The Supervisory and Allocative Functions
C. The Supervisory and Allocative Functions
We are now in a position to approach the functions explicitly attributed by Marx to the individual capitalist, taking for granted the industrial environment just described.
The bourgeois economists, on Marx’s reading, distinguished interest from “industrial profit” considering the latter entirely as the wages of the “labour of super- intendence, etc.” paid the active capitalist (MECW 32: 471). Marx refers specifically to Senior who converts “industrial profit into wages of superintendence” (505); and to John Stuart Mill who followed the same line, though incomprehensibly since Mill appreciated that profit reflected surplus labor at least “in the form that the rate
of profit and wages stand in inverse ratio to one another . . .” (505–6). 9 (Adam Smith is cited as refuting the apologetic view; MECW 30: 387.) Setting aside interest – due to “mere owner[ship] of capital” (MECW 32: 472) or institutional arrangement assuring rentiers “title to and the means for the appropriation of other people’s labour” (474) – Marx focused on “the apologetic interpretation” of net profit as entirely remuneration of superintendence, for he agreed that “[i]ndustrial profit included some part of wages – in those cases where the manager does not draw them” (496). (In this respect the capitalist “is the wage worker, even though not of another capitalist, yet of his own capital”; MECW 30: 413.) Superintendence would in fact have to be undertaken under all institutional arrangement involving “co-operation.” The peculiarity of capitalist organization is that such authority is “linked with exploitation” as the prerogative of a particular class. Furthermore, the tasks of direction are perceived as containing an extra component when undertaken within capitalist organization rather than other forms of “cooperation,” reflecting the capitalist’s dictatorial status vis-`a-vis his workers – perhaps indiscipline on the
9 Mill indeed included within his gross profit – apart from interest or “the remuneration of abstinence” – the “assiduity and skill of management,” but he refers also to the managerial
element as remuneration for “the exertions and risks of the undertaker” (emphasis added), a word he took from French economists who “enjoy a great advantage in being able to speak currently of les profits de l’entrepreneur” (Mill 1963–91 [1848]: 400–1). See also note 17.
C. The Supervisory and Allocative Functions 415 part of dissatisfied workers is intended – and “[t]hese costs, like the greater part of
the trading expenses, belong to the faux frais of capitalist production” (MECW 33: 280; also 32: 504). 10
The possibility that all directional tasks might be delegated to hired manage- ment raises the prospect that the income of industrial capitalists might evaporate entirely. This outcome Marx did not accept since he evidently takes for granted
a net payment to the industrial capitalist – of course quite apart from interest – when objecting to the apologetic identification of industrial profit with managerial wages, an identification which in fact implied the end of “capitalist production, the appropriation of the surplus labour of others.” (MECW 33: 280). A net income to the industrial capitalist remains even when all directional tasks are delegated.
We proceed on the assumption that the industrial capitalist himself undertakes at least those managerial functions peculiar to capitalist arrangement, and note Marx’s rejection of the apologetic interpretation of the corresponding income: “In so far as specialised work of this kind arises out of functions created by capitalist production itself, it is of course absurd to use capital’s performance of these functions to prove the necessity of its existence” (MECW 30: 262). It was a fortiori the case that those tasks of superintendence common to a range of “cooperative” arrangement could not justify the return to private capital as a permanent or “necessary” income (MECW 32: 497–8). Tribute is paid to the British socialists for recognizing that managerial services can often be purchased on the market, proving that it “has become quite unnecessary for capitalists to perform this labour of direction” (497). This inference was reinforced by “the cooperative factories built by the workers themselves. They are proof that the capitalist as functionary of production has become just as superfluous to the workers as the landlord appears to the capitalist
with regard to bourgeois production.” 11 Again, superintendence “is fully taken into account in the wages of the general manager in the larger capitalist enterprises. It has already been deducted from the general rate of profit. The best practical proof of this is provided by the cooperative factories set up by the English workers, for these, despite the higher rate of interest they have to pay, yield profits higher than average, although the wages of the general manager, which are naturally determined by the market price for this kind of labour, are deducted” (MECW 33: 280). This passage confirms that the average return on capital contains a net surplus after all managerial costs (and interest) have been met.
We must here take account of Marx’s observation that “industrial profit rises and falls in inverse [proportion] to interest or rent” (MECW 32: 497; see also
10 With the end of capitalism, only those managerial tasks pertinent to all “cooperative” undertak- ings will remain: “Even this function would disappear together with the capitalist production,
in so far as it does not arise from the nature of cooperative labour but from the domination of the conditions of labour over labour itself ” (MECW 33: 282). 11 An editorial note here refers to the Rochdale Equitable Pioneers’ Society dating to 1844, pointing out that such cooperatives “often combined productive functions with their activities as consumers’ societies.”
Is There a Marxian “Entrepreneur”?
475, 493), or citing Ramsay (1836: 214): “The profits of enterprise depend upon the net profits of capital [interest], not the latter upon the former” (MECW 33: 279). These “surplus gains” – as they were labeled by Ramsay – are “determined absolutely by the ratio of interest to industrial profit; [i.e. the ratio between] the two parts into which the surplus value accruing to capital (in contrast to landed property) is divided” (282). 12
It should be noted that the canonical inverse profit-wage relation – to which of course Marx also subscribed – entails the “surplus gains” of the industrial capitalist, which may include managerial wages, plus the interest paid to monied capital on
the one hand, relative to the wage on the other. 13 For the return to management when undertaken by the industrial capitalist, though we have seen represented as
a sort of wage corresponding to the market rate for hired management, is said to follow a path of its own unrelated to the falling trend path of the standard wage rate: “the superintendence of labour” has “nothing whatever to do . . . with the decline in wages”(MECW 32: 497). To the contrary: “This kind of wages has the peculiarity that it falls and rises in inverse proportion to real wages . . .,” whereas
“the apologetic vulgarian . . . regard[ed] them as identical.” 14 In brief, the implicit wage paid for managerial labor undertaken by the capitalist does not follow the market rate for such labor, but like the “surplus gain” of which it is a part is treated as a
residual after all outgoings (including interest payments) have been met. 15 The further circumstance that “the salaries of masters stand in inverse ratio to the size of capital” went to the root of the matter, by revealing that “[t]he larger the scale on which the capital operates, the more capitalist the mode of production, the more negligible is the element of industrial profit which is reducible to salary, and the more clearly appears the real character of industrial profit, namely, that it is a part
12 Marx MECW 33: 279 cites Ramsay’s Say-like view on the industrial capitalist as a sort of fourth factor apart from and opposed to laborers, interest-receiving capitalists, and landlords: “The
industrial capitalist is the general distributor of wealth; he pays to the labourers, the wages, to the capitalist, the interest, to the proprietor, the rent. . . . It is the master who hires labour, capital, and land, and of course tries to get the use of them on as low terms as possible; while the owners of these sources of wealth do their best to let them as high as they can” (Ramsay 1836: 218–19). 13 Also apparent is the implication that profit-rate equalization entails the distribution of “sur- plus,” including the “surplus gains” of the active capitalist plus interest plus an insurance element (see pp. 429–30). 14 These notions owed something to Ramsay who is cited (1836: 227, 229) thus: “The salary [of the employer], like the labour [of superintendence], remains roughly the same, be the concern large or small” (MECW 33: 282). But there is too a possible Smithian element, for Smith had maintained that “the labour of superintendence does not increase in the same measure as the scale of production . . .” (MECW 32: 258, paraphrasing Smith 1937 [1776]: 49). 15 J. S. Mill too has it that the wages of management are determined in a different manner from ordinary labour, since they derive from sale of the product rather than contractually (1963–91 [1848]: 404). His early essay “On Profits and Interest” is very explicit: “The wages of superintendence . . . are not paid in advance out of capital, like the wages of all other labourers, but merge in the profit, and are not realized until the production is completed. This takes them entirely out of the ordinary law of wages . . .” (1963–91 [1844]: 301).
C. The Supervisory and Allocative Functions 417 of the surplus gains, i.e. of surplus value, i.e. of unpaid surplus labour” (MECW
33: 282–3). Although managerial costs undertaken by the capitalist formally fall within the “surplus gains” or the “profits of enterprise,” the true surplus excludes the managerial return.
What then, more precisely, did Marx have to say of those tasks of control and supervision peculiar to capitalist organization? What he intended is conveniently summarized in the following extract relating to the labor process. The focus is entirely on economizing in the sense of avoidance of wastage of various sorts: “[T]he capitalist . . . will make sure that the material of labour is used for the right purpose. . . . If any material is wasted, it does not enter into the labour process, is not consumed as material of labour. The same is true of the means of labour, when,
e.g. the worker wears out their material substance in a manner other than that prescribed by the labour process itself. Lastly, the capitalist will make sure that the worker . . . expends necessary labour time only, i.e. does the normal quantity of work over a given time” (MECW 30: 93). What is entailed is “a relation of domination and subordination, in that the consumption of labour capacity is done by the capitalist, and is therefore supervised and directed by him . . .” (MECW 34: 96).
These managerial tasks appear to entail routine cost control. There is no suggestion that they might include an element of non-routine decision-making in uncertain circumstances. 16 We shall, however, see reason to qualify this conclusion somewhat.
Industrial capitalists also engage in allocative decision-making assuring the ten- dency towards uniformity of rates of return. Such activity entails “discerning” market price-cost price differentials over a seven-year cycle in “a very complex movement . . .” (MECW 32: 460), a task rendered more complex still in the open economy: “The industrial capitalist faces the world market; [he] therefore compares and must constantly compare his own cost prices with market prices not only at home, but also on the whole market of the world. He always pro- duces taking this into account” (467; see also 33: 94–5 cited Chapter 10, p. 294).
16 J. S. Mill took the matter further. Even where the manager is hired, “prudence” required that
he be somehow controlled by the capitalist or that he be stimulated by a share in profits (Mill 1963–91 [1848]: 402); thus even the hired manager is accorded a degree of entrepreneurial status (cf. Rainelli 1983: 800, 802). This conclusion is reinforced by an allowance – it relates even to managers hired on contract – that “[w]here the concern is large, and can afford a remuneration sufficient to attract a class of candidates superior to the common average, it is possible to select for the general management . . . persons of a degree of acquirement and cultivated intelligence which more than compensates for their inferior interests in the result” (Mill 1963–91 [1848]: 139). Such managers may do a better job than the capitalists themselves – including the task of undertaking ventures “out of the ordinary routine” (emphasis added). Mill similarly spells out that the efficient exercise of managerial control, “if the concern is large and complicated, requires great assiduity, and often, no ordinary skill [which] must be remunerated” (401). And yet more specifically he refers to the “exertions and risks of the undertaker” in discussing the managerial function (see note 9).
Is There a Marxian “Entrepreneur”?
Circumstances such as these, at least in principle, open up the prospect that “profit” − the “surplus gain” – does contain some return to uncertainty. But Marx, we shall now see, avoided any such implication by focusing on the general or aver- age return on capital, presuming it to be independent of the standard of judgment
exercised by the class of capitalists in a particular industry. 17 But here he went a step further and applied this same solution to managerial “skill,” recognizing a degree of non-routine decision making in that sphere – and obliging us to qualify our earlier conclusion – but stepping around it: “As far as the general rate of profit is concerned, the labour of the capitalists arising from their competition with one another and their attempts to ruin one another counts just as little as the greater or lesser skill of one industrial capitalist compared to another in extracting the largest amount of surplus labour from his workers for the smallest expenditure and making the best use of this extracted surplus labour in the process of circulation” (MECW 33:
280). 18 The general theory of surplus value thus dictated the response Marx was bound to make in the face of uncertainty or non-routine decision-making. Allowances for individual judgment are indeed to be found, but again any doctri- nal threat is diverted. We have in mind “profits of expropriation” – or as expressed elsewhere “profits upon alienation” − namely the sale of goods above value (cf. MECW 30: 351). Marx points out with reference to such profits that “there is a particularly wide scope for the ‘individual work’ of the capitalist in this, the mer- cantile field, where it is not a matter of creating surplus value but of distributing the aggregate profit of the whole class of capitalists among its individual mem-
bers” (MECW 33: 351). 19 The important point for us to note is a declaration in this particular context that “[a]ll profits of expropriation are uncertain” (emphasis added), an allowance that is said in no way to affect the creation of surplus value in the production process, only its distribution. As such it could be safely admitted.
17 J. S. Mill had already taken a similar line, profit-rate equalization referring not to “equal profits, but equal chances [1862: expectations] of profit” on the part of “persons of average
abilities and advantages” (1963–91 [1848]: 406). Thus for Mill the tendency to uniformity must be understood as referring to employments not individuals; for (excluding pure interest) profit which in equilibrium varies little between employments may vary greatly between individuals, depending on “the knowledge, talents, economy, and energy of the capitalist himself, or of the agents whom he employs; on the accidents of personal connexion; and even on chance.” 18 “These matters,” Marx adds, “should be dealt with in the analysis of the competition of capitals. Such an analysis deals in general with the struggle of the capitalists and their effort to acquire the greatest possible amount of surplus labour and it is concerned only with division of the surplus labour amongst the different individual capitalists, and not with the origin of surplus labour or its general extent” (MECW 33: 280). 19 Marx also notes regarding the mercantile field that “[c]ertain kinds of profit, e.g., that based on speculation, occurs solely in this field.” He goes on to charge “vulgar economy” – referring to Roscher 1858: 384f – with the “brute stupidity that it lumps these . . . with profit so far as it originates in the creation of surplus value . . . with the causes behind the exploitation of the workers by the capitalists, with the factors behind the origin of profit as such . . .” (MECW
D. Science and the Sources of New Technology 419 But this is surely wishful thinking when we recall how porous is the distinction
between the “creation” and “realization” of surplus value. 20