The Economy Of Analysis - Part 14

Eddie Ford in his Weekly Worker article referred to yesterday, repeats an argument that Mike McNair has put forward in the past about the decline of the US hegemon. But, those arguments seem misplaced. The decline of the US hegemon does not require a new one to immediately replace it. At the end of the 19th Century, Britain lost its hegemonic position, as Germany, France and the US rose to challenge it. Yet, that did not prevent a period of rapid expansion of Capitalism on a global scale, and its extension to other countries such as Russia. The Pound did act as a global reserve currency, and yet all currencies were tied to the Gold Standard, such that it was Gold, which really operated as Global Money, and the role of the pound was if anything constrained by that. In the 1970's, when a similar period of rapid Dollar decline occurred, its role as reserve currency did again come under attack, and for some years there was chaos in the global currency system – which is one reason that Gold resumed its traditional function as Money, rising from $30 an ounce in 1970, to over $800 an ounce in 1980.

It was only resolved with the introduction of floating exchange rates, which in turn was only made possible with a return of dollar stability arising from the Monetary policies introduced by Paul Volcker. Today, the dollar is showing relative strength, despite the US Credit Rating being downgraded, just as the yield on its Bonds is falling too. That is because fear is causing a demand for cash, and safe havens. The US continues to be seen in that role, but the rise in the price of Gold, and the demands of China for some new reserve currency based on a basket of currencies, shows that the existing global currency system is no more set in stone than was the Gold Standard, nor the arrangements established at Bretton Woods.

But that is just a reflection of the fact that the relations of the world economy are no longer those established after WWII, a fact that much of the Left seems to have difficulty coming to terms with, especially those elements of the Left, which have worked with the kind of dogmatic theories of Imperialism, which denied any real development in former colonies, and neo-colonies, that operated with a crude centre-periphery model, or based itself on dependency theory.

So, it continues to define the health of the global economy, not by looking at its totality, but by continuing to focus narrowly on every downturn, every setback affecting the old developed economies. But, the reality is that although there is clearly a global, as well as a North American and European slowdown – which is inevitable in a global capitalist economy – the conditions facing the economies of China, India, Brazil etc. are not at all those facing Europe and North America. In the developing economies 20 million new jobs per year are being created!!! This is a symptom of the real economic basis to the crisis affecting the old developed economies – the restructuring of Capital on a global basis, the effects of Combined and Uneven Development within that restructuring, and the fact that a new powerful, dynamic drive forward of Global Capitalism is coming up against the inevitable contradictions that creates, especially within the continued existence of political superstructures created in the 19th Century, based around national Capitals, and the need to develop new international and intra national state structures compatible with a new dynamic global Capitalist environment. The political crisis in the EU, and its ramifications, are the clearest example of that.

It is important to understand that not every crisis is one that threatens to bring the Capitalist System down, it is important to understand that not every crisis is immediately economic in nature. The current crisis in Europe is evidently political rather than economic. If we take the Eurozone economy as a whole, then the levels of debt to GDP, the size of deficits are not at all exceptional.

That is one reason that although, everyone knows that ultimately it is the German economy that stands behind the debts of Greece etc. the Yield on German Bonds is historically low. It is why, the Euro currently stands at more than 50% more than the 80c value against the dollar it had shortly after its introduction. The EU, taken as a single economy, does not have an economic crisis.

It has more than enough resources to ensure that its current debts are paid, and that it can borrow at reasonable rates, to ensure that it can invest and restructure its economy, to ensure that it is able to operate efficiently within the global market. If it chose to do so, the increase in investment and employment that would result, would give a massive boost not just to the European economy, but to the global economy. What prevents that is not economics, but politics.

Hillel Ticktin referred to the large amount of Money that is hoarded around the globe.

Keynes in his Theory Of Money, describes three types of demand for money. Firstly, a Transactions Demand, made up of the money that people require on a general basis to purchase goods and services, to pay wages etc. Secondly, there is a Speculative Demand, which is made up of people wanting money to invest because they think that the price of something is going to rise in the near future. Thirdly, there is a Precautionary Demand made up of people who want to hoard money, because they think that prices may fall in the near future providing an opportunity to buy at more advantages prices, or who fear some kind of setback, which will mean they need savings to cover their expenses.

If we look at these we can see that there could be a decline in the first, because as economic activity slows, fewer and smaller transactions occur. On the other hand, rising inflation could mean that more money is required to pay for more expensive goods. But, we can see why the other two types of Demand could rise sharply, creating the tendency for money hoarding that is being seen.

On the one hand, Speculative Demand for Money has been manifested in falling share prices, and in the prices of other risky assets, and has gone into Gold, as well as into Government Bonds of those countries who investors believe represent relative safety against default i.e. those that can print their own money, such as the US, UK, Switzerland, Japan etc. And contrary to the nonsense talked by the Liberal-Tories, this has nothing to do with implementing austerity measures to control deficits, as the low yields on US and Japanese Bonds illustrates.

Finally, because of the political crisis in the US over the Debt Ceiling etc., and in the EU over bringing about a political solution to the debt crisis in the periphery, and in Britain brought about by the austerity measures introduced by the Government, firms have decided to hold back on further investments, for fear that these political factors will create economic chaos. And the economic consequences of that IS to bring about economic crisis. It is to cause individuals also to operate their own precautionary motive to put money to one side for a rainy day, to look to selling your house, and move to something smaller or to rent, for fear that in the near future you will not be able to pay the mortgage, and that rapidly falling house prices will then leave you with no exit strategy outside repossession, and so on.

This is the real political and financial basis of the rise in money hoarding, rather than any kind of absolute Surplus of Capital that could not find profitable avenues of investment were that climate of fear, and political crisis not to exist.

In concluding this series, I want to look at some of the policies that have been put forward by the Government and Opposition for stimulus. One suggestion put forward by Labour has been for an immediate cut in VAT. The Liberal-Tories have also looked at the possibility of tax cuts, most notably the Tories muted proposals for cutting the 50p tax rate.

But, given the nature of the problem, tax cuts of any kind will not act to provide the needed stimulus. If what we have is money hoarding out of fear of what the future holds, then a tax cut simply facilitates a greater amount of money hoarding, not greater consumption or investment. If you think you might lose your job next week, a small reduction in your shopping bill, because of a cut in VAT will not cause you to rush out and spend, it will cause you to put the few extra pennies away to cover next week's bills.

If you are a firm that is looking at a falling order book, or even fearful that things could turn down due to your customers losing their job at the local Council, a cut in Income tax, or Corporation Tax, or National Insurance, will not cause you to go out and employ another couple of workers. Tax cuts can only act to stimulate activity, if they are introduced in a period of rising confidence and optimism about economic conditions.

The other solution that has been mooted is that of bringing forward Capital Projects for various types of infrastructure such as road building, the introduction of fast-broadband connections and so on. But, again this depends upon the kind of projects being planned. Over the long-term, many of these projects are required in order to create an efficient economy.

However, a balance has to be struck. The project to construct the High Speed 2 rail network, for instance, is likely to take more than a decade. During all that time, resources will be required for its construction, all those working on it, will need to be fed, housed clothed, entertained etc., all of which requires resources that could have been put to other productive uses. Yet, because it will take more than a decade to complete, none of these consumed resources will find their way back into the economy in the form of improved transit times etc. until then. And, of course, HS2 will not bring about faster, more efficient transport of goods, and there is a question in an era of increasing electronic communication, as to whether a train service of that kind is the best use of resources compared to the development of tele-conferencing etc. even now, let alone allowing for what conditions and potential might exist in ten or twenty years time.

But, the same thing applies with fast-broadband too.

If a massive campaign were undertaken to bring about a super-fast broadband network covering the whole of Britain to be completed in the next year to eighteen months, that might have some justification, and be able to be bringing some quick benefits from both employment, and the reduction of costs, improvement of efficieny for business. But, the current proposals will leave Britain with what is already a slow Broadband compared to places such as Singapore, (which intends to have a superfast broadband provision to 85% of people, up to 1GB per second by 2012) and certainly by the time its roll-out is completed in ten years time, will be woefully inadequate, and out of date.

Any such projects, which suck resources out of the economy to cover the necessary investment, and to pay for the wages of those employed in the construction, but which do not quickly put value back into the economy, are likely to be counter-productive. What is required is to invest in those things, which will bring about rapid gains in efficiency in the way the economy operates, which will be immediately labour-intensive, and will begin to reverse the rise in unemployment, and falls in confidence. In fact, one of the biggest things the Government could do in that respect would be to call a halt to its Cuts programmes for the State capitalist sector.

It could, instead look at changing the allocation of resources within it. Things such as an extension of cheap child care, would both create meaningful jobs, whilst facilitating employment by women workers, currently tied down by inadequate childcare facilities.. Further resources for Secondary Education could have an immediate effect in helping to ensure that kids leave school with better skills, needed for the transformation of the economy towards higher-value, higher skill production. Similarly, a focus on dealing with road maintenance in areas where this causes repeated problems would be more effective than large scale road building projects.

Further changes would be more drastic. If economies like the US and UK are to quickly shift their economies towards high-value, and to do it before their existing advantage is eroded by India, China and other countries moving themselves into those areas, they need a large supply of appropriately trained workers. The approach that has been adopted of encouraging workers to engage in Higher Education, and to cover the cost via taking on massive amounts of debt, is unlikely to be successful in a climate of fear, and concern over the amount of existing private debt.

Given the issues over how to fund this Higher Education, one solution would be to abandon the existing models, and return to the idea put forward by Marx and the First International, of combining education with employment. After all, if Capital wants to have access to these highly skilled and educated workers, it needs to be prepared to pay for them.

In place of the Fordist, educationalconveyor belt, which simply feeds new workers through from Primary School, to University, the Government could encourage workers to leave school at 16, at the latest, and for them to be given a guarantee of paid employment.

That should be combined with a requirement for all employers to have to send their workers to College and University, and to pay their fees. The Government might even consider tax relief for those that do so. This would avoid the problems of students mounting up huge debts, it would mean that there would be a guaranteed number of students entering College and University each year, and facilitate an expansion of Higher Education. It would mean that students would have a much more rounded experience than simply being cloistered in academia for the first 20 years of their life, and would ensure that skills and education acquired would be immediately relevant, and applicable, bringing immediate benefits in terms of efficiency and output.

Such a suggestion is not put forward out of any interest in advising Capital how to resolve its current crisis, but in order to show that rational alternatives are available to the policies currently being pursued, they are the kinds of policies that a Workers Government, for example, could introduce, with immediate benefits for the working-class.

But, the much bigger issue is what measures will be taken immediately within Europe. In February this year I wrote a blog, in which I also speculated on what might happen over the current year. (Why Paul Mason Is Wrong) In that speculation I concluded,

“Even an expanded EFSF is not large enough to do the job. The EU, cannot respond in the way it should – by issuing EU Bonds – because of bureaucracy, inertia, and national interests. Germany essentially says, if you want us to pick up the tab, we want an EU state and central control.

In the meantime, to prevent a complete collapse, the ECB is forced to print money, and buy sovereign debt in the secondary market on a huge scale.

The Bond Markets respond by seeing inflation and risk down the road, and Bond yields rise, and there is a flight to Gold, which hits $5,000 an ounce by year end. The asset prices – property and shares – that have bubbled up over the last 30 years, on the basis of huge amounts of liquiidty pumped into the global economy, collapse – a return to the mean, and more, a 75-90% collapse as happened in the 1930's, or as happened with the NASDAQ in 2000. Faced with economic meltdown, and widespread social unrest, the EU eventually agrees to the establishment of some form of political union short of the establishment of an EU Federal State, but enough to also establish Fiscal Union to work alongside the Monetary Union. It begins to issue EU Bonds, and to reflate the European economy within the context of a restructuring of Capital possibly along the lines of German post-war re-construction with an attempt to incorporate Labour through the Trades Union bureaucracy, via Works Councils and so on.”

Actually, that and the other speculations contained in it, have not been too far out so far. Grudgingly, and through numerous bureaucratic manoeuvres, and crises, the EU is moving towards that kind of resolution. Even the Finns have agreed to the changes in the EFSF, and Germany will do so today. That is the first step to the next development of the EFSF into a staging post essentially issuing Euro Bonds. The EU Commission President, Barroso

, has called for the establishment of Fiscal Union, which could only happen with Political Union. The commission has also agreed to put forward the idea of a Tobin or Financial Transactions Tax. Britain, may oppose that for the EU, but it now seems likely that it would then be introduced within the Eurozone. There is many a slip 'twixt cup and lip, but European Capital has invested a lot in the idea of the EU, and of the Euro. The consequences of its failure would be drastic, which is why every effort is likely to be made to save it, and it can only be saved by taking it forward. The current proposals for a solution, are only a stop-gap. The problem remains that any bail-out of Greece – essentially forgiving its debts – have the potential for moral hazard. Not, only could it result in Greece, not taking the measures necessary to restructure its economy, but it would encourage other economies such as Portugal, and Ireland to default, and seek forgiveness too. That is why some centralised control of budgets, and borrowing would be required, and why some centralised growth plan, based on large scale investment in Southern Europe – like the way West Germany invested in East Germany after reunification – would be required. It appears that the Eurozone, may become the basis of a new EU State. Its strength in the future alongside the waning power of Britain, is likely to see Britain then having to petition for admission to it, on worse terms at some point in the future, as it did with entry to the EU itself.

If that happens, that Surplus Capital that Hillel Ticktin referred to would quickly find a home. The reality of the global Capitalist economy remains one defined by the new Long Wave Boom, and by the fact that, modern Imperialism represents the most dynamic stage of Capitalism. The resolution of the political crisis in Europe, will open the door to the resolution of the Financial Crisis, which will set the stage for a return of confidence to consumers, and businesses, and for a period of strong economic growth. On the other hand, should the Political Crisis not be resolved, should it result in continued policies of austerity, and beggar thy neighbour, as each nation state seeks to provide its own solutions, it will lead to a severe economic crisis, probably a Depression in Europe and North America, and a significant reduction in workers living standards in those areas, as well as a marked weakening of the influence of the West as against China, and the newly arising global powers of the East.

Back To Part 13

The Economy Of Analysis - Part 13

In an article in Weekly Worker, on August 11th, Jim Creegan repeats the usual line about policy being driven by the need to protect Plutocrats.

He does at least concede the possibility that he may have been wrong previously when he asserted that it was the Tea Party who now represented the real interests of US Capital. In the article, he focusses on Obamacare to make his point. But, his argument his undermined by the fact that he goes on to admit that the main driver, of the rising budget deficit in, the US, is the rising cost of health and social care.

He correctly states that it costs twice as much in the US as in the far more comprehensive healthcare systems of other advanced countries. But, he fails to point out that these lower cost, more comprehensive systems are precisely the kind of socialised systems that Obamacare was a move towards, and which sections of Big Capital had been demanding, in order to reduce their costs! So, how can opposition to such systems, and a move towards them in the US be explained in terms of the interests of US Capital?

Like the SP, in the UK, he is in thrall to the Fabian idea of higher taxes without considering what Marx said about why they could not work – it means reducing Surplus Value available for accumulation, thereby slowing growth and employment for a start.

It would be wrong to criticise him for saying Obama put forward no new stimulus, because Obama didn't announce his new stimulus package until after Jim's article appeared, but, he forgets that Obama had introduced a $2 Trillion stimulus last year. It also shows the problem of framing your analysis in terms of some “Capital Logic” demanding austerity, because it means you are wrong footed when Governments change course. When they do so only a week after you have made such a definitive statement it makes you look daft, and undermines Marxist analysis in the eyes of workers.

Even within the same article, Jim is forced to accept that the deal between Democrats and Republicans, “kicks the deficit reduction can some distance down the road.” But, he's wrong to say that this implies even more draconian cuts later. The reason the can has been kicked sufficiently further down the road, is to make it more likely that the deficit can be dealt with by a combination of higher inflation, higher growth, modest tax rises, and spending cuts.

Jim is right to say that there is basic agreement between Democrats and Republicans but not in the way he suggests.

Bush massively increased spending and the deficit – as had Reagan before - and Geithner says everything must be done now to deal with the crisis, and the deficit can be addressed later. He's right to say that the difference was driven by an appetite for narrow political advantage.

In the same ediction of the paper, Eddie Ford, says that austerity is the ideological orthodoxy from Washington to London, but that isn't true. The US from 2009 on has been implementing stimulus, and continues to do so. The proposals for Cuts are proposals for some time never in the future, and the US has been trying in vain to get the EU to follow suit for the last 18 months. In fact, as Paul Mason has pointed out, such a strategy had been agreed at the Pittsburgh Summit.

It has been ditched by EU politicians who adopted austerity as their mantra for the same reasons the Tories – and later Liberals – did in Britain, and that the Republicans, particularly under the lash of the Tea Party did in the US i.e. that “narrow party political advantage” that Jim Creegan had referenced. The consequences of that are now materialising, and they are searching for ways of ditching it, whilst saving face.

Eddie talks of Gold being a safe haven “for now”, though its not clear what he means by this. The Marxist analysis has always been that Gold represents the real Money Commodity, and has intrinsic Exchange Value.

Fiat paper currencies, and Credit, like the metal tokens that preceded them, are merely representatives of this Gold, and they are depreciated in proportion to the amount coined/printed/created in relation to the Gold they represent. (See my 2007 Blog Gold Why Its Price Is Soaring) It has always been the case that this reality asserts itself when there is a crisis in the fiat money, and credit system. So it is today. As more paper money is inevitably printed (which current proposals for the ECB to buy up peripheral Bonds, and the proposals to leverage up EFSF funds require on a large scale) to deal with the crisis, so inevitably will the price of Gold rise! In fact, the authorities over recent years have done everything they could to stem the rise in Gold. Gordon Brown's much publicised sales several years ago were part of a wider attempt by Central Banks to sell Gold to reduce its price.

In recent weeks, the Commodity Exchanges have increased, several times, the margin requirements for Gold trading i.e. the amount of deposit that traders have to put down on each trade. The last time that was done was last week, when the Gold price was under pressure already from Hedge Funds and other Financial organisations desperate to sell everything to raise cash. Despite that, Gold has continued to rise, having fallen back to where it was six weeks ago, the last few days have seen it begin to regain what it had lost.

Nor is it clear why “it is needless to say” that the Fed did not announce QEIII. On the contrary, QEIII and other measures such as “The Twist” are highly anticipated!

Eddie also confuses Bond Yields and Interest i.e. the Coupon paid on those Bonds. The Interest, or Coupon is the amount the Bond Issuer pays on the face value of the Bond. The Yield is the actual percentage this represents of the current market value of the Bond. This does not change the actual amount of Interest that the Bond issuer pays out on existing Bonds, but only the price at which it is able to sell new Bonds. He also confuses a “Bear Market Rally”, with a “dead cat bounce”. The latter is when markets have fallen precipitously, and on the following day rise only marginally i.e. in the way a dead cat might bounce. The former is also called a “Bear Trap”, that is in a Bear Market, shares can rally sharply encouraging investors to believe that the bear market is over, but then after money has come into the market, the slide resumes again.

What we have seen is the latter, and its important to recognise this difference, for what it tells us. At the beginning of August when Eddie's article was written, we saw dramatic falls on markets. But, those declines were matched almost alternately by large rises. Then, during September we saw markets largely recover, until the sell-off resumed, as fears over the EU debt crisis returned. In other words the markets have been characterised by extreme volatility with the VIX index hovering around 40. What this indicates is that the markets are uncertain about where the global economy is headed. One minute the markets are consumed by fear, at the thought that Greece will default, and another Lehman style calamity will engulf the world. The next minute, they believe that politicians and Central Bankers have got their act together to resolve the EU crisis, and that the conditions are set for a return to growth.

That is important, for understanding what that build up of “Surplus Capital” that Hillel Ticktin referred to represents.

If you have a lot of money in the Bank, and decide not to spend it for now, it does not mean that you have nothing to spend it on, or that you do not intend to spend it. It can mean that you have a precautionary motive (as Keynes described it in his Theory of Money) for holding on to it under current conditions. For example, you might think that the car or house you want to buy is about to fall significantly in price, so it makes sense holding on to your money for now, in order to buy it cheaper in a few weeks time. Or it may mean that you think you might lose your job, and so you will need the money to cover bills. In fact, as I have argued for the last 18 months, what the Liberal-Tory policies did in the UK, was to affect these “animal-spirits”, and cause consumers and firms to become far more precautionary.

The same is true of the austerity measures in Europe, and as a consequence, firms globally, even though they continue to make rising profits, have decided that the rewards for future investments do not justify the risks involved in making them. In short what we have is not "Surplus Capital", but Money Hoarding. If politicians got their act together to resolve the EU debt crisis, which they could easily do from an economic if not a political standpoint, then that risk/reward ratio would change dramatically, and a considerable increase in investment could occur. That is why the markets are whipsawing between pessimism and optimism.

Eddie Ford is right to say that the US economy has slowed. I've stated some of the reasons for that above and elsewhere. But, it is also true that for the last 30 years at least, the economy has moved through three year trade cycles. In the last 18 months the economy was growing strongly after the last cycle in 2008/9 coincided with the Credit Crunch, so a new slow down would have been due towards the end of 2011, beginning of 2012 anyway. But, a slow down does not mean a recession. A slow down in the context of a period of strong growth can be barely noticed, and in any case can be mitigated via the automatic stabilisers that operate in a modern Capitalist economy through the Tax and Benefit system.

Its important to separate out these economic realities from the effects of the Political and Financial Crisis, and how they might in turn affect the real economy. To say the EU is “too fractured” and so on, as Eddie does, is to provide a hostage to fortune. I've set out exactly what those fractures are, and why the DO make it difficult for EU politicians to do what is needed.

But, we do have a single EU Capital, and the interests of its dominant component, and indeed of global, Multinational Capital, is that a solution is found – hence the amount of statements to that effect now being made. Every EU crisis has led to greater integration and closer union. It is foolish to say it definitely will not happen this time too.

Back To Part 12

Forward To Part 14

The Economy Of Analysis - Part 12

Yesterday, I looked at the inadequacy of the analysis of the SWP and SP, which is rooted in Lassalleanism and Fabianism rather than Marxism. But, the problem with the SP argument is also fairly apparent from another angle. They talk about the billions of pounds in unpaid tax that has been identified by the PCS. However, the PCS is a union which the SP controls. The obvious question that is raised here is, if its that easy, why they do not simply instruct their members in the PCS to do their job conscientiously, and collect this unpaid tax!!! In fact, it illustrates the problem. For Capital, the payment of tax is essentially voluntary.

The Capitalists recognise the need to pay taxes, because they recognise the need for their State to have resources to do the things they need it to do – protect their property, ensure a measure of economic, political and social security etc. - which is why some of them today are agreeing with Warren Buffett in the need to pay more. But, they see no reason to pay taxes for all those things that are essentially commodities sold to workers by the Capitalist State, on a socialised basis. Those things form part of the Value of Labour Power, and like all other commodities of that type consumed by workers are paid for out of the wage fund.

Any attempt to get Capitalists to pay more tax, to cover these items, will then be responded to by Capitalists in the same way Marx set out in his debates with Weston, in relation to how they would respond to a rise in wages above the Value of Labour Power. That is they would reduce Capital Accumulation, which would reduce the demand for Labour Power, creating unemployment and lower wages. They would seek to introduce Labour-saving machinery with the same effect, and today they can simply relocate production to overseas. In the short term, they do not even have to physically relocate the Capital, large liquid Capital Markets mean that they can simply sell shares in companies in one country, and buy them in another. The Value of Capital falls in the former, and rises in the latter, with the actual transfer of Capital occurring instantaneously via electronic transfers of money capital. All attempts to effect redistribution via higher taxes, simply result in higher taxes on better paid workers, and the Middle Class, and if anything in worsened economic conditions, via a reduction in Capital Accumulation.

The only real way to prevent this, and to ensure a real redistribution of income is by transferring ownership of the means of production directly into the hands of workers themselves.

But, if that is not to mean a call for “Revolution Now”, the only practical means of bringing it about, is as Marx and Engels argued, by groups of workers setting up worker owned Co-ops, by utilising Credit to extend that across the economy etc. as Marx outlined in Capital, and in his Programme for the First International.

The SP, continue to talk about the “destruction” caused by Capitalism. Quite true, Capitalism does bring about such huge destruction. But, Marx was highly critical of the petit-bourgeois/moral socialists such as Sismondi who only focussed on these aspects, and who failed to point to the progressive role of Capitalism overall.

Capitalism brings about destruction, because of its inherent contradictions, but those contradictions arise within the context of an overall expansion of productive potential. If we want to win workers for a fight for Socialism it is necessary to demonstrate in practice that a socialist, co-operative society is capable of even greater development with less of the destruction. It is not possible to do it, by attempting to paint Capitalism as a wholly destructive system, bankrupt, and incapable of lifting workers conditions. It is not possible, because that is not true, and workers can see quite abundantly that it is not true.

So, for example, the SP say that there is no prospect of a return to healthy, economic growth. Why? There have been repeated crises, and recoveries.

On what basis can the SP, claim this one is different? In “The Second Slump”, for example, Mandel examines the recessions that occurred during the Post-War, Long Wave Boom, and the extent to which they were foreshortened by the use of Keynesian stimulation. We have many such examples of where Marxists have proclaimed that Capitalism was in its death throes, only for it to engage in a further period of dynamic growth and development. Moreover, were it true then it would be bad news for workers, as Trotsky set out in “Flood-Tide”. For workers to advance, they need to feel solid ground beneath their feet.

As he demonstrates there, conditions of prolonged economic weakness, intensify the competition between workers, undermine their collective strength, and increase the influence of reactionary elements. Periods of prolonged economic weakness, such as the 1930's, and the 1980's, have always brought forward periods of political reaction, and seen the Labour Movement set back.

But, were it true, how does the other Lassallean/Fabian solution they put forward, for the Capitalist State to take over the “commanding heights” offer a step forwards in solving the crisis? It never has in the past. In the past, nationalisation of things like Coal, Steel, Shipbuilding, Transport, and Power led to massive redundancies and closures.

Capital, in these industries, was bailed out via investment paid for out of workers taxes. They saw the development of huge, oppressive and inefficient bureaucracies and ultimately after their rationalisation they were sold back to private owners. As for “democratic public ownership” what does that mean?

In the CGP, Marx was scornful of the Lassalleans for raising such a demand. He writes,

“Instead of arising from the revolutionary process of transformation of society, the "socialist organization of the total labor" "arises" from the "state aid" that the state gives to the producers' co-operative societies and which the state, not the workers, "calls into being". It is worthy of Lassalle's imagination that with state loans one can build a new society just as well as a new railway!

From the remnants of a sense of shame, "state aid" has been put -- under the democratic control of the "toiling people".

In the first place, the majority of the "toiling people" in Germany consists of peasants, not proletarians.

Second, "democratic" means in German "Volksherrschaftlich" [by the rule of the people]. But what does "control by the rule of the people of the toiling people" mean? And particularly in the case of a toiling people which, through these demands that it puts to the state, expresses its full consciousness that it neither rules nor is ripe for ruling!”

Here we see the true measure of Marx's hostility to the State, particularly the Capitalist State. In like manner we see the extent to which his view of Socialism is based upon the workers maintaining independence from that State, and creating Socialism from the ground up via their own independent efforts, by developing their own property, democracy and upon it their own self-govenment. He makes it even clearer, as he goes on to say,

“That the workers desire to establish the conditions for co-operative production on a social scale, and first of all on a national scale, in their own country, only means that they are working to revolutionize the present conditions of production, and it has nothing in common with the foundation of co-operative societies with state aid.

But as far as the present co-operative societies are concerned, they are of value only insofar as they are the independent creations of the workers and not protégés either of the governments or of the bourgeois.”

And, it is not as though, subsequent developments changed the attitude of Marxists on this question. So, Trotsky writes, for instance, in Nationalized Industry and Workers’ Management,

“It would of course be a disastrous error, an outright deception, to assert that the road to socialism passes, not through the proletarian revolution, but through nationalization by the bourgeois state of various branches of industry and their transfer into the hands of the workers’ organizations.”

Whilst he is as scathing as Marx about the notion of “Workers Control”, let alone the SP's classless notion of “democratic control”.

In Workers Control Of Production,

“If the participation of the workers in the management of production is to be lasting, stable, “normal,” it must rest upon class collaboration, and not upon class struggle. Such a class collaboration can be realized only through the upper strata of the trade unions and the capitalist associations.

There have been not a few such experiments: in Germany (“economic democracy”), in Britain (“Mondism”), etc. Yet, in all these instances, it was not a case of workers’ control over capital, but of the subserviency of the labour bureaucracy to capital...

The closer it is to production, to the factory, to the shop, the less possible such a regime is, for here it is a matter of the immediate, vital interests of the workers, and the whole process unfolds under their very eyes.

Workers’ control through factory councils is conceivable only on the basis of sharp class struggle, not collaboration. But this really means dual power in the enterprises, in the trusts, in all the branches of industry, in the whole economy...

...What we are talking about is workers’ control under the capitalist regime, under the power of the bourgeoisie. However, a bourgeoisie that feels it is firmly in the saddle will never tolerate dual power in its enterprises. Workers’ Control consequently, can be carried out only under the condition of an abrupt change in the relationship of forces unfavourable to the bourgeoisie and its state. Control can be imposed only by force upon the bourgeoisie, by a proletariat on the road to the moment of taking power from them, and then also ownership of the means of production.

Thus the regime of workers’ control, a provisional transitional regime by its very essence, can correspond only to the period of the convulsing of the bourgeois state, the proletarian offensive, and the failing back of the bourgeoisie, that is, to the period of the proletarian revolution in the fullest sense of the word.”

But, it is clear that we are not in such a revolutionary situation, or even approaching one, so the demand can only mean Workers Control in the former sense outlined by Trotsky i.e. it is a thoroughly reformist demand for class collaboration, as a means for a more effective exploitation of the workers by the Capitalist State!

In fact, this is the problem with the way in which today's Trotskyists use “Transitional Demands”. They seem to have no inkling that these demands are only revolutionary when they are used within the context of a revolutionary situation. Trotsky made that clear in the “Transitional Programme” itself. For example,

“However, the state-ization of the banks will produce these favorable results only if the state power itself passes completely from the hands of the exploiters into the hands of the toilers.”

Outside, these revolutionary conditions, which offer the potential for the establishment of dual power, for the possibility of a Workers Government, that might be pressed from outside to break with Capital, for the potential for Capitalist State power to be broken, then these demands like that for Workers Control become simply reformist demands at best. They are not like magic beans that only have to be sprinkled upon the class struggle, in order to grow up into a revolutionary beanstalk!

And we are NOT in a revolutionary situation. In fact, the workers seem content, at best, with a right-wing Labour Party, and at worst with the policies of the Coalition.

Attempts by the Left to test out the extent to which their dreams of there being some working-class out there champing at the bit for a new leadership, have continually been shattered, with every attempt to create a new Party in their image, or their disastrous showing at elections, which only emphasises the extent of their irrelevance to the class. I have focussed on the SP's advocacy of Fabian, statist policies for Redistributive Socialism and State Capitalism, but they are just the worst variant of that trend. The same reformist approach, the same Economism, runs like a yellow thread through the positions of all the Left from the SWP, through their mirror image in the AWL, to the CPGB, to PR, to Workers Power, and, of course to the Stalinists of the CPB etc.

Back To Part 11

Forward To Part 13

The Economy Of Analysis - Part 11

What is noticeable is that nearly all of the Left's analysis of the crisis is based not on Marxism, but on Lassalleanism.

It is based on the same kinds of ideas that he and his followers put forward about the “Iron Law of Wages”, and the immiseration of the working-class, that were adopted and clung to, to the point of absurdity, by the Stalinists. As Mandel points out in “Marxist Economic Theory”, Stalinist economists were performing all sorts of intellectual acrobatics during the 1950's and 60's, to try to show that, while it was obvious to anyone with a pair of eyes, workers living standards in the West were rising sharply, western workers were really being immiserated, and it was all a trick, an illusion!

In fact, as again Mandel points out, Rosdolsky, had trawled all of Marx's writings, and out of several thousand references to wages, could find just one that could in any way, be interpreted as arguing for such immiseration. The statements by Marx, arguing against it, and against the Iron Law of Wages, however, are not at all hard to find. But, not only is the analysis based on Lassalleanism, but the solutions put forward, where solutions are put forward at all, are also based on Lassalleanism, and Fabianism, rather than Marxism.

Socialist Worker have an article, which provides no explanation of the crisis beyond “we live in a rogue system”. That may be a catchy statement, but it is meaningless. They talk about the strikes on 30th November being a means of standing up to market mayhem, but, of course, they will do no such thing.

Marxists, will support the strikes, for the same reason that Marx argued for supporting such struggles, in order to be with the workers, but they offer no actual solution to the crisis, and present no alternative to it. The success of the strikes, at best, would mean a temporary, different, balance between Capital and Labour within the existing market system. SW say none of the plans of Governments are able to “restore the system to health”, but the success of the strikes, would mean it being made less healthy in its own terms.

So they cannot be a solution to that crisis in the way they suggest. Meanwhile, as they say, we have the power to bring that system down – though its not clear that such is at all likely under current conditions – but they offer workers nothing here and now that would make the system “healthier”, or any alternative to the system after it has been brought down.

The Socialist Party provide a version of the Lassallean, “Iron Law of Wages”, and Stalinist immiseration theory that only makes them look stupid. It clearly is not true, if you look at China, India, and many more parts of Asia, Latin America, and Africa, either that “Capitalism is a bankrupt system", or that "billions of people around the world face growing poverty.”

On the contrary, in all these places, Capitalism is demonstrating that it is still vibrant, still revolutionising the methods of production, and has in the words of the “Communist Manifesto”, rescued millions from the “idiocy of rural life”. The developing economies are creating 20 million new jobs each year!! Trying to deny this, and to argue that Capitalism has to drive down wages, or is only able to pay bear subsistence wages, is not only ridiculous, but is contrary to Marx's analysis. In the Critique of the Gotha Programme, Marx spells out what is wrong with this kind of analysis.

“that, consequently, the system of wage labor is a system of slavery, and indeed of a slavery which becomes more severe in proportion as the social productive forces of labor develop, whether the worker receives better or worse payment. And after this understanding has gained more and more ground in our party, some return to Lassalle's dogma although they must have known that Lassalle did not know what wages were, but, following in the wake of the bourgeois economists, took the appearance for the essence of the matter.

It is as if, among slaves who have at last got behind the secret of slavery and broken out in rebellion, a slave still in thrall to obsolete notions were to inscribe on the program of the rebellion: Slavery must be abolished because the feeding of slaves in the system of slavery cannot exceed a certain low maximum!”

In other words, whilst Marx had demonstrated in many places such as in the “Grundrisse” that Capitalism raises workers real wages, “The Civilising Mission”, as he describes it there, it is able to do so, precisely because of the continuing ability of Capitalism to revolutionise production, to extract Relative Surplus Value, as a result, which enabled both profits, and real wages to rise.

So, the idea behind the “Iron Law”, which is essentially Malthusian, is false. But, this does not at all invalidate the argument for Socialism, because our argument, in that respect, is not that Capitalism necessarily immiserates the workers, but that, however well paid they are, however affluent they are, it is bought at the expense of their increasing slavery, at the expense of only achieving this affluence, by agreeing to work an increasing proportion of each day, for free!!!

The SP solution to this is not that put forward by Marx – a change in ownership of the means of production, through the creation of worker owned Co-ops as a prelude to a social revolution – but is the Lassallean/Fabian policy of redistributive socialism through taxing the rich, which Marx specifically said could not work, and also, by strengthening the role of the Capitalist State, also undermined the position of workers and the development of their own “self-government”. In the CGP, Marx says,

“I have dealt more at length with the "undiminished" proceeds of labor, on the one hand, and with "equal right" and "fair distribution", on the other, in order to show what a crime it is to attempt, on the one hand, to force on our Party again, as dogmas, ideas which in a certain period had some meaning but have now become obsolete verbal rubbish, while again perverting, on the other, the realistic outlook, which it cost so much effort to instill into the Party but which has now taken root in it, by means of ideological nonsense about right and other trash so common among the democrats and French socialists.

Quite apart from the analysis so far given, it was in general a mistake to make a fuss about so-called distribution and put the principal stress on it.

Any distribution whatever of the means of consumption is only a consequence of the distribution of the conditions of production themselves. The latter distribution, however, is a feature of the mode of production itself. The capitalist mode of production, for example, rests on the fact that the material conditions of production are in the hands of nonworkers in the form of property in capital and land, while the masses are only owners of the personal condition of production, of labor power. If the elements of production are so distributed, then the present-day distribution of the means of consumption results automatically.

If the material conditions of production are the co-operative property of the workers themselves, then there likewise results a distribution of the means of consumption different from the present one. Vulgar socialism (and from it in turn a section of the democrats) has taken over from the bourgeois economists the consideration and treatment of distribution as independent of the mode of production and hence the presentation of socialism as turning principally on distribution. After the real relation has long been made clear, why retrogress again?”

Yet, much of the Left today focusses precisely upon this “ideological nonsense” and “trash”, and does put a principal stress on making a “fuss” about distribution – whether to be effected through Economistic wages struggles, or reformist dreams of redistribution via the tax system – rather than as Marx and Engels argued, showing not only how Capitalism provides the basis for reconstructing society, and how that, through the establishment of Co-operative production, is the only real means of effecting a different distribution. As Marx, also points out in the CGP,

“Taxes are the economic basis of the government machinery and of nothing else. In the state of the future, existing in Switzerland, this demand has been pretty well fulfilled. Income tax presupposes various sources of income of the various social classes, and hence capitalist society. It is, therefore, nothing remarkable that the Liverpool financial reformers — bourgeois headed by Gladstone's brother — are putting forward the same demand as the program.”

And, in the Programme Marx wrote for the First International, he sets out why he was opposed to high rates of taxation.

“(a) No modification of the form of taxation can produce any important change in the relations of labour and capital.

(b) Nevertheless, having to choose between two systems of taxation, we recommend the total abolition of indirect taxes, and the general substitution of direct taxes. [In Marx's rough manuscript, French and German texts are: "because direct taxes are cheaper to collect and do not interfere with production".]

Because indirect taxes enhance the prices of commodities, the tradesmen adding to those prices not only the amount of the indirect taxes, but the interest and profit upon the capital advanced in their payment.

Because indirect taxes conceal from an individual what he is paying to the state, whereas a direct tax is undisguised, unsophisticated, and not to be misunderstood by the meanest capacity. Direct taxation prompts therefore every individual to control the governing powers while indirect taxation destroys all tendency to self-government.”

It is clear from these programmatic and analytical writings of Marx, just how far he was from the Left of today, which has abandoned him for the ideas of Lassalle and the Fabians. Tomorrow, I will continue to look at how far the response of the Left diverges from Marxism.

Back To Part 10

Forward To Part 12