Anti-Duhring, Part III – Socialism, II – Theoretical - Part 31

But, those conditions ended, in the mid-1970's, precisely because the economic expansion no longer created the sufficiently rising profits to facilitate the rising payments of interest. Interest rates rose, but the mass of interest grew more slowly than before, because the amount of profit grew more slowly, as capital accumulation slowed, and more of that profit was required for capital accumulation/profit of enterprise, leaving less for interest payments, rents and taxes. Capital was overproduced relative to labour supply/social working-day, so relative wages rose, relative profits fell.

In the 1950's and 60's, it was not that interest rates/dividend yields rose, as the basis of the ruling class revenues rising, on the contrary, interest rates and dividend yields were falling. The increased revenues came from a rapidly growing mass of profit, as capital expanded rapidly, during the post-war, long-wave uptrend. Similarly, in the mid-60's, and through to the mid-80's, interest rates rose, precisely because capital grew faster than labour supply/social working-day. Wage share/relative wages rose. Workers used those higher wages to demand more wage goods, and some of what had previously been luxury goods, as Marx describes in Capital II, and elsewhere, always happens in these conditions.

Competition, then, forced firms to respond to that higher demand, for fear of missing out, and losing market share. As Marx pointed out in response to Ricardo, capital does not need higher rates of profits or prices to get it to do that, competition forces it to do so, even as the consequence is a lower rate of profit, because, the alternative if to lose out in the competitive struggle.

“... the extension of cultivation to larger areas — aside from the case just mentioned, in which recourse must be had to soil inferior than that cultivated hitherto — to the various kinds of soil from A to D, thus, for instance, the cultivation of larger tracts of B and C does not by any means presuppose a previous rise in grain prices any more than the preceding annual expansion of cotton spinning, for instance, requires a constant rise in yarn prices. Although considerable rise or fall in market-prices affects the volume of production, regardless of it there is in agriculture (just as in all other capitalistically operated lines of production) nevertheless a continuous relative over-production, in itself identical with accumulation, even at those average prices whose level has neither a retarding nor exceptionally stimulating effect on production.

The demand increases constantly, and, in anticipation of this new capital is continually invested in new land, although this varies with the circumstances for different agricultural products. It is the formation of new capitals which in itself brings this about. But so far as the individual capitalist is concerned, he measures the volume of his production by that of his available capital, to the extent that he can still control it himself. His aim is to capture as big a portion as possible of the market. Should there be any over-production, he will not take the blame upon himself, but places it upon his competitors.”

(Capital III, Chapter 39)

Marx explains the process, also, in Value, Price & Profit, where he shows that a rise in relative wages, does not cause higher prices/inflation, but shifts capital towards the production of wage goods, and away from the production of luxury goods. To increase supply of wage goods, firms employed more workers, bought more machines, materials and premises, even though those higher relative wages meant lower relative profits. The higher demand for all these Department I (producer) goods, also, then, meant Department I had to increase its output, accumulate additional capital. Capital, as a whole, therefore, was forced to expand, but, in conditions where its expansion, now, created an even greater relative shortage of labour, rising wage share and squeezed profits. A greater proportion of those profits, therefore, now had to go to funding capital accumulation, rather than the payment of interest/dividends. So, interest rates rose.

By the mid 1970's, the ruling-class and its media were complaining about the problem of “crowding out”. That is, because the government could borrow money-capital in the market and pay whatever lenders demanded, the consequence, as the supply of money-capital fell, was that firms faced interest rates that precluded their own expansion. The increased liquidity/supply of money tokens and credit, in this period, did not lead to lower interest rates – precisely because money tokens are not money, and money is not money-capital – but led, instead, to rising commodity price inflation, as output failed to grow proportionate to the expansion of liquidity.

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Burnham's Dead Cat Bounce - Part 7 - (Digression) The Era of Speculation and Gambling (4) – Capital, Profit and Capital Gain (Cont'd)

Part 7 - (Digression) The Era of Speculation and Gambling (4) – Capital, Profit and Capital Gain (Cont'd)

In the 19th century, as Marx describes, capital increasingly became seen as synonymous with loanable money-capital. Even before the private industrial capitalists abandoned their functional role in production, and became mere coupon clippers, the concept developed that it was the money-capital advanced that was the real capital, and the “natural” return to this capital, was not “profit”, but “interest”. The actual capital, i.e. the elements of the productive-capital, bought with that money-capital, and which is the real source of profit, i.e. surplus-value, was increasingly seen only to produce “profit” as a form of wages to the entrepreneur, a reward for their skill in buying low and selling high, or organising production more efficiently.

This sets up the ideological framework for the transition to the era of socialised/imperialist capital. The collective owners of that socialised/imperialist capital are the “associated producers”, i.e. the working-class in each enterprise. Just as with an orchestra, these associated producers still require someone to direct their actions, i.e. they require require day to day professional managers who are themselves drawn, increasingly, from the working-class. It is they that take on the “functional” role of the capitalist, and so its no wonder they are assigned only a form of wages as their appropriate revenue.

In fact, by the 20th century, as this army of white collar workers swelled to carry out the expanding functions of management, planning, administration, bookkeeping and so on, they were seen as receiving wages like other workers, apart from it being called a salary, and paid monthly etc. In turn, like other workers, they formed unions such as ASTMS, AUEW-TASS and so on.

But, this acts to emphasise the idea that these functioning-capitalists are only workers managing things, whereas the “real” capital is the money loaned to the company, be it by banks, the bond market or shareholders. The natural return to this “real” capital is not profit, but interest/dividends, and, as Marx says, this return is seen as accruing to it in the same way that plums are the natural fruit of the plum tree.

Yet, the reality is that this interest, like rent or taxes, could not exist unless surplus value is created in production, i.e. unless surplus labour is undertaken, the bourgeois form of which is industrial profit. Interest, rent, taxes and profit of enterprise, as Marx sets out, are just subdivisions of this industrial profit, created in production and realised in exchange.

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Anti-Duhring, Part III – Socialism, II – Theoretical - Part 30

Since then, states and central banks have done all they can to prevent growth from rising, for fear it will cause higher interest rates and another crash in asset prices. Ironically, they are getting the higher interest rates, anyway. The main levers in that economic activity are the capital accumulation of the multinational corporations, and the spending by governments. As far as the latter is concerned, we have seen that, to restrict economic growth, they cut their spending and raised taxes, some of which went, directly, to fund their bailouts of financial institutions, whose paper wealth crashed along with the prices of the assets on their books.

As far as the former is concerned, it is where the control of that socialised capital by shareholders, rather than by its collective owners – the workers – plays its part. Those shareholders, the ruling-class, clearly have more concern to protect their paper wealth than they do in economic growth, the consequence of which is, then, to cause interest rates to rise, and asset prices to crash. In addition, since 2000, it has become clear that, even what growth there has been, has caused the demand for labour to rise faster than supply, causing relative wages to rise and relative profits to fall. It is marginal compared to what occurred in the 60's and 70's, but it still acts to cause the demand for money-capital to rise relative to supply, and so, again, for interest rates to rise, and asset prices to fall.

It is part of the problem any government seeking to engage in even mildly expansionary policies will face. The ruling-class, which controls all of the loanable money-capital, even those huge sums in pension funds etc. it does not own, simply exerts its power via the global capital markets. A government would, therefore, see its borrowing costs rise. Its currency would fall on foreign exchange markets and so on. As all that happened, and its stock market and property market fell, the bourgeois media would present all this as a condition of crisis, even if, in reality, the government was able to divert this money into an expansion of real economic activity!

The proponents of the Magic Money Tree (MMT), of course, argue that, instead of borrowing to finance this spending, the government could just “print” more money, as for example was proposed by John Law and the Perreire Brothers, with such disastrous, but predictable results, as again repeated in Weimar. As I have described, elsewhere, this mistakes money for currency/money tokens. As Marx described it, its like confusing the picture of a cow for the cow itself. Simply producing more pictures of cows does not mean you create more cows. Its true, as I have noted earlier, and discussed elsewhere, if the government were to print more money tokens, it would not lead to a depreciation of those tokens – inflation – if the increase in the value of output was, at least, proportionate to it.

But, that assumes that the government has the ability to direct the economy, and to direct the currency it has just printed into real capital accumulation, so as to increase output. The government in China might have something approaching that level of control; the soviet government, in the 1920's, thought it had that control, but no western governments have it. Indeed, in the 1920's, as Trotsky pointed out, the soviet government printed large amounts of money tokens, and despite there being rapid economic growth, it was not as rapid as the depreciation of the currency, leading to inflation and instability. In China, the printing of money tokens, as in the west, has led to the same asset price bubbles, and the same problems that large property empires, now, face collapse, requiring the creation of even more money tokens to keep them afloat.

Moreover, as I have noted, elsewhere, in the 1950's – 70's, where Keynesian intervention acted counter-cyclically, an increase in liquidity did lead to increased output, but, that increased output did not manifest until around 18-24 months later. At that time, still with the memory of the mass unemployment of the 1930's fairly recent, and with Keynesian demand management the dominant theory of the ruling-class, governments faced little resistance to such an approach. At that time, after all, the ruling-class still saw its wealth and power flowing from its ability to obtain interest/dividends and recognised that the best conditions to do so flowed from continued economic growth and so increasing profits.

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SNNS 68

Northern Soul Classics - Somebody's Been Sleeping - 100 Proof Aged In Soul

 

Burnham's Dead Cat Bounce - Part 6 – (Digression) The Era of Speculation and Gambling (3) – Capital, Profit and Capital Gain (Cont'd)

Part 6 – (Digression) The Era of Speculation and Gambling (3) – Capital, Profit and Capital Gain (Cont'd)

This is significant, because rather than the predicted “underdevelopment”, it is, since the 1980's, a large number of these third world economies that have industrialised in even greater proportion to the “deindustrialisation” of the “imperialist centre”, a trend, I identified and analysed back in the early 1980's, which has been confirmed.

Adam Smith recognised the flaw in the Mercantilist argument, and picked up on the insight of the French Physiocrats that surplus value is created in the process of production and only realised in exchange. In that, Smith and the other Classical Economists are in advance of today's bourgeois economists.

Orthodox bourgeois economics, today, as I set out nearly 20 years ago, sees profit arising as a result of exchange, rather than simply being realised in exchange. The basis of this “profit”, is claimed to be the existence of a “consumer surplus”. Again, the basis of this “consumer surplus” is deemed to be the fact that different consumers “value” the same commodity differently – subjective valuation – because they derive different levels of utility (use-value) from it. But utility (use-value) and value are two different things. Its like trying to derive the length of a piece of wood from its weight!

It doesn't matter what the aggregate utility of X is compared to that of Y. If the social cost of production (in essence the social labour-time required for their production) is the same, they will have the same value and consequently exchange 1 for 1. If the aggregate utility (demand) for X is three times that of Y, then any higher price for X will simply result in surplus profits for producers of X, resulting in a shift of capital and labour from production of Y to X, and a fall in the price of X to that of Y. Consumer preference (utility/use-value) i.e. demand, determines the proportion of available social-labour-time devoted to the production of X and Y, but it does not determine the amount of social-labour time required to produce a unit of each, and consequently their value, or relative value one to the other.

So, we are, then, left trying to explain profit in value terms. Adam Smith uncovered the source of surplus-value in production, but, having failed to draw out the conclusion, saw profit arising as a consequence of a shortage of supply of capital, and excess supply of labour. He saw that as the basis of profit disappearing. Walras arrived at the same conclusion.

By contrast, the vulgar economists of the 19th century rather than trying to identify the source of “profit”, simply accepted that it existed and tried to justify it. But, whether its claimed that the capitalist is entitled to profit for having taken a risk, for having provided their capital, or for having “abstained”, none of these moral justifications for its appropriation explain where it comes from to begin with. The wages of sin may be death, but that does nothing to provide a scientific understanding of cirrhosis of the liver, or syphilis.

As an aside and comparison, you might, in the abstract, believe that, morally, a people without a land should have the right to a homeland, but the truth is always concrete. In the real world, today, where the globe has already been divided into nation states, it is only possible for a “people without a land” to obtain a homeland of their own by depriving some other people of their land. New land does not just appear as a means of satisfying an abstract moral desire for it. It is why Lenin and the Bolsheviks argued,

“That is why the proletariat confines itself, so to speak, to the negative demand for recognition of the right to self-determination, without giving guarantees to any nation, and without undertaking to give anything at the expense of another nation.”

(The Right of Nations to Self-Determination)

They also understood that the bourgeoisie and social-imperialists used the concept of “self-determination” to justify social patriotism, and so rejected it.

“Instead of the word self-determination, which has given rise to numerous misinterpretations, I propose the perfectly precise concept: "the right to free secession"...

... Unlike the bourgeois democrats, we call for the brotherhood of workers of all nationalities, and not the brotherhood of nations, for we do not trust the bourgeoisie of any country, we regard them as our enemies.”

(Lenin – The Revision of Our Programme)

As Trotsky put it, in terms of a practical application,

“... the facts of every passing day demonstrate to us that Zionism is incapable of resolving the Jewish question. The conflict between the Jews and Arabs in Palestine acquires a more and more tragic and more and more menacing character. I do not at all believe that the Jewish question can be resolved within the framework of rotting capitalism and under the control of British imperialism...

The very same methods of solving the Jewish question which under decaying capitalism will have a utopian and reactionary character (Zionism) will, under the regime of a socialist federation take on real and salutary meaning. This is what I want to point out. How could any Marxist or even any consistent democrat object to this?”

(Trotsky - On The Jewish Problem.)

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Forward To Part 7

Anti-Duhring, Part III – Socialism, II – Theoretical - Part 29

In other words, central banks and bourgeois economists, after 2008, defended QE on the basis that they were seeking to prevent deflation and depression, but it is quite clear that their actions were only intended to prevent a deflation of astronomically inflated asset prices, following the bursting of the latest speculative bubble, and were only concerned to prevent a prolonged depression of those asset prices. Their actions, in fact, created a deflation of commodity prices, and acted to severely impede economic expansion of real economic activity, for the reasons I have set out above, and that Marx sets out in Capital, Theories of Surplus Value, and elsewhere. A farmer, miner or builder, who must pay out £1 million to the landowner, for land, rather than £100 thousand, before they can even employ their productive-capital, sees that as £900,000 of their money-capital that cannot be used productively. It is £900,000 of potential money-capital that does not get used productively, but just goes as revenue/absolute rent to the landowner.

As I have set out, elsewhere, the same is true of all of the other inflated asset prices. Inflated share and bond prices, mean that the costs of providing pensions rises astronomically, because the monthly contributions into the funds, now buy far fewer shares and bonds. So, if wages rose so that workers could pay the required higher monthly contributions, in line with the value of their labour-power, that would mean a reduction in surplus value/profits. In fact, in the 1990's, as this began to manifest, in conditions where workers were still weak after their defeat in the 1980's, their wages did not rise accordingly, and rather, as asset prices rose spectacularly, inflating the money value of pension funds, this was sold to workers as meaning that there was plenty of money to pay their pensions, and companies, as well as public sector employers, even reduced or stopped making their contributions to the funds.

This sums up the delusion, and why it had to end. The idea that there was plenty of money in the pension funds was based on these inflated asset prices, and so the fantasy that rather than paying pensions out of the revenues accruing to those assets (interest/dividends, and rents), they could be paid by simply, instead, cashing in some of the assets, and so realising the huge nominal capital gains they had produced. It is referred to as “taking profits”, which again confuses profits with capital gains, a delusion encountered previously, and exposed by Marx, in relation to Ramsay and the use of historic pricing. As I have set out before the TSSI, makes precisely this same mistake. In my response, I set out the difference between capital gain and profit, as Marx does, and the reality that lower asset prices facilitate increased capital accumulation. (See also: this post)

Of course, having, in the 1990's, told workers that this inflated value of the assets in their pension funds meant there was plenty of money to pay their pensions – again confusing money with the actual commodities it has to buy to sustain workers in their retirement – when those asset price bubbles burst, and huge black holes in the pension funds appeared, all of the narrative about the inadequacy of pensions being due to “gold plated public sector pensions”, or workers daring to live a little longer, began to appear.

Rather than QE accelerating economic growth, and combatting a deflation of commodity prices, it caused a deflation of commodity prices, and artificially reduced economic growth, as the other side of the coin to inflating asset prices, and sucking potential money-capital into the purchase of those assets. The proof of that can be seen in the fact that, after 2010, far from acting to stimulate growth, and despite interest rates being at the lowest levels in history, they actively sought to reduce growth by introducing measures of fiscal austerity! There was a simple reason. Increased economic activity, rising demand for labour and capital, in the early 2000's is what had caused interest rates to rise, and sparked the 2008 global financial crash.

Its true that they rose to levels, which, historically, were still very low, but they rose from even lower levels that meant that, in relative terms they rose significantly. It was this big relative increase in interest rates, in conditions where asset prices were at such astronomical levels that caused them to crash in 2008. As with the situation with land prices discussed earlier, the price of these assets is a function of the capitalised revenues they produce. Lower interest rates cause asset prices to rise as simply a consequence of the capitalisation of the revenues. But, in conditions where revenues – be it profit of enterprise, interest, rents, or even wages – go into a speculative frenzy of buying of assets, more than into an actual investment in real capital accumulation, the consequence must be that the asset prices can only be maintained, by ever lower interest rates. So, we ended in the madness of huge amounts of debt – around $20 trillion, worldwide - with a negative yield!

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