Unravelling Capitalism
By Joseph Choonara, Bookmarks, $20
Joseph Choonara’s new book, Unravelling Capitalism is a short but comprehensive guide to Marxist economic theory and its continued relevance to understanding the dynamics of modern capitalism.
As the failures of capitalism become increasingly apparent, most strikingly with the current global financial crisis, more people are searching for a theory that explains its chronic instability.
Marxist economics are a means to understand the “laws of motion” underpinning capitalism that repeatedly drive it towards crisis. Like Marx’s goal in writing Capital, Choonara’s intention is to provide an accessible explanation of capitalism, to ultimately hasten its overthrow.
Unravelling Capitalism seeks to show why crises are endemic to the capitalist system. Choonara systematically elaborates Marx’s theory of the tendency of the rate of profit to fall as the central feature driving capitalism towards crisis.
Choonara highlights the distinctiveness of capitalism, which unlike previous economic systems, is based on market relations, ie a system in which goods and services are produced as commodities for sale on the market, rather than for consumption to fulfil a social need.
He then seeks to understand why commodities are sold for a particular amount of money ie what determines its value?
Marx identified two types of value in every commodity—“use value” and “exchange value”. Use value refers to the utility of the object whilst exchange value refers to the amount of one commodity that can be exchanged for another on the market.Clearly exchange value is not the same as use value. Choonara compares air, which has no exchange value but is immeasurably useful, to the uselessness of nuclear weapons which have exchange values of millions of dollars.
To understand why commodities have particular exchange values, it is necessary to look at the property that all commodities share—they are the product of a certain amount of human labour. Marx argues that the quantity of labour involved in its production constitutes the intrinsic “value” of that commodity.
Supply and demand on the market does shift the price of the commodity higher or lower at any particular point in time, but it oscillates around its intrinsic value that is determined by the amount of labour time in its production. This underlying value is, however, obscured by the surface appearance that the price is set by the market.
This insight, that labour is the source of value, is crucial to understanding how capitalists create profits. The market makes it look like profits come from buying cheap and selling dear, but Choonara explains that profit comes from “surplus value” obtained by the capitalist by paying workers less than the value of the goods or services that they produce. In this way the exploitation of workers is a universal condition of capitalism.
In previous modes of production like feudalism, surplus was extracted by open coercion or violence. Under capitalism, exploitation is insidious because workers are not obviously coerced. However they are forced to work, because they have nothing but the capacity to sell their labour. Workers are legally “free” but if they “choose” not to work they are free to starve.
Source of profit
A key point in the book is the mystification of the source of profit by mainstream economic theory.
Because capitalists invest in both machinery (what Marx calls constant capital) and living labour (variable capital) they fail to recognise that only labour has the capacity to produce new value.
As capitalists battle for competitive advantage, they invest in new machinery to raise the productivity of their workers and reduce the price of their product, by producing more goods with fewer workers.
But as Choonara states, “…the capitalist, in the struggle to get more profit, drives out the very thing that generates profit”.
However, this advantage is only ever temporary, as other capitalists in that industry also invest in new machinery to increase their productivity.
Over time, more investment in machinery is required to obtain the same amount of profit, causing the rate of profit of that industry to tend to decline.
As the profit rate declines in one sector, capitalists cut wages and lay off workers in an attempt to regain profits, thus reducing the capacity for their products to be consumed.
Production cuts in one company or industry inevitably affects others, spreading the crisis across the system.
Choonara applies Marxist economic theory to history since Marx’s time, relating the ideas to the role of finance in the modern capitalist era.
While understanding that it is not inevitable that capitalism will collapse, he emphasises that within the inherent contradictions of capitalism lies the potential for a very different system—a system that produces for social need rather than profits—“a world of socialism rather than a world of barbarism”.
By Daisy Farnham
Unravelling Capitalism can be ordered from Solidarity contact (02) 9211 2600 or
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