Thursday, 16 August 2018

Paul Mason's Postcapitalism - A Detailed Critique - Chapter 6(8)

Machines, Value, Labour and Labour-Power

Paul describes the fact that information requires energy to produce, and material to store it on. But, the most recent theories indicate that both matter and energy are nothing but information, at a fundamental level. 

Paul's faulty understanding of the Labour Theory of Value affects his argument again, here. He says, 

“In the Grundrisse, Marx says if a machine costs 100 days' worth of labour-power to make, and wears out in 100 days, its not improving productivity. Much better to have a machine that costs 100 days, but wears out over 1,000.” (p 166) 

But, that is not what Marx says. In fact, in Capital and in Theories of Surplus Value, Marx sets out what is wrong with this concept, based upon the durability of fixed capital. Paul confuses two different things, here. This is what Marx actually says, in the Grundrisse

“We have still to note in regard to fixed capital – and its durability, as one of its conditions which does not enter in from the outside: To the extent that the instrument of production is itself a value, objectified labour, it does not contribute as a productive force. If a machine which cost 100 working days to make replaced only 100 working days, then it would in no way increase the productive power of labour and in no way decrease the cost of the product. The more durable the machine, the more often can the same quantity of product be created with it, or the more often can the circulating capital be renewed, its reproduction be repeated, and the smaller is the value-share (that required to replace the depreciation, the wear and tear of the machine); i.e. the more is the price of the product and its unit production cost decreased. However, we may not introduce the price relation at this point in the development. The reduction of the price as condition for conquest of the market belongs only to competition. It must therefore be developed in a different way. If capital could obtain the instrument of production at no cost, for 0, what would be the consequence? The same as if the cost of circulation = 0. That is, the labour necessary for the maintenance of labour capacity would be diminished, and thus surplus labour, i.e. surplus value, [increased], without the slightest cost to capital. Such an increase of the force of production, a piece of machinery which costs capital nothing, is the division of labour and the combination of labour within the production process.” 

What Marx says is that the labour-time required for the production of the machine (not the value of labour-power used in its production) must be less than the value of the paid labour (value of the labour-power/wages) it replaces, by which he means also that labour that would have been required to achieve the output that the machine makes possible. So, a machine that requires 100 days of labour to produce (which might divide into 50 days paid labour/value of labour-power, and 50 days surplus value/unpaid labour) could raise productivity, even if it lasts for only 100 days. All that is required is this: suppose in this 100 days, previously, 50 workers are employed, each paid the equivalent of 0.5 days labour as wages, per day. So, wages/paid labour is equal to 25 days per day = 2500 days. Now, the machine is able to produce this output with just 30 workers. It replaces 20 workers = 10 x 100 = 1,000 days of paid labour, at a cost of just 100 days for the machine. It is ten times more productive than the labour it replaces. 

Paul confuses this with the fact that, the more output the machine produces, the more its cost is spread across that output. In fact, the volume of output and durability of the machine are not necessarily connected. Moreover, there is a disadvantage in having machinery that is too durable. What a machine gives up to output is a part of its use value, as a result of wear and tear, resulting from the production process. If that wear and tear is intensive, machines need regular repairs, or replacement. So, machines that were previously constructed from wood, get replaced with machines that are made from iron or steel. But, in addition to transferring value in wear and tear to production, as a result of that production process, machines and other fixed capital can also suffer depreciation. Indeed, other forms of capital, such as materials and labour-power can also suffer depreciation. 

Unlike wear and tear, depreciation is a result of a reduction in use value arising outside the production process. So, unlike wear and tear, it cannot be recovered in the value of output. It represents a capital loss. Raw materials, in a store room, can deteriorate, workers left idle lose skills, and so on. But, machines and other fixed capital also suffer moral depreciation. If in the 1980's, you had just kitted out your offices with a number of PC's, all using the CP/M operating system, only to find that, within weeks, Intel had just produced a new processor that IBM were rolling out in their machines, and which was seen to be the standard used by other PC makers, as well as running all of the software compatible with the MS-DOS operating system, also then accepted as the standard, you would see durability of your equipment as a plague. 

These two factors, wear and tear, caused by use, as opposed to depreciation, caused by time, and non-use, are continually at odds. As Marx demonstrates, the fixed capital that loses value as a result of wear and tear, thereby results in a higher annual rate of profit. If the employed fixed capital has a value of £100, but loses £10 in wear and tear in the first year, if the profit is £9, the rate of profit is 9/100 = 9%, but in year 2, it is 9/90 = 10%. This fall in the value of the fixed capital stock, due to wear and tear enables such a capital to offset some of the capital loss it would face, due to depreciation, as for example, newer machines are introduced. But, it gives an incentive for the firm to use this fixed capital, as intensively as possible, so as to recover the wear and tear, in the value of its output as quickly as possible, to thereby also devalue its fixed capital, and thereby to raise its rate of profit. 

Marx describes this in Theories of Surplus Value. He describes the situation where a coal producer has fixed capital of £50, variable-capital of £50, which produces £50 of surplus value. In the first year, its annual rate of profit is 50/100 = 50%, but the fixed capital loses 10% (£5) due to wear and tear, so, in the second year, the capital advanced has a value of £45 + £50 = £95, whilst surplus value remains £50. 

“In the second year, the fixed capital of the coal producer would amount to 45, variable capital to 50 and surplus-value to 50, that is, the capital advanced would be 95 and the profit would be 50. The rate of profit would have risen, because the value of the fixed capital would have declined by one tenth as a result of wear and tear during the first year. Thus there can be no doubt that in the case of all capitals employing a great deal of fixed capital—provided the scale of production remains unchanged—the rate of profit must rise in proportion as the value of the machinery, the fixed capital, declines annually, because wear and tear has already been taken into account. If the coal producer sells his coal at the same price throughout the ten years, then his rate of profit must be higher in the second year than it was in the first and so forth.” 

(Theories of Surplus Value, Chapter 23) 

Incidentally, this shows again clearly that, for Marx, the rate of profit is calculated on the basis of the value of the capital advanced to production (its current reproduction cost), and not on the basis of its historic price.

So, capital has an incentive to utilise fixed capital intensively, because in that way it quickly devalues this fixed capital providing some protection against depreciation and moral depreciation. For fixed capital like machines that is more prone to moral depreciation, it has more incentive to do so than for things such as rail lines, where such depreciation is less likely. 

As Marx says in Capital, when firms feared that the machines they had installed might any day become obsolete, and thereby morally depreciated, what they attempted to do was not to have those machines last for as long as possible – which increased the chance they would become obsolete before the end of their normal life – but to use them as intensively as possible, so as to transfer as much of their value, in wear and tear, in the shortest possible time. That is why, at the dawn of machine industry, the working-day was extended to extraordinary lengths, and indeed as Marx sets out, the rate of profit rose, due to the extension of absolute surplus value

Where they did seek to extend durability was in those kinds of fixed capital that had naturally long lifespan. For example, a railway line was unable to change very much, so making it out of a more durable steel, rather than iron, reduced the cost in the long-term. There is no point building a PC out of durable material that would last for 50 years, when every firm has a three year upgrade cycle, geared to improvements in hardware and software. 

If we take Paul's quote from Marx, where he says, 

“If capital could obtain the instrument of production at no cost, for 0, what would be the consequence? The same as if the cost of circulation = 0. That is, the labour necessary for the maintenance of labour capacity would be diminished, and thus surplus labour, i.e. surplus value, [increased], without the slightest cost to capital.” (p 166) 

what does this mean? Clearly what Marx does not mean is that such a free machine directly increases surplus value. As I've already set out, and as Marx describes in Theories of Surplus Value, Chapter 22, as against Ramsay, when the value of constant capital falls, this releases capital as revenue (as also described in Capital III, Chapter 6). If this released capital is not accumulated, but is instead converted into revenue, it gives the illusion of an increase in profit, but it is only that – an illusion. It represents no additional surplus value. What applies to a fall in the value of constant capital, applies to constant capital becoming free. 

UK Inflation, Wages and Unemployment

UK inflation, as I predicted recently, is on the rise again. On the CPI basis it has risen again to 2.5%. As the Pound once more sinks against the Dollar and the Euro, imported inflation is likely to rise even faster, in coming months. Raw material prices have risen 10.9% as against a year ago, and oil prices have risen by 50%, driven both by a rise in the global price of oil, and the fall in the Pound against the Dollar, in which global oil prices are denominated. Wages are rising at 2.7% slightly ahead of inflation, but that is likely to reverse, as inflation picks up in the next few months, as the fall in the Pound, has not yet been fully factored into prices, and that fall in the Pound continues and accelerates as a Brexit catastrophe looms larger. At the same time, the unemployment rate has fallen to the lowest level since 1975. That fact, is causing some confusion amongst pundits who wonder why it has not led to a greater rise in wages. Their confusion simply illustrates that they are tied into a short term view that only extends back a couple of decades or so. 
The comparable period in the previous long wave cycle to where we are now is the 1950's, to early 1960's. As ONS data shows, during that period, the unemployment rate varied from a low of 1.2% in 1955, to a high of 2.6% in 1963. For most of that period, it remained below or around 2%. . That is half of the current 4% unemployment rate In fact, that understates the difference, because, in the 1980's, Thatcher manipulated the way the unemployment figures are measured 20 times, so as to reduce the published figures, as her economic policies drove the economy deeper and deeper into stagnation. The real rate today, on the basis of a comparable calculation of the 1960's, would be more like 6%. So, it's no wonder, that we are not seeing falling unemployment yet, having the kind of effect seen in the 1960's, on pushing up wages and squeezing profits. But, that trend is still in place, and with Britain's appalling levels of productivity growth, and with the effects of Brexit, those effects are likely to be more dramatic when they start to be felt. 

A look at the graph of the unemployment rate also illustrates not only the progress of the long wave cycle, but also shows why the myth about prosperity during the 1980's, and 90's was just that a myth.

Theories of Surplus Value, Part II, Chapter 17 - Part 49

Where commodity production and exchange dominates, and where commodities are bought and sold for money, not only is production and consumption separated, but purchase and sale is also separated. The bible producer no longer exchanges a bible with a value of 10 hours, for 10 bottles of wine, but exchanges their bible for money, with a value of 10 hours. Money always initially takes the form of a money commodity, be it cattle, copper, silver or gold, but also, as Marx describes, money itself is not a commodity, although all commodities are money. It is exchange-value incarnate, a representative of all commodities, the general commodity, and thereby the physical measure of their exchange-value. The seller of the bible no longer exchanges it for money as an exchange of use values, with an equal value, but exchanges the bible for money only for its exchange-value. The only use value of money is its exchange-value, and once this situation arises, it becomes possible for there to be sellers who are not buyers, as well as buyers who are not sellers. The failure of Ricardo to recognise that money, even in the form of a money-commodity, is not a commodity, is central to the error in his theory of money, but also to his error in relation to the acceptance of Say's Law

The bible producer may sell their bible, on the market, for £10, but, having sold it, they are now under no compulsion to use the £10 to buy wine from the wine producer, who now has produced but cannot sell. They have bought, but cannot sell, because the bible producer has sold, but does not buy. The £10 they now have, in say gold coins, is not a commodity. As money, its only use value is as money, i.e. as exchange-value incarnate. If they wanted to use the gold contained in the coins as a commodity, they could only do so by ending its existence as money. In other words, they would have to melt down the coins, and transform them into gold, to be used as a commodity in the production of jewellery etc. It can only act as money, as the general commodity, by abandoning its use value as a commodity. 

“Crisis results from the impossibility to sell. The difficulty of transforming the commodity—the particular product of individual labour—into its opposite, money, i.e., abstract general social labour, lies in the fact that money is not the particular product of individual labour, and that the person who has effected a sale, who therefore has commodities in the form of money, is not compelled to buy again at once, to transform the money again into a particular product of individual labour.” (p 509) 

It's money, by separating purchase and sale, by creating the potential to sell without buying, which thereby creates this potential for crisis, because it creates the potential for producers to be unable to convert their commodity into money, and unless they can sell, and convert their commodity into money, they are unable to convert money into commodities, so the process of production is itself then disrupted. 

“The difficulty of converting the commodity into money, of selling it, only arises from the fact that the commodity must be turned into money but the money need not be immediately turned into commodity, and therefore sale and purchase can be separated. We have said that this form contains the possibility of crisis, that is to say, the possibility that elements which are correlated, which are inseparable, are separated and consequently are forcibly reunited, their coherence is violently asserted against their mutual independence. Crisis is nothing but the forcible assertion of the unity of phases of the production process which have become independent of each other.” (p 509) 

Wednesday, 15 August 2018

Paul Mason's Postcapitalism - A Detailed Critique - Chapter 6(7)

Scarcity and Abundance

Paul is right that at the heart of marginalism is the concept of scarcity. But, it's not just become wrong in its assumption about that as a result of information technology or info-capitalism. The basic concepts of marginal productivity theory were developed by James Anderson, and then by Ricardo and Marx, in their theories of differential rent. Marx, mostly adopts Ricardo's argument that the market value of agricultural products/minerals is determined by the least efficient land, rather than the average, because, unless this land produces the average profit, it would not be cultivated. In Theories of Surplus Value, he modifies this to illustrate the role of demand and the effect of Absolute Rent. Where Marx, following Anderson disagrees with Ricardo is in the notion that production must always move to less fertile lands, in order to meet rising demand. Marx shows that, as a result of rising demand, capital can open up new, more fertile lands, so that instead of rising marginal costs, they fall. More importantly, Marx shows where this can happen in agriculture, it always does happen in industry. Industrial capitals, he says, never introduce new machines or processes that are less efficient, less productive, or less profitable than what they replace. 

Its not info-capitalism that undermines the notion of scarcity, but the whole history of human production, and particularly the history of that production under capitalism. Certainly, in the short-term, there may be limitations on how much of something can be produced, though, as Marx says, beyond a certain point, capital becomes very elastic in being able to expand production, without even the need to employ additional fixed capital. But, the whole history of capitalist production has shown the possibility of expanding output to ever larger volumes, and that contrary to the Malthusian prophecies of catastrophe, each increase in output brings with it greater efficiency and lower marginal costs. Even in the 1950's, as Colin Clarke showed, the world could feed itself several times over. 

The fact that the unit value of commodities can fall to very low levels does not mean that value becomes zero, or that the surplus value becomes zero. Moreover, for capital, what is important is not the gross revenue but the net revenue, i.e. the surplus value. The surplus value per unit/profit margin may fall to very low levels – that is the basis of Marx's law of the tendency for the rate of profit to fall – whilst the mass of surplus value rises to ever higher levels, precisely because of the volume of production. The only issue here may be how to realise the value and surplus value. However, again, this is not a new problem. Fairly early on, capital learned to utilise insurance, including social or national insurance, as a means of pooling large volumes of small payments into larger collective payments. As well as tolls for roads and bridges, this problem of zero marginal costs, for public goods, was addressed by collective payments via taxes, and so on. And, I will examine the potential that the cloud now provides for exerting control over access to many information tech products, and thereby eliminating copying. 

Paul says, 

“Information goods exist in potentially unlimited quantities and, when that is the case, their true marginal production cost is zero. On top of this, the marginal cost of some physical info-tech (memory storage, and bandwidth) is also collapsing towards zero. Meanwhile, the information content of other physical goods is rising, exposing more commodities to the possibility that their production costs begin to plummet too. All this is eroding the very price mechanism that marginalism describes so perfectly.” (p 163) 

Firstly, marginalism does not describe that price mechanism perfectly, because its underlying assumption is scarcity and diminishing returns, when that has never been the case. Its reflected in the fact that orthodox textbooks show the supply curve rising from left to right, reflecting higher marginal costs at higher levels of production. When it gets into the weeds, it becomes more sophisticated, showing rising short-run marginal cost curves, in the context of a longer-run falling marginal cost curve, but the underlying assumption remains that ultimately marginal costs rise due to diminishing returns. 

Secondly, all that Paul is recognising here is what has always been true in relation to fixed costs, which is they too, along with labour fall as a proportion of output value, as productivity and output rises. The concept that Marx’s law was about a rising proportion of fixed capital, which more or less ignored the actual basis of his law – a rising share of raw material value – is a misrepresentation of Marx that has persisted for a long time, and can still be seen. But, that focus on fixed capital, rather than raw material follows more from Ricardo than from Marx. 

Paul is right to note that the value of many commodities, including material commodities, is falling rapidly, but, if anything, the changed nature of production should lead to opposite conclusions to those Paul arrives at. It's always the case that fixed capital value shrinks as a proportion of output value. To the extent that materials and intermediate production experience falls in unit values, as a result of rising productivity, that falls absolutely, thereby reducing commodity values. Given that services account for 80% of value added, we should expect that is not affected by the increase in the volume of material processed. 

The fact that a lot of value in these commodities comes from intellectual labour, and that this labour, in the realm of research and development, acts like fixed capital, is simply being reflected in the fact that the value created by the intellectual labour is spread over a huge level of output. Paul's faulty concept of The Labour Theory of Value also plays a part here, because he makes the error of assuming that because the value of labour-power is reduced, this is the same as a fall in the value of labour as a proportion of output value. It isn't. That depends on the quantity of labour-time, not the value of labour-power. A fall in the value of labour-power simply increases the proportion of surplus labour-time, and so surplus value. 

So, we have a revolution in technology that reduces the value of fixed capital, we have a rise in the significance of intellectual labour in output. Both of these, however, fall as a proportion of the value of output, as the mass of output rises exponentially. To the extent material prices are reduced, this reduces the value of commodities, further releases capital, and raises the rate of profit. Paul seems to miss that point that the more those input costs are reduced in value, the more capital is released as revenue, and the more it raises the rate of profit, and facilitates capital accumulation

And, whilst, traditionally, a rise in productivity has been marked by a proportional rise in the mass of material processed, for all the reasons Paul has described, and that I have set out elsewhere, that is no longer the determining feature. Take the example of media production. A cameraman could previously have used several cameras, and a lot of time to stitch images together to produce a rough 3-D picture. But, now, a 3-D camera, and recent technology allows that to be done in no more time than it previously required to produce a 2-D video. The fixed capital (camera) here may cost little more than did a previous camera, and before long probably less. The labour here becomes more productive, i.e. it now produces a 3-D video in the time previously required to produce a 2-D video, and less time than was previously required to produce a 3-D video. But, no raw material is processed as part of this process, let alone a larger quantity of raw material. 

The firm selling the 3-D video may be able to sell it at a higher price than a 2-D video, even though it only requires the same amount of labour to produce, because consumers may see a 3-D video as providing more use value than a 2-D video. In other words, they may view the labour used in the production of the 3-D video as complex labour, relative to that which produced the 2-D video, even though, in practice, its the same labour. And, the employer will have paid the cameraman the same wages as before, because the value of their labour-power has not changed. So, the firm will now get a higher rate of surplus value, and higher rate of profit. 

Sitting here, writing on a sunny day, looking across my garden, and the fields beyond, I was thinking about the same thing in relation to the use of drones for aerial photography, where the same kind of argument can be made. And, this applies to increasing areas of production, where raw material processing plays no part or only a minor part, but where complex labour plays an increasing role. The consequence of technology in these cases is increasingly not to reduce the amount of labour employed, but to increase the quality, range, and quantity of these outputs, by the existing labour. But, again, Paul fails to account for the fact that, if anything, a growing proportion of labour is complex labour – thereby creating more value and surplus value – but that the very processes he describes, of falling commodity prices, not only reduces the value of constant capital, thereby releasing capital as revenue, and raising the rate of profit, but also reduces the value of labour-power, thereby releasing variable-capital as revenue, and raising both the rate of surplus value and rate of profit. 

Because Paul accepts the marginalist claims about scarcity, he believes that non-scarcity undermines orthodox theory. But, the reality of non-scarcity over the last 100 years has not undermined it. The fallacy of the Ricardian Law of diminishing returns and his theory of crisis built on it, as with the Malthusian theory, did not stop the marginalists adopting that principle in the first place. Contrary to Ricardo and Malthus, even in the 19th century, in place of diminishing returns, falling profits, crisis and catastrophe, the opposite was seen. Capital expanded massively, productivity rose, unit costs fell, and the mass of profit grew like topsy. Falling nominal commodity prices, resulting from that process did present a problem, because workers are reluctant to accept lower nominal wages, even when they represent a rise in their real wages. That is why, alongside Fordism, central banks were introduced to create low levels of annual inflation, so that nominal wages could rise, but by less than the rise in productivity, so that the rate of surplus value could rise. 

Hammond's Amazon Tax Is Idiotic

Tory Chancellor Philip Hammond has talked about introducing a tax on online retailers such as Amazon, in response to the increasing decimation of high street retailers. It is a totally idiotic proposal, but entirely in keeping with the kind of policies that conservatives have pursued over the last 40 years. 

The basis for the tax on online retailers is that, because they do not utilise high street floorspace, they do not have the same overhead costs as high street retailers, and so have an advantage over them. That is the same landlord mentality that says, a mill that has the advantage of utilising a windmill, or a water-mill, on the land, has a competitive advantage, and so its surplus profits can legitimately be siphoned off as rent by the landowner on whose land the windmill or stream are situated. Or in later times, it would be like a government turning to those industrialists who invested in steam engines, and saying to them,

“Now look you fellows, you have a competitive advantage here with this new fangled technology, and it just won't do, so we are going to tax you for having invested in this technology.”

Is it any wonder that Britain has a terrible problem with raising productivity, when at every step over the last 40 years, conservative governments have placed increasing levels of taxation on innovators, and those that invest in productivity raising technologies, in order to provide subsidies to the small, inefficient capitalists that rely on cheap labour, poor conditions, and who continually carp at the disadvantages they face from larger, more efficient and innovating competitors? 

In the 1980's, Thatcher introduced Enterprise Zones, designed to enable all these small inefficient capitals to escape basic regulations, enjoy lower rates and so on, as a means of helping them stay afloat. The low wages they paid to their workers were subsidised by a growing amount of benefits paid to low-paid workers, along with Housing Benefits to cover the rents that those workers now increasingly could not afford to pay. That was paid for by taxing the other firms in the economy that actually were more efficient and able to pay decent wages, and provide more civilised conditions. It held back the growth of the latter in order to subsidise the Tories core supporters and membership base amongst the ranks of the small capitalists. Its that constituency the Tories now seek to protect by their Brexit proposals, and the desire to be able to have a further bonfire of rights, once they have accomplished it. 

In addition to taxing the innovators and investors in real capital, the Tories as well as subsidising their friends amongst the inefficient small capitalists also favoured their other friends amongst the ranks of the speculators and money lenders. At the same time as taxing and hindering technological development, they did all in their power to encourage money to go into unproductive speculation be it speculation that drove up house prices, or that drove up stock and bond markets. They encouraged everything that drains wealth from the economy, and discouraged everything that creates wealth in the economy. 

Hammond's Amazon tax is just the last in a long line of such idiotic policies, whose justification is only that they help the Tories friends amongst the ranks of the speculators, landowners and small capitalists that make up the core of their support. It is economics effectively based upon the same kind of nepotism and corruption as seen in Trump's regime in the US, Erdogan's regime in Turkey, and Putin's regime in Russia, if not so blatantly undertaken. 

Theories of Surplus Value, Part II, Chapter 17 - Part 48

Once the process of commodity production and exchange begins, it sets in place a process whereby it inexorably extends. Any direct producer that has any kind of natural advantage can increase their revenue, and thereby their wealth and productive capacity by specialising in that sphere of production. A talented potter may not only gain more demand for their wares than other potters, but they may spend less labour-time in their production than others. By spending all their time in pottery production, rather than most of their time tending their fields etc., they may be able to exchange their ware for all of the food, clothes and other commodities they need, with money to spare. And, with this money, they can buy better tools, etc. so as to increase their advantage. Increasingly, production is undertaken for the purpose of obtaining this exchange value, rather than the production of use values. In other words this specialisation enables them to obtain a comparative advantage

The more production is the production of commodities, for exchange, rather than production of use values for direct consumption, the more the requirement to sell what has been produced imposes itself. The wine producer who spends most of his time producing those things required for his own consumption, and who only takes his surplus wine to market, to exchange for other commodities can take it or leave it, whether he sells all of his 12 litres, or whether he only exchanges 10 with the producer of bibles. He can always consume an additional 2 litres himself. But, the matter is different if the only thing he produces is wine, and in order to obtain all of the things required for his own subsistence, and to be able to cultivate his vineyard, for the next season, he must sell all of the wine he has produced. Here lies the possibility of crises, in the separation of production and consumption, and in the contradiction inherent within the commodity itself between use value and exchange value

“The possibility of crisis is indicated in the metamorphosis of the commodity like this: 

Firstly, the commodity which actually exists as use-value, and nominally, in its price, as exchange-value, must be transformed into money. C-M. If this difficulty, the sale, is solved then the purchase, M-C, presents no difficulty, since money is directly exchangeable for everything else. The use-value of the commodity, the usefulness of the labour contained in it, must be assumed from the start, otherwise it is no commodity at all. It is further assumed that the individual value of the commodity is equal to its social value, that is to say, that the labour-time materialised in it is equal to the socially necessary labour-time for the production of this commodity. The possibility of a crisis, in so far as it shows itself in the simple form of metamorphosis, thus only arises from the fact that the differences in form—the phases—which it passes through in the course of its progress, are in the first place necessarily complimentary and secondly, despite this intrinsic and necessary correlation, they are distinct parts and forms of the process, independent of each other diverging in time and space, separable and separated from each other. The possibility of crisis therefore lies solely in the separation of sale from purchase.” (p 507-8) 

In fact, this metamorphosis involves a series of sales and purchases, as well as purchases and sales. A wine producer purchases materials for the cultivation of their vineyard. They purchase vats in which to ferment and store the wine, wine presses to squeeze the grape, and possibly labour-power to undertake the work. They buy bottles in which to put the wine before it is sold. The sale of the wine only takes place many months, or even years after all of these purchases have been made, and the labour process undertaken to produce the wine. As Marx said earlier, any number of changes in the market, and in market prices may have occurred between these various purchases and the sale of the wine. By the time the wine is ready to be sold, on the market, a fad for drinking coffee may have swept society, so that there is a much reduced demand for wine. All of the wine output may then only be sold at market prices way below what is required to replace all of the inputs consumed in the wine's production. Here, Marx says that if the sale proceeded, C-M, then there is no problem with the purchase, because money can be exchanged for anything. However, that assumes that what is to be bought is available. 

As Marx sets out in Capital III, Chapter 6, and again later, the US Civil War cut off supplies of cotton to the Lancashire cotton mills. Having sold their textiles, and obtained money, the textile capitalists could not metamorphose it once more into cotton. A crisis arose, and thousands of textile workers were thrown out of work. But, it can also be the case that the demand for inputs rises so fast that it is simply a matter that supply cannot be increased fast enough to meet it. Then the price of those inputs will also rise sharply. That happened with copper, oil, iron ore and food prices after the new long wave boom started in 1999. And, Marx later in Theories of Surplus Value looks at the same effect with labour-power, where the demand exceeds the supply, increasing wages and reducing surplus value

But, whilst the possibility of crisis is inherent within the commodity, because the process of exchange implies the separation of production and consumption, under barter, at least, either what is produced for exchange is exchanged for some other commodity or it isn't. Either A exchanges their bible for 10 litres of wine or they don't. If they don't, both retain their products, and either consume them themselves or bring them to market another day, refraining from any additional production of these commodities until they have sold. Moreover, under systems of barter, the producers often produce to order, so that they know in advance that they will be able to engage in mutual exchange. But, that is not the case where money intervenes. 

“If the commodity could not be withdrawn from circulation in the form of money or its retransformation into commodity could not be postponed—as with direct barter—if purchase and sale coincided, then the possibility of crisis would, under the assumptions made, disappear. For it is assumed that the commodity represents use-value for other owners of commodities. In the form of direct barter, the commodity is not exchangeable only if it has no use-value or when there are no other use-values on the other side which can be exchanged for it; therefore, only under these two conditions: either if one side has produced useless things or if the other side has nothing useful to exchange as an equivalent for the first use-value. In both cases, however, no exchange whatsoever would take place. But in so far as exchange did take place, its phases would not be separated. The buyer would be seller and the seller buyer. The critical stage, which arises from the form of the exchange—in so far as it is circulation—would therefore cease to exist, and if we say that the simple form of metamorphosis comprises the possibility of crisis, we only say that in this form itself lies the possibility of the rupture and separation of essentially complimentary phases.” (p 508) 

Tuesday, 14 August 2018

Paul Mason's Postcapitalism - A Detailed Critique - Chapter 6(6)

Scarcity, Marginal Utility and Demand

I don't think that Paul's explanation of marginalist theory is accurate either. He says, 

“... if the supply of something increases, it becomes rational for people to start wanting it, and to decide what price they pay for it. Supply creates its own demand, says the theory: a freely operating market will 'clear' until demand matches supply, with prices changing in response.” (p 161) 

But, the reason that marginalist/neoclassical economists believe that supply creates its own demand, so that the market clears, is essentially the same as that held by Ricardo, Mill, Say and others. It is that there can be no general overproduction of commodities. For Mill et al, if some commodities are overproduced, it is only a reflection that other commodities are not available to exchange for them, so that the former are under-consumed, as a result of the latter being under-produced. As Marx says, they arrive at this conclusion, because, rather than considering the process of commodity exchange as it actually occurs under capitalism, they apply the conditions that apply under barter. As I've set out elsewhere, some Marxist economists, by failing to take into account the actual role of demand, and of the market, also fall into this error. 

Where the marginalists differed was essentially only in this: they rejected the classical notion of value, so that for them supply does not create its own demand by a process of barter, by which A exchanges an equal amount of value with B – for Ricardo money is only a means of mediating this exchange – but by the fact that the factors of production – land, labour, capital – obtain revenues from the production of A, just as similar factors obtain revenues from the production of B etc., and they use these revenues for the purchase of other commodities, thereby creating demand. For those commodities where consumer preferences are high, relative to supply, the price will rise, and that will cause factor incomes in that sphere to rise, and vice versa. Factors of production will move to where those higher incomes are available, so that capital is reallocated, at which point prices in one sphere will fall back, and in the other they rise again. Given the nature of marginalist theory and the premise of diminishing returns, prices in the former will not fall back to former levels, because of higher marginal costs and vice versa. 

It's not the case, as Paul says, that the last ecstasy tablet in the nightclub has higher value/marginal utility than all the others, because it depends whether there is demand for it or not. And, nor is it the case that because the supply of something rises, marginalism says that the demand for it must appear or rise. On the contrary, the proposition is that the market will clear, because if there is no demand for it, the sellers will have to continually reduce the price of it, until a sufficient demand is created, as fruit sellers on a market stall are forced to sell off any remaining produce towards the end of the day at lower prices to clear them. 

This, in fact, is the crucial point about understanding crises of overproduction, from a Marxist perspective. What the marginalists fail to account for, precisely because of their theory of subjective value, is what happens when this price at which a sufficient demand exists, to clear the market, is itself insufficient to cover the costs of production, i.e. to reproduce the capital consumed in production. So long as prices only move marginally, so as to ration out supply, or to clear some temporary excess, things are manageable. Temporary price fluctuations happen all the time, and firms factor such movements into their longer term calculation of average prices, and longer-term profits. A more sustained fall in price, reflecting a change in consumer preferences may hit a firm's profit, but, so long as it still produces a profit that is not crucial. 

Such a fall in profit means it may not be able to expand, at the rate it anticipated, but, if it sees demand falling, it may decide that is no bad thing. But, if it makes a large, or sustained series of losses, unless it has reserves on its balance sheet, it will be unable to reproduce the capital consumed in its production. It will have to lay off workers, buy fewer materials, sell some machines and so on. In turn, the laid off workers have no income to buy commodities, the suppliers of materials etc. see the demand for their commodities fall, so those prices fall, and so do their profits etc. 

The marginalists solution to such a situation is that, in the first company, the capital has already seen its return disappear, so the workers, to retain their jobs, have to take lower wages, the firm should negotiate lower rents with landlords, on pain of the landlord losing rent altogether and so on. But, the problem here is that the workers wages are not some arbitrary amount. As an average price, the wage is what is required to reproduce the workers' labour-power. Not only does it mean that if the workers accept lower wages they cannot buy all the wage goods they require for their reproduction, it means the suppliers of those wage goods see a fall in demand for their own output. What was a partial crisis, in one sphere, can thereby spread generally. Such falls in wages may be possible temporarily, or for longer periods where workers can utilise cheap credit, but only by deferring the problem, which is another experience seen in the last thirty years. 

As Marx says in relation to the production of knives, a rise in productivity may greatly reduce the value of a knife, but this goes along with a rise in the quantity of knives produced. There is no logical reason why the demand for knives should rise proportionally to the rise in output, even at this lower unit value. 

“The same value can be embodied in very different quantities [of commodities]. But the use-value—consumption—depends not on value, but on the quantity. It is quite unintelligible why I should buy six knives because I can get them for the same price that I previously paid for one.” (Theories of Surplus Value, Part 3, p 118-9) 

Similarly, landlords may decide to simply take their land out of circulation, rather than accept lower rents. And, again, in the last thirty years we've seen a different manifestation of that, because as central banks continually inflated asset prices, it increasingly became the case that the owners of landed property, and financial assets became less interested in yields, and more concerned with guaranteed capital gains from simply hoarding those assets.