Friday, 6 March 2015

Friday Night Disco - Low Rider - War

Classic 1970's disco hit from War's "Why Can't We be Friends" album, and featured on numerous films.

The Long Wave - Part 14

On the one hand, the lower prices, of primary products, mean that industrial producers benefit from lower costs of constant and variable capital. Lower primary product prices reduce the value of constant capital. 

“The raw materials here include auxiliary materials as well, such as indigo, coal, gas, etc. Furthermore, so far as machinery is concerned under this head, its own raw material consists of iron, wood, leather, etc. Its own price is therefore affected by fluctuations in the price of raw materials used in its construction. To the extent that its price is raised through fluctuations, either in the price of the raw materials of which it consists, or of the auxiliary materials consumed in its operation, the rate of profit falls pro tanto. And vice versa.”

(Capital III, Chapter 6)

Any such fall in the value of constant capital, be it the fixed or circulating constant capital, not only results in a rise in the rate of profit, but it also results in a release of capital, which can then be used for additional accumulation.

“Since the rate of profit is s/C, or s/(c + v), it is evident that every thing causing a variation in the magnitude of c, and thereby of C, must also bring about a variation in the rate of profit, even if s and v, and their mutual relation, remain unaltered. Now, raw materials are one of the principal components of constant capital. Even in industries which consume no actual raw materials, these enter the picture as auxiliary materials or components of machinery, etc., and their price fluctuations thus accordingly influence the rate of profit. Should the price of raw material fall by an amount = d, then s/C, or s/(c + v) becomes s/(C - d), or s/((c - d) + v). Thus, the rate of profit rises. Conversely, if the price of raw material rises, then s/C, or s/(c + v), becomes s/(C + d), or s/((c + d) + v), and the rate of profit falls. Other conditions being equal, the rate of profit, therefore, falls and rises inversely to the price of raw material.”


But, the fall in primary product prices (and their consequent effect in reducing the prices of other constant capital) also feeds through into the value of wage goods, and thereby reduces the value of labour-power.

“Inasmuch as the value of labour-power rises because there is a rise in the value of the means of subsistence required for its reproduction, or falls because there is a reduction in their value — and the appreciation and depreciation of variable capital are really nothing more than expressions of these two cases — a drop in surplus-value corresponds to such appreciation and an increase in surplus-value to such depreciation, provided the length of the working-day remains the same...

If wages fall in consequence of a depreciation in the value of labour-power (which may even be attended by a rise in the real price of labour), a portion of the capital hitherto invested in wages is released. Variable capital is set free. In the case of new investments of capital, this has simply the effect of its operating with a higher rate of surplus-value. It takes less money than before to set in motion the same amount of labour, and in this way the unpaid portion of labour increases at the expense of the paid portion. But in the case of already invested capital, not only does the rate of surplus-value rise but a portion of the capital previously invested in wages is also released. Until this time it was tied up and formed a regular portion which had to be deducted from the proceeds for the product and advanced for wages, acting as variable capital if the business were to continue on its former scale. Now this portion is set free and may be used as a new investment, be it to extend the same business or to operate in some other sphere of production.”


The effect of the fall in oil prices both in raising the rate of profit by reducing the value of constant capital, as well as by reducing the value of labour-power, and also providing the basis for a release of capital of both kinds can be seen as a powerful means of providing stimulus in the global economy.

On the other hand, in the industries and countries that are the producers of these products, this goes along with a significant reduction in revenues. All primary production is a part of Department I, the production of producer goods, which takes part in the overall social exchange with Department II. The consequence is thereby contradictory. The fall in the value of raw materials acts to increase the rate of profit, for all those industries (including those in Department I) that use these products, as well as lowering the value of labour-power, increasing the rate and mass of surplus value, and thereby again increasing the mass and rate of profit. The general rise in the rate of profit, and release of capital, thereby acts to stimulate output. At the same time, the reduction in revenues for primary product producers, means that the demand for Department II commodities is reduced. This adds to the previously described limitations on realising profits.

Overall, however, this reduction in the amount of labour-time required for the production of these primary products is to stimulate additional output. As Marx sets out in, Capital III, Chapter 47, it was increases in productivity in agriculture that initially made it possible for labour-time to be devoted to other things than simply meeting Man's essential needs.

“The physiocrats, furthermore, are correct in stating that in fact all production of surplus-value, and thus all development of capital, has for its natural basis the productiveness of agricultural labour. If man were not capable of producing in one working-day more means of subsistence, which signifies in the strictest sense more agricultural products than every labourer needs for his own reproduction, if the daily expenditure of his entire labour power sufficed merely to produce the means of subsistence indispensable for his own individual requirements, then one could not speak at all either of surplus-product or surplus-value. An agricultural labour productivity exceeding the individual requirements of the labourer is the basis of all societies, and is above all the basis of capitalist production, which disengages a constantly increasing portion of society from the production of basic foodstuffs and transforms them into "free heads," as Steuart [Steuart, An Inquiry Into the Principles of Political Economy, Vol. I, Dublin, 1770, p. 396. — Ed.] has it, making them available for exploitation in other spheres.” 

The fall in final demand arising from the fall in revenues for primary producers, is thereby more than outweighed by the development of new industries, and the expansion of capital that results, from the release of available social labour-time and capital, which in turn creates additional final demand.

Thursday, 5 March 2015

Grant Shapps' Natalie Bennett Moment

The Tories' policy for what has been called “Ryanair Housing”, whereby builders will be allowed to cut corners, so as to produce slightly cheaper houses was announced several months ago. With an election coming, and the housing crisis getting worse, Cameron has proposed to double the number of these sub-prime houses, from 100,000 to 200,000. Yet, despite the time they have had to try to think this policy through, when he appeared on Murnaghan, at the weekend, Tory Chairman, Grant Shapps was unable to say how the scheme would be financed. Rather like the way his leader waffles, avoids and evades ever answering any question from Ed Miliband during PMQ's, Shapps was left floundering to provide any response to what is a fairly straightforward and important question. Now wonder the Tories want to avoid appearing on any televised leaders debates. They have got so used to just putting up any old flannel.

I've dealt with what is wrong with the scheme months ago when it was announced. Sub-standard houses, built by the builders being allowed to cut corners in the same way that Victorian terraced housing was jerry-built over a hundred years ago, leading to health and social problems, and creating the urban slums that had to be pulled down in the 1960's; houses built on brownfield sites where no one wants to live and so on.

The simple answer to Murnaghan's question, is that the Tories propose that local councils pick up the tab. That is the same local councils that have already been the hardest hit by the Tories austerity policies. Local Councils are expected to forgo the income they they would receive from any development, in the shape of 106 Agreements, the requirement for builders to provide local amenities and so on, wherever they create additional need from building new developments.

The saving of 20% on the average house bought by a first-time buyer is around £48,000. Multiplied up by the 200,000 houses the Tories are proposing under the scheme, and the loss to Councils is then around £9.6 billion, which is quite a chunk of change to lose following all of the other cuts. The government are not proposing to compensate Councils for this loss of income. But, there are other obvious problems with the scheme.

As one mortgage expert pointed out, when builders have obtained this 20% reduction in their costs, there is no way that it can be guaranteed to be passed on to home buyers. Builders could just inflate their costs by 20%, so as to make out that they had then given a 20% reduction. In those parts of the country, where house prices are falling, because excessive house prices have already killed off potential demand, that will not happen, due to competition, but its in those areas that builders will have little interest in building, which means the excessive prices will continue. In areas like London, builders will have little problem inflating their costs, so as to simply add this 20% gift from the local council to their profits.

As far as mortgages are concerned, the 20% discount will make little difference. Mortgage providers will base any mortgage offer on the discounted price, not the price before the 20% discount. So, a £100,000 house that currently requires a 20% deposit, of £20,000, becomes an £80,000 house that requires a deposit of £16,000 – a reduction of £4,000 in the deposit required, not £20,000. Given that many first-time buyers have difficulty raising the minimum deposit, this small difference is unlikely to change anything much. The real problem is that house prices have just been inflated to ridiculously high levels. They need to fall by much more than this measly 20% to return to any kind of level of sanity.

According to a new report by Shelter, if house prices had kept pace with wages, first time buyers would be paying more than 40% less for a house than they are currently. This is another consequence of the totally mangled and distorted economy that has been created as a result of high debt, and low wages created since the late 1980's by Thatcher, referred to recently, whereby, for example, the payment of Housing Benefit, to workers on these low wages, now accounts for a third of the total income for workers. The annual wage bill is around £54 billion, whilst Housing Benefit alone accounts for £27 billion a year! Take that Housing Benefit away, and either wages in Britain would have to rise by around 50% on average, or else rents would have to be slashed to a level that the Buy To Let landlords would go bust on a huge scale, causing house prices to be literally decimated, i.e. fall to near a tenth of current levels.

That is before, interest rates inevitably rise. One Tory Minister on TV recently commented that in many parts of the country there was no housing bubble, because people in those areas were in negative equity. There is no logical connection between the two. If I took out a 95% mortgage – let alone a 125% mortgage! - on a £250,000 house, i.e. a mortgage of £237,500, the fact that the house is now valued at only £200,000, or £37,500 less than my outstanding mortgage, does not mean that the house is not still massively overpriced, and along with other similarly overpriced houses, is still not in a bubble. It only means that all of the measures the government has thrown at trying to prevent that bubble from bursting, has succeeded, so far in limiting the fall to this £50,000 drop. It does not at all mean that the houses are not still 40% overprices, or that as with any bubble, when it bursts, the reversion to the mean will result in prices falling by much more than that.

In Spain, prices have fallen by around 50%, in the last five years, and are still falling. There are many people in negative equity, but that doesn't mean that the houses are not still significantly overpriced, having risen over the last 20 years by ridiculous amounts. According to an e-mail newsletter I received recently from Spain's largest estate agent, Idealista, there are still around 1.5 million empty homes waiting to be sold. In valencia, 90% of the homes waiting to be sold are being sold by banks! That shows the extent of the banking crisis in Europe. Its only because these banks continue to be pumped full of liquidity by the ECB that they can continue to hold these proporties on their books at these fantasy prices. But it doesn't change the fact of their underlying insolvency.

But, in Britain, house prices have not yet even gone through the necessary price crash that they have experienced in the US, Ireland, and Spain. Its coming, and when it comes it will be huge, and the impact on the banks will be huge too.

Capital II, Chapter 21 - Part 7

2) The Additional Constant Capital 

The basic difference between simple reproduction and extended reproduction is not the production of a surplus – which exists in both – but in how this surplus is utilised. Under simple reproduction, the surplus, c-m, (c = C' - C, and m is the money equivalent of c) becomes merely revenue that functions to cover unproductive consumption, whilst M itself continues to buy productive-capital - M is the money equivalent of C, the commodities that comprise the productive-capital.  M and C, just as with C' and M' are merely different, metamorphosed forms of the capital value. Under extended reproduction, a portion of m itself is accumulated.

“The difference is here only in the form of the surplus-labour performed, in the concrete nature of its particular useful character. It has been expended in means of production for I c instead of II c, in means of production of means of production instead of means of production of articles of consumption... In order that the transition from simple to extended reproduction may take place, production in department I must be in a position to fabricate fewer elements of constant capital for II and so many the more for I. This transition, which does not always take place without difficulties, is facilitated by the fact that some of the products of I may serve as means of production in either department.” (p 500-1)

So, within the terms of the current example, Capitalist A does not themselves have to have gone beyond simple reproduction for extended reproduction to occur within society. All that needs to change is that their surplus product is used for purposes of creating additional means of production as opposed to consumption. So, for example, 4,000 tonnes of coal might in any case have been used for steel production, with 2,000 tonnes going for domestic fuel. If now this other 2,000 tonnes goes instead to steel production, it will be the basis for increased production of steel, and thereby an increase in the means of production themselves.

“In the case under consideration, this surplus-product consists from the outset of means of production of means of production. It is only when it reaches the hands of B, B', B'', etc. (I) that this surplus-product functions as additional constant capital. But it is this virtualiter even before it is sold, even in the hands of the accumulators of hoards, A, A', A'' (I).” (p 500)

Under simple reproduction the capitalists used their surplus value to buy commodities for their own consumption. But, in order to realise this surplus value in these commodities, they had to themselves throw money into circulation equal to that surplus value. At the end of the circuit, that additional money, they had thrown in, came back to them, ready to be thrown in to realise this surplus value once more. The key to understanding the expanded reproduction is their ability to realise this surplus value without throwing money into circulation to do so. They threw money into circulation to realise their surplus value in other commodities. But, as Marx demonstrated with the example whereby all capitals exchange their commodities with a gold producer, it is logically possible for all capital to simultaneously hold that surplus value in the form, not of commodities to be consumed, but of a money hoard.

That money hoard becomes potential money-capital. For any individual capital it becomes possible to exchange its money hoard not for articles of consumption, but for additional articles of production. It only requires that the society devote a greater proportion of available social labour-time to the latter rather than the former.

To put this in terms of our example, the coal producer's capital is C 400 + V 100 + S 100 = 600. They spend their £100 surplus value to buy food, clothing etc. In order to achieve this, they must throw £100 of money into circulation themselves, which means that other capitalists have the money to buy the coal, and thereby also realise the £100 surplus value in the coal. But, if the coal producer instead of buying clothes and so on decides to hoard the surplus value, they have no need to throw this additional money into circulation to realise this surplus value. In essence, they simply exchange the coal with the gold producer. From that gold, they cover the £400 to replace their constant capital, and the £100 to replace their variable capital, so that they can continue producing at the same level. But, they still now have £100 in gold, as a money hoard.

Wednesday, 4 March 2015

Oil Price. Good For The Economy, Terrible For Financial Markets - Part 12

Circulating Constant Capital 

The world consumes around 30 billion barrels of oil per year. At its previous price of around $110 per barrel, that is an approximate value of around $3.3 trillion, whilst total global GDP is estimated at somewhere between $75 – 87 trillion. Using the lower value, that means that oil accounted for around 4.4% of global output value. The fall in its price to around $45 per barrel reduces its total output value to around $1.35 trillion, or about 1.8% of global output value. Although, the fall in the oil price, badly affects the rate of profit in the oil industry itself, and will have a knock on effect on the rate of profit in those industries that are closely associated with it, in terms of the development and maintenance of oil fields, pipelines and so on, its quite clear that at such a small percentage of total global output, and capital value, this cannot significantly affect the global rate of profit adversely. More significantly, for the reasons Marx sets out in Capital III, Chapter 6, the fall in the price of oil, as an important raw material, acts to raise the rate of profit in general.

“Since the rate of profit is s/C, or s/(c + v), it is evident that everything causing a variation in the magnitude of c, and thereby of C, must also bring about a variation in the rate of profit, even if s and v, and their mutual relation, remain unaltered. Now, raw materials are one of the principal components of constant capital. Even in industries which consume no actual raw materials, these enter the picture as auxiliary materials or components of machinery, etc., and their price fluctuations thus accordingly influence the rate of profit. Should the price of raw material fall by an amount = d, then s/C, or s/(c + v) becomes s/(C - d), or s/((c - d) + v). Thus, the rate of profit rises. Conversely, if the price of raw material rises, then s/C, or s/(c + v), becomes s/(C + d), or s/((c + d) + v), and the rate of profit falls. Other conditions being equal, the rate of profit, therefore, falls and rises inversely to the price of raw material. This shows, among other things, how important the low price of raw material is for industrial countries, even if fluctuations in the price of raw materials are not accompanied by variations in the sales sphere of the product, and thus quite aside from the relation of demand to supply.”

Oil is almost unique in that it enters as a raw or auxiliary material in every type of product, as well as in transport. The fact that oil comprises currently only around 1.8% of total global output value, might suggest that any change in its price could only have a marginal effect on profitability. However, the 1.8% figure is the share of output value, not the share of production costs. If global profits are estimated at around $10 trillion, that gives total production costs of around $65 trillion.

On that basis, the original cost of oil comprised around 5% of total production costs, and this will have fallen to around 2%. Put another way, the fall in the price of oil has released around $2 trillion of capital into the global economy. That is additional capital that can be accumulated in addition to the $10 trillion of global profits, only part of which would have been accumulated. If half of the $10 trillion of profits are accumulated, and the other half consumed as revenue, this release of an additional $2 trillion of capital is the equivalent of making possible a 40% increase in potential accumulation. In short, if global growth was previously estimated at around 4%, it would increase this to around 5.6%.

But, in fact, the proportion may be greater than that, because, as Marx points out, one consequence of a fall in commodity values, is that capitalists and other exploiters themselves have to lay out less money as revenue, to buy the commodities required for their own unproductive consumption. The less they have to expend for these purposes, the larger the share of total profits available for accumulation.

The effects on the rate of profit, and potential accumulation of capital, obviously vary depending upon the extent to which oil forms a more or less significant component of the production costs in any industry. In the petrochemical industry, for example, oil forms the basic raw material, and consequently the fall in its price, both raises the rate of profit, as less capital needs to be advanced to buy any given quantity of raw material, and also leads to a release of capital, equal to this reduced value, which can then be used for purposes of additional accumulation.

Another example would be a transport company. Take a taxi company, it may advance £20,000 as fixed capital to buy a taxi, which it expects to last for 10 years, losing £2,000 p.a. as wear and tear. The taxi covers 600 miles per day, or 216,000 miles per year, consuming 10,000 gallons of petrol, at a cost of £100,000. Overhead costs amount to a further £10,000 p.a. It pays, £30,000 in wages, and makes £74,000 in profits, with total revenues of £216,000, or £1 per mile. The rate of profit is then p/k = 52%.

If the price of petrol falls in half, and this is passed on in a lower charge per mile, this becomes costs of £2,000 (wear and tear) + £50,000 (fuel) + £10,000 (overheads) + £30,000 (wages). Total revenues fall to £166,000, leaving £74,000 in profits. The rate of profit thereby rises to 80.4%. An increase of 60%. But, the fall in the price of oil (this is not accurate because the fall in the price of oil does not translate directly into an equivalent fall in petrol prices, but is made for illustrative purposes) means that less capital must be laid out to operate on this scale.

£50,000 of capital has been released. This £50,000 of capital released as a result of the fall in the oil price could then be used to buy an additional taxi costing £20,000, leaving £30,000 of capital to employ labour. In other words, the potential to expand at an enhanced rate is established.

Tuesday, 3 March 2015

Syriza and Brest-Litovsk - Part 3 of 3

Kouvelakis is quite right to criticise Syriza for describing its climb down as a victory, when it was quite clearly a defeat, a compromise forced on them due to weakness, and Syriza have made other mistakes, for example, entering a coalition with the Independent Greeks, who had already committed to supporting the Government's anti-austerity policies. He is quite right to contrast Syriza's approach of describing a defeat as a victory with the Bolshevik's approach at Brest-Litovsk. Having said that, its a bit harsh to compare, as some have done, Syriza's capitulation with the fact that the Bolshevik's spent some considerable time discussing their position within the party and soviets, before they eventually made the concessions, because Syriza was faced with a requirement to reach an agreement within a matter of just a couple of days.

Syriza can also be criticised, for the fact that they have not pursued any of the policies that even mainstream bourgeois economists have proposed, which I have previously suggested, as a means of defying the ECB and EU leaders, so as to pursue an anti-austerity agenda, whilst remaining inside the Eurozone. For example, I have previously suggested that they could simply issue government paper, to be bought by the Greek Central Bank, which would then create electronic Euros, by making an electronic deposit in the government's account, in return for this collateral. That approach has also been put forward by Wolfgang Munchau, in the FT.

Yet, even here, there is a possible justification for Syriza holding back from such action. To do so now, would mean an immediate confrontation with the ECB and Eurozone. If Greece implemented such a policy, it would mean that government's in Spain, Italy, Ireland and Portugal would come under intense pressure, from their workers, to abandon austerity and follow suit. Under those conditions, it is inevitable that the ECB and Eurozone would respond vigorously to the measures by Greece, in ways that must be unforeseeable, because its not clear, as Munchau himself states, exactly what they could do to prevent it.

In that case, attempting to ensure that you have created the best possible conditions before engaging on such a confrontation, makes sense. The idea that increased support can only be garnered by always launching into confrontation, with the expectation that such action will provoke a mobilisation of the masses is naïve. Marx advised the Paris workers not to launch into rebellion in 1870, because he considered that they were not yet ready, that the conditions were not right; Lenin attempted to hold back the workers in July 1917, for similar reasons; and Trotsky in the early 1920's on a number of occasions criticised the German Communist Party for repeatedly calling for General Strikes and other mobilisations without the necessary conditions for their success, or the necessary organisation having been undertaken.

It would be sensible to try to put in place a series of measures such as those I have proposed previously, for example, transferring as much as possible of the Greek economy on to the use of electronic payments so as to reduce the requirement for actual notes and coins; it would make sense for Syriza to use the intervening period to foster non-fiscal measures, for example making clear its support for workers taking over bankrupt firms and converting them into co-operatives, supporting the welding together of existing co-operatives into a co-operative federation, and if possible the building of links with co-operative organisations across Europe; the encouragement of links between the co-operatives and trades unions, possibly the using the model developed by the US Steelworkers Union and Mondragon, as an example; the encouragement of the building of community organisations, so as to build alternative organs of workers power, and self-defence and so on.

“It costs nothing, for example, to dissolve the detested riot squad DELTA, created after the unrest of 2008. The current plan is to “merge it” with the more established, less fascist infiltrated riot squads of the ordinary police. I would also expect the beefed up tax authorities to go in hard on a few symbolic members of the so called oligarchy.

Success in such endeavours would barely register at the ECB, yet be seen as massive delivery on promises by the 42 per cent of voters who voted left on 25 January."

But, given the different tempos referred to in my previous posts, in relation to Brest-Litovsk, the intervening period gives time, if used wisely, to build a greater degree of international support, and opposition to austerity. As I suggested, it provides the opportunity for Syriza and Podemos to act as an organising centre for a European convention of workers organisations to oppose austerity, a movement that should seek to draw in not just European trades unions, and co-operatives, but also members of the existing large social-democratic parties, so as to put pressure on the leaders of those parties from their rank and file, and from the mass of the working-class. Can such be guaranteed to work? Absolutely not, but what can be guaranteed is that a refusal to try build such a movement, will lead to demoralisation of the masses, and a rise of the fascists.

Those who believe that having fought an election campaign, on a social-democratic agenda, and won a parliamentary majority, Syriza should have walked away and refused to take office, because they could not implement a revolutionary programme, essentially adopt an equally sectarian stance, that reduces them to carping from the sidelines.  It would mean that Marxists could never, for example, put themselves forward for trade union positions, because, by definition, trade union activity can only ever, at best, result in a slight amelioration of the workers condition.  Workers would quite rightly not be able to understand such an aloof attitude by Marxists.

In discussing the situation in Mexico, whereby the Cardenas regime had nationalised various industries, and faced with imperialist opposition, was turning to workers for support, including inviting them to take part in workers management of those nationalised industries Trotsky dealt with this issue.  On the one hand, he noted that it is a deception for Marxists to advocate nationalisation by the capitalist state, as opposed to a workers overthrow of capitalist property relations.  Workers Control, is also a deception he noted, outside a revolutionary situation, because outside that condition, whereby the workers are holding a gun to the head of capitalism at a state level, there is no reason for the bourgeoisie to concede any real workers control, so it could only ever be a means of incorporating the workers and their organisations.

On the other hand, Trotsky notes, in a situation where the capitalist state has already nationalised industries, and where, for its own reasons, it is offering a form of workers control, the workers would not understand if Marxists demanded they just walk away from this offer.  Trotsky is at pains to describe why Marxists do not demand nationalisation by the capitalist state, and why Workers Control as a demand is a fraud, but he goes on,

"One can of course evade the question by citing the fact that unless the proletariat takes possession of the power, participation by the trade unions in the management of the enterprises of state capitalism cannot give socialist results. However, such a negative policy from the revolutionary wing would not be understood by the masses and would strengthen the opportunist positions. For Marxists it is not a question of building socialism with the hands of the bourgeoisie, but of utilizing the situations that present themselves within state capitalism and advancing the revolutionary movement of the workers."

(Trotsky - Nationalised Industry and Workers Management)

As Paul Mason noted,

“Many people who voted for Syriza are privately up in arms over the scale of the retreat – but they blame Germany first, Europe second and their own government a long, long third. They will, for now, swallow evisceration of their party’s programme on two conditions: one, that the government goes on delivering on non-fiscal policies.”

Paul goes on to say that the Syriza leaders underestimated the support they would get from other governments. That may or may not be correct, but its not clear to me why they would expect support from the German government, or from a British government led by conservatives who are themselves carrying out policies of austerity on behalf of money-lending capital against the interests of big industrial capital.

In fact, what we are seeing in Greece is a political proxy war between these two big class fractions of capital – fictitious capital/money-lending capital, whose power is entrenched in the banks and financial institutions, but is based upon the ownership of shares, bonds and other financial assets, on the one hand, and real productive-capital on the other. It is similar to the situation described by Marx in Capital Vol. III, in relation to the 1844 Bank Act, which caused a credit crunch and financial crisis in 1847 and 1857, which in turn caused a severe economic crisis, until the Act was suspended. Marx describes this situation where the conservative representatives of this fictitious capital determine policy on the basis of a willingness to see real productive-capital destroyed, solely to maintain the value of this paper, fictitious capital. 

“Talk about centralisation! The credit system, which has its focus in the so-called national banks and the big money-lenders and usurers surrounding them, constitutes enormous centralisation, and gives to this class of parasites the fabulous power, not only to periodically despoil industrial capitalists, but also to interfere in actual production in a most dangerous manner — and this gang knows nothing about production and has nothing to do with it. The Acts of 1844 and 1845 are proof of the growing power of these bandits, who are augmented by financiers and stock-jobbers.”

(Capital III, Chapter 33)

The struggle taking place in Greece is not a struggle between capitalism and socialism, but, in reality only a struggle between the interests of two different fractions of capital.  It is a struggle between industrial capital and its representatives, the functioning capitalists, on the one side (social democracy), and fictitious capital and its representatives, the bankers, the share and bondholders and their appointees on the Boards of Directors (conservatism), on the other.  The only sense in which this is a struggle between socialism and capitalism is that the social democracy rests upon that socialised capital described by Marx in Capital III, in the large joint stock companies, and co-operatives, which Marx describes as the transitional forms of property to the associated mode of production.  It, therefore represents progress, whereas conservatism rests on all of those more primitive forms of capital, like interest-bearing capital, and so represents reaction.  It is a class struggle, being fought out between these two class fractions representing two antagonistic forms of capitalist property, one the harbinger of the future, the other a reflection of the past.

Capital II, Chapter 21 - Part 6

This fact, that there must be a balance within the economy, that the value of commodities thrown into circulation must equal the value of the commodities taken out of it, that the money thrown in must equal the money taken out, does not mean that the economy has to remain static, or in a condition of simple reproduction, though simple reproduction, as Marx stated earlier, is always a fundamental basis for expanded reproduction. The balance is maintained if production is expanded and more commodities and money are thrown into circulation, provided that more commodities and money are also taken out. And a condition of expanded reproduction is as much that more commodities are taken out of circulation – to fulfil the function of means of production, to become means of consumption for an increased workforce etc. - as it is that more commodities are thrown into circulation.

“So far as the balance is restored by the fact that the buyer acts later on as a seller to the same amount of value, and vice versa, the money returns to the side that advanced it on purchasing, and which sold before it bought again. But the actual balance, so far as the exchange of commodities itself, the exchange of the various portions of the annual product is concerned, demands that the values of the commodities exchanged for one another be equal.” (p 498)

This, of course, does not mean, as Say's Law suggests, that, in order to achieve this balance, every sale must be followed by a purchase. The whole essence of capitalism is a series of one sided trades, whereby, at one time, a seller is not a buyer, and a buyer is not a seller. It is only in the aggregate that this balance must exist. But, of course, in reality, that balance never does exist perfectly. Demand and supply only every balance accidentally; there is always a misallocation of capital so that there is overproduction here, and under production there. Its in this sense that capitalism is a system in permanent crisis, but there is a marked difference between these permanent, but partial crises, which are a part of the dynamic nature of capital, and the means by which capital is perpetually being reallocated, and the periodic, generalised crises of capitalism.

“But inasmuch as only one-sided exchanges are made, a number of mere purchases on the one hand, a number of mere sales on the other – and we have seen that the normal exchange of the annual product on the basis of capitalism necessitates such one-sided metamorphoses – the balance can be maintained only on the assumption that in amount the value of the one-sided purchases and that of the one-sided sales tally. The fact that the production of commodities is the general form of capitalist production implies the role which money is playing in it not only as a medium of circulation, but also as money-capital, and engenders certain conditions of normal exchange peculiar to this mode of production and therefore of the normal course of reproduction, whether it be on a simple or on an extended scale – conditions which change into so many conditions of abnormal movement, into so many possibilities of crises, since a balance is itself an accident owing to the spontaneous nature of this production.” (p 498-9)

In the exchange between I(v) and II(c) there is an exchange of the same amount of value, but not of their respective commodities.

“II c sells its commodities to working-class I. The latter confronts it one-sidedly, as a buyer of commodities, and it confronts that class one-sidedly as a seller of commodities. With the money proceeds so obtained II c confronts aggregate capitalist I one-sidedly as a buyer of commodities, and aggregate capitalist I confronts it one-sidedly as a seller of commodities up to the amount of I v. It is only by means of this sale of commodities that I finally reproduces its variable capital in the form of money-capital. If capital I faces that of II one-sidedly as a seller of commodities to the amount of I v, it faces working-class I as a buyer of commodities purchasing their labour-power. And if working-class I faces capitalist II one-sidedly as a buyer of commodities (namely, as a buyer of means of subsistence), it faces capitalist I one-sidedly as a seller of commodities, namely, as a seller of its labour-power.” (p 499)

All of these one sided exchanges are required for the social capital to be reproduced, for Department I workers and capitalists to obtain the consumer goods they need, to live and so that labour-power can be reproduced, and equally that Department II can obtain the constant capital it requires to continue its own production. All of these one sided trades involve separate circuits of capital, money and commodities that intertwine.

“This process is so complicated that it offers ever so many occasions for running abnormally.” (p 500)