Mistaking commerce
Marx taught intellectuals to systematically mis-understand commerce.
Recently, I did something I probably should have done years ago. I systematically went through Karl Marx’s Value, Price and Profit. It is based on a lecture Marx gave in 1865, as he was writing the first volume of Capital. It expounds his economic analysis and was published by his daughter after his death.
Delaying a close reading until now did have two advantages. I have the experience of working in, and coming to part-own, a small business. So, I have practical experience of “doing” commerce. Secondly, I have done a great deal of reading in evolutionary biology, primatology and evolutionary anthropology.
One of the many unfortunate things Marx taught intellectuals to do was to think in terms of “capitalism” and “capitalists”. ‘Capitalism’ is just an analytical boo-word for scaled-up commerce. Commerce that has scaled-up through the expanded operations of finance markets. Such expansion occurring due to the lowering or risk, the expansion in financial instruments and rule of law. Commerce also scaled-up by the increased scale of private production and distribution, largely due to the limited-liability cooperation and the concentrated application of energy.
The problem with the term ‘capitalist’ is that it assumes someone in business is defined by their relationship to capital. That is not true. The key feature of someone in business are the commercial functions that they (or their agents) perform that can either generate, use, or lose capital. Capital is a tool, and possible benefit, of doing business, of being in commerce. I did not buy my half-ownership of the business by paying a sum of money, I bought my way in via “sweat equity”.
A businessperson operates at the intersection of land, labour and capital. They use land, labour and capital. Doing well grows the capital in the business, doing badly shrinks it. The doing well being doing commerce well: identifying commercial opportunities, assembling resources, managing the resources and covering any losses. The reward for doing this successfully is profit.
The fundamental problem is that Marx does not understand commerce and has taught generations of intellectuals to not understand commerce. Indeed, a key to seeing how hopeless Marx’s analysis is, is to see that what he is analysing (very badly) with his concepts of capitalism and capitalist is commerce.
The reason Marx was so bad at analysing commerce, the reason he developed the concepts of capitalism and capitalist, is that he did not look at commercial dynamics and wonder why has it come to be like that? (Darwin’s question about living things and biological systems.)
Instead, Marx read from his Hegelian commitment to the transformative future, the future without alienation and exploitation, backwards into an analysis that supported his vision. As Marx wrote in the final lines of his Theses on Feuerbach:
Die Philosophen haben die Welt nur verschieden interpretiert; es kommt darauf an, sie zu verändern. (“Philosophers have hitherto only interpreted the world in various ways; the point is to change it.”)
It is not dissimilar to the way that Christian thinkers have read backwards from their concept of salvation into, amongst other things, analysis of human sexuality.
The functions of commerce
The essential functions of “doing commerce” are (1) to seek out commercial opportunities, (2) to assemble resources to gain income from the hypothesised opportunities, (3) to manage those resources and (4) to cover the risks involved. Particularly the risk that you are wrong about your ability to earn more income from the hypothesised opportunity than you expend on it.
Every single human society which has engaged in any form of commerce has evolved some version of the entrepreneurial firm. That is, an arrangement whereby (1) the person seeking trading opportunities (2) assembles resources to seeking to seize said opportunity, (3) either directly (or through an agent) manages those resources and (4) has to cover the loss if and when the cost of the resources expended exceeds the return gained.
Having to cover the loss maximises the incentive to carefully assemble and manage the resources, and to take care in judging whether a commercial opportunity exists or not. The incentive to do all this, to take the risks, is the potential income from successfully doing all that. The income we call profit. The bigger the positive gap between income and expenditure, the bigger the profit. The bigger the negative gap, the greater the loss.
One of the key things to understanding commerce is that any effective theory of profit has to also be a theory of loss. Hence that managing risk is central to how commerce operates and firms are structured.
Such an entrepreneurial firm may be a sole trader, a household, a partnership, a firm with employees, a limited-liability corporation, or whatever. But they all perform those discovery-assembly-manage-risk functions and have evolved to do so in ways which effectively align the incentives to do these things in an exchange-value-increasing way. Because if they did not effectively align the incentives, that social form in general, and individual firms specifically, would not survive as commercial operations. As it is, individual firms struggle to find and occupy sustainable commercial niches.
The basis of such selection being that they have to bring in more resources than they expend in order to survive. Hence, there is selection pressure both among entrepreneurial firms and on the forms of the entrepreneurial firm. The more commercial a society is, the more pleasant it generally is to live in, because the more folk are busy trying to find things you will appreciate enough to buy.
Philosophising lacking sufficient reality-testing
Call someone a capitalist, and define them via their relation to capital, and you can very easily completely miss the processes of commerce and why commerce is structured in the way it is.
Which is exactly what Marx does in Value, Price and Profit. Marx’s analysis is very much what you get when a student of G.W.F. Hegel reads Adam Smith, David Ricardo and Thomas Malthus. You get a system of analysis based on Marx’s obsessions, and which puts the oh-so-knowing intellectual at the centre of things, but hides behind his terminology and theorising how much he does not understand commerce. The thing people in business actually do.
Starting with ‘capitalism’ hiding that he is just dealing with scaled-up commerce and ‘capitalist’ hiding that he does not wrestle with actual commercial functions. Since his analytical schema in Value, Price and Profit has no place for commercial functions, he has to define businessfolk by a relationship that does not actually define them.
In his eulogy on Marx, his intellectual collaborator and financial sponsor Fredrich Engels compared Marx to Darwin, as having explicated social dynamics as Darwin had biological dynamics. This is nonsense. Marx failed to seriously ask the question that animated Darwin: why do you get these recurring patterns? The problem was, of course, if you asked that question, then “capitalists” might turn out not to be exploitive parasites. Which is not the answer Marx wanted.
It is particularly telling that every single surviving Marxist (or Post-Marxist) regime has been forced to permit the return of entrepreneurial firms, in order to get sufficient efficiency and dynamism in their economies to sustain them. For, as entropy affects social systems as well, if your economy is stagnant, that means it is decaying. You need a certain level of dynamism in your economy to counteract entropy and, once you have run out of significant inputs to add (such as moving labour from peasant farms to factories), the command economy cannot provide the necessary dynamism (or even efficiency), for it does not have any effective replacement to the entrepreneurial firm for usefully and systematically aligning incentives with function. Though informal semi-markets with embedded quasi-commerce (aka black markets and corruption) can ameliorate some of the dysfunctions of command economies.
Marx hid his failure to ask in a genuine discovery-seeking way the question “why has various forms of the entrepreneurial firm evolved in every single society that has commerce?” behind abusive dismissal of millions of fellow humans. “Capitalists”, in his analytical scheme, do what they do because they are parasitic exploiters. Hence his theory of surplus value: profit as the value capitalists extract via their control of capital but which they do not perform any function to justify.
Later, Marx was forced to admit that capitalists manage and make investment decisions. But he could not rescue his failure to analysis commerce correctly without abandoning his theory of surplus value and that he could not do and retain his analysis of “capitalism” as fundamentally exploitive. The elimination of exploitation and alienation being what drove and justified his vision of the transformative future. So, “capitalists” had to remain as basically parasitic, defined by their relationship to capital rather by genuine (commercial) functions.
Hiding analytical failure behind dehumanising abuse of fellow humans is a disastrous intellectual strategy, both for genuinely understanding social dynamics and for the politics it gives rise to and justifies.
Conventional Marxism has retreated, but the Hegelian commitment to the transformative future has expanded. So, the Hegel-Marx intellectual complex is alive and well, even among folk who would never identify as Marxist and are unaware of how Hegelian (specifically from Hegel as read by Marx) their thought is.
As the Hegel-Marx intellectual complex has, via various forms of Critical Theory, become ever more influential in Western intellectual life, that very nasty, understanding-blocking but rhetorically-satisfying, form of pseudo-analysis has become more and more common.
The social consequences of declaring millions of fellow humans “exploitive parasites” are utterly predictable. Massacres of commercial minorities have occurred throughout history from precisely that charge. From people not understanding commerce, so seeing the commercially successful as engaging in a kind of parasitic social sorcery. Hence, the claim goes, it will all be better if we get rid of such “parasites” because that will release the resources they have bled off. All nonsense, of course, as the economic devastation that follows such massacre, looting and expropriations regularly demonstrate.
The megacidal history of Marxist regimes is baked into Marx’s analytical schema at the ground floor. (Nazism was mass-murderous for substantially the same reason: it also identified parasitic exploiters that society would operate much better without. Italian Fascism was orders of magnitude less murderous because it lacked any such theory.)
Marx provides a grandiose justification for dismissing commerce as parasitic, exploitive, social sorcery. A justificatory schema that is, moreover, essentially a conspiracy theory. “Capitalists” do not have what they have from doing anything commensurately useful, but by getting together and exploiting their position, having somehow mysteriously achieved the ability to engage in such exploitation.
Marx could wax lyrical about the productive forces the “capitalists” had let loose. Yet his theory of surplus value required that his “analysis” of how they had done that remained crippled. To the extent that theories of “post-capitalism” remain dependent on how Marx taught intellectuals not to understand commerce, they remain an analytical dead-end. As potentially as socially disastrous as Marxism has, again and again, proved to be.
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