Diego Guerrero - Nonproductive Labour, Growth and The Expansion of The Tertiary Sector Mattick Marx Keynes

Int. Journal of Political Economy, vol. 29, no. 4, Winter 1999-2000, pp. 14-55. © 2001 M.E. Sharpe, Inc.
All rights reserved.

ISSN 0891-1916/2001 $9.50 + 0.00.

DIEGO GUERRERO

Nonproductive Labor, Growth, and the Expansion of the Tertiary Sector

Thirty Years After the Publication of

Marx and Keynes

Marx, Keynes, and the current European Left

The contemporary European Left is built on an intellectual fabric woven from remnants of ideas new and old that for the most part first saw the light of day within the Marxist and Keynesian traditions. The fact that this Keynesian Marxism has been through many different phases in the context of a long-term trend that has seen the Keynesian content predominate increasingly over the Marxist content is of minor importance, since the fact is that for all practical purposes it is increasingly difficult to distinguish the ideas of a typical Marxist from those of a typical left-wing Keynesian (i.e., a typical post-Keynesian). A lot of this, of course, has to do with the relationship that exists generally between reality and thought: that is, that reality determines thought (as Marx believed), and not the contrary (as Keynes appeared to believe). The past half century has seen most Western economies! pass through a period of expansion (the first quarter century after World War II) fol-

English translation © 2001 M.E. Sharpe, Inc., from the Spanish original: "Trabajo improductivo, crecimiento y terciarizacion (30 anos despues de Marx y Keynes)." Translated by Michel Vale.

Diego Guerrero is a professor in the department of Applied Economics of the Faculty of Political Science and Sociology at Complutense University of Madrid (Somosaguas campus).

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WINTER 1999-2000 15

lowed by a period of relative depression (the most recent quarter century). This objective fact has of course caused a certain disarray in the ideological debate that had been going on within economic thought and macroeconomic thought in particular. But most interpreters of this transformation have construed it as a mere succession of stages from the predominance of Keynesianism to the hegemony of liberal or neoclassical thought, which achieved its consummate expression in Europe under the recent label of neoliberalism, and above all politically correct thought.

Indeed, what all but defines the European Left nowadays is its struggle to come up with a critical thought to oppose this unitary thought, almost universally defined as the intellectual expression--in a variety of shades and tones=-of tendencies discernible most recently in capitalist development itself: the globalization of the economy, the predominance of finance capital and of capital movements on a universal scale, speculation, and the instability of a casino economy-briefly put, the predominance of the economic over the social and/or the political. Much of what is taking place does so because the European Left reads only Keynes, the post-Keynesians or left-wing Keynesians, and a few Marxists, the vast majority of whom are no more than Keynesians themselves. And this is only when they read, because many others of the Left only learn, or believe that they learn, from hearsay; and what they hear is thus the discourse of this Keynesian Marxism, which Paul Mattick criticized so masterfully thirty years ago in his book Marx and Keynes: The Limits of the Mixed Economy, which for the reasons cited above has lost none of its relevance (on the contrary it has even gained [relevance]) for all those genuinely interested in free thought and in understanding what is actually taking place above and beyond the superficial ideological discourses of those who limit themselves to competing in the market for votes.

Before I begin to review briefly some of the contributions made by Mattick in his book, it will not be superfluous to recall that his two great teachers were (aside from Marx) Rosa Luxemburg and Henryk Grossmann, both heterodox Marxists. Luxemburg disagreed with Lenin on many points, and it is no accident that the triumph ofLeninism-the radical version of social democracy, according to Mattick's interpret ation-had the effect that Marxist-Leninists interpreted Luxemburg's contribution to the development of Marxist thought in a sense that later found expression in the Marxist tendency to which Mattick himself belonged, and which without going into further detail I will simply call

16 INTERNATIONAL JOURNAL OF POLITICAL ECONOMY

councilism or council communism. Henryk Grossmann was another heterodox Marxist. He could indeed be considered a Stalinist.' but his criticism of the Marxist interpretations dominant in economics was in the same vein as the position Marx himself took in his time vis-a-vis the first Marxists and most non-Marxist socialists. According to Marx, both the former and the latter were incapable of interpreting the reality being played out before their very eyes, precisely because they were using theoretical tools that were no longer appropriate instead of putting free thought to work with the sole aim of discovering the truth and exposing compromise and eclecticism.

In his book, Mattick not only succeeded in discerning the liberal core of the Keynesian message but was also able to predict the future that awaited Keynesian macroeconomic theory, thanks not only to his direct and harsh analysis of capitalist realities from the standpoint of the worker, who never stopped existing, but to his mastery of the economic theory and thought of Marx himself, equaled by few authors before or since. The application of these ingredients to the systematic study of Keynes's works--an effort to which Mattick devoted a large part of his creative work, considering that he returned again and again to this theme throughout his life' ~nabled him to understand the limitations revealed by Keynesian analysis, especially when it is compared with another, far superior conceptual system, namely Marx's, as it was adopted and developed by his authentic disciples, who did their share to put into shape the rough ideas (however systematic their final form) he passed on to us.

The political limitations of Keynesianism

It is sometimes forgotten that Keynes was merely a cultivated and consistent liberal. The present European Left, all wound up by their discovery of neoliberalism (i.e., by the attack of governments in the post-Keynesian era on what the Left calls the conquests of the preceding period---dubbed Keynesian of course, and now often even presented as a new golden age, a happy Arcadia to which we hopefully will be able to return as soon as possible), is in a too restive state of mind to recall that Keynes was one of the principal drafters of the program of the English Liberal Party in the 1930s, at precisely the same time he was discussing with his famous Cambridge circle the first ideas that ultimately coalesced in his celebrated General Theory. Millionaire, finan-

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cial speculator, philanthropist of the arts and culture, and multifaceted intellectual master, Keynes felt at home in a system the collapse of which he did not wish to witness." Hence, his sense of realism brought him to demand that his liberal companions display sufficient good sense to understand the importance of the state for the correct functioning of a capitalist market economy.

The entire present debate between critical thought and unitary thought, between Left and Right, between Social Democrats and neoliberals, at least in Europe, is actually only a small tempest in the cup of tea Keynes took every afternoon in the midst of the Great Depression of the 1930s. In London, in July 1998, Mario Vargas Llosa, a disciple of Popper, a Keynes-style liberal, wrote a preface entitled "A Liberal from Head to Toe" for the book of his friend and compatriot Pedro Schwartz, perhaps the best-known liberal of all Spanish economists.' Llosa, great writer that he is, defines liberalism as the "indivisible coin whose head is institutional democracy and whose tail is the free market" (1998, 14). My thesis is that the European Left is twisting, turning, and blubbering to define an alternative, even more agreeable, something on the order of social democracy as an "indivisible coin whose head is institutional democracy and whose tail is a social market economy."

The entire debate is still over one and the same point: free first and then social, versus social first and then free. But of course no one calls into question either the market or the coin. And that is precisely why there is still so much value to be gotten from Mattick's famous book, written as he went his independent way down the path blazed by Marx's keen mind: Mattick was able to recognize and foresee that however many big doses of the social and the political were introduced through massive fiscal and monetary injections from the state, and however massive public and institutional intervention may be in the present or in the future, the base of the functioning of this system, the internal structure of this capitalist society, the intrinsic tendencies of development and functioning of the market and of money, are themselves sufficiently powerful to prevail against timid attempts to change the course of a waterfall by faint cries of "long live the social" and "long live the state"-which can scarcely be heard amidst the din of the real fray as the water rushes to reach the place to which the force of gravity is driving it.

That is why Pedro Schwartz quotes Keynes in reminding us that "the attitude of liberals toward the state is usually -a caricature of incomprehension .... [The critics of the liberals] believe that the liberal basically


desires to abolish the state even as he tries to centralize and reinforce it. ... They think that liberal ideology commits all the naivetes of anarchism. But I want to point out the distance between liberals and the anarchists ... who believe that in a world as populated as ours a free society can exist without the state .... People thus believe that liberals aim to destroy the state. On the contrary, liberalism as a political program is a state and public program" (Schwartz 1998, 167-72). Indeed Mattick, whose communism has sometimes been said to belong to the family of anarchist communism, which in any case was much closer to Marx than Lenin's communism ever was, would agree with Schwartz that liberals want a strong but cheap state in the service of capital while the nonrevolutionary Left wants a state piously dubbed "social" to adorn the market with a touch of kindness as icing on the cake.

The economic limitations of Keynesianism

But the limitations of Keynesianism are more specific and call for a more detailed discussion than the general analysis of it given by the contemporary European political Left might merit. One must begin with the recognition that the Keynesian approach has certain merits, although some misconceptions must be dispelled as well.

Quite recently some contemporary post-Keynesians have advanced the view, for example, that Keynes was a defender of the labor theory of value, like some of his most outstanding disciples, such as Joan Robinson (see Wray 1998). However, it seems more reasonable to say that he upheld a theory of labor as the measure of value. As Schumpeter put it, the one is quite distinct from the other and the soft version of the labor theory actually goes back to Keynes's great master, his admired Malthus, who, as we all know, opposed with all means at his disposal the labor theory of value defended by his friend and contemporary David Ricardo. Neither Malthus nor Robinson nor Keynes ever held a theory that postulated labor as a source and origin of value, although it is true that Keynes had a sense of reality that is generally not to be found among his colleagues and that enabled him to see that other than labor, or as Robinson preferred to say, other than wages, one can find no item sufficiently universal and potentially homogeneous to permit quantification and accounting of macroeconomic magnitudes.

More important is Keynes's theory of the historical tendency of the average rate of profit of the system to fall. In fact, one such theory was

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already present in the classics, and also in the neoclassics, and of course it is a central element of Marxist theory. Where all these schools diverge radically is in their interpretations of the phenomenon. Smith spoke of the saturation of capital and Malthus of an excessively rapid process of accumulation. Ricardo in tum preferred to emphasize the differences in behavior between the agricultural sector and the industrial sector, whereby the first was marked by the omnipresence of differential land rent and by the relatively lower productivity, compared to industry with its greater dynamism, which suffered no limitations as regards its capacity to supply. Keynes's thesis of a tendency toward a marginal declining efficiency of capital ties in with the positions of Smith and Malthus, and his insistence on the importance of the role of the state as a panacea for the ills of an advanced capitalist economy harks back to themes already set out by Stuart Mill in his analysis of the famous countertendencies that are at the beginning of the dual analysis offered by Marx himself.

It is worthwhile to dwell on this point, as it is here that is to be found one of the greatest contributions of Mattick's book. Marx defined the law of the tendency of the rate of profit to fall as the most important law of political economy and declared that he had achieved a scientific understanding (for the first time) of the deep-lying mechanism operating behind mere appearances visible to a superficial analyst of the phenomenon. It will be useful here to give a general summary of Marx's central idea on this account.

Marx knew that the essence of the capital relation is a social mechanism with two poles, one of which, the bourgeois proprietor, is obliged to behave in such a way that his money property is permanently in quest of a quantitative increment of the amount of value embodied in this money (which he has converted to capital). This mechanism necessarily involves the transformation of the process of social production into a means to obtain profit, and this mediation is only efficient if it is able to reproduce the conditions established by the other social pole, the workers, the cannon fodder of exploitation. By converting workers into a mass whose sole means of livelihood is the sale on the market of their own labor power, so that a condition of their survival is their consent to be enslaved and exploited, the capitalists are able to extract from this working mass a surplus labor sufficient for the aggregate volume of profits in the system to grow normally.

The implication of all this was that the capitalist class was subject to


the same iron logic of the system that enchained the workers: both were creatures of the mechanisms put into place by the objective forces of the dynamic movement of capital. Marx regarded highly the fact that the classical economists before Ricardo were capable of capturing the essence of how the system functioned because in their struggle against the vestiges of the feudal regime they were interested in knowing the objective and unadorned truth. As Marx tells us, even for Adam Smith capitalism was a two-stroke machine. In the first phase, the object is to obtain as much surplus value as possible; in the second phase, the object is to reinvest the maximum amount of surplus value so that the system may grow as rapidly as possible. Just as maximization of exploitation is the means used in the first, maximization of competition is the guarantee of the effectiveness of the second phase.

It should be noted that in Marx both these pedals of the capitalist bicycle, the two legs on which the system moves forward, are not only equally important but must move in unison and in coordination. If the individual capitalist seeks to maximize his capital, in reality what his behavior expresses is the tendency inherent in the system to overcome any obstacle that stands in the way of maximum capital growth. One of these obstacles is that the aggregate of surplus labor grows at a pace that is always insufficient for any individual capitalist, in that each and every capitalist is compelled to outstrip the others to benefit from the market rather than exposing himself to the damage caused should the market take an unfavorable tum. The apparent solution to the dual capitalist mechanism is mechanization, placing ever-heavier shackles on the worker, namely the technological power the capitalist uses to subordinate the worker to his orders not only when the labor contract is signed but also when he sets about putting his labor to work (i.e., to convert his labor power into work effectively performed).

Through the real subsumption of labor under capital, the capitalist shifts the subjective dexterity of the worker, the former craftsman, who increasingly becomes the toiler alienated from creativity and transformed into just one more cog in the automatic system of machinery, from a subjective to an objective element of production. That is why mechanization is the basic tendency of the system: the substitution of indirect for direct labor, converted and materialized in the technical form par excellence of capital:fzxed capital (i.e., the machine).

What those who oppose the Marxist explication of this contradiction internal to the capitalist system do not wish to understand is the follow-

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ing: Whatever the total value of the means of production in the possession of the capitalist class, the struggle against the workers obliges the capitalists to use more means of production in relation to the direct labor power that they find themselves forced to confront as class enemies. Consequently, irrespective of any analysis of variations in the relative prices of the various consumer goods and capital goods that make up the mass of the system's production for the market, it is obvious that capitalists as a class can only be successful-and the system can only be said to reproduce itself successfully-if the sum total of value belonging to the capitalists (i.e., total capital) grows more rapidly than the sum total of profit they are able to extract from surplus labor of the workers. The decline in the average rate of profit of the system is simply the natural consequence of the system's own success, the most synthetic indicator that the system is performing correctly, one step at a time, in an ordered pace, in line with the norm characteristic of the growth phase.

But the capitalist machine works well until its internal thermostat goes out, and its functioning, which up to that time had been unceasing, is abruptly interrupted. The average temperature of the system inverts its course, and the rise is replaced by a decline. If Marx is important in the history of economic thought, it is not because he gave us [the idea of] the falling rate of profit-that was already known, albeit in approximate and mystified tenns--but because he understood the keys to the functioning of the system and its consequences. Grossmann, Mattick's great teacher, was Marx's foremost disciple in this domain, and Mattick was able to extend Marx's and Grossmann's analysis to include in his own analysis a comparison between a Marxist explication and one that does no more than repeat with Keynes the most antiquated ideas coming from Smith and Malthus.

Grossmann, Keynes, and Mattick

Grossmann attributed so much importance to the countertendencies that worked against the tendency for the rate of profit to fall that if we measure the relative amount of space they take up in his most important book (see Grossmann 1929), we would be unable to say what is most important: the basic tendency or the countertendencies." But Grossmann's analysis is unambiguous: "Despite the declining rate of profit, accumulation proceeds at an ever increasing rate, owing to the fact that the volume of accumulation does not evolve in proportion to the rate of


profit but in relation to the potential possessed by capital already accumulated" (Grossmann 1929, 80), since, as Marx points out, "beyond certain limits, a large amount of capital with a small rate of profit accumulates at greater speed than a small amount of capital with a high rate of profit" (Marx [1894] 1979, 322). Grossmann clarifies the matter even further: "The declining rate of profit in itself is a phenomenon that always accompanies accumulation throughout its successive phases, including the first phases of accumulation, i.e., even the phases in which a growing mass of profit is accumulated and in which profit is produced together with growth in the part K, destined for consumption by the capitalist class" (Grossmann 1929, 83).

Grossmann's idea, which may be seen to be a more explicit rendering and a step forward in the clarification of Marx's theory of collapse and crisis has been recently formalized by Shaikh (see a summary of the argument in Guerrero 1997), but the important thing here is to show that this idea is present in very different forms in Keynes and Mattick. Mattick clearly captures the Smith-Malthusian essence of Keynes's theory when he says that for the latter, "The declining scarcity of capital, as a consequence of the declining propensity to consume, is what explains insufficient demand and unemployment in developed capitalist nations" (Mattick 1969, 229). In other words, assuming that the rate of profit is profit divided by capital (r = PIK), and thus P = rK, the evolution of P over time may be described as:

P' =r' + K'

and a crisis of over-accumulation occurs when P' = 0, that is, when: 0= -a + s *r

c '

which is the same as saying crisis occurs at the moment when:

a = s *r c

(where a is the rate of change of r, and s is the rate of accumulation of

c

profits, or lIP).

Mattick (1969, 55) fully understood the argument of Marx and Grossmann: "The smaller the total social consumption relative to the total social product, the larger the residue of surplus value for purposes of accumulation." Thus "part of surplus value must be retransformed into additional variable capital," and "to do this requires an accelerated

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rate of capital expansion" (ibid., 62). Marx says as much when he writes that "capital must grow at a faster rate than the rate of profit falls" (ibid., 64), or in other words when r is declining, Sc must be increasing so that the decline in r is at a constant pace (where a is constant). But a point is inevitably reached where the decline in r cannot be offset by a new increase in sc: "carried to its 'logical end,' a continuously accelerating capital expansion will change the relative decline of the rate of profit into an absolute decline because of a lack of surplus value with respect to the swollen mass of capital. When this happens, reality will correspond to Marx's model for capital expansion" (ibid., 65).

Mattick does not limit himself to the macroeconomic plane, but translates the objective tendency into an explanation of the microeconomic behavior of the individual capitalist: "Coerced by competition, the individual capitalist must accumulate, if only to preserve the capital already their own .... In the attempt to safeguard capital by augmenting it, the capitalists accelerate the accumulation process" (ibid., 78). And, more important for my argument, he returns from the micro level to the macrolevel to plunge finally into a discussion of Keynes's theoretical system: 7 "The only relevant crisis point in the general theory of capital accumulation is that point at which surplus value can no longer be sufficiently increased to overcome the tendential fall of the rate of profit by permitting an accelerated capital expansion. In the real world there is no way whatsoever to determine when such a point will be reached. The actual capital accumulation process can be slowed down and is, in fact, constantly slowed down, by non-productive, i.e. nonprofitable, capital expenditures, by the outright destruction of capital (as in times of war), and by political interventions in the economy" (ibid., 99).

But the principal contribution of Mattick's book is his devastating critique of the Keynesian model on the basis of ideas already put forth by Marx himself. Thus, after recalling what Marx wrote on the public deficit and the public debt," he attacks Keynes for creating the illusion that "deficit spending can be financed out of the savings that it has itself created .... The multiplier concept creates the illusion ... that any given amount of additional income can multiply itself merely by traveling from one income group to another. Actually, of course, this is not so, just as a change in the velocity of money does not imply a change in its quantity or in the quantity of commodities in circulation. The same quantity of money merely serves more exchange transactions from the commodity-form to the money-form and vice versa" (ibid., 158). Moreover,


not only the idea of a multiplier but also the alleged uninterrupted growth based on credit is misleading, since the credit mechanism that protects expanded production is based on future profits that mayor may not come about.

In reality the Keynesian analysis is "ambivalent." On the one hand, there is "an element of income redistribution because it channels funds into non-profitable spheres of production" so that "from the larger total production--both profitable and non-profitable-a larger share falls now, as it were, into the sphere of consumption .... Like consumption in general, 'public consumption' does not add to the formation of capital" (ibid., 159-160). That is why in curbing the propensity of accumulation to accelerate and putting the brakes on wild competition, state intervention may in the short term bring an effective countertendency to the tendency toward crisis, since, "instead of being capitalized, an increasing part of the social profit dissipates in additional government spending" (ibid., 162).

Yet over the long term, the short-term beneficial effects begin to wreak damage, most especially because of the "increase in public debt," and since "the costs of the debt, that is, the interest paid by those who are the creditors, must come from the profits of a relatively declining private sector of the economy," and "there must come a time when the nonprofit sector outweighs the profitable sector and therewith endangers the latter's existence." The conclusion is thus clear: "There must then be a limit to the expansion of the non-profitable part of the economy" and "when this limit is reached deficit financing and government-induced production ... must come to an end. The Keynesian solution will then stand exposed as a pseudo-solution, capable of postponing but not of preventing the contradictory course of capital accumulation as predicted by Marx" (ibid., 163, emphasis added)." The importance of this analysis lies not so much in the fact that it is one of the most notable predictions made by persons who endeavor to develop a realistic and objective economic analysis beyond the point where Marx left it.'? It is rooted above all in the force of the argument employed and in the total destruction of Keynesian analysis that Mattick accomplished.

The power of Keynesian idealism

Keynes's comment on the tremendous power of ideas is very well known: the "ideas of economists and political philosophers, both when they are

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correct and when they are wrong, are more powerful than is commonly believed. In reality the world is governed by little more than this .... I am sure that the power of the interests created is much exaggerated compared to the gradual intrusion of ideas" ([1936] 1980,337). Mattick must necessarily criticize this expression of idealism insofar as his analytic approach gives more importance to what happens in social reality than to how it is manifested in social consciousness. But I now return to the topic with which I began this essay, this time from the perspective of the extent to which the idealism of the contemporary European Left shares with Keynesian liberal idealism the belief that ideas and government policie~all part of the superstructure that arises on a groundwork of more fundamental social relations-c-are the authentic driving forces of history. Mattick (1969, 164) begins by acknowledging that according to the Keynesian viewpoint of course "the return to depressions finds its cause in the government's failure to apply the Keynesian remedies with sufficient resolution." Mattick thus effectively divined thirty years ago what ultimately became the conventional position of the present-day Left: "There are two wings of Keynesian economics, a conservative one and a radical one .... The 'radical' Keynesians seem to look upon government as an independent and neutral force, concerned only with the welfare of society and possessing the ability to take measures suited to this end." (See a critique of the idea of the welfare state and its corresponding empirical application to the Spanish case in Guerrero and Diaz 1997-1998). However, from a materialist perspective the analysis of capitalist reality should bring us to the conclusion that "government has no intention of altering existing social relations and for that reason will not institute the degree of 'socialization' necessary to fulfill the 'radical' Keynesian dream" (Mattick 1969, 164).

Mattick himself helps to demystify the apologists of the so-called welfare state, who drool over the glories of the good old days before neoliberal usurpation: "Social welfare measures such as unemployment insurance, old-age insurance, and health insurance are also credited to the prevailing Keynesian spirit, even though most of them were instituted in the pre-Keynesian laissez-faire economy. These measures have nothing to do with any kind of income redistribution, even though in some countries special interests still combat them as anti-capitalist policies. They are 'social' only insofar as they are legislated and, by that token, support the general trend toward increasing government control over social life. They do not increase


the income of the workers, for the workers payout far more in taxes and contributions to the various welfare funds than what is expended for welfare purposes" (ibid., 167).

Mattick also offers an important critique of the utopians who believe that a reduction in labor time under capitalist conditions is enough to resolve the problem of unemployment since "a reduction of labor time which would disturb the necessary relationship between surplus value and capital is not compatible with capitalist production" (ibid., 192). Instead, "were it not for the capitalist relations of production, the growth of social wealth would be characterized by a continuous reduction of direct labor time and the wealth of society would be 'measured' not by labor time but by free time" (ibid., 193-94).

Further, it is useful to compare what Mattick thought about the Keynesian recipes applied to pure capitalist economies with what he thought about their application to the state capitalism of the economies of "real socialism": to begin with, "there is nothing in the Keynesian system which would exclude its application in a state-capitalist or statesocialist system" (ibid., 252). What is more, "though carried out in the name of Marx, the state-capitalist or state-socialist revolutions would be better described as 'Keynesian revolutions.' ... The state-capitalist system may be regarded as Keynesianism in its most consistent and most developed form .... [Hence], during the Great Depression, President Roosevelt realized 'that what we are doing in the United States are some of the things that are being done in Russia and even some of the things that are being done under Hitler in Germany. But we are doing them in an orderly way'" (ibid., 279-81).

Mattick's analysis in this regard is well known: in the systems of state socialism "the institution of state capitalism had the function not of abolishing the proletarian class, but of aiding in its quick formation and thereby in the formation of capital." Authentic socialism, to the contrary, is "conceivable only as [a revolution] made by the working class which ends social class relations" (ibid., 333). Hence Mattick is in full agreement with Rubel when the latter concludes that "what Marxand before him, in 1843, Flora Tristan--formulated in one single proposition, namely that the 'emancipation of the working class must be conquered by the working class itself,' remains the implicit postulate of all genuine socialist thought" (ibid.).

But to return to market capitalism, "Keynesianism has been the 'savior' of capitalism, even though by its very nature, and by the nature of

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capitalism, it can be only of temporary avail. ... The continuous application of Keynesianism implies the self-destruction of capital production. The optimism of the 'new economics' merely mistakes the postponement of a problem for its disappearance .... The suffering awaiting the world's population will go beyond anything thus far experienced and ... will eventually engulf even the privileged minority of workers in the industrially advanced countries who still think of themselves as immune to the consequences of their own activities" (ibid., 336).

It is especially significant that this was written in 1969, in a country such as the United States, which since then has seen the real wages of its industrial workers remain nearly at the same level or decline for more than thirty years. Equally significant, it seems to us, is the exception Mattick takes to the attempts of so many modern thinkers eager to find signs of revolutionary changes on the least occasion, provided only that such changes prevent the application of Marx's otherwise valid analysis. This is, for example, what happens with the "artificial distinction between the 'classical working class'-the industrial proletariat in the Marxist sense-and the modern working population." For Mattick this distinction is artificial because the difference between the proletariat and the bourgeoisie is not "a particular set of occupations, but the former's lack of control over their existence resulting from the lack of control over the means of production. Even if more workers are now engaged in non-productive, so-called service industries, their social position vis-avis capitalists remains unaltered" (ibid., 338). II

The expansion of the tertiary sector and nonproductive labor

Mattick's book ends for all practical purposes with the above quotation, as there are only six paragraphs following the one containing it. And it is precisely from this point that I should like to begin to develop the second part of this essay. In my opinion the social and political Left is utterly disoriented, but perhaps especially in regard to the theoretical treatment it is accustomed to giving to questions of such major relevance as those spelled out in the title of this section. Mattick is right in saying that the social position of workers in the service sector is no different from the position of workers in the industrial sector, but the above quotation from his book suggests that he too insufficiently understood the methods that Marx applied


to the question of labor that produces and labor that does not produce surplus value.

In my opinion, even the most serious Marxist studies are in error on these two interrelated issues. It is not true that nonproductive labor tends to grow in relative terms and it is equally untrue to say that the evident process of expansion of the tertiary sector in developed capitalist economies in itself places at risk the long-term growth these economies are potentially able to achieve. What I am going to defend in what follows is precisely the contrary of the above two theses, namely:

1. Productive labor grows at the expense of nonproductive labor.

2. The expansion of the tertiary sector is more the result of growth than an obstacle to it.

3. However, the tendency of the system toward its own collapse is not changed by either of these two new points or by any specific combination of the two phenomena. Quite the contrary is true.

Productive labor and nonproductive labor

The most recent and most serious Marxist English-language literature on these matters (Shaikh and Tonak 1994; Moseley 1992; and others) exhibits some common features that must be considered serious limitations to a correct understanding of the modem Marxist explication of the question. First, there seems to be an ignorance of the literature that is not in English (or even the literature that is in English but comes from countries considered marginal to the broader trends of thought), and second, too much importance is attached to sticking to a literal reading of Marx's expressions rather than seeking to get to the spirit of this theory in its particulars in intimate connection with how this particular aspect of his theory coheres with the rest of his analytical work.

As for the first point, I have been emphasizing for years the importance of certain French literature (see Delaunay, Bidet, and above all Nagels) or even the literature in English that comes from some of the countries at the periphery (such as, for example, the book by the Hungarian A. Burger, 1970). Of course, some points made in Spanish (see Guerrero 1990 or a chapter on this topic in Guerrero 1997) which are unknown in the grand tradition have no chance of being given a broader hearing than that which the literature has given to these works in French and English. But I shall dwell especially here on the contribution made

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by the Belgian Jacques Nagels, since his study on the concepts of productive labor and collective labor in Marx should be obligatory reading for all students of this topic. Moreover, one particular aspect touched on by Nagels is the productive labor that takes place in circulation, which has a particular bearing on the second limitation I referred to above, regarding the literal rendering and interpretation of certain passages in Marx.

Nagels's great merit is that he distinguished for the first time (since Marx) between labor in pure circulation and the labor that takes place in the alleged classical sites of circulation, which almost all Marxists identify (if not always in theory at least in practice) with the branches or activities of commerce and banking. What these Marxists seem to forget, however, is that labor expended in the commercial and banking sectors bears no more relation to the circulation of commodities than that which takes place in each and every other one of the productive sectors. I believe that this tradition goes back to Marx himself, who in his explication of the historical origin of the capitalist mode of production used three schemata to represent how it functions in each of the three different stages of capitalist society. These three schemata are known well enough:

M-M' M-C-M'

M-C (MP, LF) ... P ... C'-M',

(1) (2) (3)

They represent, respectively, the activity of usury capital or financial capital, commercial or mercantile capital, and finally productive or industrial capital.

In my opinion, the usefulness of these schemata is incontestable and the historical explication offered by Marx by means of them is a masterful synthetic exposition of the great differences that distinguish the typical behavior of the capitalist protagonists in each of these three stages. But in the modem world what dominates in our capitalist society is, as Marx knew very well, productive capital, for which reason he considered that agriculture had become one more industry, and for which reason, according to the majority of Marxists, there is nothing wrong with considering tertiary activities to be additional loci where typical processes of capitalist production, and moreover of the same nature as processes taking place in the industrial sphere, are accomplished (or can be accomplished).


However, the stigma of nonproductivity weighs like a tombstone on the present-day industrial sectors that continue to figure in the interpretive scheme of present-day authors as representations not of schema (3) but of schemata (1) and (2), uncritically identified with the sectors where nonproductive labor par excellence is accomplished. Authors who have been much influenced by reading what Marx wrote on these questions (I shall concentrate only on Shaikh and Tonak 1994; Moseley 1992; and Delaunay 1984) and who have provided some incredibly sagacious nuances in the interpretation of practices in very concrete and particular fields of activity, are now coming to the hour of truth: that is to say, the moment when theoretical definitions must be compared against empirical measurements, because they assume that all commerce and all banking are accomplished by workers whose labor does not produce surplus value and simply receive through a redistribution from the authentic productive sector a part of the value generated in the latter.

In my opinion, this is tantamount to misinterpreting Marx, confusing circulation in the economic sense with circulation in the physical sense, and finally to replacing Marx's theory with the classical theories (which are also much less developed in this domain). For Marx, circulation is a necessary moment in the cycle of every capitalist producer, since any one of them is obliged to maintain production long enough to sell the commodities produced and thus to effect the conversion of his merchant capital into money in a way that is effective for himself. We should not forget that for the capitalist all production is simply a means to valorize his own capital; without the monetary realization of commodities there is no authentic valorization. Every capitalist sees how a certain portion of the labor he is able to extract from his workers escapes through the pores of circulation, and he obviously tries to reduce to a minimum the absolute and relative magnitude of these flights or leaks of labor since a part of the latter, just like any other labor performed under capitalist conditions, is the source (surplus value) from which he obtains his profits.

The fact that every capitalist wants to reduce the time of circulation to a minimum should not mislead us into regarding it as a phenomenon distinct from production, at least in the sense that the capitalist himself has a maximum interest in reducing the time of production to a minimum; indeed, that time plus the time of circulation form the total time of the individual and social cycle of capital. The example of magnetic labeling, very recently the center of public attention, clearly illustrates how capitalist technical innovation aims at reducing costs, that is to say,

WINTER 1999-2000 31

labor time, both in the domain of production and in that of circulation (thus endangering the jobs of thousands of cashiers in the big supermarkets and commercial premises of every kind). However, it is time to turn our attention to what actually happens within industries dedicated to commerce in commodities and money.

First, just look at any commercial establishment, small or large. By far the greatest part of the labor expended in such an establishment consists in productive activities. If we follow the logical sequence that corresponds to the real trajectory of commodities we will see that the first stage is to unload trucks and containers full of new products that must be sold. These commodities first pile up in massive storehouses that the public consumer does not see. Later, the accumulated commodities are distributed on the commercial space through activities of transport and delivery to each of the shops or localities where they are accessible to the consumer. Frequently these activities entail other related activities of repair and maintenance and even manufacture of certain components of the mass of commodities for sale, and all these would be considered productive activities if they took place within some factory or industrial plant where the same type of activities are performed.

Now let us take a look at the typical industrial plant: Is it a matter of coincidence that the same stages of obtaining primary materials, stockpiling, storing, handling, and transport to the place where machinery accomplishes its work, then transport again to the warehouse, new circulation to the exterior of the plant, and to where the activity of transport in the strict sense begins again?

Finally let us take a look at banking. This industrial sector, regardless of the piped-in music and the nice-smelling sprays in its offices, cannot avoid the smell of sulfur with which it has been permanently impregnated as a consequence of the satanization it has suffered at the hands of certain Marxists more desirous of making political propaganda in the service of God knows what interest than of developing the labor theory that Marx left unfinished. For many left-wing thinkers, the evil of capitalism is financial and investment capital more than productive industrial capital. Many seem to reduce speculation to the financial sphere (or in like manner the commercial sector) where speculation signifies simply buying cheap and selling high. But does the industrial capitalist do anything different when, after buying cheaply-paying for his costs, including labor, the value it costs society to reproduce them-and selling the product of the process of production high, thanks to the labor


activity expended within his enterprise, which makes it possible not only to pass on the value of the means of production, but also to incorporate in the product the new labor (with its surplus value) created by the workers directly in his service?

No commercial or banking sector can subsist without the corresponding processes oflabor or production. All that workers do in this sector is to accomplish particular processes of production, which, however, are not very different from what takes place in other service activities, industrial services included. Might it be that because a miner's work is harder physically than that of an employee in a hydroelectric plant, it is impossible to extract more surplus value from the latter than from the former? Perhaps the production of gold is not like the production of copper or any other product in the mining sector? Does the fact that this gold is converted into money change anything in the productive nature of surplus value of those who participate in this chain of production? But let us move from the money analyzed by the classics and by Marxmetal money--to the normal form of modem money: credit money.

What does a bank worker do if not create a type of commodity through his collective labor that society uses as money in place of the pieces of gold or metal of yesteryear? And for this reason do these miners of the gold that is information cease being creators of surplus value for their bankers? Absolutely not. All the work performed in the banking sector has a fundamental aim, which in the first place is to produce and maintain an active balance of credit money (the debits of the global financial system) society uses today as money,just as in former times it used gold coins. Second, banks sell, through their employees, a series of services or commodities for which they get a commensurate price (which in this sphere is usually called commissions). If a bank transfers our money to another town it charges us a price equal to what we would be charged by the apparently more productive post office or courier office which would do exactly the same thing. When a bank keeps and manages for us our shares and other financial forms of wealth we pay a price equal to what other agencies and other management firms of the most varied types charge for the performance of their activity, and so on.

This new focus of Marxist theory on productive and nonproductive labor has important implications for economic theory in general and indeed not only economic theory of Marxist inspiration. Take, for example, the theory of money. Claus Magno Germer is practically the only Marxist who adheres to the idea that there is no need to abandon

WINTER 1999-2000 33

gold as money in a developed capitalist economy such as the present one and that the changes that have occurred in the financial sector in the past century (or century and a half) do not mean that we do not need a commodity that performs the role of money (see Germer 1998). Germer defends commodity money when most Marxists have switched to non-Marxist theories that claim that money does not need to be a commodity. This is all taking place because they fail to see one particular aspect of commodity fetishism, the Scottish sense of fetishism for which Marx chided Smith, unjustly in my opinion (see Guerrero 1993), which brings some to reduce commodities to tangible commodities and to leave commodities consisting in services (or pure labor activity) out of the picture.

What bank workers produce today through their accounting entries, their computer keyboards, and their mastery of bank software is the commodity of credit money, one of the many commodities that are sold on the vast universal market. Every other activity is merely a set of preparatory activities, including the granting of new credit to the bank's customers (private persons, firms, or governments), necessary for this special commodity that is money to be produced under conditions of capitalist social reproduction. Thus they do no more and no less than their colleagues in the rest of industry and hence cannot be considered less productive of surplus value than are the latter.

Of course, in both trade and banking there are the necessary activities of circulation. What use would all the steel produced for a metallurgical enterprise be if the enterprise were unable to sell it? What use would it be to sell it if the firm were not able to receive a commensurate amount of money for it, or if there were no sales department whose job it is to keep track of which client must receive the bill at the agreed upon time and place? Exactly the same thing occurs in the commercial and banking industries. What use would all the productive activity be to commerce if the cashiers were not responsible for receiving cash or for debiting the bank accounts of clients? What use would the production of money by producti ve banking workers be if the sales department did not have the task of collecting receipts each time a credit payment is due, or the collection department did not keep track of who is in arrears, and hence prevent the realization of the commodities sold by the bank?

The above conception continues to have a potential influence on the political Left's critique of traditional sociological interpretations. The whole of this globalized neoliberal capitalism, the whole of this casino


economy which is a speculative financial bubble inflated to bursting, is the result of a fundamental change in the functioning of the system, in which financial activities increasingly dominate over productive activities, and where an even broader trend, which we are now experiencing, is nothing other than a process of expansion of the tertiary sector that is taking us (presumably) from a society of industrial capitalism to a postindustrial society of services.

Services and long-term economic growth

Conventional theories of economic growth have made us so used to dealing with potential, optimal, or maximum growth, looking for balanced growth or a growth with full employment in the economy, or using guaranteed or natural rates of growth, that we hardly have time to be interested in the effective growth of real economies. I show in this article that the interest in effective growth must be interpreted as a reversion to empirical investigation, although it does not mean the abandonment of theoretical postulates but simply a specific way to approach scientific discipline. Among the broad range of questions related to longtenn (more than a century) economic growth, I should like to focus on just a few, which can be summed up as follows:

1. Judging from capitalism's past history, what grows more rapidly: goods or services? And in the realm of goods, what type of goods grow more rapidly, capital goods or consumer goods?

2. Further, what do the two preceding questions have to do with longtenn economic growth? Or more precisely, how does the presumed unequal pace of growth of the different types of commodities indicated affect the long-term rate of growth of capitalist economies?

Anyone attempting to give a definitive response to these questions would

do well to take into account the following preliminary reflections:

First, the term tertiarization, which refers to the growing weight of the tertiary sector, or service sector, in employment and in the GNP of economies, and especially in the more developed economies, appears to suggest a facile response to the first question of the greater long-term growth of services. However, as we all know, expansion of the tertiary sector could also be due wholly to an increase in the relative price of services, such that the ratio between the quantity of goods and the quan-

WINTER 1999-2000 35

tity of services remains constant or rises in favor of goods. Further, regardless of how this global quotient evolves, it would also be interesting to know the evolution of the ratio between services and the different quantities of goods, in particular as regards agricultural goods versus industrial goods, and also consumer goods versus capital goods. It could be the case that the proportion between goods and services remains constant, but the ratio between primary goods and services diminishes at the same time as the ratio between industrial goods and services increases.

Second, in my opinion the other question--that of the relation of inequality-is more important:

long-term rate of growth of capital goods> the rate of growth of consumer goods, which> the rate of growth of services

The most relevant aspect is not that goods increase more rapidly than services, although this would disappoint those who sing the praises of the service society, but that capital goods have a higher rate of growth than other goods or services, because this has two important implications for the arguments I develop in this article.

First, it means that capital and investment grow more rapidly than production, wages, and profits, thus giving rise to a trend in the rate of profit that is of crucial importance for the evolution of capital accumulation and long-term growth.

It also means that the nominal expansion (i.e., not real expansion) of the tertiary sector of the economy can be explained in terms of the differential growth of capital goods in the sector of final services, which is marked by differentiated behavior in terms of productivity, prices, and long-term rate of growth relative to the other sectors--agriculture, industry, and intermediate services--for precisely this reason.

I hope that after this long introductory section, the reader will feel that he has understood better the reason for some of these tendencies or at least will have found some guidelines indicating the direction in which reflection on these tendencies should go. I divide my presentation into three sections. First, I analyze the various arguments used to defend the thesis that services and the expansion of the tertiary sector are evils. Second, I investigate the arguments of those who defend the opposite thesis, those who see the expansion of the tertiary sector as the key to


access to a postmodem society in which the smoke and sweat of industrial society give way to a clean and pretty postindustrial society. In the third section, I examine the process of growth in tertiary employment as a natural result of industrialization and capitalist accumulation and probe into the general dynamics of this capital accumulation.

Threats and dangers of the expansion of the tertiary sector

The principal charge against the process of expansion of the tertiary sector is based on its supposed role as a brake on economic growth. Various arguments have been put forth demonstrating this role, but the result of the discussion--the negative effect on growth that the expansion of the tertiary sector is supposed to have-is the same in all cases, even when the defenders of this thesis are perfectly aware that in practice periods of rapid expansion of the tertiary sector and rapid growth can go hand in hand, as occurred in the so-called golden age of growth in the decades after World War II. In this section, I analyze three different versions of this thesis (subsections A, B, and C) without going into the argument used increasingly against services (and by extension against the expansion of the tertiary sector), namely, the charge of monopolistic" and inflationary behavior and hence behavior at variance with what is needed for a country to remain competitive in a world that is becoming more and more globalized with each passing day.

A. The first and oldest version of the thesis of the negative contribution of the tertiary sector to long-term economic growth is to be found in the first authors who worked on the concept of the tertiary sector (see Clark 1940; and Fourastie 1963), although it is true that there are among them defenders of the contrary thesis," and that the thesis continues to be encountered in the most recent presentations." Clark, source of a well-known definition of industry, 15 identifies the latter with large-scale production, at the same time that he points out most services are provided on a much smaller scale and "demand a much smaller amount of capital goods than industry or agriculture"; thus we see to what extent Clark considers small-scale industrial production as rather the production of services: "The production of goods on a smaller scale, such as the bakery business, clothing manufacture by seamstresses or shoe repair is almost always excluded [ from industry], * and hence figure among

* Addition in brackets is by the author, not by the translator.

WINTER 199~2000 37

the services" (Clark 1940, 104). Fourastie in tum is even clearer in that he includes in the definition of the sector its varying relation with technical progress: "I will call activities that benefit from an average technical progress (agriculture) primary and activities that enjoy considerable technical progress (generally industrial activities) secondary and I shall call tertiary those activities in which technical progress is plodding (commerce, administration, the liberal professions, personal services, etc.)" (Fourastie 1963, 18).

However, the clearest version of the thesis of the presumed dangers in the expansion of services for global growth derives from Baumol (1967), who warned that the rate of global growth will be "roughly zero, as employment concentrated in stagnant sectors with zero growth in productivity.'?" Although it is true that services do not grow in real terms or grow much less (see Kuznets 1966; Maddison 1982), the relative weight of growth of the various sectors in total growth will shift toward the tertiary sector if it is certain that this will increase its weight in the monetary product. As it also appears that the lower growth in productivity in services is beyond doubt (Baumol, Blackman, and Wolff 1985; Saxonhouse 1985), it is clear that the result will be a smaller growth in global productivity. But the same will not occur in the rate of growth of production since the persistence in the relative real weight of the tertiary sector is proof in itself that its long-term rate of growth is the same as the rate of growth of the whole of the economy. I must thus alter my first impression in this regard (summed up in Guerrero in 1993), which prompted the thesis that there was a declining tendency in the rate of growth over the long term; I would now say that a constant rate of growth of production is compatible with a declining rate of growth (long term) in productivity and an increasing rate (over the long term) of growth of employment, which is also not incompatible with an increase in unemployment and the unemployment rate, since this only requires an even more rapid growth in the employable population."

B. Another version of the thesis examined in this section refers more to potential growth than effective growth, and states that the potential rate of growth (in the short and mid-term) of the economy will tend to decline as a result of the negative influence of the expansion of production of non basic goods (in the sense given by Sraffa and Pazinetti: see Juan 1998). The basic argument assumes Harrod's model of growth and equates the potential rate of growth with


Harrod's guaranteed rate of growth. In this regard it is assumed that the ratio between capital and the product is constant over the long term, or that the rate of change in production is identical with the rate of change of capital, so that we may write:

s s

Y' S Y P

Y = ~ = K = K = r • Sc = r • (1 - Cc)'

Y p

where s is the average tendency to save (or the rate of savings) = SI Y; v is the capital/product ratio = KfY (and hence Y' IY = s/v = S/K = IlK = K'/K); where the equality between savings and investment is guaranteed not only by macroeconomic definitions-that is, not only ex post but also ex ante-insofar as we assume that we are in macroeconomic equilibrium since the capital/product ratio is one that is satisfactory to entrepreneurs, given that total investment coincides with desired investment.

Although Juan does not state it explicitly, the linear equation of this negative ratio could be Y' IY = r - r : Cc' which could be simply written Y'/Y = s/v since:

y S Y V

where Sc and Cc' which together form unity, are the saved and consumed parts, respectively, of profits or capitalist income.

As we see in Figure 1 (b), although it is true that the potential growth rate is a decreasing function of Cc' it follows from the preceding expression that the rate of growth depends not only on C c but also on the value of r (i.e., the rate of profit), which brings us directly to the kind of reflection that I am reserving for a later discussion in this essay. However, we can see from the very first glance that a decrease in r can impart to the economy a lower potential growth rate even though C c decreases at the same time, as occurred in the movement from point 1 to point 2 of Figure l(b). In my opinion, the confusion between the different definitions of productive labor given by Juan," although they are undertaken from a Sraffian perspective-which identifies productive labor as the producer of basic goods and hence differs from the Marxist formulation

WINTER 1999-2000 39

( SlY S I K'

Y' = --- = --- = --- = ---

___ =!..= KIY KKK

Y •

= : = r-s = r- (I - Cc) = r - r· Cc

Y= Y'/y

y=y'/y

(a)

(b)

Figure 1. Relationship Between the Rate of Growth, Profitability, and the Rate of Accumulation

defended by Shaikh and Tonak (l994)-shares with the approach of these authors the failure to draw a clear distinction between the three dimensions presented in Marx by the question of productive labor since Marx's analysis also influences Juan's definition. I have criticized this point (Guerrero 1993) in Shaikh and Tonak's work in an earlier version of their book (Shaikh and Tonak 1989), which coincides in this regard with the most recent [version] so there is no need to repeat here all the arguments used in that work."

C. A final version of the thesis of the negative influence of the expansion of the tertiary sector on the long-term growth rate of the economy has to do with the interpretation certain Marxist radical currents give to the causes of the decline in the system's average rate of profit and its influence on the rate of capital accumulation. For authors such as Moseley (1987, 1992), the growth in white collar employment and nonproductive work that comes from the expansion of the tertiary sector is the reason for a growing drain on the profits generated by this system, which is causing a decline in the rate of exploitation and consequently in the


rate of profit (regardless of what happens to the composition of capital)." The long-term decline in the rate of profit drives down the rate of capital accumulation, and that is the reason why the long-term growth rate finally enters into decline. The chain of argument is easier to understand if one breaks down the rate of profit (r = PIK or pvlK in Marxist terms, where P refers to profits and pv the surplus value) as follows:

rate of surplus value (exploitation)

r = pvlK = (pv/v)/(K/v) = composition of capital in value terms.

The expansion of the tertiary sector and the advent of postmodernity

Although no author claims that there is a positive ratio between the relative growth of the tertiary sector and an increase in the long-term growth rate, many authors rate very positively (even triumphantly) the structural changes associated (as both cause and effect) with the expansion of the tertiary sector. The heyday of these ideas-and this is no accident=-coincided with the golden age of capitalist growth (the 1950s and 1960s), when there were both high general growth rates and a rapid rate of expansion of tertiary activities. However the present period is witnessing the development of ideas in the style of Bell (1961) and other theoreticians of postindustrial society as part of the old but always relevant discourse of the importance of "changes observable at the present moment" which suggest that we are entering or are about to enter a new society or social or economic form, or at least a new stage of our society and our economy.

At the present moment, when growth rates are no longer so gleaming as three decades ago but rather we have entered into a stage of clear slowdown (with growth rates lower in the 1980s than in the 1970s and lower still in the 1990s), reference to the empirical data cannot come to the aid of these theories. Instead, authors most involved in the ideological battle going on in our time under the banner of postrnodemity have taken the baton. Postmodernity implies many things, but perhaps most of all the end of the modern age. Whereas in global terms this is tantamount to the end of history, on the more modest terrain of economics it merely signifies the end of industrial society and the modem theories that analyzed it: that is to say, the theories that, like the classical theories and like Marx's, proceeded from the eighteenth-century (or mod-

WINTER 1999-2000 41

em) premise of progress to predict structural tendencies in capitalist development that do not at all seem to please the postmodern skeptics.

Hence it is not surprising that Bell, the most outstanding representative of the thesis of postindustrial" society, proclaims himself the continuer of the long tradition of sociologists and economists involved in what he calls a "dialogue with Marx," although he clarifies that the dialogue is not about the historical tendency of capitalist accumulation analyzed in the first volume of Capital but rather about what he calls the "schema of volume 3," where Marx speaks of the development of the financial sector, of corporations, and of third persons (intermediate classes between the wage earners and capitalists) (Bell 1961, 60-61, 7 Sff). Bell and his followers believe they have found in the accelerated growth of the tertiary sector the base of the social masses who will ultimately lay to rest the steady movement predicted by Marx toward the expropriation of the capitalist. 22 Although Bell's effort to link up with as many antecedents of his historical line that he can find is praiseworthy," it is of special interest to recall that Sombart's idea of "late capitalism" identifies this with the post-1914 era, or the old discovery of a new middle class by E. Lederer (in an essay of 1912),24 which Bernstein in part anticipated at the end of the nineteenth century when he referred to this social stratum (although without naming it) as a proof of the mistakenness of Marx's predictions.

The expansion of the tertiary sector as a feature of the internal momentum of capitalist industrialization

The capitalist mode of production requires primitive capital accumulation: that is, a process which creates an ever-growing gap between the means of production and labor power, whereby the former are concentrated in the hands of the large-scale proprietors of capitalist enterprises and the latter becomes the new wage-earning class under the domination of the capitalist class (the formal subsumption of labor to capital). But subsequent development of capitalist production takes place on the basis of capitalist accumulation in the narrow sense, which consists of the utilization of part of the annual surplus value extracted to expand the global value of capital invested in the production process and the valorization of capital. The property-owning class uses the process of social production as merely a means to enhance the value of its capital, an objective which imposes a specific form on the process of mechaniza-


tion or the growing use of machinery in production, which makes it possible to move on to the real subsumption of labor under capital. Mechanization has been moving in the direction of growing automation of production since the industrial revolution, but the social context in which this process takes place gives it a double slant.

First, automation aims not to liberate man from work but to facilitate the maximum extraction of unpaid labor: accordingly the substitution of these imperfect machines that are workers, potentially rebellious and! or weary, by workers nigh on to perfect (i.e., submissive and nevertiring machines) is merely the materialization of the apparently most appropriate way to achieve this objective. However, the method proves to be contradictory when its success depletes the source from which surplus value flows: live labor of direct workers.

Second, the machine is an arm of the capitalists not only in their class struggle against labor but also in the intercapitalist battle dri ven by competition, which prevents the individual capitalist from trusting his class companions and obliges each of them to try to bankrupt the others as the only means to ensure his share or position on the global market. In this struggle, mechanization makes it possible for the capitalist who outstrips all the others to reduce costs and prices even though over the long term it can increase costs and prices for the capitalist class as a whole.

The contradictions indicated in the two preceding paragraphs make the accumulation of capital a nonlinear process whose nonuniform dynamic is basically attributable to the impact the indicated problems have on profitability: in other words, on the rate of profit in this system (r = PIK). The most frequent way the various influences operating on g are analyzed is to break down profitability into the result of two factors:

p p

r=-=-

K W,

K W

where P/W (profits or surplus value divided by wages) is the rate of exploitation and KIW is the composition of capital in value terms. Although the rate of exploitation increases with time, the composition of capital in value terms increases more rapidly, with the result that the rate of profit declines over the long term (see two empirical measures

WINTER 1999-2000 43

of these tendencies for the Spanish case in Guerrero 1990 and Roman 1997).

There is abundant literature on the impossibility of deriving a declining r from the two rising tendencies that affect simultaneously the numerator and denominator of the preceding expression. However one can counter this purely mathematical argument with theoretical and empirical arguments, especially those that combine both aspects in the same demonstration. Hereafter, I use this type of argument in two ways: first making use of the usual breakdown of the rate of profit and then using a different breakdown, which, however, leads to the same result.

The decline in r in the usual breakdown

Considering that r = PIK, we can write (see Shaikh 1988, from which we get this argument, although the symbols do not coincide) r = (PlY) / (KIY) where Y = P + W. We can easily see that:

p

r=-----

K (W+P)·-

Y

1

1 K

(1+-)·-

pi y'

Where p' is the rate of exploitation (p' = P/W). If it is assumed that both p' and KIY increase with time and if we make p' = f(t), (KIY) = f(t) we have:

1

r

(1 +

1

--). F (t).

f (t)

Let us use an empirically plausible value for f(t), for example the one provided implicitly by Ricardo in the example he uses in chapter 6 of his Principles, where p' = 2 (wages represent between 30 percent and 33 percent of the total product). If f(to) = 2 then (1 + lIf(t)) = 1.5; accordingly, although f(t) may increase to infmity, the expression in parentheses cannot be lower than a value equal to 1: that is, unity. In other words, it cannot decrease by more than one-third of its initial value. In contrast, if F(t) increases over the long term by more than one-third, the value of the term in parentheses will increase and as a consequence the value of r will decrease. The question raised by this point is: Should one expect F(t), (i.e., KlY) to increase over the long term by more than 33 percent?


The answer is yes, without any doubt. Indeed, an annual growth of KlY of 1 percent for 180 years-the time that has passed since the first edition of Ricardo's Principles, signifies a sixfold multiplication of the initial value of K1Y, sufficient for the rate of profit to decline-even in the case where the rate of surplus value increases to infinity-e-tc a fourth of its initial value.

What all this means is that if Marx had expressed the rate of profit, in addition to p' /vcc (where vee is the value composition of capital), as:

r -

p --L K

Y

it would have been more evident that the increase in the numerator has a limit that does not exist for the denominator; for example ifP/Y is 0.5, it can never be more than one, whereas nothing prevents the quotient KI Y from increasing more than twofold, threefold, or more. The neoclassical and post-Keynesian theories of economic growth assume that KlY does not grow over the long term; it is not for nothing that Kaldor called attention to the constancy of KfY as one of the stylized facts in her famous article; but this is a mistake, since, as we shall see below, the increase in K1Y is only another way for the tendency of I1Y to rise to manifest itself.

The decline in r in the new breakdown

Over the long term, the rate of change of capital tends to equal and converge with the rate of change of investment, regardless of the initial value of I1K.25 For example, if we assume that investment grows at a constant rate of 20 percent, capital will grow at the same rate, whether we start with an initial IlK value of 5 percent or IlK = 33 percent, as is observed in Figure 2.

Assuming that investment and capital grow at the same rate over the long term, the growth in KIY merely signifies that I1Y is increasing. But the increase in I1Y seems to be one of the most characteristic and wellknown traits of capitalist development, which tallies well with all the theoretical and empirical evidence available:

1. Assuming that over the long term, macroeconomic equilibrium

WINTER 1999-2000 45

33%
~ 30%
00.
a:l
o 25%
-
0
..c 20%
~
0
.....
0) 15%
'0
CD 10%
co
a:
5%
0 (I/K) initial = 33%

(11K) initial = 5%

60

120

years

Figure 2. Long-Term Convergence of K'/K Toward I'll

requires an ex post equality of saving and investment, the preceding is tantamount to saying that the average propensity to save tends to increase, which concurs with Engel's law, with the Keynesian functions of consumption and savings, and with the empirical evidence of the evolution of the share of consumption in the GNP over the long term (thus according to Maddison 1991, consumption changed from 85 percent of GNP at the beginning of the nineteenth century to 58 percent in 1989).

2. If one assumes that K does not increase as rapidly as I, the result will be long-term growth in the quotient UK, which would mean that the rate of growth of capital increases continuously. If we assume that K does not grow more rapidly than Y,26 that would mean a more accelerated rate of growth of production over the long term, which is not confirmed empirically, since between the nineteenth and twentieth centuries the annual rates of change of the GNP of the most-developed countries practically coincide.

The data available on the share of investment in the domestic product indicate very clearly that one of the most noteworthy features of capitalist industrialization has been a century of more rapid growth of investment than of production. The effect of this has been that investment has increased from a very small percentage of GNP at the beginning of the past century to very much higher proportions in our times (see Figure 3). Thus, for example, if we use the data provided by A. Carreras (1990)


KIY (1901-1987)

Figure 3. The Capital-Product Ratio in Spain, 1901-1987

Source: Guerrero 1989.

for the Spanish case, we obtain a growth of the quotient IlK of twelvefold in 140 years (accordingly I1Y and KlY grow at a rate greater than the 1 percent used in the preceding section, the net result being a growth of 600 percent in 180 years).

All of these arguments suggest one other way to break down the profit rate:

r = (I/K)/(IJP).

According to this formula, the general rate of profit of the system declines over the long term because a constant growth rate of global capital of the capitalist class can only take place at growing cost: the reinvestment of an increasingly higher percentage of profits extracted from production. If we say that Sc = IJP, and if we invoke the definition of two of the most used coefficients in the theory of economic growth (s = SlY, v = KlY), the above could also be written as:

r = (s/v)/s .

c

Notes

1. As interesting as it may be, I do not here dwell in any detail on the relationship between ideology and places. I simply ask whether places as distant and different as the United States, Australia, Europe, or Japan form part of the Western world;

WINTER 1999-2000 47

does this term have any meaning at all apart from the fact that it can be used as a modest synonym for capitalist by those timid ideologues who prefer in fact to avoid the alternative: market societies? The Spanish political cartoonist EI Roto puts the following question in the mouth of a child: "Now that the West covers the whole world, where are we going to say that the sun rises?" (EI Pais, 27 June 1999).

2. In the preface to his father's posthumously published book (see Mattick 1983), Paul Mattick, Jr., justly describes Grossmann in this way on the basis of the fact that this marginal member of the Frankfurt School ended his days in postwar Stalinist Poland after passing through the Anglo-Saxon world in the 1930s and 1940s. But the correspondence between Mattick and Grossmann demonstrates how similar was their thought in many of the different questions they touched upon, above all the question of the analysis of the relationship between the objective factor and the subjective factor of the anticapitalist social revolution.

3. Not coincidently, the bookMalX and Keynes: The Limits of the Mixed Economy consists of writings that extended over a period of more than thirty years.

4. Mattick wrote: "Class loyalty itself opposed Keynes to Marx: 'When it comes to the class struggle as such,' he wrote, 'my local and personal patriotism ... are attached to my own surroundings. I can be influenced by what seems to me to be justice and good sense; but the class war will find me on the side of the educated bourgeoisie.' Essay in Persuasion, London, 1931, 324" (Mattick 1969,22).

5. It should not be forgotten that despite his Peruvian origin and his London residence, Vargas Llosa was granted Spanish nationality with the express consent of the Spanish government.

6. The Law of Accumulation and Collapse of the Capitalist System has only three parts other than the introduction and the final remarks. In the Spanish edition, these bear the following titles and cover the follow pages: (1) "The collapse of capitalism in the scientific explanations to date" (pp. 7-53); (2) "The law of collapse" (pp. 54--186); (3) "Modifying countertendencies: verification of the abstract theoretical analysis on the basis of the concrete phenomena of capitalist reality" (pp. 187-373). As is known, the third chapter is divided into two major parts: (a) "The reestablishment of profitability via internal structural modifications in the mechanism of capitalist states"; and (b) "The world market: The reestablishment of profitability via domination on the world market:

The economic function of imperialism"; but this is not the appropriate place to go into details.

7. The explanation Mattick offered in 1978 is much clearer. In his famous article on Rosa Luxemburg one may read, for example, that her theory "has in a sense been acknowledged as a precursor to Keynesian economics. Michael Kalecki and Joan Robinson, for example, interpreted her theory as a theory of 'effective demand.' ... Luxemburg thought that imperialism, militarism, and preparation for war facilitated the realization of surplus value by transferring buying power from the masses to the State, just as modem Keynesianism proposed to achieve full employment by deficit spending and monetary manipulation" (Mattick 1978, 99). Behind the diagnosis, the explication of the inadequacies ofthis analysis is very clear: "However, although it is certainly possible to achieve full employment in this way for a time, it is not possible to maintain a state of grace of this sort, since the laws of functioning of the production of capital require not a different distribution of surplus value, but rather its continuous increase. Insufficient effective demand is only an-


other name for insufficient accumulation, since only the expansion of capital is able to generate the demand capable of producing prosperity. In any event, the present collapse of Keynesianism makes it unnecessary for us to attack it on the theoretical plane. One needs only to note that that at present the simultaneous and irremediable rise in unemployment and inflation is sufficient proof' (ibid.).

8. That is, "loans enable the government to meet extraordinary expenses without the taxpayers feeling it immediately, but they necessitate a consequent increase in taxes. On the other hand, the raising of taxation caused by the accumulation of debts contracted one after another compels the government to have recourse to new loans for extraordinary expenses. Modem fiscality, whose pivot is formed by taxes on the most necessary means of subsistence, thus contains within itself the germ of automatic progression" (Mattick 1969, 156).

9. Another quotation has the same sense: "As the limits of private profit production are also the limits of government-initiated production, the latter will become less effective as it increases in scale. A flourishing mixed economy can thus only be considered a temporary state, or a transitory condition between laissez-faire capitalism and state capitalism" (ibid., 190).

10. Other notable anticipations are: Itoh (1990) on the crisis in the Japanese economy, whose industry produced less in 1998 than in 1989, or (l venture to predict) Moseley (1999).

11. Certain structural tendencies in the evolution of capitalism foreseen by Marx are easy to measure and permit few doubts for those who want to compare them with the actual facts with no intent to conceal realities. This is the case, for example, with the tendency toward proletarianization, or the progressive reduction of the economically active population to wage earners. This development would be even more obvious if we had access to the overall data for the world economy, but if we combine the data provided by Mandel with those quite recently provided by Brunet (1999) we get Table 1, which shows this evolution for some of the main capitalist countries over the past seventy years.

12. The bad image of monopoly in conventional welfare economics is projected in its entirety onto services insofar as the latter is a sector much more shielded from world competition than are the manufacturing sectors, to the point that when the theory of international trade draws a distinction between tradable goods and nontradable goods, it normally identifies the latter with services. This impermeability to competition supposedly invests the service sector with a market power or monopoly power that allows it to raise prices above costs, thereby contributing to inflation, just as would a typical monopoly (in reality this applies to any enterprise other than one in a state of perfect competition) which detracts from the general welfare by selling at a higher price and in smaller quantities than a "competitive" enterprise. Elsewhere (Guerrero 1995, 1996), I have fought against this argument in the context of a general discussion of the idea of competition, but the arguments for and against the idea of the double deleterious effect of monopoly require further clarification, for these are also the arguments that can be advanced for and against the thesis that the (growth of) the service sector entails a threat to long-term overall economic growth. From the traditional perspective, the monopolist enterprises produce less at a higher price than is the case in perfect competition. However, from the dynamic perspective of competition, this is not necessarily the case: if the monopolist enterprise has the same costs (and there is no reason it should not) the situation

WINTER 1999-2000 49

Table 1

Degree of proletarianization of the workforce in selected countries and years

1930-40 1974 1997
United States 78.2 (1939) 91.5 91.5
Japan 41.0 (1936) 72.6 80.8
Germany 69.7 (1939) 84.5 (FRG) 90.7
United Kingdom 88.1 (1931) 92.3 87.3
France 57.2 (1936) 81.3 87.6
Italy 51.6 (1936) 72.6 74.7
Canada 66.7 (1941) 89.2
Belgium 65.2 (1930) 84.5 83.6
Sweden 70.1 (1940) 91.0 94.7
Spain 52.0 (1954) 68.4 78.5
Europe 15 84.3
Simple averaqe- 65.1 83.2 86.4 Sources: Mandel (1976/1981), p. 133, based on Mandel (1962); Brunet (1999), Table 14.1, p. 640; and our own compilations (wage earners plus number of unemployed in percentage of the economically active population, for which reason the data do not correspond with Brunet's table [1999] which includes only wage earners as a percentage of the employed population).

a Eight countries without Canada

could be the one described in Figure 4(b) instead of Figure 4(a), thus negating in one fell swoop the enormous volume ofliterature on the pernicious effects of monopoly as far as welfare economics is concerned.

13. Thus A. G. B. Fisher, who appears to have been the first to speak of the tertiary sector (see Fisher 1939), after reminding us that the shift of "employment and investment" from the primary to the secondary sector and especially to the tertiary sector is neither a new phenomenon nor a phenomenon typical of the twentieth century, whereby he appeals to the authority of some ofthe writings of Griffin (1887) and D. A. Wells (1890, cited in Bailly and Maillet 1988, 100), criticizes those who oppose this tendency, whom he accuses of being "hostile to economic progress." He writes: "It has become the fashion in certain circles to dismiss certain modern kinds of tertiary production on the pretext that it would be perfectly possible to dispense with certain utterly superfluous activities that, in addition, compete unjustly with the "true" producer in terms of income distribution. Tertiary production, like the other forms, is susceptible to wastefulness, and it may be that an excess of capital and labor finds itself attracted to it. But the war has shown us the important role performed by tertiary services in raising the living standards of even people of modest income" (Fisher 1945, quoted in Bailly and Maillat 1988, 100).

14. In his very recent, exhaustive, and documented book on European integration, Brunet (1999) brings together very up-to-date information on this and many


Price

Price

p

D

D

Q

Q

(a)

(b)

Figure 4. Two Interpretations of the Monopoly: (a) Conventional and (b) Dynamic

other relevant questions, which he often compares with Japanese and American economic statistics. For example, he says that "the classical pyramid of activities in which the unproductive services occupied a limited place at the top end," has been turned upside down so that now we have an inverted pyramid (see Figure 5, which comes from Brunet 1999, p. 96). However, Brunet does not forget to clarify that "services are much less capital-intensive than is industry," for which reason "productivity will grow in services at a rate less than the average for the economy as a whole" (ibid., 97).

15. "Industry may be defined quite precisely as the continuous large-scale transformation of raw materials into transportable products. The functional term 'continuous' excludes all processes related to the handcrafted manufacture of clothing, shoe repair, etc. Similarly, the term 'transportable' includes all processes of construction and installation that are classified more appropriately as service activities. It is this continuity of process and this transportable aspect of the product that constitute the essence of industry: it concentrates at one point the production of goods that would be entirely consumed bit by bit by all parts, thus subdividing the productive process and making it more economical" (Clark 1940, quoted in Bailly and Maillat 1988, 102).

16. The content of Baumol's thesis is summed up well in the following paragraph from one of the Spanish authors who has analyzed services most thoroughly:

"Given this technological inequality between the progressive sectors (goods) and the stagnant sectors (most of the services), and assuming a rough equality of wages, Baumol concludes: (a) The unit cost of production, and hence prices, in the stagnant sectors will grow without limit relative to unit costs and prices in the progressive sectors; (b) As prices thus rise, the real production of services will decrease and ultimately disappear if services are sufficiently elastic with regard to prices. But if the demand for services is sufficiently elastic with regard to income or sufficiently inelastic with regard to price, or if production was maintained with state aid such that the share in real total output remains constant, then the share of tertiary employment will grow without limit and tend toward zero in the goods sector; (c) Finally, under these conditions, the overall rate of growth will tend toward zero as

WINTER 1999-2000 51

Nineteenth Century

End of the Twentieth Century

Industry

Services

Industry

Agriculture

Figure 5. Inversion of the Pyramid of Activities

employment accumulates in the stagnant sectors with zero productivity growth" (Gutierrez Junquera 1993,50; emphasis added).

17. It should be kept in mind that demographic growth in the twentieth century has been much greater than in preceding periods and that female participation in working life has been increasing tremendously throughout the world.

18. On the other hand, the actual definition of Cc is problematic, at least in Juan's context (1988), inasmuch as he vacillates among various definitions different from the sphere circumscribed by what he calls the "level of consumption," (c), in his curve. Thus, this sphere is defined alternately as: (1) the totality of goods and services purchased with the surplus (p. 10); (2) the totality of nonbasic goods in Sraffa's sense (p. 11); (3) the totality of vertically integrated sectors (in Pasinetti 's sense) of production of nonbasic finished goods (p. 15); (4) the totality of goods "not susceptible to being accumulated as capital stock" (p. 18)-in other words, the goods manufactured by the "consumer sectors of the production capacity"(p. I8)--a dual definition which calls to mind on the one hand Smith's "second definition" (see Guerrero 1993) and on the other the definition of Shaikh and Tonak (1994) which I analyze below; (5) one of the above totalities broadened to include the activities of the "financial, commercial, advertising, and similar sectors," which entail "a considerable absorption of capital and labor without contributing to an increase in the output offinished goods in the sectors that utilized such services" (pp. 18-19). An additional complication of this study derives from the fact that the title refers only to a part of nonbasic goods, to wit Trabajo improductivo y servicios publicos. But the final conclusion makes it clear to which sphere it is to be applied: "The expansion of non basic goods (public and private) in the end results always and necessarily in a decline in the potential rate of economic growth over the short and mid-term. This conclusion may be considered fundamental insofar as it is independent of the form used to account for services, of how these services are offered (by enterprises or by public administrations), and of how they are financed (prices, taxes, loans)" (Juan 1988,74). This multiplicity of meaning seems to pose no problems for Juan, perhaps because in the transition from (1) to (2) and (3) he sees only a progression to greater precision (greater rigor) and because he sees no differences between (3) and (4). For his part, the differences between (4) and (5) are reduced in his argument to a question solely of "technological requirements" or a


broader analysis that also takes into account the "socioeconomic imperatives" that dominate the capitalist economy (p. 18).

19. Rubin ([1929] 1974) develops and condenses in very clear form Marx's ideas in this regard. See a historical summary of the treatment ofthis problem in chapter 5 of Guerrero (1997), and a more detailed analysis in Guerrero (1989).

20. However, for other authors the impact of growing white-collar employment is exactly the contrary. Thus, Dumenil and Levy (1993) write that this growth is, "despite its costs, a fundamental countertendency to the falling rate of profit," which has made it possible for the latter to be arrested for a considerable period of time, and that after a movement of roughly a half-century, the levels of profit for the economy as a whole recovered as a result of this revolution in firm management"

(p.313).

21. "The term postindustrial society, which I coined, denotes a society that has moved from the stage of production of goods to the production of services" (Be111961, 57).

22. "A postindustrial society is based on services. Consequently, it is a give-andtake between people. What counts is not brute strength, but information. The key person is the professional, since he is equipped by his education and training to provide the types of specialization in increasing demand in postindustrial society. If an industrial society is defined by the quantity of goods that indicate a living standard, postindustrial society is defined by the quality oflife as measured in terms of services and commodities-e-health, education, entertainment, and the arts which are now desirable rewards possible for all" (Bell 1961, 152).

23. Thus, Bell mentions his affinity with theories "formulated by Werner Sombart, Max Weber, Emile Lederer, Joseph Schumpeter, and Raymond Aron" (p. 61), or with the contributions made by Saint-Simon, Durkheim, and Colin Clark (p. 95).

24. Lederer referred to the modem "service state" as far back as 1926.

25. For those accustomed to the typical methodological individualism of the neoc1assics, we may say that this result is perfectly compatible with the maximizing behavior of the individual capitalist who wants to maximize the rate of growth of his private capital as a means to increase his profits. To maximize the rate of capital expansion (K'/K = IlK), it is necessary, as a first maximum condition, for the first derivative of (IlK) to be zero. Thus, (I1K)'= 0 = (I'K - K'I)/K2, or I'll = K'/K.

26. Of course, such an assumption conflicts with the available empirical evidence, as Maddison demonstrates as follows: "Throughout the period from 1820 to 1992, the inventory of nonresidential buildings in the United States increased by 800- fold. A good part of this was capital 'expansion,' i.e., a provision to cover the needs ofa workforce that had increased by 38-fold, but a very considerable 'deepening' of capital was observed as well. Nonresidential buildings increased by 21-fold per employed person. The increase in inventory of machinery and equipment was much greater. The inventory in 1992 was about 5,400 times greater than in 1820; there was a growth of 141-fold per worker. In 1820, machinery was important in only a few areas of the economy; in 1992, it was present in large quantities in manufacturing, agriculture, and offices. In 1820, machinery and equipment accounted for only seven percent of nonresidential capital. In 1992, this proportion was 35 percent. In the United Kingdom, the growth in capital inventory was much slower than in the United States, mainly because the increase in employment was much lower. Nevertheless, the increase in building stock per worker was 15-fold, and in machin-

WINTER 1999-2000 53

ery and equipment 97-fold. For Japan our estimates of capital inventory begin only in 1890, when the country had an income level very much lower than the United States, and only an extremely small fraction of its capital per worker. In the process undertaken to catch up to the United States, the inventory of machinery and equipment per worker increased 207 times while the inventory of nonresidential buildings increased by 62 times in the period from 1890 to 1992. In 1992, the capital inventory per worker was greater than in the United States. There seems to be no doubt that high rates of capital accumulation and high and growing levels of capital per worker were a necessary condition for the increase in productivity achieved in the capitalist epoch" (Maddison 1995,42 and 45).

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