Monday, 25 September 2017

Theories of Surplus Value, Part II, Chapter 8 - Part 28

Rodbertus uses the term rent to mean surplus value rather than profit and rent. His statement that the rent – surplus value – is then distributed according to the value of raw products and manufactured products is also wrong. He makes a further statement which is wrong on several counts.

““Of course it follows from this that the size of these portions of rent is not determined by the size of the capital on which the gain is calculated, but by the direct labour, whether it be agricultural or manufacturing + that amount of labour which must be added on account of the wear and tear of tools and machines” (p. 97).” (p 58)

Solely in terms of surplus value, it is the product solely of the direct labour, i.e. the living labour used to process materials. As Marx explains in Capital I, neither wear and tear of fixed capital, nor any other part of the constant capital contributes to the production of surplus value. In a capitalist economy, where competition leads to an average rate of profit, and prices of production, the profit is distributed according to the size of the total capital, and not simply the variable capital.

In order for fixed capital to be produced, or any form of capital accumulation to occur, there must be surplus labour performed. In other words, if there is only sufficient social labour-time available so as to be able to reproduce the existing means of production and consumption, there will never be the possibility of devoting labour-time to the production of fixed capital.

If a farmer requires 100 kilos of grain as seed, and 500 kilos of grain for consumption during the year, and spends all their working time in grain production, then if, at the end of the year, their output amounts to only 600 kilos of grain, they will have to set aside 100 kilos for seed (constant capital), and 500 kilos to cover their next year's consumption/wages (variable capital). Only if they can produce say 700 kilos of grain, so that they could exchange 100 kilos, or spend 1/6 less time on grain production, would they be able to use that surplus to acquire a plough, for example. But, the plough is then the consequence of the surplus labour/value, not vice versa.

“It is rather equally valid for all of them, agriculture, production of machines and manufacture, that their surplus-value is determined only by the amount of labour employed, if the rate of surplus-value is given, and, by the rate of surplus-value, if the amount of labour employed is given.” (p 58)

So, Rodbertus includes the wear and tear of fixed capital as forming a part of the profit, but not the raw material used in production. Having done so, he then relates the profit to the cost of production to obtain a rate of profit. However, he claims that whereas manufacturers have to buy raw material, which, therefore, forms part of the capital laid out, as the cost of production, the agricultural capitalist does not.

““On the other hand, the value of the primary product, or the material value, does figure as capital outlay in the capital upon which the owner has to calculate his gain, the part of the rent falling on the manufactured product. But in agricultural capital this part of capital is missing. Agriculture does not require any material which is the product of a previous production, in fact it actually begins the production, and in agriculture, that part of the property which is analogous with material, would be the land itself, which is however assumed to be without cost” (pp. 97–98).” (p 59)

But, as described previously, the fact that the agricultural producer does not buy this raw material, but replaces it directly out of their own production, does not mean that it is any less a cost of production or outlay of capital. If they did not replace it directly, they could sell that part of their output, and use the value obtained to buy or replace other elements of their capital.

In fact, this portion of output that must be replaced in kind, continually grows for society.

“All production—once we are no longer dealing with mere taking and appropriating—is reproduction and hence requires “the product of a previous production as material”. Everything which is the result of production is at the same time a prerequisite of production. And the more large-scale agriculture develops the more it buys products of “a previous production” and sells its own. In agriculture these expenses feature as commodities in a formal sense—converted into commodities by being reckoned in money—as soon as the farmer becomes at all dependent on the sale of his product; as soon as the prices of various agricultural products (like hay for example) have established themselves, for division of the spheres of production takes place in agriculture as well. Queer things must be happening in the mind of a peasant if he reckons the quarter of wheat which he sells as income, but does not reckon the quarter which he puts into the soil as expenditure.” (p 59)

Sunday, 24 September 2017

The Austrian School Dismissed - Part 6

“Further, laissez faire theory was developed in fine flower by the Catholic Physiocrats, who were directly influenced by natural law-natural rights thought.” (Rothbard)

But the Physiocrats developed what was essentially a preliminary form of  The Labour Theory of Value, in that they identified that surplus value is produced in production, not distribution, which completely destroys Rothbard’s line of argument. The main difference between the Physiocrats and the Classical Economists was that the Physiocrats believed that only agriculture could produce surplus value, i.e. agricultural labour was productive, whereas wages and profits from manufacturing were simply deductions from the agricultural surplus. 

The Physiocrats measured value by use value, but, as Marx describes in Theories of Surplus Value, in a world in which agricultural production dominates, and where productivity changes little from one period to another, measuring value in terms of physical inputs, as against outputs, amounts to pretty much the same thing as measuring it in terms of the labour required for that production.  The fact, of identifying that it is the difference between the value of the output, as opposed to the value of the input, which is the source of the surplus value, was the main contribution of the Physiocrats, and again completely undermines the arguments put forward by the Austrians and other neoclassicists, which try to explain profit as arising from exchange, or risk, or other such spurious origins, which are, in fact, a throwback to the ideas of the Mercantilists, prior to the Physiocratic discovery.

Adam Smith showed that it was labour in general, rather than just agricultural labour, which created value, and that labour employed in manufacture was just as productive as agricultural labour in that it too created surplus value. Labour was only non-productive when it exchanged against revenue rather than capital. For example, a cook, employed by a capitalist, to cook his dinner, is paid out of revenue, and is not productive, the same cook, employed by the same capitalist, in a hotel, to cook meals, which are sold to customers, is productive if these meals are sold at a profit.

“He (Schumpeter) also treats their (the scholastics) adoption of the market price as essentially the just price, utility theory, subjective value, etc.” (ibid)

But a number of different concepts are conflated here. The “just price” as defined by Aquinas and Magnus is the opposite of utility theory. Their idea of the “just price” was precisely the basis for the development of the Labour Theory of Value, that the value of a good is the labour (and costs, in Aquinas formulation) it contains. Duns Scotus also developed the theory of exchange value based not on utility but on “labour and charges”.

“We may sum up the Case for Catholicism as follows: (1) Smith's laissez-faire and natural law views descended from the late Scholastics, and from the Catholic Physiocrats; (2) the Catholics had developed marginal utility, subjective value economics, and the idea that the just price was the market price, while the British Protestants grafted on a dangerous and ultimately highly statist labor theory of value, influenced by Calvinism; (3) some of the most "dogmatic" laissez-faire theorists have been Catholics: from the Physiocrats to Bastiat; (4) capitalism began in the Catholic Italian cities of the 14th century; (5) Natural rights and other rationalist views descended from the Scholastics.” (ibid)

This is historically inaccurate, at best, and I am tempted to call it something worse. Smiths views did derive from the Scholastics, and from the Physiocrats, but it was precisely the elements of the Labour Theory of Value, in these sources, that he drew on, and corrected the deficiencies of these previous theories. Let Aquinas speak for himself of his understanding of where value comes from, and the determination of "the just price" as different from the market price.

“Let us assume that at one corner, A, there are two books, and at another, B, there is one book; and that at C there is a person, Sortis, for example, who has worked for two days, and at D there is Plato, who has worked for one day. Then the ratio of A to B should be the same as C to D (that is, A should have twice the value of B).” (St. Thomas Aquinas “Commentarii in Decem Libros Ethicorum Aristoteletis” p 65).

There is a link to Catholicism through Aquinas, but not in the direction Rothbard wants. The teachings of the Fathers of the Church honoured the merits of labour, and in Aquinas' writings there seems to be a desire to justify merchants profits, therefore, by declaring that the trader embodies in goods a value proportionate to his “labour and charges”, a theory which had already been upheld by the Talmud.

“Professor von Mises' view on the Max Weber thesis should be mentioned here: namely, that Weber reversed the true causal pattern, i.e. that capitalism came in first, and that the Calvinists adapted their teachings to the growing influence of the bourgeoisie – rather than the other way round.” (ibid)

I would agree with Mises, to an extent here, though the process is not as mechanical as presented. Ideas are rooted in material conditions. The embryonic development of capitalism created the material conditions in which the idea of abstention and capital accumulation could appear rational. But the development of the Protestant Ethic, in turn, provided the ideological basis in which more accumulation of capital could take place. The material condition is always parent to the idea, but ideas, like children, have their own development.  (At least if the children are allowed to develop.  Rothbard is also infamous for advocating the idea that parents should have the liberty not to feed their children, and to sell them to others!

"Applying our theory to parents and children, this means that a parent does not have the right to aggress against his children, but also that the parent should not have a legal obligation to feed, clothe, or educate his children, since such obligations would entail positive acts coerced upon the parent and depriving the parent of his rights. The parent therefore may not murder or mutilate his child, and the law properly outlaws a parent from doing so. But the parent should have the legal right not to feed the child, i.e., to allow it to die. The law, therefore, may not properly compel the parent to feed a child or to keep it alive. (Again, whether or not a parent has a moral rather than a legally enforceable obligation to keep his child alive is a completely separate question.) This rule allows us to solve such vexing questions as: should a parent have the right to allow a deformed baby to die (e.g., by not feeding it)? The answer is of course yes, following a fortiori from the larger right to allow any baby, whether deformed or not, to die. (Though, as we shall see below, in a libertarian society the existence of a free baby market will bring such "neglect" down to a minimum.

{Rothbard, Children and Rights})

If Mises is correct of course then he has destroyed Rothbard’s argument that Catholicism leads to the free market, and Protestantism to socialism. The only other interpretation is that Catholicism creates capitalism, but capitalism creates Protestantism, not as a corresponding, reinforcing ideology, but as its own nemesis. Not the conclusion Rothbard wants I think.

Theories of Surplus Value, Part II, Chapter 8 - Part 27

Rodbertus, like Ricardo, assumes that commodities – both the raw product and manufactured product – exchange at their values. But, as Marx explained in Capital III, and is apparent prima facie, not only is this not the case, but it cannot be the case.

In the case of agricultural commodities,

“If the raw product carried a rent apart from and distinct from average profit, this would only be possible if the raw product were not sold at the average price and why this happens would then have to be explained.” (p 57)

Rodbertus says,

““I have assumed that the rent” (the surplus-value, the unpaid labour-time) “is distributed according to the value of the raw product and the manufactured product, and that this value is determined by labour costs” (labour-time) (pp. 96–97).” (p 57)

This first assumption, Marx says, means that the surplus labour contained in any two types of commodity is in proportion to the total labour they contain. But, this is false for at least two reasons. Firstly, the rate of surplus value in the two spheres of production may be different. Marx gives the example of where the ratio of labour contained in two commodities is 3:1. If we assume the necessary labour amounts to ten hours per day, we get different results if the working day is twelve hours in the first case, and sixteen hours in the second. 

In the first case, there may be thirty workers who work this twelve hour day, and thereby provide two hours of surplus labour each per day, equal to sixty hours of surplus labour in total. There may be only ten workers in the second sphere, each of whom provide six hours of surplus labour, per day, again resulting in sixty hours of surplus labour in total. So, the ratio of surplus labour in each industry is 1:1.

But the total labour is 30 x 12 = 360 in the first industry and 10 x 16 = 160 in the second, so that the ratio of total labour is 3.6:1.6.

But, the ratio of surplus labour in each industry may differ to the ratio of total labour, even if the rate of surplus value is the same in each. That is because each industry will use constant and variable capital in different proportions. An industry that uses a lot of raw material, or a high value of material relative to the labour-power it employs, will transfer the value of the labour-time represented by that material into the value of its product. But, the proportion of surplus labour-time, will then be smaller.

If producer A produces a commodity that comprises 80 hours of labour contained in raw material, 20 hours of new value divided 10 for wages and 10 for surplus value, the total labour, and value of the commodity, is 100 hours. If producer B also produces a commodity with a value of 100 hours, it may comprise 40 hours of labour in materials, and 60 hours of new value divided 30 for wages and 30 surplus value.

The ratio of the total labour between the two commodities is 1:1, but the ratio of surplus labour is 10:30, or 1:3.

Saturday, 23 September 2017

Theories of Surplus Value, Part II, Chapter 8 - Part 26

[5. Wrong Assumptions in Rodbertus’s Theory of Rent]

Rodbertus begins with a false historical perspective in which the landowner is also a capitalist and slave owner. A “one natural rent”, taken from the workers as surplus product, becomes divided into “rent of land and capital gain”, by which he means profit.

This results in a raw product and a manufactured product. Rodbertus, as a German landowner, sees the raw product as being produced and owned by the landlord, but as Marx describes, the landowner neither produces anything nor owns anything other than the land. The raw product is owned by capitalist farmers.

Rodbertus has no idea what the basis of the rate of profit is, explaining it simply as a result of money prices making it possible to express what was a surplus product, and now assumes the form of money profit, as a proportion of the capital advanced.

“He has not even a remote idea that this uniformity of profit is in contradiction to the equality of rent and unpaid labour in each branch of production, and that therefore the values of commodities and the average prices must differ.” (p 56)

Rodbertus says nothing about the fact that capitalist production revolutionises agriculture itself, and makes the social function of the landlord redundant. He argues,

““in manufacture, the value of the entire product of agriculture is included in the capital as raw material, whereas this cannot be the case in primary production” (p. 95).” (p 56) 

But, as discussed earlier, this is completely wrong. Not only does manufacture also reproduce its own raw materials, in kind, out of its own production, but in both agriculture and manufacture, this raw material and other elements of constant capital, reproduced in kind, from production, enter into the value of the capital advanced.

Northern Soul Classics - I Really Love You - Tomangoes

Friday, 22 September 2017

Friday Night Disco - Baby Give It Up - K.C & The Sunshine Band

The Austrian School Dismissed - Part 5

“Secondly, its emphasis on "costs determining prices" has encouraged the view that businessmen push up prices or that unions push up prices, rather than governmental inflation of the money supply.” (Rothbard, ibid)

This proves the writer is totally ignorant of Marx’s writings, because he argues the direct opposite of what is attributed to him here. Marx, long before the Austrians and Monetarists, identified that it was devaluation of the currency which caused inflation. And this truth derives directly from the Labour Theory of Value. The value of gold as money like any other commodity, Marx argued, is determined by the labour required for its production. If a new rich source opens up, for example, as happened in California, then the labour required to produce gold diminishes, and its value falls, relative to the value of all other commodities. As these other commodities are all priced in gold, as money, the reverse of this fall in the value of money is an increase in the general level of prices for all other commodities i.e. inflation. He went on to illustrate how, with paper currency, an increase in its supply likewise has the same effect.

(The origin of these theories of subjective, or relative value, in the 19th century was Samuel Bailey.  He criticised Ricardo, and his followers for attempting to turn the concept of value into an absolute rather than relative quantity.  Marx, in Theories of Surplus Value, Part 3, says the only positive aspect of Bailey's work was to show that what Ricardo and his followers {the same is true of Smith} were guilty of was searching for some constant external measure of value, i.e. some commodity, be it gold, labour, or corn, which was unchanging in value.  Such a search, Marx says, is unnecessary, because, so long as this external measure of value changes in the same proportion to all other commodities, whose value it expresses, there is no need for it to be constant itself in value.  Moreover, such a search would never result in finding such a commodity, because all commodities, change in value, and have to change in value, because of the nature of value itself.  Every commodity, must change in value, because the labour-time required for its production necessarily changes as social productivity changes.

But, what Bailey unconsciously also reveals, and the same applies to all those theories of subjective value, derivative from it, is that for relative value to exist, i.e. exchange value, it is first necessary for value to exist.  Gold, for example, as an external measure of value, can only act as a relative measure of the value of other commodities, because gold itself has value.  In other words, I can only say that 1 gram of gold is equal in value to 1 metre of linen, if I first know what the value of gold and linen is.  Its only possible to equate the weight of 3 oranges with 2 grapefruit, because both oranges and grapefruit possess the quality weight/mass.  They possess that quality quite independently of any relation made by comparison between them, and its only because they possess that quality independently one from the other, that a relationship on that basis can be established.  As Marx establishes, the value must exist first, before exchange value can exist.  Exchange value, is merely a derivative form of value.  The immediate value cannot be measured by another commodity, but only by the quantity of the value creating substance that each comprises - labour.  Labour is the immediate measure of value, and it can only be so, because labour itself is not a commodity, and has no value.

"To estimate the value of A, a book for instance, in B, coals, and C, wine, A, B and C must be as value something different from their existence as books, coals or wine.  To estimate the value of A in B, A must have a value independent of the estimation of that value in B, and both must be equal to a third thing expressed in both of them...

{Theories of Surplus Value, Chapter 20}

Marx also sets out why this immediate value is not equal to the actually embodied labour, but the socially necessary labour required for its reproduction.

"On the other hand, as value it appears as something merely contingent, something merely determined by its relation to socially necessary, equal, simple labour-time.  It is to such an extent relative that when the labour-time required for its reproduction changes, its value changes, although the labour-time really contained in the commodity has remained unaltered." {ibid}

"Relative value means first of all magnitude of value in contradistinction to the quality of having value at all.  For this reason, the latter is not something absolute.  It means, secondly, the value of one commodity expressed in the use-value of another commodity.  This is only a relative expression of its value, namely, in relation to the commodity in which it is expressed.  The value of a pound of coffee is only relatively expressed in tea; to express it absolutely—even in a relative way, that is to say, not in regard to labour-time, but to other commodities—it ought to be expressed in an infinite series of equations with all other commodities.  This would be an absolute expression of its relative value; its absolute expression would be its expression in terms of labour-time and this absolute expression would express it as something relative, but in the absolute relation, by which it is value." {ibid})

In Volume III of Capital, he also writes about the role of credit in crises, in terms which, if the reader were not aware of the author they could be forgiven for thinking they were reading Bill Bonner. (Bill Bonner is the editor of The Daily Reckoning newsletter, on whose discussion Board, this discussion was taking place.)

“Ignorant and mistaken bank legislation such as that of 1844-45 can intensify this money crisis. But no kind of bank legislation can eliminate a crisis.” (Marx)

“At the same time, an enormous quantity of these bills of exchange represents plain swindle, which now reaches the light of day and collapses; furthermore, unsuccessful speculation with the capital of other people; finally commodity-capital which has depreciated or is completely unsaleable, or returns that can never more be realised again. The entire artificial system of forced expansion of the reproduction process cannot, of course, be remedied by having some bank, like the Bank of England, give to all the swindlers the deficient capital by means of its paper and having it buy up all the depreciated commodities at their old nominal values. “ (Marx)

He also points to the resultant deflation after the crash caused by the inflation.

“On the eve of a crisis, and during it, commodity capital in its capacity as potential money capital is contracted. It represents less money capital for its owner and his creditors (as well as security for bills of exchange and loans) than it did at the time when it was bought and when the discounts and mortgages based on it were transacted. If this is the meaning of the contention that the money capital of a country is reduced in times of stringency, this is identical with saying that the prices of commodities have fallen. Such a collapse in prices merely balances out their earlier inflation.

“The incomes of the unproductive classes and of those who live on fixed incomes remain in the main stationary during the inflation of prices which goes hand in hand with overproduction and over-speculation.” (Marx)

Sound familiar?

But Marx also argues the absolute opposite to the idea that wages (or businessmen for that matter) push up prices. In the pamphlet “Value, Price and Profit” he argues decisively that a rise in wages does not cause a rise in prices. Rather, it results in a fall in profits an increase in demand for wage goods (resulting from the workers higher wages), an increase in the profits of capitalists producing wage goods (because of the higher prices resulting from the higher demand), a fall in the prices of goods bought by capitalists (typically luxury goods) (caused by a reduction in income to the capitalists, to spend on these goods), a reduction in profits for capitalists producing luxury goods (caused by the lower demand for their products from capitalists) and a consequent reallocation of resources away from luxury goods to wage goods with no overall increase in the general level of prices. This also demonstrates that Marx’s economic theory (and the same is true of Smith and Ricardo) did not ignore the laws of supply and demand. They were quite happy to recognise the operation of these laws to determine short run market prices, and reallocation of capital to bring about an equalisation of the rate of profit. What they rightly saw no need for was the vacuous dead end concept of value determined by utility.

“Third, its emphasis on "objective, inherent value" in goods led to "scientistic" attempts to measure values, to stabilize them by government manipulation, etc.” (Rothbard)

Objective theorists do try to undertake measurement. That is the scientific approach. In rejecting it, the Austrians admit they have given up on the dead end their theory led them down unable to resolve its conundrum. With nowhere else to go, they fall back, not on science, but an appeal to a mystical or religious faith, a demand that we take the theory on trust, even though it cannot be scientifically proven or tested.

“(I might add that the resultant holistic approach by Smith and Ricardo was subtly socialistic in still a fourth way: it established the fashion of separating Distribution from Production, and of talking only about groups of factors instead of individual factors – labor instead of laborers.)” (ibid)

But this is standing truth on its head quite shamelessly. The Labour Theory of Value, as developed particularly by Smith, Ricardo and Marx, but also in essence by the Physiocrats, is a combined theory of production and distribution. It begins where any rational economic theory must, in the sphere of production, because production physically and logically precedes consumption, exchange, and distribution. It locates the source of value and surplus value, and shows how once realised the money equivalent of the value created is distributed amongst “the three great classes of society”, and the reasons why each gets the share they do. In other words, it is both a micro and macro-economic theory. It is neoclassical theory which is purely a micro-economic theory, and starts from the position of production having taken place, of profit already existing and concerns itself solely with the distribution of income to the factors of production. It does so precisely because of its inability to provide an answer to the question “where does profit come from?”

Indeed in the work of Walras, that neoclassicists claim to follow, profit disappears altogether since under conditions of total competition the value of the marginal product is dissolved into depreciated capital, wages, interest and ground rent. Read Walras “Abrege des Elements d’economie politique” p 187-9.

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