Wednesday, 21 August 2019

Poorer But Freer Is An Oxymoron

As all of the lies told by the Brexiteers, during the referendum, are exposed, and as Operation Yellowhammer shows the chaos that would ensue from a No Deal Brexit, the Brexiteers have fallen back on to another line of defence. They say that, when people voted Leave in 2016, they knew they were voting to make themselves poorer, but they were prepared to accept that, in order to be freer. It is, of course, nonsense. The Brexiteers, in 2016, promised everyone that Britain would get a good deal, that they would have £365 million of free money to spend on the NHS, they would be able to continue trading with the EU on the same basis, but also be free to trade with the rest of the world on better terms, negotiated by Britain and so on. It was all of the nonsensical have cake and eat it stuff that has been exposed as a fantasy over the last three years. But, even were it true, it is still a fantasy, because the truth is that you cannot be poorer, but freer. It is an oxymoron. Freedom is a function of wealth and power. If you become poorer, you necessarily become less powerful, and less free. 

The reason that workers have to hand over increasing amounts of unpaid labour to capital is precisely for that reason. Workers need to work, and to work labour must have access to means of production. The more the minimum efficient size of businesses has increased, the less it becomes possible for individual workers to own means of production on that scale. So, in order to live, workers have to sell their labour-power to capital, and the condition for capital agreeing to employ the worker is then that the capitalist obtains profits, and those profits come from the worker providing the capitalist with unpaid labour, in addition to their paid labour.

The value of labour-power continually falls, because rising productivity means that less and less labour-time is required to reproduce the wage goods needed by workers to reproduce their labour-power.  But, the amount of labour provided by workers to capital does not fall correspondingly, which means that a greater proportion of the working-day is free labour for the capitalist. The workers standard of living may rise, because as productivity rises, the value of the wage goods the worker needs to consume falls, and a given money wage, then buys more of them, but the capitalist will always ensure that the proportion of the additional production they obtain in profits, from this increased productivity, rises faster than the proportion that goes to the worker. No matter how affluent the workers are, in other words, no matter how high their wages, the capitalist is able to do this, because the workers become progressively poorer in terms of their ability to own the means of production. Indeed, there is a direct comparison here with the EU, because the only way that it becomes possible for workers, themselves, to own the means of production, on a sufficiently large scale, so as to be able to produce efficiently, is to give up the old peasant, individualist idea of owning their own individual means of production, and, instead, to join with their fellow workers, so as to own the means of production collectively. 

The capitalist is more powerful because they are wealthy; they own the means of production that workers must use in order to work. The workers are weak, because they must work to live, and to work they must have access to means of production they do not own. The owner of capital is free to use their capital to consume or to employ labour-power. The worker is not free to consume, because to consume they must work, and so must sell their labour-power to the capitalist, on terms dictated by the capitalist. To paraphrase the old adage, both the billionaire and the pauper are free to sleep under the railway arches, but only the billionaire is free to choose to sleep in a penthouse apartment. 

And, the same is true in relation to nations. The freedom of a nation state is a direct function of its economic and military power, the latter itself being a function of the former. Britain enjoyed much greater freedom than did India, or its other colonies, during the heyday of its Empire. That Empire did not arise because, somehow, Britain had some innate superiority. It arose, because British Mercantilism amassed great monetary wealth from trade, when Britain replaced the Netherlands as the world's foremost mercantile power. The Netherlands itself had created its own Empire on that basis, via the Dutch East India Company etc. And, when Britain used the commercial wealth it had amassed, as the basis for its industrial revolution, and the development of industrial capital, which made Britain the workshop of the world, that gave Britain even more economic power, which was the basis of its global political power, and its ability, thereby, to exercise its freedom, often at the expense of the freedom of others. As soon as Britain's economic power began to falter, towards the end of the 19th century, as the economic power of the United States, Germany, France and Japan began to rise, so too Britain's global military and political power diminished, and so too did its freedom to act to further its interests at the expense of others. 

A look at the experience of Iran demonstrates this point. Iran abided by the terms of the nuclear deal it had signed with the US, EU, Russia and China. The fact it had to sign such a deal, denying it the freedom to acquire the nuclear weapons that the other signatories already possessed, itself shows the point. But, the US, under Trump, decided to renege on the Treaty anyway. The EU, Russia and China agreed to continue with the treaty, but the US, used its huge economic muscle, and the fact that it controls global money flows through the dominance of the Dollar, to dictate to companies, around the globe, that if they continued to trade with Iran, they would face US sanctions too. In the long term, this is likely to backfire on the US, because the EU, which is a larger economy than the US, has no desire itself to be subordinated to US power and whim. It has been incentivised, now, to find alternatives to the dominance of the Dollar as global reserve currency, and alternatives to US dominated global monetary payments systems. But, again, the reason why the EU will be able to do that is precisely because it is a larger economy than the US. A small economy like Iran does not have such freedom, indeed, a relatively small economy like the UK, which is only a seventh the size of the EU, or the US, does not have the freedom to do that. 

Freedom is a function of power, and power is a function of wealth. 

Brexit means that Britain becomes poorer. It becomes poorer in two ways. Firstly, as above; the EU, as the world's largest economy, can treat on equal terms with the US, whose power is now partly historical, as was the case with Britain in the first half of the twentieth century. In other words, in the first half of the twentieth century, Britain's economic power was already diminished, and being surpassed by the US, Germany, France and Japan. But, Britain had been the dominant power for more than a century. It had inertial force on its side, along with a large amount of amassed wealth and power, including its Empire, and its huge navy. Like an aristocrat continuing to enjoy a lavish lifestyle by selling off parts of the estate, Britain could continue the facade of its greatness and power, by drawing down from its stored wealth. 

The US, today, is in a similar position. It is still undoubtedly a huge superpower, but the weakness of its economy is demonstrated by its astronomical and growing trade deficits, and ballooning budget deficits. It is like that aristocrat, continuing the facade of affluence only by going into massive debt, leveraged on its assets. It is no longer the world's premier economic or industrial power. The EU has a larger economy, Germany alone exports more than the US, and, at the same time, the US is challenged by a rising China, which can put itself at the head of a large Asian economic bloc, comprising Japan, Korea, Vietnam, Singapore, Malaysia and potentially India, and even Russia. As US economic power declines, so too its global strategic power declines, and along with it, so too its freedom to act. 

As a part of the EU, Britain enjoyed that economic power of the EU to treat on at least equal terms with these other huge powers, such as the US, and China. By leaving the EU, Britain loses that economic power of the EU, and loses the political power and freedom that goes with it. Britain could, after Brexit, be free to choose to align itself to the EU, which it will probably have to do, because it is its largest and closest trading partner, or with the US, but it cannot do both. That is at the heart of what all of the wrangling over the Irish backstop is about. It is about the extent to which Britain, long since an outpost for US interests, could, under a right-wing Trumpist/Johnson regime, draw even closer to the US, acting as a means of undermining and breaking apart the EU Single Market. That is why the EU will never give up the backstop, or do anything that allows that Single Market to be undermined, which would then fundamentally weaken the EU vis a vis the US. 

If Britain is then forced to align with the EU, in order to retain its existing trading relations, it will necessarily be drawn away from the US, because the US, particularly under Trump, requires those with which it does deals to agree to US terms and conditions, and those are at odds to those of the EU.  So, the supposed freedom from leaving the EU, would have been illusory. It would mean that Britain would continue to have to accept EU rules, regulations and standards, because otherwise it would not be able to export its goods and services to the EU. But, unlike now, it would have no role in formulating those rules, regulations and standards. It would have seriously reduced its own political freedom, because it would now have to simply abide by the rules set by others. The same is true were Britain instead to try to align itself with the US. Unless Britain were to seek to become the 51st state of the United States, which is impractical given the 3000 miles of Atlantic Ocean that separates us from them, it would have to again accept the rules, regulations and standards set by the US, without having any say in formulating them. It means that Britain essentially becomes a vassal state of whichever bloc it necessarily has to seek alignment with, in order to be able to trade on a substantial basis. That is the opposite of having increased freedom. The EU does not have to accept US terms and conditions, precisely because the EU is the world's largest economy, and the wealth and power that comes from that enables it the freedom to act accordingly. 

But, Britain becomes poorer in a more immediate sense too. The Brextremists have ridiculously tried to claim that the EU will agree to Britain's terms, because they want to avoid a No Deal, which would damage the EU economy. It is again nonsense. Studies suggest that the EU economy might suffer a loss of around 0.5% of GDP, as a result of a No Deal Brexit. However, they show that Britain would suffer a 10% drop in its GDP, or twenty times as much damage! The EU's huge economy can easily deal with a 0.5% drop, whereas the UK outside the protection of the EU, suffering a 10% drop would be catastrophic. It is more than the fall in GDP that followed the 2008 global financial crash. 

Britain's exports to the EU, as a proportion of its GDP, similarly, constitute around seven times the EU's exports to Britain, as a proportion of EU GDP. Moreover, if Britain leaves the EU, many European companies, like BMW, Siemens etc., that currently have production in Britain, will simply close them down, and move their operations to the EU, to avoid the problems arising from tariffs, and other trade frictions between Britain and the EU. It will simply shift jobs and economic power away from Britain and towards the EU. 

In the immediate aftermath of a No Deal Brexit, the EU would suffer some inconvenience, but the UK would suffer chaos, and economic disaster. Similarly, the Irish Republic would suffer some significant economic problems, because of the extent of its trade with Britain. But, it would not face the chaos that Britain would face, precisely because all of its relations with the EU would remain intact. Moreover, whilst the Republic might suffer some significant short term economic problems, Northern Ireland would face total meltdown. Northern Ireland depends far more on its trade with the Republic than the Republic depends on its trade with the rest of the UK. Whatever anyone might currently say, the inevitable consequence of a No Deal Brexit, will be the erection of a hard border in Ireland, and that will devastate the Northern Irish economy. 

What is more, whilst the $14 trillion EU economy, will be able to provide necessary support to the Irish economy, the £2 trillion British economy, as it goes itself into recession, and finds itself having to find huge sums to bail our farmers, fishermen, and to pay out unemployment benefits, or huge bribes to large companies to try to stop them leaving the country, will have no such possibility of rescuing a Northern Ireland economy plunged into such devastation. The obvious solution will be for Northern Ireland to reunite with the Republic, which would then undoubtedly set the scene for Scotland to become independent from England, forming potentially a federation with Ireland, and Wales, inside the EU, and leaving England stranded. 

None of that suggests that the consequence of the poverty of Britain outside the EU, would in any sense lead to it being freer. 

Theories of Surplus Value, Part III, Chapter 21 - Part 2

Ramsay says, 

““… were we to suppose the labourers not to be paid until the completion of the product, there would be no occasion whatever for circulating capital. […] industry would be carried on on a scale quite as great […] Nothing can prove more strongly that circulating capital is not an immediate agent in production, nor even essential to it at all, but merely a convenience rendered necessary by the deplorable poverty of the mass of the people” (op. cit., p. 24).” (p 327) 

Ramsay, here, recognises that what is significant, in terms of the value of the commodity, is not the value of the wages, but the advance of the actual labour in production. That is also significant in determining the rate of profit, not on the basis of when wages are paid, but on the basis of the actual living labour advanced to production. If €100 of materials are advanced to production, along with €100 of labour-power, which produces €50 of surplus value, then the value of the output is €250, and the rate of profit is 25%. It does not change matters that the €100 of wages is not paid until after the commodity is sold. The value was determined by the advance of the labour, which created €150 of new value, in production, not the payment of the €100 of wages. Even if no wages were paid at all, it would not change the amount of new value created. It is the labour advanced that creates the new value, and only in so doing enables the value of labour-power to be reproduced. It is the advance of the labour, which creates the surplus value (as an excess over the wages), and it is, therefore, from the advance of the labour, not from the payment of wages, that the turnover of the capital is calculated, and the rate of profit for that turnover period calculated. 

An important element that is brought out by this chapter is that Marx's analysis is based upon the premise of ongoing production; it is an analysis based upon social reproduction, and not comparative statics. Social reproduction, in all modes of production, is a reproduction of material balances. It requires the reproduction, on a like for like basis, of the means of production, and of the means of subsistence of the producers. Any output in excess of that is a surplus product, and the proportional relation of this surplus product to the other two represents the extent to which expansion has occurred, and that can form the basis for accumulation. 

Marx's analysis is an analysis of this process of social reproduction, under the specific historical conditions of capitalism. His determination of the rate of profit, therefore, is not influenced by something as trivial as when the wages of workers are actually paid. The determining factor is that, for social reproduction to occur, the variable-capital must be reproduced out of the total current production, alongside the reproduction of the constant capital consumed in that production. 

Ramsay is quite right to say that the circulating capital/variable capital plays no part in the production process, and determination of the value of output. It is only the constant capital and the actual living labour that plays that role. But, Ramsay fails to set this within the specific historical context of capitalism. So, as Marx puts it, for Ramsay, 

“Labour is a condition of production, but wage-labour is not, and neither, therefore, is it necessary that the workers’ means of subsistence confront them as “capital”, as an “advance by the capitalist”. What Ramsay overlooks is that if the means of subsistence of the workers did not confront them as “capital” (as “circulating capital”, as he calls it), neither would the objective conditions of labour confront them as “capital”, as “fixed capital”, as he calls it. Ramsay attempts in earnest, and not merely in words as the other economists do, to reduce capital to “a portion of the national wealth, employed, or meant to be employed, in favouring reproduction” (op. cit., p. 21); he therefore declares wage-labour and consequently capital—that is the social form which the means of reproduction assume on the basis of wage-labour—to be unimportant and due merely to the poverty of the mass of the people.” (p 327-8) 

Tuesday, 20 August 2019

Why Hoarding Is Rational Ahead of Brexit

Publication of the government planning document “Operation Yellowhammer” gives a foretaste of the chaos that is likely to ensue in the hours, days, weeks, and months following a No Deal Brexit. The government have fumed at the leaking of the document, and have spun the idea that it was an old document that has become outdated, as a result of the measures that Johnson has implemented since taking over. In fact, it appears that the leaked document is one that was presented to the new government, after Johnson became Prime Minister, and according to businesses and others who will have to deal with the chaos, nothing that has happened, in the last two or three weeks, will really make any significant difference to the scenarios depicted in the document. 

Whenever there is such chaos, and shortages of vital, or even non-vital, commodities, the chaos and shortages are also made worse by the fact that anyone who can, begins to buy up and hoard anything that might be so affected, particularly those things that might particularly affect them. If you require regular medicine of a particular sort, for example, it is not surprising that people order in prescriptions in advance of any potential supply problems to ensure they do not personally run out of that medication. During the petrol shortages that arose at the start of the Blair government, people began storing petrol in whatever containers they had available in their garages, and even homes. In the 1970's, when there were strikes by bakery workers, I remember that, whenever bread did appear on shelves, people sought to buy up as much as they could, so that it quickly disappeared from shelves, and supplies of flour and yeast also got snapped up, as people attempted to bake their own bread. 

Although, such panic buying inevitably increases the shortages, raises the level of panic, and creates additional chaos, it is a rational action to take. Take something like gas. Britain has very low levels of storage capacity for gas, compared with many other countries. A few years ago, when I wrote about that, it was around two weeks supply. The reason is simple. Firstly, Britain has an extensive gas pipeline network that supplies mains gas to the vast majority of houses in Britain. Only a small percentage, such as in the village where I used to live, until recently, do not have mains supplies, and so have to store their own gas in tanks, with it being refilled periodically. In Spain, by contrast, many villas do not have mains gas. Because its a large country, creating the infrastructure for a national gas grid would be very expensive, so most villas have storage for either gas or oil to provide energy, and many also have solar panels to heat water, or provide electricity. 

In Britain, the availability, historically, of large coal supplies, from which town gas was produced, and of North Sea gas, meant that gas could continually be fed through the gas pipelines to every home. The large green gas storage containers that used to be a feature of every town, were mostly required in the days of town gas, but were carried over when North Sea gas replaced it. They have been added to by the provision of some large underground gas storage facilities, mostly sited near to the coast, as Britain now also imports large amounts of gas from overseas, as North Sea gas begins to run out. Creating storage is expensive, but holding gas in the storage is also expensive, when that gas could instead have been heading into people's homes, and being sold. That is why, large firms also, have attempted to reduce their own forms of storage in the holding of stocks, and instead have moved to systems of Just In Time production and stock control. 

For businesses, not only is holding large amounts of stock expensive because you need to build the necessary storage, but it is unprofitable, because the capital you have tied up in that storage facility, as well as the stock you have stored in it, could have been used productively to have been producing more output that you could sell to customers, and have been making a profit on. But, for producers, and sellers it has another downside. If you hold a large amount of stock of some particular type, if fashions or requirements change, then you need different inputs to the ones you have stored, to produce the new lines. The old stock becomes immediately depreciated, causing a capital loss. The less stock you hold, the more capital you have available to quickly buy in the inputs required for your new line of production. That has been one of the major benefits of Just In Time production and stock control, and of flexible specialisation, which enables firms to quickly move production from one line to another, in response to consumer demands. It has resulted in large savings and efficiencies, but given the nature of the international division of labour, it requires open borders such as those created by the EU, to allow components to be moved around seamlessly. That is a major cost and efficiency benefit that Britain will lose when it leaves the EU, putting it at a considerable competitive disadvantage to the EU. 

Or take, something like petrol. Storage of petrol takes a number of forms. Firstly, as with people who have to store gas or heating oil, because they are not on mains gas, every individual car has to have its own storage of petrol, i.e. the petrol tank. The more fuel the vehicle consumes per mile, the larger the petrol tank required, so as to avoid having to continually refuel. The old III Series Jaguar, had two 10 gallon tanks, for example, and lorries have to have even larger fuel tanks. Total up all of the millions of vehicles in the country, and that amounts to a sizeable storage of petrol, in total, and yet, on average, each one would use up its storage in a matter of days. Fortunately, the many service stations across the country, provide a second line of storage, but as seen whenever there is a tanker driver's strike, that storage too disappears within days. Further storage is provided by the oil refiners, but at each stage, the amount stored is kept to a minimum, because the cost of storage facilities, and the petrol stored in them, is dead money that could have been used productively. 

If you have £50 of petrol in your tank, that is £50 that you don't have in your bank account earning interest. With current interest rates, for each individual, that doesn't make much difference, but consider a large haulage fleet, where at any one time, thousands of pounds of fuel is stored, in trucks, or in fuel tanks. Those thousands of pounds, could instead have been profitably employed buying additional trucks, and employing additional drivers. Now, if fuel supplies become uncertain, due to Brexit, the greater concern of the haulage company becomes the ability to be able to even have the fuel to keep its trucks on the road at all, so that, unprofitable use of its capital or not, it makes sense to increase its own hoarding of fuel, so as to keep its trucks moving. Spending £200,000 for additional storage facilities so as to quadruple the firm's capacity to store petrol, together with say another £1 million in the cost of petrol stored, appears a complete waste of money that could have been used better buying additional trucks etc., but if it means your trucks stay in the road, whilst your competitors run out of fuel, it will be seen as a wise investment. 

The reason that we don't have large stores of things, be they the medicines each of us require, the gas we use to heat our homes, the petrol we put in our vehicles, the food we consume, and so on, is that our economy is based upon continual production and reproduction of all the things that we consume either as consumption goods, or as the means of production used in the production of those consumption goods. That was true even in the 19th century. Thomas Hodgskin noted that all of this production was, in fact, the consequence not of commodities being stored up, but of “contemporaneous labour”. In other words, as he said, the bread that the workers ate each day, was not bread that had been stored up ready for their consumption a part of their wages, but was itself the product of other labourers that very morning, who baked the bread, which was then put on the shelves, i.e. of contemporaneous labour. 

In the 19th century, when supplies were uncertain, and when it took six months or more to ship raw materials, and finished goods, from one part of the world to another, it was not only rational, but necessary to hold large stocks, so that you did not run out, but as soon as steam powered ships were introduced that changed. As Marx points out, wholesalers of cotton in Liverpool could hold smaller stocks, because ships traversed the Atlantic more quickly, and more frequently, bringing cotton supplies to Britain on a more regular basis, and that also meant that the Lancashire textile producers, could hold less stock of cotton too, because, when their demand for cotton rose, they could now quickly transmit that demand by telegram to wholesalers in Liverpool, who then quickly shipped the cotton to them from their own stocks, via train. Today, the massive increase in the speed and capacity of shipping and other forms of transport, along with the Internet, has caused a similar effect but on steroids. 

In short, the rate of turnover of capital has become faster and faster. In the mid 19th century, Engels calculated it to be around 8.5 times per year. Today, the average rate of turnover is likely to be around 50 or more times a year, as a result of the continual rise in productivity in both production and circulation. In some spheres, the rate of turnover is as high as 300 times a year, or more. 

So, the economy, like all economies throughout the world, has been built around the premise that storage and stock holding is an unnecessary cost that must be kept to a minimum. In fact, increasingly all of our consumption behaviour has moved in that direction too, as we have moved away from the production and consumption of commodities, to the production and consumption of services. In all developed economies service industry now accounts for 80% of all new value and surplus value creation. In developing economies like China, Singapore, Brazil, South Africa it accounts for a majority of new value and surplus value creation too, and that proportion is growing by the day. But, that model of service production relies on continual production, and rapid turnover of capital, to ensure that the services we wish to consume are available. 

We could all stop buying food, cookers, and so on and simply eat out at restaurants – which in fact does constitute a growing proportion of household expenditure – and indeed, in terms of use of resources, that is a far more efficient model. But, look what happened a few months ago, when KFC changed its chicken suppliers, and it ran out of chicken. Very quickly it led to loud protests. Now imagine if the only way you could eat was by depending on such restaurants, and they all suffered such problems. It would mean not just loud protests by widespread civil unrest. But, if a No Deal Brexit leads to chaos, which even delays food getting to shops, every day, let alone means that not enough food gets into the country in the first place, it will not just be restaurants that run out of chicken and other requirements, it will be everyone. 

Under those conditions, having hoarded food, and other vital requirements in advance will seem to have been a very wise move indeed. In the 1930's, my grandfather kept rabbits in the garden, and chickens on his allotment, to supplement their food supplies, but today, few people have allotments, many have no garden, and those that do do not have the capacity to keep livestock, or even grow vegetables on a meaningful basis. Progress has meant we no longer need to do those things, because we have much more efficient, much cheaper means of meeting our needs, but those means require all of the trappings of the modern international division of labour, and frictionless trade that the EU has provided. Britain is proposing to cut itself off from those advantages and developments at a stroke, which must have disastrous consequences. 

Under those conditions, hoarding is a rational response, because it only restores the situation that used to exist prior to us being able to rely on being able to simply meet our requirements at a moment's notice. If you have available freezer's, and fridge space, it makes sense to use it to the full, to begin to stock up on frozen food and so on. After all the government itself has become the world's largest buyer of fridges so as to hoard drugs that it considers might run out after Brexit, for the NHS. Of course, that is itself dependent on the power supply being maintained, because a fridge won't work without electricity, so that all of those fridges might have been wasted money by the government, and the medicines they store in them will be likewise ruined. When I was young, power cuts were a frequent occurrence, even without disruption due to strikes. The nationwide power cut the other week, shows how susceptible everything is to such events, and after Brexit, the country will become even more susceptible to such events. 

If you don't have enough freezer capacity, then buying tinned goods is an obvious alternative. Buying in flour, dried milk, long life milk and so on is also a good idea, as they can be stored and used to bake bread, etc. for when bread disappears from supermarket shelves. Obviously, anyone dependent on medicines should start stocking up now, because I certainly would not rely on the government, particularly this government, taking the required measures to ensure those drugs are available when I need them. Similarly, as Brexit occurs as Winter approaches, and its effects will drag on through the Winter, buying in thermal clothing, extra duvets and so on, is a useful precautionary measure. Also I would buy portable gas heaters, and store up calor gas, because if electric supplies become erratic, it could be the only way to guarantee heating and cooking facilities, because even gas and oil central heating systems rely on electricity to run pumps etc. 

Such hoarding of vital goods is rational not just because it might be necessary for survival over the Winter, but even if supplies do not run out, they are going to be in short supply, making availability problematic, but also, in such conditions, scarcity will drive up the prices of such goods. Its always in such conditions of scarcity that prices are driven up, and when that scarcity results in rationing, it simply promotes the creation of black markets, and even higher prices, racketeering and criminality, as can be seen with the example of Prohibition in the US in the 1920's, the so called war on drugs, and the widespread black markets that developed in Eastern Europe, as a result of shortages and rationing. 

Even if eventually, the chaos of Brexit were to settle down in some manner, it doesn't change the disruption and threats to individuals it poses during the intervening period, and so anyone who can is rationally going to protect themselves against it. 

Theories of Surplus Value, Part III, Chapter 22, Part 1

Chapter 22 

[1. The Attempt to Distinguish Between Constant and Variable Capital. The View that Capital Is Not an Essential Social Form] 

Marx distinguishes Ramsay from the vulgar economists that arose at the time, out of the dissolution of the Ricardian School. Ramsay distinguishes between constant capital and variable-capital, though he calls all of the former fixed capital, and calls the latter circulating capital. On this basis, he almost arrives at a correct understanding of surplus value. He also arrives at a more or less correct understanding of the average rate of profit, understanding that it is calculated on the total capital advanced, not just that consumed in production, and, thereby, also understands, to a degree, the role of the rate of turnover of capital. He also understands that the application of the average rate of profit does not act to increase or reduce the total amount of profit, but only affects its distribution amongst the class of capitalists. But, his ideas remain confused in relation to the distinction between labour and labour-power, so that his understanding of surplus value is never quite right. His ideas on the average rate of profit lead him to the conclusion that the value of commodities can no longer be determined by labour, and that, therefore, capital also acts to determine value. 

Ramsay, in order to account for commercial capital, and commercial profit, calls it, 

““the transport of commodities from one place to another” (op. cit., p. 19). He thus confuses trade with the carrying industry.” (p 326) 

Ramsay's division of constant and variable capital into fixed and circulating capital is consistent with the increased focus of the bourgeois economists on the realm of exchange as the source of value as opposed to production. Ramsay, however, does continue to see production as the basis of the value of commodities. That value, he says, comprises the “fixed capital" plus the labour employed in processing it. The “circulating capital” (variable-capital) itself plays no part in determining the value. And, this is quite correct, as Marx sets out in Capital I

As Marx sets out in Capital I, the value of a commodity is determined by the labour-time required for its production. That labour-time comprises the amount of dead labour embodied in the constant capital, (fixed capital for Ramsay) and the living labour required to process it into the final product. If 100 hours of labour are required to produce flax that is turned into yarn, and 100 hours of living labour are used to spin this flax into yarn, then the value of the yarn is equal to 200 hours. It comprises 100 hours of dead labour (constant capital) and 100 hours of living labour. Ramsay recognises that this value added by the living labour is not, and cannot be the same as the “circulating capital” (variable-capital). If it were, then no surplus value would be possible. 

““Circulating capital consists exclusively of subsistence and other necessaries advanced to the workmen, previous to the completion of the produce of their labour” (loc. cit., p. 23).” (p 326), 

and he says, 

““… fixed capital alone, not circulating, is properly speaking a source of national wealth” (loc. cit., p. 23). “…labour and fixed capital are the only elements of expense of production” (op. cit., p. 28).” (p 327) 

In other words, Ramsay recognises that, in terms of the value of the commodity, the variable-capital, whether this be taken as the actual wage goods required for the reproduction of labour-power, or the money wages paid to buy those wage goods, plays no part. The wage goods, consumed by the workers, reproduce the workers' labour-power, but they play no part in the production process itself. They determine the value of labour-power, but, contrary to the confusion of Adam Smith, it is not the value of labour-power that determines the value of commodities, but the quantity of labour expended. 

So, if we take the yarn example above, if the value of labour-power is equal to 50 hours, then the workers would be paid wages equal to 50 hours labour, and this would constitute the variable-capital. But, whether the value of this labour-power is 50 hours, 60 hours or 40 hours does not change the value of the yarn as equal to 200 hours, because that value is determined by the quantity of labour expended on the production, not the value of the labour-power used in production. That is the difference between the labour theory of value, and Adam Smith's cost of production theory of value.

Monday, 19 August 2019

Where Have The T's and The's Gone?

A lot of people are annoyed by the misuse of apostrophe's (intentional).  Then we have other  linguistic annoyances, such as phrases like "Going forward", as though given the nature of time, and our perception of it, we could actually be "going backwards".  There is the straightforward misuse of words, for example, using "of" instead of "have", as in "Could of", rather than "Could have"Dave Gorman, in Series 3 of "Modern Life is Goodish", did a whole programme on the misuse of idioms, such as "Bowl in a China Shop", "From the Gecko", "And his Elk", "Catphrase", and "Escape Goat".  But, I've noticed another feature coming from the mouths of supposedly educated politicians, and public figures.  It is that the word "the", and the letter "t", seems to be gradually disappearing from their speech.

For example, on numerous occasions, I have heard Theresa May, and others, from the dispatch box, talk about "Leaving European Union", rather than "Leaving the European Union".  The European Union is a thing, just as the United States is a thing, or a car is a thing.  It is this thing that, if Brexit goes ahead, Britain will be leaving.  If you were getting out of a car, as a thing, you would not say, "I am getting out of car", you would say, "I am getting out of the car", or, at least, you would if you were using the English language and grammar correctly.

European union, is, of course, also a valid phrase too, but it describes not a thing (noun), but an activity (verb).  In other words, union is the act of joining together.  But, it is not that activity that is being ended, indeed, at the point that Britain joined the EU, the activity itself ceased, apart from any further development in the nature of that union was concerned, and the act of union itself became congealed in the form of an institution, i.e. the Union.  It is that institution, the Union that Britain would be leaving.

And, its not some act of the Brexiteers to try to besmirch or somehow diminish the nature of the EU that leads to this transformation of the European Union from a noun to an adjective, because the same people, and others, omit the required "the" prior to other nouns, in their speech.  It is as though they are unable to distinguish proper forms of speech from abbreviated forms of language for use on Twitter.  But, the reason for abbreviations on Twitter, or in text messages, is for a specific purpose, i.e. to be able to communicate within the limits of the medium.  In the original forms of telegraphy, it was also necessary to miss out some letters from messages, because of the limits of the technology, but as soon as new technology developed, so that those limits no longer existed, it became possible to send messages using the full alphabet, though in the case of telegrams, still in abbreviated form in order to save on costs.

But, there is no such reason for speech to be abbreviated in that way.  Doing so, is simply an indication of laziness, and sloppiness of thought, a disregard for the rules of language and grammar.  The same thing can be seen in the fact that, often, people come on to TV, and refer to "poli-ics", and other words, containing "t's", which appear to have gone AWOL from their pronunciation.  Why?  It may again be laziness, it may be that this is the way they have always spoken, but, usually, these are educated people who know the correct pronunciation, and the whole point about education is that you are able to shape your own being, as well as the world around you.  The other explanation is that it is simply an attempt to appear synchronous with "youth culture", in which case it is simply the kind of populist dumbing down that we should oppose.  The job of socialists is to raise people up, not to dumb everyone down.

The issue was dealt with by Gramsci in his "Prison Notebooks", where he talks about the need for the proper study and use of grammar, for example, in his essay "On Education"  Gramsci notes that if someone is sloppy in their use of language then it means that they are also going to be sloppy and disordered in their general thought processes too.  Language is, or should be, the verbalisation of our thought processes, and the means of communicating those thought processes to others.  Its not always the case.  There appears little connection between the words that come from Trump's mouth, and any prior cerebral activity.  The words that come out appear to flow without any necessary connection one to another, other than the production of phrases deemed likely to provide a positive feedback from his supporters, and the ire of his opponents, or any other thinking human being.  It is a verbal equivalent of the internet troll, whose ranting is not the product of any great knowledge, or cognitive process, but simply an autonomic response to others, designed to promote hostility.

But, for thinking human beings concerned to have an intelligent dialogue, language should be the end result of such manipulation of knowledge via cognitive and thought processes, to produce new ideas, as the basis for discussion and intellectual development.  If you can't be bothered to use language correctly, by using the appropriate forms of grammar, or to enunciate words correctly, then what is anyone to think about your ability to think about anything complex correctly, to be meticulous and painstaking in your thought processes, as Gramsci describes?  

The same laziness applies in the apparent inability for anyone to have an attention span longer than that of a gnat.  Yet, as Gramsci says, work created the conditions in which workers by hand become disciplined to operate in a systematic and persistent manner.  It is something that capitalism imposes upon them, as against the idiocy of rural life.  But, the same must be true of intellectual labour, and the process of developing ideas.

"In education one is dealing with children in whom one has to inculcate certain habits of diligence, precision, poise (even physical poise), ability to concentrate on specific subjects, which cannot be acquired without the mechanical repetition of disciplined and methodical acts. Would a scholar at the age of forty be able to sit for sixteen hours on end at his work-table if he had not, as a child, compulsorily, through mechanical coercion, acquired the appropriate psycho-physical habits? If one wishes to produce great scholars, one still has to start at this point and apply pressure throughout the educational system in order to succeed in creating those thousands or hundreds or even only dozens of scholars of the highest quality which are necessary to every civilisation."

But, if today our intelligentsia, our media personalities, and our politicians do not have the rigour, the diligence, the precision or the discipline to even express their thoughts correctly via a proper use of language and grammar, or by the proper enunciation even of the words they are using, how can anyone have faith in their ability to have first applied the kind of rigour, precision and discipline to the thought processes they should have undertaken before making those utterances?

Theories of Surplus Value, Part III, Chapter 21 - Part 88

In one sense Bray takes a step backwards, explaining profit in the same way that the Mercantilists did, as resulting from unequal exchange. But, unlike the Mercantilists, Bray explains this unequal exchange not in terms of a general phenomenon, but as one specific to the relation between capital and labour. Profit does not arise from a general surcharge placed on the value of commodities, in every exchange, but only in relation to the exchange of labour-power for wages. And, Bray recognises, therefore, that the real foundation of the surplus resides in production, and the productivity of labour. 

““From the relation which capital and labour bear to each other, it is evident that the more capital or accumulated produce there is in a country, the greater will be the facilities for production, and the less labour will it require to obtain a given result. Thus the people of Great Britain, with the aid of their present vast accumulations of capital—their buildings, machinery, ships, canals and railways—can produce more manufactured wealth in one week, than their ancestors of a thousand years since could have created in half a century. It is not our superior physical powers, but our capital, which enables us to do this; for, wherever there is a deficiency of capital, production will progress slowly and laboriously, and vice versa. From these considerations, then, it is apparent, that whatever is gained to Capital, is likewise gained to Labour—that every increase of the former tends to diminish the toil of the latter—and that, therefore, every loss to Capital must also be a loss to Labour. This truth, though long since observed by the political economists, has never yet been fairly stated by them” [loc. cit., pp. 59-60].” (p 322) 

As Marx adds, the bourgeois economists argue that capital makes labour more productive, and so this additional product should go to capital not labour. 

“Consequently, it is not accumulation which must be the property of labour but labour must be the property of accumulation—[that is, it must be the property 1 of its own products. Consequently, the worker must not accumulate for himself but for someone else, and the accumulation must confront him as capital.” (p 322) 

The bourgeois economists cannot separate out the physical manifestation of capital, as means of production, resulting from past labour, from its social form, as the property of capitalists. As a result, they are constantly driven into contradiction. 

As Bray puts it, 

““They have even identified Capital with one class of the community, and Labour with another class—although the two powers have naturally, and should have artificially, no such connection. The economists always attempt to make the prosperity, if not the very existence, of the working man dependent upon the condition of maintaining the capitalist in luxury and idleness. They would not have the working man to eat a meal until he has produced two—one for himself and the other for his master—the latter receiving his portion indirectly, by unequal exchanges” (ibid., p. 60).” (p 322) 

Bray continues, 

““But even if all the land and the machinery and the houses did belong to the capitalists, and the working class were not in being, the former would not thereby be enabled to evade the great condition ‘that there shall be labour’. Their wealth would leave them in the choice only of working or starving. They cannot eat the land and the houses; and the land will not yield sustenance, nor the machinery make clothing, without the application of human labour.” (p 323) 

And that continues to be the case. However, as Paul Mason describes in Postcapitalism, and I have discussed in past blog posts, that may not always be the case, as automation and robotisation proceed at an increased pace. 

“Through the instrumentality of money, the working class are not only compelled to perform the labour which the preservation of existence naturally imposes upon them, but they are likewise saddled with the labour of other classes. It matters not whether the producers now receive gold, or silver, or other commodities from a non-producing class: it all amounts to this—that the working class perform their own labour, and support them-selves, and likewise perform the labour of the capitalist, and maintain him into the bargain! Whatever may be the nominal receipts which the producers receive from the capitalists, their actual receipts are—the transfer of that labour which ought to be rendered by the capitalists” (op. cit., pp. 153-54).” (p 323) 

Bray describes the fact that around 4 million workers produced all of the commodities required for the maintenance of its population of 25 million. That would not have been possible without the accumulation of capital that raised the productive power of labour. 

““The present constitution of society has been fertilised by machinery, and by machinery will it be destroyed… The machinery itself is good—is indispensable; it is the application of it—the circumstance of its being possessed by individuals instead of by the nation—that is bad” (loc. cit., pp. 82-83).” (p 324) 

Bray enumerates the number of idlers amongst the capitalists, landlords and rentiers, and the amount of revenues they obtain from the production undertaken by the labourers. In total he estimates they account for a quarter of the population, and obtain revenues of around £300 million, or approximately half of the wealth produced annually. 

“From calculations made in 1815, it appears that the annual income of the whole people of the United Kingdom amounted to about £430,000,000; of which the working class received £99,742,547, and the rent, pension, and profit class £330,778,825! The whole property of the country was at the same time calculated to be worth nearby three thousand millions of pounds sterling” (loc. cit., pp. 84-85).” (p 325) 

Sunday, 18 August 2019

Tory and Labour Short-Termism

In the last week, both Labour and Tories have come out with economic policies that reflect the way populism, and short-termism dominates their thinking.  The Tories have proposed making Stamp Duty on house sales payable by the seller rather than the buyer, whilst Labour has proposed enabling local Councils to take over empty high street shops to provide subsidised premises for various businesses.

What is the likely effect of the Tories proposal.  It is to reduce supply, and thereby to cause house prices to rise, the opposite of what the Tories claim is the purpose of their proposal.  In other words, it will have the same effect but from the opposite direction as their Help To Buy Scam, which helped to push up prices, by artificially inflating demand.  But, that is not surprising, because, although the Tories want to seek electoral popularity by claiming to be doing something to make home ownership more affordable, they need to keep house prices actually inflated.  The intention of conservative governments, and of central banks for the last thirty years has been to keep asset prices inflated, because 1) financial and property assets (shares, bonds, property and derivatives) are the main form of wealth of the dominant section of the ruling class, the top 0.01%, and 2) the conservative social-democratic (neoliberal) model during all that time has been to substitute the liquidation of capital gains on assets for the the creation of revenue, via the production of new value, as the basis of sustaining consumption.

They have needed to keep house prices inflated, not because the top 0.01% has their wealth tied up in their houses, but because a large chunk of the population has their wealth tied up in that way.  Its on the basis of this property wealth that large chunks of the population are encouraged to take on further debt so as to sustain consumption, given that during much of that time, real wages have been declining or stagnant.  Its only necessary to look at all of the TV, newspaper and online advertising encouraging elderly property owners to take out lifetime mortgages, or take part in equity release scams, to provide them with money to finance their, or their children and grandchildren's consumption, to see the role that plays.

But, its not just at the personal level that that applies.  A large part of the state's activities has been predicated on being able to liquidate paper capital gains on rapidly inflating assets too.  All of the proposals about financing elderly social care, and so on, require a situation in which the price of the house of the person taken into care, continue to inflate, year after year. 

There is another reason that the central banks and conservative governments have wanted house prices to continue to inflate, or at least not to collapse, it is that the banks and financial institutions themselves depend on it.  Commercial banks long ago ceased being a major source of finance for actual investment.  Some years ago, Michael Roberts showed that around 90% of the loans provided by commercial banks simply fed into property speculation by one means or another.  A tiny amount went to finance loans to business for real capital accumulation.  The claims that money printing via QE, or the policy of low official central bank interest rates were designed to stimulate investment, or the real economy are nonsense.  The additional money, and cheap money to commercial banks was deliberately channelled into assets, so as to inflate those asset prices, and in inflating those asset prices, it also acted to create paper capital gains, from speculation, which further encouraged money to flow out of the real economy and into this financial and property speculation.

If house prices drop sharply, as they did in 2008, and in 2010, then all of that vast amount of loans undertaken by the commercial banks looks suspect, because it means the inflated assets sitting on those banks balance sheets, suddenly becomes massively depreciated, destroying their capital reserve ratios, and their ability to lend further.  It would mean that the banks themselves would need to suck in large amounts of capital, as occurred in 2008, so that they were recapitalised.  That is important, because the banks have an important role to play in keeping the other asset prices (shares, bonds, derivatives) inflated, via their investment (speculative) banking activities.

Part of the reason that property prices remain high, is not just that government actions have tried to artificially inflate demand, by targeted low mortgage rates and subsidies such as Help To Buy, but because supply has been constrained.  Supply is constrained, because inflated land prices means that landowners have an speculative incentive to hoard land, waiting for higher prices, which is encouraged further by state sponsored monopoly imposed via the Green Belt policy.  But, builders too, naturally constrain supply - not only because they are landowners themselves - because they build houses to make profits not to be altruistic.  With such inflated house prices, they know that the demand for new houses is highly restricted to a few people each year who can afford to put down a deposit, and commit to the monthly payments, even with the massively subsidised mortgage payments.  They know that if they produced more houses than that they simply could not sell them at prices that would produce a profit for them.  That is why all large builders now only sell new houses "off plan", i.e. when they already have a buyer for he house.

But, the supply has also been constricted, because a lot of the first time buyers, who must come into the market each year, for the market to expand, do not buy new houses, but houses from existing owners, because these are the cheapest ones.  But, that requires that the owners of existing houses themselves want to sell.  That source of supply has been restricted, because the rise in house prices has been such that the gap between the price that sellers can get for their existing house, and the price they will have to pay for the house they want to move up to has become unbridgeable, so that existing homeowners tend to stay put, to settle for making improvements, building extensions and so on.  Without that supply of cheaper existing homes coming on to the market, there is no supply of those homes, for first time buyers to bid for.

For the seller of a house, its not just that unbridgeable gap they have to consider; it is also all the other costs of moving.  The seller of an average £200,000 house could expect to pay around £5,000 in estate agents fees, solicitors fees and so on.  The Stamp Duty on such a house would be around £3,000, nearly doubling the transaction costs for the seller.  Moreover, because Stamp Duty does not start until £125,000, every increase in price over £200,000 would mean a much steeper increase in that cost.  For sellers of existing properties, already discouraged from selling, the imposition of the additional Stamp Duty proposed by Javid, is yet another reason not to put the house on the market, which will further constrain supply, pushing house prices higher yet again, or at least, in places like London, where house prices are again falling rapidly, acting to limit that fall, which would actually make houses more affordable. 

For those that do decide to sell, what is their likely response, in those conditions?  It is obvious that they would simply lump the Stamp Duty they now face having to pay on to the selling price of their house?  So, rather than making houses more affordable to buyers, it will make them less affordable, at the same time as further restricting supply.  In reality, that is again likely to be the real purpose of this move, whilst attempting to gain short term populist approval, for undertaking a measure that is promoted as making houses more affordable, just as they did with the Help To Buy Scam.

Last week, Labour also came out with a policy to deal with the continued decline and decay of the town centre high street.  The policy involves allowing local councils to take over premises that have been empty for more than a year.  But, this is also another populist, short-sighted and short-termist solution whose outcome will be different to what is proposed as its intention.  Labour's proposal is that council's having taken over such premises, should then make them available to start-up businesses, pop-up shops, charity shops etc.  This solution has a lot in common with the reactionary, protectionist policies of the Tories in relation to the creation of Enterprise Zones under Thatcher, and more recently, the proposals of Boris Johnson for Free Ports.

Let's take the most obvious example of that.  In the midst of a period when retailers are dropping like flies, because, as I wrote more than a decade ago, far too many of them had been created, and because they are now facing rising costs, and increased competition from online retailers, Labour's proposal amounts to putting those existing retailers under even more pressure, by siting alongside them, small businesses that are given subsidies that the existing retailers do not enjoy!  If you are an existing retailer, currently paying your full rent for your premises, full Business Rates, and so on, what do you think is going to happen to your competitiveness if next door to you is some new business that does not have to pay those things?   The obvious effect is to undermine the competitiveness and profitability of the existing retailers, at a time when their profitability is being squeezed anyway.  Labour's policy means that a few empty shops might be filled at the cost of expensive subsidies, but at the cost of driving even more existing retailers out of business with the loss of jobs that entails, and creating an even larger number of empty spaces on the high street.

Labour might respond that the intention is to fill the voids with more charity shops, not for profit shops etc.  But, charity shops also sell commodities that existing retailers sell, which means that these subsidised shops represent cheap competition to the existing stores.  The charity shops undercut the retailers not just because they get their stock provided for free, and get cheap rents and so on, but because in many cases they rely on unpaid labour.  That unpaid labour directly undercuts the paid wage labour employed in the actual retail stores.

And, don't we already have more than enough charity stores on those high streets?  And, the use of the space for those shops is itself incredibly wasteful of resources.  In past decades, the things now given to charity shops would either have been passed down to younger children, within families, in the case of clothes, games and so on, or else given to neighbours to meet their needs, or else sold at jumble sales held periodically in schools and church halls, at a fraction of the price the charity shops now charge, to cover their costs.  The sprouting of charity shops has arisen for three poor reasons.  Firstly, the existence of empty spaces in high streets, led to a search for some means of filling those spaces; secondly, the underfunding of many areas of social life by the state, for example in healthcare, meas that the funding for research for heart disease, or cancer has fallen to charity; thirdly, the need to encourage consumption to keep aggregate demand raised, meant that the majority of the population was encouraged to dump its previous habits, and to be perpetual shoppers for new commodities, enthralled by so called "retail therapy", so that an endless supply of used commodities could be fed into the charity shops.

Rather than encouraging a continuation of that culture, Labour should be implementing policies to reverse it.  It is a disgrace that vital areas of social life such as healthcare and so on should rely on charity, a situation we thought had ended with the creation of the NHS in 1947.

Labour's policy is based upon an approach that is essentially reactionary and protectionist.  The high street, and town centres are in terminal decline.  That is not just because for thirty years, aggregate demand was sustained on the basis of a promotion of consumer demand financed by debt, and by an unsustainable growth, therefore, of commercial activity and jobs, whilst actual productive-activity was increasingly concentrated elsewhere in the globe; in other words that there were just too many shops created.  It is so because, today, the town centre high street, situated in 18th and 19th century towns and infrastructure, cannot compete with the dedicated retail environments of the out of town retail parks, let alone with online retailing.

Trying to cling to the models and methods of the past is the characteristic of conservatism, not of socialism, or social-democracy.  It is time to recognise that the town centre as a retail environment is a thing of the past, and to move on and encourage the development of its replacement.  Town centres that have a few pubs, cafes, and other such establishments is one thing, but as retail centres, their day has past.  Even the large out of town retail parks' days are numbered, because the future lies with online retailing, which is much more efficient.  The main role of the out of town sites will increasingly become as distribution centres, and bricks and clicks stores, where having browsed the Internet for your purchase, you simply collect from an actual store, or go to view it, before confirming your online purchase.

Instead of trying to protect the high street, by subsidising inefficient small businesses that can only exist with such subsidies and protections, which in turn undermines both existing larger businesses, and workers' pay and rights that goes with it, Labour should be looking to turn empty town centre premises into residential properties, to help alleviate the housing crisis, as well as turning them into doctor's and dentists surgeries, etc. so that workers either living in, or working in the town can get appointments at their convenience, which also requires a large investment in primary healthcare by Labour, an extension of the use of the Internet, for patients to be able to use any available healthcare professional as required, and so on.  That in itself requires continued membership of the EU, so that we do not lose the healthcare professionals we already have, as well as having the required pool of trained professionals to meet the expanding need immediately.

Its time for politicians to stop looking for populist short-term solutions, and begin to develop thought out, long term solutions that will actually address the problems we face.