Tuesday, 31 December 2013

Capital II, Chapter 11 - Part 2

Marx says, from the perspective of the organic composition of capital, it doesn't matter whether the constant capital is made up of lots of instruments of labour and few materials, or few instruments of labour and lots of material. What is significant is the proportion of constant capital to labour-power.

This is not inconsistent with, but could be read as not exactly tallying with what he said in Volume I. There he makes clear that what is important is the Technical Composition of Capital i.e. the physical quantity of Constant Capital as against the physical amount of labour-power. In Chapter 25 he writes,

“The composition of capital is to be understood in a two-fold sense. On the side of value, it is determined by the proportion in which it is divided into constant capital or value of the means of production, and variable capital or value of labour power, the sum total of wages. On the side of material, as it functions in the process of production, all capital is divided into means of production and living labour power. This latter composition is determined by the relation between the mass of the means of production employed, on the one hand, and the mass of labour necessary for their employment on the other. I call the former the value-composition, the latter the technical composition of capital.

Between the two there is a strict correlation. To express this, I call the value composition of capital, in so far as it is determined by its technical composition and mirrors the changes of the latter, the organic composition of capital. Wherever I refer to the composition of capital, without further qualification, its organic composition is always understood.”

So, it is the technical composition that is determinate. That is so, because of its implication for the employment of labour-power. As he says in defining what he means by the expansion of capital,

“Growth of capital involves growth of its variable constituent or of the part invested in labour power...

Accumulation of capital is, therefore, increase of the proletariat.” (ibid)

So, when Marx says it doesn't matter whether the constant capital is made up of lots of instruments of labour or lots of material, he is still stressing that it is this physical relation between constant and variable capital, not the value relation that is significant.

For example, a large number of instruments implies a large number of workers, even if each worker uses many instruments. They may require relatively little material by comparison, if the large range of instruments signifies a complicated labour process. On the other hand, an equally large number of workers might process a large amount of material using just one or two instruments, where the labour process is more straightforward. In either case, it is the technical relation between the physical amount of constant capital, and variable capital that determines how many workers are employed, and to what extent that number will rise as capital expands. As Marx puts it,

“Growth of capital involves growth of its variable constituent or of the part invested in labour power. A part of the surplus-value turned into additional capital must always be re-transformed into variable capital, or additional labour fund. If we suppose that, all other circumstances remaining the same, the composition of capital also remains constant (i.e., that a definite mass of means of production constantly needs the same mass of labour power to set it in motion), then the demand for labour and the subsistence-fund of the labourers clearly increase in the same proportion as the capital, and the more rapidly, the more rapidly the capital increases...” (ibid)

By the same token, in looking at fixed and circulating capital, it doesn't matter whether the latter is made up of much materials and little labour-power or vice versa. But, in Ricardo's analysis, raw material and auxiliary material appear neither as fixed nor circulating capital.

“It disappears entirely; for it will not do to class it with fixed capital, because its mode of circulation coincides entirely with that of the part of capital laid out in labour-power. And on the other hand it should not be placed alongside circulating capital, because in that event the identification of the antithesis of fixed and circulating capital with that of constant and variable capital, which had been handed down by Adam Smith and is tacitly retained, would abolish itself. Ricardo has too much logical instinct not to feel this, and for this reason that part of capital vanishes entirely from his sight.” (p 220-21)

Back To Part 1

Forward To Part 3

Monday, 30 December 2013

Capital II, Chapter 11 - Part 1

Theories of Fixed and Circulating Capital. Ricardo

Ricardo discusses fixed and circulating capital as part of his explanation of why prices differ from values. His analysis lacks clarity and continues some of the confusion of Smith. So, for example, he basically calls labour circulating capital and the instruments of labour that “support labour”, fixed capital.

“On the one hand the circulating capital is here lumped together with the variable capital, i.e., with that part of productive capital which is laid out in labour. But on the other hand doubly erroneous definitions arise for the reason that the antithesis is not derived from the process of self-expansion of value — constant and variable capital — but from the process of circulation (Adam Smith’s old confusion).” (p 219)

But, Ricardo also distinguishes between these instruments of labour according to their durability, and places this distinction on the same level as the distinction between constant and variable capital. However, the former only determines how the value of constant capital is transferred to the end product, whilst the latter explains the source of surplus value.

“If instead of seeing through the internal machinery of the capitalist process of production one considers merely the accomplished phenomena, then these distinctions actually coincide. In the distribution of the social surplus-value among the various capitals invested in different branches of industry, the differences in the different periods of time for which capital is advanced (for instance the various degrees of durability of fixed capital) and the different organic compositions of capital (and therefore also the different circulations of constant and variable capital) contribute equally toward an equalisation of the general rate of profit and the conversion of values into prices of production.” (p 220)

That pre-empts Marx’s solution to the problem Ricardo sought to resolve i.e. the fact that prices differed from exchange values.

Looked at from the circulation process, there is instruments of labour (fixed capital) on one side, and labour and materials (circulating capital) on the other. Looked at from the production process and expansion of capital, there is constant capital (instruments of labour and materials) on one side, and variable capital (labour-power) on the other.

Back To Chapter 10

Forward To Part 2

Sunday, 29 December 2013

For A Political Revolution At The Co-op - Part 6

In part 5, I described the position adopted by Marxists from Marx himself through to Trotsky on the attitude towards state intervention and workers control. In other words, Marxists do not advocate nationalisation or monopolies, but they oppose the idea that the problems that arise from them can in any sense be resolved by a return to some previous, less mature form of Capitalism. The answer to these problems lies in the conversion of these monopolies, be they in the state or private sector, into worker-owned and controlled property. Engels made the same point earlier.

“It seems that the most advanced workers in Germany are demanding the emancipation of the workers from the capitalists by the transfer of state capital to associations of workers, so that production can be organised, without capitalists, for general account; and as a means to the achievement of this end: the conquest of political power by universal direct suffrage.”

If the opportunity arises to exert workers control over state-owned property then Marxists would seize it, whilst pointing out to the workers the dangers that exist in such a course. But, of course, other than in very exceptional circumstances, no such potential for real workers control exists. As Trotsky puts it,

“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. Such subserviency, as experience shows, can last for a long time: depending on the patience of the proletariat. 

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. 

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 falling back of the bourgeoisie, that is, to the period of the proletarian revolution in the fullest sense of the word.”

Anton Pannakoek makes the same point.

“The acknowledged aim of socialism is to take the means of production out of the hands of the capitalist class and place them into the hands of the workers. This aim is sometimes spoken of as public ownership, sometimes as common ownership of the production apparatus. There is, however, a marked and fundamental difference.

Public ownership is the ownership, i.e. the right of disposal, by a public body representing society, by government, state power or some other political body. The persons forming this body, the politicians, officials, leaders, secretaries, managers, are the direct masters of the production apparatus; they direct and regulate the process of production; they command the workers. Common ownership is the right of disposal by the workers themselves; the working class itself — taken in the widest sense of all that partake in really productive work, including employees, farmers, scientists — is direct master of the production apparatus, managing, directing, and regulating the process of production which is, indeed, their common work…

As a correction to State-managed production, sometimes workers’ control is demanded. Now, to ask control, supervision, from a superior indicates the submissive mood of helpless objects of exploitation. And when you can control another man’s business; what is your own business you do not want controlled, you do it. Productive work, social production, is the genuine business of the working class. It is the content of their life, their own activity. They themselves can take care if there is no police or State power to keep them off. They have the tools, the machines in their hands, they use and manage them. They do not need masters to command them, nor finances to control the masters.

Public ownership is the program of “friends” of the workers who for the hard exploitation of private capitalism wish to substitute a milder modernized exploitation. Common ownership is the program of the working class itself, fighting for self liberation….”

Public ownership is the demand of stalinists, statists and reformists like the AWL, whether it is combined with ridiculous demands for “democratic control” or not.

Saturday, 28 December 2013

Northern Soul Classics - Nothing's Too Good For My Baby - Stevie Wonder

Another 100 mph cracker, this time from the Motown stable and the inimitable Stevie Wonder.

Thursday, 26 December 2013

Capital II, Chapter 10 - Part 13

The Physiocrats were prevented from understanding the source of surplus value because of their theory in which it is only agricultural labour that was productive, and that it is not the labour that produces surplus value but arises because “of the special activity (assistance) of nature in this branch”. (p 216) 

Smith classifies the means of subsistence as circulating capital because he confused capital involved in circulation i.e. commodity-capital with circulating capital.

“But the physiocratic conception too lurks in Smith’s analysis, although it contradicts the esoteric — really scientific — part of his own exposition.” (p 216)

Capital, advanced for production, can only take the form of products of past labour. That includes labour-power, which has been produced by the workers reproducing themselves. Part of that is through them consuming the means of subsistence. The latter, do not, of course, differ, either in their use value, or value, from the raw materials used in production, or the food provided to animals.

“The means of subsistence cannot themselves expand their own value or add any surplus-value to it. Their value, like that of the other elements of the productive capital, can re-appear only in the value of the product. They cannot add any more to its value than they have themselves.” (p 217)

In other words, here, the value of the labour-power. Wages are part of the circulating capital not for any reason attached to the means of subsistence bought with those wages, but simply because of the way this part of the advanced capital-value is to be replaced i.e. by the fact that its entire value is transferred in one go to the end product, and is then realised on sale, to be returned once more in the purchase of replacement labour-power of equal magnitude.

“The purchase and repurchase of labour-power belong in the process of circulation. But it is only within the process of production that the value laid out in labour-power is converted (not for the labourer but for the capitalist) from a definite, constant magnitude into a variable one, and only thus the advanced value is converted altogether into capital-value, into capital, into self-expanding value. But by classing, like Smith, the value expended for the means of subsistence of the labourers, instead of value laid out in labour-power, as the circulating component of productive capital, the understanding of the distinction between variable and constant capital, and thus the understanding of the capitalist process of production in general, is rendered impossible. The determination that this part of capital is variable capital in contrast to the constant capital, spent for material creators of the product, is buried beneath the determination that the part of the capital invested in labour-power belongs, as far as the turnover is concerned, in the circulating part of productive capital. And the burial is brought to completion by enumerating the labourer’s means of subsistence instead of his labour-power as an element of productive capital. It is immaterial whether the value of the labour-power is advance in money or directly in means of subsistence. However under capitalist production the latter can be but an exception.” (p 217-8)

Marx describes how this error prevents Smith and his followers from understanding the source of surplus value, and how they come to have such problems in distinguishing between Labour (measure of value) and labour-power (commodity).

“By thus establishing the definition of circulating capital as being the determinant of the capital value laid out for labour-power — this physiocratic definition without the premise of the physiocrats — Adam Smith fortunately killed among his followers the understanding that that part of capital which is spent on labour-power is variable capital. The more profound and correct ideas developed by him elsewhere did not prevail, but this blunder of his did.” (p 218)

Back To Part 12

Forward To Chapter 11

Back To Volume II Index

Tuesday, 24 December 2013

Capital II, Chapter 10 - Part 12

For all direct producers, as owners of the means of production, as set out in Volume I, Chapter 5 the value of the commodities they produce is equal to the cost of that production to them. For a direct producer, who is also a slave owner, the cost of maintaining the slave is part of that cost. But, the market price of the commodity in a pre-capitalist economy is also equal to this cost, so no surplus value is produced! For example, measured in labour-time, the value of producing 100 kilos of wheat might be 100 hours seeds, 100 hours subsistence for slave, 100 hours labour by direct producer. The value of the product is then 300 hours, even if the slave has worked for 200 hours. If the direct producer sells it at its value, they will only get back what it has cost them to produce.

But, in such an economy where the only buyers in the market are themselves owners of the means of production that is the situation. If direct producer A above tries to sell their wheat for 400 hours to cover the actual time worked by the slave rather than paid for, then what they gain as a seller they will lose as a buyer. Direct producer B,who has the same costs for producing potatoes, will likewise sell their potatoes that only cost 300 hours to produce for 400. A and B will each have overcharged one another 100 hours, and cancelled out their gain. It would be as if they had sold at 300 to begin with. Surplus Value can only be produced and realised where Capital exchanges with revenue. No surplus value arises where capital exchanges with capital, or revenue exchanges with revenue. In other words, surplus value can only arise where capital meets wage labour, where capital buys labour-power as a commodity, and wages buy commodities from capital. If workers worked for Capital, but provided all their own means of subsistence directly, using their own means of production, Capital could not realise surplus value.

But, under capitalism, a class of non-owners exists, who are nevertheless buyers of commodities. Workers have to buy commodities at a price equal to the labour-time required for production, and that price includes not just the price of the labour-time that is paid for, but that also which is not paid for. This is the basis of surplus value, and why as Marx describes in the Grundrisse, above, Exchange Value only assumes its mature form when wage labour preponderates, and wage workers form the bulk of consumers. It is this fact that is also the basis of Capital's “Civilising Mission”, which is Marx says inherent in its nature rather than something externally imposed.

Because Capital continually revolutionises production, it continually expands that production faster than the market can absorb it. That manifests as overproduction of capital both in partial and general form. In order to overcome that overproduction, Capital continually, therefore has to develop new types of use values that can be produced and sold to workers at values that enable surplus value to be realised.

“The simple concept of capital has to contain its civilizing tendencies etc. in themselves; they must not, as in the economics books until now, appear merely as external consequences.” (ibid)

Back To Part 11

Forward To Part 13

Monday, 23 December 2013

How High Can Stocks Go? - Part 3

On Wednesday, the Federal Reserve started the process of tapering, reducing its monthly purchases of US Government Bonds by $5 billion, and its purchases of mortgage bonds by the same amount. It reduces the money it has been pumping into the US economy from $85 billion a month to $75 billion. In May, when it had first talked about such tapering, stock markets crashed. In September, when it was thought it would begin tapering, but didn't, stocks rose sharply. Yet, having started the tapering on Wednesday, the Dow Jones index soared by 300 points, and other markets rose by similar proportions.

Moreover, the conventional thinking is that money printing by the Federal Reserve causes interest rates to fall, and vice versa, and yet, immediately after the decision was announced the yield on the US 10 Year Treasury fell. It has since risen, but only marginally. In the last year, the 10 Year Yield has risen from around 1.6%, up to around 2.7% in the weeks before the Fed decision, despite the fact of continued QE. Compared to that almost doubling of the interest rate, in that time, the 10% rise in the yield after the introduction of the taper has been modest.

These movements illustrate the analysis made by Marx, which distinguishes between money-capital, and money. Money has existed for thousands of years, arising shortly after the beginning of commodity-exchange, as nomadic tribes began to exchange commodities, and sought some commodity, which could act as a universal equivalent form of value. But, money-capital can only arise with the development of capital itself. Capital is a social relation based upon the extraction of surplus value from wage labour. Money-capital is the money equivalent of the commodity-capital produced by productive-capital, at that point where it is used to reproduce the capital consumed in production, and to expand that productive-capital. The money realised in the sale of the commodity-capital is not money-capital, but only money. Its future is uncertain. It only functions as money-capital if it is thrown back into circulation to buy productive-capital. If, instead it is used simply to buy commodities to be consumed by the exploiting classes, or to be used as speculation in the purchase of shares, bonds, or property etc., then it is only money. It acts then, not as a part of the process of the self-expansion of value, but only as a means of exchange. This is true, as Marx points out whether this money is an actual money commodity such as gold, or whether it is some money token thrown into circulation as its representative, including credit money. That is clear in so far as it is used merely to buy commodities for personal consumption, but the illusion is created that it expands value via speculation in stocks, bonds, property etc., only because at times such speculation results in sizeable capital gains.

But, in fact, these capital gains are not a part of the process of self-expansion of capital. On the contrary, such capital gains are impossible without the self-expansion of value resulting from the productive process. Capital Gains do not create additional value, they only redistribute surplus from one hand to another. Over the last 30 years, the huge rise in the volume of surplus value produced in the global economy, not only provided the capital for the creation of huge new economies in China, other parts of Asia, and the rise of new economies in Latin America and Africa, it provided the capital for the rise of whole new industries in information technology, biotechnology, space technology and so on. But, the rise in the volume and rate of profit was so huge, that in addition to this large expansion of capital, particularly as the new long wave boom began, that it produced huge money hoards, that have swished around the global economy, from the surplus economies in the East to the debtor countries in the West like the US, and UK, and the peripheral economies of the EU.

It financed not only the increasing indebtedness of those economies, but in the process it also led to a transfer of surplus value from one set of hands to those of another via the creation of huge capital gains arising from speculation in the stock, bond and property markets. It is a process seen many times before, such as that described by Marx and Engels in relation to the same phenomena in the 1840's when such excess surplus value financed speculation in the Railway Mania. But, such excesses always end in the bubble being burst, because they are built not upon the basis of real capital expansion, but merely upon fictitious capital. The bigger the bubble, the bigger the bust when it arises, and the bigger the financial crisis it gives rise to.

Interest rates fell for the last 30 years, not because of money-printing by central banks, but because the supply of potential money-capital arising from this surge in the volume and rate of profit, created an excess of supply over the demand for money-capital. All that QE can do is to influence specific interest rates, as the central bank buys particular bonds. But, like a game of whack a mole, in so far as it reduces the yield on the bonds it buys, it tends to raise the yield on other bonds, because speculators buy the bonds supported by the demand from the central bank, and sell those that are not, or at least buy fewer of them. Moreover, for the reasons set out previously, of the difference between money and money-capital, where the central bank simply prints money tokens to throw into circulation – actually it just electronically increases credit – to buy these bonds, rather than the increase arising from an expansion of capital, the consequence is either that the velocity of circulation of the money declines, or else the money in circulation becomes devalued leading to a rise in inflation. But, speculators when they see inflation, then demand a higher rate of interest on their money to cover its future depreciation.

In fact, both these phenomena have been seen. There is clear evidence that QE has become less and less effective and that the velocity of circulation has declined. Money pumped out from central banks to commercial banks has sat on their books rather than being lent out, as those who would borrow are often bad credit risks, whilst those who are worthy of credit already have huge cash hoards on their balance sheets themselves. In Europe, there is now clear evidence that the Long Term Refinancing Operations by the ECB, have resulted not in banks lending into the economy, but only those banks using the funds to buy European sovereign bonds. Given that as interest rates rise, some of these sovereign bonds themselves become of dubious character, the stage has been set once more for a European banking and sovereign bond crisis.

But, there is also evidence in the rise in yields on longer dated securities compared to the short end of the yield curve – a so called steepening of the yield curve – that bond speculators have become increasingly concerned about the potential for inflation further down the road as a result of the vast amount of money printing undertaken. 

I will examine this further in Part 4.

Back To Part 2

Thursday, 19 December 2013

Capital II, Chapter 10 - Part 11

As stated earlier, Smith does not classify labour-power as circulating capital, but he does argue that the means of subsistence for the worker does constitute circulating capital. That is clearly wrong because for the sellers of those means of subsistence, they constitute commodity-capital, and for the workers who buy them, they are only commodities and not capital at all. For the capitalist who employs the workers, the means of subsistence do not form capital, because he does not buy them. He pays wages to his workers so that they can do so.

For Marx, slaves do not produce surplus value.  Economically
speaking, they are no different from any other pack animal used
 in production.  They are bought and sold as commodities
themselves; they do not enter the market as buyers of commodities
as wage workers do; their means of consumption are bought for them
by the slave owner.  The slave, therefore, constitutes constant not
variable capital.
The Physiocrats correctly argued that wages were paid out of circulating capital – avances annuelle, but they do not count the labour-power bought with those wages as productive capital, rather they count the means of subsistence given to the farm labourers. That is consistent with their view that the value of the end product is equal to the value of everything that went into its production. That is the value added by labour is only equal to the value of the means of subsistence given to those workers, just as the value added by a horse is equal to the food etc. provided for it. As Marx sets out in the Grundrisse, and as I have described elsewhere - Labour-Power v Horse-Power – this is true of slave labour. A slave, like any other pack animal, constitutes fixed capital, and, therefore, constant not circulating, variable capital. A slave, like an animal or a machine, therefore, can produce a surplus product, but not surplus value. Only wage labour produces surplus value, and that is precisely due to the fact that the wage labour enters the market as a free agent to sell their labour-power, and to buy commodities at their value.

“In production based on slavery, as well as in patriarchal agriculture…..the slave does not come into consideration as engaged in exchange at all.” (419)


“in the relations of slavery and serfdom….The slave stands in no relation whatsoever to the objective conditions of his labour; rather, labour itself, both in the form of the slave and in that of the serf, is classified as an inorganic condition of production along with other natural beings, such as cattle, as an accessory of the earth.” (p 489)

“In production based on slavery, as well as in patriarchal agricultural-industrial production, where the greatest part of the population directly satisfies the greatest part of its needs directly by its labour, the sphere of circulation and exchange is still very narrow; and more particularly in the former, the slave does not come into consideration as engaged in exchange at all. But in production based on capital, consumption is mediated at all points by exchange, and labour never has a direct use value for those who are working. Its entire basis is labour as exchange value and as the creation of exchange value. 

Well. First of all 

the wage worker as distinct from the slave is himself an independent centre of circulation, someone who exchanges, posits exchange value, and maintains exchange value through exchange. Firstly: in the exchange between that part of capital which is specified as wages, and living labour capacity, the exchange value of this part of capital is posited immediately, before capital again emerges from the production process to enter into circulation, or this can be conceived as itself still an act of circulation. Secondly: To each capitalist, the total mass of all workers, with the exception of his own workers, appear not as workers, but as consumers, possessors of exchange values (wages), money, which they exchange for his commodity. They are so many centres of circulation with whom the act of exchange begins and by whom the exchange value of capital is maintained. They form a proportionally very great part -- although not quite so great as is generally imagined, if one focuses on the industrial worker proper -- of all consumers. The greater their number -- the number of the industrial population -- and the mass of money at their disposal, the greater the sphere of exchange for capital. We have seen that it is the tendency of capital to increase the industrial population as much as possible.” 

Wednesday, 18 December 2013

US Economics and Politics v The UK and EU - Part 10

After the US Civil War, the industrial North was able to treat the agricultural South as its internal colony, in the same way that Britain and other European powers had used their external colonies. Those colonies acted both as providers of cheap foodstuffs and raw materials, and as protected markets for the manufactured goods. As European feudal landlords took possession of these large landed estates, they also provided them with extensive rents, and European money capitalists, often from the same aristocratic families, made huge sums financing the trade. Lenin describes the way Russia, in its process of primary capital accumulation, used Siberia in a similar manner. In the US, the South provided the foodstuffs and materials, and protected market for northern manufactures. Northern carpetbaggers stepped in to buy up southern estates, and the South also provided a steady supply of labour-power “freed” from the land.

In many ways a similar process has occurred over the last 30 years. Looking at the US, it is still a very divided society, and that division is manifest in the current political divide. In Part 8 and 9 I described how, in the US in particular, the response to the Long Wave downturn, as in the UK, was to try to create a low-wage/high debt economy, to focus on the extraction of additional absolute surplus value, had created a situation in which the workforce was divided between a relatively very small number of very highly skilled, highly paid workers, working in a range of very high value production from entertainment through to space technology, and a very much larger number of unskilled and semi-skilled workers, paid very low wages, with very uncertain conditions of employment, and a large section of the workforce that was semi-permanently unemployed.

An indication of the extent to which the wages and conditions of this large section of the workforce has declined during this period can be witnessed by the fact that many workers who previously would have been considered to be in reasonably well-paid jobs, are today reliant on food stamps. Around 40 million US citizens, or about 20% of the population, are in receipt of food stamps. A similar situation exists in the UK, where a similar policy of trying to create a low-wage/high debt economy, under Thatcher and her successors, has created a situation where a large proportion of those in work, can only manage with some form of state aid, be it Housing Benefit, Child Benefit, Tax Credit etc.

This is the consequence of the policy of Thatcher/Reagan in the 1980's of trying to build a low-wage/high debt economy, rather than restructuring the economies towards investment in high value production, in investing resources in modernising the infrastructure, in education and training for the workforce etc. It means that where the surplus value created in that high value, dynamic sector could have been accumulated as the economy entered the new Long Wave Boom, instead it is siphoned off to cover the payments of various welfare benefits as cited above, and without, which the low-paying, inefficient sectors of the economy would not be able to retain the workers they now pay subsistence wages.

Its in this sense that over the last 30 years, in the US in particular, but it applies also in the UK, and also in the EU, a process similar to the use of internal colonies has been repeated. The US is sharply divided between its metropolitan, city areas and its rural, particular southern and mid-western areas. The former are more like western Europe, they are the heartlands of social-democracy, the alliance between big capital and the working class. The latter are more akin in many ways to the parts of the Middle East and North Africa which economically is still virtually living in pre-capitalist conditions. In both cases it leads to the development of ideas, including religious fundamentalism appropriate to those conditions, just as it did in Mediaeval Europe.

On the one hand, we have a US that is by far the most technologically developed economy on the planet, with consequently some of the most intelligent scientists. On the other, we have a society where a large proportion of the population, concentrated in these backward areas, believe unflinchingly in the Bible, believe that Man has only been on the planet for 7,000 years, and walked side by side with dinosaurs!

My neighbour was telling me the other day that she has just been visiting her daughter who now lives in the US. She could not believe how backward these people were she said. Her daughter had told her that people she worked with had absolutely no idea about anything outside their local surroundings. Her daughter had even been asked by a work colleague what Language we spoke in England?

This level of backwardness stemming from the very real material conditions of the population in these areas, is the basis for the development of the individualistic ideas that form the bedrock of Republicanism, and more particularly today of the Tea Party. These conservative, indeed reactionary ideas flow from the desire of an essentially peasant population, and are wholly inimical to the interests of US big industrial capital. Yet, this section of the population is large, and is concentrated in these areas, which are themselves geographically significant. Over the last 15 years, as the global Long Wave Boom has brought a huge increase in global demand for raw materials and foodstuffs, these peasant farmers have also seen a significant increase in their economic well-being, as the price of their commodities has risen substantially. That gives them added political clout.

But, there is also that other section of the population, which resides in the cities, but which has been excluded in large part from the benefits of the boom – the unskilled and semi-skilled workers. Their wages have fallen. 

In Part 11, I will look at how these different groups have acted as an internal colony over the last 30 years.

Tuesday, 17 December 2013

Capital II, Chapter 10 - Part 10

Fixed capital, such as a machine only has use-value, as fixed capital, if it is sold as a machine. So looked at from one perspective, its destiny is set. But, it cannot be considered fixed capital on that basis. For one thing, a machine can be used in a non-capitalist manner, but also, as Marx points out, the fact that it may occupy a fixed position in a factory does not stop this machine being exported.

“It may be exported from the country in which it was produced and sold abroad directly or indirectly for raw materials, etc., or for champagne. In that case it has functioned only as a commodity-capital in the country in which it was produced, but never as fixed capital, not even after its sale.” (p 214)

But, things like buildings, which cannot be exported, are no more fixed capital simply because they are immovable. Take a house. For the capitalist builder, its sale is a source of profit. For Smith, it changes hands and so is circulating capital, but, for the buyer, it can only constitute any kind of capital if it is used in the production process. But, in that case, according to Smith, it is fixed capital. But, for most houses, they are not used in the production process, but only for living in. In that case, they are not capital of any sort, but part of society's consumption fund, “although they constitute an element of the social wealth of which capital is only a part.” (p 214)

Where things are physically fixed in their location, ownership of them may not be. Shares in a railway company can be sold all over the world. For Smith then, the fact that these shares are mobile, and that the owner of them can make a “profit” from their sale, would make them circulating capital. But, the railway itself if it is not to lie unused has to operate as fixed capital. A can sell a factory to B, but the factory itself still operates for B as it did for A, as fixed capital.

“Therefore, while the locally fixed instruments of labour, which cannot be detached from the soil, will nevertheless, in all probability, have to function as commodity-capital for their producer and not constitute any elements of his fixed capital (which is made up as far as he is concerned of the instruments of labour he needs for the construction of buildings, railways, etc.), one should not by any means draw the contrary conclusion that fixed capital necessarily consists of immovables.” (p 215)

As stated previously, a ship is movable but is fixed capital. But, other things which are fixed in location constitute circulating capital.

“Such are for instance the coal consumed to drive the machine in the process of production, the gas used to light the factory, etc. They are circulating capital not because they bodily leave the process of production together with the product and circulate as commodities, but because their value enters wholly into that of the commodity which they help to produce and which therefore must be entirely replaced out of the proceeds of the sale of the commodity.” (p 215)

Back To Part 9

Sunday, 15 December 2013

For A Political Revolution At The Co-op - Part 5

Far from being swallowed up in a sea of capitalism, workers at
the Mondragon Co-ops in Spain have gone from strength to
strength, moving into high-tech production, the establishment
of a Co-operative University etc.  The workers enjoy pensions
way in excess of anything British workers can expect, and now
they have joined forces with the US Steelworkers Union to
spread worker-owned co-ops across North America.
In Parts 3 and 4, I looked at the suggestion by the AWL that the problems that arose at the Co-op, were inevitable, because worker-owned property will always be swallowed up by the sea of Capitalism that surrounds it, and so instead of trying to establish worker-owned property, workers should simply settle for that property to be owned by the Capitalist State, and to plead with it to allow them to exercise some form of democratic control over it. In other words, it is calling on workers to effectively give up all hope of Socialism – because what applies to a co-operative applies equally to a workers' state, unless a socialist revolution occurred in all the major countries of the world simultaneously – and instead to resign themselves to the idea of state capitalism with a human face! In effect, that is what the AWL have done in their undeclared Popular Front with that bourgeois state and with “Democratic Imperialism”.

In the 1930's, Stalin developed the idea of the
Popular Front, in which workers were told to
join with their bourgeois enemies to fight for
"democracy", and thereby to subordinate their
interests to those of capital.  In the post-war
period that was codified into the principle of
"peaceful co-existence", by which the USSR
agreed to restrain the working-class globally
in return for Imperialism leaving them alone
to develop "Socialism In One Country".  Today,
the AWL do the same thing, except their ambition
extends no further than a desire to build Fabian,
Welfare Socialism, which is no more than a form of
radical Liberal, state capitalism.
That, of course, has nothing to do with Marxism. It is merely an application of the idea of “Peaceful Co-existence” developed by Stalinism. As Hal Draper points out, in the quotes given in Part 4, the whole basis of Marx's approach was to foster the independent action of the working class from below in revolutionary opposition to the bourgeoisie and its state. Marx refers to the development of the workers' co-operatives, and the workers' democracy that is necessarily established upon it, within the bowels of Capitalism, as “Workers Self-Government”. It is why he and Engels opposed any invasion of that state on the workers affairs, and why he sought to restrict the expansion of the role of that state. Its why he sought to restrict how much that state could collect in taxes from the workers. So, in the Programme of the First International he wrote, in favour of direct rather than indirect taxation,

“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.”

The idea purveyed by the AWL that workers should plead with the capitalist state for property to be nationalised, and that they should then plead with that state to hand over control of that property to “the people” - democratic, social or popular control – let alone to the firm's workers is, of course, preposterous. Not, only was such a statist approach decried by Marx and Engels but the idea was also condemned by Trotsky much later. He wrote,

“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.”

Here, Trotsky is writing about the situation in Mexico, where a left-nationalist regime had nationalised the British oil companies, and sought support from the Mexican workers against foreign intervention. In order to obtain that support, the Mexican government attempted to involve the workers in the running of those enterprises. Faced with that position Trotsky addresses the question of what Marxists in Mexico should say to the Mexican workers. On the one hand, Marxists, for the reasons he gives above, cannot advocate nationalisation, and have to explain to the workers why any offer of “workers control” will be a trap. On the other, following Lenin's approach in “Left-Wing Communism”, nor could they simply call on the workers to have nothing to do with such an offer from the government, because the workers would not understand it. A similar problem existed in Britain in the 1970's, when a number of firms, in order to incorporate the workers put forward the idea of “profit-sharing schemes”. Trotsky writes,

The Cardenas Government attempted to draw in the Mexican
 workers to the running of the nationalised industries as a form of
Corporatism designed to provide defence against imperialism.
Trotsky argued that whilst Marxists cannot call for nationalisation,
and have to explain to workers the trap that "workers control" poses
under such conditions, nor could they tell workers to have nothing
to do with the government offer, because the workers would not
 understand such a position.  It would be a form of ultra-leftism.
Just because Marxists do not raise demands that are bourgeois demands
does not mean that we are "politically indifferent" to the policies that
different sections of the bourgeoisie pursue.  We seek to utilise whatever
we can to advance the position of workers.
“One can of course evade the question by citing the fact that unless the proletariat takes possession of the power, participation by the trade unions in the management of the enterprises of state capitalism cannot give socialist results. However, such a negative policy from the revolutionary wing would not be understood by the masses and would strengthen the opportunist positions. For Marxists it is not a question of building socialism with the hands of the bourgeoisie, but of utilizing the situations that present themselves within state capitalism and advancing the revolutionary movement of the workers.” 

That is a repetition of the position adopted by Marx in Political Indifferentism. There Marx makes exactly this point, that although Marxists do not advocate such state intervention, and have to explain to workers why it cannot provide them with any solution, nor does that mean that Marxists have to necessarily oppose such developments, where they offer workers potential advantages, or where they represent a relatively more progressive development – for example, as Lenin sets out in Imperialism. There Lenin, without advocating the establishment of capitalist monopolies, sets out why they are relatively progressive, and why, therefore, Marxists do not call for them to be broken up, or for a return to some kind of “free market”. Lenin quotes Hilferding approvingly,

““It is not the business of the proletariat,” writes Hilferding “to contrast the more progressive capitalist policy with that of the now bygone era of free trade and of hostility towards the state. The reply of the proletariat to the economic policy of finance capital, to imperialism, cannot be free trade, but socialism. The aim of proletarian policy cannot today be the ideal of restoring free competition—which has now become a reactionary ideal—but the complete elimination of competition by the abolition of capitalism.””

Lenin continues,

“Let us assume that free competition, without any sort of monopoly, would have developed capitalism and trade more rapidly. But the more rapidly trade and capitalism develop, the greater is the concentration of production and capital which gives rise to monopoly. And monopolies have already arisen—precisely out of free competition! Even if monopolies have now begun to retard progress, it is not an argument in favour of free competition, which has become impossible after it has given rise to monopoly.”

Back To Part 4

Forward To Part 6

Saturday, 14 December 2013

Friday, 13 December 2013

How High Can Stocks Go? - Part 2

Dow Jones Meteoric Rise 1982-2000
I've set out the reason that markets can be inflated during periods of sluggish economic growth elsewhere – Rates of Profit, Interest and Inflation. That is that in a period of long wave downturn, particularly during the Winter Phase, although the rate of profit tends to rise, there are fewer new types of products that capital can be invested in to produce, which can subsequently be sold at market prices that realise the produced surplus value, because the elasticity of demand for these commodities tends to be high, so any increase in supply causes market prices to fall sharply. There is no incentive, therefore, for capital to invest the realised profits in expanding existing production. Realised profits, therefore, become turned into money hoards. Marx describes this process as part of the normal cycle. The weight of this potential money-capital then weighs on money markets depressing interest rates.

Lower interest rates encourage speculation, and to the extent that this speculation, for a time, becomes a self-fulfilling, virtuous circle, more and more of the money hoard is drawn into it. The speculation provides little in the way of sustainable income, but for the speculators, this becomes irrelevant, because they look at their total return, and on that basis, the huge capital gains they make, in very short periods of time, far outweigh what they might have earned in income from productive investment.

A look at the diagram of the circuits of money and capital illustrates this process. The circuit commences at M, where money-capital exists fleetingly only at that point where it is exchanged for productive capital (means of production and labour-power). The productive-capital then engages in production, and the labour-power produces a surplus value in this process. The result is the transformation of the capital-value into commodity-capital, C', which encompasses this surplus value. When it is sold, it realises a money equivalent M', which consists of two parts as does C'. C is the physical equivalent of the productive-capital consumed, it is the capital value of the productive-capital, i.e. its current reproduction cost, whilst c, is the surplus product produced in the production process. Likewise, M is the money equivalent of C, and on this basis, in value terms, capital is always able to reproduce the capital consumed in the production process.

So, Marx writes,

“In calculating the aggregate turnover of the advanced productive capital we therefore fix all its elements in the money-form, so that the return to that form concludes the turnover. We assume that value is always advanced in money, even in the continuous process of production, where this money-form of value is only that of money of account. Thus we can compute the average.” (Capital II, p 187)

Note Marx's terminology here. Firstly he begins by making clear that what he is talking about is “the advanced productive capital”. To make clear it is not the advance of the money-capital used to purchase that productive capital, that Marx is talking of, he then says that what he is doing is only to “fix all its elements in the money-form”. Finally, to make clear that his analysis here is one based on the actual capital-value advanced, and not on the money-capital advanced, he makes clear that the use of money here, is merely a convenience of calculation, and that he is using it essentially only in its role as “money of account”.

Likewise, m is the money equivalent of the surplus product. In simple reproduction, m is spun off, and is used by the exploiting classes merely to purchase their consumption goods, whilst M once more purchases the quantity of C consumed in the production process. But, under expanded reproduction, a proportion of m is used for the purpose of accumulation. Likewise, where under simple reproduction, c takes the form of physical commodities consumed by the exploiting classes, under expanded reproduction, a proportion of c takes the form of means of production, and of additional means of consumption required by the expanded workforce.

As the diagram shows, the capital-value M', in reality, passes into bank deposits (and to an extent company cash boxes), from where it is once more circulated to purchase productive-capital, or means of consumption by capitalists. But, looking at the circuit of money outlined in green, its clear, on the basis of what was said above, that the money hoards rather than being used to buy productive-capital, or to buy consumption goods, by capitalists, can be used to buy financial assets, such as stocks, bonds and property. In the circuit of capital, expanded reproduction means that capital itself expands as a consequence of the production process. Capital expands because more capital has been created. But, in the circuit of money, this is not necessarily the case. Money prices can rise, not because additional value has been created, but simply because additional money has been thrown into the circuit to chase after the same quantity of supply.

If, the number of shares or bonds in issue remains unchanged, if the amount of property remains the same, but additional money is put into circulation to purchase this supply, then the money prices of these financial assets will rise. In Part 3, I will examine, how that occurs according to Marx’s theory, and how it has happened in practice over the last 30 years.