Karl Marx unveiled his theory of the enterprise or firm over the entire three volumes of Capital. One reason for the extensive and evolving presentation of the enterprise in Capital is that “every site exhibits a changing configuration of class and nonclass processes. In Marxian theory nothing can be fixed in the notion of what an enterprise or state means” (Resnick and Wolff 1987a, 165). Marx addressed a variety of different types of enterprises but mostly focused on three types of capitalist enterprises, those being industrial or productive, merchant, and money lending enterprises. For Marx it was the varied class processes that constituted these enterprises that made them worth differentiating and were vital for his understanding of capitalism more generally.1
Resnick and Wolff (1987a; 1987b) have done some of the most extensive methodological and analytical work of representing Marx’s original theory of the enterprise, and their writings substantially inform this presentation. It is important to provide an alternative to traditional Western Marxism’s view of the firm, which has a history of being preoccupied with accumulation and crisis theory that led to a “bipolar understanding of class and a related essentialist conception of the capitalist firm” (Norton 2001, 24). Traditional, though non-original, Marxian theories resulted in an overly abridged theory of the firm, simply pitting capitalist against labor and privileging the role of accumulation in the firm. The presentation here not only seeks to contrast with the traditional Marxian view, but also provides an alternative conceptualization of the firm to Adam Smith’s focus on labor specialization, Alfred Marshall’s reliance on the profit maximizing representative firm, and “contractual” approaches produced by Ronald Coase and Eugene Fama.2 Distinct from other theories of the capitalist firm, Marx’s approach is able to reveal exploitation, expose conflict over the production and distribution of the surplus, uncover evolving and contradictory class dynamics, and ultimately aid in understanding and envisioning non-exploitative forms of production.
The first volume of Capital focuses on productive capitalist enterprises. Marx’s attention to commodity production and the capitalist firm was in response to previous theories in political economy, such as Smith’s, but Marx also wanted to reorient what he correctly viewed as the future direction of theories of the capitalist enterprise, which incorporated Jeremy Bentham’s perspective on individualism and utility and the basic treatment of production as being just another application of exchange, say between employees and employers.
The first few chapters of Capital concerned commodities, exchange and money, which enabled Marx to differentiate simple exchange from something very different in production. He did not want to treat production as an extension of exchange. Near the end of the initial chapter on exchange, to indicate that he is moving away from the idea that exchange is the source of profit, he writes, “we shall at last force the secret of profit making” (Marx 1954, 172). But before getting into the substance of capitalist production, he makes one last assurance to the reader that what is to come is a very different type of analysis of the firm, one not based on a framework of freely and fairly exchanging commodities such as labor-power. Marx writes:
This sphere that we are deserting, within whose boundaries the sale and purchase of labour-power goes on, is in fact a very Eden of the innate rights of man. There alone rule Freedom, Equality, Property and Bentham. Freedom, because both buyer and seller of a commodity, say of labour-power, are constrained only by their own free will. They contract as free agents, and the agreement they come to, is but the form in which they give legal expression to their common will. Equality, because each enters into relation to each other, as with a simple owner of commodities, and they exchange equivalent for equivalent. Property, because each disposes only of what is his own. And Bentham, because each looks only to himself. The only force that brings them together and puts them in relation with each other is the selfishness, the gain and the private interest of each. Each looks to himself only, and no one troubles about the rest, and just because they do so, do they all, in accordance with the pre-established harmony of things, or under the auspices of an all-shrewd providence, work together to their mutual advantage, for the common weal and in the interest of all. On leaving this sphere of simple circulation or of exchange of commodities, which furnishes the “Free-trader Vulgaris” with his views and ideas, and with the standard by which he judges society based on capital and wages, we think we perceive a change in the physiognomy of our dramatis personae.
(Marx 1954, 172)
Instead of beginning with individuals and trade, Marx begins his theory of the enterprise with class and production. Class processes are defined in relation to the production, appropriation, distribution and receipt of surplus value (Resnick and Wolff 1987a, 109–63). While power and property may provide important conditions of existence for various class processes and participants, a definition of class based solely on surplus value provides a uniquely Marxian view of class. Productive laborers are the producers of surplus value. They are the people who contribute more to the value of a produced good or service than they receive in wages. Within capitalism, productive or industrial capitalists are the ones who appropriate or take initial ownership of this surplus value. The theorization of the fundamental class process, the production of surplus value and its appropriation, the existence of exploitation, and the struggles between productive labor and capitalists constitute a large portion of volume one of Capital.
With only the above notions of class coupled with a labor theory of value one can grasp the classic conflict between labor and capital at the site of production.3 Here one appreciates struggles over wages, the length of the working day, working conditions and the intensity of labor. For many this is all they recognize from a Marxian analysis of the firm. However, to leave the analysis there is to ignore most of the richness of Marx’s and Marxian contributions to a theory of the capitalist enterprise.
Fortunately, Marx provided a theory of the capitalist enterprise that, while published in 1887, went well beyond just capital versus labor and remains relevant for understanding modern capitalist firms. As did Marx, we can begin first with a theory of the productive capitalist enterprise and then describe merchant and money lending enterprises. A productive enterprise is the site of the production of surplus value. This site will contain productive workers who produce commodities or services. As they are paid less than the value that they contribute, they produce surplus value that is appropriated by the productive capitalists who are legally entitled to the surplus. In most modern corporations it is the boards of directors who occupy the position of capitalist (Resnick and Wolf 1987b, 211–13). However, once capitalists appropriate the surplus, they will have to distribute the surplus. These distributions can be divided into distributions made inside the firm and distributions made outside the firm. Distributions inside the firm may go to pay managers, in-house lawyers, marketing staff and information technology support staff, to name a few common subsumed class distributions today. These employees are the unproductive workers. The label unproductive indicates only that they do not directly produce surplus value yet receive an initial distribution of it. They receive a distribution because they provide essential conditions of existence of capitalist production today. These subsumed class participants are essential in providing cultural, administrative, legal, technical and other conditions of existence that allow the firm to function as a capitalist firm. For example, in-house lawyers produce the necessary legal documents to do business within a state that has laws which need to be followed. Marketers entice consumers to purchase items and hence help in the realization of the surplus produced by productive labor. Some of this surplus may go to managers who monitor and evaluate the work of productive labor.
Some distributions of the surplus will go outside the firm to provide other conditions of existence. Perhaps surplus distributions will go to banks to repay debt. Shareholders may get a cut of the surplus in the form of dividends. The state will get a distribution of the surplus in the form of taxes. As banks, shareholders and the state provide different conditions of existence from those provided internally to the firm, they nonetheless also occupy a subsumed class position. These distributions play a critical role in the continuation of the firm as a productive capitalist enterprise.
In the case of productive enterprises, what constitutes the optimal distributions of surplus will vary greatly from firm to firm, even in the same industry, as the social relations within each firm vary. For example, consider hypothetically two different capitalist furniture-manufacturing firms. One firm may have a very paternalistic relationship with employees, with good health insurance, company picnics and frequent donut-laden meetings with supervisors and shop floor carpenters. Such an enterprise will require many surplus distributions to sustain that environment. Yet another furniture manufacturer may have very impersonal and confrontational relationships with employees. Here too, the firm will spend its surpluses, but in other ways including subsumed class expenses to search for new laborers to replace those that leave, high legal expenses to fight employee complaints and high costs of surveillance technology to ensure high productivity. In either case, the issue of spending the surplus is not about the technical aspects of making furniture but rather about each firm functioning within a set of relations of production. In this example, each firm constitutes itself differently, with distinctive social conditions of production.
Concurrent with ever-present class conflicts between productive laborers and the capitalist over the size of the surplus, there are also subsumed class conflicts over the surplus distributions. It is likely that managers are looking for higher salaries and more money and human resources to manage, alongside all the other subsumed class demands. Marketing departments desire more compensation and control over more resources, as does the information technology support staff. Outside the firm, subsumed class conflicts will participate in the dynamics of interest rate variations. Corporate governance tussles with shareholders will affect dividend distributions. Political circumstances will alter tax rates. The outcome of these subsumed class struggles will feed back into the productive labor struggles, as capitalists may seek even higher levels of exploitation to pay for higher manager salaries, dividends, taxes, etc.
While a Marxian theory of the enterprise is class-focused, it is important to keep in mind that there are also a host of nonclass aspects to consider. Product market competition is one such example. Specifically, price competition between firms will cause a distribution of the surplus via the pricing mechanism which affects the size of the surplus realized by individual firms (Roberts 1988). Ultimately neither the size of the surplus nor the distributions are the result of a rational optimization of surplus, but rather they are overdetermined by the class and nonclass conflicts within and outside the firm. Such a perspective, with surplus flows moving in and out of the firm, understands the boundaries of the firm to be quite permeable. It is the concrete analyses of these surplus flows and the class relationships behind them that is the focus of many Marxian investigations of capitalist enterprises.
Of course, not all firms produce surplus value. However, by focusing on the flows of surplus value, one can theorize other firms’ relationships to productive, surplus value producing firms. Merchant firms help in the realization of previously produced surplus value by advertising, displaying and making products readily available to final consumers. In return for this service, they receive a cut of the surplus produced by the productive enterprise. For example, Walmart is primarily a merchant firm, as it does not produce the goods it sells in its stores but displays them for sale to the final consumer (Mulder 2011). Walmart pays less than the full value for an item from the producer and then sells the commodity at the full value. The difference between the two values is the merchant’s distribution of the surplus created by the productive enterprise. A productive capitalist may seek to sell goods in this fashion instead of employing its own internal sales force, opening retail stores, and/or maintaining a web site for sales to final consumers.
The identification of a merchant firm that is distinct from a productive capitalist firm is valuable in understanding modern capitalism. While merchants do not exploit labor, as no surplus is produced by the merchant enterprise, they may provide some important conditions for the existence of exploitation. Specifically, if merchants with market power demand a larger cut of the surplus than they were previously receiving, productive capitalists may then seek higher levels of exploitation from productive laborers, so that they can satisfy these higher demands on the surplus.
Employees of merchant enterprises are not producing surplus and hence cannot be exploited, in the sense of having surplus that they produce appropriated by someone else. Furthermore, as these employees are not receiving an initial distribution of the surplus—as that goes to the boards of directors of the merchant firms—but receive instead a subsequent distribution from the merchant enterprise, they are in a nonclass position. This does not mean that employees of merchants are necessarily adequately compensated or treated well. These employees may be subjugated in the workplace, may suffer wages below a living wage, and may be denied healthcare coverage by their employer. One question that arises is this: why should Marxism treat the workers of merchant enterprises in a theoretically different way from productive workers in productive capitalist firms? The answer speaks to what is unique about Marxism. Marxism is a class theoretic perspective with a notion of class defined in relation to surplus value. It is this focus on surplus value production, appropriation, distribution and receipt which provides Marxism with the theoretical space “to carefully distinguish class from nonclass processes in order to highlight the existence and unique effectivities of the former” (Resnick and Wolff 1987a, 165). One aspect of theorizing the nonclass position of merchant firm employees is to appreciate their role in relation to a fundamental class process. Today many merchant firms, by selling capitalist produced goods, support the capitalist fundamental class process. However, by accepting that the merchant firm is not a productive capitalist enterprise, one appreciates the fact the merchant enterprise can support noncapitalist production processes as well. Specifically, merchant firms can help the realization of surplus produced by any fundamental class process, such as ancient, communist, etc.
This ability to support any type of productive enterprise is true of money lending enterprises as well. Money lent to productive capitalist class enterprises provides important conditions of existence for that fundamental class process, and in return, interest payments become a distribution of the surplus created. In such a case, the money lending firm would be in a subsumed class position and subsequent distributions by the financial enterprise, such as payments to their employees, would be nonclass distributions. While lending to productive capitalist firms is substantial, there are also loans to support ancient class production by individuals and feudal class production in the home. The Laboral Kutxa, which is associated with the Mondragon Corporation, is an example of a bank financing a variety of cooperative, non-exploitative and productive enterprises. Hence, money lending is not exclusively a tool to support exploitative enterprises.
Many loans support nonclass processes such as home or auto buying. Clearly, the nonclass processes of personal debt may interact with fundamental class processes, as evidenced by the housing collapse beginning in 2007. A non-Marxian view of the crisis may see only the financial difficulties and not explore the class dimensions driving the personal debt explosion. A Marxian perspective on the Great Recession finds that the dynamics of increased exploitation in capitalist enterprises played a critical role in the rise in personal debt (Wolff 2012).
Overall, given the multiple forces on capitalist enterprises by productive labor and subsumed class participants, both internal and external to the firm, capitalists may respond by seeking to change who is employed in the firm and with whom they engage outside the firm. The firm may fire disgruntled productive workers or supervisors. The firm may seek to change relations with the state, shareholders, merchants and moneylenders via changes in the corporate funding of various political movements and specific candidates, attempts to buy back shares from shareholders, changes in who sells their products, and the refinancing of debt, which may change who holds the debt. Viewed in this light, the productive capitalist enterprise is the site of an ongoing jockeying for position regarding surplus value.
Merchant and moneylending enterprises too may seek to change which capitalist enterprise they seek to do business with or engage with various non-capitalist enterprises or participate in nonclass lending. By exposing these class and nonclass dynamics, one gains a distinctly Marxian theory of the capitalist firm, which includes the following three characteristics.
Capitalist productive enterprises cannot be reduced to profit-maximizing behavior. This is the case both with respect to the behavioral assumption that firms seek only to maximize profits—although they may do so at times—and with respect to the consequences of profit-maximizing behavior. With respect to the notion that firms always seek to maximize profits, Marxian theory makes clear that firms are provoked by multiple demands concerning how the surplus is produced, the amount of the surplus, and all distributions of it. Hence, there is no mechanism to guarantee maximum profits. Consider a commonplace notion of profit where, “[p]rofit is the surplus remaining after total costs are deducted from total revenue, and the basis on which tax is computed and dividend is paid. It is the best known measure of success of an enterprise.”4 Yet, as productive labor is successful in getting higher incomes with a given intensity of labor and length of the working day, profits fall. As unproductive labor, such as CEOs, managers and supervisors are successful in acquiring higher salaries, profits fall. As banks increase fees and landlords increase rents, profits fall. Therefore, it is quite possible that neither internal employees nor external institutions have an omnipresent and clear financial interest in the maximization of the firm’s profits. But what about the capitalist boards of directors? Clearly, they seek to maximize profits, if for no other reason than that they are the legal agents of the shareholders, placed in office to maximize returns for them. While this is often assumed in some theories of the firm, legally, at least in the US, that is not the case. “Although elected by the shareholders and removable by them for cause and possibly without cause, the directors are not agents of the shareholders. Nor are directors, in the strict sense, trustees. Their position is sui generis” (Henn 1970, 415–16). Boards of directors are able to consider a firm’s actions with respect to a host of constituents and a variety of effects beyond the firm.5 Hence, there is no legal mandate to maximize profits.
Nor is there necessarily a functional reason to maximize profits, as the firm must constantly address its changing class conditions of existence if it wants to survive. From a Marxian perspective, profits are not a measure of the success or failure of the enterprise, because profits themselves do not reveal the class conditions which gave rise to them. The capitalist fundamental class process within an enterprise may be able to thrive with high levels of exploitation and very low levels of profits—due to large subsumed class payments—and likewise be in jeopardy with low levels of exploitation and high levels of profits—due to small subsumed class payments. It all depends on the specific conditions of existence confronting the firm. Therefore, “to conclude that a capitalist enterprise is in a period of crisis because of some calculated decline in the profit rate is to make a non-Marxian, nonclass explanation of the enterprise” (Resnick and Wolff 1987a, 183).
Related to point #1 above, as the conditions of existence constantly change, capitalist enterprises as a whole cannot privilege one class distribution over others. Yes, Marx wrote, “Accumulate, Accumulate! That is Moses and the prophets!” (Marx 1954, 558). However, this was written in the chapter where Marx extends the subsumed class distributions from that which went only towards capitalist consumption to then include both capitalist consumption and accumulation distributions. Marx’s statements on accumulation were critical of the economic theories of his time, which viewed wealth as being due entirely to capitalists’ abstinence from consumption, for not including the exploitative production processes which were the source of the surpluses. Later in Capital Marx allowed for many additional uses of the surplus that produced a richer view of the enterprise than one wherein the capitalist firm is a mere accumulator of capital.
Because the conditions of existence change constantly for each firm, the class and nonclass distributions must continually change for a firm to exist. This can lead to some interesting decisions for firms. For example, a capitalist firm at a certain period in time and given the peculiarities of the industry may actually benefit by offering higher wages to productive workers. Ford’s famous $5 a day in 1914, which almost doubled wages for autoworkers at the time, is a case in point. The increased wages reduced worker turnover and provided incentives for increased productivity at Ford.6 Perhaps the increased wage led to increased levels of exploitation. In any case, this example demonstrates that firms do not have a necessary desire to reduce wages for employees at all times. Certainly, many firms face a confluence of class conflicts that often result in decreased real wages for productive and many unproductive employees. Nevertheless, it is one thing to theorize that decreased wages happen via a concrete set of class and nonclass constellations, and another to see firms as necessarily always seeking to reduce wages. Hence, the Marxian view of the firm cannot be reduced to simple conflicts between capital and labor involving fixed positions on wages and working conditions. This view is at odds with many influential Marxists. An example of a contrarian view is found in Harry Braverman’s Labor and Monopoly Capital. There he makes the argument for the “progressive alienation of the process of production” (Braverman 1974, 58; Braverman’s italics). While alienation may have been and may still be a widespread result of capitalist practices, alienation, at least as understood here, would not be considered a timeless, universal and necessary aspect of capitalist enterprises.
The Marxian method presented here is also at odds with approaches to firm theory that rely on the notion of the representative firm or the typical firm. Neoclassical analyses of the firm have used that approach, and the technique exists in Marxism as well. Paul Baran and Paul Sweezy in Monopoly Capital, defending their analysis of “the typical unit of Big Business, the modern corporation,” write:
we are not interested in realism of a photographic kind…. The point is that the decisive units of the economy are mistakenly moving toward a definite, recognizable pattern, and this pattern itself is much more important than any of the concrete approximations to it.
(Baran and Sweezy 1966, 15)
One result of this is that they overly privilege the role of accumulation in firms at the expense of other conditions of existence. The approach suggested here is more in keeping with the insights of Antonio Gramsci. When commenting on Fordism in American he writes:
[s]ince there has never functioned and does not function any law of perfect parity of systems and production and work methods valid for all firms in a specific branch of industry, it follows that every firm is, to a greater or lesser degree, “unique” ….
(Gramsci 1971, 313)
Examples of Marxian investigations of specific firms include Brennan (2003a and 2003b), who provides a class analysis of Enron, Mulder’s (2011) class inquiry into Walmart, Mulder’s (2015a) analysis of the Green Bay Packers professional American football team along with other firms, and Mulder’s (2015b) Marxian examination into the British Broadcasting Corporation Symphony Orchestra and the London Symphony Orchestra.
Yet the power of a Marxian theory of the enterprise is not limited to investigations of single firms. The insights of that theory of the enterprise can inform investigations of industries such as liberal arts colleges (Curtis 2001), Major League Baseball (Weiner 2003), and unionization (Annunziato 1990). Additionally, the Marxian theory of the firm can advise theories of the relations between capitalism, socialism and other forms of production (Gibson-Graham 1993; McIntyre 1996).
To conclude, a Marxian theory of the enterprise or firm is distinctively about class. It seeks to specify exactly where exploitation exists and its concrete conditions of existence. With this knowledge comes a uniquely Marxian perspective on capitalism. But, at the same time, the Marxian theory of the enterprise also provides insights, examples and possibilities for non-exploitative enterprises. Therein lies the revolutionary potential of this perspective.
1 Olsen argues that, “in Capital Marx develops his theory of capitalism primarily through a close analysis of the capitalist enterprise” (forthcoming).
2 Hodgson (1998) forms a taxonomy of the main theories of the firm, both orthodox and heterodox, and places all theories of the firm into two, sometimes overlapping, categories, competency-based and contractarian. He places Marxian firm theory in a sub-category of competency-based theory referred to as evolutionary.
3 It is always important to remember that Marxism and neoclassical theory employ very different theories of value. This point and the specific differences in the theories of value are explicitly presented by Resnick and Wolff (1987b).
4 See the entry “profit” from businessdictionary.com.
5 See Brennan (2005) for a more detailed investigation of the legal framework in which boards of directors operate. While not from a Marxian class perspective, the work of Berle and Means (1932) is informative here as it argues for how ownership and control have become decoupled in modern corporate structures.
6 http://www.forbes.com/sites/timworstall/2012/03/04/the-story-of-henry-fords-5-a-day-wages-its-not-what-you-think/ (accessed June 1, 2016).
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