If I had to choose one essential difference between Marx and the rest of the economists after Ricardo's death (i.e. after the end of political economy) in order to explain it to a layman, I would choose that one: in Marx, capital (therefore also the system where it is hegemonic: capitalism) is historically specific, whereas in bourgeois economy, capital is a law of (human) nature/Physics.

It is impressive how capitalism is perceived, as a given fact, as simply human biological/genetic nature manifested in society - to the point Marx is promptly discarded as “utopian” in one paragraph even by serious bourgeois/liberal historians who genuinely try to be impartial and scientific because they say that, in order for communism to be feasible, human nature had to change, therefore humans would have to not be humans. The absurdity of this claim lies in the fact that not only Marx did not presuppose that: he built his entire theory on the polar opposite of that (that humans are humanly humans and, as such, are natural beings). Marx's theory is, so far, the only theory that unifies humanities with biology; Engels claimed, correctly, that Marx did for humanities what Darwin did for biology. Marx could not be more distant from an utopian.

There are many implications for this, but the main one I would like to highlight here is the fact that Marx did not perceive History as the whole timeline of humanity's existence: Communism is a model for the end of History, not the end of humankind. He logically deduced that the end of capitalism (which is the highest form of class-based society and, therefore, private property) would end history and start a new period of post-history, which he called, for the lack of any other better word, “communism”. He either stated that communism would be the start of the real human History - the era of class struggle being the Prehistory - or that communism would be an era of post-History, History being the era of humanity where it lived through resources scarcity and struggled with itself.

Either way, the model stays the same: “communism” is merely the logical end of humanity overcoming material scarcity. History, even though replicating class divisions, advances on the development of material forces: capitalism is superior to manorialism not because it is fairer, but because it brought human material prosperity to a new, superior level. Manorialism is superior to Ancient Slavery for the same reason. Ancient Slavery is superior to Primitive Communism (hunter-gatherism) for the same reason. The logic here is that there's no possible class the proletariat (working class) can exploit: labor is the essence of human existence, as it is the direct manner with which humans interact with nature; there is no way the working class can be the dominant class as a working class - this is not ideology, but pure logic, Marx was not being sentimental.

All class divisions have one thing and one thing only in common: the dominant classes don't do the socially significant productive labor; instead they force it on the exploited classes in order to collect the fruits of that labor. Horizontal/technical division of labor becomes vertical/hierarchical division of labor. Not counting the sexual division of labor (i.e. the division of labor that arises from the human species existing in males and females), the first vertical division of labor we assume is the one of the warrior class and the rest in the hunter-gatherer world: some tribes, for some reason, specialized in being warriors, and they realized they could force other tribes to work for them instead of doing the work themselves. We don't know and we will never know if this was the main reason Primitive Communism was brought to an end (the end of the phase of the Ice Age was probably the main reason), but we can deduce those warrior classes gave origin to the first dominant classes in humanity's existence after the collapse of hunter-gatherism. The only way a new dominant class can legitimize itself over the established dominant class (the original being the warrior tribes, the ones who took the first humans by brute force) is if it “provides” more material prosperity, i.e. more development of the productive forces.

As far as I know, there is no bourgeois theory of History or Economics that explains technological/material development in such duration: they either treat it as a given or as fruit of randomness, that is, from a few human geniuses that are born every period of time, and/or as fruit of “innovation“ and “freedom”. There is no non-Marxist nowadays who have a comprehensive, scientific, theory of technological and material development of humanity as a whole; for them, humans just some species of ants who by chance develop technologies and techniques.

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"in fact, the crucial difference between labor and capital owners is that the risk is entirely borne by the latter."

But is that true? If the company goes bankrupt and the workers loose their jobs, the workers may even be, depending on the situation, affected worse than the capitalists.

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Even in the topsy-turvy world of bankruptcy, there are strong presumptions in favor of workers over the capitalist owners of the business.

There is a six months wages priority claim (with a max) (Title 11 U.S.C. Sec. 507(a)(4)(A)) in U.S. bankruptcy aw.

There is also a federal-law mandatory 60 day warning period (WARN Act) before the last pay date under a mass layoff. If this warning period is not observed, the workers are entitled to severance pay in that amount in addition to unpaid wages for past period.

Some technical caveats to all this, but the contrary presumption is that the shareholders are entitled to nothing unless workers have been paid all they are due, in general as well as under these specific provisions.

The worker also, in modern societies, has an entitlement to unemployment insurance payments for a substantial period of time, while the capitalist has no such support.

You are of course correct that the workers may be out of a job, but the capitalist will be out of a business. The scale of the business, and other interests of the capitalist, affects whether they are any better off than the newly unemployed worker.

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Excellent Branko analysis !!! Once again I have enjoyed your intelligence and great academic training. In the capitalisms of Latin America, the economic weight of small and microentrepreneurs who are also workers is overwhelming.

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The Marx hypothesis is not quite correct.

According to Marx's formulas, the price includes C + V + M. When one person (craftsman) works alone, the price is (C) + V + M. However, if it is hired labor, then the price is (C + V) + M , with labor being an expense.The less is spent on the commodity "labour power", the higher the profit. So the profit is not just a reward for the risk.

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That is as wrong as wrong can be. Profit determination is not as simple as that. What is factoring in is productivity - not just labor costs - and prices of production since the rate of profit is equalized across the economy.

The equalization of rates of profit to a general rate of profit means nothing other than a redistribution of the total social surplus value. If commodities were to exchange at their values, then every capitalist would receive the surplus value produced with the help of his individual capital and the profit rate of various capitalists would diverge widely.

If commodities are exchanged according to prices of production, then every capitalist obtains a profit that on average is proportional to the magnitude of the capital he has advanced, meaning that each capital achieves on average the same rate of profit. The capitalists behave toward the average profit like shareholders in a corporation - the proportional profit is the same for everyone - each shareholder obtains a share of the business‘s profits proportionate to the magnitude of his investment

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Dec 4, 2022·edited Dec 4, 2022

Yes, this topic merits more attention.... Initial (probably "stray") thoughts: Defining capital through national accounts, while useful, confines what is a dynamic concept to static, point-in-time measurements.

Capital can be seen as the risk-adjusted potential of land, tools/machinery/plant, knowledge, and financial resources to produce ongoing and future output/value, including profits, that supports human life. Fathoming a capitalist's knowledge and resources involves measuring what's happened in the past as does leveraging resources through loans and sale of equity. Dynamic valuation of capital involves the uncertainty of fathoming the risk of success/failure with imperfect information. A country with a fast-growing technological sector could be overflowing with financial capital but also feature high risk destabilization and decline compared with more labor-intense economies.

It follows that if laborers own some of the capital they help produce, they bear part of the investment risk. Most already do in the sense that they will lose their jobs if an enterprise fails. As have (www.inequalityink.org) advocated, workers could more fully share risk and reward if they were (partially) compensated in stock (could be company shares or index funds, etc.)

Capital also is a potential value in the sense that owners of financial and other resources can choose to use them toward future production or for current consumption.

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"Thus we come to the conclusion that what is capital is historically-determined." Do we come to that conclusion? Or do we instead conclude that the quantity of capital varies by the level of development.

It doesn't seem to me that Marx is correct that the owner-worker of the shoe shop doesn't have any capital. To take a related example, my farmer father - an owner-operator - acquired an extensive repertoire of tools (tractors, a grain combine, etc., etc.). Those tools very substantially improved the production from his crop land - by a factor of 10 (with also seed and fertilizer advances) in his lifetime. Over his lifetime, that increase in stock of tools and its associated increase in revenue allowed him to invest in still more tools. Ford Motor it's not, but that all seems pretty capitalistic to me.

Marx's thought seems so often to turn on semantic constructs that have a circular quality.

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I agree with your semantics and circular comment regarding discussions on this very broad topic.

Income steps out of the realms of abstraction, and only has an impact, when it falls under the control of the person who can legitimately spend it. Here we have a discussion around how we account for it on its route to its point of effectiveness.

The same is possibly true for the tools of the trade. I agree the tools have no value unless they are accompanied by skilled labour. But likewise the skilled labour can’t create value without the tools.

Ultimate we have a very generic single word “Capital” to describe different aspects of economic value each in their own right important and integral to the whole.

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A very generic single word "Money" is seriously challenged this century. Re-assigning the semantics of "Values" according to the most critical SDGs, for example COP15 next week could drive the necessary abatement schedules subject to "societal cost" and "utilities", or we halt the anthropocene.

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What seems capitalistic to you is wrong. Just owning tools, which technically qualify as means of production and which you put to work do not make you a capitalist as long as you do not hire labor to exploit for surplus value. That goes both for a capitalist economy and other forms of economies, like in a barter economy for instance. You just participate in the (capitalist) market to compete for exchange value. You are missing the most fundamental principle of Marx

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I am not missing a fundamental principle in Marx's thought; I am just - like mainstream modern economists - in disagreement with several of Marx's key building blocks. I do not agree with the "labor theory of value," which does not work to explain market prices. Marx got the basics of the labor theory of value from Ricardo and Smith, but they were also wrong about this as modern economists have shown. Accordingly, I also do not agree with Marx's conceptualization of "surplus value" as an extraction from the worker of everything beyond the wage that is necessary in relation to subsistence.

I do not expect you to agree with me. But to expand my simple hypothetical slightly, the owner-operator of a modern farm who can afford to add additional mechanization that increases production increases his net revenue without increasing the amount of Labor to produce that net revenue.

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Branko didn't really go into why Marx defines capital in this particular way. It doesn't really have to do with how 'capitalistic' you are.

Ned below makes the point partway (in pointing to how 'income' is related to who possesses it and how tools and labour are separable), and I'll try to complement that.

As well as I understand it & can explain it, 'capital' for Marx has to do with human capacity being separate from the humans that created it and thought of as an object. This is why the wage bill is included: its not just spare cash but the (essentially social) right to call up labour, separate the products of labour from the labourers and sell them.

Sorry if that's unclear but I'm still a newbie to Marx' thought.

In short, Marx's understanding capital is relatively philosophically founded (in concepts alienation and objectification/reification) and intended to point to the essentially social element of political economy that (he saw) bourgeois society in capitalism obscuring.

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Don't agree that workers bear no enterprise risk. If the enterprise fails eg, they lose their income. If they push too hard for more wages, they may stress the enterprise and suffer consequences. If they do just enough to keep their jobs, the enterprise may decline with consequences for employees. Workers have little say in enterprise decision making but share in enterprise success/failure indirectly.

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Shares are fictitious capital and just a bet and claim on future profits. That does not give you a stake in ownership in terms of company assets in case of defaulting. Their purpose is risk minimation by distribution of the risk of business operations. Wages make up part of total costs and - as Marx postulates - need to be advanced, regardless if paid out after production started, which is a technical formality for administrative reasons - could not be computed as part of potential future revenue, yet advancement might be leveraged, i.e. funded by credit. Thus wages do not have a direct connection to shares.

It is clear though that wages form a part of total capital on the macro level - circulating capital in my mind. Yet regardless if you impute advanced wages to shareholders or not, this does not increase the total amount of capital. It would probably increase the inequality of capital though on either end in terms of lowering real wages. Labor would get a smaller share while capitalists would grab a higher share of surplus, which in turn would lead to greater capital accumulation.

The conclusion that capital expands with accumulation is a marxist truism. The statement though that there is no capital as such, outside of the concrete reality and existing relations of production is highly debatable. Credit, leveraged debt, fictitious capital, financial instruments of all sorts outside of the physical economy are testament to that. Capital Vol III is full of that.

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'In the neo-classical world, capital is the sum of values of productive and financial assets.'

Apart from the fact that this is comparing apples and oranges, for any economic entity, say a nation, it can only read NET financial assets. In a closed system, financial assets and liabilities sum to zero.

The word 'productive' is also very important. I believe this must be read as an accounting qualifier. A physical asset, say a piece of machinery, is deemed productive (even if it isn't) if it appears on the left hand side of a balance sheet, i.e. as an asset. Now, to tie this in with Marx, only incorporated entities have balance sheets. In other words, '(the machinery is) not capital until he expands his store, takes over its management, and hires workers to work with the tools he owns.' (although: managers do not own firms. more on that below)

Marx's idea of capital is kind of a primitive vision of corporate accounting. National accounting, otoh, tries to account for a lot of 'off balance sheet' items in an attempt to make a statement about actual goods being produced and consumed, and not just those that arise through corporate activities. This lets Marx make a direct connection between corporate / capitalist organisation and means of production. It is a more precise but also more limited view.

Now to your second point about whether wages must be thought of as being advanced before the process of production begins. You write: 'If workers’ wages have to be paid before the process of production begins, somebody has to have the wherewithal to do so. That somebody is a capitalist.' This is only a conundrum if one takes the wherewithal to have a physical form. This happens when one puts 'productive and financial assets' in the same category. The only form of 'capital' that is needed to advance wages (and indeed expected profits), is credit. i.e. trust or belief in the viability of the proposed corporate enterprise. That's more of a sociological category than an economic one. Social capital? On the corporate balance sheet, this form of capital will appear as debit to the company's bank account for wages advanced and a credit to, say its receivables account for goods sold but not yet paid or an account for intermediate goods which are yet to be sold. The capitalist in this story is the firm as an entity, not some particular person say the manager or shareholder. See e.g.: Who are the owners of the firm: shareholders, employees or no one? https://www.cambridge.org/core/journals/journal-of-institutional-economics/article/abs/who-are-the-owners-of-the-firm-shareholders-employees-or-no-one/587374B0969C7F1A3566F70D97732399

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In other words '(...) if our shoemaker decides to become a capitalist, he not only would have to own the tools (which we already assumed he does), but enough cash on hand to hire workers' is not precise.

What the capitalist, i.e. the firm, needs, is access to a line of credit. Not that there's anything wrong with having 'cash on hand'. But it's not technically necessary and by not modeling it as such one avoids an infinite regress as to how the money got there in the first place.

What little I know about Marx, much of it second hand thanks to you, is interesting and relevant. But, and this is from first hand reading of specific excerpts, he did not understand money or accounting.

My humble suggestion would be, not only to study the firm as a legal construct by which power among stakeholders (management, shareholders, employees and others, see link in previous reply) is codified, but also to see a firm's books as matrices by which what is generated by the people behind so-called assets is distributed among those behind entries on the right hand side (liabilities = those to whom the firm owes).

In other words, it is accounting that numerically captures and thus homogenizes benefits that flow from different types of assets (say machinery or promises or human capital) and assigns those benefits, again in the form of numbers, to stakeholders' accounts based on codified functions. Capital thus is defined as an accounting construct, a function of double ledger entries, and not some amalgam of 'productive and financial assets' that belong to 'the capitalist'.

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These two posts above are a mainstream economics absurdity. On top of that what has technical bookkeeping and balance sheets got to do with macroeconomics. Assertions like Marx did not undstand money are plain ridiculous. Using terms like ‚human capital‘ spares any further comment.

Just to address the point about money as the general equivalent

- Serving as a general measure of value (of commodities) [ideal money is sufficient, real money does not have to be present]

- Money as a means of circulation (Mediating exchange of commodities) [Money has to be present in circulation but no real money is needed, symbolic money like paper bills or credit notes are sufficient]

- Money as a manifestation/store of value

- Real money - The material being of abstract wealth as a unity of magnitude of value and means of circulation, an independent embodiment of value, the material symbol of physical wealth. Real money functions as a hoard, a means of payment and as universal money

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I see you're Branko Milanovic's self-proclaimed crusader. You defend Marx and accuse me of spouting mainstream absurdities by regurgitating Jevons. Well done! Bookkeeping has everything to do with both macroeconomics and money. The phenomenon of money, to my mind, is not a measure of wealth as such, but rather a measure of how wealth is distributed. A measure of material social relations by means of bookkeeping principles. Very compatible with Marx on many levels, if you ask me.

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Jevons theory of “Marginal Utility” is a cornerstone of vulgar neoclassical mainstream economics. Hinting at that does not lend your post any more weight. Besides - money is not a ‘phenomenon’ but a real world entity. It does not mirror distribution of wealth but capital exploitation and accumulation as it lends its owners social power.

How in the world would ‘a measure of social relations by means of bookkeeping principles’ - whatever that means - be compatible with Marx on many - which? - levels? No offense and do not get me wrong, but I am sure you are punching above your weight and you never have been reading a single line of Karl Marx.

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You quoted Jevons on money, not me.

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thanks for the detail ... it remains the case that also the worker carries risk ... you mention unemployment insurance ... is that a thing in the US? Afaik, I dont have unemployment insurance and I would even loose my medical insurance in case I lost my job

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Yes, unemployment insurance is a real thing in the U.S. You don't obtain it yourself; it is automatically provided by the state - through taxation of payrolls at the employer level. If you are an employee in the U.S., it is highly likely that you are eligible for unemployment benefits if you were to lose your job.

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Are wages really advanced before production occurs for Marx?

As Marx puts it in his chapter on buying and selling labour-power in volume 1: "In every country in which the capitalist mode of production reigns, it is the custom not to pay for labour-power before it has been exercised for the period fixed by the contract, as for example, the end of each week. In all cases, therefore, the use-value of the labour-power is advanced to the capitalist: the labourer allows the buyer to consume it before he receives payment of the price; he everywhere gives credit to the capitalist. "

To the extent that there is any advancing of wages, perhaps it is more correct to say that wages are advanced before surplus value can be "realized" through the sale of commodities in the sphere of circulation.

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Chapter 24 of "Capital" Vol. 1 is called "The So-Called Initial Accumulation". It is very interesting to understand Marx's thesis that it was not the "invisible hand" that provided the so-called "original accumulation". As pharmaceutical, oil, and military-industrial corporations now "primarily accumulate."

Therefore, capital is not just a reward for risk!

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"His machines are simply the means of production". But that's basically the neoclassical use of capital, means of production?

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That Capital is a concept changing in time is underlined e.g. by the increasing importance of intangibles, or invisible assets. I never liked Marx' "capitalist" definition of c cause it does not allow us to describe gradual changes in the way societies produce and reproduce. It excludes by definition public, non-profit, or workers-owned enterprises.

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The difference is that in private corporations the salary is a pure "expenditure", while in public ownership it is income for the honor of society. In this sense, private entrepreneurs pursue profit, while public entrepreneurs pursue public benefits.

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Services and intangible assets like Software or digital rights are part of the definition of fixed capital - what backs up the idea it would not? It is exactly those assets which enable the modern rentier economy. And since when would worker owned means of production not count as fixed capital - smh

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In the service sector, say a restaurant, do wages need to be paid before the product is sold for a profit? Not that I can see. The capitalist owner earns profit that very day while workers's salaries are paid biweekly. In fact, the workers are loaning, interest-free, their wages to the capitalist.

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It is a technical formality regarding the point of pay out. The moment the worker is hired the employer needs to own the funds to advance the wages because both parties are entering a binding legal contract. If not it is simply criminal fraud by infringing the contract. If the meal is cooked but the guest has left because he changed his mind the meal could not be sold. the Employer still has to pay the cook and the waiter. Wages do not depend on realizing the exchange value of what value was produced. Otherwise the cook would be sort of a co-owner of the restaurant

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