in the price of labour, as a consequence of accumulation of capital, only means, in fact, that the length and weight of the golden chain the wage-worker has already forged for himself, allow of a relaxation of the tension of it." [18]

As the productivity of labour grows, it is possible that the labourer may be able to purchase a greater quantity of use-values, owing to a fall in prices. Even with a fall in the money-value of labour-power, this may represent an increase in real wages, in the purchasing power of the workers. "In this way it is possible, with an increasing productiveness of labour, for the price of labour-power to keep on falling and yet this fall to be accompanied by a constant growth in the mass of the labourer's means of subsistence. But even in such case, the fall in the value of labour-power would cause a corresponding rise of surplus-value, and thus the abyss between the labourer's position and that of the capitalist would keep widening." [19]

When the capitalists are making super-profits from the labour of the working class, when demand is rising and order books are full, the workers feel strong enough to combine, through their trade unions to demand an increased share in the product of their labour-power. Under such circumstances, the capitalist can agree to part with some of the booty. At best, an increase in wages in a favourable period would signify a relative reduction in the amount on unpaid labour "given" by the worker to the capitalist. What it can never mean is the abolition of exploitation. On the contrary, a growth in wages is frequently accompanied by an increase in the rate of exploitation, and a relative worsening of the position of the worker in relation to the capitalist.

The value of wages is not reckoned in Marx on the basis of purchasing power, on the amount of commodities a worker can buy, but on the relation of his share of the total value of what he produces, i.e. the relation of wages to surplus value. The growth of productivity can lead to greater personal wealth at the same time as increased exploitation. "The position of the classes in relation to each other depends to a greater extent on the proportion which the wage forms than on the absolute amount of the wage." [20]

The needs of the working class are relative to society and in particular to those luxuries enjoyed by the capitalist class, which provide a tantalising picture of unattainable wealth, enjoyment and culture, and accentuates the dissatisfaction of the workers. As Marx put it: "Our wants and their satisfaction have their origin in society: we therefore measure them in their relation to society, and not in relation to the objects which satisfy them. Since their nature is social, it is therefore relative." [21]

It is true that many workers, in the last period, have been able to purchase things like televisions, videos, dishwashers, hi-fi equipment and the like which would have been unthinkable for an earlier generation. This creates a sensation of well being and "prosperity". However, on the one hand, this partly reflects the general cheapening of commodities, manifested in rapidly falling prices of what were previously considered luxury items (computers are a good example). On the other hand, the consumer boom of the USA has been achieved at the cost of a colossal increase in indebtedness through credit, which is one of the reasons why the present boom has been prolonged. But credit is only a way of carrying the market beyond its natural limits. It can avoid a recession today but only at the cost of preparing an even more serious recession tomorrow - a fact that the bourgeoisie of the USA is now beginning to realize.

Marx explains that profits are the life-blood of capitalism and profits must come from surplus value - that is, from the unpaid labour of the workers. Heinz Dieterich either does not understand this elementary proposition of Marxist economics or does not accept it. Like the bourgeois economists, he believes that exploitation does not occur in production but in exchange (through "unequal exchange") and moreover that it is possible to have socialism while leaving the means of production in the hands of the individual capitalists.

This is to be done simply by tinkering with the price mechanism while leaving the relations of production and property relations untouched. The bourgeois will voluntarily renounce profits and gratefully receive the "wages of equivalence". We will examine this idea in more detail later. But let us now examine the economics of 21st Century Socialism.

The ‘equivalent economy'

Although we have here only presented a rough outline of the ideas that are developed with a wealth of detail in the three volumes of Capital, we see how rigorously Marx worked out his economic theories. What about the economic arguments of Heinz Dieterich? Let him speak for himself:

"Participatory democracy as ‘the kingdom of the butterfly' will rest upon an economy of equivalences democratically organized in a State of majorities and a direct democracy in public affairs that are transcendental for the citizens. These three basic institutions, which will regulate the life of society and the state, will permit human beings to find their full rational-critical, ethical and aesthetic evolution." [22]

We will ignore the clumsy prose in which human beings "find" their evolution (when did they lose it?), as we are impatient to enter the kingdom of the butterfly and discover its marvellous laws, which are unlike anything ever seen in the world until now. Even a butterfly world, it seems, must be governed by economics. What do these butterfly economics consist of? On page 107 of Hugo Chávez and the Socialism of the 21st Century we are treated to a lengthy quote by Arno Peters, where he sets forth his "theory of equivalence". We reproduce this passage in its entirety:

"The communist countries, like the capitalist ones [...] can only historically realize the return to the equivalent economy on a higher level if they combine the labour theory of value with the principle of equivalence. Then, wages would be equivalent to the labour time expended, independently of age, sex, civil state, colour of skin, nationality, physical exertion, level of education, wear and tear, skill, professional experience, personal dedication; independently also of the heaviness of the work and the dangers to health entailed in it. In short: wages will be the direct and absolute equivalent of the time worked." [23]

Arno Peters is in favour of a system in which the worker will receive the full fruits of his labour, plus or minus nothing. Everybody will receive in the form of wages "the direct and absolute equivalent of the time worked." This is the same idea that Marx subjected to a withering criticism in The Critique of the Gotha Programme. The economic theories of "21st Century Socialism" were comprehensively demolished by Marx long ago. He described them quite rightly as "as dogmas, ideas which in a certain period had some meaning but have now become obsolete verbal rubbish"[...]"ideological nonsense" and "trash".

We will express ourselves more politely so as not to offend anybody's sensibility. But one thing is abundantly clear: Under the guise of a "new" and "original" theory, Peters and Dieterich propose that we return to the old ideas of Lassalle and Proudhon. And we repeat the question asked by Marx: over one hundred years later, why retrogress again to the infantile stage of the movement, to the obsolete ideas of pre-Marxist utopian socialism?

According to Arno Peters, following in the footsteps of Lassalle, there will be no exception to his principle of equivalence, which will apply, without fear or favour to everybody. This is the Categorical Imperative of 21st Century Socialism, and, according to its author, it is as absolute and unassailable as any of the Categorical Imperatives of Kant. We shall see later just how absolute and unassailable it really is. But for the present let us attempt to follow Arno Peters' line of argument.

In the equivalent economy, he says: "Prices are equivalent to values, and do not contain anything that is not the absolute equivalent of the labour incorporated in commodities. In this way the circuit of the economy is closed in values, which take the place of prices. The exploitation of man by man, that is to say, the appropriation of the products of the labour of others above the value of labour itself, is ended. Every human being receives the full value that he adds to goods or services." [24]

There is no possibility of error here, and no doubt about it: under 21st Century Socialism every worker will receive the full fruits of his (or her) labour. This will mean the end of exploitation and all will be for the best in the best of all 21st Century worlds. But here we meet with the first problem. Marx explained at great length in Capital that price and value are not at all the same thing. The value of a commodity is determined by the amount of socially necessary labour (not just "labour" as Arno Peters incorrectly says) expended on its production. Moreover, this labour is not limited to the labour of the individual worker, but includes the accumulated labour of many other workers embodied in other components (machinery, raw materials, electricity, etc.). The calculation of value in individual commodities is therefore a very complicated matter and not at all as simple as Arno Peters imagines it to be.

In the second place, prices are determined by supply and demand, which in the modern epoch means that the prices on the world market are determined by billions of individual transactions that take place every day on a global scale. It is true that, in the last analysis, the prices of all commodities are determined by value. But the price of an individual commodity almost never coincides with its real exchange value, and if this happens it is for completely accidental reasons. Prices fluctuate around exchange value and will eventually be brought into line with it. But in almost every case a commodity will be sold either above or below its value.

However, having sternly proclaimed the absolute and unassailable nature of the equivalence principle, Arno Peters immediately begins to backtrack: "This simple, easily understood, process (!), which transforms the basis of economics, is subject to a number of conditions. One will have to include all human activities that transcend the self-supply of individuals. It is above all a question of activities that are today included under the heading of ‘services': the work that is carried out by doctors, judges, nurses, typists, postmen, lawyers, teachers, factory managers, lorry drivers, directors, road-sweepers, cooks, ministers, hairdressers, journalists and printers; in short, all the activities that do not enter directly into commodities." [25]

Immediately, what was supposed to be an absolute and unassailable principle turns out to be conditional. There are people like teachers, nurses, doctors and lorry drivers who do not produce commodities and surplus value, but are nevertheless of great importance to society. How do we calculate the value of their labour power? Apart from teachers, nurses, artists and ballet dancers, the equivalent economy, it seems, cannot do without the services of judges, lawyers, bureaucrats, policemen and factory managers.

How is the value of their wages to be calculated? However we answer this question, it is evident that their wages must come from the wealth produced by the working class, and therefore must be deducted from the surplus value. Since, even under the economy of equivalence people will still require some kind of education and health care, and will need to drink clean water and walk in streets sufficiently provided with illumination to see where they are going at night, these things will have to be paid for, and that can regrettably only be done by deducting a certain amount from the surplus value produced by the workers.

In the case of necessary social services like education and health, as well as roads, street lighting, street cleaning, sewers and waste disposal, water supply, etc., these are normally paid for out of taxes. Taxes are taken by the state either from the wages of the working class and middle class or from the profits of the capitalist. In either case, they are ultimately taken from the surplus value produced by the working class. Thus, the absolute and unassailable principle of equivalence falls to the ground at the first hurdle. Under Socialism of the 21st Century the worker will not receive the complete and undiminished value of the labour he has expended on production. This is only the first of many retreats made by the genial creator of the principle of equivalence. Let us not dismay but summon up the courage to follow step by step wherever genius may lead us:

"When we have analysed the time expended and, therefore, the value of each commodity, we can reduce it to a common denominator with the services through a calculation of the time expended [sic!]. This commensurability of services with productive work (which can only be achieved by deducting both from the medium of absolute, objective value [?]) places the entire economy under a uniform principle, and its circuit can be closed on an equivalent basis: a basis that always begins with the individual and ends with him: a basis that in the era of global economy - which is rooted in the condition that every human being has the same category, the same value and the same rights - includes every individual, independently of the type of activity he carries out." [26]

This is so beautifully simple and easily understood that nobody but a genius of the 21st Century can make head or tail of it. It is unclear whether Arno Peters ever considered himself a Marxist. If he did then both he and his admirer Heinz Dieterich have completely misunderstood Marx's procedure in Capital. He seems to think you can work out the amount of socially necessary labour time contained in an individual commodity. But how is this arrived at? Marx explains that socially necessary labour time is established by competition between producers. This process in effect takes place behind their backs. It is the unconscious effect of market forces ("the invisible hand of the market"). Moreover values are only established as a norm by prices, which, as we have pointed out, constantly deviate from value.

The 19th century British economist J.S. Mill used the analogy of sea level and waves. Marx does not calculate how much labour is embodied in individual commodities. He does not work out the labour time in 20 yards of linen and the labour time needed to make a coat. He notes that the only thing they have in common apart from utility is that they are products of human labour - not concrete forms of labour but human labour in the abstract. He also points out that they are equal in value. Marx's use of value is ordinal, not cardinal.

César Augusto Sención, a Dominican economist resident in El Salvador, replying to Dieterich in Rebelión (13/8/07), in an article aptly entitled La pretenciosa tarea de Heinz Dieterich (The Pretentious Task of Heinz Dieterich) he writes:

"And how is socialism to be built? Dieterich says: by means of an economy of equivalences, where the prices of commodities are equal to their values. According to him, through computer science that is very easy to do. Let us see an example of what he proposes:

"‘When we know its value and the price, the products of a socialist company are put on sale with the two units of measurement. The packaging of a litre of milk, for example, would take the following denomination: Price: 2,000 bolivars; Value: 10 minutes. When buying different products, the buyer will realize that the relation between value and price varies. For example, that in a given product 10 minutes of work is expressed as 2,000 bolivars and that in another product, 10,000 bolivars. The cognitive dissonance involved in both expressions inevitably generates a process of reflection and social discussion that generates socialist consciousness.' (See Hugo Chávez requests a speed-up of Socialism of 21st Century, in Rebelión, 22/06/2006.)

"The value of a commodity is determined by the socially necessary labour time used on its elaboration and the price is the expression of the value of this commodity. Nevertheless, that does not mean that if a product A is produced in 8 hours, it necessarily must have the same value as product B elaborated in the same time, because the value refers to a social average that is determined by the technology used in its production. In addition, if the parts which enter into the production of commodity A (transformed raw material and wear and tear of machinery) have accumulated value greater than those of product B, then product A will be worth more.

"Let us put it another way: a vehicle manufactured in 100 hours will not have the price of a computer produced in the same time, because the components of both commodities contain different amounts of labour time. The vehicle contains component parts for whose production more time was expended. According to the theory of the value, the vehicle is worth more than the computer.

"It is true that in capitalist society a non-equivalent interchange can occur, since there are commodities that have a greater price than their value, because they are monopolized or for other reasons. That is to say, in the exchange of commodities there are transfers of values in the interest of particular bourgeois. But that is not the essence of capitalism, but the exploitation (surplus value), that occurs in the production of commodities, not in exchange. When the proletarian transforms raw material into commodities he creates a new value that is divided in two parts: the one that belongs to him (necessary labour) and the one that belongs to the bourgeois (surplus labour). The difference is surplus value, that is exploitation itself. As the bourgeois takes possession of the commodities created by the proletarian, since this was created it already has a built-in surplus, it is sold or is not sold. In other words, surplus value is realised in production, not in exchange.

"What does this mean? That if one establishes an exact equivalence between the value and the price of commodities, surplus value does not disappear, because the bourgeois always retains that part of the wealth created by the proletarian. And where there is surplus value there is capitalism. The point, then, is not how commodities are exchanged in the market, but under what conditions they are produced. Exploitation is the essence of capitalism. And it does not disappear with the equivalent exchange of commodities, but through the abolition of the private property of the means of production which is enjoyed by a minority (bourgeoisie) and the establishment of a collective economy. It presupposes, of course, a change in production relations. If that does not occur, there will be surplus value, which, expressed in, money is called the mass of profit. That profit is exploitation. And where there is exploitation, there are social classes. And where there are classes there is no socialism, at least in the classic conception. Socialism means the abolition of classes. (Lenin, Economics and politics in the era of the dictatorship of the proletariat, 1919).

"From this, of course, we cannot conclude that it is enough to expropriate the bourgeoisie to achieve socialism. Only the Stalinists say that. Marx coined the phrase dictatorship of the proletariat (not socialism) to describe the transitional phase that is opened with this expropriation. Trotsky indicated that it was not enough to eliminate classes administratively (changes in the productive relations), that it is necessary to supersede them economically, that is, to create conditions of production that eliminate the human propensity to accumulate goods and to fight to each other to possess them. But that is another subject. I make no attempt here to evaluate how to build socialism, which in any case could not be achieved in an individual society, but necessarily on a world scale.

"Dieterich sets out from a basic idea that we did not share. For him it is not necessary first to attack private property, but to establish equivalent exchange that will do away with property and generate socialism. That is to say: The forms of property of the means of production do not have the slightest importance for the accomplishment of the principle of equivalence for the first stage in the transition towards the equivalent economy. Nevertheless, to the extent to which the equivalent economy overcomes the market economy, profits will disappear and private property of the means of production will lose its raison d'être, and will be eliminated by itself (See Socialism of 21st Century. On the planned economy of equivalences).

"Why will the equivalent economy defeat the market economy? We do not know. Market economy means an economy based on the production of commodities. It does not matter if these are sold at an equal price, superior or inferior to its value. If the exchange of commodities corresponds to equivalent values and capitalist private property stays, then surplus value also remains, even if this is distributed in a ‘fair' way between the different sectors of the bourgeoisie. That is, we would still be in a market economy. We therefore believe that Dieterich is mistaken: profits will disappear if we change the relations of production, not the value-price relation of commodities.

"Dieterich sees injustice only in unequal exchange, not in capitalist private property, which is the foundation of profit and the accumulation of capital. According to him, Injustice exists, when product ‘A' is exchanged for product ‘B', and their values -the labour time necessary to produce each one of them - are not equal; that is to say, when they do not change equivalents (See In Venezuela conditions have been created to build Socialism of 21st Century, in Rebelión, 02/01/2007). Yet again he commits the error of not taking into account that value is a social average and that includes the working time expended on the production of the means production that is transformed into other commodities."

These remarks by César Augusto Sención are very much to the point. Is it really possible to calculate the amount of labour expended by an individual worker on the production of a commodity? Let us take a concrete example. I have a bar of chocolate and a pen on my desk. They both cost about one dollar, so they probably take about the same amount of labour time to produce. The pen is mainly plastic, which comes from oil. Is it possible to work out the depreciation on a oil platform in the North Sea (these things are twice the size of St. Paul's cathedral) that goes into the value of the pen? This would be necessary to work out the dead and living labour that went into the value of the pen.

Plainly the task is impossible. In any case, what would be the point? As Marx pointed out to the advocates of labour money, the point is to abolish commodity production. Some of the early utopian socialists did see the labour bank as a transitional stage to the abolition of commodity production. But Dieterich sees it as an alternative to socialist revolution. It is quite illiterate to contrast an economy of value (21st Century Socialism) to one of price (capitalism), as Arno Peters and Dieterich do. Marx explained many times that price is the monetary form of value. It is inevitable, as exchange is generalised, that the money (price) form will emerge with a universal equivalent.

From the relative and equivalent forms of value Marx moves to the universal equivalent - money. As he explains to Bray and co. commodities are not immediately social labour. In commodity production private labour turns into its opposite - social labour - in the process of exchange. Money itself is not some sort of swindle imposed on exchange, but something that naturally emerges to the degree that exchange becomes general, as opposed to the accidental exchange of individual products, as in barter.

The man who wanted to fly

Dieterich and Peters imagine they can eliminate the negative features of capitalism without touching private property - that is, they think they can square the circle. How is this miracle to be performed? By simple accounting. Using a most peculiar mode of reasoning, they conclude that there must be not one but two prices for every commodity: one, the regular market price, and another representing "true value".

Peters and Dieterich see the transformation of value into price as the central swindle by which workers are exploited and capitalists enriched. This, as we have seen, contradicts everything that Marx wrote. In the first volume of Capital he starts with an isolated exchange of products - 20 yards of linen for a coat. Here we have a relative and an equivalent form of value. The use value of one commodity serves as an equivalent of the exchange value of the other. The equivalent form is already the germ of a universal equivalent - money - which gradually develops as exchange becomes generalised. Dieterich proposes to move to 21st Socialism through substituting price (monetary calculation) with value (calculation in time).

Dieterich asserts that the market plays a dual role. On the one hand it plays a "cybernetic" role by disseminating information. This "original" insight actually comes from the right wing economist Austrian Friedrich Hayek, in particular his 1945 essay The use of knowledge in society. This bourgeois tract lay largely unread until the collapse of the Stalinist economies. It was then resurrected as a complete explanation of the alleged impossibility of socialism and planning. Apart from this benign cybernetic function, the price mechanism unfortunately serves to exploit the workers. The notion that workers are exploited in the process of exchange is entirely false and nothing to do with Marxism.

Is it possible to eliminate the law of value under capitalism? Let us consider the following little tale. Once upon a time there was a man who wanted to fly. Every morning he looked up to the sky and saw with envy the free-spirited little birds soaring up to the clouds and a deep sense of melancholy gripped his heart. "Why can't I be as free as a bird?" he asked himself again and again and he got more depressed every day by the thought of this terrible injustice. Then one day he had an idea: why not try to fly? After all, if birds can do this, why can't a man, since men are obviously far more intelligent than silly birds! So he climbed the stairs of his house, opened the window of his bedroom and jumped out. The next day he woke up in hospital with two broken legs and terrible pains all over. Now he was not just depressed. He was indignant. He now realized what the problem was: it was the law of gravity!

He became increasingly agitated as he thought of the monstrous injustice of it all. He now understood that all the ills of humanity were due to the law of gravity. This was the reason men found it so difficult to get out of bed in the morning. This is what made labour so hard. This is what made men and women prematurely old. And just think of all the people who have been killed or injured by falling over! If we add them all up it must amount to millions of people over the centuries! The more he thought about it the more unjust it seemed that people had had to suffer so much for thousands of years because of the law of gravity. He decided that enough was enough and something had to be done about this. He wrote agitational pamphlets which he distributed in the streets. He spoke at meetings and whenever he spoke the tears came into his eyes and his voice trembled with emotion as he recounted to his astonished audience all that they had to suffer because of the law of gravity.

On further reflection he concluded that this ridiculous and irrational the law was contrary to the Laws of Nature, and that, therefore, in the Beginning all men and women could fly, but then, by some eccentricity of Evolution, about 12,000 years ago, we were confined to the ground and subjected to the blind tyranny of the law of gravity. He did many calculations, helped by computers and the internet, through which he regularly consulted with people all over the world who shared his anti-gravitational concerns. He wrote many books on the subject and travelled the whole world over, trying to interest Kings and Presidents in his theories. He considered the law of gravity from every conceivable angle, discounting the effects of atmospheric pressure, wind resistance and so forth.

Finally one sunny morning he completed a very complicated equation that he had been working on for years. "Eureka!" he shouted as he jumped out of bed, defying the law of gravity. He ran to his garden shed where he had a small but well-equipped workshop that he operated with some neighbours as an anti-gravitational co-operative enterprise. He quickly manufactured a pair of wings made of the finest plywood. He then got on a bus and went to a high cliff that towered over the seashore. He approached the edge of the cliff very confidently, strapped on his wings and walked defiantly into space. This time he did not break his legs only but several other essential organs and members, and so he died - just another of the countless number of victims of the law of gravity.

Now like every good story, this has a moral at the end. Just as it is not possible to live on the planet earth and abolish the law of gravity, so it is impossible to retain the capitalist system and abolish the law of value. If you accept capitalism then you must accept the laws of capitalism. Therefore, irrespective of who wins an election, if they are not prepared to take serious measures of expropriation, if they allow the capitalists to continue to own the means of production, then it will be the latter who decide all the important questions, not the government. The laws of the market will continue to apply, just as much as the law of gravity, and it is useless to complain about it.

Simple and compound labour

Peters now begins to skate on very thin ice: "In order to ensure the right to a home and a room for all men [sic], the community which is organized in the State, must order the use of the soil and buildings according to the general needs. All public activities that do not produce values (like education, medical assistance, provision for retirement, jurisprudence, administration) could be paid for through taxation according to the time worked. The commensuration of productive work to services rendered, suggests the use of the same word for both activities: ‘effort' (Leistung). In this way, the entire course of the economy is reduced to the efforts of individuals to satisfy the general needs in the best possible manner. The principle of equivalence is realized at all levels through the equivalence between effort and compensation (Gegenleistung)." [27]

We like the phrase "the efforts of individuals to satisfy the general needs in the best possible manner", which powerfully calls to mind Voltaire's Doctor Pangloss in Candide, who was convinced that under all circumstances "everything is for the best in the best of all possible worlds". And what world could be better than the world of 21st Century Socialism a la Arno Peters and Heinz Dieterich? However, the deeper we immerse ourselves in this hypothetical world, the more problematical it becomes. We now enter into the Byzantine world of Taxation and Bureaucracy, which, naturally, will have a place of honour in the new Paradise of Equivalence. Arno Peters ties himself in knots over the problem of how to transform unproductive labour into the productive sort. How does one calculate the value of doctors, judges, nurses, typists, postmen, lawyers, teachers, factory managers, lorry drivers, directors, road-sweepers, cooks, ministers, hairdressers, journalists and printers?

Arno Peters and Dieterich have hit yet another problem here. Peters says: "The communist countries, like the capitalist ones [...] can only historically realise the return to the equivalent economy on a higher level if they combine the labour theory of value with the principle of equivalence. Then wages would be equivalent to the labour time expended independently of age, sex, civil state, colour of skin, nationality, physical exertion, level of education, wear and tear, skill, professional experience, personal dedication; independently also of the heaviness of the work and the dangers to health entailed in it. In short: wages will be the direct and absolute equivalent of the time worked." [28]

So Peters and Dieterich show a commendable commitment to the principle of equality. Why is equality a principle? Because the NHP declares it to be so. But there is no equality under capitalism, nor has there been for approximately 12,000 years. Why not? Because of unequal exchange! But why? Presumably the unexplained mechanism that turns equal values into unequal prices is at work! There are two separate issues involved here. Commodities are not sold at the price equivalent of the amount of labour time it takes to produce them individually or accidentally. They are sold at prices corresponding to the socially necessary labour time, at the existing level of productivity.

So if I lack skill, to use one concept in Peters' list, and it takes me two hours of my direct labour time to make a chair, when all the other carpenters can make a chair in one hour, what ought to happen? Under the law of value as it operates under capitalism I will have to sell my chair at the same price as everybody else. Is that wrong? Or should the other carpenters subsidise me? Or should the buyers of chairs pay extra to keep me in business? Neither of these solutions seems in accordance with the principle of equivalence. The actually existing law of value will indicate to me in a characteristically brutal fashion that perhaps I should find another way of making a living. That is, after all, how the division of labour is established under capitalism.

The second problem is this: if workers contribute unequal values in the same time, is it in accord with the principle of ‘equivalence' that they should be paid the same wage? Marx is clear that skilled workers can add more value in the same time than unskilled workers. "More complex labour counts only as intensified, or rather multiplied simple labour, so that a smaller quantity of complex labour is considered equal to a larger quantity of simple labour. Experience shows that this reduction is constantly being made. A commodity may be the outcome of the most complicated labour, but through its value it is posited as equal to the product of simple labour, hence it represents only a specific quantity of simple labour. The various proportions in which different kinds of labour are reduced to simple labour as their unit of measurement are established by a social process that goes on behind the backs of the producers." [29]

There is a separate problem from different kinds of labour contributing different amounts of value in the same time. That is workers receiving different remuneration for their labour power on account of different levels of skill, etc. This is yet another sin against the Spirit of Equivalence. Like Peters and Dieterich, Marxists would also like to make wages more equal. But the first question that must be asked is: why are they unequal? This is not a moral question as Peters imagines when he talks about "injustice". It must be dealt with scientifically, as Engels did:

"In a society of private producers, private individuals or their families pay the costs of training the qualified worker; hence the higher price paid for qualified labour power accrues first of all to private individuals: the skilful slave is sold for a higher price and the skilful wage earner is paid higher wages. In a socialistically organised society these costs are borne by society and to it, therefore, belong the fruits, the greater ‘values' produced by compound labour." [30]

How does a socialist society deal with the fact of differently qualified labour? Since the higher power of skilled labour does not arise from any mysterious property possessed by this labour itself, or by its human bearer, it is evident that this can only be based on the empirically given and empirically measurable difference in the training costs of skilled and unskilled workers themselves. Assume that 100 workers who work 10 days are necessary for the completion of a particular project, of which however 10 must be equipped with particular, above-average qualifications, especially for this project. In order to train these workers society must incur certain expenses, which let us say, amount to 200 working days. It is clear then that these 200 working days must also be accounted for by society if its economic plans are to have a sound basis. It would therefore allow not 1,000 working days but rather 1,200 for the carrying out of the project. Thus the distinction between skilled and unskilled labour will in the final analysis be reduced to the difference in the period of training of the various kinds of labour. [31]

The conclusion is always the same: first socialise the economy; then we can proceed towards equalising wages. But this is just what Peters and Dieterich do not want to accept. Unless we abolish private property of the means of production it is useless to talk about even a reduction of inequality, let alone its abolition. But how would we deal with the question of simple and compound labour in a workers' state? Firstly, it is not possible to leap straight from capitalism to socialism, whether in the 21st or the 31st century. In the transitional phase between capitalism and socialism, as Marx explained long ago, there would be elements of the old society alongside the new.

The huge profits and obscene wealth of the capitalists would immediately be removed through expropriation, as would the extreme poverty at the other end of the scale. But a certain differential would continue to exist for a time. It would not be possible immediately to introduce full equality of wages. A differential would remain between skilled and unskilled workers, although this capitalist differential would be far less than it is now and would tend to disappear as society moved towards socialism.

There is no doubt that a socialist society will need doctors, nurses and teachers and the more the merrier. Teachers may not directly produce commodities for consumption, but they help to train and educate the new generation of workers, who, above all in the new age of technology, require ever new and complex skills. It is this, and not any tender concern for culture and education per se, and still less any considerations about "justice" or "injustice", that makes the capitalists accept the need to build schools and pay teachers' wages, although they constantly grumble about the costs entailed and try to limit the scope of education to what is strictly needed for capitalist production.

So, in a sense, education is a form of productive labour that creates an educated and skilled workforce. It can be considered a productive investment for the future. Those capitalist nations, like Britain, who fall behind in education will find themselves outstripped in the future by nations who have developed education to the degree that is now demanded by modern production methods and technology.

The capitalists also need to maintain a fit and healthy workforce that is up to the demands of production, and therefore accept, in most developed nations at least, some kind of health service. Here again, they moan about the costs entailed and do their best to cut the provision of health to the bare minimum. But in the modern age, people are not prepared to see their health put at risk and rightly demand good health services. The struggles of the working class, especially (but not only) in Europe have forced the capitalists to concede what is known as the "social wage", involving a certain amount of expenditure on things like health, education and pensions. In many developed countries this now forms an important part of the worker's wage and is the subject of fierce struggles, as the capitalists try to cut welfare expenditure to increase the rate of profit at the workers' expense.

It is true that the nurses, teachers and doctors do not directly produce value in the form of commodities, but they indirectly make an important contribution to the maintenance and improvement of the labour power of both present and future generations. They also represent an advance from the barbarous conditions of the past, when disease and illiteracy were considered the normal conditions of life for the masses. They therefore represent the elements of a civilized life in the midst of capitalist barbarity, and must be defended at all costs by the rest of the working class. Only somebody with a completely narrow view could get themselves into contortions at the fact that these sections of the working class are paid out of the surplus value produced by the working class as a whole.


The question of unproductive labour gives Arno Peters a bad headache. Alexander the Great, as we know, also had a problem with a knot, which he solved very easily by slicing through it with his sword. If Alexander could do this, how could Arno Peters do any worse? Like the good professor he is, he cuts his self-made Gordian knot, not with a sword but a word: all workers make an effort, you see, and this is what makes them commensurate. In a flash all problems are resolved. All workers, whether they produce tin cans, transplant hearts, catch rats or write doctoral theses, all make an effort.

The policeman makes an effort to catch burglars and hit demonstrators on the head with truncheons and the high court judge makes an effort to send them to jail for the longest possible terms. Prison wardens make an effort to reform the prisoners by making their lives as miserable as possible. Army generals make an effort to kill as many of the enemy as possible. Stock exchange speculators make an effort to make easy fortunes at the public's expense. Bureaucrats make an effort to hasten the destruction of the Amazon rain forest by writing endless reams of useless memoranda. Bourgeois politicians make an effort to deceive the electorate. Heinz Dieterich makes an effort to write books. The list is endless, and all these worthy people, according to the theory of equivalence, must be remunerated out of the surplus value produced by the working class, because they all make an effort.

Now for any sensible person, the difference between these activities is fairly clear. Doctors, nurses and teachers are generally considered as a necessary part of a civilized society, but not everybody would think the same about all of the others, no matter how much effort they expend on their various activities. They are mostly the unproductive overheads of capitalism, which would be either eliminated or reduced to a minimum in a genuinely socialist society, though not in Arno Peters' socialist utopia. Since he has already admitted factory managers, judges, lawyers, capitalists (together with profits), the army, navy and air force, together with a hierarchical state, he is obliged of necessity to find a way to finance all these "efforts".

How would a workers' state work?

The Paris Commune showed us long ago how it would be possible to eliminate at a stroke the army of professional parasites that make up the bourgeois state: the thousands of over-paid bureaucrats, judges, lawyers, police chiefs and army generals. The first act of the socialist revolution will be to abolish the old state apparatus and replace it with a far simpler, more democratic state, the administration of which would be in the hands of the workers themselves. This is what Marx wrote in The Civil War in France:

"The Communal Constitution would have restored to the social body all the forces hitherto absorbed by the state parasite feeding upon, and clogging the free movement of, society. By this one act, it would have initiated the regeneration of France. [...]

"The Commune made that catchword of bourgeois revolutions - cheap government - a reality by destroying the two greatest sources of expenditure: the standing army and state functionarism. Its very existence presupposed the non-existence of monarchy, which, in Europe at least, is the normal encumbrance and indispensable cloak of class rule. It supplied the republic with the basis of really democratic institutions. But neither cheap government nor the ‘true republic' was its ultimate aim; they were its mere concomitants." [32]

Once the workers take the running of society into their hands, they will assume control of all the functions of administration of industry (through workers' control and management), society and the state. "But the workers are ignorant! They cannot run industry and society without bosses and bureaucrats!" That is the usual reply of the middle class intellectual who has no knowledge of the working class or the realities of factory life except from textbooks.

In reality, the workers are the people most qualified to run the factories where they have worked for years and decades. The experience of the bosses' sabotage in Venezuela in 2002-03 showed that the workers are quite able to run industry without the "efforts" of the bureaucrats and capitalists. And if there are certain tasks that require the specialised knowledge of accountants and engineers, there are plenty of honest people graduating from the universities every year who are prepared to put themselves at the service of the working class and the Revolution, which must make use of their knowledge, but always under the democratic control of the workers themselves.

The experience not only of the Paris Commune but of every other revolution shows that the working class is more than prepared to take the administration of society into its hands. The Russian Revolution of 1917 and the Spanish Revolution in the 1930s are full of examples that show the colossal creativity and talent that lies dormant in the masses and is set free by a revolution. We see the same thing in Venezuela today. The masses are capable of running every aspect of social life far better than the thousands of corrupt and parasitical bureaucrats. They can keep order on the streets far better than the police. A workers' militia linked to the democratic committees in every suburb would swiftly eradicate crime and corruption by direct action.

By adopting the simple democratic programme of the Paris Commune and the October Revolution there would be a strict limit on the salaries of all elected officials, who would be subject to instant recall. From the very beginning, the bloated salaries of the officials would be abolished. The salaries of officials would be limited to the wage of a skilled worker. In big factories there is the need for overall planning of output and to that extent management is entitled to wages of superintendence as a reward for productive labour. On the day after the social revolution there will continue to be managers, but later, as the working class educates itself to run society, the tasks of management will be exercised collectively or by delegation to members of the workforce who will be held to account.

It is not possible to achieve complete equality at once, but to the degree that production increases thanks to the benefits of a nationalized planned economy, with a general increase in living standards and culture of the masses and a reduction of the working day, the differentials would be gradually reduced and finally eliminated. But none of this will be possible unless the working class takes power, overthrows the old oppressive state of the exploiters and expropriates the landlords, bankers and capitalists. This is the Marxist conception of the transitional semi-state between capitalism and socialism. Now let us see what Peters and Dieterich propose.

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[1] L. Trotsky, Introduction to The Living Thoughts of Karl Marx, published as Marxism in our time, Pathfinder 1970, pp. 11-13.
[2] Marx, Capital, Vol. 3, Progress Publishers, Moscow, 1966 p. 51
[3] Marx, Wage Labour and Capital. Progress Publishers, Moscow, 1952 p.30.
[4] Marx, Theories of surplus value, volume II, pp. 502 and 510.
[5] Marx, Capital, Volume I, Penguin, p. 272.
[6] Marx, Capital, 1,7:2. Penguin ed. p. 305.
[7] Marx, Capital, Vol. 1, Penguin ed. pp. 509 and 395.
[8] Ibid. p. 526.
[9] Ibid. p. 407.
[10] Marx and Engels, Selected Works, Vo.1, p. 111
[11] Marx, Capital, Vol. 1. 3:2.
[12] Ibid., vol. 3, p. 244.
[13] Marx, Theories of Surplus Value, vol 2, p. 512.
[14] Ibid., p. 513.
[15] Ibid., 4d.
[16] Marx, Capital, vol. 1, chapter 7.
[17] Ibid.
[18] K. Marx, Capital, Vol. 1, Lawrence & Wishart 1970, p. 618.
[19] Ibid. Volume I, chapter 17, p. 659. Penguin ed.
[20] Marx, Theories of Surplus Value, c.1, 3e.
[21] Marx, Wage, Labour and Capital, Progress publishers, Moscow, 1952, p. 33.
[22] Dieterich, Hugo Chávez y el Socialismo del Siglo XXI, p. 21.
[23] Ibid. p. 107, emphasis in original.
[24] Dieterich, Hugo Chávez y el socialismo del siglo XXI, pp. 107-8, my emphasis, AW.
[25] Ibid. p. 108.
[26] Ibid. p. 108, my emphasis, AW.
[27] Dieterich, Hugo Chávez y el Socialismo del Siglo XXI, p. 110.
[28] Ibid. 107.
[29] Marx, Capital, Vol. I. p. 135. Penguin ed.
[30] Engels, Anti-Dühring, pp. 277-8, Foreign language Publishing House, Moscow 1959.
[31] See Rosdolsky, The making of Marx’s ‘Capital’, Pluto Press, 1977, p. 518.
[32] Marx, The Civil War in France, p. 71, Foreign Language Press, Peking, 1966.