Theories of Surplus Value, Part III, Chapter 20 - Part 93

The use of historic prices not only gives this illusion of profits or losses arising from changes outside the actual production process (capital gains and losses, or as Marx sets out, later, and in Capital III, Chapter 6, the release or tie up of capital, whereby capital is transformed into revenue, or vice versa) but also gives misleading calculations for the rate of profit. The yarn producer might have paid €10 for cotton, its historic price, but would be badly misled if they proceeded on this basis. The rise in the value of yarn from €30 to €40 does not represent an additional €10 of self-expansion of capital-value. It represents, in fact, the reality that, although the historic price of the cotton, consumed in its production, was only €10, its value was actually €20. This was not a self-expansion of value, but merely a change in the value of the cotton, arising from a change in productivity. That becomes apparent when the yarn producer, having sold the yarn comes to replace the consumed cotton. As described above, out of the €40, they must now spend €20, to replace the cotton, alongside the €10 to replace labour-power. The actual amount of profit, they obtain, equal to the amount of surplus value produced, which has not changed, is still €10. On the basis of the use of historic prices, it created the illusion that €20 of profit was created, even though the surplus value remained €10, so that on this basis, labour is not the only source of profit. It also then appeared that, the historic cost of the capital was €20, with profit of €20, so that the rate of profit was 100%. 

But, as Marx describes, in various places, the real measure of the self expansion of the capital, is the extent to which it enables it to accumulate. If the rate of profit really were 100%, it should enable the capital to employ twice as much cotton, and twice as much labour, as before. As Marx says, capital is a social relation between capital and wage-labour, and its expansion is an expansion of this relation. But, it's quite clear that this capital cannot double in size. Previously, €10 of profit enabled the capital to expand by 50%. It could employ 150 kilos of cotton, and €15 of labour-power. But, now out of the €40 received for the yarn, €20 is used to replace the 100 kilos of cotton, and €10 is used to replace labour-power, leaving €10 for accumulation. With the price of cotton now at €0.20 per kilo, the €10 of profit can only buy an additional 33.3%, alongside 33.3% more labour-power. The actual rate of profit, therefore, rather than doubling, has, in fact, fallen from 50% to 33.3%. 

In the coming chapters, we will see how Marx explains that the use of historic prices confuses Ramsay into this belief that additional profit arises from these changes in the price of constant capital, which are, in fact, an illusion, based upon capital gains or losses. It would only be true that, in the example above, the rise in the value of the cotton results in additional “profit”, if, as Ramsay does, and as the Temporal Single System Interpretation does, we assume that the capital is always liquidated, in full, i.e. converted into money, at the end of the year, and that production is not continuous and ongoing. In that case, the €10 of capital gain accruing to the yarn producer, could be pocketed in cash, with no requirement for them to have to reproduce their capital, and thereby to replace the cotton at its new higher value. But, that is not an analysis of capitalism, which is such a system based upon continuous and ongoing production.  The circuit of industrial, capital, as Marx sets out, in Capital II, is not M - C ... P ... C` - M`, with rate of profit then being calculated as the change in M` relative to M, where in both cases M represents actual money prices paid.   That is the circuit only of newly invested money-capital, or of capital that is being liquidated, i.e. where a firm is closing down.  The circuit of industrial capital is rather P ... C` - M`. M - C ... P, where the value of P, and and of capital value throughout this circuit, is expressed not in money prices paid, but only in money equivalent terms of the capital value, at current reproduction cost, i.e. with money acting only as unit of account.  Only on this basis can the self-expansion of the capital, be separated out from capital gains and losses, and an accurate measurement of the rate of profit be obtained.   Marx gives the expanded form of this circuit of industrial capital as,

What the yarn producer obtained was a capital gain, not additional surplus value. They had originally paid €10 for cotton, and its value rose to €20. It is the potential for such capital gains that leads to speculation, whereby capitalists seek to identify commodities, or assets whose current market price they believe to be lower than their market value, or where specific market conditions are likely to lead to the market prices of these commodities or assets rising sharply above their current market value. However, such speculative capital gains are not profits. It does not represent a self-expansion of capital-value. 

Back To Part 92

Theories of Surplus Value, Part III, Chapter 20 - Part 92

Bailey, on the one hand, defines a rise in the value of labour as a rise in the portion of the total product that goes to workers. 

“Now it is an increase in the portion of the product assigned to the labourer which constitutes a rise in the value of his labour…”” (p 153) 

he argues this on the basis that the value of labour is measured in terms of use values exchanged with it. 

““… but it is an increase in the proportion assigned to the capitalist which constitutes a rise in […] profits,”” (p 153) 

Here, he determines value not in terms of use values, but in terms of the quantity of labour they represent. And, by using two completely different definitions, and measurements of value, Bailey, thereby, concludes that there is no contradiction in his claim that the value of both labour and profits can rise simultaneously. 

“This absurd argument against Ricardo is quite futile since he merely declares that the value of the two portions must rise and fall in inverse proportion to one another. It merely amounts to a repetition by Bailey of his proposition that value is the quantity of articles exchanged for an article. In dealing with profit he was bound to find himself in an embarrassing position. For here, the value of capital is compared with the value of the product. Here he seeks refuge in taking value to mean the value of an article estimated in labour (in the Malthusian manner.)” (p 153-4) 

On Bailey's definition of value, not only is value simply exchange-value, and exchange-value only market price/historic price, but, on this basis, there are only ever historic prices. He writes, 

““Value is a relation between contemporary commodities, because such only admit of being exchanged for each other; and if we compare the value of a commodity at one time with its value at another, it is only a comparison of the relation in which it stood at these different times to some other commodity” (op. cit., p. 72).” (p 154) 

This is the same temporal definition of value, as used by the Temporal Single System Interpretation, as against the definition of value, used by Marx, of the current reproduction cost, determined by the average socially necessary labour-time currently required for reproduction, which varies according to changes in social productivity. But, on this temporal basis, as Marx says, value can never rise or fall, because, in order to determine such movement, it is necessary to compare its value at one time compared to another. Indeed, unless that is done, it's impossible to determine whether capital has self-expanded, or not, and by how much. This is something that Marx explores further in the next few chapters in looking at the confusion suffered by Ramsay, as a result of his use of historic prices. It means that changes in the value of the commodities that comprise the constant capital, can appear to create additional profit, thereby undermining the labour theory of value. In fact, all such changes amount to are capital gains rather than profits, or else a release of capital as revenue. 

It is something that confuses speculators, who also confuse capital gain with profit. If the price of cotton is €10 for 100 kilos, and €10 of labour-power turns it into 100 kilos of yarn, with a value of €30, €10 of surplus value is produced. The capital has self-expanded by €10. However, if the value of cotton rises to €20, which is passed on into the price of the yarn, which now sells at €40, it may appear that, in relation to the historic cost of the capital, a profit of €20 is produced, i.e. the historic cost of the capital was €10 for cotton and €10 for labour-power, and the yarn now sells for €40, giving a €20 profit. In that case, the capital would have self expanded by €20, even though, it has only actually self-expanded by €10, the amount of surplus value produced. The additional €10, is not profit, but is only a capital gain, resulting from the change in the price of the cotton, held in stock, from €10 to €20. 

As Marx demonstrates, in fact, on the basis that capitalist production is continuous and ongoing, this additional profit is a mirage, because, although, the yarn is sold for €40, in order to reproduce the consumed capital on a like for like basis, now, €20 out of this €40 must be paid to replace the 100 kilos of cotton, with the same €10 going to reproduce the consumed labour-power, so that the actual profit, remains only €10 of surplus value, the amount by which the capital has actually self-expanded. On the basis of a temporal definition of prices, and use of historic prices, we would have to conclude, as indeed Ramsay does, that labour is not the only source for the self-expansion of capital, and so the labour theory of value is thereby destroyed. 

Back To Part 91

Forward To Part 93

Northern Soul Classics - This Love Starved Heart of Mine (Is Killing Me) - Marvin Gaye

Only two weeks to go to the Stoke Town Hall, Northern Soul All-Nighter, and more classics like this from Marvin Gaye.  Get yourself along to it, and Keep The Faith.

Friday Night Disco - Proud Mary - Ike & Tina Turner

A No Deal Brexit Could Be A Bonanza For Ireland

It has generally come to be accepted that whilst Brexit will be bad for Ireland as well as Britain, a No Deal Brexit will be disastrous for Britain, but also very bad for Ireland.  Brexit will indeed, be bad for Britain, and have a negative impact on Ireland, though not as bad as has been stated, but, whilst a No Deal Brexit will be disastrous for Britain, it could mean a bonanza for Ireland.

Brexit will be bad for Britain for all the reasons that have been discussed over the last three years.  Undoubtedly, because Ireland's largest single trading partner is Britain, including all the trade that occurs daily across the border inside Ireland, it will, therefore, have a negative impact on Ireland.  Yet, the extent of that negative impact should not be overstated.  A lot of Ireland's economy has developed in recent decades on the basis of technology, and this production, is far less dependent upon the physical movement of goods.  Moreover, as part of the EU's Single Market and Customs Union of  around 450 million people (after Britain leaves), and economy of around $16 billion, compared to around just $2 billion for the UK economy, Ireland will have much greater ease in redirecting its trade than will the UK.

And, in any case, the fact remains that even if the UK leaves the EU, Ireland, along with other EU countries will continue to sell a similar amount of their goods and services to Britain as they do now.  In fact, even more so.  As the UK economy grows more slowly as a result of Brexit, and as foreign companies relocate out of the UK to Europe, so as to avoid, the problems of selling into Europe from outside the Single Market, and Customs Union, all those goods and services currently produced by those companies, and sold internally in the UK - as well as being exported to the EU, from the UK - will become imports to the UK, thereby diminishing UK GDP, and increasing its trade deficit with the EU.  The only difference will be that if the UK is outside the Customs Union, and operates under WTO terms, it will introduce a range of tariffs, as set out by the WTO, on those imports.  Indeed, as a result of the production being located outside the UK, into the EU,  the UK would almost certainly want to introduce such tariffs so as to make imports more expensive, so as to protect UK firms from the competition, and prevent the UK's trade deficit ballooning due to the rise in imports and fall in exports.

The consequence, of course, would be that as a direct result of these tariffs, the price of all those goods and services would become much more expensive for UK consumers, which means that workers in the UK would face a sharp drop in their standard of living at a time, when the relocation of production out of the country was pushing up unemployment, and thereby causing UK wages to fall.  But, in fact, even with high tariffs, its unlikely to prevent the UK needing to import these EU produces goods and services.  If all foreign car producers move production out of Britain, for example, and relocate to Europe, its not as though people in the UK will stop wanting to buy cars.  Its just that now those cars would have to be imported from France, or Germany, or Spain, or Belgium, and would be much more expensive, due to the tariffs.  The same is true with energy, food, other raw materials, and so on.

Already, that can be seen in relation to Ireland.  Even the threat of Brexit has caused financial firms to send tens of billions of pounds of capital out of Britain, mostly from London, to other EU locations.  Dublin has been one of the places to benefit from that, partly because many existing staff can transfer from London to Dublin, and the use of English makes such a transfer of operations easier to achieve.  But, what is true in relation to the high value, very profitable financial industry, applies to other high value production and services.  So, the effect of Brexit will have negative consequences for Ireland, as a declining Britain impacts on Irish trade with the UK, but, at the same time, that very decline of Britain can see a considerable movement of capital from Britain, to Ireland, creating employment and profits in Ireland that would otherwise have occurred in Britain. 

But, a No Deal Brexit, can mean a Bonanza for Ireland.  In the event of a No Deal Brexit, the UK's proposal has been set out in relation to the tariffs it would apply on a range of goods and services.  These range from 10% to 40%, and would apply to all those goods and services that are currently imported to Britain without tariffs inside the EU Customs Union.  But, at the same time, Britain has said that it will not impose any border checks on goods crossing the irish border into Northern Ireland.  That seems an amazingly reckless thing to do.  It means that Britain is inviting large scale legitimised smuggling into Britain, by the back door, using the Irish border as an open gateway.

The government was forced to admit that in the event of a No Deal Brexit, the channel ports would become clogged very quickly.  The EU will inevitably require UK exports to be checked at its borders, which means that UK exports will quickly seize up, leading to massive backlogs at Dover.  An obvious route for EU exporters wanting to avoid that will be to route their exports through Ireland, which inside the EU will have no such hold-ups.  As Britain proposes to have no border controls on goods moving from Ireland into Northern Ireland, a free flow of these goods into the North could occur, and as those goods would then be inside the UK economy, they would flow, freely, and tariff free across the Irish Sea, from Northern Ireland ports into mainland Britain.

Of course, in mainland Britain, those goods that have then entered tariff free into the UK, would be considerably cheaper than their counterparts, imported via other channels, that have had 10-40% tariffs imposed upon them, providing those that have imported through Ireland with significantly higher profits.  Indeed, it would make it lucrative for firms to establish production, or simply warehousing in Ireland, to be able to take advantage of such free money, provided to them by the British government. 

Rather as with the UK government's claim that it would not impose any border controls in Northern Ireland, which invites EU citizen's to migrate to Britain via that back door, the promise not to impose border controls so as to check goods crossing that border also seems designed to create a large scale movement that Britain would quickly seek to shut down. 

Theories of Surplus Value, Part III, Chapter 20 - Part 91

If Bailey's proposition is accepted, it still does not help in his argument with Ricardo. As Marx says, 

“Likewise the 225 quarters falling to the 6 men would still command 6 men and no more.) (Why does the almighty Bailey then forbid Ricardo to estimate the portion of the men, as well as that of the capitalist, in labour, and compare their mutual value as expressed in labour?” (p 152) 

Even in his own terms, Bailey arrives at contradictory and nonsensical conclusions, in trying to sustain his position. So, for example, he says, 

“Thus a rise in the proportion which went to the capitalist would be the same as an increase of the value of profits estimated in labour,” (p 152) 

Not only then does Bailey try to sustain his argument by first insisting in defining the value of labour in terms of use values, whilst defining profits instead in terms of a proportion of capital, but, here, he refers to the “value of profits”. But, his definition of value is exchange-value, measured in terms of the use values exchanged for a commodity. As Marx says, 

“How can he speak of the value of profits and an increase in their value, if “profit … does not denote an article which can be exchanged against other articles” (see above) and, consequently, denotes no “value”? And, on the other hand, is a rise in the proportion which went to the capitalist possible without a fall in the proportion that goes to the labourer?” (p 152) 

What Bailey does is not only to measure the value of labour in terms of use values, whilst measuring profit as a proportion of capital, but to confuse and conflate portion and proportion, in relation to the total output. Ricardo does not at all deny that the portion of output that goes to workers can rise alongside the portion that goes to capitalists. If total output rises from 100 units to 300 units, the portion going to workers might, as Bailey says, rise from 75 to 225 units, whilst that going to capitalists rises from 25 to 75 units. In that case, both obtain portions that are three times greater than they were before. But, the proportion of total output received by both remains 75:25. What Ricardo denies, correctly, is that the proportion going to both can rise. For example, if the proportion of total output going to capital rises to 50%, i.e. 150 units, it is tautologically true that only 150 units, or 50% of the total is left for workers, so that the proportion going to workers must, thereby, fall from 75% to 50%. Yet, despite this fall, in the proportion going to workers, the portion going to workers still doubles from 75 units to 150 units. 

In fact, it was this fact, that real wages could rise, as a result of rising productivity, whilst the same rise in productivity raised the rate of surplus value, which underlay the shift of industrial capital to a reliance on relative surplus value, and was the basis of Fordism and social-democracy, in the 20th century. 

“However, that Mr. Bailey calls the portion of the labourer “value” of “wages”, and the proportion [of the capitalist] value of “profits”, in other words, that the same commodity has two values for him, one in the hands of the labourer, and the other in the hands of the capitalist, is nonsense of his own.” (p 153) 

Back To Part 90

Forward To Part 92

Revoke Article 50 - Sign The Petition Now

The petition demanding that Article 50 be revoked has now gathered more than 1 million signatures, most of them just today.  Jeremy Corbyn has not ruled out calling for Article 50 to be revoked, which is a step in the right direction, as Theresa May appears from the accounts of some of those that have spoken to her, to be suffering some kind of delusional fantasy that might make her unfit to govern, and threatens the possibility of her irrational behaviour, and Britain crashing out of the EU by accident.

If she was the captain of a ship, this is the point where the Executive Officer would be consulting the ship's surgeon asking that the captain be declared unfit, and be relieved of their duty.  The question is, who in the Cabinet, and if not in the Cabinet then in parliament, will step up to theirr esponsibilities and get May to step aside to avoid a national disaster?

If you haven't signed the petition, do so now - Here.