Friday, 26 August 2016

Friday Night Disco - Zing Went The Strings of My Heart - The Trammps

Productive Labour - Part 14 of 15

“Smith’s second view of “productive” and “unproductive labour”—or rather the view that is interwoven with his other view—therefore amounts to this: that the former is labour which produces commodities, and the latter is labour which does not produce “any commodity”. He does not deny that the one kind of labour, equally with the other, is a commodity.” (TOSV 1, p 171) 

In other words, whether the labour is productive or unproductive it is itself a commodity, and thereby “deserves its reward”. Its value is equal to its own cost of production. In reality, Smith is in error here, because it is not labour which is a commodity, but labour-power. What the worker sells is their capacity to perform labour.

“Labour itself, in its immediate being, in its living existence, cannot be directly conceived as a commodity, but only labour-power, of which labour itself is the temporary manifestation.” (TOSV 1, p 171)

Smith's conception is wrong for two reasons. Firstly, he conceives only that labour to be productive which is embodied in a material product, whereas labour creates value just as much in the production of non-material products, such as services, transport and so on. Secondly, his concept of the embodiment of labour within the commodity, implies an embodied labour theory of value, whereby it is the concrete labour employed in the production which fixes this value within it, rather like that concrete labour fixes the use value into the product.

This concept leads to a false view that the value of the commodity is somehow intrinsic to it, rather than being merely a reflection of a social relation. In other words, it encourages commodity-fetishism.

“The materialisation, etc., of labour is however not to be taken in such a Scottish sense as Adam Smith conceives it. When we speak of the commodity as a materialisation of labour—in the sense of its exchange-value—this itself is only an imaginary, that is to say, a purely social mode of existence of the commodity which has nothing to do with its corporeal reality; it is conceived as a definite quantity of social labour or of money. It may be that the concrete labour whose result it is leaves no trace in it. In manufactured commodities this trace remains in the outward form given to the raw material. In agriculture, etc., although the form given to the commodity, for example wheat or oxen and so on, is also the product of human labour, and indeed of labour transmitted and added to from generation to generation, yet this is not evident in the product. In other forms of industrial labour the purpose of the labour is not at all to alter the form of the thing, but only its position. For example, when a commodity is brought from China to England, etc., no trace of the labour involved can be seen in the thing itself (except for those who call to mind that it is not an English product). Therefore the materialisation of labour in the commodity must not be understood in that way. (The mystification here arises from the fact that a social relation appears in the form of a thing).” (TOSV 1, p 171-2)

For Smith, the commodity appears either as past objectivised labour embodied in a physical commodity, or else it appears as labour-power itself. But, the commodity is never living labour, i.e. the actual performance of labour.

“Productive labour would therefore be such labour as produces commodities or directly produces, trains, develops, maintains or reproduces labour-power itself. Adam Smith excludes the latter from his category of productive labour; arbitrarily, but with a certain correct instinct—that if he included it, this would open the flood-gates for false pretensions to the title of productive labour.” (TOSV 1, p 172)

For Smith, a commodity is a material product, which has required the expenditure of labour-time. It would include a machine produced by a manufacturer not for sale, but for their own use, in the production of other commodities for sale. In this case, the machine is sold bit by bit, as its wear and tear is transferred to the end product. But, likewise for Smith, the actor does not produce commodities but only immediate use values, even though they sell a commodity, their labour-power to the theatre owner.

“... the fact that their purchaser cannot sell them to the public in the form of commodities but only in the form of the action itself would show that they are unproductive labours.” (TOSV 1, p 172)

As Marx points out, the commodity is the most elementary form of bourgeois wealth, and so Smith's second definition of productive labour as that which produces these material commodities is itself a more elementary definition than his first, as that labour which produces capital.

Every commodity is money, because it is a representative of a certain quantity of social labour-time. Like the money-commodity, it is a claim to a quantity of social labour-time, in exchange for it. But, in re-establishing this centrality of value, Smith himself falls back into a Mercantilist concept of permanence, of a concept of the embodiment of labour within the commodity, which thereby establishes exchange value as a relation between things – embodiment of labour – rather than as a relation between people. Consequently, the concept of the commodity itself becomes restricted to only physical products.

Marx refers back to “A Contribution To The Critique of Political Economy”, in which he criticised Petty's view “... where I quote from Petty’s Political Arithmetick) where wealth is valued according to the degrees in which it is imperishable, more or less permanent, and finally gold and silver are set above all other things as wealth that is “not perishable”.” (TOSV 1, p 174)

Marx quotes from Adolphe Blanqui's Histoire de l’économie politique, commenting on Smith.

““In restricting the sphere of wealth exclusively to those values which are embodied in material substances, he erased from the book of production the whole boundless mass of immaterial values, daughters of the moral capital of civilised nations,” etc.” (TOSV 1, p 174)

A Crisis Carol - Stave 1 – Monetarism's Ghost

Stave 1 - Monetarism's Ghost

Monetarism was dead to begin with. There is no doubt whatever about that. The register of its burial was signed. Monetarism was as dead as a doornail, this must be distinctly understood. (Apologies to Charles Dickens).

The scrooges know that Monetarism is dead, but its ghost has visited them and warned them to mend their ways. The scrooges – the owners of loanable money-capital – make their money from interest. Like Ebenezer Scrooge, they do not make money by engaging in any productive or even commercial activity, but rather from lending money to those who do engage in such activity.

Those who do engage in productive or commercial activity hopefully make a profit from that activity, and, out of that profit, they pay interest to the scrooges, who loaned them money-capital, so as to undertake their business. The interest takes a number of forms. If the money has been borrowed as a bank loan, it takes the form of bank interest; if it was borrowed by issuing a bond, or debenture, it takes the form of a fixed coupon payment; if it was borrowed by issuing shares, it takes the form of dividends paid to shareholders.

Whichever of these forms it takes, this interest is a deduction from the profits made by the productive or commercial capitalists (industrial capital). And, like Ebenezer Scrooge, if the scrooge's extract too much in interest, they kill off the source of their own income, because businesses can only pay interest if they first make profits. To pay more in interest, businesses need to make bigger profits, but, to make bigger profits, they need to invest in additional capital, which they can only do if they make bigger profits.

This is the nightmare that the scrooges face, and it is why they are very frightened. As Marx pointed out 150 years ago, at least as regards the medium to large capitals, the capitalists had ceased playing a part in relation to such business activity. The businesses were no longer owned as private property, but had become socialised capital. The firm itself is a legal corporate entity, which owns the capital. The firms now borrow money-capital, in order to undertake their activities, and pay interest in the aforementioned forms on this borrowed money-capital.

Today, the bulk of private wealth exists in the form of this fictitious capital, of shares, bonds, and other paper assets, as well as landed property. As the Tories, and apologists and romantics for a bygone age of capitalism, never cease to remind us, the vast majority of businesses are small, privately owned concerns. They are made up of a few million self-employed people – many of whom scrape a living from such activity, because they have given up hope of obtaining permanent, full-time employment – people who run small stores, back street garages and workshops, through to the small enterprises that may employ a few dozen people.  They are people who run their own Old Curiosity Shops.

But, all put together, this privately owned productive wealth is miniscule when compared either with the trillions of dollars worth of privately owned paper wealth, or the trillions of dollars of socialised productive wealth. Moreover, nearly all of these small privately owned capitals are ephemeral. They depend almost entirely for their existence on work and business handed to them from the huge socialised capitals. More than half the new businesses created in 2009 had ceased trading by 2014, and on average, around 75% of new businesses fail within just a few years.

It may be true, as the Tories say, that small businesses create the most new jobs, but, because these small businesses collapse so soon after being established, and so frequently, they are also responsible for the largest number of job losses.  Long-term economic growth, prosperity and employment depends upon the big socialised, industrial capital, and ultimately that fact determines the policies of the state.

There is also a significant difference between these small private capitals and the large socialised capitals, when it comes to borrowing money-capital. Large companies, like Microsoft or Apple, as well as large states, like the US, can borrow money at very low rates of interest. Despite having tens of billions of dollars of cash on their balance sheet, Microsoft, in recent years, has borrowed billions more, by issuing bonds, on which it paid only 2-3% interest.

The US and UK governments can currently borrow money for ten years at an interest rate of only 1.5% and 0.6% respectively. Yet, that is far from an accurate picture of the real state of interest rates, even within the US and UK, let alone were we to examine the rates of interest being paid elsewhere in the world.

As Marx set out, a more accurate picture of the average rate of interest is given by the amounts charged for these small companies to borrow, than the yield on government bonds, and that is all the more true as QE has made government bond yields meaningless.

For instance, if we wish to compare the English interest rate with the Indian, we should not take the interest rate of the Bank of England, but rather, e.g., that charged by lenders of small machinery to small producers in domestic industry.” (Capital III, Chapter 36, p 597)

Many of these small, privately owned capitals have had difficulty being able to borrow at all. Some of that is understandable. Around 160,000 UK firms, about 10% of the total number of firms are zombies. They are barely able to pay the interest on their existing loans, and completely unable to repay the capital sum. They clank around like old Marley's ghost, dragging their chains of debt behind them.

That bank and other lenders have no desire to lend additional sums, to these companies, is understandable. In a healthier financial system, these firms would be allowed to go bust, so that their capital could be used more effectively elsewhere. But, the banks do not foreclose on them – just as they do not foreclose on mortgages in arrears – unless they fear an imminent loss of their money, because, as long as the firm is at least paying the interest, the bank is obtaining revenue. The banks, and from there the entire financial system, has been built up, over the last ten years, on the basis of a policy of “extend and pretend”, of kicking the can down the road.

But, there are many other small firms that are not in this condition, and yet still cannot obtain bank loans. Many are not big enough to become publicly listed companies, or to raise money in the bond market. They are forced to raise money-capital by putting up private houses as collateral, or taking out mortgages on those houses, or borrowing from friends and family. Such resources are very limited. Businesses have, therefore, had to borrow from other sources. In recent years, there has been a growth of peer to peer lending, facilitated by the internet. That means that individuals currently getting next to no interest on their savings can lend, with others, to small businesses, often in their local area.

But, the rate of interest on such loans to small businesses is frequently around 10% p.a. That is in stark contrast to the 2% a large company like Microsoft can borrow at, or the 0.6% the UK government can currently borrow at for ten years.

In order to persuade them to change their ways, the scrooges have been visited by three more ghosts, the ghosts of crisis past, present and future.

Next - The Ghost of Crisis Past

Capital III, Chapter 45 - Part 11

Marx's problem arises because he has followed Ricardo's theory of rent, and only amended it. The extent of that problem is then indicated by the fact that although Marx begins by rejecting the catastrophist conclusions of Ricardo and Malthus, his own theory of rent leads him into a similar position. So, for example, like them, he is basically led into a conclusion of ultimately diminishing returns.

“It is possible for the increase of social productivity in agriculture to barely compensate, or not even compensate, for the decrease in natural power — this compensation will nevertheless be effective only for a short time — so that despite technical development there, no cheapening of the product occurs, but only a still greater increase in price is averted. It is also possible that the absolute mass of products decreases with rising grain prices, while the relative surplus-product increases; namely, in the case of a relative increase in constant capital which consists chiefly of machinery or animals requiring only replacement of wear and tear, and with a corresponding decrease in variable capital which is expended in wages requiring constant replacement in full out of the product.” (p 766-7)

This gives far too much ground to Ricardo and Malthus, and the concept of diminishing returns. What is more, it has been decisively disproved empirically. The rise in social productivity has way exceeded any decline in natural fertility, and productivity. That has been so to such an extent that the percentage of the population employed on the land, has fallen from around 80% in Marx's time, to around 2%, today, in Britain. At the same time, agricultural production has expanded massively, whilst the prices of agricultural products have been slashed. So much so, in fact, that today a litre or milk is cheaper than a litre of water!

The extent of this is indicated by Marx's comments in relation to the determination of prices in relation to cattle raising. Marx, following Adam Smith, for example, takes it that arable farming, and the production of grain is the determining factor in respect of rent, because of this being the most profitable activity. The use of land for other activities, such as cattle raising, then becomes limited to the worst soil, and only when the prices of these commodities rises to such a level as to make it possible to use these worst soils for this purpose, rather than grain production.

“Adam Smith — and this is one of his merits — has already demonstrated that a quite different determination of prices is to be observed in cattle-raising, and, for that matter, generally for capitals invested in land which are not engaged in raising the principal means of subsistence, e.g., grain. Namely in that case the price is determined in such a way that the price of the product of the land — which is used for cattle-raising, say as an artificial pasture, but which could just as easily have been transformed into cornfields of a certain quality — must rise high enough to produce the same rent as on arable land of the same quality. In other words, the rent of cornfields becomes a determining element in the price of cattle, and for this reason Ramsay has justly remarked that the price of cattle is in this manner artificially raised by the rent, by the economic expression of landed property, in short, through landed property. [G. Ramsay, An Essay on the Distribution of Wealth, Edinburgh, 1836, pp. 278-79. — Ed.] 

In fact, grain prices have fallen to such an extent that in every society, whenever living standards rise, this is marked by a relative, and often absolute fall in the consumption of grains and rise in the consumption of meat. In part, this is a function of the opening up of vast prairies, for grain production, but, in larger part, it is a function of the growing marginal productivity of capital employed on the land. Even in the US, the increased output at lower cost, is largely due to the ability to use capital-intensive methods – use of aeroplanes for crop dusting, the application of science for chemically improving the soil, and prevention of disease, use of large scale equipment and GPS tracking etc.

Moreover, this change is illustrated by the radical shift in land prices for alternative uses. Agricultural land sells at around £10,000 per acre, in the UK, whereas development land sells at around £930,000 per acre in England, and £2.6 million per acre in London, which reflects the much higher profits obtainable from using land for development rather than agriculture. In fact, agricultural land prices would undoubtedly fall much lower, if the restrictions such as the Green Belt, which introduces a further land owners monopoly, did not exist.

Marx's further example of a Norwegian forest demonstrates the point even more clearly. He says,

“But, as a matter of fact, the capital here consists almost exclusively of a variable component expended in labour, and thus sets more surplus-labour in motion than another capital of the same size. The value of the timber, then, contains a greater surplus of unpaid labour, or of surplus-value, than that of a product of a capital of a higher organic composition. For this reason the average profit can be derived from this timber, and a considerable surplus in the form of rent can fall to the share of the owner of the forest. Conversely, it may be assumed that, owing to the ease with which timber-felling may be extended, in other words, its production rapidly increased, the demand must rise very considerably for the price of timber to equal its value, and thereby for the entire surplus of unpaid labour (over and above that portion which falls to the capitalist as average profit) to accrue to the owner in the form of rent.” (p 768)

Thursday, 25 August 2016

Just Voted Jez

Productive Labour - Part 13 of 15

Marx quotes Smith, in relation to the point made earlier.

““Thirdly, it seems, upon every supposition, improper to say, that the labour of artificers, manufacturers, and merchants, does not increase the real revenue of the society. Though we should suppose, for example, as it seems to be supposed in this system, that the value of the daily, monthly, and yearly consumption of this class was exactly equal to that of its daily, monthly, and yearly production; yet it would not from thence follow, that its labour added nothing to the real revenue, to the real value of the annual produce of the land and labour of the society. An artificer, for example, who, in the first six months after harvest, executes ten pounds worth of work, though he should, in the same time, consume ten pounds worth of corn, and other necessaries, yet really adds the value of ten pounds to the annual produce of the land and labour of the society.”” (TOSV 1, p 168)

Smith's argument is that an individual worker may take £10's worth of material, and during the year, they will add to its value, as a result of their labour. As described earlier, this added value, of their labour, he confuses with their wages. So, he says that if their wages amount to £10's worth of corn during the year, they will have added £10's worth of value by their labour. Now, a product with a value of £20 exists, where previously £10 of material existed, and £10 of corn.

However, Smith says the productive nature of this labour is witnessed by the fact that this new product, with a value of £20 exists. By contrast, he says, if this corn had gone as food to a soldier or servant, it would have been consumed without anything to show for it. There would be no new product or value, he continues.

“Though the value of what the artificer produces, therefore, should not, at any one moment of time, be supposed greater than the value he consumes, yet, at every moment of time, the actually existing value of goods in the market is, in consequence of what he produces, greater than it otherwise would be” ([Wealth of Nations, O.U.P. edition, Vol. II, pp. 295-96], [Garnier], l.c., t. III, pp. 531-33).” (TOSV 1, p 168)

But, Marx says, this is quite clearly false because although unproductive labour is unproductive of surplus value, it is productive of value, in so far as it produces a use value.

“Is not the [total] value of the commodities at any time in the market greater as a result of the “unproductive labour” than it would be without this labour? Are there not at every moment of time in the market, alongside wheat and meat, etc., also prostitutes, lawyers, sermons, concerts, theatres, soldiers, politicians, etc.? These lads or wenches do not get the corn and other necessaries or pleasures for nothing.” (TOSV 1, p 168)

The actor who gives a performance thereby creates additional value as a consequence of the expenditure of their labour. As a commodity, it has an exchange-value, and thereby exchanges for other commodities of equal value, either directly or via the mediation of money.

“Since here, as in every exchange of commodity for commodity, equal value is given for equal value, the same value is therefore present twice over, once on the buyer’s side and once on the seller’s.” (TOSV 1, p 169)

Back To Part 12

Forward To Part 14

Capital III, Chapter 45 - Part 10

If all the land in a country is being cultivated, it will all be paying rent, because a condition for it being used is that rent is paid to the landlord. However, at this point, absolute rent ceases being an obstacle to the investment of capital in the land. It can only be such an obstacle in preventing land being brought into cultivation, not to the further investment of capital in land that has been brought into cultivation.

For example, the fact that I might have to pay £1,000 a year in absolute rent, for a piece of land, or else to buy it for £20,000, will be an obstacle to me investing capital in this land. Before I will do so, I must know that I will make sufficient profit to cover this £1,000 a year rent, plus the average profit. But, if the land is already in cultivation, and I am paying this rent, that has no bearing on whether I will then invest £1,000, £5,000, or £10,000, in that land, because this will not change the absolute rent. What this investment will determine is the amount of surplus profit deriving from the marginal productivity of capital, i.e. Differential Rent II.

On this basis, although all land will pay rent, some capital will not produce surplus profit, and will not, therefore, give rise to Differential Rent II.

There is though, I think, a problem with Marx's theory, here, that he seems to skirt around. He says,

“If the average composition of agricultural capital were equal to, or higher than, that of the average social capital, then absolute rent — again in the sense just described — would disappear; i.e., rent which differs equally from differential rent as well as that based upon an actual monopoly price. The value of agricultural produce, then, would not lie above its price of production, and the agricultural capital would not set any more labour in motion, and therefore would also not realise any more surplus-labour than the non-agricultural capital. The same would take place, were the composition of agricultural capital to become equal to that of the average social capital with the progress of civilisation.” (p 765)

It is indeed the case that if the organic composition of capital in agriculture or other extractive industries rose to the same or higher level as in the rest of industry, then the value of its output would no longer be above its price of production, and so this difference could no longer be a basis for absolute rent. But, there seems no reason why that being the case, landlords would cease requiring payment of rent on land whose use they lease out. That being the case, that suggests that this basis of rent is flawed. There seems to be a series of other theoretical options for the basis of rent that would comply with Marx's requirements.

Firstly, rent could be viewed in the same way as loanable money-capital, whether it is provided by productive-capitalists, or money lending capitalists. The productive-capitalist makes the average profit, and interest is a deduction from it, going into the pocket of the productive-capitalist themselves, or the money lending capitalist respectively, dependent upon who provided it. There seems no reason why the provision of the use value of land, need be treated differently, and indeed this removes the need for the division into Absolute Rent, and Differential Rent I and II. Instead, all that is required is to view the rent as the price for the particular use value of the land used.

Secondly, Marx has previously discussed the situation of other costs, that do not add value to the commodity, such as the cost of providing storage etc. The situation here is that these costs are recovered in the price of the commodity. The consequence must then be that this cost is born by capital as a whole, as a deduction from total surplus value. Absolute Rent, as a cost that all agricultural producers must pay, could then be viewed in a similar way. Marx used a similar argument, for example, in relation to depreciation in agriculture.

In industry, depreciation is a cost to capital, which is not recovered in the value of commodities. That is in contrast to wear and tear, the value of which is transferred to commodities. However, Marx, in Capital II, sets out that, because in agriculture, equipment has to remain idle for long periods, during which it depreciates, this depreciation is a cost that must be recovered in the price of agricultural commodities, rather than simply born by the individual capital.

Similarly, the costs of merchant capital add nothing to the value of commodities, but have to be recovered by merchant capital in calculating the profit and price of production.

As Marx admits, if the organic composition was to so rise, then the only basis that such an absolute rent could arise, on the basis of his theory, is if the market price was to rise above the price of production, i.e. a monopoly price, and this seems to create another contradiction.

“It seems to be a contradiction, at first glance, to assume that, on the one hand, the composition of agricultural capital rises, in other words, that its constant component increases with respect to its variable, and, on the other hand, that the price of the agricultural product should rise high enough to permit rent to be yielded by new and worse soil than that previously cultivated, a rent which in this case could originate only from an excess of market-price over the value and price of production, in short, a rent derived solely from a monopoly price of the product.” (p 765)

Marx's answer here is that a distinction must be made between a high organic composition due to a high technical composition of capital, i.e. the quantity of constant capital is high relative to the quantity of labour-power, whilst the value of the component parts of the constant capital is low, and a high organic composition which is due to a high value composition, i.e. the value of the components of constant capital is high, but the quantity of constant capital is lower.

For example, a pottery manufacturer might process a lot of clay in relation to the labour employed, but the value of the clay is low. A jewellery manufacturer may process a small quantity of diamonds, but the value of diamonds is high, so the value composition of the latter will be higher than the former, even though the technical composition is lower.

However, within the constant capital, there is also the relation between the fixed and circulating capital to be considered. A mining capital will use no raw material, in its production, and only small amounts of auxiliary materials, but it will use increasing quantities of fixed capital. So, where in industry the rise in social productivity is characterised by an increasing quantity and value of raw material processed, relative to a diminishing amount of fixed capital and labour, in extractive industries and agriculture, this tends not to be the case.

In the latter, the rise in the organic composition of capital reflects a relative increase in fixed capital, whereas, in the former it reflects a relative increase in circulating constant capital.

“The mere circumstance, then, that agricultural capital might be on the general level of value-composition, would not prove that the social productivity of labour is equally high-developed in it. It would merely show that its own product, which again forms a part of its conditions of production, is dearer, or that auxiliary materials, such as fertiliser, which used to be close by, must now be brought from afar, etc.” (p 766)