Innovatory Investment

E. Innovatory Investment

In the previous section we have focused largely on the generation of knowledge, whether basic or applied. What though of the actual introduction of technical change by an innovating firm? The fact is that notwithstanding all his technological determinism Marx did enter into individual motivation, and even into the complex calculations required of the innovating entrepreneur in an uncertain environment. Here the contrast between Smithian manufacture and the “mechanical” workshop turns out to be crucial, for the latter alone is characterized by high capital cost (above, p. 413): “The curtailment of living labour rests here upon a revolution in this part of constant capital [machinery], and one can say . . . that complex, large-scale, and expensive instruments of production replace simple and cheap ones” (MECW 33: 376). For “[t]he forces of nature cost nothing; they enter into the labour process without entering into the valorisation process,” whereas “the prime motors on which they act, or through which [they] are appropriated for the labour process, do cost something. The past labour contained in the constant capital forms a value component of the commodity, just as does the living labour obtained in exchange for the variable capital” (477). Similarly: “The increase in productive power achieved through simple cooperation and the division of labour costs the capitalist nothing. They are natural forces provided free of charge by social labour in the particular forms it takes on under the rule of capital,” whereas “machinery . . . is a productive force which has been produced; it costs money” (MECW

30: 321–2; emphasis added). The heavy outlays relating to constant capital involving use of machinery in the mechanical workshop, obliges investigation of its potential profitability and thus the motivation on the part of the prospective innovator. Marx himself formulates the issue thus: “Why . . . is the commodity produced by this more expensive instru- ment of production cheaper than the commodity produced without it? Why is the labour time contained in the machinery itself less than the labour time replaced by it?” (MECW 30: 323; cf. 33: 376–7, 477). “[T]he problem is solved,” Marx concludes, “by saying that the total quantity of the commodities produced by the machinery is so large that in every aliquot commodity there enters a smaller value component (part of the depreciation) of the machinery, buildings and the mati`eres instrumentales needed for the functioning of the machinery than if the same com- modity were produced in the old manner by human beings and their old craft tools” (MECW 33: 377).

But this merely defines the potential advantage flowing from adoption of expen- sive capital-intensive processes. Marx himself proceeds to some of the complex- ities faced by the capitalist in considering investment therein. In the first place, “[m]achinery, etc., is valorised over a lengthy period, during which the same labour process is constantly repeated in order to produce new commodities. This period is determined by calculating the average time it takes for the whole value of the machinery to be transferred to the product” (MECW 30: 332). In such calculation,

Is There a Marxian “Entrepreneur”?

one presumes, the prospect of entry by imitators would be a crucial consideration. That Marx does not formally take up this matter in the present context is surprising considering the great weight placed on the whittling away of innovatory profit by imitators (below, p. 427). On the other hand, he does elaborate the prospect of technological obsolescence – a concern motivating expansion of the working day so as to reduce the “reproduction period.” For “[w]hen new machinery is introduced the improvements come thick and fast. Thus, a large part of the old machinery constantly loses part of its value or becomes entirely unusable before it has passed through its circulation period, or its value has re-appeared in the value of the com- modities.” Accordingly: “The more the reproduction period is curtailed, the slighter this danger is, and the more the capitalist is able, the value of the machinery having returned to him in a shorter period, to introduce the new improved machinery and sell cheaply the old machinery, which can again be profitably employed by another capitalist, since it enters into his production as from the outset the representative of a smaller magnitude of value” (332–3; emphasis added).

It is not, therefore, the case that Marx, by adopting thoroughgoing technolog- ical determinism, denied that decision-making in an uncertain environment was required of the innovating capitalist. 32 But though he recognized the phenomenon,

he sought to avoid any implications that might threaten the doctrine of surplus value as “exploitation.” This is the theme we shall now trace out. The potential of “machinery” to allow production at reduced unit cost motivates its introduction by an innovating capitalist taking the going market price as given: “in the case of the individual capitalist, in so far as he seizes the initiative,” is the circumstance “that value = the socially necessary labour time objectified in the product, and therefore surplus value begins to be created for him once the individ- ual value of his product stands below its social value, and can as a result be sold above its individual value” (MECW 34: 428). This principle applied generally, whether or not a wage-goods industry is involved, Marx referring to “the direct motive of the capitalist . . . hold[ing] sway over all the spheres of production which come under the control of capital equally, independently of the use value they produce and therefore independently of whether the product does or does not enter into the worker’s necessary means of subsistence or into the reproduction of labour capacity” (111). Now Marx recognized a threat to basic exploitation doctrine, but he sidesteps the issue by the simple if circular expedient of appealing to that very doctrine, and by emphasizing that productivity improvement results merely

32 In discussing the process of adjustment to a cost reduction J. S. Mill took account of the strategies adopted by innovative entrepreneurs who, aware of the likelihood of entry by

firms in response to the supernormal profit created, act to forestall them with an eye to demand elasticity and prospective market shares (1963–91 [1848]: 473–4; see Hollander 1985: 289–90, 316–17, 319–20, 385n). Even so, as with Marx, the implicit uncertainty element is not adequately brought to the surface.

For a modern discussion of relevant issues with respect to “technological expectations” see Rosenberg 1982: 104–19.

427 from the “social character” of “combined labor” – a notion encountered already

E. Innovatory Investment

(pp. 414, 421) – thereby dismissing the ex ante calculations by the innovator: “in its employment is the employment of combined labour, and it only produces surplus value as a means of exploiting to a higher degree the worker’s powers of labour and the of workers” (MECW 34: 126); similarly: “The economical use of those [communal] conditions of labour (and the resultant increase in profit and cheap- ening of commodities) . . . appears as something quite different from the surplus labour of the worker; it appears as the direct deed and accomplishment of the capi- talist, who functions here altogether as the personification of the social character of

labour, of the total workshop as such” (457). 33 And Marx took Richard Jones to task for neglecting to spell out explicitly “how he conceives the genesis of . . . profit” relat- ing to innovatory investment, which had to be understood in terms of exploitation: “Jones [1852: 38f] declares that the second condition [for the use of auxiliary capital] is the ‘profit’ which the auxiliary capital must ‘produce’. . . . Nowhere does Jones explain how he conceives the genesis of this profit. . . . This surplus produce however, just as the other parts of the product, consists of the workers’ realised labour, but labour which is not paid for; this product of labour is appropriated by

the capitalist without any equivalent” (MECW 33: 361). 34 And since the worker “gives the [innovating] capitalist a greater number of hours of labour as surplus labour, and it is only this relative surplus labour which provides the latter, when selling the commodity, with the excess of its price over its value . . . this case can also be subsumed under the general law that surplus value equals surplus labour” (MECW 30: 320).

There is a second line of defense and this might explain why Marx, after recogniz- ing the initiatives of the innovating capitalist, felt able to all but dismiss them in an assertive appeal to the surplus-value doctrine. Innovatory profit – however inter- preted – is merely a temporary income in the assumed competitive environment: “This kind of surplus value, which is based on the difference between the individual and the social value of a commodity, brought about by a change in the mode of production, is of diminishing magnitude, and falls to zero once the new mode of production is in general use, thereby itself becoming the average mode of pro- duction. . . . This form of surplus value . . . is transitory, it can only relate to the individual capitalist and not to capital as a whole . . .” (MECW 34: 111). This sort

33 The ramifications of this perspective extended to criticism of Hodgskin: “The capitalist, as capitalist, is simply the personification of capital, that creation of labour endowed with its

own will and personality which stands in opposition to labour. Hodgskin regards this as a pure subjective illusion which conceals the deceit and the interests of the exploiting classes. He does not see that the way of looking at things arises out of the actual relationship itself; the latter is not an expression of the former, but vice versa” (MECW 32: 429). More generally: “In the same way, English socialists say: ‘We need capital, but not the capitalist’ [Bray 1839: 59]. But if one eliminates the capitalist, the means of production cease to be capital.” 34 Jones states three conditions for innovating investment: “The means of saving the additional capital; the will to save it; some invention by which it may be [made] possible . . .” (cited MECW 33: 358).

Is There a Marxian “Entrepreneur”?

of response surely does not settle the issue; fortunes may be made in this “transi- tory” manner wholly consistent with the Schumpeterian perspective, for though innovatory profit or “the surplus of the entrepreneur . . . and his immediate follow- ers disappears . . . [n]evertheless, the surplus is realised, it constitutes under given conditions a definite amount of net returns even though only temporary” (Schum-

peter 1959 [1911]: 132). 35 This is a fortiori the case in a dynamic setting entailing ongoing technological progress.