Wednesday, 13 December 2017

Theories of Surplus Value, Part II, Chapter 10 - Part 28

What competition affects, Marx says, is two migrations of capital. In the first migration, capital moves to those spheres where the rate of profit is highest. That is those spheres where the organic composition of capital is low, and where the rate of turnover of capital is high. As capital migrates to these areas, supply increases and market prices fall towards the price of production. This process tends towards the creation of a general annual rate of profit, but is continuous, because values and prices of production are continually changing. But, within each sphere, a second migration is also taking place, because, at any one time, actual market prices are fluctuating around the price of production.

“It is this latter, more superficial movement which Ricardo examines and at times unconsciously confuses with the other.” (p 209)

What drives both migrations is the desire for the owners of capital to employ it so as to bring the highest return.

“This tendency has the effect of distributing the total mass of social labour-time among the various spheres of production according to the social need. In this way, the values in the different spheres of production are transformed into cost-prices, and on the other hand, the variations of the actual prices in particular spheres from the cost-prices are levelled out.” (p 209-10) 

Marx then comes to the point referred to earlier, where he reflects on the achievement of Ricardo in describing the means of the reallocation of capital via credit.

“He was, however, only able to do this because the credit system was more highly developed in his time than in the time of Adam Smith”. (p 210)

Marx gives a long quote from Ricardo where this is described. Essentially, Ricardo explains that, in the modern world, firms utilise credit extensively. They use commercial credit between each other, and they utilise bank credit for short term loans, and cash-flow.

“When the demand for silks increases, and that for cloth diminishes, the clothier does not remove with his capital to the silk trade, but he dismisses some of his workmen, he discontinues his demand for the loan from bankers and monied men; while the case of the silk manufacturer is the reverse: […] he borrows more, and thus capital is transferred from one employment to another, without the necessity of a manufacturer discontinuing his usual occupation. When we look to the markets of a large town, and observe how regularly they are supplied both with home and foreign commodities, in the quantity in which they are required, under all the circumstances of varying demand, arising from the caprice of taste, or a change in the amount of population, without often producing either the effects of a glut from a too abundant supply, or an enormously high price from the supply being unequal to the demand, we must confess that the principle which apportions capital to each trade in the precise amount that it is required, is more active than is generally supposed” (l.c., pp. 81-82).” (p 210-11) 

By means of credit, therefore, the whole social capital can be reallocated to where the highest returns are achieved, and social needs met.

Credit therefore is the means by which the capital of the whole capitalist class is placed at the disposal of each sphere of production, not in proportion to the capital belonging to the capitalists in a given sphere but in proportion to their production requirements—whereas in competition the individual capitals appear to be independent of each other. Credit is both the result and the condition of capitalist production and this provides us with a convenient transition from the competition between capitals to capital as credit.” (p 211)

Back To Part 27

Tuesday, 12 December 2017

May Blown On The Wind

At the general election, Theresa May proclaimed her credentials as a “strong and stable leader”. In fact, everything we have seen in the last year, shows her to be anything but. She is probably the weakest Prime Minister we have had in at least a century. Its said of Donald Trump that his ideas are simply a restatement of whatever the last person who spoke to him had said. Theresa May is similar in that her statements are merely a reflection of whatever political pressure she has last responded to. Like a snowflake or a piece of may blossom, she is tossed this way and that by the latest gust of political wind. It means she is continually led into contradicting herself, rather like the Stalinists have always been led to do, as they zig-zag from one position to another, because their politics is based on short-term practical politics, rather than any ideological principle, or theoretical clarity of understanding. And, like the Stalinists, May is then led to contort herself in trying to insist that these contradictory statements and positions are all fully consistent, and that “nothing has changed, nothing has changed.” No wonder the Tories seek the same kind of authoritarian approach, and minimisation of democracy that the Stalinists, and National Bolshevism relies upon.

The latest manifestation was May's speech on Brexit yesterday, in parliament. Looking at her meanderings over the last week or so, we have the following merry dance, as she was buffeted this way and that. Firstly, having spent a year and a half under accommodating the Brextremist fantasies that Britain was still some global colonial power, to whom Johnny foreigner would come running desperate to do a deal, May found that reality was somewhat different. Looking down from the precipice, and seeing the cliff edge of a no deal Brexit, as the EU showed no sign of changing its position to hang on to Britain, May realised that despite her repeated assertions, “No deal, certainly is much worse than a bad deal.” 

Having based their negotiating stance on the delusion that Britain would be given everything it wanted, and so there was no need even for David Davis to be very bright, or to even put any effort into preparing his brief for the negotiations, of for the government to do any impact assessments of the effect of Brexit on the British economy, or for the government to even have any worked out plan of what their end goal after Brexit might be, the fact that the EU gave Britain nothing, left May needing to prevent a complete collapse, which was looking likely by early next year. So, facing this pressure from the EU, she was blown in the direction of obliterating all of her previous red lines. Rees-Mogg was wrong in saying those red lines were looking a bit pink; they had been completely erased!

But, the weakness of May's leadership was then reflected by the fact that even the 12 members of the DUP, could blow hard enough to cause May to be dashed off in a different direction. The wind coming from the EU prevented her from going back in that direction, but now blown, off course by the DUP, she was forced to move even deeper into the territory beyond her previous red lines. Having already effectively committed to keeping Northern Ireland in the Customs Union and Single Market, and to thereby accepting the role of the ECJ, she was now forced to commit to keeping the whole of the UK in the Customs Union and Single Market, so as not to have any regulatory divergence between Northern Ireland and the rest of Britain. Her only fig leaf, was to dress this up, for the benefit of the Brextremist wing of her party, as being a commitment to “regulatory alignment” rather than what it actually is, which is de facto continued membership of the Customs Union and Single Market.

But, like the conspirators bearing knives under their cloaks, standing behind Julius Caesar, May found that her MP's, even as they were praising her, were already tearing apart the deal she had done, and blowing her in yet another direction. The Brextremists began to claim that “regulatory alignment” meant “regulatory divergence”, and the freedom for Britain to determine its own regulations divergent from those of the EU. The public face of Brextremism, David Davis, said that the deal May had done, was effectively not worth the paper it was written on, Gove said it and any subsequent deal arrived at in Stage 2 could be ripped up, by a future government, and so on. Its quite clear that for the Brextremists in May's government no deal has been done, and any thought that Britain has committed to paying its debts in the Brexit Bill, that the rights of EU citizens have been protected, or that Britain will align its regulations with the EU so as to avoid the need for a border in Ireland, is entirely misplaced. You might think, therefore, that May would need to quickly slap down such treachery, because otherwise there is no basis for there to be any Stage 2 negotiations after all. The Brextremists, who desire a no deal Brexit, might welcome that, but surely May does not.

But, May is so weak, that whatever she thinks, she was again forced to change course, yet again, once this gust of wind from the Brextremists blew in her direction. May had the possibility of slapping down the DUP and and the Brextremists, by relying on the votes of Labour and the SNP, but that would have meant opening up the potential of a civil war inside her party, and the destruction of the Tories in the longer-term. So, instead she did yet another volte-face, and herself reneged on all of the commitments she had given to the EU just days before. She accepted more or less in toto the claim by Davis that the deal was not worth the paper it was written on, that “nothing is agreed until everything is agreed", and consequently that if the EU did not give Britain the trade deal it was demanding in Stage 2, the promise to honour its debts by paying the Brexit Bill, the guarantees to EU citizens in Britain, and the commitment to regulatory alignment so as to avoid the need for an Irish border would all be reneged upon! The rest of the EU, seeing this capitulation to Brextremism must surely conclude, when they meet on Thursday, that the deal is off, because they, like the British electors, have been lied to by May and the Brextremists.

May has tried to claim that in the deal she signed last week, the role of the ECJ is only in relation to Citizens Rights, and is limited to eight years. But, its clear that if there is to be “regulatory alignment” the role of the ECJ has to be much wider than that. In fact, if “regulatory alignment” is defined as “regulatory equivalence” or “regulatory divergence”, as the Brextremists want the role of the ECJ is even more necessary. With regulatory alignment, where the UK simply accepts and applies EU regulations, the role of the ECJ is minimal, and all that is required is to ensure that these regulations are actually being applied. But, if, as the Brextremists seek, there is merely “regulatory equivalence”, or “divergence”, whereby Britain is free to develop its own regulations on the basis only that the regulations strive for the same outcomes, who is to determine that that is the case? There necessarily has to be some body that examines UK regulations and compares them with EU regulations to confirm that they do indeed seek to achieve the same outcomes, rather than divergent outcomes, and the EU, as a $14 trillion economy that the UK needs to trade with, will undoubtedly insist that that body is the ECJ. Given that these regulations on a whole series of existing and new goods and services are changing all the time, Britain would find itself tied up in protracted, and expensive hearings in the ECJ, on all these issues, and would find being able to sell into the EU near impossible, even if there was a free trade deal, like that with Canada.

And, again, as I set out last week, the idea that a free trade deal is the same as being inside a Customs Union, or Single market, is another deception that the May and the Brextremists are attempting to put over on the electorate. May needs to avoid a border in Ireland, and has committed to that requirement. But, the only way to have no border is to have the Irish republic and the North of Ireland in a Customs Union and Single Market. That means they have the same set of regulations on all goods and services. That is quite distinct from having a free trade deal, such as that established between Canada and the EU – CETA – which Davis has touted as being the basis of a CETA plus plus plus agreement between Britain and the EU. What Davis and the Brextremists fail to say is that free trade between Canada and the EU covers only a limited number of goods, and does not cover services, but more importantly, it does not do away with either the border around the EU, or the border around Canada.

Indeed, Canada and the US have a free trade deal – NAFTA – but there is still a border between Canada and the US, and goods and services going in both directions continue to be checked as they cross that border, just as goods and services going to and from the EU and Canada continue to be checked at their respective borders. So, even if a comprehensive free trade deal is reached in the Stage 2 talks between Britain and the EU, that does not remove the need for a border in Ireland. The only way that can happen is if both Britain and the EU are within a Customs Union. And, indeed that was the basis that the deal last week was arrived at. It is what the Irish and the EU thought Britain had recognised and signed up to. Now, May blown by a Brextremist wind from her backbenches, and from the DUP, has dashed off in quite a different and divergent direction!

If I were an EU negotiator, or an EU Minister attending the Council of Ministers on Thursday, I would tell May to go back and try again, because it is quite clear that she is trying to take them all for fools, as she seeks to accommodate the Brextremists. The EU should be more than used to dealing with the duplicitous nature of perfidious Albion. For centuries, Britain tried to protect its own global interests by acting as a spoke in the wheel of European integration. Its role within the EU has continued to be determined by that imperative, although, in the last 70 years, it has also done that in conjunction with aligning itself with the global interests of the US, and thereby acting as an agent of US imperialism within the EU.

In fact, Brexit and the election of Trump have acted to strengthen the EU. There are, in fact, many reasons why other EU states would welcome Britain leaving, precisely because of its retarding role on EU development. Following Brexit, there has been an increasing trend towards forging an ever more perfect union within the EU, and Britain's absence from the corridors of power will facilitate that development. It will enable the EU to develop far more quickly, and thereby completely overhaul the relatively declining British economy, and its equally diminishing global status. It is precisely the kind of development that Churchill sought to avoid in WWII, that Britain sought to avoid in WWI, and that they sought to avoid in the Napoleonic Wars. If Britain is led, as indeed it must, unless it is to rapidly descend into the third and fourth ranks of global states, to apply for re-entry into the EU, it will find itself much diminished in power, stripped of its opt-outs, and rebates etc.

Similarly, Trump's election has had some perversely beneficial consequences. His comments about NATO have made clear that the EU itself should withdraw from a military alliance whose real purpose is to back up the global strategic interests of US imperialism. The EU could use its resources much more effectively to provide for its own European defence and security, and an EU state would certainly want to do so. Trump's recognition of Jerusalem as the capital of Israel, whilst failing to simultaneously recognise East Jerusalem as the capital of Palestine, at least blows away the hypocrisy of US diplomacy over the last 40 years about support for a two-state solution, and indeed blows the fantasy of any such two-state solution out of the water along with it. It means that any progressive solution in the Middle East now rests upon the construction of secular democratic states, including a federal secular democratic state of Israel and Palestine, in which the rights of both Jews and Arabs are protected, and that, as with the EU, the longer-term solution is sought within a Federal United States of the Middle East and North Africa.

In fact, the EU was working towards such a development prior to 2011, as it gradually drew the economies of MENA into its orbit. The role of the US has been wholly destructive of that strategy, as has been its strategy of fermenting turmoil on the EU's Eastern border, by its incessant expansion of NATO, and the positioning of its military forces along the Russian border. The EU would have every reason to oppose these manoeuvres by the US, in the EU's backyard, if it controlled its own defence. So, the EU has every reason to take a hard stance against Britain.

Moreover, they should simply examine May's actions over the last year, and recognise that her weakness leads he to be blown in whatever way the latest political wind blows her. The EU, with its 500 million people, and its $14 trillion economy, can act as a mighty hurricane, against tiny Britain. There is no reason why it will not do so.

Theories of Surplus Value, Part II, Chapter 10 - Part 27

[b) Ricardo Confuses the Process of the Formation of Market-Value and the Formation of Cost-Prices]


“For the establishment of his theory of rent, Ricardo needs two propositions which express not only different but contradictory effects of competition. According to the first, the products of the same sphere sell at one and the same market-value, competition therefore enforces different rates of profit, i.e., deviations from the general rate of profit. According to the second, the rate of profit must be the same for each capital investment, that is competition brings about a general rate of profit. The first law applies to the various independent capitals invested in the same sphere of production. The second applies to capitals in so far as they are invested in different spheres of production.” (p 206-7) 

But, Ricardo confuses these two processes, and thereby the creation of market values, and prices of production. Ricardo fails to deal with the first, the formation of market value, and instead examines the formation of prices of production as market prices, on the basis of a predetermined general rate of profit.

“... in Chapter IV “On Natural Price and Market-Price”, he does not deal with market-price or market-value at all, although in the above-quoted passage he uses it as a basis to explain differential rent, the excess profit crystallised in the form of rent. But he deals here merely with the reduction of the prices in the different spheres of production to cost-prices or average prices, i.e., with the relationship between the market-values of the different spheres of production and not with the establishment of the market-value in each particular sphere, and unless this is established market-values do not exist at all.” (p 207) 

But, as Marx has set out, capitals of the same size, employed in different spheres will produce very different amounts of profit and rates of profit, if they sell their output at prices that are equal to their exchange values. That is because the organic composition of capital, and rate of turnover of capital, is different in each sphere. It is only possible to posit a general rate of profit on the basis that prices diverge from values accordingly.

So, it is competition, in both cases, which is the means of resolving the contradiction, but in opposing ways. Competition between suppliers, between suppliers and consumers, and between consumers acts, within a particular sphere, to reduce all of the individual values down to one single market value, but competition between spheres acts to create a single, general rate of profit.

“Competition in this second instance by no means tends to assimilate the prices of the commodities to their values, but on the contrary, to reduce their values to cost-prices that differ from these values, to abolish the differences between their values and cost-prices.” (p 208) 

But, oddly, as Marx points out, Ricardo considers this second process as the reduction of prices to values. Ricardo's error stems from the fact that he starts by equating value with the price of production, and this error is facilitated by his assumption of a general rate of profit. In other words, he begins from a presumption that a general rate of profit exists, without first identifying what profit is and what surplus value is. So, he simply assumes the existence of this profit. The question of the maintenance of this average then becomes a matter of movement of demand and supply. If you assume that values and prices of production are identical, and that capitals of equal size obtain the average profit, then, if prices in one sphere rise above this level, and so cause profits to rise above the average, the cause must be an excess of demand over supply, which requires additional capital to be invested in that sphere. Marx refers later to Ricardo's correct description of the role played by credit in bringing about this reallocation of capital.

Monday, 11 December 2017

Snow Laughing Matter

Its Winter again, and as usual everyone is taken by surprise that in Winter it snows.  The amount of snow is minor compared to what I remember from the days of my youth, and yet things come to a standstill.  I can't remember losing a day at school because of snow, but it seems to be the course each Winter now, which makes a mockery of the fines on parents who take their kids out of school to go on off peak holidays.  But, then it seems that the type of snow we get nowadays is also quite different from that of the past.

In the last couple of days I have heard News and Weather Reports that have given amber snow warnings.  In my day, the amount of amber snow was very minor, and you could spot it, by the associated urine smell that went with it.  According to some of the weather charts the TV showed, amber snow was falling extensively across a large band of the centre of the country.

In addition to this amber snow, there have also been news and weather reports about lying snow.  Obviously, all snow is slippery and hazardous, but we should clearly be wary of this lying snow, which is far more treacherous than honest snow. 

Theories of Surplus Value, Part II, Chapter 10 - Part 26

A capitalist farmer, Ricardo says, will not invest their capital unless they can return the average profit on it. The price of wheat must then be high enough that capital invested on this marginal land, to meet the additional demand, can make the average profit. This land, this marginal production, thereby determines the market price. On this basis, Ricardo develops his Theory of Differential Rent, because the production on all of the more fertile land thereby produces surplus profits, and these surplus profits are absorbed by the landlords as rent.

For Marx, however, it is the average conditions of production which determine the value, not the best or worst conditions. As he sets out, it is only in conditions where demand is not met by existing supply that the production under the worst conditions becomes determinant, and similarly, only where there is a glut that the best conditions become determinate.

“The thesis set out above can be expressed in general terms as follows: The value of the commodity—which is the product of a particular sphere of production—is determined by the labour which is required in order to produce the whole amount, the total sum of the commodities appertaining to this sphere of production and not by the particular labour-time that each individual capitalist or employer within this sphere of production requires. The general conditions of production and the general productivity of labour in this particular sphere of production, for example in cotton manufacture, are the average conditions of production and the average productivity in this sphere, in cotton-manufacture, The quantity of labour by which, for example, [the value of] a yard of cotton is determined is therefore not the quantity of labour it contains, the quantity the manufacturer expended upon it, but the average quantity with which all the cotton-manufacturers produce one yard of cotton for the market.” (p 204)

Once again, the difference between Smith and Ricardo's embodied labour theories of value, and Marx’s theory of value based on socially necessary labour becomes apparent. In any industry, there will be producers who produce above, below or at the average conditions of production. If 10,000 metres of linen is produced, and requires 1,000 hours of labour to produce, then each metre requires 0.10 hours to produce on average. But, in reality, no actual metre of linen may have required 0.10 hours for its production. If there are five producers, each of which produce 2,000 metres, the times they require to produce their 2,000 metres may be as follows:- A 100; B 150; C 200; D 250; E 300. A total of 1,000 hours is expended, and 10,000 metres is produced, but the individual value produced by each is different. The individual value embodied in A's production is 100 hours, but in E's production is 300 hours, although both produce 2,000 metres of linen. It is only producer C, who produces at the average level, here, so that the individual value of their production, 200, is equal to the social value of their production, 2000 x 0.10 = 200. The social value of production is 200, for each producer, but this necessarily means that some producers, in selling at this value, will sell their output either above or below its individual value.

A will sell their output at 100 above its value, B 50 above its value, D 50 below its value, and E 100 below its value. The importance of this, as Marx describes, is that there are two contradictions that are resolved by opposite means, and it is surprising that Ricardo does not recognise this. The contradictions are these. Firstly, within a particular sphere, there are a multiplicity of individual values, because every individual capital produces under different conditions of production.

“If, for example, they sell the yard of cotton at 2s.—the average value—then they sell it at the value which the yards they produce represent in natura. Another category produces under better than average conditions. The individual value of their commodities is below their general value. If they sell their commodities at the general value, they sell them above their individual value. Finally, a third category produces under conditions of production that are below the average.” (p 204) 

Within the particular sphere, competition brings about a single market value, or social value of the production, and each producer must sell their output at this price. But, the consequence of the formation of this single market price is that the amounts and rates of profit of the individual capitals within this sphere must vary. Capital A, which sells its 2,000 metres of output at £2,000, but whose individual price of production was only £1,000, thereby makes £1,000 of surplus profit. By contrast, E sells its 2,000 metres for £2,000, but its price of production was £3,000, so it makes £1,000 less than the average profit.

Now, contrast this with the other contradiction, which is the situation not within spheres, but between them. The situation here is rather that capital will leave those spheres of production where the rate of profit is low, and accumulate in those where it is high. But, the consequence of this is that, as supply rises in one sphere, prices are pushed down, below exchange values, within it, and in other spheres, where supply contracts, prices rise above exchange values. In other words, on the one hand, in order to bring about a single market price, different rates of profit must exist, within spheres, but to create a general rate of profit, across spheres, prices must diverge from exchange values. Yet, Ricardo fails to notice this.

Marx's terminology in this section is very slightly confusing. He defines market value as this average or social value, and refers to market price as the money equivalent of this market value. This is, of course, perfectly reasonable, on the basis of the definition of price as being the monetary expression of value. However, because the market value is the central locus around which the actual market price of the commodity moves, as a result of short term fluctuations in supply and demand, it becomes slightly confusing, because it means there are several contending definitions.

“This common value is the market-value of these commodities, the value at which they appear on the market. Expressed in money, this market-value is the market-price, just as in general, value expressed in money is price. The actual market-price is now above, now below this market-value and coincides with it only by chance. Over a certain period, however, the fluctuations equal each other out and it can be said that the average of the actual market-prices is the market-price which represents the market-value.” (p 205) 

I prefer to refer to the market value as being that central locus, and to refer to the market price as that price actually applying to the commodity at any time. The problem is removed where the market value is the price of production, because then its possible to refer to the market price simply rotating around the price of production.

Back To Part 25

Forward To Part 27

Sunday, 10 December 2017

Brextremists Sour May's Fudge

The Tory Brextremists could not contain themselves for long. Within 24 hours of finding themselves having to swallow May's Brexit fudge, or risk being completely sidelined along with the DUP, they rushed into print, and on to TV screens to undermine the deal that May had done with the EU, over their heads, and which surrendered ever one of the previous Brexit red lines. But, the fact that this again shows the dissembling nature of the Tories, and particularly their Brextremist wing, as they seek to claim that every statement means the opposite of what it actually says, should show to the EU, just how little they can trust their interlocutors on anything. If the European Council has any sense, having read and listened to the comments by Gove, Davis, Raab and others over the weekend, they will refrain from going ahead with Stage 2 negotiations until such time as May can prove that she and her government are prepared to proceed on the basis of both the spirit and the letter of the deal she signed up to last week.
On Monday, last week, Theresa May was forced to go to Barnier with a deal that involved Britain agreeing to pay £40 billion, as its Brexit Bill, for all those long-term commitments it had previously signed up to; it agreed to a two-year transition period after March 2019, during which Britain would effectively still be in the Customs and Union and Single Market, and continue to pay its £10 billion a year membership fee, and agreed to accept the continued jurisdiction of the ECJ, and during which there would be continued free movement; in order to resolve the question of the Irish Border, it recognised the need for Northern Ireland to remain in the Customs Union and Single Market.

The EU would have accepted that deal, and so would Ireland. It was all set to be signed, until the DUP tugged on May's reins, and told her that she could not sign, because it meant that Northern Ireland would be treated differently to the rest of Britain, with Northern Ireland being tied to the regulations within the EU rather than in the UK. The EU and Ireland were quite happy to leave Britain stewing until after Christmas, until Britain could come up with a deal that satisfied both Northern Ireland and the EU. The DUP, and the Brextremists might want to delude themselves into a belief that that was not the case, and that the EU, needing to do a deal, had made some concession, but it is just that, a delusion. The EU held firm, knowing that Britain needed to move the process forward by Christmas or face a New Year, in which businesses started moving their operations rapidly outside Britain. The fact, is that May and the DUP blinked.

In order to pacify the DUP, and facing the obvious demands from the SNP, and Scottish Tories, as well as from the Welsh Parliament, and the London Mayor, that if Northern Ireland could remain in the Customs Union and Single Market, so could they, May made the final capitulation to th EU, and agreed that not only would Northern Ireland maintain full regulatory alignment with the EU, but so too would the rest of Britain. The DUP got what nominally they had been asking for, but not on the basis they were hoping for. In other words, the DUP had been asking for no divergence between the regulatory regime in Northern Ireland and the rest of Britain, which they now got, but they were not intending for that to be on the basis of Britain as a whole, thereby agreeing to remain in the Customs Union and Single Market, in all but name, which is what May' deal amounts to. But, given the situation, they could not withhold support.

If they had done so, there were only two options. One is that May's government would have fallen, and an election would be likely to bring a Corbyn government to power, as Labour now stands 8 points clear of the Tories. The other, and more likely option would be that, having already capitulated across the piece to the EU over the terms of Brexit, May would have steamrollered over the DUP and the Brextremist wing of her own party, and formed a parliamentary coalition on the deal with Labour, the SNP, and the pro-Europe majority of her backbenches, which would have sidelined the DUP and Brextremists completely. In fact, its in that direction that the EU have been pushing May all along.

The Brextremist wing of May's own party also recognised that reality, and so sang along through gritted teeth with May's tune, all along trying to present things as though the EU had been desperate for a deal, that they had made concessions, and other such nonsense. But, those Brextremists also know something else, which is that we have seen the same process of delusion, fudge, and dissembling by May and the Tories on a whole range of issues, and they expect this to be exactly the same.

In the election campaign, having produced the disastrous manifesto commitment to introduce the Dementia Tax, May was forced to backtrack on it, and effectively disown it. But, having done so, she then made herself look ridiculous by coming out to say that “Nothing has changed, nothing has changed”! And, only a few weeks ago, having committed Britain to entering into a two-year transition period, during which Britain would remain in the Customs Union and Single Market, and continue to pay into the EU budget, and accept the jurisdiction of the ECJ, under pressure from the Brextremists, she then came to Parliament to try to claim that what she had said, was actually not what she had said, that the transition period would, in fact, be an implementation period, that required that the full deal had already been done, and so on.

The delusion and dissembling of the Tories is intermingled with their incompetence. The incompetence of Davis and the other Brexiteers must have seemed to the EU like they were negotiating with a baby over ownership of candy. That was manifest in the performance of of Davis at the Brexit Select Committee last week. His performance provoked Paul Merton, on “Have I Got News For You” to describe him as the thickest person he has come across. David for months has been proclaiming that the government had done detailed studies of the effect that Brexit would have on different sectors of the UK economy. He even described these analyses as “Impact Assessments”. Then when Parliament demanded to see these detailed impact assessments, the government tried to deny parliament that right. It led to the Speaker threatening to hold Davis in contempt of Parliament. Eventually, David provided a number of heavily redacted documents, leading to Parliament demanding the release of the original documents. Eventually, we find out that the 57 detailed sectoral impact assessments do not, in fact exist!

The dissembling nature of Davis' response is shown by the fact that, rather than saying from the start that no such documents exist, he let Hillary Benn ask him if such documents existed for several spheres, to which he said no, before, admitting that the answer was going to be no for any sector he might be asked about! Davis clearly misled Parliament in his earlier statements about their being 57 such impact s on the effect of Brexit, when, in fact, he knew that there were none. Labour should demand that he resign immediately. The importance of such impact assessments is clear. If you are going to know whether a particular form of Brexit deal is acceptable or not, you need to know what effect it will have on the UK economy. To say, as the Brextremists are now doing, that you can't have an impact assessment until you know what the Brexit deal is, is nonsense. The whole point of impact assessments is to facilitate decision making, by examining the consequence of various scenarios. We now know that a full year and a half after the referendum, the government not only has no impact assessments of what various forms of Brexit might have on the economy, but the government itself does not know, and has not even discussed what the end situation of any Brexit might be. They can't do that, because the government itself is split down the middle on what they want that end state to be.

So, now we have Dominic Raab, David Davis and others coming out and claiming that regulatory alignment with the EU does not mean regulatory alignment at all, but means regulatory divergence, by which the UK will feel free to choose whatever regulations it so chooses, and simply say to the EU that these regulations are more or less the same, and aim at the same outcome! That clearly is not what regulatory alignment means, and if that is what the Brextremists want to impose on May as the real meaning of the deal she signed last week, the European Council should walk away from it, and demand that May clarify her position, making Britain wait for Stage 2 negotiations to start until next year, when a firmer form of words can be agreed. The importance of that can be seen from Michael Gove's article, where he states that any agreement that May enters into now, could be simply ripped up by an incoming government. In other words, an incoming Tory government set on a bonfire of regulations, could simply rip up any such agreement, and go its own way, in creating whatever set of regulations it chose, so that the true meaning of regulatory divergence as opposed to regulatory alignment is clear. There clearly is no basis of any kind of long term agreement between the UK and the EU, unless any such deal is signed into international law, by a binding Treaty, and enforceable in international courts, which again makes clear the importance of the continued role of the ECJ.

This also highlights the distinction that the Brextremists have been busy trying to confuse and conflate between a free trade deal, and membership of a customs union, and single market. A free trade deal is a deal established between two countries, or blocs that enables free trade between them in a series of defined goods, and/or services. It does not cover goods and services not specified within the deal. It does not mean, therefore, that there is no border between the parties to such a deal. For example, Canada has recently signed a free trade deal with the EU, for a series of goods, but that does not at all mean that there is no border around Canada, or around the EU, for Canadian goods going one way, and EU goods going the other! It does not mean that there is not border inspection of goods moving in either direction. It simply means that no import duties are imposed on those goods covered within the deal. In fact, it does not mean that other forms of import restriction do not apply, for example, a requirement to meet common standards and regulations, and for which continued border monitoring is required.

The problem for Britain in this regard is quite clear. Unless there is regulatory alignment, meaning that Britain has to have the same regulatory framework as the EU for goods and services, there can be no open border in Ireland. Otherwise, chlorine washed chicken from the US could flood into Britain, head across to Northern Ireland, where it is then processed, or repackaged and sent into the Irish Republic, before being sent out in bulk to the rest of Europe. The EU clearly are not going to accept such a situation. But, a similar thing applies in relation to free trade. Suppose country A, in Africa produces commodity X, at €1 per kilo. It is currently subject to a 40% import tariff by the EU. The EU produces commodity X at a price of €1.30 per kilo. Now Britain wants a free trade deal with the EU. But it also wants to strike up its own deals with other countries. So, Britain imports large quantities of X from A, at €1 per kilo. It adds a profit margin of 10%, so that it sells X for €1.10, and immediately floods the EU with X, undercutting the EU internal market price by €0.20 per kilo, without having to have lifted a finger. No one in their right mind in the EU, is going to agree to such an arrangement.

If Britain wants a free trade deal with the EU, it will have to essentially agree to remain within the Customs Union, so that this kind of subversion of the internal market is not possible. And economically, that is inevitable too. If you are BMW, and you sell Minis into the EU, from Cowley, for example, you will need to have regulatory alignment with the EU, because otherwise, you will not be able to export your Minis to the EU, whether the UK is in or our of the Customs Union and Single market. For Canada, whose main export market is the US, it makes sense to align your regulations with the US, not the EU, but the greatest part of UK exports is to the EU. The Brextremists claim that 70% of UK trade is conducted on the basis of WTO rules, but that is not true. Not only does the UK conduct 40% of its trade with the EU, but also because the EU has itself established free trade deals with a large number of other countries, and trading blocs, the UK's trade with these other countries is also covered by those EU free trade agreements, and not by WTO rules. In fact, around 70% of UK global trade is covered by the EU, or the free trade deals negotiated by the EU. When Britain leaves the EU, it will then have to laboriously renegotiate all of those free trade agreements, assuming that any of these other countries want to sign a free trade deal with a UK economy of just $2 trillion as opposed to the free trade deal they have with the $14 trillion EU economy!

If you are TESCO, you can say to Farmer Giles, “We will buy every potato you can produce, but the condition is that you don't sell potatoes to Fred Bloggs corner shop”, or you might say, “but you must always sell them to us at 10% less than you sell them to anyone else”. If you are the EU, the very size of your economy means that you can do a deal with say, New Zealand that says, we will take all of the lamb you can produce, provide you don't sell it to Britain, or that says, provided you sell it to us for 10% less than you sell it to Britain. And, a whole series of such variants exist, such as we will buy all the lamb you can produce, provided you give us privileged access to sell all of our cars to you, and so on. As a relatively small, and diminishing economy, Britain will lose out in global trade from all such economies of scale. 

The DUP are, in fact, the epitome of this delusion and dissembling on the part of the Brextremists. They understand the importance of continued access to this free trade, but they want to delude themselves into believing that they can continue to have that access without actually being in the Customs Union and Single Market. The DUP Brextremism wants to be outside the Customs Union and Single Market, and yet wants to retain an open Irish border because that is essential to the economic interests of all those Northern Irish farmers whose goods go back and forth across that border! It is the typical position of have cake and eat it that has pervaded Brextremism from the beginning, and its ultimate source, is the arrogant, colonial era mentality that still believes that Britain is a significant global power, to whom the world owes a living, and to whom it will come begging to do deals. The last week has exposed that delusion clearly.

The Brextremists still want to cling to the delusion that they can pull the wool over the eyes of the EU with vague words, and promises. That was never going to happen as, the Stage 2 negotiations firmed up the heads of terms agreed last week, but now that the Brextremists have shown their hand by coming out already to say that they put no store by the words on the paper signed by May last week, there is all the more reason, for the EU leaders when they meet to reject May's ploy, and dissembling. Her fudge is already crumbling before her eyes.

Theories of Surplus Value, Part II, Chapter 10 - Part 25

[5.] Average or Cost-Prices and Market-Prices


[a) Introductory Remarks: Individual Value and Market-Value; Market-Value and Market-Price]


Ricardo puts forward a marginal theory of value, i.e. he sees the market value of commodities being determined by the marginal production. This is at variance with Marx who argues that it is the average socially necessary labour that is determinant, or others such as Thomas Corbet who argued that it was the lowest cost production that was determinant.

““The exchangeable value of all commodities, whether they be manufactured, or the produce of the mines, or the produce of land, is always regulated, not by the less quantity of labour that will suffice for their production under circumstances highly favourable, and exclusively enjoyed by those who have peculiar facilities of production; but by the greater quantity of labour necessarily bestowed on their production by those who have no such facilities; by those who continue to produce them under the most unfavourable circumstances; meaning—by the most unfavourable circumstances, the most unfavourable under which the quantity of produce required, renders it necessary to carry on the production” (l.c., pp. 60-61).” (p 203) 

As Marx says, the last sentence is wrong, because it implies that the level of demand is an independently determined fixed amount. In fact, demand will rise or fall according to the price of the commodity. The starting point is not some independent quantity of demand, for a commodity, but the independently determined price of the commodity. This is, of course, the opposite to the starting point for neoclassical theory.

The question is, what is this independently determined price? If we assume that prices equal values, then this price/value is the labour-time required for its production. In other words, if 10,000 metres of linen requires 1,000 hours of labour to produce, and 1 hour equals £1 (in other words one hour of labour is equal to £1 of the money commodity), then 1 metre = £0.10. If there is then demand for 10,000 metres of linen, at a price of £0.10 per metre, supply and demand will be in balance. If demand is higher than 10,000 metres, at this price, the market price will rise to ration the excess demand, but this will then encourage additional supply. If demand is less than 10,000 metres at £0.10 per metre, the market price will fall below £0.10, to clear the market, and the supply will contract.

However, at this point, it becomes obvious that things are not so straightforward. If we take the situation where the demand exceeds the supply, at £0.10 per metre, we then have to enquire as to the nature of the additional production this brings forward. Generally, in industry, a higher level of production brings with it greater efficiency and lower costs. Suppose demand at £0.10 per metre was 12,000 metres. Additional production is introduced, but now, due to economies of scale, this 12,000 metres can be produced for £10,000, so that the price of a metre falls to £0.08 per metre. But, now, at this price, the demand rises to 12,500 metres, bringing an additional production, and further economies, and so on.

Diagram 1. This is the typical demand and supply graph of orthodox economics, which assumes as Ricardo does that there is diminishing factor returns.  There is a shift in the demand curve (demand rises at all prices), and as new supply is introduced, the cost of producing this new supply is higher, so the equilibrium market price rises.
Diagram 2. Here there are constant factor returns.  The demand curve shifts in the same way as in Diagram 1.  Supply expands to meet it (this also illustrates why Ricardo's argument that additional capital investment only occurs if prices and the rate of profit rise, is wrong) but, it is able to do so without any change in the costs of production.  Market prices, therefore remain constant.  Ricardo was wrong about the need for higher prices or a higher rate of profit to drive investment, as Marx demonstrated, because all that is required to encourage capitalists to invest more capital here, is that, in doing so they appropriate to themselves a greater mass of profit. 

Diagram 3. Here the situation that Marx says is typical for industry is illustrated.  The demand curve again shifts in the same way as in Diagram 1 and 2.  Supply rises to meet this additional demand.  But, now, producing at these higher levels of output, capital obtains economies of scale, production takes place more efficiently, and the costs of production per unit fall.  As the costs per unit fall, competition ensures that market prices fall, and as market prices fall, as well as a shift of the demand curve having taken place, there is a shift along this new demand curve, as demand responds to lower market prices.  As demand rises further, and output expands further, yet more economies of scale are obtained, so that the unit costs of production, and market prices fall further, and so on.  A look at any manufactured commodity, such as electronic pocket calculators, illustrates this process.

In other words, although the level of demand is a level of demand at a certain price, and that price is determined by the labour-time required for production, the latter itself is also affected by the scale of production, and the scale of production, in turn, depends upon the level of demand for the output. The same applies in reverse. If demand is lower than supply, at a certain price, then supply will contract. But, at this lower level of production, cost may be higher, so that the price per unit may then rise, causing a further contraction of demand. By contrast, and this is what led Ricardo to his marginalist view, it might well be the case, in agriculture, that, in order to meet the extra demand, other land has to be brought into cultivation, which is less fertile. Rather than the cost of production falling, therefore, as output expands, it rises, causing unit prices to rise.

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