Saturday, 1 October 2016

Capital III, Chapter 48 - Part 4

ii) Orthodox bourgeois economic theory sees each factor of production – land, labour and capital – contributing to the production of value. Each contributes to the output in the form of the marginal physical product, and when multiplied by the price, this gives the marginal revenue product of that factor. Each factor of production is employed up to that point where its marginal cost is equal to this marginal revenue product. At that point, the cost of employing the last unit of that factor is equal to the value it adds to production.

In this way, the revenue obtained by capital as interest, by land as rent, and by labour as wages, in each case is equal and proportionate to the value it has added to production.

“Secondly. In the formula: capital — interest, land — ground-rent, labour — wages, capital, land and labour appear respectively as sources of interest (instead of profit), ground-rent and wages, as their products, or fruits; the former are the basis, the latter the consequence, the former are the cause, the latter the effect; and indeed, in such a manner that each individual source is related to its product as to that which is ejected and produced by it. All the proceeds, interest (instead of profit), rent, and wages, are three components of the value of the products, i.e., generally speaking, components of value or expressed in money, certain money components, price components.” (p 816)

In other words, for bourgeois economics it is these historical prices of the factors of production, which determine the value of the commodity.  And, indeed on the basis of Say's Law, that supply creates its own demand, for bourgeois economic theory this should be sufficient, if its assumed that income = expenditure, and the value of output can be resolved into just these factor incomes.

But, the concept here, capital – interest, land – rent, labour – wages, even if we take the material representation of these things, i.e. physical means of production, a piece of land, and a worker, is irrational. These material representations are use values, whereas the revenues – interest, rent and wages are values. To compare amounts of use value with amounts of value, is like comparing the length of a table against the weight of a chair!

“Land, e.g., takes part as an agent of production in creating a use-value, a material product, wheat. But it has nothing to do with the production of the value of wheat. In so far as value is represented by wheat, the latter is merely considered as a definite quantity of materialised social labour, regardless of the particular substance in which this labour is manifested or of the particular use-value of this substance.” (p 816) 

Land takes part in the production process, but it does so as a use value, not as an amount of value. How much use value the land possesses depends upon its fertility, i.e. on the quantity of products obtained from it, for any given quantity of labour and capital applied to it. But, this in no way determines the value of that product. In fact, the more fertile the soil, the more products obtained from it for any given quantity of labour, and so the lower the value of each of the individual products.

Back To Part 3

Northern Soul Classics - Heaven Must Have Sent You - The Elgins

I remember when I was working at the Torch in 1971, the Elgins came.  They parked their van in the entry that ran behind the Torch, and Burton's.  They are the only artists I can remember who actually helped to bring all their stuff into the club.

Friday, 30 September 2016

Friday Night Disco - Pass The Peas - The JB's

Capital III, Chapter 48 - Part 3

Turning to the second element of this Trinity – land – it has no value, because it is not the product of labour. So, it can neither add value, as it has none, still less can it produce, therefore, a surplus value.

“Value is labour. Therefore surplus-value cannot be earth.” (p 815)

As previous chapters demonstrated, the absolute fertility of the soil enables labour employed on it to produce use values. The relative fertility of one piece of land compared to another enables the same quantity of labour and capital to produce more use values on one compared to another.

“... that is, causes these products to have different individual values.” (p 815)

It is only because these individual values are subsumed in a single market value that results in the capital employed on the more fertile land, producing surplus profit. It is the fact of the existence of landed property, which then ensures that this surplus profit lands in the pocket of the landowner, rather than that of the producer or consumer.

The third element is labour. But labour here is an abstraction, which ignores the various historical forms under which it is undertaken. Labour, again, is not a thing, but an activity, or process.

“And finally, as third party in this union, a mere ghost — "the" Labour, which is no more than an abstraction and taken by itself does not exist at all, or, if we take... [illegible] [As has been established by later reading of the manuscript, it reads here: "wenn wir das Gemeinte nehmen" (if we take that which is behind it). — Ed.], the productive activity of human beings in general, by which they promote the interchange with Nature, divested not only of every social form and well-defined character, but even in its bare natural existence, independent of society, removed from all societies, and as an expression and confirmation of life which the still non-social man in general has in common with the one who is in any way social.” (p 815)

So, of these three things, which according to bourgeois economics are all analogous factors, each contributing value to the production of society's wealth, and each extracting a proportionate quantity of wealth out of society, the first is not a thing at all, but an historically determined social relation; the second is a thing, but has no value; and the third is an abstraction, which fails to identify the specific nature of wage labour, as opposed to any previous form of human productive activity.

Thursday, 29 September 2016

Don't Bail-out Deutsche Bank

Three years ago, I set out the extent to which the global banking system, and particularly the European banking system, is still bust. After 2008, we were told that a whole series of measures had been put in place to make the banks safe, and to prevent a repetition of the global financial crisis. It was hogwash. What happened in the aftermath of 2008, was that the share and bondholders of the banks were bailed out, and in many places, such as Ireland, Greece, Cyprus, Spain, and Portugal, that bail-out was implemented at the expense of the rest of the economy, which was cratered under crazy policies of austerity. In Europe, one stress test after another has come and gone, assuring us that the banks were now safe, only each time, for several of those supposedly safe banks to go bust! Back in 2013, I noted the reports that Germany's Deutsche Bank had exposure to around €55 trillion of derivatives, an amount equal to the entire global GDP. Now, it looks like Deutsche Bank might go bust, and the German government is discussing whether it should be bailed-out. It shouldn't.

In 2011, Deutsche Bank shares stood at over €45. Today they are hovering at just over €10, a fall of more than 75%. At the start of the year they stood at just over €20, meaning they have fallen by 50% just this year. Now, Deutsche Bank also faces a $14 billion fine from the US regulators over its activities in the US housing market leading up to the sub-prime crisis, and the financial meltdown of 2008. That fine if implemented in full is more or less equal to the current market capitalisation of the bank. Any fine over $5 billion is almost certain to require Deutsche Bank to have to issue new shares so as to raise capital, in order to keep trading. In the current conditions of the European banking system, its not likely to find willing buyers of such new shares, other than at very low issue prices.

But, if Deutsche Bank folds, that €55 trillion of exposure to financial derivatives, referred to above, would then send shock waves through the global financial system that would make the collapse of Lehman Brothers, in 2008, look like a little local difficulty. This is part of the final act of the tragedy caused by the Monetarist experiment launched by Thatcher and Reagan in the late 1980's. In 2008, we had merely the rehearsal for this finale, as I set out in my book.

At the moment, Merkel is saying that she will not bail-out Deutsche Bank. She can hardly say any other. For one thing, like bankers who traditionally stand on the steps of their institutions to assure everyone that the bank is safe, just before it collapses, she cannot give credence to the idea that Germany's largest private financial institution is on the ropes. For another thing, having told the Greeks that they had to endure all of the unnecessary agony of austerity, for the last six years, and having imposed similarly irrational policies on other EU economies, Merkel can now hardly reverse course to bail-out a German bank. But she will, in the end, try to do so.

She will do so for the same reason that after 2008, the US government and the UK government nationalised their banks, for the same reason that the Irish government took over Allied Irish Bank, and that oceans of additional liquidity has been pumped into the banking system, over the last eight years. She will do so, because the form of wealth of private capitalists today is that of fictitious capital, of shares, bonds, and property, and a collapse of Deutsche Bank will spell the collapse of all of the grossly inflated prices of that fictitious capital which has been blown up over the last thirty years, and which over the last thirty years, at least, has been kept inflated at the expense of the real economy.

These markets – shares, bonds, property – are nothing more than casinos. The capitalists who gamble on them rob each other. But, over the last thirty years, monetary policy has guaranteed that virtually no one gambling in these casinos could lose. If share prices fell sharply, as they did in 1987, 2000, and 2008, the central bank stepped in to print money and push those prices back up again; if property prices fell sharply as they did in 1990, and 2008, and 2010, central banks stepped in to again print money, to provide specific finance to mortgage lenders, to avoid repossessions, and governments intervened directly to stimulate demand via policies such as Help To Buy, aiming to keep house prices high.

The only people who thereby lost out in such speculation were those who did not participate in the speculation itself. Those who did not own any of these assets, but who only owned money, or worse still who had large debts, saw their position continually deteriorate. As share, bond and property prices rose inexorably, any given amount of money bought less and less of them, which is why pension funds developed ever larger deficits, and why more and more people found that they could not buy their first home, or move up to a bigger or better home. As with every such bubble, it thereby gave an incentive for everyone to want to get into the casino, as soon as possible so as not to lose out further.

A look at the UK property market illustrates that point. There is actually 50% more homes per head of population today than there was in the 1970's, when house prices were much lower, adjusted for inflation. The difference is that the number of single occupier homes has increased massively.

In 1971, 79% of UK households were multi-occupancy, 70% were occupied by married couples. Only 19% were occupied by single people, with a further 2% occupied by lone parents. By 2011, those figures had changed drastically. Only 59% were multi-occupancy, the number of married couples had dropped to just 40% with a further 12% cohabiting, and another 7% other multi-occupants. By contrast, the number of homes occupied by one person had almost doubled to 33%, with 8% occupied by lone parents. Source: Halifax.

As Moneyweek point out,

“The population has gone up, of course. But the housing stock has risen too. In fact, according to an interesting report from economic research group Fathom Financial Consulting, while the rate of building decreased over the last decade, the quantity of ‘housing per person’ has risen by nearly 50% since 1970, and is still increasing.!"

The difference is that, in the same way that more households have become multi-car households, and in the same way that an increased number of households means an increased number of car owners, so an increased number of single person households requires a much larger number of homes than does the same number of people living in multi-occupancy homes. An increased availability of credit was a means of encouraging an increase in the number of smaller households, each of which then becomes a cost-centre, useful for facilitating the realisation of produced surplus-value. This has been a piece of deliberate government policy to bolster house prices, so as to keep the financial bubble inflated, both to protect the banks who are insolvent, other than for these fictitious house prices, and to encourage people to borrow money against these inflated property prices as an alternative to decent wages to cover their consumption needs. 

This also explains why this huge increase in money printing has not yet led to a hyperinflation of commodity prices. Everyone who saw they were losing out by not being inside the casino, diverted their resources from the real economy, in order to engage in speculation in the share, bond and property markets. Its like gamblers in the casino, having lost money to some other gamblers, who then simply replenish their funds from outside the casino. In previous centuries that was typical of the old landed aristocracy, who ran up increasing debts, and financed it by selling off their estates. Today, the money-capitalists when they lose money, in the stock market casino, simply replenish their funds for further speculation, by demanding their representatives on company boards, increase the payment of dividends to them, which thereby diminishes the funds available for capital accumulation.

According to Andy Haldane, at the Bank of England, in the 1970's, the proportion of profits that went to dividends was around 10%, whereas today it is around 70%. That is why capital accumulation and growth of the real economy has been held back, which ultimately undermines the system as a whole, because without an increased mass of capital, the potential to increase the mass of profits is increasingly restricted, which means the potential to pay out all forms of revenues from it, such as interest, rents, taxes is undermined.

Not only do these inflated asset prices, thereby contribute nothing to economic growth, but they actually have the opposite effect. By stimulating speculation, they drain potential money-capital from the real economy into further speculation; they have massively increased the cost of pension provision, because pension contributions buy fewer and fewer of those assets, to cover future liabilities; they have massively increased the cost of shelter for workers, which, like the increase in the cost of pension provision, means that the value of labour-power is raised; and as the value of labour-power is raised, so the rate of surplus value, and consequently the rate of profit is reduced.

Workers should oppose any bail-out of Deutsche Bank, or any of the other financial institutions around the globe that will collapse along with it. The ending of the global financial bubble, a collapse in stock, bond and property markets will be a good thing for workers, and also for real industrial capital itself, as opposed to the fictitious capital whose interests have been protected at its expense over the last thirty years.

If banks and financial institutions collapse, all that is required, is that central banks ensure that there is sufficient liquidity within the system to enable commodities to continue to be exchanged. In modern economies with advanced systems of electronic money and payments, that simply requires that those payment systems are maintained and functional. The financial speculators who will have lost their shirts should finally be made to bear the consequences of their actions. The banks themselves having become worthless, should be taken over by their workers, and merged into a single co-operative financial institution, operating across Europe, and capable of providing credit to the real economy, particularly other co-operative ventures. 

As share and bond prices collapse, and yields therefore, rise, it will become easier for pension liabilities to be funded, for pension contributions to buy up the now much cheaper shares and bonds. We need proper workers ownership and control over pension funds, so that our resources can be used to exercise control over other sections of capital. As land and property prices collapse, it will again become possible for workers to buy their first homes, and for rents to become affordable without massive subsidies to landlords, and it will mean that the cost of building new homes will fall significantly, as land prices fall.

No more bail-outs for the banks and finance houses, and for the financial speculators who have inflated these unsustainable bubbles at the expense of the real economy.

Capital III, Chapter 48 - Part 2

But, a cost of production, or historic cost, theory of value starts from the other end. It takes the historic prices paid for the constant capital, and the wages, alongside the profits, and adds them together to obtain the value of the commodity, or the commodity-capital. On this basis, the Smithian notion, adopted by bourgeois economics, of factor incomes, derived from the contribution each makes to the value of the product, flows naturally.

Given that, for Smith, as Marx sets out in Capital II, Chapter 20, the entire value of the commodity, and of the society's commodity product, dissolves entirely into these factor incomes, and thereby into just v + s, rather than c + v + s, this notion is reinforced. Modern bourgeois economics, of whatever flavour, from the Austrian School through to the Neo-Keynesian, accepts this absurd notion that the value of national output can be entirely dissolved into the factor incomes of wages, rent, profit and interest (plus taxes), which comprise National Income, and so only the value of the consumption fund, completely omitting the value of the fund required to reproduce the means of production!

This is important for Marx, because it is upon these phenomenal forms, on these different forms of revenue that he wants to examine the consequence for the division of society into classes, whose economic interests thereby diverge, and come into contradiction with each other.


“Capital — profit (profit of enterprise plus interest), land — ground-rent, labour — wages, this is the trinity formula which comprises all the secrets of the social production process. 

Furthermore, since as previously [Present edition: Ch. XXIII. —Ed.] demonstrated interest appears as the specific characteristic product of capital and profit of enterprise on the contrary appears as wages independent of capital, the above trinity formula reduces itself more specifically to the following:

Capital — interest, land — ground-rent, labour — wages, where profit, the specific characteristic form of surplus-value belonging to the capitalist mode of production, is fortunately eliminated.” (p 814)

Yet, all these supposed sources of wealth are different, and not analogous to each other. As described previously, neither land nor loanable money-capital possess value, and thereby are not additive of value to the production process. They obtain a revenue, a portion of the total value produced by society, without contributing anything to it. They share in the surplus produced by productive-capital, but the productive-capital itself divides into constant capital, whose value is only transferred to the value of the commodity, and variable capital, which alone creates new value, and the potential for surplus value arising from it.

“Capital, land, labour! However, capital is not a thing, but rather a definite social production relation, belonging to a definite historical formation of society, which is manifested in a thing and lends this thing a specific social character. Capital is not the sum of the material and produced means of production. Capital is rather the means of production transformed into capital, which in themselves are no more capital than gold or silver in itself is money. It is the means of production monopolised by a certain section of society, confronting living labour-power as products and working conditions rendered independent of this very labour-power, which are personified through this antithesis in capital. It is not merely the products of labourers turned into independent powers, products as rulers and buyers of their producers, but rather also the social forces and the future [? illegible] [A later collation with the manuscript showed that the text reads as follows: "die Gesellschaftlichen Kräfte und Zusammenhängende Form dieser Arbeit" (the social forces of their labour and socialised form of this labour). — Ed.] form of this labour, which confront the labourers as properties of their products.” (p 814-5)

Wednesday, 28 September 2016

Labour's Appearance and Reality - Part 2 of 2

In Part 1, I argued that Corbyn and his supporters have won a commanding victory in the Labour Party against the right. A weakened and defeated right have resorted to a duplicitous longer-term strategy to undermine Corbyn. But, nor should we be too self-satisfied about the apparent commanding position that Corbyn and his supporters now have within the party. In the 1980's, after long battles, and many weeks, days and hours of hard work within communities, the rank and file of the party had advanced considerably too, but it did not stop the right using all of the resources at their disposal to overturn that position by a series of undemocratic manoeuvres.

The outline of such a strategy by the right has been described by Paul Mason. Those of us who were around in the 1970's and 80's, have seen it all before. By far the greatest abuse and intimidation comes from the right of the party against the ordinary members, not from the left against an entrenched establishment. But, the right along with the party apparatus is able to utilise its position and its support within the Tory media to create a narrative that presents an entirely different picture.

We have seen that in practice in the manoeuvres of the old right-dominated NEC, which tried to limit support for Corbyn from members, disenfranchised 130,000 members from voting in the leadership election, closed down the party in the country for the last few months to frustrate organisation by the rank and file, and to give credence to the meme about intimidation, and which also changed the criteria for delegates to annual conference to gerrymander a support for the old right.  We saw the significance of that on Tuesday at conference, when that enabled the Conference Arrangements Committee to force through the proposal to add two additional, unelected members of the NEC, which reinforce the old right's vote on the new NEC, where they would have been in a minority.

In just the same way that today the Tory media continues to repeat the lie that the 2008 financial crisis was caused by the spending of the Blair Labour government on hospitals, schools and other vital infrastructure that had been left to rot by 18 years of Tory misrule, so today they continue the daily lie that Corbyn and his supporters are part of some Jewish-Communist conspiracy to take over the Labour Party and the levers of power. They brand the hundreds of thousands of ordinary party members as a “rabble”, “mob”, “Trots” and other forms of abuse hurled at them, alongside completely unsubstantiated claims about violence and intimidation. They then demand that Corbyn stop such acts, just as the Tories and Tory media insist that Labour should have acted to prevent the 2008 global financial crisis that was actually caused by immensely rich speculators.

One strand of the right's strategy will, therefore, be to intensify this campaign of lies and unfounded accusations of abuse and intimidation. They will use it, and their current control over the party apparatus to close down branches and CLP's, and to suspend and expel ordinary party members they see as supportive of Corbyn. In the meantime all of the former Tories like Sean Woodward will be welcomed with open arms. Day in day out, the right and the Tory media will bang on about this alleged abuse and intimidation, and Corbyn's failure to deal with it. They will seek to turn some of the union leaders, as a potential General Election looms nearer. And, as the right continue to snipe, and cause division they will hope, as it has done over recent months, that it will cause Labour's standing in the polls to remain low, putting further pressure on those union leaders to come to their aid.

There are a number of measures that Corbyn and his supporters in Momentum now need to pursue. Firstly, the Shadow Cabinet should be elected annually by all members, and the results announced at party conference along with the NEC election results. The old right had an opportunity to offer an olive branch in that regard, by agreeing the simple democratic principle that the representation on the NEC from Scotland and Wales, should be elected by the members in Scotland and Wales.  They blew that opportunity, by forcing through bureaucratically, and completely against the party's own rule book, the appointment of those delegates by the Scottish and Welsh party leaders, purely for short term factional advantage.  Had they not done so, there would have been grounds for some negotiation over how the Shadow Cabinet might be elected by some form of electoral college.  But, the old right have shown bad faith for short term advantage once again.  Now, there is no reason not to press ahead with the Shadow Cabinet being elected entirely by the party as whole.

Secondly, the rules for electing the leader and party leader should also be changed. They too should face annual elections, but the privileged position of the PLP in nominating candidates for the position should be ended. Thirdly, the new proposal for the Scottish and Welsh Labour Parties to have NEC representatives should be on the basis of those representatives being elected by the members of the Scottish and Welsh parties.  The bureaucratic manoeuvre pushed through by the old right on Tuesday must be overturned.  Firstly, the members in Scotland and Wales should demand, through their own organisations and conferences, the right to nominate and elect the leaders of the parties in those countries.  They should make clear that they are watching how Dugdale and Jones act on the NEC, and that their positions are at the discretion of party members in those countries.  The Scottish and Welsh parties should pass resolutions that make the decision of who sits on the NEC to represent them, the prerogative of party members in those countries, and not the patronage of the party leaders.

Thirdly, we should have a separate rules conference either later this year, or early next year, that has time to properly discuss the democratic organisation of the party in its new transformed condition. Such a Rules Conference, should reflect the party membership as it now exists, so that the delegates to that conference, reflect all of the 600,000 new members, and not just the old 200,000 members that the present conference reflects.  For one thing, its clear that the 6 NEC seats for CLP's is now wholly inadequate.  It reflected a party membership of 200,000, whereas it is now 600,000.  There should be at least 15 seats for CLP's on the NEC to reflect that transformation.  In fact, given that the NEC itself has been expanded to include the additional Scottish and Welsh delegates, there is a case for arguing that there should be one CLP representative on the NEC for every 30,000 members, which would give CLP's 20 seats.

But, we also need far wider changes that Momentum is in a good position to advance. The process of democratisation of the LP needs to be reflected in a democratisation of the trades unions too. For now, the union leadership of UNITE, and other large unions favours Corbyn, but it has often been the case that the trades unions have been the bastion of support for the Labour establishment against the members. We need Labour Party workplace branches, as used to exist in the early days of the Labour Party, and as started to be built again in the 1980's. Labour Party branches can reach across sectional divisions within workplaces, to all workers, and also translate the solution of industrial and economic issues into political policies and ideas. Similarly, in the early days of the Labour Party, we had Trades and Labour Councils. We should return to such forms of organisation, bringing together District Labour Parties with the local Trades Union Councils. In fact, preferably such organisation should also involve the local Co-operative Party and other co-operative organisations.

That would chime with the proposals that John McDonnell set out in his conference speech on Monday, and that Jeremy will set out in his speech today. But, this local organisation should extend on a much wider scale. In the 1980's, I was an enthusiastic proponent of community organising by the Labour Party, of encouraging local communities to establish tenants and residents committees to pursue their particular local concerns, as well as when I was a County Councillor establishing a local Regeneration Forum, with the purpose of bringing together such committees, to look at what was required in providing the necessary infrastructure to the wider area. We should actively pursue such a course that encourages the widest public involvement in reclaiming ownership and control of our lived environment, rather than simply relying on elected councillors, and local authority bureaucracies to deal with those situations. Real democracy involves more than simply voting every few years.

But, its also clear that as the party has changed, and will continue to change if such wider democratic involvement proceeds, then the elected representatives of the party will also have to change to reflect it. I can understand why Jeremy and his supporters do not want to talk about deselection of MP's, but the fact is that just as an exercise in democracy, the party's representatives should represent the nature of the party, and currently they do not, most noticeably in the case of the PLP, but also in respect of many of the councillors, and senior councillors, who secured their positions some years ago, under a different regime.

The process of reselection will proceed as a result of boundary changes, but the fact is that MP's should be in no more privileged position than any other servant of the party. Branch and CLP officers are elected each year, and incumbents have to be re-elected, councillors have to face mandatory reselection for each new council election. It is simple democracy that MP's should have to face mandatory reselection every time a parliamentary election is held.  Being an MP at the moment seems to be the only job, which gives its incumbent a guaranteed job for life.  That is not even bourgeois democracy, it is a return to the kind of feudal regime of past centuries, whose vestiges remain in the hereditary position of the Monarchy, and Aristocracy.  That has nothing in common with the kind of forward looking, 21st. century principles of democracy and collective aspiration that the Labour Party should represent.

At the moment, the PLP represent merely appearance, but it is an appearance that is starkly at odds with the reality of the current Labour Party. In the spirit of honest talking politics, Corbyn and his supporters should be as open in stating the obvious, and stating their belief,s as have been their opponents, including those comments, over the last few days, by people like Tom Watson, and Saddiq Khan.  The opponents of Corbyn have been open that they want to get rid of him as soon as possible, and by any means they can. Alan Johnson has said they should work day and night from now on to achieve that end. That at least is an honest statement of their position. They have had no reluctance to try to deselect Jeremy, to isolate him within his Shadow Cabinet, to bureaucratically stitch up the new NEC and so on. Its time that Jeremy and his supporters were just as clear in their own statements. Large numbers of the PLP, starting with the 172 that voted against him, are no longer in tune with the Labour Party. The CLP's of many of that 172 nominated Jeremy, the majority of members, in each of those constituencies, voted for him. It is time, as Len McCluskey said the other day, for the MP's that are now out of step with Jeremy, and the members of the party, even in their own CLP's, to go.