Exodus and Counter-Economics, Part 3.1: Libertarian Class Theory

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The Roots of Libertarian Class Theory

“The theory of class conflict as a key to political history did not begin with Karl Marx,” wrote Rothbard in “James Mill and Libertarian Class Analysis”. “It began… with two leading French libertarians inspired by J.B. Say, Charles Comte and Charles Dunoyer, in the 1810s after the restoration of the Bourbon monarchy.” How was it that Comte and Dunoyer, the former a journalist and the latter an economist, came to hold the title of originator of class conflict?

Both Comte and Dunoyer were radicals of their time and place. Le Censur, the journal they founded together in 1814, was an organ of pro-liberal, anti-Bourbon and anti-Bonaparist rabble-rousing. The influence of this time of uprising and turmoil, the era of revolutions, is the foundation upon which their class theory is built. Like the dialectical opposition between the bourgeoisie and proletariat offered by Marx (who indeed took turns praising – and criticizing – both Comte and Dunoyer), there are two classes locked into political struggle:

  • The rulers, the group that has seized state power
  • The ruled, the group subordinated by the rulers, “taxed and regulated by those in command”

It’s easy to see how this would dovetail precisely the sort of political line that Rothbard held for the majority of his life: that the state was a vehicle of domination that did little than oppress others. At the same time, it allowed him to create a juxtaposition: on one side, the class struggle, and on others, the free market. In Comte and Dunoyer, “class interest… is defined in relation to the state” – itself a foreshadow of Marxist conceptions of the state that present it as a battleground for class conflict between the proletariat and the bourgeoisie. Drawing on J.B. Say, Comte and Dunoyer, by contrast, pose an opposition between the ‘natural state’ of relations between producers (encompassing both employers and workers), and the “conflict between interest [that emerges] between producers and non-producers, including those members of the producing class when they choose to exploite government-granted privilege.” (Ralph Raico Classical Liberalism and the Austrian School, pgs. 192-193)

Thus for Rothbard, the elimination of the state would entail the obliteration of class conflict – precisely the reverse of the Marxist (in particular the Marxist-Lenisit) suggestion that the elimination of class conflict would entail the “withering away of the state”.

Another vital piece of Rothbard’s class theory was pulled from the writings of political economist and sociologist Franz Oppenheimer. Despite being a self-described “liberal socialist” (that is, a free market anti-capitalist, in today’s parlance), Oppenheimer’s writings bestowed a large influence not only on Rothbard, but two of the major Old Right luminaries discussed in the last post: Albert Jay Nock and Frank Chodorov. Key was his book The State: Its History and Development Viewed Sociologically (published in German in 1908, but not translated until 1922), which was a resounding rejection of the “social contract” theories of the state; the state, Oppenheimer countered to Rousseau and his fellow thinkers, was founded in the first instance by one group defeating and subordinating another. In this respect, Oppenheimer’s theory hews closer to that of Comte and Dunoyer.

Oppenheimer drew a contradistinction between two different forms of obtaining wealth: on one hand, we have the “economic means”, which is achieved by way production and trade, and on the other the “political means”, which entails coercive action and the “forcible appropriation of the labor of others.” (Oppenheimer, The State, pg. 24) If the state has a distinct form, it is “an organization of the[se] political means. No state, therefore, can come into being until the economic means has created a definite number of objects for the satisfaction of needs, which objects may be taken or appropriated by warlike robbery.” (Oppenheimer, The State, pg. 27)

Taken together, a unified picture emerges: the state as a parasitic entity, founded upon violence, and shaped by its sole intention of appropriating the wealth generated by the relationship between owners and workers. Thus for libertarians like Rothbard, the state and capitalist were forces fundamentally opposed to one another. This would also entail a shifting of focus on what the state is structurally (i.e., the juridical order upon which it is founded) to what it does systematically, a move that effectively broadens the definition of the state beyond what most people would define it as. To quote Chris Sciabarra,

In his class theory, Rothbard operates with an expansive concept of the state. The state is not merely the governmental apparatuses and its fulltime bureaucracy. It is also constituted by the groups that have gained privilege through state action. The excluded groups constitute the ruled. The state provides legal, legitimized, systematic channels for the violent appropriation of the ruled to the benefit of a parasitic class. (Sciabarra Total Freedom: Toward a Dialectical Libertarianism, pg. 270)

Radical Libertarian Class Theory

Across the 1950s and 1960s, the intertwined sociological study of the relations between the economic and political elite and the “revisionist” school of American history emerged in syncopation with the burgeoning New Left. In 1956, C. Wright Mills published The Power Elite, a powerful exploration of the way that the top layer of American society, consisting of the corporate, political, and military elite, was not only detached from the everyday conditions of the rest of society, but in fact served as the actual basis of power in the country. As he wrote in the opening of the work,

As the means of information and of power are centralized, some men come to occupy positions in American society from which they can look down upon, so to speak, and by their decisions mightily affect, the everyday worlds of ordinary men and women… Whether they do or do not make such decisions is less important than the fact that they do occupy such pivotal positions: their failure to act, their failure to make decisions, is itself an act that is often of greater consequence than the decisions they do make. For they are in command of the major hierarchies and organizations of modern society. They rule the big corporations. They run the machinery of the state and claim its prerogatives. They direct the military establishment. They occupy the strategic command posts of the social structure, in which are now centered the effective means of the power and the wealth and the celebrity which they enjoy. (C. Wright Mills, The Power Elite pg. 4)

Amongst the historical revisionists we can count William Appleman Williams, who identified the rise of what he dubbed “corporate liberalism” – an approach to the population by those who power that saw individuals not only as passive actors, but groups who could be steered towards certain ends. A similar mode of analysis was offered by Gabriel Kolko; as was touched on in the previous post, Kolko had identified the Progressive Era not as some period of egalitarian reformism, but a period in which corporations utilized reformism as a means to protect their monopoly status from the threat of competition. This had ushered in, Kolko argued, a regime of what he called “political capitalism”, which would be exemplified by structures like Woodrow Wilson’s merger of state and economic power during World War I (as identified by Williams as the exemplar of his corporate liberalism) and the later New Deal. In the specific instance of the World War I, relations between classes had to be harmonized and variables eliminated so planning for production could continue as smoothly as possible, but this was also the more general condition of a society steered by industrialized mass production:

Political capitalism is the utilization of political outlets to attain conditions of stability, predictability, and security—to attain rationaIization –in the economy. Stability is the elimination of internecine competition and erratic fluctuations in the economy. Predictability is the ability, on the basis of politically stabilized and secured means, to plan future economic action on the basis of fairly calculable expectations. By security I mean protection from the political attacks latent in any formally democratic political structure… not that all of these objectives were attained by World War I, but that important and significant legislative steps in these directions were taken, and that these steps include most of the distinctive legislative measures of what has commonly been called the Progressive Period. (Kolko, The Triumph of Conservatism: A Reinterpretation of American History, 1900-1916, pg. 3; emphasis in original)

The approaches of Mills, Williams, and Kolko were synthesized by G. William Domhoff, who posed the study of elites as not a cohesive group, but as a disparate class with factions who regularly compete with one another. This competition, in turn, could be traced through the way that philanthropic foundations, think-tanks, academia, inter-governmental commissions and non-governmental organizations operate with regards to the population and towards one another. One key conflict identified by Domhoff, for example was between international-minded capitalists, more traditionally aligned with finance interests, and economic nationalists, who generally came from manufacturing (keep in mind that this was prior to the era of globalization). Cohesive political legislation often emerged, in this pre-global era, when one sided one out against the other and concessions had to be made.

During his overtures towards the New Left, Rothbard readily adopted these various theories and integrated them into his libertarian class theory, which he in turn propagated throughout the pages of Left and Right. Often it became impossible to differentiate from the words written by Rothbard and, say, the neo-Marxist analyses offered by people like Paul Baran and Paul Sweezy in the pages of Monthly Review  – or indeed, in the journals of the original Italian Autonomists. Consider the following words, for example, used to describe the Fordist era:

[It was] a new order marked by strong government, and extensive and pervasive government intervention and planning, for the purpose of providing a network of subsidies and monopolistic privileges to business, and especially to large business, interests. In particular, the economy could be cartelized under the aegis of government, with prices raised and production fixed and restricted, in the classic pattern of monopoly; and military and other government contracts could be channeled into the hands of favored corporate producers. Labor, which had been becoming increasingly rambunctious, could be tamed and bridled into the service of this new, state monopoly-capitalist order, through the device of promoting a suitably cooperative trade unionism, and by bringing the willing union leaders into the planning system as junior partners. (Murray Rothbard and Ronald Radosh New History of Leviathan: Essays on the Rise of the American Corporate State, pgs. 66-67)

and again:

For their part, the liberal intellectuals acquired not only prestige and a modicum of power in the new order, they also achieved the satisfaction of believing that this new system of government intervention was able to transcend the weaknesses and the social conflicts that they saw in the two major alternatives: laissez-faire capitalism or proletarian, Marxian socialism. The intellectuals saw the new order as bringing harmony and cooperation to all classes on behalf of the general welfare, under the aegis of big government. In the liberal view, the new order provided a middle way, a “vital center” for the nation, as contrasted to the divisive “extremes” of left and right. (Rothbard and Radosh New History of Leviathan, pg. 68)

Rothbard would carry these ideas with him as he drifted towards the right (unsurprising, given his tussles with the Koch brothers), and by the 80s and 90s attacked economic globalization on the same grounds as the paleoconservatives and Buchananites he was now acquainted with, finger ‘left-leaning’ institutions such as the United Nations, the Council on Foreign Relations, and the Trilateral Commission. SEK3 would note this by observing that “only rightist kooks and commies talk about ruling classes and class structures” – an observation that seems all too pertinent when we consider that with a decade there would be an unspoken – and very unfortunate – alliance between the far-left and the far-right when it came to the issue of globalization. But as Wally Conger later retorted,

Konkin was neither a rightist kook nor a commie. But his theory of ruling classes and class structures remains today a brilliant libertarian alternative to tired Marxist theories of class struggle. And that theory may serve as the foundation upon which to build a strong, revitalized libertarian movement.

It’s hard to say how much Konkin’s class theory truly deviated or enhanced Rothbard’s own bricolage of classical liberalism, Oppenheimer’s state theory, and the “elite theory” and historical revisionism of the New Left intellectuals. Nonetheless, libertarian class theory forms the center of SEK3’s agorist revolutionary practice by striking a distinctive parallel with leftist critiques of cooptation and recuperation: if the state is an organ of institutionalized violence and appropriation, how, then, could libertarians seek to utilize the state to their own ends? If philanthropic foundations, think-tanks and commissions were the functionaries of this order, how could libertarians receive funding from them, or enter into strategic alliances, while maintaining an ostensibly revolutionary position?

Next post, libertarian class theory will be compared with theories of hegemony and the Autonomist concept of the “cycle of struggles” to adapt and augment certain drawbacks of Rothbard’s problematic juxtaposition of capitalism and the state.

A BRIEF PRIMER ON VALUE THEORY, PART 2.2: The Transformation Problem

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Two Critiques

Of Equilibrium and Inconsistency

In von Helmholtz’s explication of the first law of thermodynamics, delivered at the Physical Society of Berlin in July of 1847, it is suggested that all energy in the universe is held at a constant level. Energy may change forms, moving from one state to another, with more energy accumulating in one state at time and more in another state at another – but the aggregate amount remains. The introduction of entropy, of course, altered this picture, leading to the scenario we described at the end of the previous post.

Marx’s value theory follows closely in these footsteps. Just as energy, in the framework of the first law of thermodynamics, remains at a cosmological constant, so does the amount of value in the economy. It might asymmetrically exist in different forms, Marx says, but there is an overall consistency when the system is viewed as a totality. This leads Marx to three suppositions concerning the capitalist system:

  • The total amount of value is equal to the total amount of prices
  • The total amount of profit is equal to the total amount of surplus value
  • The total amount of rate of profit in money is equal to the total rate of profit in value

It has been argued that Marx failed in properly demonstrating these conclusions, which arises we look the way the ““the transformation of values into prices of production” is handled. This itself requires just a bit of unpacking, so let us return to the example of our two table-making firms from the previous section. When we left off, Firm 1 had decided to follow in Firm 2’s steps by adopting labor-saving technology. Assuming that these firms are the two major ‘sinks’ for the production of value in this economy, the rate of profit would understandably fall. This falling rate of profit is an example of the average rate of profit. If a series of firms were to multiply (some chair-making firms, perhaps) and employ a large number of out-of-work laborers, we would almost certainly see a reverse on the rate of profit’s fall, and the average rate of profit would be one that is rising. As we’ve seen, this amounts to the moving around of the value in the system, locked into what Gilles Deleuze and Felix Guattari might describe as a “process of becoming”.

So what is the problem?

Within several years of the publishing of the third volume of Capital, Eugen Böhm von Bawerk, a marginalist economist who would bestow much influence on the nascent Austrian School, would attack Marx on the grounds of an inconsistency that arises from this very issue. While remarking that Marx was correct in that “it is quite true that the total price paid for the entire national produce coincides exactly with the total amount of value or labor incorporated in it”, he argued between the first and third volume of Capital two contradictory propositions arose:

  • That commodities sell at their value,
  • That commodities sell at their prices of production

This supposition, however, is not at all reflected in Marx’s own writings:

If prices actually differ from values, we must, first of all, reduce the former to the latter, in other words, treat the difference as accidental in order that the phenomena may be observed in their purity, and our observations not interfered with by disturbing circumstances that have nothing to do with the process in question. We know, moreover, that this reduction is no mere scientific process. The continual oscillations in prices, their rising and falling, compensate each other, and reduce themselves to an average price, which is their hidden regulator. It forms the guiding star of the merchant or the manufacturer in every undertaking that requires time. He knows that when a long period of time is taken, commodities are sold neither over nor under, but at their average price. If therefore he thought about the matter at all, he would formulate the problem of the formation of capital as follows: How can we account for the origin of capital on the supposition that prices are regulated by the average price, i. e., ultimately by the value of the commodities? I say “ultimately,” because average prices do not directly coincide with the values of commodities, as Adam Smith, Ricardo, and others believe. (Marx, Capital, Vol. 1, Chapter 5, note 24; emphasis mine)

In other words, we are back on the terrain of Marx’s attempts to go beyond the Ricardian LTV, which might very well have been the true target of von Bawerk’s attack (for an extensive examination – and rebuttal – on Ricardo, see Carson’s Studies in a Mutualist Political Economy). Otherwise, how could von Bawerk not have reconciled his understanding that ‘total produce’ was equal to ‘total value’ in the economy with the dynamic and evolutionary model that Marx had drawn from the popular sciences of their day? Andrew Kliman deals with von Bawerk’s flawed argument quite quickly, writing that

Although it is “quite true” that total price equals total value, it is also irrelevant, because it has nothing to do with “the exchange relations,” the rates at which goods exchange. Böhm-Bawerk’s point was that Marx tells us that goods A and B together sell for $3, while the question here is instead whether A sells for $2 and B sells for $1, or whether A sells for $1 and B for $2. (Kliman, Reclaiming Marx’s Capital: A Refutation of the Myth of Inconsistency, pg. 145)

Internal Inconsistency, Round 2: Ladislaus Bortkiewicz

The charge of internal inconsistency would be furthered in the early 1900s by the Russian economist and statistician Ladislaus Bortkiewicz, a neoclassicalist with Ricardian leanings. His treatment of the transformation problem would be largely overlooked for some forty years, finally getting recognition when it was released in 1949 in a single volume containing von Bawerk’s Karl Marx and the Close of His System (1896) and Rudolf Hilferding’s response (1904). For Paul Sweezy, a Marxist economist of the Monthly Review School (and the editor of the 1949 compilation), Bortkiewicz’s critique of Marx was not an attempt to shatter the foundations of Marxism (as was von Bawerk’s motiviation), but was actually a bid to rescue Marx by reconciling the reconcilable elements. As he wrote in his introduction to the volume, Bortkiewicz’s analytic starting point was

the flaw in Marx’s method of transforming values into prices of production… Most previous (and, for that matter, subsequent) critics consider the theory of value and surplus value to be the the Achilles’ heel of the Marxian system. Bortkiewcz almost alone regarded it as Marx’s most important contribution. By eliminating relatively superficial errors he hoped to be able to show that the core of the system was sound. (Paul Sweezy, “Editor’s Introduction” in von Bawerk Karl Marx and the Close of His System, pgs. xxix-xxx)

Bortkiewcz argued that when one applied Marx’s arguments to a standard neoclassical input-output table, the mathematical outcome was one that did not reflect the arguments made by Marx in Volume 3 of Capital. In Bortkiewicz’s model, constant and variable capital (measured in their value) flow into the input, and emerge from the output as commodities at the price of production – leading Bortkiewcz to suggest, in good Ricardian fashion, that prices for inputs are bought at the price of production. Yet when he plugged the price of production into the input side, the mathematics fell apart, and the three suppositions about the equalization of value, price, and profit falls apart.

This might strike the reader as odd, as it treats inputs and outputs as something whose prices are determined simultaneously. In other words, Bortkiewicz is suggesting that when the farmer utilizes $100 worth of corn seed, he or she is simultaneously determining $100 worth of corn. But this is not at all how it works in the real world. The farmer enacts labor on the seed corn, and must wait for it to grow; at the same time, the swirling miasmas of market forces and exogenous factors. Two hundred pounds of corn seed might be $150 at the beginning of the planting season, but be $130 or $175 the next. New prices of production are what determine input-costs, not the prices of production in the previous cycle.

This seems logical and sound, but the question remains: does it reflect Marx’s theory?

The Temporal Single System Solution

After Sweezy popularized Bortkiewicz’s essays, the critique became the dominant approach to Marxian economics. While its proponents hailed it as the solution that would save Marxism from the quagmire that marginalism, Austrian school, and neoclassicalism had relegated it to, it also critically undermined Marxism in multiple ways. On one hand, it effectively separated the question of price from the question of value; without the two being tied together, labor lost its centrality in the socialist debate. On the other hand, it also pushed back against notions such as the tendency of the rate of profit to fall: if price and value were separated, so was the binding together of value and rates of accumulation. It was for some of these reasons, perhaps, that the mainstays of Marxian thought – Sweezy’s Monthly Review School, for example – turned towards Keynesianism as a solution to the other problems Marx had identified.

In the 1980s a pushback against the Bortkiewiczian perspective arose in the form of the temporal single system solution (TSSI), led by people like Andrew Kliman and Ted McGone. The goal of the TSSI was to illustrate that there was, in fact, no internal inconsistency between Marx’s propositions, that a solution could be found that allowed the cohesiveness of the profit, value, and price equalization with the relationship between labor, vale, and price. Put most simply, the TSSI solution is precisely what I alluded to above – keeping in mind that the cost of production would play a role in the price of production, while understanding that one cannot determine the price of input and output simultaneously.

The TSSI followed in the wake of what was called the simultaneous single system solution (SSSI), which posed to solve the Bortkiewczian conundrum by treating value and price as separate things that would none-the-less be determined interdependently. Variable capital is treated as the sum value received in the form of wages; constant capital is treated, as Kliman writes, “as the sum of value needed to acquire the means of production.” He continues:

The constant-capital value therefore depends on the prices of the means of production, not their values. Thus the SSSIs do away entirely with the notion of a distinct value system in which the constant and variablecapital value depend on the values of inputs (means of production and subsistence). As in Marx’s own solution, there is only a single set of constant and variable capital figures. For this reason, all three of his value-price equalities are preserved by the SSSIs, at least in a formal sense. (Kliman, Reclaiming Marx’s Capital, pg. 163)

Kliman illustrates this with the following chart (found in Kliman, Reclaiming Marx’s Capital, pg. 163), which depicts the Marxian schema of Department I (labeled here as Branch 1), which produces the means of production, and Department II, (here Branch 2), which produces the commodity.  Note that in this chart, the value of labor is measured at $3 a unit. In regards to the symbols and formulas, PPU is price per unit of each good produced by one branch or another; C is constant capital; V is variable capital; S is surplus value; W is the value of the output, or C + V + S; π is the average rate of profit; P is the output’s price of production, or C + V + π; S/(C+V) is the value rate of profit; and π/(C+V) is the price rate of profit.

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Kliman:

We see that all three of Marx’s aggregate equalities are preserved. Total price and total value both equal 288, total profit and total surplus-value both equal 48, and the general price and value rates of profit both equal 20%. These are extremely important results, since they disprove a longstanding claim of dual-system theorists [i.e., the Bortkiewiczians] that it is impossible to preserve all of these equalities at once. (Kliman, Reclaiming Marx’s Capital, pg. 164)

Yet at the same time, proponents of the TSSI solution like Kliman find the SSSI solution to be untenable, for it serves to solve one charge internal inconsistency while opening up another. This new inconsistency is based on the continued notion the Marx held that inputs and outputs would be priced simultaneously: by doing so, the “causal relationships” within the equalizations deviated from Marx’s theory. For Marx, the value rate of profit – S/(C+V) determines the price rate of value – π/(C+V). In the SSSI, it is determined by the “physical rate of profit”, which is “physical surplus divided by physical output” (Kliman, “Physical quantities, value and dynamics”). In doing so, the value rate of profit and the price rate of profit are locked into an eternal alignment. This undermines a different argument put forth by Marx: that capitalism exhibits a tendency of the rate of profit to fall. If the value rate of profit and the price rate of profit march in lockstep, then the disequilibrium which triggers this tendency cannot take place.

Kliman’s argument is that under the TSSI solution, the casual relationships with the aggregate equalization are retained in a way that allows both the mathematics to emerge in a way that reflects Marx’s theory and the tendency of the rate of profit to fall. The formulation of the TSSI is almost identical to the SSSI model, the only difference being the price and value are not determined simultaneously. The results, however, are quite different. Compare the following chart (drawn from Kliman, Reclaiming Marx’s Capital, pg. 166) with the previous chart:

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Both branches’ constant capital investments are the same as before, because the input price of Good 1 and the amounts of means of production they use are unchanged. Owing to the 50% reduction in employment, however, the variable capital investments and the surplus-values produced are 50% smaller than before. Thus the value of each branch’s output falls. Since aggregate surplus-value declines by 50% while the aggregate capital value advanced declines by only 5%, the aggregate rate of profit falls sharply. All three aggregate equalities hold true, and in a substantive sense. Because less living labor is performed, there is a fall in the amounts of value and surplus value produced, which in turn causes a decline in total price and profit. And because less living labor is performed, the value rate of profit falls, which causes the price rate to fall as well (Kliman, Reclaiming Marx’s Capital, pg. 165)