Ian Gough’s article on ‘State Expenditure in Advanced Capitalism’ (nlr 92) concerns a subject which has been conspicuous by its absence from Marxist theoretical work: the question of the capitalist state’s location with respect to the economy. What are the effects and laws of development of the state’s intervention in economic practice? Specifically, what is the significance of the growth of state expenditure which has been experienced by all mature capitalist societies in this century? In addition, Gough considers several related issues, including the concept of the social wage and the nature of the recent crisis in Britain. Elsewhere we have developed an analysis of the state’s intervention in crisis which bears on some of the same issues. footnote1 But our approach is fundamentally different from Gough’s, which in our view gives rise to serious errors. In the present article we seek to demonstrate that Gough’s wrong conclusions arise both from his dependence upon the neo-Ricardian school of economic analysis and from his mistaken understanding of the method of political theory.

Gough’s argument applies to the problem of State expenditure analyses developed within a Ricardian problematic. Basing itself on Sraffa’s approach to the problem of distribution and prices, footnote2 neo-Ricardianism emphasizes the non-correspondence between prices of production and values, denies the validity of the law of the tendency of the rate of profit to fall, and considers the distribution of values between labour and capital to be a matter for class struggle—which is itself seen as quite separate from the sphere of production. footnote3 The concrete analysis to which this theoretical approach leads is that of Glyn and Sutcliffe, which views crisis as the resultant of the forces of class struggle, while these forces themselves are not located in relation to the law of value. footnote4 Gough embraces all the propositions and methods of the neo-Ricardian school. From this base, he attacks the view—defended by Yaffe and others—that not only is the law of the falling rate of profit central to the laws of development of capitalism, but also State expenditure necessarily involves a drain on surplus value. footnote5 Indeed, this last point is Gough’s central theme: ‘It is quite wrong therefore to regard the growth of the state as an unproductive “burden” upon the capitalist sector: more and more it is a necessary precondition for private capital accumulation.’ footnote6

Now, few would deny that capital requires and in many ways benefits from the expenditure of the welfare state; indeed, the proposition is so common that it is not clear why Gough goes to such lengths in attempting to establish it anew. What we dispute, however, is the notion that this indirect productiveness of state expenditure invalidates the proposition that the state is an unproductive burden for capital. For in Marxist analysis ‘indirectly productive’ and ‘productive’ activities are qualitatively distinct categories. It is therefore not inconsistent for an activity to be both unproductive and indirectly productive. Moreover, if the theory of the state were to be developed on the basis of this distinction, Gough’s view of the relationship between capital, labour and the welfare state would be seen to be erroneous. His confusion both over ‘productive’ and ‘indirectly productive’ activities and over the nature of the welfare state stems from a rejection of value theory. Also related to the rejection of value theory is the fact that neo-Ricardianism—usually implicitly—adopts a Keynesian view of the role of State intervention in determining the level of economic activity through demand management. For writers in this school, the state’s intervention to create expansion or deflation is conditioned essentially by the needs of distributional struggle: for example, deflationary policies are pursued at times to create unemployment and push down wages. In the terms of this scheme, therefore, the determinant of state intervention is located in the sphere of circulation or exchange. For Marx, however, the fundamental determinant of all economic activity is the sphere of production, and the laws of motion of the economy cannot be understood without analysis of the sphere of production. footnote7 In other words, the laws of motion of the economy are determined in accordance with the law of value.

The law of value consists of propositions developed at a level of abstraction where all commodities exchange at their values as measured by socially necessary labour time. The movement of the capitalist economy is determined by the development of productive capital under such conditions footnote8 and accumulation necessarily proceeds along a path of combined and uneven development punctuated by crises (since crises are necessary to stimulate the restructuring of capital). This pattern of accumulation is a necessary part of the operation of capital and the capitalist state’s economic intervention is fundamentally determined by capital’s economic requirements. This view does not reduce politics to economics by a crude determinism; for the state, in preserving capitalist social relations, has political and ideological as well as economic roles. Therefore, its economic intervention is conditioned by the political and ideological balance of forces. Further, in the period of monopoly capitalism, the state must increasingly intervene to raise the production of surplus value and not merely to affect distribution.

We start from the fact that central to Marx’s analysis of the capitalist mode of production is the concept of capital. Whether the concept is epitomized by the idea of capital in circulation, capital as a social relation, or capital as self-expanding value, it is the circuit of capital which is the framework for the analysis of capital. The complete circuit of capital, as analysed in Volume II of Capital, a circuit through the spheres of production and circulation, and through the forms of money-, commodity-, and productive-capital, is the terrain on which economic practice in all its aspects takes place. footnote9 The economy itself must be analysed as a structured whole comprising, in its simplest form, the spheres of circulation and production. Each of these spheres has a relative autonomy, but is articulated with the whole—the sphere of production being determinant in the last instance. All analyses of economic practice must centre on the complete concept of capital in which capital in production is primary. This is true of theories of distribution, crisis and the economic practice of the capitalist state. It is the neglect of this prescription that leads Gough into error, since neo-Ricardianism exclusively considers distribution and the circulation of capital in exchange.